Attorneys settling Edward Heard suit against Hatcher-Stubbs, ex-partner

Attorneys are settling a $25 million lawsuit that former Columbus automobile mogul Bill Heard Jr.’s son Edward Heard filed against the Hatcher-Stubbs law firm and one of its former partners, authorities said Monday.

The suit was expected to go to trial Monday in Muscogee Superior Court Judge William Rumer’s Government Center courtroom, but court officials over the weekend were notified the case would not be tried because a settlement was in the works.

No settlement was filed with the court on Monday, however.

Heard’s suit against Hatcher, Stubbs, Land, Hollis & Rothschild and former partner J. Barrington Vaught alleged legal malpractice, breach of fiduciary duty and breach of trust. It sought actual damages up to $25 million along with punitive damages and attorney fees.

The defendants denied the charges, and asked that the case be dismissed with prejudice so the plaintiff bore all the costs.

A previous lawsuit was filed in 2011 in Houston, where Heard lives, but was dismissed as having been filed in the wrong jurisdiction. The current lawsuit was filed in September 2013.

At issue is an irrevocable trust that Bill Heard Jr. and his wife, Sarah, set up for Edward Heard, identical to one established for his brother Bill Heard III. The trusts, according to the lawsuit, consisted primarily of life insurance policies on both parents.

Each son’s trust had a $15 million policy on their father and a $10 million policy on their mother, making each worth at least $25 million upon the parents’ deaths.

The trusts were drafted in 1996 by Hatcher Stubbs partner John Sheftall, according to the complaint, but Vaught later became the firm’s trustee for the trusts.

The premiums for the policies initially were paid by Bill Heard Enterprises, which operated the automotive empire Bill Heard Jr. once owned, but a change in tax law in 2003 altered that arrangement, the suit said. At that point, promissory notes to Bill Heard Enterprises were extended from the trusts for the amount of the premiums it had paid. Henceforth, premiums were paid out of the cash value of the insurance policies, the suit stated.

In 2008, Bill Heard Enterprises declared bankruptcy and went out of business, and a creditors’ committee sought to collect on the promissory notes from both brothers’ trusts, the suit said. The trusts were marketed in an attempt to raise the money to pay the creditors, but that failed.

Vaught, according to the suit, then advised both brothers that they should surrender the policies to the committee for their cash value.

Bill Heard III changed lawyers, the suit said. His new lawyer, not identified in the suit, recommended he borrow against the value of the policy and supplement that with personal funds to raise the approximately $1.4 million value of the policy to pay the committee, according to the suit.

Bill Heard III was able to retain his trust, the suit said.

Edward Heard stayed with Vaught and the law firm, according to the lawsuit:

“Vaught represented to plaintiff (Edward) Heard that he could not discuss any other option to pay the policy premiums because the bankruptcy court had ordered him to cash in the policies.”

The suit continued:

“In reality, what Vaught told plaintiff Heard about a bankruptcy court ‘order’ to cash in the policies was not true. At no point did the bankruptcy court order the policies to be surrendered. Rather, a demand was made by the creditors’ committee for an amount equal to the cash surrender value, which was approximately $1.4 million as of the spring of 2009.”

Edward Heard’s suit contended the defendants breached their fiduciary duties “by advising plaintiff Heard to surrender the life insurance policies in Edward’s trust when other viable options remained available to plaintiffs, and by surrendering the policies.”

The suit also claimed Vaught further breached his fiduciary duties “by negotiating a fee with the creditors’ committee in BHE’s bankruptcy without first disclosing such negotiations to plaintiff Heard, thereby putting his own interests ahead of those of Edward’s Trust and of plaintiff Heard as beneficiary of the Trust.”

The suit claimed those actions also constituted a breach of trust.

In separate but similar answers to the suit, Vaught and Hatcher Stubbs denied all of the allegations.

The lawsuit might have gone away for a fraction of the $25 million value of Edward Heard’s trust, according to documents filed in the case.

At some point in late 2014 or early 2015, lawyers for Heard apparently offered to settle the lawsuit for $5 million, which was the limit of the law firm’s insurance policy covering such cases, according to a motion filed by his lawyers in June.

The offer was a “time limited settlement demand on defendants’ counsel offering to settle all of plaintiff’s claims against defendants for what was represented to be the defendants’ (insurance) policy limits of $5 million,” the motion stated.

The original deadline to respond to the offer was Feb. 6, 2015, but the defendants asked for and were granted a 10-day extension because the insurance carriers “would like additional time to respond,” the motion said.

At 4:45 p.m. on Feb. 16, the final day of the offer, “plaintiffs’ counsel received a fax from defendants’ counsel rejecting plaintiffs’ time limited demand.”

In a subsequent letter from W. Winston Briggs, attorney for Edward Heard, to Eric Frisch, attorney for Vaught, Briggs stated his intention to take the case to trial and to “seek a large collectible excess verdict.”

“As hard as it is to believe, this case has gotten even worse for your clients/insurance carriers since they rejected our time limited settlement demand,” Briggs wrote.

Briggs said in a deposition that Steve Dansker of American General Insurance testified he helped Bill Heard III keep his insurance policies and that “any competent insurance professional” would have known to do the same.

Briggs wrote that Dansker further testified that there were “multiple other alternatives” that would have maintained Edward Heard’s policies and that it was “financially irresponsible” to surrender them.

Briggs further said that Dansker testified that he had spoken to Vaught at the time and advised him that it would not be in the Heard brothers’ best interest to surrender the policies.

“This case continues to get worse and worse for your clients,” Briggs wrote.

This story was originally published November 2, 2015 at 8:14 PM with the headline "Attorneys settling Edward Heard suit against Hatcher-Stubbs, ex-partner."