After four and a half weeks of trial in the Santa Barbara Superior Court, Los Angeles partners Theresa Kristovich and David Jones prevailed on a judgment of nonsuit in favor of their clients, an individual financial advisor and his company, whom Gordon & Rees was hired to represent shortly before the scheduled trial. Plaintiffs' demand at the Mandatory Settlement Conference was nineteen million dollars. Associates Eleanor Welke and Hilary Feybush also assisted in preparation of the case.
This complex matter centered around Plaintiffs’ adoption of a Financial Independence Plan ("FIP") which was an investment vehicle created by Defendants that called for establishment of a "donor advised fund" at a 501(c) charitable organization (in this instance, National Heritage Foundation ("NHF")) to permit tax deductions for insurance premiums paid on charitable split dollar life insurance policies. At the time Plaintiffs established their FIP, they admittedly received a tax opinion from Defendants which disclosed the fact that there was a split in authority as to whether this type of tax savings program would ultimately survive. In fact, it did not when Congress disallowed the tax deductibility of this type of investment. The basis for Plaintiffs’ claimed losses was the fact that they had sold the subject split dollar policies and placed the proceeds directly at NHF; that NHF had used the proceeds as collateral for loans; and that the monies were lost when NHF declared bankruptcy following an adverse judgment against it. Through extensive cross examination of Plaintiffs and their witnesses, the defense showed that the FIP actually provided Plaintiffs with significant tax benefits (which were never lost); that contrary to Plaintiffs’ claims they had never made charitable contributions while the FIP was actually in place; that it was their decision on the advice of their own counsel and accountants to cash out the charitable split dollar policies and place the proceeds at NHF; and that contrary to Plaintiffs’ claims the Defendants had not conspired with NHF or the tax lawyer who originally drafted the legal opinion concerning the viability of charitable split dollar investments such as the FIP nor did the Defendants have any knowledge of NHF’s financial circumstances or NHF’s use of Plaintiffs’ monies to collateralize loans nor any knowledge of NHF’s intent to declare bankruptcy.
In granting a nonsuit upon the close of Plaintiffs’ case, the Court specifically stated that she had sat as the 13th juror and that Plaintiffs had failed to prove their case; that the FIP was a good and viable product when Plaintiffs’ adopted it; that the Defendants were not responsible for the actions of Congress in disallowing this form of insurance as a tax savings device; and that Defendants could not be held responsible for NHF's declaring bankruptcy or Plaintiffs’ loss of their substantial investment as a result.