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Friday, June 11, 1999




Ex-trustees
have to pay
own legal bills

The move will make it
difficult for them to
appeal their removal

By Rick Daysog
Star-Bulletin

Tapa

Bishop Estate's five trustees, ousted temporarily from their posts, will have to cover their own legal bills.

The new interim Bishop trustees recently ordered their insurance company, Chubb Corp., not to pay attorneys' fees for trustees Henry Peters, Richard "Dickie" Wong, Oswald Stender, Gerard Jervis and Lokelani Lindsey, according to Lindsey's lawyer Michael Green.

The move will make it difficult for the trustees to appeal their interim removals.

Green said the insurer initially indicated that it would pick up the legal costs for the various removal petitions and criminal cases involving the trustees.

But the estate's interim trustees believe the trustees are not entitled to those legal fees since the estate, and not the trustees, paid premiums on the trustees' errors and omission liability insurance, Green said.

Green noted that Lindsey has paid more than $700,000 in attorneys' fees to defend herself from the various legal actions against her. On May 6, Lindsey was permanently removed as a Bishop Estate trustee after a five-month trial over a removal suit by trustees Stender and Jervis. She also is the target of suits from the attorney general's office to remove her temporarily and permanently.

Green -- who is appealing Lindsey's permanent removal -- said he plans to ask a state judge to order the insurance company to pay for the legal bills.

"There's only so much she can afford financially," said Green. "Every time she turns around, there's someone else coming after her."

Green estimated that Lindsey's legal bills are lower than those of her fellow trustees. Peters and Wong also are targets of grand jury indictments, and all five trustees face potential liability from the Internal Revenue Services' wide-ranging audit of the multibillion-dollar trust.

"You are looking at the potential for millions of dollars owed by each trustee," Green said.


Judge explains
Lindsey’s ouster
from estate post

Judge Weil says Lindsey's breaches
of trust were serious and frequent

By Rick Daysog
Star-Bulletin

Tapa

Bishop Estate trustee Lokelani Lindsey misappropriated trust assets, micromanaged the estate-run Kamehameha Schools and created a climate of fear and intimidation at the Kamehameha Schools.

In a stinging, 190-page finding of facts and conclusions of law filed yesterday, Circuit Judge Bambi Weil laid out the reasons behind her groundbreaking May 6 decision to permanently remove Lindsey from her $1 million-a-year post.

Weil's report -- based on testimony from more than 70 witnesses and thousands of pages of court exhibits introduced during a five-month trial that ended in April -- concluded that Lindsey's breaches of trust were so serious and frequent that her continuance in office would seriously harm the multibillion-dollar trust.

Each breach by itself would be enough to warrant Lindsey's removal, Weil said.

"She used trust property and personnel for her personal benefit, mismanaged trust property and the Kamehameha Schools, and has shown a consistent lack of judgment demonstrating that she is unfit to be a trustee," Weil said.

"The record is replete with examples of trustee Lindsey's lack of due care and abuse of discretion which, together with the breaches of loyalty including misappropriation of trust assets to her own benefit, leads this court to conclude ... that trustee Lindsey was not sufficiently diligent in the performance of her duties."

Michael Green, Lindsey's lawyer, said he plans to appeal Weil's decision to the state Supreme Court and will ask Weil for a stay on her decision. If she refuses, Green said he plans to ask the state Supreme Court to issue a stay freezing Weil's order until an appeal can be heard.

Green -- noting that the appeal process could take as long as 18 months to complete -- said he believes that Weil abused her discretion by refusing to allow Lindsey to testify in rebuttal to several key witnesses in the case.

After Lindsey took the witness stand for about eight days near the middle of the trial, Lindsey was barred from responding to later testimony by trustee Jervis, schools President Michael Chun, and retired Circuit Judge Patrick Yim, Green said.

Yim's court-sanctioned fact-finding report, which Green said was devastating for Lindsey, alleged that Lindsey intimidated students and teachers, fostered an atmosphere of favoritism and was the source of much of the morale problems at the Kamehameha Schools.

"Mrs. Lindsey's conduct at this school in no way, shape or form rises to the level of a removal of a trustee. If you don't like her, you know what? Tough," said Green, noting that Lindsey has spent more than $700,000 to defend herself from various legal actions.

"There's nothing that says you have to like a trustee. There's nothing that says she shouldn't micromanage. Everybody was angry at her because she got in their face. But even the people that couldn't stand her said this person cared about the kids."

Weil's ruling comes after attorneys for trustees Oswald Stender and Gerard Jervis sued for the 60-year-old Lindsey's ouster in December 1997, saying she was unfit to serve as a trustee. Stender's attorney Crystal Rose commended Weil's decision, saying it validated years of complaints of Lindsey's conduct made by students and teachers of the Kamehameha Schools.

"The court found that she breached her duties by clear and convincing evidence," Rose said. "I believe it establishes pretty much all the findings that we presented to the court."

Weil said Lindsey, a trustee since 1993 and former superintendent of the Maui School District, acknowledged that she was bound by a higher standard of conduct than her fellow Bishop Estate trustees by virtue of her 30-year career as an educator. But Lindsey's actions were contrary to her educational expertise, Weil said.

In particular, Weil found Lindsey's release of her controversial 1997 report on students' academic progress "egregious" because it was based in part on inaccurate data and was not intended to be balanced. Weil also questioned the timing of the report, called "An Imperative for Educational Change," which came within days of the release of Yim's fact-finding report.

Lindsey's study stated that the longer students stayed at Kamehameha Schools, the worse they performed as measured by standardized test scores. The Lindsey report also said that more than 30 students in the 1997 senior class could barely read at grade level.

"Trustee Lindsey's deliberate release of the highly critical education report one day after her panicked response to the Yim report and without logical explanation was an imprudent, self-interested decision which she knew risked harm to Kamehameha Schools' personnel, students and reputation," Weil said.

Lindsey "disseminated in part inaccurate, damaging statistics on student performance, she made public accusations about personnel alleging fiscal improprieties, and she broke the fundamental rules of fairness by releasing the document before receiving or considering the school president's response."

On the financial front, Lindsey contributed to the waste of about $7 million of trust assets when she led the estate into "questionable investments," Weil said. Those investments included a money-losing New Jersey-based Internet venture known as KDP Technologies L.L.C. and an obsolete, distance-learning technology developed by Phoenix-based Education Management Group Inc.

Weil also found that Lindsey was not a victim of a campus conspiracy. Lindsey's lawyers have alleged that Stender launched a campaign of rumor and innuendo against Lindsey after she accused him of self-dealing in his 1995 attempt to acquire Kahului-based Maui Land & Pineapple Co. The Bishop Estate had previously expressed an interest in buying shares or assets of Maui Pine.

Stender has denied wrongdoing.

"The credible evidence has shown no conspiracy creating campus hostility," said Weil. "The credible evidence instead shows the Kamehameha Schools suffer great harm under Lindsey's trusteeship."

Weil's findings set major precedents in Hawaii trust law. Rose said that the judge's ruling will establish that standard of conduct not only for Lindsey but also for the current and future board members of the Bishop Estate as well as those of other charitable trusts in Hawaii.

Lindsey's fellow trustees Jervis, Henry Peters and Richard "Dickie" Wong are the target of a permanent-removal petition by the state attorney general's office. Probate Judge Kevin Chang also temporarily removed the four trustees and accepted Stender's voluntary resignation on May 7 after the IRS threatened to seek the revocation of the estate's tax-exempt status.

The decision also breaks new ground in that Weil said current and future students of Kamehameha Schools are the legal beneficiaries of the charitable trust.

Previously, the trustees of the Bishop Estate had argued that the school itself was the beneficiary of the trust, in a move that critics have charged removed board members from being held accountable for their actions.

"The hostility between trustee Lindsey and beneficiaries is extensive, pervasive and interferes with the proper administration of the trust," Weil said.

Tapa

What Judge Weil found

Excerpts from Judge Bambi Weil's findings of fact and conclusions of law in her order removing Lokelani Lindsey as a Bishop Estate trustee:

Bullet Lindsey breached her duty of loyalty by using estate assets for her own purposes, including her Punaluu home and family travels.

Bullet In disregarding contract provisions, escrow instructions and counsel advice, to the detriment of KSBE, Lindsey breached the duty of loyalty.

Bullet Lindsey also breached her duty of loyalty by placing her personal interest above those of the trust and its beneficiaries.

Bullet Lindsey committed breach of trust when she acted without consulting co-trustees in connection with the Baker-Van Dyke collection (of Hawaiian books and photographs, a $250,00 purchase), and when she made the unauthorized public release of her confidential education report.

Bullet She converted her authority as lead trustee for education to investigate matters at the school into one of control over major education decisions, inserting herself as a separate and independent decision-maker between the president of Kamehameha Schools and the board. She held a de facto veto over school operational, budget and policy matters intended for decision by the full board and exercised that power without consulting or informing other trustees, thus committing breach of trust.

Bullet Lindsey breached her fiduciary duty by her involvement in the mismanagement and waste of trust assets.

Bullet Lindsey also breached her trust duty by claiming to have special skill as an educator but acting contrary to the manner in which such expertise would be exercised. She failed to use common sense or educational expertise in an incident involving 1997 student body president Kamani Kuala'au. During the trial he testified Lindsey intimidated him. ... She further failed by preparing a biased, inaccurate and incomplete report of educational quality and personnel at Kamehameha Schools, and then released the report to the public knowing it would damage the school's reputation.

Bullet Lindsey breached her duties by abusing the discretion conferred upon her as trustee, including but not limited to the liaison capacity of lead trustee for the Education Group, the alteration of contract and escrow terms in connection with the Baker-Van Dyke Collection, and use of trust personnel to obtain government permits for her Punaluu residence.

Bullet The hostility between Lindsey and beneficiaries is extensive, pervasive and interferes with the proper administration of the trust -- specifically, Kamehameha Schools.

Bullet Having failed properly to use her education experience, Lindsey has no other experience or qualifications to recommend her as the fiduciary of a $2 billion charitable estate. Indeed, the business venture (KDP) and technological investment (EMG) she initiated were both questionable and were ultimately abandoned after more than $7 million of KSBE assets were invested. The major acquisition she negotiated for the 1996 purchase of the Baker-Van Dyke Collection is still not consummated, and good title to the photo segment remains undetermined. The record is replete with examples of trustee Lindsey's lack of due care and abuse of discretion which, together with the breaches of loyalty including misappropriation of trust assets to her own benefit, lead the court to conclude that trustee Lindsey was not sufficiently careful and diligent in the performance of her duties to meet the requirements of good stewardship of the trust. She must therefore be removed as KSBE trustee.



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