Tuesday, March 30, 1999

Both sides
file findings
in Lindsey case

Final arguments in the suit
to replace the Bishop trustee
will be heard Thursday

By Rick Daysog


Bishop Estate trustee Lokelani Lindsey mismanaged the estate-run Kamehameha Schools, created a climate of fear and intimidation, repeatedly misused and misappropriated trust assets and should be removed because her continuance in office will harm the charitable trust, attorneys for trustee Oswald Stender said today.

But Lindsey's lawyers countered that the estate's full board gave her broad powers over the management of the schools and instructed her to improve educational programs at the Kapalama Heights campus.

They also argued that she did not misuse estate assets and was a victim of a rumor campaign orchestrated by Stender and his supporters.

The opposing views represent a summary of what both sides believe they have proven in the four-month trial over Lindsey's potential removal as an $840,000-a-year trustee of the Bishop Estate.

Stender and Jervis sued for Lindsey's removal as trustee of the multibillion-dollar estate, alleging she breached her fiduciary duties and was unfit to serve as a board member.

Lindsey has denied the charges, saying she was a victim of a campaign of rumors to discredit her.

After hearing testimony from more than 60 witnesses, Circuit Judge Bambi Weil last month ordered lawyers for the Stender-Jervis team and Lindsey to file their proposed findings of fact by this morning and has scheduled closing arguments for Thursday.

Weil is expected to rule in the next few weeks.

In a 262-page filing today, Stender's lawyers said they have demonstrated that Lindsey has harmed the trust and that her continued presence on the board would hurt the schools.

They pointed to her controversial December 1997 education report that criticized students' academic progress at the schools.

The so-called Lindsey report, entitled "An Imperative for Educational Change," said that the longer students stayed at Kamehameha Schools, the worse they performed on standardized tests.

The report also said that less than half of the 12th-graders in the class of 1997 could read at grade level.

Stender's lawyer, Crystal Rose, said testimony from lay and expert witnesses has shown that the report is inaccurate and that it damaged school morale. Students, teachers and administrators testified that the were "hurt, shocked and angered" by Lindsey's "self-serving release of the report," Rose said.

Lindsey, Rose alleged, also misappropriated estate funds, taking more than 16 trips to Las Vegas at the expense of the estate. Lindsey also used trust employees to obtain shoreline certifications on her Punaluu home at the expense of the estate and received free trips from estate vendors to the 1997 Super Bowl game in New Orleans and the 1996 Olympic Games in Atlanta

Many of the expenses, which were later repaid by Lindsey, were the subject of inquiries by the Internal Revenue Service, which is conducting an extensive audit of the Bishop Estate.

"Mrs. Lindsey has used trust property and personnel for her personal benefit; Mrs. Lindsey has mismanaged trust property and the Kamehameha Schools; Mrs. Lindsey has consistently shown a serious lack of discretion and poor judgement demonstrating she is unfit to be a trustee;" wrote Rose.

"Mrs. Lindsey's continuance in office is not in the best interests of the trust and the trust beneficiaries and would be detrimental to the accomplished purposes of the trust."

Lindsey fired back with a 48-page proposed finding, denying that she breached her fiduciary duties or harmed the estate.

Michael Green, Lindsey's lawyer, said Lindsey's appointment to the board in 1993 came at a time when the trust was going through great change and that his client became a scapegoat for many of the changes implemented by the board.

Green denied that Lindsey misused trust assets and defended her release of the Lindsey report.

State calls Bishop
‘educational tragedy’

But the trustees say their investment
policies assure the future of the estate

By Rick Daysog


The attorney general's office called it an "educational tragedy" that has denied schooling for a generation of native Hawaiian children.

But two of the trustees of the Bishop Estate view it as a prudent move that's authorized by the will of the estate's founder and has been part of the trust practice for more than a century.

The allegation that board members of the Bishop Estate withheld more than $350 million in trust income from the estate-run Kamehameha Schools has emerged as a central theme in the hearing over the interim removal of trustees Richard "Dickie" Wong and Henry Peters.

In opening statements before Probate Judge Colleen Hirai yesterday, lawyers for Peters, Wong and the attorney general's office debated whether trustees were adequately serving the purpose of the 114-year-old nonprofit charitable trust.

Hugh Jones, a deputy attorney general, argued that trustees violated the will of the estate's founder, Bernice Pauahi Bishop, and previous court orders by failing to spend $350 million of the trust's annual income for educational purposes.

Accumulation documented

The accumulation -- documented by the trust's court-appointed master Colbert Matsumoto's reviews of the estate's 1994-1996 fiscal years -- would have grown to $1 billion by the year 2006, Jones said.

"Nothing less than an education tragedy has occurred. These dollars are not cold figures on a spread sheet. An entire generation of children have been denied benefits of the princess' legacy," Jones said.

"Trustee Wong said that the accumulated income was just plain-Jane savings. But tell that to the Janes of Hawaii who are not admitted to the schools."

Glenn Sato, attorney for Wong, argued that the money remains unimpaired in trust accounts. Sato said the will of Bernice Pauahi Bishop gives the trustees the authority to retain income to meet future education-related expenditures.

The practice, he said, is prudent because the trust is designed to exist in perpetuity.

Sato said letters written by Charles Reed Bishop, Pauahi's husband and one of the estate's first trustees, show that board members have relied on this practice for more than 100 years.

"If you are spending $200 million to build infrastructure and classrooms, you have to have some assurances that you will have the income every year to pay the teachers, the counselors and the janitors who clean the rooms," Sato said. "You accumulate that income and invest it so that you can assure yourself that those levels of income can be maintained."

Estate policies defended

Renee Yuen, attorney for Peters, argued that the current trustees have managed the trust wisely. Since Peters became a board member in 1984, the trust's finances have greatly expanded and its educational mission has grown, she added.

Yuen said the estate's recent financial prowess will allow it to expand its satellite campuses on Maui and the Big Island and add preschool programs statewide.

"If the Bishops were here today they would say to Henry Peters: 'You have held up well, you have maintained your dignity in face of unsubstantiated and unprecedented attacks,' " Yuen said.

"They would say 'job well done.'"

Yesterday's hearing was attended by Wong, Peters and Attorney General Marjorie Bronster.

Last September, Bronster petitioned the probate court to temporarily remove four of the five trustees, alleging they breached their fiduciary duties, mismanaged the Kamehameha Schools and jeopardized the estate's tax-exempt status.

Bronster also asked for the appointment of receivers to take over the duties of the trustees on an interim basis.

The trial, which will only cover issues raised in Matsumoto's master's reports, is expected to last about five weeks and will include testimony from more than two dozen witnesses called by the two trustees.

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