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Funeral home fraud lawsuit: Former president, trustee ask court to dismiss Noble and Kelsey suit, file claims against each other

By Mark Wineka
mwineka@salisburypost.com
Attorneys for Tommy Hairston and Kathy S. Hill have each filed motions
for the court to dismiss a civil suit brought against them by Noble and
Kelsey Funeral Home.
Hairston and Hill also have answered allegations in the suit, denying
that they committed fraud and combined over a five-year period to drain
the business of hundreds of thousands of dollars.
At the same time, the defendants have filed crossclaims against each
other, should judgments go against them.
Hairston is the former president and general manager of Noble and
Kelsey; Hill, a former trustee.
Employed at the funeral home since 1977 and its lead director for 22
years, Hairston left Noble and Kelsey in June 2007 and opened Hairston
Funeral Home Inc. on South Main Street.
After the 2002 death of her husband, Dr. George Hill, Kathy Hill became
sole trustee of the trust that holds 99 of 100 outstanding shares of
Noble and Kelsey Funeral Home.
But in December 2007, Clerk of Court Jeff Barger removed Hill as a
trustee. He found that Hill failed to carry out her duties as a trustee
and followed conduct “to improperly enrich herself at the expense of
the trust, the beneficiaries of the trust and the corporation of which
the trust held 99 percent ownership.”
Noble and Kelsey Funeral Home’s civil suit followed in May.
It alleges Kathy Hill received at least $179,750 in “loans” and
$167,200 for “consulting” between 2003 and 2007. The total cash she
received, including $10,000 she paid to herself in June 2007, was
$346,950, according to the original suit.
Hairston and Hill acknowledge that Hill received numerous payments as
loans, for consulting and bonuses.
But in his crossclaim against Hill, Hairston indicates that the trust
established by the will of A.R. Kelsey gave him complete power to
manage all the affairs of the corporation, including the authority to
establish compensation, bonus and incentive plans.
The trust expressed the intent that the funeral home be managed in the
same manner it had during Kelsey’s life, Hairston says. In that
respect, he adds, Dr. George Hill was one of Kelsey’s best friends and
confidants and, during his lifetime, Kelsey had loaned Hill at least
$25,000.
When George Hill died Sept. 14, 2002, he was the trust’s sole trustee
and his own estate’s liabilities “grossly exceeded the assets,”
according to Hairston’s answer.
In July 2003, Kathy Hill sued Mercy Hospital in Charlotte and two
physicians for negligence in her husband’s death. The suit alleged that
doctors gave Dr. Hill a penicillin-related product despite the
patient’s warnings of his allergic reaction to penicillin.
Hairston claims that because of her husband’s untimely death and the
dire financial straits of the late Hill’s estate, Kathy Hill repeatedly
told him of “a substantial need for financial assistance” until her
lawsuit against Mercy Hospital was resolved.
Hill provided Hairston with a letter drafted by her attorney in the
wrongful death suit, “which verified that suit funds were forthcoming
and could be used to repay any funds provided to Hill.”
Hairston says he authorized and provided significant funds to Hill
based on her need for assistance, her expressed intent to repay all
loans, her apparent future ability to do so “and the firm belief that
A.R. Kelsey himself would have similarly made loans to Hill.”
Hill repeatedly assured him that all funds paid to her would be repaid,
Hairston’s answer says.
He adds that it is his belief she has repaid $15,000.
In her defense, Hill asserts that a trustee may borrow money and that
since no terms were created for when she had to repay the loans, the
obligation is not yet due.
Hill says she “reasonably relied on and followed” Hairston’s advice in
the administration of the trust.
As for receiving consulting money, she says in her answer that she
“provided consultation services to Mr. Hairston regarding the affairs
of Noble and Kelsey Funeral Home.” Hill also admits to receiving
“bonuses” from Noble and Kelsey Funeral Home.
The Noble and Kelsey suit claims that Hairston purposely damaged the
business while pursuing the goal of opening his own funeral home on
South Main Street. He denies that allegation.
Noble and Kelsey’s civil complaint also alleges that Hairston rang up
personal charges of $35,644 on the Noble and Kelsey American Express
credit card between June 2004 and June 2007.
The credit card charges included Direct TV monthly service, numerous
hotel stays, airline tickets, clothing, car repairs and other
merchandise, the suit alleges.
Hairston acknowledges the charges to the credit card but disputes the
total amount and nature of some of the charges.
In addition, the Noble and Kelsey lawsuit charges Hairston with
applying extensive salary and bonus proceeds paid to him toward the
establishment of his new funeral home and that he actively worked to
take clients away from Noble and Kelsey.
Hairston denies those allegations, including one that he paid himself
the high salaries and bonuses to deplete Noble and Kelsey’s assets. The
Noble and Kelsey suit put Hairston’s salary in 2006 at $210,121, up
from $81,472 in 2002.
Both Hill and Hairston acknowledge that Hill and her son were placed on
the Noble and Kelsey health insurance plan, even though Hill was not an
employee.
Hairston denies that he should have known it was improper to place Hill
on the funeral home’s health insurance plan. Both he and Hill also deny
that the health insurance costs were substantial and not repaid to the
funeral home.
Hill denies that she breached her fiduciary duties as a trustee by
allowing the payment of excessive salaries and bonuses to Hairston and
failed to adequately supervise Hairston.
She acknowledges that she never obtained a tax identification number
for the trust, never filed trust tax returns with the Internal Revenue
Service, never secured a fidelity bond or made required annual reports
to the clerk of court on time.
Hairston claims in his answer that A.R. Kelsey intended to give him
Noble and Kelsey Funeral Home in his will. But under “suspicious
circumstances and as A.R. Kelsey was in very ill health,” he changed
his will to create the trust, which would own the funeral home at his
death, Hairston says.
When Kelsey died, George Hill and Mrs. Winnell Short were designated as
trustees. Short stepped down, leaving George Hill as the only trustee
until his death and replacement by Kathy Hill.
Kathy Hill says that the trust, by its terms, was to terminate at the
death of Hairston if Kelsey’s daughter, Kimberly, was living. All the
principal and undistributed income was then to be paid to her.
According to the Noble and Kelsey suit, Kimberly Kelsey continually
made inquiries into the profitability of the funeral home and
petitioned the court to have an additional trustee appointed to serve
with Hill. Barger, the clerk of court, eventually appointed Dennis
Issacson, a certified public accountant as a trustee and instructed him
to review the trust’s operations, leading to Hill’s removal.
Both Hill and Hairston claim that all or part of Noble and Kelsey’s
claims should be barred because of the funeral home’s contributory
negligence and that it failed to commence the civil action within the
applicable statute of limitations.

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