Wednesday, December 15, 2004

Damon trustees, master
have conflict, critics say

A local law firm is defending Damon Estate trustees against two lawsuits while one of the firm's members is supposed to be overseeing a court-ordered, independent review of trustee decisions involving hundreds of millions of dollars.

"From what we've seen, he's deciding everything in favor of the trustees."

Richard Sutton Jr.
Attorney representing a Damon beneficiary, referring to the estate's master

Critics say the firm's dual role presents a potential conflict of interest, one that could taint the role that the so-called master, as an appointed representative of the court, is supposed to play in impartially reviewing trustee actions.

But the trustees and the master deny any conflict exists.

A state probate judge will hear arguments at a hearing scheduled for Friday.

At issue is whether a conflict or an appearance of one exists given that attorney James Kawachika is serving as the court-appointed master while his law firm, Reinwald O'Connor & Playdon, is defending the estate and its trustees against two lawsuits stemming from the Mapunapuna floods in December 2003.

As master, Kawachika was assigned the task of reviewing the estate's accounts and operations from 1999 through 2003, a period in which the estate sold hundreds of millions of dollars worth of property and stock. Approval of his report will be considered at Friday's hearing.

Two days after Damon Estate sold its sizable holdings of Mapunapuna land a year ago, the area was hit by a major rainstorm, causing heavy flooding and losses for businesses.

Two affected businesses, Island Demo Inc. and PH Corp., subsequently sued the trustees and the city, alleging among other things that the defendants' negligence in maintaining Mapunapuna properties contributed to the flooding. The defendants denied the allegations.

Once the lawsuits were filed early this year, the estate's insurance carrier, First Insurance Company of Hawaii, retained Reinwald O'Connor & Playdon to defend the estate and its trustees.

A California attorney who specializes in probate litigation said his firm would not take a case involving the defense of a trust if it already had a member serving as a master reviewing that trust.

"It's more the appearance of a conflict than the conflict itself," said Edward Burgh, a Sherman Oaks attorney. "You just don't want to get into that situation."

Attorney Richard Sutton Jr., who represents Damon beneficiary Christopher Damon Haig, said in court papers that Kawachika and the trustees failed to disclose the potential conflict once Kawachika's law firm was hired to defend the trustees.

Sutton also said probate rules require that the master, as a court representative, have no conflict of interest with any party or issue in the proceedings.

In this case, Sutton wrote, the master's impartiality might "reasonably be questioned" -- the standard for determining a judge's disqualification -- because Kawachika's firm represents the estate while he serves as master.

Federal courts have determined that masters are analogous to judges, according to Sutton's filing.

Sutton said in an interview that Kawachika's decisions in recent months have consistently sided with the trustees, triggering even more questions about a potential conflict.

"From what we've seen, he's deciding everything in favor of the trustees," Sutton said. "If it's all one-sided, it raises even more of a concern."

Sutton asked the court to rule whether Kawachika has had a conflict since January.

Kawachika declined comment.

But in a court filing, he said the hiring of Dennis O'Connor to defend the trust in the two lawsuits was disclosed in the minutes of trustee meetings that were sent to Haig and other beneficiaries in May.

Six months later, after Kawachika completed his review and submitted his report, which generally was critical of Haig's objections, Haig for the first time raised the specter of a conflict, Kawachika said.

Under the circumstances, Kawachika said he questioned the sincerity of Haig's disqualification request.

"He would appear at this point to be forum shopping simply because he disagrees with the master's disposition of his objections," Kawachika wrote.

Kawachika also said that Haig failed to provide any facts or reasons supporting a claim of bias. Kawachika added that the lawsuits are "completely unrelated" to any issue in the current proceedings, he is not involved with the two cases at all and that his firm will defend the trust "as a whole, including the interests of its beneficiaries."

Kawachika nonetheless apologized to the court for not having brought the matter to the court's attention sooner.

In a separate filing, the trustees argued that no conflict exists and that the trust's insurance carrier selected who would defend the estate.

Damon Estate, one of the nation's wealthiest family fortunes, has started the lengthy process of terminating its operations and eventually will distribute upwards of $900 million in assets.

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