BROKEN TRUST
Greed, Mismanagement & Political Manipulation
at America’s Largest Charitable Trust


 

Sightings from The Catbird Seat

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Excerpts from the book

BROKEN TRUST

By Samuel P. King & Randall W. Roth

© 2006, by University of Hawaii Press

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Princess Bernice Pauahi Bishop was the richest woman in the Hawaiian kingdom. Upon her death in 1884, she entrusted her property – known as Bishop Estate – to five trustees in order to create and maintain an institution that would benefit the children of Hawaii: Kamehameha Schools. A century later, Bishop Estate controlled nearly one out of every nine acres of private land in the state. … In 1995 the Wall Street Journal called it the nation’s wealthiest charity … Then in August 1997 the unthinkable happened: four kapuna revered in the native Hawaiian community and a professor of trust law publicly charged Bishop Estate trustees with gross incompetence and massive trust abuse. Titled “Broken Trust,” the statement provided devastating details of rigged appointments, violated trusts, and the shameful involvement of many of Hawaii’s powerful.

This book brings to light information that has never before been made public, including accounts of secret meetings and communications involving Supreme Court justices. The authors also show, in vivid detail, how the scandal was swept under the rug by a judiciary that did not want a public airing of its dirty laundry, how Princess Pauahi’s will has been systematically violated, and why the violations may continue.

The book throws a spotlight on the legislature, the courts, the legal profession, the native Hawaiian community, and the media, showing how each functioned – or failed to function – during the two-year crisis and its aftermath.

Broken Trust offers readers the opportunity to reexamine fundamental questions about unchecked power and civic responsibility that resonate far beyond the borders of America’s fiftieth state.

– From the book jacket of Broken Trust

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CHAPTER 1

Princess for a New Hawaii

The Hawaiian Islands are remote specks of land in the largest ocean on Earth. Europeans had been exploring the Pacific for two and a half centuries before Captain James Cook happened upon the Islands in 1778. Although Hawaiians had navigated to the archipelago more than a thousand years before Europeans found it and had continued their voyages for hundreds of years, the Hawaiians Cook encountered had long since lost contact with other cultures. From their polynesian roots they had evolved their own version of the creation and workings of the cosmos, the origins of life, and the nature of the gods….

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Pauahi was born in 1831, twelve years after the rejection of the old gods. By then, the place where she was born, Honolulu, on the island of Oahu, had become a busy port town….

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Bernice’s decision to marry Charles Bishop meant defying her parents, who as high chiefs were looking to a marriage of state. There was a brief disruption in family relationships and communications, but within a year there were good feelings again, helped by the fact that the marriage turned out to be a good one….

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At age fifty-one, Bernice, Mrs. Bishop, Ke Alii Pauahi, was now far and away the largest landowner and the richest woman in the kingdom.

Until now, Pauahi had seen no need to make a will. But she had become the owner of valleys and plains, forests and grasslands, from the mountains to the sea. … Beyond that, it was the sacred legacy of Kamehameha, the royal ‘aina.

On October 31, 1883, she signed her own will….

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CHAPTER 2

A Culture Suppressed

… In her will Pauahi made more than forty individual bequests of money or interests in land to alii, friends, servants, retainers, charities, and Charles….

The bulk of the estate, 125 parcels of land totaling 378,569 acres, went in trust to five named individuals: Charles R. Bishop, Samuel M. Damon, Charles M. Hyde, Charles M. Cooke, and William O. Smith.

As trustees, they were subject to strict fiduciary duties that required them to manage the trust estate prudently and to pursue the charitable mission spelled out in article 13 of Pauahi’s will: “to erect and maintain in the Hawaiian Islands two schools, each for boarding and day scholars, one for boys and one for girls, to be known as, and called the Kamehameha Schools.”

Pauahi instructed her trustees to prefer Hawaiians when providing “support and education [to] orphans and others in indigent circumstances,” but she did not limit admission to just Hawaiians. Instead, she authorized her trustees to decide who could attend the schools. As legal owners of the trust estate, Pauahi’s trustees also had the authority, acting jointly by majority vote, to buy and sell property, hire and fire employees, and expend trust money in pursuit of the charitable mission….

Several provisions in the will suggest that Princess Pauahi had in mind two trade schools where moral training and religious instruction would be emphasized. But she specifically authorized her trustees to make the rules and regulations for the schools, including who and what would be taught.

Pauahi’s ultimate goal was production of “good and industrious men and women.”

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CHAPTER 5

The Trust Plays Politics as Activism Grows

IRONICALLY, the deadlock among the (Supreme Court) justices over Larry Mehau ultimately led to the only non-political appointment of the era — Oswald Kofoad “Oz” Stender, a non-candidate who emerged as the compromise choice. …

Stender (who was then CEO at another private trust, Campbell Estate) had not applied to be a Bishop Estate trustee. One day he got word that Chief Justice Herman Lum wanted him to come to the Supreme Court building right away. … If Stender wanted the job he had to say so immediately, on the spot.

You know, it’s appalling,” Stender said later of the way he had been chosen. “It’s such a responsible job. No interview. Nothing. It was totally irresponsible.”

From the moment Stender joined the Bishop Estate board in January 1990, the way trustees did business made little sense to him. At Campbell Estate there were clear policies, internal controls, annual reviews, regular appraisals. Campbell Estate staff knew what was expected of them and the extent of their authority. Fiduciary responsibility and responsiveness to the needs and concerns of beneficiaries were constantly emphasized….

At Bishop Estate, Stender could not see any map at all. After spending three months sizing up the situation, he wrote a memo to the other trustees that gave a broad overview of the entire operation. He noted the need for strategic planning and organizational accountability at Bishop Estate….

A special meeting was called. Chairman (Matsuo) Takabuki thanked Stender for his memo, explained to the group that Stender had not yet been around long enough to understand how things were done at Bishop Estate, and adjourned the meeting. It had lasted 30 seconds.

The other trustees said nothing. They recognized that Stender had experience managing a large land-based trust, but they did not appreciate being told that their way of doing things was not up to his standards. Nor did they appreciate an interview Stender had given shortly after his appointment to the board. A reporter had asked whether Stender thought the trustee selection process was “rigged.” Trying to be diplomatic, Stender said that seemed to be the perception of some people.

The reporter persisted, asking if Stender agreed with that perception. Stender, taught at Kamehameha always to be truthful, said yes, he thought it was “rigged.”

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CHAPTER 7

‘Black and blue panel’ courts trouble

By 1994, Governor John Waihee had appointed all five justices to Hawaii’s Supreme Court. In February of that year, trustee Myron Thompson would be 70 years old, the mandatory retirement age that had earlier been set by the state Supreme Court justices.

It was no secret that Waihee was looking down the road to the end of his second and final term, which would be later that year. A Bishop Estate trusteeship would be a crowning achievement for the soon-to-be-former governor — and would bring with it a tenfold increase in his pay.

Normally the justices began their search for a successor well before a scheduled vacancy, but this time they did not. They never explained why. Many people speculated that the justices wanted to appoint Waihee. For justices to appoint to the board of Bishop Estate the man who had personally appointed all of them to the Supreme Court might strike the public as overly political, but then, what did not operate politically in Hawaii?

A president of the Senate, Dickie Wong, had made it to the boardroom, as had William Richardson, a chief justice. Henry Peters had kept on being speaker of the House after his appointment to the supposedly nonpolitical trusteeship. All three had appointed people to the Judicial Selection Commission, which played a key role in the selection of the justices. This struck many as a bit too cozy, yet it had happened, and without adverse political consequences to anyone.

Even so, the justices appeared skittish about appointing the governor. Waihee’s popularity was at an all-time low. During his two terms as governor, he had managed to turn a large budget surplus into a huge deficit, and, because of a series of procurement and land use scandals, a growing segment of the public perceived his administration as corrupt.

It would assuredly look bad for a sitting governor to be moonlighting as a Bishop Estate trustee. On the other hand, if the selection could be delayed until later in the year, and if his name could be put on a short list by a supposedly independent panel of people who were prominent in the community, then maybe the same result could be achieved: Waihee might be made a Bishop Estate trustee without its provoking the public too much.

Shortly before Thompson’s scheduled retirement date, Chief Justice Ronald Moon announced that the justices had decided to appoint a panel of community leaders to assist in filling the vacancy. This would be the first time in the trust’s history that anyone other than the justices would have an official role in selecting a Bishop Estate trustee. It would slow down the process, but Thompson would be allowed to serve beyond the end of his term, which would be another first. This approach, as described by Moon, would instill public trust in a process that critics had taken to calling “political.”

The justices appointed 11 community leaders to what came to be called the “blue-ribbon panel.” Two were former Bishop Estate trustees: (Matsuo) Takabuki and Richardson. Three others were experienced in business: Henry Walker Jr., a former chairman and CEO of Amfac, one of the largest corporations in Hawaii; Robert Pfeiffer, chairman of Alexander & Baldwin, another large Hawaii corporation; and Herbert Cornuelle, chairman of the board at Campbell Estate.

There were also Kenneth Mortimer, president of the University of Hawaii; Gary Rodrigues, state director of the United Public Workers, a powerful union; Alvin Shim, an attorney with a long involvement in politics; Melody MacKenzie, a founding member of the Native Hawaiian Bar Association; Monsignor Charles Kekumano, a retired Catholic priest who served on the board of the Queen Liliuokalani Trust; and Gladys Kamakakuokalani Brandt, who had retired as the principal of Kamehameha Schools and was the current chair of the University of Hawaii Board of Regents.

Mortimer had been at the University of Hawaii for less than a year. Advisers told him to turn down Moon’s invitation because service on the panel would be too political. When Mortimer relayed that message to Moon, the chief justice responded, “That’s why you have to serve, Mr. President. We need to have a group that is not enmeshed in local politics and whose integrity is beyond question.”

A few days later Mortimer and the other panel members gathered at the Supreme Court building, where Moon assured them that they could determine their own process; the justices would not interfere. Some of the panel members had doubts. They were concerned that the panel’s list would be honored only if it had “the right name” on it. Pfeiffer looked squarely at Moon and asked, “Would the justices select from our list even if there were only one name on it?”

For Pfeiffer and at least four others on the panel, getting the right answer to this question was a make-or-break condition of serving. Moon did not hesitate. He said he would rather have a longer list, but, yes, the panel’s list would be honored, regardless of the number of names on it.

At its first working session, the group named Brandt chairperson. She suggested a rule: that each name on the panel’s list of finalists must have broad support, that a name not be there simply to accommodate a determined minority. She wanted to avoid the horse trading that was known to occur in sessions of the Judicial Selection Commission, where Waihee insiders like Gerard Jervis and Gary Rodrigues were adept at getting “the right name” added to each judicial selection list. A majority of Brandt’s panel members agreed to her suggestion.

Brandt set an ambitious schedule for the panel and stuck to it. Within two months, members had received and considered more than a hundred applications. Deliberations went smoothly until Waihee came up for discussion. Richardson, Shim and Rodrigues wanted Waihee’s name added to the list of finalists; the others did not.

The discussion dragged on and on, even after the panel cast formal votes and Waihee fell well short of the required majority, eight to three. Rodrigues refused to move on. He eventually shouted at the others, ripped up the papers in front of him and threw the shreds across the table. Brandt, now 87 years old, told Rodrigues to behave himself. He responded that he was tired of being treated like a child.

“Gary,” said Brandt, “when you act like a child, you must expect to be treated like a child. ” Rodrigues stormed out of the room, reportedly straight to a telephone. According to Henry Walker, within minutes Rodrigues had reached Waihee.

The next day Brandt took the list (which contained the names of five candidates and had been signed by everyone on the panel but Rodrigues) to the Supreme Court building. There were five copies for the justices, each one sealed in a separate envelope. Brandt intended to drop them off and leave, but a secretary asked her to step into a side room, where the justices had gathered. Following a brief exchange of pleasantries Brandt handed them the envelopes, then stood by silently as the justices each took out the list and looked at it.

Brandt later recalled, “They didn’t say anything; they just looked at the paper. Finally, one of them said, ‘Where’s his name?'” Brandt responded that the panel had considered adding the governor’s name to the list but a motion to do so did not pass. She added that some panel members were of the opinion that there already were enough politicians serving on the board.

Brandt could tell that the justices were not pleased with the list, but she just assumed that in a matter of days the justices would announce which one of the five individuals on the list would be the next Bishop Estate trustee. But days passed without a word from the justices, and then more days.

After a week without uttering a public word, the justices announced that they had decided to postpone the choosing of the new trustee. They said they first would seek an opinion from the Commission on Judicial Conduct, an unofficial group whose members they had chosen.

Five months later, that commission announced that the justices were not legally obligated to use a trustee-screening panel. Moon wrote to the blue-ribbon panel: “Based on the advisory opinion and based on our individual consciences, we believe it only fair to reopen the application process.”

When Pfeiffer heard what the justices had done, he swore that he would never again serve on a government panel in Hawaii. Others from the blue-ribbon group agreed, telling Brandt that they felt “used and abused.” From then on, she referred to the group as the “black and blue” panel.

The justices eventually wrote that although they had “set no parameters on the search and (given) no directions,” they had wanted “a list of finalists who were the most eminently qualified individuals.” According to the justices, “for reasons known only to the panelists, their list did not include the names of all ’eminently qualified’ applicants.”

On November 25, 1994, more than nine months after a retirement date that had been known for years, the justices filled the vacancy with someone whose name had not appeared on the blue-ribbon panel’s list. In the opinion of Hawaii’s five Supreme Court justices, the most “eminently qualified applicant” was none other than Waihee’s closest associate, Gerard Jervis.

“Wait and see,” said Supreme Court Justice Steven Levinson. Gerry Jervis will be a great trustee.”

Many suspected that Jervis was just a seat warmer who would resign when a politically safe opportunity arose to appoint Waihee, but the trustees encountered bigger troubles before this scenario had any chance to play out.

After leaving office, Waihee joined a Washington, D.C., law firm that the trustees immediately hired to find a way for them to avoid state and federal oversight and to lobby against pending federal legislation that would limit trustee compensation.

A few years later, law enforcement personnel searched a secret office safe at (Bishop Estates’ headquarters at) Kawaiahao Plaza and found a computer file named “CJ” that contained an astonishing two-page memo from “Nam” to “Speaker.” “Nam” was Namlyn Snow, who worked directly for Henry Peters. “Speaker” was Peters. “CJ” was Chief Justice Moon.

The memo’s subject was “Trustee Selection Process,” and it was dated March 21, 1994, immediately after Gladys Brandt had delivered the blue-ribbon panel’s list of names to the justices. In this memo, Snow, an employee of a charitable trust, mapped out a plan by which the justices of Hawaii’s Supreme Court could steer the trustee nomination process back onto a more congenial track. …

The steps laid out in the secret memo bore a remarkable similarity to the steps Moon and the other justices took at the time: “In certain aspects, the justices’ writings and actions closely match reactions and announcements scripted by Snow,” according to a confidential report submitted to the attorney general and Campaign Spending Commission in 2000.

The Snow memo was a smoking gun, but there was even more evidence of behind-the-scenes manipulation. Although verbatim minutes of trustee meetings were never taken, investigators eventually gained access to handwritten notes Lokelani Lindsey had made during these meetings.

One such note, dated weeks before the justices formed the blue-ribbon panel, listed the names of Pfeiffer, Cornuelle, Brandt, Shim, Richardson and Takabuki, who were all later named to the panel by Moon. Also among Lindsey’s jottings were statements concerning the selection of a new trustee by the justices and the ways in which a screening committee could be used to achieve the desired outcome.

Bearing in mind the possibility that the justices already knew who they wanted to pick and that they perceived a need to slow down the selection process, Lindsey wrote: “If they already made up their minds … the screening committee will be an excellent way to go.” Then she added: “Only mechanism to allow the delay to occur is the committee.”

Lindsey’s handwritten notes and Snow’s secret memo raised serious concerns about the justices’ independence and increased the chances that someone would sue them for breaching the fiduciary duties they accepted when they agreed to select trustees. Individuals cannot be forced to select trustees, but anyone who accepts such a power is required to use it to further the trust’s charitable mission, not for personal gain or political payback.

This legal exposure gave the justices strong personal incentives not to cooperate with any investigation of Bishop Estate trustees. In fact, the justices’ personal interests would be best served if any such investigation could be shut down prematurely and the records sealed, incentives that were to play out strongly in events to come.

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CHAPTER 8

Five Fingers, One Hand

Matsuo Takabuki’s decision to take control of investing marked the beginning of waht evloved into a “lead trustee” system, in which trustee functions and areas of responsibility were divvied up among the Bishop Estate trustees. This was a serious breach of trust for a number of reasons.

For example, each co-trustee has a fiduciary duty to stay informed and involved, and to petition the appropriate court when confronted with serious, ongoing breaches of trust. Under Bishop Estate’s lead trustee system, however, access to information was tightly controlled, even among trustees. A single trustee was able to decide what information would go out from his or her area; when, in which directions, and to what form it would be presented to the board: or whether it would presented at all.

By 1995 the lead trustee system was both deeply rooted and pervasive. Henry Peters was in control of asset management, Lokelani Lindsey had education and communications, Dickie Wong handled government relations, and Gerard Jervis was in charge of legal affairs. For a while Oz Stender was lead trustee for alumni relations, but then the other trustees took that away, and he was left with nothing.

Stender was constantly surprised by decisions made by single trustees, such as the hiring of Yukio Takemoto to manage contracts. Takemoto had left the Waihee administration under a dark cloud. His activities in administering contracts, especially non-bid contracts, were the subject of an extensive investigation and serious allegations. Without Stender’s even knowing it was a possibility, Dickie Wong hired Takemoto to administer all of Bishop Estate’s contracts. He also gave Takemoto a large budget and a thirteen-person staff.

Stender also was surprised by Bishop Estate’s increasingly creative record keeping. Sometimes there would be three sets of minutes for a single meeting. Anything deemed sensitive was stamped “Confidential–Attorney-Client Privilege” and held by Bishop Estate’s chief in-house lawyer, Nathan Aipa.

For years people whose job it was to keep an eye on the trustees, such as court-appointed masters and lawyers in the attorney general’s office, did not even know these documents existed. The trustees took the absurd position that anything said or done in Aipa’s presence, as well as anything given to him for safekeeping, was protected by attorney-client privilege and for that reason could be kept secret.

During the 1990s the trustees hired dozens of outside lawyers while adding yet more lawyers to Aipa’s in-house staff. Despite the presence of so many lawyers, there was never a written policy on conflicts-of-interest, and no significant effort was ever made to acquaint the trustees with even the rudiments of their fiduciary duties….

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Under English common law, trustees were expected to serve without compensation unless the trust document said otherwise. Pauahi’s will said nothing about trustee fees. In 1884 the Hawaii Supreme Court ruled that trustees of any trust could take “reasonable compensation for their time and trouble.” In 1927 the legislature established statutory formulas that trustees could use when setting their fees for any particular year….

In most years the maximum trustee fee was set at slightly more than 2 percent – but of what? Did the formula apply to net or gross income? Gains or net gains? The answers to these critically important questions were never clear. Compounding the uncertainty, the trustees never stated publicly how they were interpreting or applying the formulas. Most years they apparently applied a liberal interpretation of the formulas and then divided the resulting amount among themselves in equal shares.

This approach drew scattered criticism but did not produce shockingly high numbers until the mid-1980s, after the U.S. Supreme Court upheld the 1967 mandatory leasehold conversion law. By 1987 trustee fees had grown to slightly more than $925,000 per trustee.

Trustees at prominent private schools in Hawaii, such as Punahou, Iolani and Mid-Pacific Institute on Oahu; Seabury Hall on Maui; and Hawaii Preparatory Academy on the Big Island, took no compensation. Neither did members of the governing boards at well-endowed universities, such as Harvard, Yale and Stanford. It had always been that way. Why would Bishop Estate be different?

The pat answer provided by Bishop Estate trustees was that, unlike the governing boards at other charitable institutions, the trustees at Bishop Estate functioned as lead trustees, which made them the equivalent of full-time CEOs, rather than part-time directors.

Dickie Wong frequently expressed pride in the lead trustee system, describing it as “five fingers acting as one hand.” He said it enabled the trustees to do the work of a chief executive officer, chief operating officer, chief financial officer, chief legal officer, and chief communications officer, as well as a board of directors. When asked under oath who held the five trustees accountable for good results, Wong first said, “Nobody,” then changed his answer to, “Us.”

The trustees had effectively hired themselves to run the organization, a highly unusual move. There were no job descriptions, performance standards or annual reviews, and no one except they themselves had the power to conduct such reviews. The trustees of Bishop Estate had power without accountability, a recipe for disaster….

THERE ARE people who are responsible for oversight of charitable trusts. The state attorney general, as parens patriae, has the responsibility and ongoing power to investigate indications of trust abuse, and to ask the courts to take action when trustee misconduct is found. Even if the attorney general falls short in providing such oversight, the state court with jurisdiction over trusts — in Hawaii, the probate court — has the power to take action sua sponte (on its own) when it sees trust abuse. Hawaii also provides for a master to review the trustees’ accounts each year.

Supreme Court justices who selected trustees arguably had an ongoing responsibility to take appropriate action in the face of serious trust abuse by anyone they selected. Also, probate court rules since 1995 have required lawyers to report misconduct by their trustee clients directly to the probate court.

Despite glaring problems at Bishop Estate for many years, all these lawyers, specifically attorneys general, probate judges, masters, justices of the Supreme Court and trust counsel, acted as though everything was as it should be.

Year after year, decade after decade, attorneys general never investigated, and masters appointed by the probate court never scratched below the surface. In fact, many of the masters submitted fawning reports. The high-water mark was reached by master Alvin Shim in his 1988 report (on estate operations). Bishop Estate trustees, he gushed, were doing an “awesome” job. That particular adjective appeared 17 times in his 25-page, double-spaced report….

In 1988, when the trustees wanted to keep secret the $599,000 annual raise they had just given themselves, Shim not only approved the increase, but actually joined the trustees in arguing to the court that the numbers should remain a secret. Shim’s explanation for not telling the public was that Hawaiian cultural modesty weighed in favor of nondisclosure.

This was an era of enormous power for the people who ran Hawaii’s government. What was noteworthy was not the power itself, but its concentration. There seemed to be less and less separation between individual branches of government, which were supposed to act independently — and also between Hawaii’s government and Bishop Estate….

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CHAPTER 12

Time to Say “No More”

On April 9, 1997, the Honolulu Star-Bulletin published an essay in its editorial section under the banner headline, “Broken Trust.” The essay began, “The community has lost faith in Bishop Estate trustees, in how they are chosen, how much they are paid, how they govern. The time has come to say ‘no more.’”

The essay went on to cover virtually that entire section of the paper, a head-on, 6,400-word attack charging that under-qualified and over-paid trustees had been selected in a rigged political process, had engaged in loose and self-serving financial management, and had distinguished themselves mostly by conflicts of interest, disdain for accountability, greed, and arrogance.

“Broken Trust” reached beyond Bishop Estate to indict the whole interlocked system of cogs and wheels that had produced the trustees and allowed them to operate with impunity: Hawaii’s political machine, the Judicial Selection Committee, the Hawaii Supreme Court justices.

Names were named: Dickie Wong, Henry Peters, Lokelani Lindsey, Gerard Jervis, Chief Justice Ronald Moon, Associate Justices Steven Levinson and Robert Klein, Governor John Waihee, union leader Gary Rodrigues, former court-appointed master Alvin Shim, political insider Larry Mehau, and more.

Stories were told. How Mehau had almost become a trustee. How Waihee manipulated the judicial selection process to get his men, Levinson and Klein, onto the Supreme Court. How Rodrigues had badgered other members of the blue-ribbon panel in an unsuccessful attempt to get Waihee onto the Bishop Estate board. How the justices rejected that panel’s selections and then picked the ultimate political insider, Gerard Jervis. How Waihee, after failing to get onto the board, went straight from the governor’s office to a law firm that was paid seven-figure legal fees to preserve the right of Bishop Estate trustees to pay themselves excessive compensation. How Yukio Takemoto had been hired at Bishop Estate after having been seriously compromised in a legislative investigationof his activities in the Waihee administration. How Lokelani Lindsey used Bishop Estate staffers for her own private purposes. How Henry Peters negotiated a transaction on behalf of a group buying real estate from the Estate. How trustees improperly put their own money in a Bishop Estate oil deal….

“Broken Trust” ended with a story about a school in New York where the trustees had operated with conflicts of interest and the president was grossly overpaid. A group of angry faculty, students, alumni, and former trustees had made enough noise to prompt an investigation that resulted in the removal of all but one of those trustees. The state attorney general filed a lawsuit to hold each of those trustees personally accountable, legally and financially, for mismanagement of assets and violations of fiduciary duty.

“If it can happen in New York,” the authors concluded, “why not in Hawaii?”…

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“Broken Trust” set off other strong reactions. One of the trustees’ lawyers, Michael Hare, criticized the authors for “throwing mud” and “tarring people with rhetorical questions and faulty logic.” Hare said it was wrong for the authors to reveal that his firm received over $10 million in legal fees from Bishop Estate in the years following his term chairing the Judicial Selection Commission. He did not question the statement’s accuracy: he simply argued that it might lead readers to assume a connection.

John Waihee told reporters he was disappointed that the “Broken Trust” authors had not had “the courtesy to call to check the facts.” He gave his version of the blue-ribbon panel story and of a subsequent meeting he had had with Kekumanu to discuss the matter. Kekumano subsequently said Waihee’s story was “not the same as my clear recollection of what transpired.”

U.S. Senator Daniel Inouye declined to comment on the essay, calling the situation “rather tragic and sad.” The other senator from Hawaii, Daniel Akaka, defended the trustees. He said the level of compensation was not too high; if anything, the trustees deserved to be paid more. His elder brother, Abraham, still pastor of Kawaiahao Church, delivered a completely different message from his pulpit. He said that the moral character of the trustees needed to be carefully weighed.

The Bishop Estate communications department characterized the essay as an attack of Pauahi’s legacy. They placed full-page newspaper ads defending the trustees, with Pauahi’s portrait prominently placed. Won insisted that the essay was the work of Roth, a Mainland haole.

The trustees’ chief in-house lawyer, Nathan Aipa, picked up on this, repeatedly referring to the “Broken Trust” authors as “the Roth Group.” Aipa also told reporters that Sam King was probably just sore because nobody ever mad him a Bishop Estate trustee. Those reporters called King for a response, and King was happy to oblige: Nathan Aipa is an ass.”

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The May 15 march by Na Pua had put a spotlight on the problems at Kamehameha Schools. The “Broken Trust” essay expanded the zone of attention. The public now knew that the problems at Bishop Estate were greater than just the work of one heavy-handed trustee on the Kamehameha campus, and they involved more than just Bishop Estate….

Everybody was talking about Bishop Estate, and not in glowing terms. More than talk, these events galvanized action, a chain of events that would never be forgotten by those who took part in them, and whose ultimate outcome seemed at every turn uncertain.

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CHAPTER 14

Mistrust and Paranoia

If 1997 had been an earth-shattering year for Bishop Estate trustees, it had been equally unsettling, in different ways, to the trust’s employees at Kawaiahao Plaza and Kamehameha Schools….

The trustees’ close monitoring of the march in May 1997 added paranoia to the atmosphere of fear within Kawaiahao Plaza. Few dared, however, to say a word about it….

Outside Kawaiahao Plaza the nastiness had started early and spread, and it was still going on. Greg Barrett of the Advertiser received a threatening visit at home from a man who said it was his job to “make nice” with people before they got hurt: “You know what I mean, brah.” Margery Bronster received direct threats, two of them serious enought to warrant security at her home. Beadie Dawson, the unofficial voice of Na Pua, received typewritten threats. Stender got anonymous phone calls at home, and someone slashed one of his car tires in a downtown parking garage.

A deputy attorney general received word one day that Lindsey had been seen at Kawaiahao Plaza over the weekend, ordering files deleted from an office computer. Laurian Childers, an information technologist in charge of the Estate’s computer network, told deputies that she had been instructed to make sure that the deleted files could not be restored. Childers swore to this in an affidavit. Sixty minutes after Childers made this statement, her husband received an anonymous phone call at home. A man’s voice said, “Tell that f—— haole bitch if she knows what’s good for her she won’t testify.”

Lindsey insisted that the deleted files were a collection of Hawaiian songs and some information about a trip to New Zealand and had nothing to do with the attorney general’s investigation. She did not explain why, in the middle of an investigation, such innocuous items would need to be deleted from a computer over the weekend and carefully wiped clean from the server.

Childers wanted only to tell the truth and then be left alone. It was not to be. The threats continued. Bronster arranged for armed guards at the Childer’s home and an escort for their three-year old daughter to and from preschool.

Childers loved her job at Bishop Estate, but the situation became intolerable. After several weeks of living in the company of armed guards, she and her family sold their house and moved away from Hawaii.

She never testified….

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The teachers had banded together as Na Kumu O Kamehameha because of Lokelani Lindsey. As events unfolded, they widened their sights.

On June 6, 1997, the Star-Bulletin’s front page headlines read:Kamehameha faculty goes public: Risking their jobs, more than 200 teachers organize and issue a two-page statement blasting trustees.”

Unlike the teachers, Kamehameha administrators did not complain publicly. They continued to follow orders (as required by their employment contracts), even when Lindsey, Wong, and Peters targeted Na Kumu and especially its leaders, Abad, Eyre, Ho, and Obrecht.

Two administrators, however, became convinced that the situation was so abnormal, so perverse, that a higher duty required them to support the teachers, and to do so openly. These renegade administrators were Julian Ako and Kathy Kukea.

Ako had worked for Bishop Estate since 1979, first in outreach, then on campus as head of social studies, and finally as dean of student activities. Everyone in his family had gone to Kamehameha, and he himself had finished his senior year in 1961 as the head of his class, slightly ahead of Michael Chun. Ako’s valedictorian’s speech was on the biblical text, “For unto whomsoever much is given, of him shall be much required.”

Kukea had spent nearly all of the preceding twenty years as the coordinator of curriculum and instructions at the Kamehameha high school. She had looked forward to having a woman trustee at Bishop Estate but had come to view Lindsey’s appointment as a huge mistake.

Distance immediately developed between Ako and Kukua, on one side, and their boss, Tony Ramos, on the other. As the divide widened, fellow administrators found it increasingly difficult to keep one foot in each camp….

Na Kumu decided that a teachers’ union might improve the situation and hired a lawyer to help sort through the possibilities. These efforts drew financial support and encouragement from members of the statewide public-school teachers’ union, but the Kamehameha teachers had little interest in being part of a large labor union. They just wanted respect and protection.

Although deeply divided on other issues, all five trustees and Michael Chun were absolutely united in their desire to stop the teachers from forming a union. They hired a labor lawyer and a labor “consultant.”

Michael Chun wrote to Na Kumu that the two were being brought in to promote communication and help with “the healing process.” Na Kumu quickly discovered, however, that the lawyer the trustees had hired specialized in sharp-edged advocacy for employers, and the consultant was known around town as a union buster.

The trustees said that the teachers could not hold organizing meetings on campus, but this was eventually ruled to be in violation of federal law. Then the trustees asserted that the Kamehameha teachers could not form a union because they all were part of the management `ohana. This, too, was determined to be without merit.

Chun argued that a teachers’ union at Kamehameha would be divisive. He campaigned against the idea with letters and memos and had an anti-union video running on the schools’ closed circuit TV system right up to the day of the union vote on March 13, 1998.

When the secret ballots were tallied and certified, the result was 186 for a union, 36 against….

* * *

CHAPTER 15

A World Record for Breaches of Trust

As the investigations mounted, it became abundantly clear that Bishop Estate trustees, over time, had violated numerous fiduciary duties, perhaps even criminal laws. As the IRS eventually put it, they were treating Princess Pauahi’s legacy like “a personal investment club,” theirs to do with as they pleased, with shocking little apparent concern about the trust’s charitable mission…. [Colbert] Matsumoto, Sakamaki, and accountants from the Arthur Andersen firm eventually compiled a list of forty-seven Bishop Estate investments that each lost at least $2 million between 1994 and 1996….

Matsumoto’s list of forty-seven separate transactions … began with Kukui ($49,395,947); Montrose Group ($47,205,472); SoCal Holding ($34,459,800); JMB Cadillac Fairview ($29,000,000); and Rock Real Estate ($22,535,000). Before Matsumoto discovered this information and made it public, most people only knew about investments that either worked out well (because the trustees would talk about those) or that ended up in litigation outside Hawaii (where courts rarely seal records. This second category included not just the oil and gold course deals previously mentioned, but also an Internet start-up called KDP Technologies.

KDP said it provided a computer dating service and software that allowed actors, entertainers, and models to display their talents on the Internet. This investment had been presented to Bishop Estate by Ben Bush III of California, whom Lindsey had met when they were both involved in an effort to buy gold hidden in the Philippines for resale to rich Arabs at a big profit. Lindsey had said nothing to the trustees about her personal business dealings with Bush, and Bishop Estate’s staff did not look into his background. … Bishop Estate initially committed only $500,000, but that quickly grew to $1.3 million. Bush got a finder’s fee, reimbursement for a loan, and a salary of $90,000. Dickie Wong’s brother-in-law, Randy Stone, received a $150,000-a-year consultancy, plus stock options.

The trustees eventually learned that Bush, in another part of his investment-advising activities, had been laundering money and committing fraud. He was indicted, tried, convicted, and jailed. Bishop Estate’s entire investment in KDP, whose business product was described by a lawyer in the attorney general’s office as “soft-core pornography,” was lost completely.

The personal money that Bush and Lindsey put into their gold scheme – $800,000 for Bush, $400,000 for Lindsey – also disappeared.

~ ~ ~

EMPLOYEES WHO QUESTIONED Bishop Estate’s doings were not treated so well. Bobby Harmon was a prime example.

Harmon began working at Bishop Estate in 1988 in the area of risk management. He had solid credentials and worked hard. For eight years his job evaluations were excellent, and he was promoted to president of P & C Insurance, a wholly owned subsidiary of Bishop Estate. Harmon’s job required him to evaluate risks, decide on insurance coverage and negotiate with brokers of independent companies for the best prices….

During the two years Harmon headed up P & C, from 1994 to 1996, Henry Peters was lead trustee for asset management. Between Harmon and Peters was Nathan Aipa (the estate’s chief in-house lawyer). Harmon came to believe that serious breaches of trust were occurring, exposing Bishop Estate to potentially large lawsuits and putting its tax-exempt status at risk.

For example, the trust’s tax counsel had stressed to Harmon the need for Bishop Estate to keep its for-profit subsidiaries, such as P & C, at arm’s length to preserve the trust’s tax-exempt status. Yet Harmon knew from experience that although he was president of P & C, it was Peters and Aipa who effectively ran the company.

Harmon also was concerned about decisions that seemed to go against the best interests of both P & C and Bishop Estate. Against his recommendation, a big insurance contract was given to a favored vendor at a cost more than double what Harmon thought he could have secured through competitive bidding.

Harmon also found instances in which trustees had not brought in the estate’s insurance carrier to defend the claims. This meant the trust would unnecessarily pay its own defense costs, and trust funds would be used to pay any damages that the insurance company would refuse to pay. This subjected the trust estate to big risks without any compensating benefit that Harmon could see.

What Harmon did not realize at the time was that trustees had their own reasons for keeping under wraps the details of certain trust investments — such as the McKenzie (Methane Corp.) deal in which four trustees secretly held personal interests.

In November 1996 Harmon made a list of things he had witnessed that made no sense to him or that appeared wrong, and (gave) it to Aipa and Peters. They told him not to concern himself with these matters; he should just do what they told him to do. But Harmon believed that his role as president of P & C required him to do more. He knew that new IRS regulations permitted someone in his position to be fined if a charitable trust incurred unnecessary expenses, and he saw no reason to subject himself to personal liability.

Harmon reported his concerns to the trust’s outside auditors, Coopers and Lybrand. … By the end of the following month, Harmon had been fired for “wrongful actions” and hit with an injunction that forbade him from discussing the circumstances of his firing with anyone. This was about six months before the publication of “Broken Trust.”

HARMON tried to find a job elsewhere in Hawaii, but without success. … And because the file said he had been fired for wrongful actions, he could not even collect unemployment benefits.

Harmon went to eight local law firms asking if they would be willing to sue Bishop Estate. … All eight firms turned him down. Then Harmon sent a long memo to several government officials and media reporters, saying he wanted them to know what had happened.

Within hours, Bishop Estate lawyers hauled him into court for breaching the confidentiality clause in his employment contract and violating the terms of an injunction. Judge Bambi Weil ordered everyone who had received materials from Harmon to return them to Bishop Estate. The estate’s director of communications, Elisa Yadao, declined to comment other than to say that Harmon was under injunction “because of his unauthorized removal of Estate property.”

Harmon had personally witnessed what he believed to be serious wrongdoing within a charitable trust. He had tried to get help from within the organization, then from its outside auditors. When he was punished for doing this, he expected the judge to encourage him to tell all. Instead, she muzzled him….

~ ~ ~

RESPONSE TO EXCERPT FROM JUDGE EDEN ELIZABETH HIFO:

The Star-Bulletin recently printed excerpts from the book “Broken Trust: Greed, Mismanagement & Political Manipulation at America’s Largest Charitable Trust” (University of Hawaii Press), by Judge Samuel King and law professor Randall Roth.

The March 1 excerpt concerned former Bishop Estate employee Bobby Harmon, a risk management expert who was fired after he questioned some of the estate’s business practices. After Harmon communicated with government officials and reporters, Bishop Estate took legal action against him for breaching a confidentiality clause in his employment contract. The dispute was heard by Judge Bambi Weil (now known as Eden Elizabeth Hifo). Judge Hifo disputes the retelling of the Harmon incident in “Broken Trust.” Her letter to the Star-Bulletin and the authors is below, along with a reply from Roth and King.

(Catbird Note: Emphasis and links in the following letters are provided by The Catbird Seat – not by the Star-Bulletin)

~ ~ ~

Authors erred in describing court proceedings

This is to correct inaccuracies regarding court rulings as to Bobby Harmon published March 1 in the Star-Bulletin, as an excerpt from the book of federal Judge Samuel King and law professor Randall Roth. The correct information is public record and available on the Hawaii State Judiciary Web site through Hoohiki information network.

As a former news reporter and current circuit court judge for the state of Hawaii, I greatly value accuracy and accountability. The excerpted publication inaccurately asserted that court rulings had silenced Bobby Harmon’s whistleblowing. The court records in that case (Civil No. 97-0-0512) show that Harmon was subject to a stipulated (agreed by Harmon’s first attorney) injunction prohibiting him from disclosing Bishop Estate confidential information and documents he obtained as an estate employee; another of Harmon’s attorneys conceded Harmon had violated the stipulated injunction; and Judge Bambi Weil, in ruling on the stipulated and later modified injunction, expressly allowed disclosure to law enforcement agencies, the state attorney general, who at the time was investigating Bishop Estate, and any master reviewing Bishop Estate for the probate court.

The court also allowed Harmon to speak with the Internal Revenue Service if approached by them and later disclosed to the parties that Harmon documents had been provided through an intermediary to the IRS. At the time, 1997-98, the Whistleblowers Protection Act, chapter 378 of Hawaii Revised Statutes, protected employees who report or are about to report violations of law to a public body, which included law enforcement agencies, state executive agencies and the judiciary, among others.

The facts regarding the court records and rulings are set forth below.

In addition, the publication inaccurately asserted that Harmon could not collect unemployment benefits after Bishop Estate discharged him. Indeed, Bishop Estate sought to disqualify Harmon from unemployment benefits, but Harmon appealed the adverse state department ruling to the circuit court in Civil No. 98-2394. In that case Judge Weil ruled Harmon was entitled to unemployment compensation. Bishop Estate appealed the circuit court ruling to the Hawaii Supreme Court, but in October 2000 the parties filed a stipulation to dismiss that appeal. Thus, the circuit court ruling allowing unemployment benefits remained in effect. The May 27, 1999, circuit court order was signed by Harmon, who represented himself in that case before Judge Weil. The court order reads in relevant part as follows:

“(T)here was probative, substantial and reliable evidence in the record to support the finding that Appellant (Harmon) ignored his superiors directives because he concluded that he would be violating the IRS code or the insurance commissioners regulation if he complied with the directive. It is not disputed that Appellant was acting on information that indicated such action could or would jeopardize Employers (Bishop Estate’s) tax-exempt status….

“The Court finds because of those uncontested findings for which there is support in the record, Appellant cannot be denied unemployment benefits because he was not fired for misconduct as Hawaii Revised Statutes Section 383-30(2) defines that term.

“The record shows there was no willful or wanton disregard of Employer’s interests; Employer being KS/BE, the charitable estate as opposed to any individual who worked for KS/BE, and that his actions were an exercise of his discretion (as KS/BE’s risk manager).”

Clearly, the authors of “Broken Trust” erred when writing because the (KS/BE) file said Harmon had been fired for wrongful actions, he could not even collect unemployment benefits. The court ruled he could.

Apparently equally unresearched and therefore inaccurate is the excerpt regarding court rulings on Mr. Harmon in the context of whistleblower. The publication quote is contrasted below with excerpts from enclosed public records in the court Web site.

Quote from “Broken Trust” excerpt:

“Then Harmon sent a long memo to several government officials and media reporters, saying he wanted them to know what had happened. Within hours, Bishop Estate lawyers hauled him into court for breaching the confidentiality clause in his employment contract and violating the terms of an injunction. Judge Bambi Weil ordered everyone who had received materials from Harmon to return them to Bishop Estate. …

“Harmon had personally witnessed what he believed to be serious wrongdoing within a charitable trust. … (H)e expected the judge to encourage him to tell all. Instead, she muzzled him.”

Circuit Court public records for Civil No. 1CC 97-0-000512, P&C Insurance Co., Inc. et. al v. Bobby N. Harmon include the following:

» Feb. 20, 1997, before Judge Karen Radius. Mr. Harmon was represented by attorney J. Marshall. Plaintiffs were represented by attorneys R. Katz and M. Tsukazaki. The attorneys STIPULATED TO THE TERMS OF A PRELIMINARY INJUNCTION.

» June 5, 1997, before Judge Kevin S.C. Chang. Mr. Marshall withdrew as counsel for Mr. Harmon.

» Aug.26, 1997, before Judge Bambi Weil. Attorneys R. Hughes and John Goemans appeared as counsel for Mr. Harmon regarding Emergency Motion by Plaintiffs for Enforcement of the Feb. 21, 1997 Order Granting Plaintiffs Motion for Preliminary Injunction Against Defendant, which by agreement of counsel was continued to the agreed September date.

» Sept. 26, 1997, before Judge Bambi Weil for further hearing on the emergency motion and for hearing on Defendants Motion To Dissolve or Modify the Order Granting Plaintiffs Motion for Preliminary Injunction Filed 2/21/97.” Court granted extended coverage application. Mr. Harmon was represented by Mr. Hughes and Mr. Goemans. Court Minutes: DEFT (defendant) CONCEDED THAT THE COOPERS & LYBRAND LETTER & THE MEETING WITH MARSHAL [sic] DIVER WERE VIOLATIONS OF THE STIPULATED ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION. Court found the violations were made on advice of counsel (Mr. Goemans) and did not justify a finding of bad faith by Mr. Harmon and therefore court declined to impose Plaintiffs requested attorneys fees against Mr. Harmon. Court took under advisement request to impose attorneys fees on Mr. Goemans. Court ordered the current preliminary injunction remain in effect, continued both Plaintiffs enforcement motion and Defendants modification motion, and took judicial notice of the ongoing investigations of KS/BE, as agreed to by the parties.

» Oct. 16, 1997, by telephone conference Judge Bambi Weil discussed with attorneys Tsukazaki (for Plaintiffs), Goemans and Hughes (for Mr. Harmon) the possibility of partial dissolution of the preliminary injunction.

» Oct. 31, 1997, before Judge Bambi Weil for further hearing on above two motions. Mr. Harmon was represented by Mr. Hughes and Mr. Goemans. Court minutes: STIPULATION PLACED ON THE RECORD THAT ORDER RE PRELIMINARY INJUNCTION MAY BE DISSOLVED AS TO THOSE DOCUMENTS PREVIOUSLY SUBMITTED TO THE COURT UNDER SEAL.

Court minutes continue: Court granted in part & denied in part Deft (defendant) Bobby N. Harmon’s Motion To Dissolve or Modify the Order Granting Pltfs (plaintiff’s) Motion for Preliminary Injunction filed 02/21/97. Said Motion granted as to stipulation reached by parties today & as to certain documents attached to the settlement demand letter ruled on by the court. … COURT RULED THAT IF DEFT (defendant) HARMON IS APPROACHED BY THE INTERNAL REVENUE SERVICE, JUDGE PATRICK YIM, OR THE APPOINTED MASTER, HE IS ALLOWED TO SPEAK TO THEM & PROVIDE COPIES OF DOCUMENTS WHICH REMAIN OUTSIDE THIS COURTS RULING SO LONG AS IT IS NOT CLAIMED ATTORNEY/CLIENT PRIVILEGE OR ATTORNEY/WORK PRODUCT PRIVILEGE. THE ATTORNEY GENERAL’S INVESTIGATION WILL REMAIN GOVERNED BY RULINGS OF JUDGE (Kevin) CHANG.

Court ordered Mr. Harmon to disclose the name of the one person he had refused to identify to whom he had provided documents, and Mr. Harmon did so in writing. The Court ordered the documents returned and EXEMPTS ANY LAW ENFORCEMENT PERSONNEL FROM THIS ORDER … Court sealed the paper Mr. Harmon had provided to the court at bench which Mr. Harmon did not want to make known to Plaintiffs or the public (and later disclosed the names by minute order of Jan. 9, 1999). Court found Mr. Goemans in bad faith regarding the prior disclosures he advised Mr. Harmon to make and granted the monetary sanctions against Mr. Goemans ($3,884.50 per Jan. 7, 1998 minutes).

» Jan. 8, 1998, court minutes noting Judge Bambi Weil signed Mr. Harmon’s version of the order granting Harmon’s motion to dissolve or modify the preliminary injunction and by said order expressly ALLOWING MR. HARMON TO SPEAK WITH THE ATTORNEY GENERAL.

» Jan. 9, 1998, minute order of Judge Bambi Weil: Having received affidavits from those persons identified by Mr. Harmon under seal disclosed in the minute order that they CONFIRMED HAVING DISTRIBUTED ONE (COPY) TO THE INTERNAL REVENUE SERVICE and because they refused to disclose to whom another copy was sent, the court disclosed their names for potential deposition or other appropriate action. No further action was taken regarding them and after later motions were heard the case was resolved as follows:

» Sept. 20, 2000, Stipulation for Partial Dismissal of the Complaint and Complete Dismissal of the Counterclaim as to All Claims and All Parties with Prejudice; and 2) Stipulation for Permanent Injunction and order Granting Permanent Injunction; and

» Oct. 2, 2000, Final Judgment against John Goemans. No appeal was taken in this case.

Had the authors of “Broken Trust” accessed the public records of the relevant civil actions, the above information would have been available. If indeed they did access those court records, it is difficult to understand how a federal judge and a law professor could have come to the conclusions about court rulings written in the Harmon excerpt published March 1. As a former news reporter and now judge, I expected more attention to accuracy and accountability from the authors, and that is what motivates me to write.

Eden Elizabeth Hifo
Formerly Bambi Weil

www.starbulletin.com/2006/03/12/editorial/special.html

~ ~ ~

RESPONSE TO JUDGE EDEN ELIZABETH HIFO’S LETTER FROM SAMUEL KING AND RANDALL ROTH:

Court order was the final blow
to fired employee

THE STAR-BULLETIN recently published excerpts from our new book, “Broken Trust: Greed, Mismanagement & Political Manipulation at America’s Largest Charitable Trust,” and then letters from Star-Bulletin readers. Now Judge Eden Elizabeth Hifo (formerly Bambi Weil) is questioning two statements from the book. Both relate to Bobby Harmon, a man who tried unsuccessfully to put a spotlight on wrongdoing at Bishop Estate (Star-Bulletin, March 1).

Judge Hifo says the book “inaccurately asserted that court rulings had silenced Bobby Harmon’s whistleblowing.” She then cites the record selectively and leaves readers with the impression that she did not restrain Harmon in any way. We suggest that readers consider the entire record, and pay particularly close attention to what Hifo does not say.

FOR EXAMPLE, Hifo does not deny that she enforced a protective order, which prevented Harmon from giving information to members of the media. She also does not deny that Harmon was forced to retrieve materials that he had already given to a reporter. Finally, she does not deny that she prohibited Harmon from passing along Bishop Estate documents, even to government officials, if Bishop Estate claimed attorney/client privilege or attorney/work product privilege.

Hifo contends that her rulings did not amount to a muzzling because Harmon still had a right to communicate with government officials. What she fails to understand or acknowledge is that Bishop Estate at that time was asserting attorney/client or attorney/work product privilege for key documents that passed through the hands of Nathan Aipa, the estate’s chief in-house attorney, including documents that Harmon wanted to share with others.

By the time Harmon appeared in court, he had already tried his best to get the attention of government officials. It was their failure to act that prompted him, out of frustration and on the advice of counsel, to communicate with the media despite the protective order.

THE BOTTOM LINE on this issue, then and now, is that Judge Hifo enforced an injunction that prohibited Harmon from sharing his information with anyone from the media, and even from government officials when Bishop Estate claimed that the information was privileged.

Hifo also alleges that the excerpt in question “inaccurately asserted that Harmon could not collect unemployment benefits after Bishop Estate discharged him.” She acknowledges that Bishop Estate successfully prevented Harmon from receiving unemployment benefits following his firing (i.e., the state agency that administers the unemployment-benefits program ruled in favor of Bishop Estate), and adds that she eventually overturned the agency’s decision and that her ruling was on appeal to the state Supreme Court when the parties “filed a stipulation to dismiss the appeal.” This is literally true, but misses the point.

Harmon lacked the financial ability to continue battling Bishop Estate, and he viewed a lawsuit against Bishop Estate in the state Supreme Court as a fool’s errand. Settling his case under such conditions left him financially ruined and still “muzzled.”

Samuel King and Randall Roth
Authors of “Broken Trust”

www.starbulletin.com/2006/03/12/editorial/special2.html

* * *

LETTERS TO THE EDITOR

Bishop Estate judge stifled witness

Your article of Marsh 12 regarding the “Broken Trust” book contains a letter to you from Judge Eden Elizabeth Hifo (formerly Bambi Weil) in which she refers to me as one of “Harmon’s attorneys” who “conceded Harmon had violated the stipulated injunction.”

What she fails to say, as I stated then, the injunction was void as being in denial of Bobby Harmon’s established First Amendment right to express his opinion concerning the corruption and criminality of the officers and directors of the Bishop Estate in matters of public concern and in and of law enforcement by the attorney general and others. Judge Hifo’s support of aiding the strategy of the trustees in misusing legal procedure to silence an important and credible critic of the estate to the detriment of both the estate and the public.

John Goemans
Kamuela, Hawaii

www.starbulletin.com/2006/03/15/editorial/letters.html

* * *

For more regarding this ongoing case, GO TO > > > Woo vs. Harmon

For further background, GO TO > > > Claims By Harmon; RICO in Paradise

 

* * *

CHAPTER 17

Public Pressure Forces a Political Shift

Bronster and her deputies took a special interest in Milton Holt, the Bishop Estate special projects officer whose legal fees had been paid by the trust several years earlier when he was the target of a federal criminal investigation for public corruption.

In his youth, Holt had seemed destined for great things. He graduated from Kamehameha in 1970, spent a year at Phillips Academy… and then went on to Harvard, where he quarterbacked the football team. After graduating from Harvard, Holt returned to Hawaii and went into politics, getting elected to the legislature at age twenty-six….

In 1987 Kamehameha hired Holt as an assistant athletic director, which came as a big surprise to the Kamehameha president, Jack Darvill. He was not aware that an assistant athletic director was needed or even what the job might entail. … Holt was later brought to Kawaiahao Plaza as a special projects officer, another position created just for him….

By the early 1990s, though, Holt’s life was unraveling. In 1992 he was jailed for two days for misdemeanor spouse abuse. In 1995 he was arrested in New Orleans for public drunkenness. He sometimes looked disheveled and was spending increasing amounts of time in Las Vegas and Reno; while there he charged personal entertainment on his Bishop Estate credit card, thousands of dollars.

At home in Honolulu, Holt used the same credit card at what were called “hostess bars.” These strip clubs charged two or three times the normal price for a beer; other services cost more. In a single night at the Crystal Palace, Holt signed for $540.50; another night, at the Monte Carlo, he ran up a $751 tab; and his evening at New Secret cost $1,500.

Holt’s credit card statements raised the eyebrows of low-level staffers in the accounting department at Kawaihao Plaza, but Henry Peters took care of things. For years he reportedly instructed the accounting staff to pay the bills and not tell the other trustees about the charges.

When word of this finally got out, the trustees decided that the trust should be reimbursed. However, there was a problem: Holt did not have anywhere near the amount of money needed. A creative solution was devised. Holt would be given a bonus exactly equal to what he owed, as well as state and federal taxes on the bonus itself, calculated to the penny. It was all done on paper; no money changed hands. Holt’s personal obligation to reimburse the trust simply vanished….

It did not matter what Milton Holt was called at Bishop Estate – associate athletic director, special projects officer, community relations officer – his main service was in gathering political intelligence and exerting political influence for Bishop Estate. Holt’s credit card statements indicated that he had pick up the tab for many meetings with lawmakers and appointed government officials, including “meetings” that had taken place in strip clubs.

When the Star-Bulletin tracked down and published details, it caused a stir. Elected officials were named in print and on television news in the same breath with Crystal Palace, New Secret, Misty II, and Saigon Passion: Joseph Souki, speaker of the house of representatives; Calvin Say, chairman of the House Finance Committee; Terrence Tom, chairman of the House Judiciary Committee; Norman Mizuguchi, president of the senate; Joe Tanaka, Honolulu city councilman; and Robert “Bobby” Bunda, state representative….

All of this raised an important question: Was entertaining government officials on his Bishop Estate credit card just a matter of Holt’s having a good time with old colleagues? In that case he should never have charged the expenses to his employers’ card. Or was he trying to influence government officials on matters important to Bishop Estate? In that case Holt and the trustees were skating on extremely thin ice with respect to the laws governing the lobbying activities of charitable trusts.

For Bishop Estate, the question of lobbying – private advocacy with a goal of influencing a government body – was sensitive. Like other charities, Bishop Estate could legally try to influence government officials only in limited ways. The wrong kind of influence, or even too much of an acceptable kind, could bring trouble. If violations were serious, and especially if they were premeditated and repeated, the trust could lose its tax-exempt status – and Holt’s extensive entertaining of legislators was coming to light just as the IRS was actively investigating the trust.

There also were rules on the receiving end of attempts to influence. Politicians were generally required to report campaign contributions and gifts. But none of the annual disclosure forms submitted by politicians whose names turned up in Holt’s documentation ever mentioned a strip club.

~ ~ ~

Three years earlier, shortly after John Waihee left the governor’s office in 1994, state Representative Ed Case had though the time might be right for reform at Bishop Estate. He drafted a wide-ranging bill that, if passed, would change the way Bishop Estate trustees were selected, limit trustee compensation, and secure legal standing for Kamehameha alumni so they could hold trustees accountable. In the months preceding the 1995 legislative session, Case painstaningly met with each of his colleagues, one at a time, explaining the bill and why it was needed. These efforts paid off: thirty-one of the fifty-one members of the house signed the bill as co-sponsors, a clear majority.

Then Bishop Estate went to work. Alumni protested, and trustees huddled with their friends in the house. GRD staffers prepared testimony against the bill, recruited people to present that testimony as their own, and arranged for their transportation to the Capitol. On the day the bill was to be considered by Case’s committee, Hawaiians flowed into the hearing room, outraged by the “attack” on Pauahi’s legacy. Emotional testimony in opposition to the bill went on for many hours.

By then, Henry Peters was no longer speaker of the house, but his successor, Joe Souki, had his own relationship with Bishop Estate: a $132,000 “consulting fee” for services rendered when the trustees bought land in upcountry Maui….

Case watched helplessly as the thirty-one co-sponsors of his bill were picked off, one by one, until there were none….

* * *

CHAPTER 20

“Healing” and “Closure”

The day after the last of the trustees resigned, the interim trustees announced a name change. Looking forward, the historic trust would be called “Kamehameha Schools.” … The stated reason was to provide a sense of “closure” on the turmoil of the past few years and to promote “healing.”

~ ~ ~

THE FORMER trustees were gone, permanently, but the story was not over. Surely there would be serious consequences for the many individuals who had participated in the abuse of Princess Pauahi’s trust, or who had witnessed it and done nothing to stop it. Trust law requires new trustees to hold former trustees (and their lawyers) accountable for harm done to a trust. Also, the new trustees had promised IRS officials a thorough “housecleaning.”

The only question was, just how thorough would it be?

~ ~ ~

In a 1998 court filing (Attorney General Margery) Bronster had asked the probate judge to appoint a single full-time, highly qualified administrator to run the Bishop Estate organization until all the legal issues could be sorted out in court. Judge (Kevin) Chang declined to take that approach in May 1999 when he emptied the boardroom at the Internal Revenue Service’s behest. He chose instead to upgrade the five special-purpose trustees to “interim trustee” status, and left it to them to figure out how to run Bishop Estate….

THE MANAGEMENT and accounting systems were virtually dysfunctional. It was essential that the interim trustees hire the right kind of people to deal effectively with the many educational, business and legal issues that had accumulated during the years of abuse, controversy and turmoil. Saying that this required “a good law firm,” the interim trustees retained Watanabe, Ing and Kawashima, a politically akamai firm — Douglas Ing was one of its senior partners. The interim trustees also retained Bruce Graham and Michael Hare and their firms — lawyers who had served the former trustees for more than a decade. That was the legal team.

To run the organization the interim trustees chose Nathan Aipa, explaining that “he knew where things were.” Because Aipa had been the trust’s chief in-house lawyer since 1986, he probably did have a lot of inside information. Under the circumstances, however, that hardly seemed like a good reason to promote him to the top executive position in the organization. The former trustees had literally set a world record for trust abuse on Aipa’s watch. He may have been actively involved. In the 5701s, the IRS likened him to “a sixth trustee.” Now, rather than being forced to resign like the five actual trustees, the “sixth trustee” was at the helm of the multibillion-dollar Bishop Estate. That gave him control over the flow of information to and from this brand-new board of part-time trustees.

To fill Aipa’s old position, the interim trustees chose Colleen Wong, who had been Aipa’s right-hand person for the last ten years. There had been no housecleaning; instead, the old guard had been put in charge and handed the keys.

ALL THIS shocked Dorothy Sellers, Hugh Jones and Daniel Morris, deputy attorneys general who had worked for the past two years on cleaning up the mess at Bishop Estate. They immediately contacted the interim trustees and explained that the lawyers who served the former trustees had either provided flawed legal advice or stood by silently — and illegally — as the trustees ignored good advice. The deputies also explained that the former trustees were sure to defend any legal action against them by arguing that they had just followed their lawyers’ advice.

This meant that those lawyers — the ones the interim trustees had just rehired and put in charge of the entire organization — had a very strong personal incentive to prevent any finding of serious misconduct by the former trustees. They added that a lawyer such as Ing, who had recently represented a now-former trustee, should not be advising the interim trustees on their duty to pursue claims against former trustees, which included Ing’s former client, Oswald Stender. The deputies explained that Ing had a classic conflict of interest, which might tempt him to try to protect his former client, even at the expense of the trust. The interim trustees listened and then essentially told the deputies to mind their own business.

IT WAS IRONIC, said the deputy attorneys general, that dealing with the interim trustees did not feel different from what they had experienced before: The former trustees had received legal guidance from Bruce Graham, Michael Hare, Nathan Aipa and Colleen Wong, and now, despite years of trust abuse, legal wrangling, emotional turmoil, and the complete change of trustees, the interim trustees were relying on these same four lawyers, plus Douglas Ing….

Legal tactics that the deputies described as “stonewalling” went on unabated….

Not long after taking control of Bishop Estate, the interim trustees announced their intention not to assist in efforts to surcharge the former trustees, a decision that appalled the deputy attorneys general. Lawyers for the interim trustees had advised their clients that any form of cooperation with the attorney general’s office on this matter would jeopardize $75 million of insurance coverage: Insurance policies purchased by the former trustees essentially said that the companies did not have to pay any claim in which one policyholder sued, or assisted in a lawsuit against, another policyholder. This arguably included a present trustee suing, or assisting in a lawsuit against, a former trustee.

Such a contract provision, however, violated public policy, making it unenforceable. Trust law does not allow former trustees to tie the hands of their successor trustees like that.

If asked, the court would have declared invalid that provision of the contract — but the interim trustees did not ask any court to do that. Instead, they treated this convenient but illegal contract provision as clearly enforceable. Reminded of their fiduciary duty to hold their predecessors accountable for harm done to the trust, the interim trustees responded that they had no interest in “seeking retribution.” They said it was time to “look forward, not backward.”

IN MAY 2000 a new master, Robert Richards, reported on legal fees that the former trustees paid out of trust funds during their last eight months on the job. Richards concluded that the former trustees should be required to repay $5 million of the total amount to Kamehameha Schools, and that some of the law firms that had received trust funds should be required to return all or part of the money to Kamehameha Schools.

Richards, a no-nonsense litigator who had played professional football before going to law school, did not spare the feelings of his fellow lawyers. … (For example,) Richards criticized Bruce Graham’s firm, Ashford and Wriston, for not seeing that there were “hopeless conflicts related to trustee misconduct.”

Regarding the work done by Bill McCorriston’s firm, McCorriston Miho Miller and Mukai, Richards reached what he called “certain inescapable conclusions:” “The most critical is that this was a defense of the trustees, not of the trust. There were monumental efforts made to keep trustee conduct from coming to light or, if it did come to light, to rationalize it.” Richards was equally critical of Cades Schutte Fleming and Wright. …

INSTEAD of following Richards’ recommendations, the interim trustees listened to their own lawyers’ advice, which was to hire two large mainland firms, Philadelphia-based Morgan Lewis and Bockius and Washington, D.C.-based Miller and Chevalier, plus law professors John Langbein from Yale and John Leubsdorf from Rutgers. For fees totaling $1 million, this team prepared a follow-up report that — unlike the Richards report — was somewhat sympathetic to the former trustees’ lawyers, essentially concluding that most of them were skilled advocates who had just followed their clients’ instructions. This follow-up report included practical advice:

“In considering whether to file a claim, the Trustees will want to consider both the cost of prosecuting such an action as well as the length of time such a proceeding might take. The Trustees will also want to consider the impact on Kamehameha Schools of negative publicity and controversy that would accompany prolonged litigation — precisely the type of controversy that Kamehameha Schools has worked so hard over the last 18 months to put behind it.”

Deputy Attorney General Sellers could hardly believe what was happening. She pointed out that Miller and Chevalier as well as Professor Langbein had themselves rendered significant legal services for the former trustees, so the study was “not independent.” It was also “self-serving,” according to Sellers, because the interim trustees were currently paying the Cades firm to do what the former trustees had previously paid that firm to do: “hinder the attorney general.”

THE INTERIM trustees did not respond to Sellers’ accusations. Instead, they announced that they would not be suing any of the former trustees’ lawyers or seeking a refund of trust money paid to them for work that, according to the Richards report, did not benefit the trust.

Before copies of the $1 million follow-up report could be made and distributed, lawyers for the trust asked Judge Chang to place it under seal, which he did.

Even lawyers from the attorney general’s office, whose job it was to monitor all charitable trusts, were denied further access, for the sake of “closure.”

~ ~ ~

Not long after taking control of Bishop Estate, the interim trustees announced their intention not to assist in efforts to surcharge the former trustees, a decision that appalled the deputy attorneys general. Lawyers for the interim trustees had advised their clients that any form of cooperation with the attorney general’s office on this matter would jeopardize $75 million of insurance coverage. Insurance policies purchased by the former trustees essentially said that the companies did not have to pay any claim in which one policyholder sued, or assisted in a lawsuit against, another policyholder. This arguably included a present trustee suing, or assisting in a lawsuit against, a former trustee.

Such a contract provision, however, violated public policy, making it unenforceable. Trust law does not allow former trustees to tie the hands of their successor trustees like that. If asked, the court would have declared invalid that provision of the contract – but the interim trustees did not ask any court to do that. Instead, they treated this convenient but illegal contract provision as clearly enforceable. Reminded of their fiduciary duty to hold their predecessors accountable for harm done to the trust, the interim trustees responded that they had no interest in “seeking retribution.” They said it was time to “look forward, not backward.”

~ ~ ~

In 2002, a panel of substitute Supreme Court justices – selected by Chief Justice Moonthrew out the criminal indictments against Peters, Wong, and Stone on procedural grounds. Without deciding whether crimes had or had not been committed, the substitute justices sharply criticized the attorney general’s office for being overzealous in its efforts to secure indictments: “The State’s interest in prosecuting these crimes is, at this point, clearly outweighed by the lack of fundamental fairness that would ensue were we to allow these prosecutions to continue.”

The justices did more than just throw out indictments. They unanimously declared the entire mater pau (completely done); no new round of indictments could be sought.

~ ~ ~

The various civil investigations were also ended abruptly.

A team of investigators that had been hired by Margery Bronster to look into Bishop Estate’s political activities asked her successor, Earl Anzai, for authority to interview various politicians regarding possible bribery and campaign spending violations. Saying that it was unlikely the individuals in question would admit to anything and that any violations were probably of minor significance, Anzai refused; he had decided that further investigation would be too expensive and was beyond what the public wanted.

Anzai did not make the investigators’ report public, nor did he share it with the deputy attorneys general who had worked on Bishop estate matters exclusively for the past three years. In each case, the reason given for the decisions to seal information and to let investigations lapse was to provide “closure” and “healing.”...

* * *

THE JUDGES

JUDGE KEVIN CHANG

In a potentially crippling blow, Circuit Judge Kevin Chang ruled that Bronster could not force production of privileged documents, as least not by issuing subpoenas as she had done, and that it was too late to start over in probate court. Bronster immediately appealed to the Supreme Court, where several years’ worth of cases were already backed up. Judge Chang had hobbled Bronster’s investigation in a single stroke.

~ ~ ~

Shortly after Jervis’ suicide attempt, Michael Chun spoke to the campus community on closed circuit TV about the need to remember that Kamehameha was a family, the need to fell for people as a family, to have sympathy, forgiveness. He asked everyone to pray.

Jervis made his suicide attempt only eighteen days before the scheduled start of his own interim removal trial. Now his lawyer was asking for a postponement, saying Jervis was in no condition to defend his personal interests effectively….

Deputy Attorney General Dorothy Sellers argued that Jervis’ self-destructive behavior was reason enough for removal. Judge Kevin Chang recently reassigned by Chief Justice Moon to probate court, disagreed with Sellers and granted the requested postponement.

The list of related trials had grown. There was Lindsey’s, which was about to end in Judge Weil’s courtroom; Peters’ and Wong’s upcoming trials in Judge Hirai’s courtroom; and Jervis’ trial, which would be presided over by either Chang or Hirai once Jervis recovered. There would also be one or more permanent removal trials for as many as four trustees sometime in the future, perhaps a year or two from now, and the trustees surely would appeal if they lost. At this rate, it would be at least several more years before things could be sorted out.

But then, on the last day of 1998, something big happened. Like a guillotine blade released in slow motion, the IRS issued notices of proposed adjustment, known as Form 5701. These documents could not have been more sharply worded. Essentially, the IRS officials had concluded that the level of abuse at Bishop Estate was unprecedented, leaving them no real choice but to revoke the trust’s tax-exempt status.

Normally the IRS would be willing to discuss the 5701s with the trustees, but this time was different. The trustees had irreconcilable conflicts and could not be trusted to adhere to any agreement that might be reached: they had “a history of ignoring probate court orders, master report recommendations, probate court stipulations, and the advice of independent experts.” The IRS flatly refused to communicate with the trustees or their agents.

The trustees’ personal interests directly conflicted with the trust’s interests because the IRS was demanding that each trustee reimburse the trust for millions in excessive compensation. The IRS was also troubled by the trustees’ use of trust funds to defend their jobs, level of compensation, and other personal interests.

Judge Chang agreed with the IRS. In early February 1999 he ruled that the trustees had “actual, adverse, and material conflicts of interest in matters involving the IRS audit.” Chang then appointed five “special-purpose” trustees to deal with the IRS on behalf of the trust estate. Chang’s way of handling the trustees’ conflict of interests was “startling” and “unprecedented,” according to several national authorities who were quoted in the media. They said it was unworkable. How could two sets of trustees function independently of each other, simultaneously?

The new special-purpose trustees – Ronald Libkuman, a former law partner of Chief Justice Moon; Constance Lau, a savings bank executive; Richard Coon, the retired headmaster of ‘Iolani School; Francis Keala, a former Honolulu police chief; and Robert Kihune, a retired U.S. Navy admiral – immediately gathered in a conference room at Arthur Andersen’s suite of offices.

Their first task was to review the 5701s and its 2,500 pages of attachments. The contents were sobering.

The IRS was proposing tax deficiencies, based on “creative” transactions between the trust and its wholly-owned subsidiaries, totaling hundreds of millions of dollars.

And that was not the worst of it. The real shocker was the IRS’ decision to revoke the trust’s tax-exempt status retroactive to July, 1989. An Arthur Andersen tax accountant estimated that this would cost the trust nearly $1 billion up front, and much more over time.

Soon, however, there was reason for hope. The IRS extended a highly unusual offer: officials from the national, regional, and district offices were willing to gather in Los Angeles with the special-purpose trustees and their advisers to discuss a way of resolving the matter without hurting Kamehameha Schools. When that meeting began on April 19, 1999, there were no pleasantries. One of the special-purpose trustees later described it as “something out of a movie” – ten to twelve very serious people on one side of a long table, facing a similar number of equally serious people on the other side.

Marcus Owens, who headed the IRS’ Exempt Organization Division at the time, began the meeting by saying he would be doing the talking; the special-putpose trustees were there to listen.

Owens said nobody liked the idea of revoking Bishop Estate’s exemption, but the scope and magnitude of abuse were unparalleled. The IRS was willing to negotiate anyway, but only if it was assured of fundamental change at Bishop Estate. He had a list of specific steps that needed to be taken, and the first item on his list was that all five current trustees must resign or be removed. These conditions, Owens said, were absolutely “non-negotiable.”

The special purpose trustees reported all this to Judge Chang, who gave Stender, Wong, Peters, Lindsey, and Jervis one week to resign or “show cause” why he should not remove them. Chang also ordered the trustees to stop paying compensation to themselves. This was five weeks after the end of Lindsey’s removal trial in front of Judge Weil and two days after closing arguments in Peters’ and Wong’s removal in front of Judge Hirai. Weil’s and Hirai’s decisions were still pending, and neither had given an indication as to when a decision would be forthcoming.

Four days later Goldman Sachs stock began trading on the New York stock exchange. Bishop Estate sold nine million shares at $53 per share as part of the initial offering. The $477 million it received was nearly as much as the trustees had invested in the first place, and the Estate had another twenty-two million shares that it expected to sell sometime soon.

Henry Peters told reporters it was ironic that his compensation had just been stopped and another grand jury had just been convened. “Anywhere else they would have a parade for me. Here they kick you in the butt and indict you.”

~ ~ ~

The IRS had accused Bishop Estate of breaking just about every applicable rule in the Internal Revenue Code. Tax lawyers from Washington told the interim trustees that the trust and its wholly owned businesses would almost certainly have to pay tens of millions of dollars in tax assessments because of overly aggressive tax maneuvers during the 1990s. However, it turned out that the IRS wanted more than just money. In order for the trust to keep its tax-exempt status there had to be a fundamental transformation. Bishop Estate would need to institute:

        a coherent screening and selection process that would yield qualified trustees in the future;

        a governance system in which trustees would limit themselves to setting policy and providing oversight to a well-trained staff;

        the explicit agreement of each new trustee to seek the removal of any co-trustee who might fail to fulfill a basic fiduciary duty;

        an independent internal auditor whose reports would be sent directly to the IRS as well as to the attorney general and probate court during a five-year probationary period;

        a thorough review of all existing employment and consulting contracts to ensure that services were necessary and the level of compensation was reasonable;

        adoption and rigid enforcement of a policy on conflicts of interest;

        development and implementation of a strategic plan, including investment and spending policies that would ensure prudent investing and proper funding of the trust’s charitable mission;

        the use of generally accepted accounting principles;

        a way for the public to access meaningful financial information;

        procurement practices that would replace cronyism and patronage with merit selection; and

        adoption of a policy against employing, reimbursing, or otherwise compensating any member of the legislative, judicial, or executive branch of government.

Non-financial demands such as these would normally have been left exclusively to the probate court to make. For the IRS to be making them was an unprecedented signal that it, the IRS, did not think any of these changes would be made without outside pressure.

The interim trustees eventually settled IRS claims for back taxes, interest, and penalties: the trust itself paid $13 million because of unrelated business income that the former trustees had not reported, and the trust’s wholly owned companies paid another $72 million to settle a host of transgressions, including the way Goldman Sachs investment had been reported.

Judge Chang approved the settlement, but only after noting that the IRS’ insistence on fundamental reform had intruded on the probate court’s turf, though he added that it was not altogether unexpected, “in light of the trust’s recent history.” Chang said the agreement would allow all the parties to achieve “closure” and begin “the healing process.”

The deputy attorney general asked Judge Chang to surcharge the former trustees more than $200 million and to support a thorough investigation of the justices, politicians, lawyers, and others whose behavior might have violated a civil or criminal law. Instead, Chang engineered a “global settlement” that included the interim trustees, the former trustees, Attorney General Earl Anzai, the trust’s wholly owned insurance company, and dozens of lawyers.

At Chang’s request, James Duffy and David Fairbanks mediated this settlement. Duffy had been Bishop Estate master twice in the early 1990s, and Fairbanks, whose father had served as the probate judge many years earlier, was currently serving as chair of the Judicial Selection Commission.

Liability insurance played a key role. There appeared to be two policies, one for $50 million and another for $25 million, but coverage on the larger policy had been lost when in-house lawyers for the trust failed to inform the carrier in a timely fashion of the potential claims. The smaller policy was still enforceable, but it had a “cannibalizing” feature, so the amount of coverage got smaller and smaller as the insurance company paid lawyers who were defending the trustees. By the time of the settlement, the carrier had already paid $5 million to the trustees’ lawyers, so only $20 million of coverage remained. The insurance carrier agreed to pay the remaining $20 million as part of the global settlement. The attorney general’s office received $1.3 million of this for out-of-pocket costs, and the trustees’ lawyers took another $5 million. That left about $14 million for the trust.

Under the terms of this agreement, the former trustees did not have to pay any surcharges, damages, or restitution. Nor did they have to admit they had done anything wrong. The agreement described all of this as “another important step bringing the painful, litigious, and expensive controversy surrounding the former trustees to a conclusion, and allowing the new trustees and executive management team to focus all their time, energy, and talents on the sole purpose of the trust – educating Hawaiian children.”

Judge Chang ordered the entire file sealed, again citing a need for “closure and healing.”


 

 

JUDGE DAVID EZRA

Judge Weil had removed Lindsey permanently on May 6, 1999, one day before Judge Chang removed her temporarily. Lindsey appealed Weil’s decision to the state Supreme Court and vowed to fight Chang’s ruling, too. Some lawyers believed that Weil’s ruling was flawed legally.

Lindsey never stopped wanting to reclaim her trusteeship, but she, too, lacked the money to continue fighting. It had been more than seven months since her last Bishop Estate paycheck. She was delinquent on her personal taxes, and the IRS had put liens on all her properties.

Standing in front of reporters on December 16, 1999, Lindsey said, teary-eyed, that she had come to the end of her resources and the end of her fight. Inf a resignation letter submitted to the court, Lindsey denied any wrong-doing and said that she knew in her own heart she had never done anything to damage or hurt the trust or its beneficiaries. She had fought, she said, to preserve Pauahi’s will and to preserve Hawaiian wealth for Hawaiians. She said this was not about her; it was about non-Hawaiians wanting Pauahi’s estate.

“It is a sad day for the princess, and I only wish I can go to her grave site and place black ribbons on her grave.”

In 2004 Lokelani Lindsey served six months in a federal prison for bankruptcy fraud. U.S. District Judge David Ezra had delayed her incarceration three times, for a total of eleven months, so Lindsey could care for her husband, who reportedly was terminally ill. Ezra changed his mind, however, when informed that Lokelani had been seen on several different occasions in a Las Vegas casino….


 

 

JUDGE EDEN ELIZABETH HIFO (fka Bambi Weil)

EMPLOYEES WHO QUESTIONED Bishop Estate’s doings were not treated so well. Bobby Harmon was a prime example.

Harmon began working at Bishop Estate in 1988 in the area of risk management. He had solid credentials and worked hard. For eight years his job evaluations were excellent, and he was promoted to president of P & C Insurance, a wholly owned subsidiary of Bishop Estate. Harmon’s job required him to evaluate risks, decide on insurance coverage and negotiate with brokers of independent companies for the best prices….

During the two years Harmon headed up P & C, from 1994 to 1996, Henry Peters was lead trustee for asset management. Between Harmon and Peters was Nathan Aipa (the estate’s chief in-house lawyer). Harmon came to believe that serious breaches of trust were occurring, exposing Bishop Estate to potentially large lawsuits and putting its tax-exempt status at risk.

For example, the trust’s tax counsel had stressed to Harmon the need for Bishop Estate to keep its for-profit subsidiaries, such as P & C, at arm’s length to preserve the trust’s tax-exempt status. Yet Harmon knew from experience that although he was president of P & C, it was Peters and Aipa who effectively ran the company.

Harmon also was concerned about decisions that seemed to go against the best interests of both P & C and Bishop Estate. Against his recommendation, a big insurance contract was given to a favored vendor at a cost more than double what Harmon thought he could have secured through competitive bidding.

Harmon also found instances in which trustees had not brought in the estate’s insurance carrier to defend the claims. This meant the trust would unnecessarily pay its own defense costs, and trust funds would be used to pay any damages that the insurance company would refuse to pay. This subjected the trust estate to big risks without any compensating benefit that Harmon could see.

What Harmon did not realize at the time was that trustees had their own reasons for keeping under wraps the details of certain trust investments — such as the McKenzie (Methane Corp.) deal in which four trustees secretly held personal interests.

In November 1996 Harmon made a list of things he had witnessed that made no sense to him or that appeared wrong, and (gave) it to Aipa and Peters. They told him not to concern himself with these matters; he should just do what they told him to do. But Harmon believed that his role as president of P & C required him to do more. He knew that new IRS regulations permitted someone in his position to be fined if a charitable trust incurred unnecessary expenses, and he saw no reason to subject himself to personal liability.

Harmon reported his concerns to the trust’s outside auditors, Coopers and Lybrand. … By the end of the following month, Harmon had been fired for “wrongful actions” and hit with an injunction that forbade him from discussing the circumstances of his firing with anyone. This was about six months before the publication of “Broken Trust.”

HARMON tried to find a job elsewhere in Hawaii, but without success. … And because the file said he had been fired for wrongful actions, he could not even collect unemployment benefits.

Harmon went to eight local law firms asking if they would be willing to sue Bishop Estate. … All eight firms turned him down. Then Harmon sent a long memo to several government officials and media reporters, saying he wanted them to know what had happened.

Within hours, Bishop Estate lawyers hauled him into court for breaching the confidentiality clause in his employment contract and violating the terms of an injunction. Judge Bambi Weil ordered everyone who had received materials from Harmon to return them to Bishop Estate. The estate’s director of communications, Elisa Yadao, declined to comment other than to say that Harmon was under injunction “because of his unauthorized removal of Estate property.”

Harmon had personally witnessed what he believed to be serious wrongdoing within a charitable trust. He had tried to get help from within the organization, then from its outside auditors. When he was punished for doing this, he expected the judge to encourage him to tell all. Instead, she muzzled him….

~ ~ ~

In November 1998 Judge Hirai announced that she would not remove any trustee, even temporarily, without first giving him or her a full-evidentiary trial. Hirai added that those trials would have to wait until Stender’s action against Lindsey had ended, which was likely to take four or five months. Two months earlier Bronster had asked for the immediate interim removal of all five trustees….

Also in November, Ben Cayetano was re-elected by a five-thousand vote margin. The following Monday morning, Judge Bambi Weil gaveled Lindsey’s removal trial to order. It would be a non-jury trial, one that veteran trust lawyers later described as unlike any other trial they had ever seen. Legal issues took a back seat to emotional ones. Virtually none of the testimony related to the serious, ongoing breaches of trust Matsumoto had identified. Instead, witness after witness focused on Lindsey’s arrogance and insensitivity. The Star-Bulletin called it “a modern-day morality play.”…

The reason for this highly unusual courtroom strategy was obvious. Lawyers on both sides wanted to avoid the many issues in Matsumoto’s report that would implicate their own clients. These included taking unreasonable compensation, using trust funds to fight the enactment of an intermediate sanctions law, accumulating income in violation of Pauhai’s will, investing in ways that violated the Prudent Investor Act, misreporting financial results, intervening in political campaigns, and violating various court orders.

Any one of these would be ample legal grounds for removing all five trustees….

~ ~ ~

THE ATTORNEYS

NATHAN AIPA

Stender also was surprised by Bishop Estate’s increasingly creative record keeping. Sometimes there would be three sets of minutes for a single meeting. Anything deemed sensitive was stamped “Confidential – Attorney-Client Privilege” and held by Bishop Estate’s chief in-house lawyer, Nathan Aipa. For years people whose job it was to keep an eye on the trustees, such as court-appointed masters and lawyers in the attorney general’s office, did not even know these documents existed. The trustees took the absurd position that anything said or done in Aipa’s presence, as well as anything given to him for safekeeping, was protected by attorney-client privilege and for that reason could be kept secret.

During the 1990s the trustees hired dozens of outside lawyers while adding yet more lawyers to Aipa’s in-house staff. Despite the presence of so many lawyers, there was never a written policy on conflicts-of-interest, and no significant effort was ever made to acquaint the trustees with even the rudiments of their fiduciary duties….

~ ~ ~

The Supreme Court justices were not the only ones with ethical issues. Dozens of lawyers were being paid millions of dollars from Bishop Estate trust funds for legal services supposedly rendered on behalf of “the trust.” They called this the “enterprise” theory. Under traditional trust law, however, a trust is a relationship between trustees and beneficiaries, not a separate enterprise. In Hawaii, lawyers for “the trust” were actually representing five individual trustees – not one trust. … Lawyers have a duty to represent the interests of each client to the fullest possible extent of the law. When the interests of individual clients begin to diverge, problems arise for lawyers who supposedly represent them all. For example, the duty of confidentiality owed by a lawyer to an individual trustee-client may be impossible to reconcile with that lawyer’s equally important duty to communicate fully with each of the other trustee-clients.

In the case of Bishop Estate, this meant that so-called lawyers for the trust had to choose which of their duties to honor at the expense of the others. When Stender asked Aipa for information that Stender needed to carry out his fiduciary duties as a trustee, Aipa sometimes told Stender that the requested information could not be provided because it was “confidential.” It is a breach of duty for a lawyer to intentially deny vital information to a client, and yet, had he provided that information, Aipa might well have breached the confidentiality he owed to another client.

With the Bishop Estate trustees’ interests in serious conflict with one another, lawyers like McCorriston, Hare, Graham, and Aipa found themselves in a virtually impossible situation. McCorriston claimed to have gotten three outside legal opinions essentially saying that Bishop Estate was an enterprise and his client was the board. When asked why it was, then, that his own court documents listed all five trustees as his clients, McCorriston replied, “That’s just the way you do it.”

Each trustee also hired lawyers to represent the personal interests of only that one trustee. Although the trustees personally hired dozens of such lawyers, most of the fees, which totaled millions of dollars, came out of Bishop Estate’s coffers.


 

 

COLLEEN WONG

Henry Peters often said that the only thing that could hurt Bishop Estate was government. So it made perverse sense that the trustees devoted an entire department at Kawaihao Plaza to making sure government was happy with them: the Government Relations Department with insiders called GRD….

Political activity was not limited to GRD personnel. Under oath, a Bishop Estate lawyer, Colleen Wong, described how Nathan Aipa, her boss, would get her to campaign for a favored candidate. Did she not feel that she could just say no? “I know Nathan wouldn’t have asked me to do something like that unless he felt he really needed me to do it, and so I didn’t voice my [reservations]. Quite frankly….if I had my way I wouldn’t have done it.”…

~ ~ ~

To fill Aipa’s old position, the interim trustees chose Colleen Wong, who had been Aipa’s right-hand person for the last ten years. There had been no housecleaning; instead, the old guard had been put in charge and handed the keys.

All this shocked Dorothy Sellers, Hugh Jones, and Daniel Morris, deputy attorneys general who had worked for the past two years on cleaning up the mess at Bishop Estate. They immediately contacted the interim trustees and explained that lawyers who served the former trustees had either provided flawed legal advice or stood by silently – and illegally – as the trustees ignored good advice. The deputies also explained that the former trustees were sure to defend any legal action against them by arguing that they had just followed their lawyers’ advice. This meant that those lawyers – the ones the interim trustees had just re-hired and put in charge of the entire organization – had a very strong personal incentive to prevent any finding of serious misconduct by the former trustees….

It was ironic, said the deputy attorneys general, that dealing with the interim trustees did not feel different from what they had experienced before. The former trustees had received legal guidance for Bruce Graham, Michael Hare, Nathan Aipa, and Colleen Wong, and now, despite years of trust abuse, legal wrangling, emotional turmoil, and the complete change of trustees, the interim trustees were relying on these same four lawyers, plus Douglas Ing.

Legal tactics that the deputies described as “stonewalling” went on unabated. One typical exchange began when a deputy accidentally discovered that Bruce Graham’s and Michael Hare’s firms had each responded to a former trustee’s discovery request without telling the attorney general’s office about it. This would be difficult to justify under the applicable rules, yet when the deputy attorney general requested copies of the firm’s responses, Colleen Wong instructed the two firms not to provide them. In a strongly worded letter, Deputy Attorney General Sellers called these “deliberate obstructionist tactics.”

On another occasion, a letter signed by Colleen Wong refused Deputy Attorney General Hugh Jones’ request to review legal opinions that Graham, Hare, and other lawyers had provided to the former trustees prior to the controversy that began in 1997. Wong contended that she had not looked to Graham for help in making this decision, but the word-processing code in the bottom corner of her letter contained Graham’s initials – which, according to Jones, meant that the letter “apparently had been drafted by Graham but signed by Wong.”…


 

 

DOUGLAS ING

To fill Aipa’s old position, the interim trustees chose Colleen Wong, who had been Aipa’s right-hand person for the last ten years. There had been no housecleaning; instead, the old guard had been put in charge and handed the keys.

All this shocked Dorothy Sellers, Hugh Jones, and Daniel Morris, deputy attorneys general who had worked for the past two years on cleaning up the mess at Bishop Estate. They immediately contacted the interim trustees and explained that lawyers who served the former trustees had either provided flawed legal advice or stood by silently – and illegally – as the trustees ignored good advice. The deputies also explained that the former trustees were sure to defend any legal action against them by arguing that they had just followed their lawyers’ advice. This meant that those lawyers – the ones the interim trustees had just re-hired and put in charge of the entire organization – had a very strong personal incentive to prevent any finding of serious misconduct by the former trustees. They added that a lawyer such as Ing, who had recently represented a now-former trustee, should not be advising the interim trustees on their duty to pursue claims against former trustees, which included Ing’s former client, Stender. The deputies explained that Ing had a classic conflict of interest, which might tempt him to try to protect his former client, even at the expense of the trust. The interim trustees listened and then essentially told the deputies to mind their own business….

It was ironic, said the deputy attorneys general, that dealing with the interim trustees did not feel different from what they had experienced before. The former trustees had received legal guidance for Bruce Graham, Michael Hare, Nathan Aipa, and Colleen Wong, and now, despite years of trust abuse, legal wrangling, emotional turmoil, and the complete change of trustees, the interim trustees were relying on these same four lawyers, plus Douglas Ing….

The issue of the attorney general’s right to review old legal opinions eventually wound up in court. Jones argued before Judge Chang that the attorney general’s office needed to know what the ousted trustees had been told by their lawyers regarding any number of questionable actions, such as investing personally in trust investments, spending trust money to fight enactment of the interim sanctions law, and accumulating trust income in violation of Pauahi’s will.

When it was Ing’s turn to address the court, rather than make a legal argument, he pointed at Jones and others sitting at that table, all of whom were haole, and suggested the existence of a hidden agenda. “They claim to come here on behalf of the beneficiaries, but look at them, Judge. Do you see in them compassion for Princess Pauahi Bishop’s will? Do they understand what Kamehameha means to the people of Hawaiian ancestry?” Ing contended that people from the attorney general’s office cared little about Hawaiians; people from that office served politicians who coveted Bishop Estate’s wealth. The primary threat, according to Ing, was not the former trustees, but those who were seeking to “wrest control of Pauahi Bishop’s legacy from Hawaiians.”

Judge Changwho happened to have been Ing’s law partner at the Watanabe firm before his appointment to the bench – ruled in Ing’s favor.


 

 

EXCERPTS FROM THE AFTERWORD by Jan Hanohano Dill

I find myself struggling with two powerful emotions. On one hand, the recounting of the long history of Hawaiians marginalized in their own land triggers a feeling of kaumaha, a sense of heaviness and grief….

This account of the recent battle to bring pono to the legacy of Princess Bernice Pauahi Bishop also stirs within me powerful feelings of pride and hope. It is a story of great courage, vision, and perseverance in the face of overwhelming odds….

This is not merely a story for Hawaiians or for people living in Hawaii; it is a human story. It demands from all of us a commitment to engage in the issues of our community, to be vigilant against the abuse of power, and to be willing to stand for what is pono, what is right, despite intimidation and threats. And to act wisely we must stay informed. We may not always agree, but we need to keep talking – to discuss and debate the issues and insights this story provides for our lives.

E ola mau ka makana a Pauahi!

Long live Pauahi’s legacy!

# # #

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FOR THE HONOLULU STAR-BULLETIN’S SPECIAL EDITORIAL COVERAGE OF THIS BOOK, GO TO > > >

EDITORIAL SECTION: EXCERPTS FROM THE BOOK

How grass-roots efforts stopped
a ‘runaway train’

A new book documents the rise, slide and rescue
of land-
rich Bishop Estate

By Susan Essoyan, Honolulu Star-Bulletin

IT was the worst of times for Bishop Estate, and many people would just as soon forget the scandal and struggle that swept the trustees of Kamehameha Schools from their koa-paneled board room six years ago.

But Samuel P. King, a senior federal judge, and trust law professor Randall Roth think there is much to be learned by examining the epic tale of a princess’ legacy gone awry and the Hawaiian community’s fight to reclaim it.

“It’s a story that ought to be told,” said King.

“You’ve got to tell it, not just bury it. You don’t want it to happen again.”

~ ~ ~

Introduction to Special Series, by David Shapiro

Foreword, by Gladys Brandt

Timeline

Excerpts: Chapters 5 & 8

Excerpts: Chapter 7

Excerpts: Chapters 12, 13 & 15

Excerpts: Chapters 16, 17 & 19

Excerpts: Chapter 20

Letters to the Editor – 03/05/06

* * *

Letter from Judge Eden Elizabeth Hifo – 03/12/06

Reply from Judge Samuel King and Randall Roth – 03/12/06

Letter from John Goemans – 03/15/06

* * *

Star-Bulletin Home

* * *

 


 

To buy this book, GO TO >>>

The Catbird Recommends: Broken Trust

~ ~ ~

(Also see: Lost Generations)


 

 

DIRTY MONEY, DIRTY POLITICS & BISHOP ESTATE

Part IPart IIPart IIIPart IVPart VPart VI

~ ~ ~

ALOHA HARKEN ENERGY!

HOW TO PLUCK A NON-PROFIT

THE BANKRUPTCY BUZZARDS

A CONNECTICUT YANKEE IN KING KAMEHAMEHA’S COURT

CLAIMS BY HARMON

DIRTY GOLD IN GOLDMAN SACHS

FLYING HIGH IN HAWAII: THE RON REWALD STORY

PREDATORS OF PARADISE

THE PUNA CONNECTION

THE PIRATES OF PUNALUU

RICO IN PARADISE

THE DEPARTMENT OF HOMELAND SECURITY

KAJIMA: BLOOD, BRIBES & BRUTALITY

THE KAMEHAMEHA SCHOOLS’ RETIREMENT FUND

THE MYTH & THE METHANE

THE NATURE CONSERVANCY

PARADISE PAVED

THE PEREGRINE FUND

I SING THE HAWAIIAN ELECTRIC

THE CONSUELO ZOBEL ALGER FOUNDATION

THE JOHN M. OLIN FOUNDATION

THE QUEEN LILIUOKALANI TRUST

THE GREAT NEST EGG ROBBERIES

TRACKING THE MURDOCH FLOCK

PARROTS IN THE NEWS ROOM

THE HARMON ARBITRATION

INVESTIGATING INVESTCORP

MARSH & McLENNAN: THE MARSH BIRDS

THE NESTS OF CB RICHARD ELLIS

THE POOP ON AON

PRUDENTIAL: A NEST ON SHAKY GROUND

P-S-S-T, WANNA BUY A GOOD AUDIT?

THE STORY OF ENRON

SUKAMTO SIA: THE INDONESIAN CONNECTION

THE RISE & FALL OF SUMMIT COMMUNICATIONS

VULTURES OF THE SANDWICH ISLES

WHAT PRICE WATERHOUSE?

YAKUZA DOODLE DANDIES

ZEROING IN ON ZURICH FINANCIAL SERVICES

 


 

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Last updated July 25, 2006, by The Catbird

 

 

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