Thursday, March 25, 1999

Why are trustees
still on the job?

Critics say the delay has meant
further damage to the trust
and the schools

Bishop grand jury
expands inquiry

By Rick Daysog


The attorney general sued for it. Alumni groups demanded it. And more than 800 students at the Kamehameha Schools have signed a petition calling for the temporary ouster of at least four of the five trustees of the Bishop Estate.

So what's taking so long?

Six months after Attorney General Margery Bronster called for their immediate ouster, the petition to temporarily remove the trustees of the multibillion-dollar estate finally goes to trial Monday before Probate Judge Colleen Hirai.

But critics complain that the courts sat on the issue too long, allowing board members to cause further damage to the 114-year-old charitable trust and the estate-run Kamehameha Schools.

They cite the recent indictment of trustee Henry Peters on a criminal-theft charge, the continuing grand-jury investigation of trustee Richard "Dickie" Wong and this month's disclosure that trustee Gerard Jervis overdosed on sleeping pills after he and a female trust employee were caught in a compromising position in the men's room at a Waikiki hotel.

"Every day that goes by is another day for the children to suffer," said Cynthia Quinn, special assistant to Bronster. "We thought there was enough back in October to remove them."

Randall Roth, University of Hawaii law professor and co-author of the 1997 "Broken Trust" article that prompted the state to begin its investigation of the Bishop Estate 19 months ago, believes the probate court has the power to immediately dismiss all five trustees based on the evidence that has already been presented.

Roth said reports by the estate's court-appointed master, Colbert Matsumoto, and the Arthur Andersen accounting firm -- which found that the estate has suffered subpar investment returns since 1993 and has withheld more than $350 million of trust income from the schools -- show that the current trustees need to be removed temporarily.

While the trustees should be allowed to defend themselves against allegations in Bronster's separate request to permanently dismiss them from their $840,000-a-year posts, the potential damage to the estate calls for trustees' immediate interim removal, Roth said.

"The court's failure to remove these trustees is inexplicable," he said, noting that the indecision plays into trustees' strategy to delay the legal proceedings.

"I don't understand why (the court) seems unwilling to make a decision that should have been made a long time ago."

Bronster initially asked for the immediate interim removal of four of the estate's five trustees in September, but Judge Hirai placed the petition under advisement and scheduled Monday's evidentiary hearing.

Last Friday, Probate Judge Kevin Chang postponed hearings for Jervis due to his illness and delayed the state's temporary removal case against trustee Lokelani Lindsey, who is facing a separate removal suit by Jervis and trustee Oswald Stender.

The trial for Bronster's petition to permanently remove at least four of the five trustees will likely take place in the year 2000.

Responding to complaints about delays, estate attorney William McCorriston said he's surprised that critics such as Roth are calling for the trustees' immediate dismissal since the trustees are entitled to due process like any other citizens.

McCorriston believes that once the judge looks at the evidence, she will find there are no grounds for their removal. The trust is financially sound and is in the midst of a major expansion of its educational programs, he said.

"(The critics) are probably afraid that the evidence will not justify their charges," McCorriston said. "It's an age-old tactic to whip up public sentiment against people you don't like."

Removal of trustees rare

In Hawaii estate law, the removal of a trustee of a large entity such as the Bishop Estate is rare, although there have been removals of trustees in smaller family trusts recently.

The permanent removal of a trustee of a large private estate or foundation -- which can take as many as two years to work through a legal system -- frequently requires proof that there have been repeated and gross breaches of trust such as theft, conflicts of interest or other harmful behavior, local and mainland trust law experts said.

In the case of interim removals, which are extremely rare, a prosecutor has to show that a trustee's continuance in office poses a risk of immediate and irreparable harm to the trust. Some experts believe that a prosecutor does not have to prove malfeasance in a temporary-removal case.

About 1 years ago, the California attorney general's office sought the temporary removal as well as the permanent dismissal of a trustee of the $15 million estate of William and Inez Mabie, an educational trust based in Sunnyvale.

At the time, the trustee turned over all of the estate's assets to his father-in-law, who had claimed the founders of the trust had promised him the assets. The trustee resigned under pressure last year.

In a separate case, the California attorney general's office had considered seeking the temporary removal of several directors of the nonprofit Stanford University Book Store several years ago after the state agency sued to permanently dismiss the board members.

The Stanford bookstore lost about $1.8 million to inappropriate margin trading by the store's top executive. The executive also used foundation money to lease a Porsche 911 sports car, a motor home and two Cadillacs for his personal use.

The store's executive and several board members resigned voluntarily before the state could sue for their removal.

Ronald Malone, Wong's mainland trust lawyer, believes that Bronster's removal case is different from the California cases. According to Malone, the attorney general's interim removal petition largely relies on the argument that trustees accumulated income and failed to spend all of that money on the schools.

But Malone said the amount that a private trust spends on its educational programs should be up to the trustees and the guidelines of the trust's will. It should not be a decision that is made by an attorney general.

What's more, spending all the estate's income on the schools would not be wise for a trust designed to exist in perpetuity, said Malone.

"There's a lot of public pressure that supports the view that the Bishop Estate is rich and should give all of its money away. If the government had its way, the estate would spend a billion dollars on education, and in 20 years there would be nothing left," Malone said.

"I think it's very sad that public pressure has been worked to a frenzy where (many) believe that the trustees should be removed."

Daniel Kurtz, former head of the New York attorney general's charities bureau, disagrees with Malone's assessment, saying the problems at the estate are so egregious as to warrant trustees' interim and permanent removal.

Based on the news accounts he's read over the years about the Bishop Estate, Kurtz added that most courts would have removed the trustees long ago.

"There's too much money out there and no accountability," said Kurtz.

"It's kind of like the old adage: Absolute power corrupts absolutely."

Bishop grand jury
expands inquiry

By Rick Daysog


An Oahu grand jury investigating the Bishop Estate appears to have expanded the focus of its inquiry.

The secret panel -- which had been investigating board Chairman Richard "Dickie" Wong's alleged role in a kickback scheme -- met this morning to hear testimony from Bob Watada, the executive director of the state Campaign Spending Commission.

The grand jury -- impaneled by Attorney General Margery Bronster -- also subpoenaed Yukio Takemoto, head of the estate's budget and review group, the trust's in-house lawyer Nathan Aipa and Rodney Park, director of the estate's administration group.

Watada declined comment as he left the courtroom this morning.

The Campaign Spending Commission previously investigated allegations of campaign-finance abuses relating to the unsuccessful 1996 re-election efforts of former state Sen. Milton Holt and Sen. Marshall Ige's 1994 campaign.

In October, the commission said estate employees and several vendors may have violated the state's campaign spending laws, and referred the case to the attorney general's office for a criminal investigation.

A federal grand jury recently indicted Holt for theft and mail fraud relating to the alleged campaign finance abuses.

The vendors previously have denied wrongdoing.

Ige, a longtime friend of trustee Henry Peters, also denied that he violated campaign finance laws. This morning he said he was unaware that the grand jury was looking into campaign finance issues.

The commission's findings were originally raised by Bronster in her September petition to remove at least four of the estate's five trustees.

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