Thursday, September 10, 1998

Bronster: Dump three trustees now

The state attorney general says
Peters, Wong and Lindsey enriched
themselves at the expense of the estate
Bronster also says Peters and Wong
got Hawaii Kai land deal kickbacks

By Rick Daysog



ATTORNEY General Margery Bronster today called for the permanent removal of Bishop Estate trustees Henry Peters, Richard Wong and Lokelani Lindsey, saying the estate's majority trustees enriched themselves at the expense of the estate.

In a 58-page petition filed in state probate court this morning, Bronster said that Peters and Wong received kickbacks from a Hawaii Kai land deal between the estate and partnerships involving Wong's brother-in-law, Jeffrey Stone.

Peters also received improper payments from Mid Ocean Ltd., a Bermuda-based reinsurance company in which the estate was a large investor, according to Bronster.

Lindsey used trust employees to make improvements on her Hauula home in 1993 and mismanaged the Kamehameha Schools, Bronster said.

"Peters, Wong and Lindsey have consistently engaged in self-dealing at the expense of the estate," Bronster said today.

Bronster's petition today also alleges illegal campaign contributions -- "participation in a bogus invoice scheme" -- to several state lawmakers, including state Sen. Marshall Ige and former state Sen. Milton Holt.

The petition also notes that considerable trust assets were paid to House Speaker Joe Souki and state Sen. Joe Tanaka.

Point by point: Bronster, trustees respond to Master
Complete text: A.G. Bronster's response to the Master's Report
Complete text: Bishop Estate trustees' response to the Master's Report
Bishop Estate Archive

"The trustees have by their own actions engendered hostility between themselves and virtually all persons who are sincerely interested in the effectuation of the will (of Bernice Pauahi Bishop, the betterment of the Kamehameha Schools and above all the education of Hawaiian children."

An estate spokesman could not be reached for immediate response and the trust's attorney William McCorriston was not available for comment. Several Bishop Estate trustees and attorneys have argued that the state's investigation is politically motivated.

In the past, the three majority trustees have denied wrongdoing in the three transactions, in which Bronster alleged self-dealing.

Cynthia Quinn, special assistant to Bronster, said today's removal petition targets the estates' three majority trustees but does not rule out removal proceedings against the two remaining trustees, Oswald Stender and Gerard Jervis.

The trustees must demonstrate why the probate court should not remove them, she said.

The filing comes a day after Bronster called for the temporary removal of all five trustees, saying they took excessive commissions, jeopardized the charity's tax-exempt status and denied educational services to 43,000 native Hawaiians.

In her 29-page response to special master Colbert Matsumoto's review of the estate's operations for the 1994-1996 fiscal years, Bronster yesterday asked the probate court to appoint a receiver who would take over the daily operations of the multibillion-dollar trust on an interim basis.

She also urged the court to deny more than $2.5 million in commissions paid to each trustee for the three years ending June 30, 1996, and is expected to call for surcharges of $100,000 for each board member.

Bronster's removal requests come more than a year after she launched her investigation into allegations of financial mismanagement, breaches of fiduciary duties and manipulations of the student admission process at the estate-run Kamehameha Schools.

State attorneys said the temporary-removal request is based solely on findings made by Matsumoto's review.

It is not clear what impact the state's removal actions will have on other Bishop Estate-related litigation. The Internal Revenue Service is conducting an audit of the estate, and trustees Stender and Jervis are seeking the removal of fellow trustee Lindsey for alleged breaches of trust.

A hearing on Bronster's interim removal request yesterday and other probate-related matters is scheduled for Oct. 2. A hearing for the permanent-removal petition filed today won't likely be scheduled until August 1999.

Founded in 1884 by the will of Princess Bernice Pauahi Bishop, the estate is Hawaii's largest private landowner and one of the nation's largest charitable organizations. The estate was established to educate children of native Hawaiian ancestry.

Matsumoto's report, which was completed in August, criticized the estate's investment record and faulted trustees for failing to spend $350 million of accumulated income on the schools, in apparent violation of court orders.

The master's report also called for the establishment of a management system headed by a chief executive officer to replace the current system, in which trustees are in charge of the daily operations of the estate.

In her response to Matsumoto's report, Bronster argued that trustees failed to fulfill the educational mission set out in Bernice Pauahi Bishop's will and denied benefits to native Hawaiians in the following ways:

bullet Trustees eliminated educational services to about 43,000 native Hawaiian children and young adults when they phased out the estate's early-education programs and other off-campus outreach programs in 1995.

bullet They secretly hoarded $350 million of trust income that should have been spent on Kamehameha Schools and other educational programs.

bullet Starting in 1993, each trustees improperly took $100,000 in commissions from trust money spent on the construction of school facilities.

bullet Trustees failed to implement a strategic plan that matched the expansion of the estate's educational programs with growing revenues.

Local trust-law expert Randall Roth said it's no surprise that Bronster is seeking the removal of trustees.

"This is a predictable consequence of the master's report, which spelled out in clear terms that these trustees have set some kind of world record when it comes to breaching their fiduciary duties," said Roth, co-author of last year's "Broken Trust" article, which prompted the state's probe.

In seeking the immediate, interim removal of all five trustees, the state is arguing that trustees should demonstrate to the probate court why they should not be permanently removed.

Deputy Attorney General Kevin Wakayama argued that the probate court has the power to order trustees' immediate removal without scheduling a full-blown evidentiary hearing, which could take years to conduct.

He cited the 1935 case of the estate of George Holt. The state Supreme Court ruled the probate court has the discretionary power of removing a trustee for bad management or for an inability to work with fellow trustees.

Four of estate's trustees -- Jervis, Lindsey, Wong and Peters -- yesterday filed a joint response to Matsumoto's report, in which they agreed to take the master's recommendations under consideration. But the trustees said they were distressed by the negative tone of Matsumoto's analysis.

In their 113-page rebuttal, the four trustees said they have begun to implement a strategic plan and have agreed to implement a pilot program establishing an interim chief executive officer.

They added that recent cuts to the outreach programs were necessary as the estate embarked on an ambitious expansion of educational programs.

Matsumoto's concerns about the $350 million in accumulated income are overblown because the money is unimpaired and is earmarked for school expenses, trustees added.

Stender filed his own response to the master's report, saying he questioned why more of the estate's accumulated income was not being used for the schools.

Point by point: Bronster, trustees respond to Master
Complete text: A.G. Bronster's response to the Master's Report
Complete text: Bishop Estate trustees' response to the Master's Report
Bishop Estate Archive

Trustee ouster bid praised

Brandt, Heen and Dawson cheer
Bronster's petition to remove
the Bishop Estate trustees

By Mary Adamski


"There is action and for that, I'm thankful."

The response by former Kamehameha School for Girls Principal Gladys Brandt sums up reaction to Attorney General Margery Bronster's petition for removal of Bishop Estate trustees.

"This action is a promising one. At least we'll know where we're going," said Brandt. She is one of five prominent community leaders whose August 1997 "Broken Trust" essay in the Honolulu Star-Bulletin set off the official scrutiny into the charitable trust.

Removal of trustees "has been our position from the outset," said retired state appellate Judge Walter Heen, another "Broken Trust" author. "I would like to have had it done sooner.

Would prevent roadblocks

"Temporary removal would prevent the trustees from doing what they've been doing over the past year, putting up roadblocks and obstacles to a competent and fair investigation," Heen said. "The appointment of a receiver would allow the conduction of the estate's affairs without jeopardy to the estate's interests. Of course the ultimate removal (of trustees) is what we've been asking all along."

Heen said "There could be some transitional problems, but if you've got somebody with a good background in trust management, it's not unsurmountable."

"I think there would be a sigh of relief on campus that action is finally occurring," said Beadie Kanahele Dawson, attorney for Na Pua e Ke Ali'i Pauahi, a 2,700-member group of Kamehameha Schools parents, teachers and alumni who organized in 1997 to oppose trustees' management of the school.

"The children have been our concern from the beginning. They have had to bear the brunt of this controversy. Not just the campus, but the thousands of children who have not been admitted because $300 million has not been spent on education. Those are the children who have suffered," she said.

Dawson said the legal issues raised by the court master's report last month and the attorney general's actions this week will be discussed at the group's general membership meeting at 6 p.m. today at Kawaiahao Church's Likeke Hall.

Dawson said three previous court-appointed masters have recommended changes but "the trustees refused to appoint an experienced and qualified CEO and their excuse has been, they will act as CEOs themselves. If your CEO isn't performing, he is fired."

The children suffer

Toni Lee, president of Na Pua e Ke Ali'i Pauahi, said "The pitiful part of all this, the children continue to suffer. We'd like them to have a positive note in this year to remember.

"Interim trustees and a receivership while we clean this whole mess up ... is exactly what Na Pua has been asking. Now the ball is in the court's hands. They need to make a decision."

Na Kumu o Kamehameha, a group of 230 Kamehameha teachers and administrators, had in the past urged the permanent removal of majority trustees Richard Wong, Lokelani Lindsey and Henry Peters to protect students, their families and KSBE employees from the trustees' actions.

"Only then will our Kamehameha ohana be able to heal from the years of trauma Wong, Lindsey and Peters have caused the institution, rebuild our school community, and bring Kamehameha to its full potential of providing the highest quality education to as many Hawaiian beneficiaries as possible," Na Kumu said today in a statement.

Lee scoffs at Peters

Lee scoffed at statements by trustee Peters, who linked Bronster's investigation to Gov. Ben Cayetano's re-election bid. "It is another stonewalling, another step to delay proceedings. It is so timely that he came out the day before she went in with this filing, trying to get the public to view her in another light," Lee said. "Let's not stonewall anymore."

Dawson said although there is support for trustees Oswald Stender and Gerard Jervis, who disagree with majority trustees Wong, Lindsey and Peters, removal of all five "is a situation that simply has to be. There is a solid reason for that," she said. "Trust law requires that all trustees are responsible for all actions, unless they are excused by the court. They can't excuse each other.

"That's why the whole 'lead trustee' system (board-initiated division of responsibilities) is dead wrong. You cannot turn your back on fiscal matters because you are looking at the school. You remain responsible for all duties unless the court makes an allocation of duty. It is a matter of law."

Estate punishing teachers,
union says

Kamehameha Schools faculty protest
what they call unfair rules and may
press charges tomorrow

By Debra Barayuga


Kamehameha Schools/Bishop Estate is punishing the newly formed teachers union with unfair labor practices, said an attorney for the Kamehameha Schools Faculty Association.

The faculty association is giving its employers until noon tomorrow to remedy the situation or face charges of unfair labor practices, said Dean Choy, attorney for the faculty.

KSBE attorneys and school administrators are reviewing the faculty's requests and will be able to respond in some form by tomorrow, said Kekoa Paulsen, estate spokesman. He had not seen the letter and declined comment on the faculty's charges.

The unfair labor practices which Choy said KSBE has engaged in include:

bullet Refusing to allow the faculty association to hold meetings on campus after school;

bullet Taking away a $1,700 annual stipend given to teachers serving as grade level chairpersons; and

bullet Publishing a new employee handbook with rules that Choy says are vague and ambiguous, open to interpretation, and can be used as grounds for disciplining employees on a selective basis.

All employees are required to sign a release form saying they completely understand the rules contained in the handbook and can be disciplined if they break them. Disciplinary action clearly includes termination, Choy said.

For example, under conflicts of interest, the handbook says:

"Your activities, practices, actions or any other employment should be in the best interest of KSBE, and avoid the appearance of a conflict with the interests or image of KSBE."

Employees should refrain from engaging in any conduct which is disloyal, disruptive, competitive or damaging to KSBE, the handbook adds.

Conflicts of interest include "any unauthorized use or application of any confidential or proprietary information to the detriment of KSBE."

The rules violate labor practices because they unduly restrict and have a "chilling effect" on the right of employees to talk about the terms and conditions of their employment with others, Choy said.

One of the issues that led faculty to seek union representation in the first place was their desire to speak freely about school management without fear of retribution. Members of the faculty have been reprimanded for speaking to media in violation of their employment, Choy said.

Bishop Estate Archive

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