Indiana Attorney General’s Office Motions For Summary Judgment In Case Against Richard Kelly, Ashley Kelly, Leonne, LLC, Et Al

The Attorney General of Indiana’s Office filed a Motion for Summary Judgment in the Clinton Circuit Court on Monday, Sept. 16 in the case against Defendants Richard Kelly, Ashley Kelly, Leonne, LLC, Western Surety Company and RLI Insurance Company.

The motion stated that the Plaintiff, State of Indiana ex rel. Todd Rokita, Attorney General of Indiana, represented by counsel, Marielle Riedle, Deputy Attorney General of Indiana, requests the Court, pursuant to Indiana Rule of Trial Procedure 56, to enter summary judgment in favor of the Plaintiff.

The Plaintiff claimed that in accordance with the Trial Procedure 56(a), “the designated evidentiary matter shows that there is no genuine issue as to any material fact in dispute, and that Plaintiff is entitled to judgment as a matter of law.”

The Plaintiff also submitted a Memorandum of Law in support of the motion on Monday, Sept. 16, which included a Statement of Material Facts. In the statement, the Plaintiff cited the State Board of Accounts’ Audit Report, stating that pursuant to Indiana Code 5-11-1-9, the State Board of Accounts conducted an examination of the books, accounts and records of the Clinton County Sheriff’s Office, Jail Commissary, Clinton County, Indiana. A summary of the filings for the Audit Report may be found in the background information below.

According to the filing, “summary judgment is appropriate if the designated evidentiary matter shows there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.” The filing further stated that the purpose of summary judgment is to terminate litigation when no factual dispute is present and the case can be determined as a matter of law.

The argument presented in the memorandum firstly focused on establishing that the Defendants committed malfeasance, misfeasance and/or nonfeasance during the audit period. The memorandum states that malfeasance stands as “the doing of an act wholly wrongful or unlawful,” nonfeasance stands as “the omission to do an act at all, which the law requires the official to do” and misfeasance stands as “the doing of a lawful act in an unlawful manner, or (which is the same thing) the failure to do such an act in the manner prescribed by law.”

The memorandum also claimed that the State was entitled to pecuniary damages and audit costs. The State claimed that the pecuniary loss amount totaled $219,634.65 as checks claimed to be issued improperly to Leonne, LLC totaled $190,916.61 without the addition of the claims of improperly issued checks from the jail commissary fund for Ashley Kelly. The memorandum stated that “in this case, the Complaint alleges that checks were improperly issued from the jail commissary fund to Ashley for a total of $32,967.92, only $28,718.04 of the $32,967.92 was charged as that was the amount that had actually been deposited,” leading to the total of pecuniary costs being $219,634.65 as requested by the Plaintiff. The State Board of Accounts also requested a reimbursement for $109,725.82 attributed to Special Investigation Costs, leading the combined charge to total $329,260.47. According to the document, “Audit costs incurred because of poor records, nonexistent records or any other inadequate bookkeeping practices, or because of theft or shortage may be the personal obligation of the responsible official or employee.”

The memorandum claims that the creation of a “Commissary Services Contract” reportedly not signed nor approved by the county fiscal body and signed after the audit period “highlights the knowing and intentional nature of their actions,” the pending criminal charges for Conflict of Interest under Indiana Code 35-44.1-1-4 and the claimed “improper payments” to Ashley Kelly and Leonne, LLC constitute theft. The document defined theft as “a person who knowingly or intentionally exerts unauthorized control over property of another person, with intent to deprive the other person of any part of its value or use, commits Theft, a class A misdemeanor.”

As $219,634.65 was cited as the Plaintiff’s total for pecuniary damages, the Plaintiff continued to ask the Court to order an additional $439,269.30 in treble damages.

The Plaintiff stated that if the Court decides that a genuine issue of material fact may exist as to the damage amount or treble damages, which would not satisfy the terms of a summary judgment, the Plaintiff requests for a hearing to be set to determine the damage amount or treble amount.

The motion concluded with the Plaintiff requesting the Court to enter summary judgment for $219,634.65 in pecuniary damages, $109,725.82 in audit costs and an additional $439,269.30 in treble damages in favor of the Plaintiff or set a hearing on the matter.

The order for the motion was filed on Tuesday, Sept. 17 as the Court takes the motion under advisement for thirty days to permit the Defendants an opportunity to file a response.

No action has been taken by the Court in respect to the approval or denial of the summary judgement.

 

Background Information Derived from Audit Report Provided as Exhibit A in Motion for Summary Judgement:

According to the special investigation report filed as a part of the exhibits, the Indiana State Board of Accounts, SBOA, received a complaint regarding the Sheriff’s use of jail commissary funds, including a specific concern involving payments totaling $64,000 to Leonne, LLC, which reportedly led to an examination of associated financial records for the period beginning Jan. 1, 2018 through Sept. 30, 2021 as well as an examination of documents related to the business organization and bank statements for the period beginning Nov. 27, 2018 through Sept. 30, 2021.

The report issued by the SBOA outlined the audit’s findings, where the State Board of Accounts alleged that Sheriff Rich Kelly and Matron Ashley Kelly were involved with unauthorized payments alongside issues with conflict of interest and the Clinton County Nepotism Policy.

The report claimed that checks were issued from the jail commissary funds totaling $190,916.61 to Leonne, LLC and $32,967.92 to Matron Kelly from Jan. 1, 2019 to Sept. 30, 2021, for 50-percent of commissary profit on merchandise sales, with the remaining 50-percent of the profit reportedly being retained in the jail commissary fund for use by the Sheriff. The SBOA’s report, filed on Sept. 30, 2021, stated that $28,718.04 of the $32,967.92 of the checks issued to Matron Kelly had been presented for payment and verified by the file date.

The SBOA included in the report that Matron Kelly was requested to provide the contract for commissary services on Feb. 3, 2021, where a copy of a contract for commissary services between Nancy Ward and Sheriff Jerry Ward, dated Nov. 6, 2017, was presented where Kelly was not a party. The SBOA claimed that an unsigned and incomplete commissary contract was presented to the Clinton County attorney and referenced the Sheriff’s Office and Matron Kelly as the contracted parties. The SBOA stated that the contract was not signed by either of the Kellys nor a member of the Board of County Commissioners as well as missing the effective date.

The SBOA stated that while the Kellys were paid from the County General Fund with the compensation being included in the County’s salary ordinances approved by the County Council, the compensation paid to Matron Kelly via Leonne, LLC or to Kelly from the jail commissary fund was reportedly not included in the County’s salary ordinance or documented in a labor contract authorized by the County Council.

The Audit Report outlined the provisions set forth under Indiana Code 36-2-16-4, concluding that “it is our audit position that any payments for commissary manager services provided by Leonne or Ashley Kelly should have been supported by signed written contracts.”

The report continued to outline conflict of interest documentation, stating that neither of the Kellys filed a Conflict of Interest Disclosure Form to disclose their ownership interest in Leonne, LLC or to disclose their marital status. The SBOA reported that an examination of disbursements from the Leonne, LLC checking account indicated that the “Kellys’ household expenditures were paid directly from the Leonne checking account, including the purchase of a 2021 GMC Yukon Denali purchased and co-owned by Richard Kelly and Leonne, per the vehicle buyer’s order.”

The SBOA cited Indiana Code 35-44.1-1-4 to address the presence of “dependent” and “pecuniary interest” in the conflict of interest case as well as Indiana Code 5-7-3-4 that states, “It shall be unlawful to charge, tax up or receive, or permit to be charged, taxed up or received, under claim or color of office or official right, any fee or sum of money for or on account of services that were not actually executed and rendered,” to address the lack of documentation or information presented to entitle Sheriff Kelly to be compensated for commissary services.

In the report, the SBOA stated, “It is our audit position that the payments to Leonne and Ashley Kelly violated the County’s nepotism policy under the Clinton County Employee Handbook, effective as of January 1, 2019” that reportedly stated that employees who are relatives of an Elected Official or Department Head may not be employed by the County in a position that results in one relative being in the direct line of supervision of another relative, which included “spouse.”

The report detailed how the Kellys signed under penalty of perjury a “Verification of Applicant for Employment for Compliance with the Clinton County Nepotism Policy” on Dec. 21, 2018, which states,

I, [Richard][Ashley] Kelly, have reviewed the direct line of supervision for the position I am seeking … and I am not a relative of any employee who will be in my direct supervision in the position of [Sheriff][Matron]. I understand that Relative means my spouse…

The SBOA cited that Indiana Code 36-1-20.2-13 allows for the County Sheriff to employ his spouse as the jail matron and also cited that Indiana Code 36-1-20.2-9 authorizes the County to adopt a more restrictive nepotism policy. The SBOA stated that effective Jan. 1, 2019, the County had a nepotism policy more restrictive than the Indiana Code, which barred the appointment or employment of the Sheriff’s spouse as jail matron.

The SBOA requested an additional repayment of $109,725.82 in audit costs for the investigation alongside $219,634.65 of “pecuniary loss.”

Tonya Bond, representing the Kellys and Leonne, LLC in the filings, submitted an official response to the Audit Report on Nov. 12, 2021. Bond stated that the investigation included the Federal Inmate Fund, the Inmate Trust Fund, the Work Release Fund, the Commissary Fund and the Sheriff’s Office Trust Fund, stating that “all monies were accounted for in each of these funds.”

Due to the statement, Bond concluded that:

The main issues, instead, relate to two perceived administrative deficiencies in how the Sheriff’s Office was paying its Commissary Manager from the Commissary Fund: (1) there was not a written contract to pay the Commissary Manager; and (2) there was not a conflict disclosure on file to identify that the Sheriff’s wife, Ashley Kelly, was the Commissary Manager being paid from the Commissary Fund.

Bond stated that the Commissary Fund contains no tax dollars or county general funds, continuing to state that “Indiana law provides that the Sheriff or his designee has the sole discretion to disburse funds from the Commissary Fund to operate the commissary, including paying someone to maintain it. The Sheriff did not need a written contract to make disbursements.”

Bond continued to state that, in terms of the conflict disclosure, the conflict was disclosed and intentional concealment was not present. Bond stated that the Sheriff’s Office “relied” on the County Attorney to prepare the Commissary Manager contract and the conflict disclosure form, “as the County Attorney had done with previous administrations and communicated to Sheriff Kelly he would do again.” In the response, Bond claimed that the County Attorney did not complete the filings. Bond further claimed that the Kellys formed a limited liability company, Leonne, LLC, on advice of their accountant to take in commissions paid to the Commissary Manager.

Bond included in her argument that an oral contract had been formed to permit Matron Kelly to receive 50-percent of the profit from the sale of commissary merchandise, citing that the Commissary Manager had been paid half of the commissary profit dating back to March 7, 2011, which included the contract cited in regard to Sheriff Ward by the SBOA. Bond further stated that “in an effort to cure the perceived deficiency, the Sheriff’s Office has entered into a written contract between the Sheriff’s Office and Leonne, LLC and/or Ashley Kelly with a retroactive date of January 1, 2019.”

Bond continued to argue that the SBOA’s cited Indiana Code 36-2-16-4(4) in relation to the salary ordinance does not apply to the case, and she instead proposed Indiana Code 36-8-10-5(a), which provides the Sheriff the right to appoint a Matron. Bond stated that the guideline cited by the SBOA clarifies that “all compensation and benefits paid to officials and employees must be included in the labor contract, salary ordinance, resolution or salary schedule adopted by the governing body unless otherwise authorized by law.” Bond stated that the Matron salary should be included in the county salary ordinance, but she further stated that the commissary statute “provides that the Sheriff can pay for personnel from the Commissary Fund, which is outside of the general fund and not subject to any salary ordinance,” which was claimed to include the Matron position as well as the Commissary Manager.

Bond addressed the nepotism claims by stating that Matron Kelly served in an appointed position, which she claimed was not included in the nepotism policy. She cited the handbook, stating “employed means an individual who is employed by the County on a full time, part time, temporary, intermittent, or hourly basis. This term does not include an individual who holds only an elected office. The term includes an employee who is a party to an employment contract with the County.” Bond further stated that since the Matron position is appointed and the Commissary Manager is a third-party contractor, the positions do not meet the County’s definition and the “Verification of Applicant for Employment for Compliance with the Clinton County Nepotism Policy” should not have been signed.

Bond addressed the “household expenditures” purchased by Leonne, LLC by stating that Matron Kelly became the sole owner of the business, and the Denali was only signed by Sheriff Kelly on behalf of the business when he was an owner.

Bond addressed the addition of reimbursement for special investigation costs by stating that the costs were “unnecessary and are excessive.”

 

Article Published by Carl Gingerich Regarding Initial Filing by the Attorney General’s Office on May 13, 2023:

The Indiana Attorney General’s Office continues to seek the recovery of $330,000 in taxpayer funds under the Crime Victims Relief Act through a case involving Sheriff Rich Kelly and Matron Ashley Kelly.

The case was originally filed on March 30, 2023 by Attorney General Todd Rokita, Plaintiff, against Ashley Kelly, Richard Kelly, Leonne LLC, RLI Insurance Company and Western Surety Company, Defendants. The filings followed a special investigation by the Indiana State Board of Accounts that reported the Kellys received $219,634.65 through Leonne LLC, a limited liability company launched by the duo two months prior to Sheriff Kelly’s first term in office.

The Attorney General’s original complaint accused the Kellys of misappropriating funds through Leonne LLC, which saw Matron Kelly owning 51% of the company while Sheriff Kelly owned 49% of the company.

“Plaintiff seeks to redress harm done to the public welfare, the property of the State of Indiana (“State”), and the property and funds of the Clinton County Sheriff’s Office, Jail Commissary, Clinton County, Indiana, which resulted from the misappropriations and diversions of public funds by the Defendants, Richard Kelly, Ashley Kelly and/or Leonne, LLC,” the initial complaint reads.

The complaint outlined four counts against the Defendants, including one count of malfeasance, misfeance and/or nonfeasance, one count of treble damages pursuant to Indiana’s Crime Victims Relief Act, one count of unjust enrichment, one count of surety liability for Western Surety Company and one count of surety liability for RLI Insurance Company.

The state is seeking $329,360.47, which includes the jail commissary money alongside costs associated with the special investigation. The State also seeks treble damages. The complaint states that treble damages may be sought if a pecuniary loss has occurred against a person or persons. According to the complaint, the Attorney General’s Office alleges that “Clinton County suffered a pecuniary loss as a result of a violation by Richard Kelly, Ashley Kelly, and/or Leonne LLC.”

A civil case may be brought forth by a person or persons in an amount not to exceed three times the actual damages or loss, for court costs, for reasonable attorney fees and for other miscellaneous costs and expenses according to the complaint.

Special Judge Thomas R. Lett was appointed to the case as Tipton Circuit Court assumed jurisdiction after the recusal of the previous judge, which was reported on April 21 with an assignment on April 25.

The Attorney General’s Office stated that an official statement regarding the case had not been cemented and elected to not provide comment at this time. However, the office elected to highlight key portions of the complaint specifically aligning with its case, which fall under count one of malfeasance, misfeasance and/or nonfeasance, focusing heavily on the Sheriff’s role in hiring Matron Kelly.

Richard and Ashley Kelly each signed under penalties of perjury that they would not violate nepotism laws, which included any local ordinances. Richard Kelly, as the Sheriff for Clinton County Sheriff’s Office, was responsible for upholding the laws of the State and local government and complying with guidelines, rules and regulations promulgated by Clinton County and the SBOA.

• Richard and Ashley Kelly failed to properly disclose their ownership interest in Leonne, LLC.
• Richard and Ashley Kelly failed to properly disclose their marital status on conflict disclosure forms.
• Hiring Ashley Kelly as the jail matron violated Clinton County’s anti-nepotism policy.
• Hiring Ashley Kelly as the commissary manager violated Clinton County’s anti-nepotism policy.

As disclosed in the Audit Report, Richard Kelly, as Sheriff, made disbursements from the Jail Commissary Fund that were neither authorized nor approved by Clinton County, and were made in violation of various State and local statutory and common laws, and rules and regulations of Clinton County and SBOA.

Sheriff Kelly refused to comment on the case filed by the Attorney General’s Office and the criminal case set for trial in November and elected to focus on programs through the Sheriff’s Office instead.

“I will not speak of anything currently in litigation,” Kelly said. “I am going to focus on moving forward with the positive points in our county, SRO programs, hiring four merit deputies, two this month and two in the next six weeks.”