Due Diligence Failure Costs Jacksonville Funeral Home

Due Diligence Failure Costs Jacksonville Funeral Home
A Natural State Funeral Service at 2620 W. Main St. in Jacksonville (Google Maps)

Joseph “Matt” Robinson still had questions before his 2015 purchase of the troubled funeral home Arkansas Funeral Care LLC of Jacksonville, but he went through with the deal anyway.

The decision would be costly.

Robinson is president of RPS Ventures Inc., which bought AFC’s assets in 2015 for $1.9 million. RPS had taken on some of AFC’s debts, but owed $1.5 million.

Robinson thought the purchase agreement included AFC’s $2.3 million worth of prepaid burial policies. He later learned that it didn’t, according to a July 2018 deposition taken as part of a lawsuit filed by AFC.

When RPS failed to pay the $1.5 million owed, AFC sued in Pulaski County Circuit Court in 2018 to collect. RPS filed a counterclaim alleging the purchase agreement contract should be tossed out for fraud and misrepresentation.

Pulaski County Circuit Court Judge Tim Fox agreed with AFC and awarded it $1.5 million in December. He ruled against RPS, which operates the business as A Natural State Funeral Service, on its counterclaim.

RPS Ventures’ attorney John Ogles of Jacksonville declined to comment, saying that he is considering appealing.

The case provides a cautionary tale for those thinking about buying a business.

In early 2015, problems were multiplying for AFC. Issues included a storage cooler that was jammed with bodies waiting to be cremated or embalmed. News outlets covered the conditions at the funeral home as AFC’s owners sought to sell the business.

A group led by Robinson emerged as potential buyers, according to court documents. The officers of RPS, which was incorporated in May 2015, are Robinson, who is the publications manager at Leader Publishing Co. and the president and funeral director of the funeral home; state Rep. Mark Perry, D-Jacksonville; Perry’s adult son, Logan Perry; and Stephen Savage of Little Rock, a CPA.

What attracted RPS to the purchase was AFC’s book of prepaid burial policies. In January 2015, the prearranged funeral contracts were valued at $3.2 million, Robinson said in a deposition filed as an exhibit in the lawsuit. But by the time the purchase closed in the summer of 2015, policyowners had moved about $1 million worth of policies to other funeral homes.

Robinson said that AFC’s owners — Ron Wood and his father, LeRoy Wood — told him before the sale that the remaining contracts “would automatically transfer to us” and the transfers would be easy. Robinson said he didn’t check that assertion with the Arkansas Insurance Department.

Making matters worse for RPS, there was no mention of the value of the contracts in the asset purchase agreement.

Ryan James, a spokesman for the AID, said prepaid funeral contracts aren’t assets of a funeral home. The policies “can be included in a sales agreement,” he said, but they don’t automatically transfer from one owner to the next.

Robinson said in the deposition that, leading up to the purchase, he wasn’t quite sure about the details involved in transferring the contracts. “It was muddy talking to [the Woods] … trying to get clarification on exactly how the transfer would take place,” he said.

Robinson said he asked them “several times” for clarification, but he never received it. Nevertheless, he went through with the purchase.

After the sale closed, Robinson said, he learned from the Arkansas Insurance Department that the prepaid contracts didn’t automatically transfer to the new funeral home. Robinson had to write each policyholder explaining that Arkansas Funeral Care had closed and they had the option to stay or transfer their burial policies to another funeral home.

“People, when they heard there were bodies stacked, they started moving policies,” Robinson said.

Only 663 people, with contracts worth $670,000, committed to stay with RPS, he said. “So the $2.3 million book of business we were sold that was going to be there to help pay off the debt wasn’t really there,” Robinson said.

AFC’s attorney, Greg Alagood of the law firm Mitchell Blackstock Ivers & Sneddon of Little Rock, said in his filing that pre-burial contracts “are always transitory in nature.”

Alagood said that his clients were happy with the ruling.