CLA Estate Services, Inc. and CLA USA, Inc. earned millions deceptively selling estate-planning services and annuities to Washington seniors
OLYMPIA — Following trial in Attorney General Bob Ferguson’s lawsuit against CLA Estate Services, Inc. and CLA USA, Inc., a King County Superior Court judge ruled that the companies must pay a total of more than $6.1 million plus 12 percent annual interest to 1,100 Washington seniors for misleading them about estate planning and other deceptive conduct. The company must also pay $6.5 million in civil penalties, which by law will go to the state general fund. The court also ruled that CLA must pay the Attorney General’s Office more than $1.8 million in attorney’s costs and fees.
In his findings and conclusions following the trial, the judge stated, “CLA used scare tactics to instill fear in seniors that they would be left vulnerable and their families unprotected unless they purchased CLA’s Lifetime Estate Plan and set up revocable living trusts, which in turn gave CLA agents access to their living rooms and their assets to aggressively market complex annuities.”
CLA must make restitution payments to Washingtonians ranging from $450 to approximately $80,000, plus interest. The judge ordered CLA to pay each consumer 12 percent annual simple interest starting at the time the consumer purchased a CLA product. For example, CLA is required to pay $1,200 in interest to a consumer who purchased an estate plan from CLA for $1,000 ten years ago — for a total of $2,200. The Attorney General’s Office estimates the interest CLA must pay Washingtonians totals more than $4 million.
CLA now has 30 days to appeal the judge’s ruling.
Critically, in addition to the historic monetary judgment, the court ordered CLA to stop its “trust mill” scheme. CLA cannot misrepresent Washington’s probate or trust law to consumers. If the company sends representatives to consumers’ homes, it must disclose that the representatives are licensed insurance agents working on commission who will market annuities and other products during the meetings. CLA must obtain written consent from the consumer for such marketing practices.
The $14.5 million represents the highest ever trial award in a Washington state consumer protection case brought by the Attorney General’s Office. While the Consumer Protection Division has recovered larger awards from multistate settlements and pre-trial judgments, a smaller number of cases are decided after a full trial. Prior to the judgement against CLA, the largest total consumer protection trial award was the $9.1 million penalty awarded against Comcast.
“CLA’s ‘trust mill’ scheme preyed on vulnerable Washington seniors,” Ferguson said. “The company used scare tactics to gain seniors’ trust and make millions. Thanks to our lawsuit, CLA can no longer exploit Washingtonians and must pay them back for its unlawful conduct.”
In March 2018, Ferguson filed a lawsuit against CLA for operating a “trust mill” by misleading hundreds of Washington seniors about estate planning to persuade them to purchase high-commission insurance products. CLA held misleading estate-planning seminars and deceptively sold estate-planning packages, called “Lifetime Estate Plans.”
Rather than acknowledge its conduct and take responsibility, an attorney for CLA issued a statement to the press that, “The CLA companies are long-standing and legitimate businesses, who care about their customers, have done so for many years and plan to do so for many more…CLA has always been transparent that it will offer its customers insurance products to meet their financial goals.” The attorney’s statement said that CLA planned to “seek the appropriate reimbursement for the defense of this action.” In fact, CLA is now required to reimburse the Attorney General’s Office for the costs of bringing this lawsuit.
Texas-based CLA Estate Services, Inc., and CLA USA, Inc. invited seniors in Washington to attend free workshops about estate planning, which included a complimentary meal. During these “free lunch” workshops, CLA salespeople misrepresented Washington probate procedures in order to encourage participants to set up living trusts and buy CLA’s “Lifetime Estate Plan” packages.
The “Lifetime Estate Plan” packages included a referral to an attorney and annual in-home estate plan “review meetings.” During these meetings, insurance agents would visit seniors’ homes under the guise of reviewing seniors’ estate plans. After reviewing estate documents and obtaining detailed financial information, agents tried to persuade seniors to move money into annuities that generated high commissions for CLA.
CLA promoted these in-home meetings as opportunities to ensure estate documents were up to date, but sent insurance agents, who were paid almost entirely by commission, to conduct the meetings. The meetings gave the insurance agents access to consumers’ homes to make sales pitches for high-sales commission products, like annuities, which are highly complex and can carry hefty penalties if consumers withdraw too early. These products made CLA millions in commissions at substantial cost to consumers.
Details of the ruling
The court ruled that CLA violated the Consumer Protection Act by deceptively marketing estate planning packages that included in-home “review meetings” with seniors without adequately disclosing that those meetings would be conducted by insurance agents paid by commission. CLA also violated the Estate Distribution Documents Act by marketing estate distribution documents without a license to practice law in Washington.
As part of the court’s order, CLA must pay Washingtonians more than $6 million in restitution for the money it made as a result of its illegal practices. The order requires CLA to refund approximately 1,100 Washingtonians amounts they paid for CLA’s Lifetime Estate Plan, which ranged from $795 to $3,145. In addition, the order requires CLA to pay approximately 380 consumers amounts CLA made in commissions on sales of annuities and other insurance products, which ranged from $450 to about $80,000 per consumer.
The judge ordered CLA to pay each consumer 12 percent annual simple interest based on how long ago and for how much a consumer purchased one of these products. This amount will vary from consumer to consumer. The court’s order requires CLA to provide reports about the payment process to Attorney General’s Office every 30 days. Attorney General’s Office will monitor the process to ensure CLA complies with the order.
The $6.5 million in civil penalties will go to the state general fund. Since January 2013, the Attorney General’s Office affirmative litigation divisions have recovered more than $725 million for Washingtonians and state and tribal governments. In the 17 years prior to 2013, the office took a single case to trial. The office generally did not have the resources to take large cases to trial. Since 2013, the office has taken four consumer protection cases to trial — winning each one. Those trials are 5-Hour Energy, Comcast, Value Village and now CLA.
“He tied up every penny I had”
Annuities are complex and can be detrimental for some consumers. For example, annuities can carry hefty penalties if funds are withdrawn too early. At trial, several consumers testified about their experiences with CLA agents, including their high-pressure sales tactics and failure to disclose the annuities’ penalties for withdrawal.
- One Washingtonian testified during trial that a CLA agent falsely claimed she would make seven percent interest per year, and failed to inform her that she would be charged a substantial penalty if she withdrew funds from her annuity. “He tied up 100 percent of my money… He tied up every penny I had. Every penny. He didn’t leave me one account for me to be able to get into without penalty.”
- A Longview man testified that a CLA sales agent repeatedly tried to pressure him into moving money from his retirement account into an annuity, to the point that he would walk out of meetings with the agent in frustration.
- A Port Orchard woman reported that CLA did not inform her she would be charged a rider fee on her annuity and that she lost some of her retirement savings as a result.
- One consumer found that a CLA agent included false information about her assets on her annuity applications. She testified that many of the signatures on her annuity applications were not hers.
- Another consumer told the court that she lost $16,000 as a result of an annuity CLA sold to her.
In testimony during the trial, Craig McCann, Ph.D., an expert financial analyst, said the annuities CLA sold to Washingtonians were among the most complex investments he had ever seen and would be difficult for any investor to understand. He said the products had extraordinarily high commissions that were not disclosed to consumers, and their value was generally less than consumers paid for them.
“No fully informed consumer who understood this product would ever purchase it,” McCann said at trial. “I rarely, in 30 years as an expert witness, have been able to say that there is a zero chance, but I feel confident that there is a zero chance that a fully informed investor would ever purchase one of these.”
Since 2009, CLA conducted more than 700 “free lunch” seminars, attended by more than 11,000 Washingtonians. In Washington alone, the company sold more than 1,100 Lifetime Estate Plans earning CLA more than $2.5 million. Additionally, CLA sold nearly 600 annuities and life insurance products earning CLA more than $3.5 million in commissions.
In August 2018, Ferguson won a statewide preliminary injunction that prevented CLA Estate Services from holding estate-planning seminars in Washington, marketing or gathering information for estate planning documents, marketing annuities or other insurance products to CLA clients, and unfairly or deceptively marketing annuities or other insurance products to any Washingtonians.
Although CLA said that it largely stopped operating nationwide after this lawsuit was filed, CLA’s owners now operate similar businesses outside Washington under the business names Eagle Estate Services, Inc., and Eagle Financial Group.
Assistant Attorneys General Cindy Alexander, Audrey Udashen, Aaron Fickes, and Dan Davies are handling the case for the Attorney General’s Office.
The Attorney General’s Office Consumer Protection Division enforces the Consumer Protection Act and other statutes to help keep the Washington marketplace free of unfair and deceptive practices. The division investigates and files legal actions to stop unfair and deceptive practices, recovers refunds for consumers, seeks penalties and recovers costs and fees to ensure that wrongdoers pay for their actions.
Consumers may report any unfair or deceptive business practices to the Consumer Protection Division by filing a complaint at https://www.atg.wa.gov/file-complaint.
The Office of the Attorney General is the chief legal office for the state of Washington with attorneys and staff in 27 divisions across the state providing legal services to roughly 200 state agencies, boards and commissions. Visit www.atg.wa.gov to learn more.
Brionna Aho, Communications Director, (360) 753-2727; Brionna.firstname.lastname@example.org
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