The opinion of the court was delivered by: E. Richard Webber Senior United States District Judge
This matter comes before the Court on Plaintiffs' Motion for Preliminary Injunction Freezing Assets of Specified Defendants [doc. #405].*fn1
This litigation arises out of proceedings instituted by the Texas Department of Insurance in Travis County, Texas, in which National Prearranged Services, Inc. ("NPS"), Lincoln Memorial Life Insurance Company ("Lincoln"), and Memorial Service Life Insurance Company ("Memorial") were placed in receivership and are currently in the process of being liquidated. Plaintiffs in this litigation are Donna J. Garrett, acting on behalf of NPS, Lincoln, and Memorial as Special Deputy Receiver ("SDR") in connection with the Texas receivership proceedings, The National Organization of Life and Health Guaranty Associations ("NOLHGA"),*fn2 and the individual state life and health insurance guaranty associations of Arkansas, Illinois, Kansas, Kentucky, Missouri, Oklahoma, and Texas. These individual guaranty associations, as well as those represented by NOLHGA, are statutory entities created by state legislatures to provide protection for resident policyholders in the event that a member insurance company becomes insolvent. Plaintiffs represent that these state guaranty associations have been assigned or subrogated to the claims of funeral homes and consumers arising out of dealings with NPS through (1) each state guaranty association's enabling act; (2) the NPS / Lincoln / Memorial Liquidation Plan approved by the Texas Receivership Court on September 22, 2008; or (3) express assignments received from recipients of death benefits paid by a state guaranty association.
Prior to the institution of the Texas proceedings, NPS was in the business of selling preneed funeral service contracts, sold to consumers through funeral homes, and Lincoln and Memorial were issuers of life insurance policies. NPS marketed its pre-need contracts by assuring consumers that funds paid to NPS would be secured in pre-need trusts and backed by whole life insurance policies issued by Lincoln or Memorial for the full amount of the contract, so that the necessary funds would be available when the pre-need beneficiary died and the funeral home's claim became due. In accordance with state law, this was accomplished in certain states by requiring the purchaser to simultaneously apply for a life insurance policy issued by Lincoln or Memorial in an amount corresponding to the amount of the pre-need contract, and in other states, the pre-need trust itself purchased the life insurance policies.
There are over forty defendants named in Plaintiffs' Complaint, with varying degrees of alleged involvement in what Plaintiffs characterize as a scheme to defraud individual consumers and funeral homes in the sale of NPS's pre-need funeral contracts, with the ultimate goal of siphoning funds away from NPS, Lincoln, and Memorial for the personal use of certain defendants, and with the effect of leaving more than $600 million in liabilities to be satisfied by the SDR and the state life and health guaranty association Plaintiffs. The principal focus of Plaintiffs' claims is a group of defendants consisting of (1) Doug Cassity, Tyler Cassity, Rhonda Cassity, and Brent Cassity ("the Cassity Defendants"), the beneficial owners of NPS, Lincoln, Memorial, and a number of affiliated entities through the RBT Trust II -- a family trust of which Doug Cassity is the settlor and the Cassity Defendants are the sole beneficiaries; (2) certain officers and employees of the Cassity-controlled entities; (3) a number of attorneys and law firms engaged by those entities; and (4) several of those entities themselves. Plaintiffs allege that the RICO Defendants defrauded and conspired to defraud NPS's individual and funeral home consumers by, among other things:
(1) not revealing to NPS employees, funeral homes, or consumers that Lincoln and Memorial, as issuers of the life insurance policies intended to fund the pre-need contracts upon the death of the purchaser, were not independent of NPS, and that Lincoln, Memorial, NPS, and the Cassity Defendants were not independent of each other;
(2) in states in which the purchaser of the pre-need contract applied for the life insurance policy directly, altering policy applications to indicate that the policy was to be paid for in installments, when in fact the purchaser had paid the full amount of the policy in full, so that NPS would only be required to deposit the first installment into a pre-need trust, with the remainder of the amount then ultimately diverted to the RICO or Cassity Defendants through various Cassity-controlled entities, including NPS, Lincoln, and Memorial;
(3) in states in which the pre-need trusts purchased the life insurance policies, purchasing installment policies with monthly payments when the consumer paid for the pre-need contract with a single payment in full, likewise in order to avoid depositing the entire policy amount into a pre- need trust and to siphon the remaining funds to the RICO or Cassity Defendants; (4) altering life insurance policy applications to indicate that NPS was the owner or beneficiary of the policy, in order to allow NPS to take out loans on the policies from Lincoln or Memorial, and then denying that NPS had taken out any such loans in response to inquiries from funeral homes; (5) directing NPS to stop paying premiums to Lincoln on whole life policies and surrendering whole life policies for their cash value, with the effect of reducing NPS's obligations to Lincoln and allowing NPS to retain a greater percentage of funds received from consumers in exchange for the pre-need funeral contracts; (6) removing funds from the NPS pre-need trusts in exchange for the issuance of promissory notes or debentures, with repayment only occurring through book entries unsupported by actual transactions or through the temporary shifting of funds between various entities controlled by the RICO Defendants; and (7) engaging in "roll-over" transactions with funeral homes, whereby a funeral home would agree to transfer its existing pre-need contracts to NPS and remit to NPS the balance of its trust funds from those contracts, with NPS then using the above-described tactics with whole life insurance policies issued by Lincoln to avoid placing as much as possible of the "roll-over" funds into a pre-need trust, and diverting the remainder to the RICO or Cassity Defendants.
Based on these allegedly wrongful actions, Plaintiffs assert a wide variety of claims against the RICO Defendants, including but not limited to claims for violations of the Racketeer Influenced and Corrupt Organizations ("RICO") Act, 18 U.S.C. §§ 1961-1968, violations of the Lanham Act, 15 U.S.C. §§ 1051-1141n, state law claims concerning intentional and negligent fraudulent misrepresentations, and violations of the Texas Receivership Act, Tex. Ins. Code §§ 443.202-443.205. Plaintiffs assert additional claims related to allegedly fraudulent transfers between Cassity-controlled entities against another set of Defendants (collectively, "the Fraudulent Transfer Defendants"), consisting of some of the RICO Defendants as well as certain additional Defendants. Plaintiffs also bring another set of claims arising out of the removal of funds from the pre-need trusts through the issuance of promissory notes and debentures against yet another defined group of defendants ("the Promissory Note Defendants"), some of which are likewise RICO or Fraudulent Transfer Defendants.
In the Motion currently before the Court, Plaintiffs seek a preliminary injunction against Defendants Douglas Cassity, Rhonda Cassity, Brent Cassity, Tyler Cassity, Howard Wittner ("Wittner") in his capacity as trustee of RBT Trust II, Rhonda Cassity, Inc. a/k/a Wellstream, Inc., National Heritage Enterprises, Inc. ("NHE"), Lincoln Memorial Services, Inc. ("LMS"), Forever Enterprises, Inc.("Forever Enterprises"), Forever Network, Inc. ("Forever Network"), Legacy International Imports, Inc. d/b/a Triad ("Legacy International"), Hollywood Forever, Inc. ("Hollywood Forever"), Texas Forever, Inc. ("Texas Forever"), Brentwood Heritage Properties, LLC ("BHP"), Forever Illinois, Inc. ("Forever Illinois"), and National Prearranged Services Agency, Inc. ("NPS Agency") (collectively, for purposes of this Memorandum and Order, "Defendants"), enjoining Defendants from, among other things, selling, encumbering, or otherwise transferring any asset in which they have an ownership interest without Court approval. In addition to the claims mentioned above, Plaintiffs also assert equitable claims against these Defendants for unjust enrichment, money had and received, and for imposition of a constructive trust. Plaintiffs assert that Defendants have been unjustly enriched at the expense of Plaintiffs, and those parties whose interests Plaintiffs represent, and that injunctive relief is necessary to prevent Defendants from dissipating and attempting to dissipate assets acquired with funds misappropriated from NPS pre-need trusts.
II. EVIDENCE PRESENTED AT THE PRELIMINARY INJUNCTION HEARING
Plaintiffs focus on five topics -- five categories of allegedly improper transactions involving Defendants -- to convince the Court that Defendants have unjustly enriched themselves and that preliminary injunctive relief is warranted: (A) transfers of funds out of pre-need trusts for the benefit of Defendants, culminating in the RBT Trust II's*fn3 purchase of the Professional Liability Insurance Company of America ("PLICA"); (B) purchases of real estate in Nantucket, Massachusetts; ( C) NPS's payments of certain Defendants' credit card bills; (D) acquisition and funding of Hollywood Forever; and (E) NPS's related party receivables -- i.e. sums owed to NPS by ...