Harmon's Response to Louanne Kam's Declaration

BOBBY N. HARMON

10959 Southgate Manor Drive, No. 4

Louisville, Kentucky 40229

Respondent, pro se

THE ARBITRATION TRIBUNALS OF THE

AMERICAN ARBITRATION ASSOCIATION

-----------------------------

In the matter of the Arbitration between MARY LOU WOO, Trustee, Claimant, and BOBBY N. HARMON, Respondent

Case No. 74 166 00491 03 JAFA

Arbitration Date

June 14 and 15, 2004

Arbitrator

Judith Neustadter

_____________________________

RESPONDENT’S ANSWER TO DECLARATION OF LOUANNE K.L. KAM, ESQ. IN SUPPORT OF ARBITRATION BY TRUSTEE MARY LOU WOO.

I, Respondent BOBBY N. HARMON, do hereby present my ANSWER in response to LOUANNE K.L. KAM’s Direct Written Testimony, dated June 9, 2004, in Support of Arbitration by Trustee Mary Lou Woo.

Louanne Kam states that she is employed by Kamehameha Schools, and that she is the Director, Litigation Legal Division of Kamehameha Schools. She states that she is responsible for overseeing the civil litigation that involves Kamehameha Schools. She states that she knows Bobby Harmon as a former employee of Kamehameha Schools, and that after Harmon left Kamehameha Schools she has been involved with a series of legal actions involving Harmon. The third action she describes (p.2, line 24) concerns Harmon’s “complaint filed in U.S. federal court for RICO violations against Kamehameha Schools, its trustees, officers, employees, P&C Insurance, its insurance carrier – Federal Insurance Co., Inc., its insurance agents and adjusters – Marsh & McLennan and John Mullen, its attorneys – Torkildson, Katz, and its accounting firm – Pricewaterhouse, Coopers & Lybrand LLP.

“And finally there was Harmon’s bankruptcy.”

To the Question, “Explain how you were involved in the Settlement Agreement,” (p.3, L10), she answered, “I helped set Kamehameha Schools’ position and interest in settlement. I was advised on settlement negotiations being handled by outside legal counsel for Kamehameha Schools. I attended one or two settlement conferences with Magistrate Judge Barry Kurren. I secured the approval of the settlement from the Trustees of Kamehameha School.”

Harmon asks the Arbitrator to take particular note of Ms. Kam’s answer to this question, because it goes directly to the primary cause of the multitude of problems that have engulfed this case from the very beginning. As Harmon has stated in his Answer To Demand For Arbitration, filed on May 13, 2003:

“The Claimant’s description of the background for this case omits information that is pertinent to this arbitration process. It should be known that the ‘complaint filed in the U.S. District Court for the District of Hawaii against the Kamehameha Schools and its agents’ was a Racketeer-Influenced Corrupt Organizations (RICO) lawsuit which named as Defendants:

FEDERAL INSURANCE CO., INC.; P&C INSURANCE COMPANY, INC.; MARSH & McLENNAN COMPANIES, INC.; PRICEWATERHOUSE, COOPERS & LYBRAND, LLP; TORKILDSON, KATZ, FONSECA, JAFFE, MOORE & HETHERINGTON, A LAW CORPORATION; HENRY H. PETERS, RICHARD S. H. WONG, LOKELANI LINDSEY, GERARD JERVIS AND OSWALD STENDER, TRUSTEES OF THE ESTATE OF BERNICE PAUAHI BISHOP; JOHN MULLEN & CO., INC.; NATHAN AIPA; LOUANNE KAM; RODNEY PARK; WILLIAM S. RICHARDSON; GILBERT TAM; AND PETER LOWE....”

Please take note that LOUANNE KAM was one of the Defendants named in this RICO lawsuit. Consequently, any participation by Ms. Kam in the settlement negotiations for this claim constituted a very serious conflict-of-interest. The clear conclusion that one can make from Ms. Kam’s statement is that this insurance claim was being handled by Louanne Kam, in direct contact with outside legal counsel for Kamehameha Schools. She makes no mention of any involvement of an independent Claims Adjuster acting on behalf Kamehameha Schools’ insurance company or companies. Therein lies the basic problem. The Claims Adjuster has the primary responsibility, and authority, to settle claims under the terms of the insurance company’s insurance policy. The Claims Adjuster has the authority to hire outside legal counsel, if necessary, and to direct their activities. The Claims Adjuster and legal counsel then REPORT TO and are PAID BY the INSURANCE COMPANY – not the INSURED. An insured DEFENDANT in a lawsuit does NOT directly negotiate settlement with the plaintiff or the judge – regardless of whether he, or she, might be a lawyer.

Kam states that she “... secured the approval of the settlement from the Trustees of Kamehameha Schools.” When an insurance company is paying claims of this type under their insurance policy, it is generally not necessary for the company to secure the approval of the Insured – another indication that Kam was personally handling this claim without the involvement, or prior approval, of Kamehameha’s insurance company.

In answer to the question “Who represented Kamehameha Schools in the settlement negotiations?” (p. 3, L 23), Kam states:

“Because there were different legal actions, Kamehameha Schools had different attorneys involved in the negotiations. Matt Tsukazaki represented Kamehameha Schools and P&C Insurance as it related to the state injunction action and the unemployment insurance claim. Jeffrey Sia represented P&C Insurance in the RICO action. Ken Hipp represented Kamehameha Schools in the RICO action. Susan Tius represented Kamehameha Schools as it related to Harmon’s bankruptcy.”

It is significant to note that at no time does Louanne Kam mention that she was ever working with the insurance company’s Claim Administrator – only the outside attorneys and the Trustees – regarding the Settlement negotiations.

This is another indication that Ms. Kam, and possibly Nathan Aipa, were working directly with outside legal counsel in the settlement of this claim without the authorization or approval of the insurance company. This explains why none of the attorneys have been able to produce the Attorney of Record letters that I have requested numerous times during my “letter writing campaign.”

It also explains why Kenneth Hipp told me, as collaborated by Kam’s statement above, that he was representing the interim trustees in my RICO lawsuit. Yet, when it came to signing the STIPULATION FOR DISMISSAL OF COMPLAINT AS TO ALL CLAIMS AND ALL PARTIES WITH PREJUDICE, pertaining to the RICO lawsuit (Claimant’s Exhibit 3, Tab 40), KENNETH HIPP, ESQ. and CHRISTOPHER S. YEH, ESQ., signed as Attorney for Defendants HENRY H. PETERS, RICHARD S.H. WONG, LOKELANI LINDSEY, GERARD JERVIS AND OSWALD STENDER, TRUSTEES OF THE ESTATE OF BERNICE PAUAHI BISHOP.

Still yet, I can find no court records to evidence that Kenneth Hipp or Christopher Yeh ever appeared on the behalf of these individual Defendants in my RICO lawsuit.

This would explain, again, why these attorneys have never been able to produce Attorney of Record letters proving that they were, in fact, ever appointed to represent these former trustees, or that their appointment was ever approved by the insurance carrier, which would have been required. It explains why Kenneth Hipp, when I asked him who he was reporting to, responded, “Louanne Kam,” rather than an independent claims adjuster. It may also explain why none of the former Trustees signed the Settlement Agreement, even though they were the individuals named in the RICO lawsuit.

Last, but not least, is Susan Tius, the attorney who “represented Kamehameha Schools as it related to Harmon’s bankruptcy.” It is, first of all, unclear to me why Kamehameha Schools would need an outside bankruptcy attorney to assist them, IF the insurance company’s claim adjuster was handling what was basically a liability claim.

Second, there is the question of the relationships of Susan Tius to other parties in this case, especially Mary Lou Woo, Guido Giacometti, Sukamto Sia, Jeffrey Case, Aon Risk Services, Steven Case, Grove Farms, Hiluhilu Developments, LLC, Guy Lam, Torkilson Katz, et al., Sterling & Tucker, and Aloha Tower Partners, one of the creditors in this bankruptcy case.

For more details on the relationships between the above entities, refer to the following Exhibits:

www.the-catbird-seat.net/AAA-Guttman-5-29-1.htm

www.the-catbird-seat.net/AAA-Guttman-6-7-1.htm

www.the-catbird-seat.net/AAA-9-19-3.htm

www.the-catbird-seat.net/AAA-10-02-3.htm

For a more detailed description of how insurance claims were mishandled by Louanne Kam, Nathan Aipa, Colleen Wong, and the outside legal counsel for Kamehameha Schools, refer to Respondent’s Exhibit 8. This Exhibit can be found on the Internet at the following address:

www.the-catbird-seat.net/AAA-McCubbin-7-21-0.htm

To the question, “Was there a conflict of interest for the Torkildson law firm to be named in the RICO complaint and still represent Kamehameha Schools in the settlement negotiations?” Louanne Kam responded:

“No. When the RICO lawsuit was filed, Kamehameha Schools retained Jeffrey Sia and Ken Hipp. Torkildson represented itself in the RICO lawsuit and immediately won a dismissal of Harmon’s RICO complaint against the firm. At the time the settlement negotiations started, Torkildson had already been dismissed with prejudice from the RICO lawsuit. So there was no conflict during the time of the negotiations. There was also no conflict because there was no adverse issue between Torkildson and Kamehameha Schools.”

Kam’s answer to this question again indicates how Harmon’s RICO claims were not handled in accordance with usual practices for insurance claims. First, she states that Kamehameha Schools retained Jeffrey Sia and Ken Hipp for the RICO lawsuit. You will note in Claimant’s Exhibit 3 (p. 20), the Settlement, Release and Indemnity Agreement, that JEFFREY H.K. SIA has signed as the Attorney for P&C Insurance Company, Inc., in Civil No. 94-00304 (DAE) (the RICO Lawsuit). Therefore, either Louanne Kam’s answer is untrue, or Jeffrey H.K. Sia misrepresented himself when he signed the Settlement Agreement. This reflects to the purpose of many of the letters generated in my “letter writing campaign” for copies of Attorney of Record letters from the various attorneys in this case. The following letters are illustrative of this fact:

> Claimant’s Exhibit 35: ( www.the-catbird-seat.net/AAA-Guttman-4-2-1.htm )

> Respondent’s Exhibit 20: ( www.the-catbird-seat.net/AAA-Guttman-5-29-1.htm )

> Claimant’s Exhibit 53: ( www.the-catbird-seat.net/AAA-Sia-6-25-1.htm )

Jeffrey H. K. Sia has never responded to any of these letters, and no one has ever furnished a copy of an Attorney of Record letter evidencing that Mr. Sia was legally representing P&C Insurance Company in the RICO lawsuit.

The story with Kenneth Hipp, Esq., of Marr Hipp Jones & Pepper, follows much the same secretive scenario. In my letter dated June 25, 2001, addressed to Kenneth Hipp, Esq. and Christopher S. Yeh, Esq. (Claimant’s Exhibit 54), I wrote:

“On February 28, 2001, Judge Lloyd King granted the Motion to Withdraw as Attorneys for Debtors filed by Greg Dunn and Bradley R. Tamm. A copy of the signed Order is enclosed for your records.

“At the time of the judge’s Order, there were still some questions regarding the bankruptcy settlement that remained unanswered. As I am now acting pro se in this matter, I am therefore directing this inquiry to your office.

“My primary request is for copies of the engagement letters appointing you as defense attorneys for HENRY H. PETERS, RICHARD S.H. WONG, LOKELANI LINDSEY, GERARD JERVIS AND OSWALD STENDER.

“If you are unable to provide actual copies of these letters due to attorney-client privilege, then could you please advise the NAMES OF SIGNATORIES and DATES SIGNED for each letter.”

Respondent received no response to this letter, which resulted in further letters in his “letter writing campaign” which is at issue in this Arbitration. The obvious reason that these individual Defendants in my RICO lawsuit were NOT engaged by them – with the approval of the insurance company - but by Kamehameha Schools, without the consent of the insurance company and, most probably, the former trustees themselves.

Despite my many requests for these Attorney of Record letters, Kenneth Hipp and Christopher Yeh have NEVER furnished any evidence that they were representing these former trustees. Therefore, I believe that Louanne Kam’s answer in this case is correct – these attorneys were hired by, and represented, KAMEHAMEHA SCHOOLS and NOT the former trustees as individual Defendants in my RICO lawsuit. This also explains WHY none of the former trustees SIGNED the Settlement Agreement – they were never involved in the settlement negotiations and were never represented by Kenneth Hipp and Christopher Yeh, who were reporting to Louanne Kam and Nathan Aipa rather than an independent Claims Administrator representing Federal Insurance Company, the provider of Kamehameha Schools’ liability insurance. If this is correct, then Kenneth Hipp and Christopher Yeh misrepresented to the Court that they were representing these individuals when they signed the STIPULATION FOR DISMISSAL OF COMPLAINT AS TO ALL CLAIMS AND ALL PARTIES WITH PREJUDICE (Claimant’s Exhibit 4, Tab 40). It should be noted, however, that the copy contained in Exhibit 4 is UNSIGNED.

Addressing now Louanne Kam’s statement that there was no conflict of interest for the Torkildson law firm to be named in the RICO complaint and still represent Kamehameha Schools in the settlement negotiations, I have the following questions and comments:

1. Who engaged Torkildson Katz to represent Kamehameha Schools in the RICO case? Where is their Attorney of Record letter?

2. Who paid Torkildson Katz for this representation: Kamehameha Schools or Federal Insurance Company? Or, were they unpaid?

3. To whom did Torkildson Katz report in both the Harmon wrongful termination and RICO cases? In all correspondence included in the Exhibits for this case, there is never an indication that Torkildson Katz ever sent a copy of the correspondence to Federal Insurance Company or their authorized, independent Claims Adjuster.

4. Who was the Claims Adjuster for Kamehameha Schools in both the wrongful termination and RICO lawsuits?

5. Torkildson Katz was not a Signatory to the Settlement Agreement, yet claims that the Settlement Agreement discharges all liability for their firm based on their assertion that the Agreement releases “the KAMEHAMEHA SCHOOLS ... and their parent company(ies), subsidiaries, successors and assigns, and respective current and former trustees, directors, officers, employees, representatives, agents, legal representatives, and attorneys (collectively ‘RELEASEES’).” If this is true, then Torkildson has received financial benefit from Kamehameha Schools’ insurance policy which was carried through Federal Insurance Company. It should also be noted that Torkildson Katz did not contribute any monies to the Settlement - further evidence of a financial benefit to this firm. The questions then arises of whether these financial benefits were declared as income to Torkildson Katz on their IRS tax returns. Also, when multiple parties are covered under the same liability insurance policies, the Claims Adjuster certainly does NOT engage the same attorney (i.e., Torkildson Katz) to defend their Named Insureds (i.e., the former Kamehameha Schools’ trustees), and their law firms. These relationships, therefore, give clear, undeniable, proof of Torkildson Katz’s conflicts of interests in this case.

Louanne Kam answered the question, “After the Settlement Agreement was signed, what was the understanding of Kamehameha Schools as to any further contact from Harmon?” as follows:

“It was the understanding of Kamehameha Schools that upon the execution of the Settlement Agreement and with the approval of the settlement by the Bankruptcy Court that any and all demands, claims or complaints from Harmon would stop and there would be no further communication to or from Harmon. In fact, I had the understanding that Harmon was relocating back to Kentucky. Kamehameha Schools understood and believed that any relationship and contact with Harmon would end. There was the belief that Harmon would move forward with his life and that there would be no need for any further contact with him.”

A careful review of the Exhibits in this case will show that Harmon did not, in fact, ever make any demands, claims or complaints to Kamehameha Schools at any time prior to the withdrawal of his bankruptcy attorneys, Bradley Tamm and Greg Dunn, on February 21, 2001. This withdrawal was opposed by Harmon (Claimant’s Exhibit 5) due, in part, to the number of unanswered questions related to conflicts of interests with the Torkildson Katz law firm, and the characterization of the settlement as Wage Income. Upon learning that the Court allowed these attorney withdrawals (with the express approval of Steven Guttman), I asked Mr. Tamm how I should proceed, on my own, to obtain answers to these unanswered questions. Mr. Tamm’s reply was that since I was not represented by counsel, I was free to directly contact the parties or their attorneys, if represented. The first such letter after the attorneys withdrawal was, to the best of my knowledge and belief, my letter to Matt Tsukazaki dated March 4, 2001, (Claimant’s Exhibit 33), which was related to the IRS Forms W-2 and 1099-R. This document can be found on the Internet at:

Claimant’s Exhibit 33: www.the-catbird-seat.net/AAA-KATZ-3-4-1.htm

There was a letter written by Respondent dated February 1, 2000, to Tina Lisa Tamaru, PHR, Benefits Administrator, Kamehameha Schools Bishop Estate; however, this letter was a request for information regarding KSBE’s Retirement Plan in which Harmon is a participant (Claimant’s Exhibit 16). This letter was not a demand, claim or complaint. Trustee Woo and Louanne Kam, however, seem to believe that this letter is a part of my “letter writing campaign” and that this is evidence that Respondent has breached the Settlement Agreement.

Claimant’s Exhibit 15 is apparently related to Harmon’s letter to Tina Tamaru discussed above. This Exhibit is a letter dated February 15, 2000, from Steven Guttman to Arnold T. Phillips, in which he writes:

“Thank you for providing me a copy of your letter to Robert Katz.

“We discussed last week the renewed concern of Bishop Estate for future litigation because of the letter sent by Mr. Harmon subsequent to the settlement being placed on the record before Magistrate Kurren. Bishop Estate has requested that I meet with Mr. Harmon and have a further discussion with him regarding the release before proceeding with placing the settlement before Judge Lloyd King for his approval. Independent of the request from Bishop Estate, I think it would be a good idea for us to meet so that there is no further misunderstanding or misconception as to the Trustee’s position regarding Mr. Harmon’s exemption claim and your fees....”

Claimant’s Exhibit 17 is the letter referred to above from Arnold T. Phillips to Robert Katz, dated February 10, 2000, in which Mr. Phillips stated:

“With regards to the above referenced matter I am enclosing the Settlement Release and Indemnification Agreement document which has been executed by my clients.

“Mrs. Harmon has expressed her concern that the documents reflected a settlement figure of $-------- instead of $--------- which the figure that was discussed at the last settlement conference that she attended. She was, also, concerned that there is no statement in the document which indicates the net to the Harmons’ would be $---------- exclusive of my fee. I explained that this matter was discussed among counsel and the judge at the last conference which counsel attended and that although I did not believe that it was on the record it was my recollection that Mr. Guttman indicated he would reduce the amount to the estate by $10,000.00 to be able to provide the Harmons with the net figure of $-----------. Mrs. Harmon has signed the Settlement, Release and Indemnification Agreement based upon this representation....”

It is evident from Claimant’s Exhibits 15, 17 and 33, that these three attorneys, Guttman, Katz and Phillips, were already concerned about the possibility that I might later direct legitimate questions to personnel at Kamehameha Schools regarding my Retirement Plan or other benefits. You will note that this concern was first raised by “Bishop Estate”, but Mr. Guttman does not indicate the person or persons at Bishop Estate who raised this concern. Was this person possibly Louanne Kam? If so, was she acting with authorization and approval from Federal Insurance Company or their authorized, independent Claims Adjuster?

Louanne Kam answered the question, “What was the basis for this understanding?” in pertinent part, with the following statement :

“The Settlement Agreement contains a number of terms and provisions that essentially provide that any and all rights, claims and issues between the parties are released or waived and that there should be no further contact between the parties. The agreement provided for the release of any and all known or unknown rights and claims between the parties as it concerned (1) Harmon’s employment with Kamehameha Schools, (2) his working relationship with the Kamehameha Schools’ Trustees, officers, employees, and agents, (3) his services for P&C Insurance, and (4) his working relationship with P&C officers and employees. Harmon released any and all claims related to the underlying legal actions involving him against all those parties he named in his RICO complaint. Harmon had no right to future employment with Kamehameha Schools. All information related to the settlement would be confidential. Harmon had no right to indemnification for Kamehameha Schools, any of the parties and their affiliates as stated in the agreement. Simply, there should be no reason for any further or future contact between Harmon and Kamehameha Schools or its Trustees, officers, employees, and its affiliates and subsidiaries, as to any right, issue or claim related to or arising from his prior allegations or the settlement....”

Ms. Kam’s answer to this question displays an overly-strict interpretation of the Settlement Agreement and has several shortcomings.

First of all, it is impractical for anyone to expect that ALL CONTACT with a person’s previous employer can avoided. There will often be occasions when a person needs to contact his previous employer for such matters as tax forms and employee benefit information. For example, when I filed to receive benefits from my Kamehameha Schools’ Retirement Plan, my wife and I were asked to come to the Personnel Department on the Kamehameha Schools’ campus to discuss the benefits and beneficiary designations, and to sign the necessary papers.

I considered these personal contacts to be normal and necessary. At no time did the thought occur to me that, by making these types of contacts, I was breaching the terms of the Settlement Agreement.

Ms. Kam then quotes portions of Section G and Section H of the Settlement Agreement, after which she asserts: “All of Harmon’s claims about the W-2 and the 1099 forms, the conflicts of interest and demands for coverage for his defense of this arbitration are all addressed under these sections.” I continue to maintain, as I have stated in previous letters, that Ms. Kam is not the proper party to be interpreting the Settlement Agreement as she was one of the Defendants in Respondent’s RICO lawsuit, and thus has a conflict of interest with other defendants in this same lawsuit, including Matt Tsukazaki and Robert Katz.

In response to the question, “Describe the activities or conduct of Harmon, which are in breach of the Settlement Agreement,” Ms. Kam goes for one and a half pages complaining about my demands for W-2 and 1099 forms from Kamehameha Schools, and my refusal to accept the fact that I was not entitled to such forms. “Specifically, Harmon was informed that he was not entitled to any W-2 or 1099 forms from Kamehameha Schools because the settlement proceeds were not treated as wages by Kamehameha Schools and that the parties were adequately represented at the negotiations.”

I continue to maintain that the Claimant’s issue of whether or not the Settlement Agreement can be interpreted to include wages is not a proper issue for this Arbitration. This issue cannot be decided by a “plain reading” of the Agreement, or by even a “legal” reading. This is a question that needs to be decided between Kamehameha Schools and the Internal Revenue Service. It is not legal for a company to avoid paying taxes simply by deciding to call wages by another name. A “plain reading” of an Agreement is not sufficient justification to avoid paying Social Security and other employment taxes on monies that are meant to be legal compensation for a person’s wages - even though that person may have been discharged years earlier.

I call your attention to the following Exhibits relating to this characterization of the settlement as wages issue:

Claimant’s Exhibit 55 ( www.the-catbird-seat.net/AAA-Guttman-IRS-W2-3-28-2.htm ) is a letter from Respondent to Steve Guttman, dated March 28, 2002, which reads, in part:

This is regarding the unresolved issue of Kamehameha Schools’ failure to withhold Income and Social Security taxes from the bankruptcy settlement, and their failure to adjust my pension plan accordingly.

I believe that you mentioned to me that you were not an expert in tax law, so I would like to bring to your attention the following excerpt from an article published in The Bureau of National Affairs’ Corporate Counsel Weekly, Vol. 15, No. 43, p. 8 (November 8, 2000):

LAWSUIT SETTLEMENTS: TAX ISSUES FOR CORPORATE COUNSEL

by Robert W. Wood

When a lawsuit is settled and a corporation is the defendant, there are a host of tax considerations that should be taken into account. Most corporate counsel have been involved in disputed matters where the plaintiff insists on a certain tax characterization (for example, a recovery excludable as personal injury damages).

How to respond to this query, as well as various other pitfalls, deserves attention. In some cases, these issues will require the special assistance of a tax counsel. However, some of the issues can be solved by corporate counsel. At a minimum, corporate counsel must be able to spot the issues. The following list should be helpful in spotting the issues when they arrive.

Deductibility

The first thing that may worry corporate counsel on payment of a settlement amount (or a judgment) is whether the payment is deductible. In the vast majority of litigation arising in a business, the payment (together with associated attorneys’ fees) will be deductible. . . .

Another major area in which a deduction may be questioned is where the payment is in the nature of a fine or penalty. Under Internal Revenue Code Section 162(f), the payment of a fine or penalty is nondeductible. Note that this is only payment to a governmental entity. Punitive damages paid to private parties are fully deductible. Indeed, even if a payment is to a governmental entity and looks to be a fine or penalty, a deduction may still be available. . . .

Withholding Concerns

As all companies know, payments that are in the nature of wages are subject to withholding requirements for federal income tax, social security and unemployment tax, and generally state income and employment taxes as well.

If a lawsuit is brought regarding some kind of employment discrimination or wrongful termination, and a settlement is reached, the question is what portion of the settlement ought to be treated as wages. . . .

As far as the IRS is concerned, it does not matter that the worker has not been employed by the company for many years. Sometimes litigation takes five years or more to resolve. The mere duration of time does not turn something that was wages into something else. Generally, companies look to what the parties requested in their litigation documents (briefs, mediation briefs, experts reports, etc.).

Example: Suppose the plaintiff claims that the wage loss in a million dollar suit amounts to $400,000, and the defendant claims that the wage loss amounts to only $200,000. If the suit ends up settling for $800,000, then it would seem that a minimum of $200,000 should be allocated to wages. Very frequently the other side’s expert testimony (or damage study) can be useful in arriving at tax characterization decisions.

A word should be said about penalties a company may face. The penalty for failure to withhold is significant . . . It is important to make this withholding determination before the case is fully resolved. . . .

Reporting (Form 1099) Obligations

In settling a dispute, if an amount is subject to wage withholding, as noted above, there should be tax withholding and the employer should send a Form W-2 to the IRS and the plaintiff. If an amount is paid as general damages, punitive damages, or most other kinds of damages, it is subject to the general rule that a Form 1099 should be issued for the amount of the payment....”

< END OF QUOTATION >

Claimant’s Exhibit 10, a letter dated November 17, 1999, from Arnold Phillips to Steven Guttman, gives one of the clearest, most persuasive, arguments for the treatment of at least a portion of the settlement as Wages. In this letter, Mr. Phillips states:

“... On the other litigation the major element of damages which Mr. Harmon has is his loss of income and benefits from his employment at KSBE. Whether the damages are found to be due as a result of the RICO violation, the whistle blower action, wrongful termination or breach of contract they would cover the same elements of damage for the same time - November 1996 to date of trial.

“For these damages we consider Mr. Harmon to have a base salary of approximately $--------- and a complete benefit package covering medical and disability plus retirement contributions....”

“These damage estimates do not include the compensation for the tortious breach of contract, negligent and/or intentional infliction of emotional harm claims in the state court action. The damages for the negligent and/or intentional infliction of emotional harm could be substantial ...”

“Neither do these estimates consider the costs and expenses of any appellate work which may be necessary other than the work already performed in the state appeal.

“Finally, the estate should be aware of the possibility of a breach of contract claim against Federal Insurance on its failure to tender defense. If the estate decided to pursue this claim it should consider that these damages will be mitigated by the defense costs paid under Mr. Harmon’s homeowners policy coverage. Although this may produce an entitlement to homeowner’s carrier, it may not produce any asset for the estate...”

Claimant’s Exhibit 33 ( www.the-catbird-seat.net/AAA-KATZ-3-4-1.htm ) is also directly related to this wage issue.

Quoting from Page 10 of the Settlement Agreement (Claimant’s Exhibit 2), which, for some reason, Ms. Kam did not quote:

“RELEASORS understand and agree that the settlement amounts and other consideration described above constitute a complete compromise, accord and satisfaction, waiver and release of all claims for general and special damages, physical pain and emotional distress, and pain and suffering related to injury to reputation.”

SPECIAL DAMAGES, to the best of my knowledge, are considered to include WAGES. The key question, then, that was unanswered by the Claims Adjuster and the drafters of the Settlement Agreement, was not whether or not the Settlement included Wages, but HOW MUCH of the settlement proceeds was to be so-characterized. The only percentage figure ever given to me, and to the others at a settlement conference in Judge Kurren’s chambers, was Bradley Tamm’s statement that 100% of the proceeds was to be characterized as wages. Everyone at this conference, including me, agreed to this characterization. With the advice of my attorneys, Arnold Phillips and Bradley Tamm, I signed the Agreement with the understanding that the entire settlement proceeds payable to me would be treated as Wage Income. When I prepared my income tax for Year 2000, I reported the entire amount we received as Wage Income on IRS Form 1040, as well as on our Hawaii State Tax Return. If this were not to be reported as Wage Income, what should I have reported it as? Special damages? General damages? I believe the IRS would have questioned this entry if I had tried to pass off the entire amount as reimbursement for medical expenses, or some other thinly-disguised tax dodge. Can I go back now to the IRS and tell them that this was not Wages after all and ask them for a refund? And if they ask me who decided this was not wages, do I tell them that Arbitrator Judith Neustadter decided for Kamehameha Schools and Trustee Mary Lou Woo that a “plain reading” of the Settlement Agreement proved that these were not wages? And if the IRS asks for a copy of the Settlement Agreement to see whether or not they agree with this treatment, should I give them a copy of this document? If so, can I please get a complete, signed copy of the Settlement Agreement from Mr. Guttman in preparation for this eventuality.

This issue is also another clear indication that Louanne Kam, and others in the Legal Division of Kamehameha Schools, were handling these lawsuits on their own, without the approval and assistance of Federal Insurance Company. This is similar to the circumstances that occurred with the McKenzie Methane, William Rosehill, and Marcia Diver lawsuits described in my RICO lawsuit. Experienced claims adjusters generally do not make such obvious mistakes as paying settlements in employment termination claims without designating at least a portion of the proceeds as wages.

Ms. Kam also complains about the W-2 issue in connection with my so-called “letter writing campaign”:

“Not willing to accept this explanation, Harmon then started to write about these same complaints and sent his letters to the Trustees and Chief Executive Officer of Kamehameha Schools, the Internal Revenue Service, the Hawaii Department of Taxation, the Insurance Commissioners in California and Hawaii, U.S. Department of Justice, and Kamehameha Schools’ insurance carriers and agents.

“Harmon’s letter writing campaign violates the term and spirit of the Settlement Agreement.”

As attorneys, Louanne Kam, Matt Tsukazaki and Steven Guttman should all know that fraud, theft and other crimes can be reported to law enforcement authorities and regulatory agencies regardless of the terms of any contract. Not to report crimes is against public policy. Hawaii Insurance Statutes prohibit the coercion of claimants to not file claims against an insurance company. These regulations also require Claims Adjusters to be licensed by the State of Hawaii. To my knowledge, neither Louanne Kam, Rodney Park or Matt Tsukazaki are licensed Claims Adjusters for P&C, Federal, or any other insurance company.

Furthermore, Kamehameha Schools’ Employee Handbook requires employees to report any illegal activities to their superiors. In my letters to the parties named by Ms. Kam, you will note that they all are for the purpose of reporting improper or illegal activities by KS employees and their outside contractors.

Ms. Kam goes on to state, “Harmon has not limited his violations of the Settlement Agreement to his letter writing campaign. He has placed similar materials, documents, pleadings and letters, on his web-site. Harmon’s web-site contains material about his employment with Kamehameha Schools and his RICO lawsuit and allegations.”

My response to this is the same as my response above relating to the letters to the trustees and officers of Kamehameha Schools and its subsidiaries, and to law enforcement and regulatory agencies. A person cannot be bound by a contract not to report illegal activities. It was also my understanding that the RICO lawsuit and its related Exhibits, etc. are public information and not subject to the Confidentiality provisions of the Settlement Agreement.

To the question, “How has this breach of the Settlement agreement by Harmon injured Kamehameha Schools?” Ms. Kam answers by stating:

“The constant barrage of letters from Harmon for no legitimate purpose wastes the time and energy of the Kamehameha Schools Trustees, officers and employees. It forces Kamehameha Schools to expense valuable resources to address Harmon’s groundless claims and issues. It disrupts the operations of the administrative staff and interferes with the relationship that Kamehameha Schools has with its agents. It requires me and other Kamehameha employees to take our attention away from legitimate issues of concerns to the Kamehameha Schools to deal with letter received from Harmon.

“To the extent that the complaints are made to various state and federal agencies, Kamehameha Schools must respond to and address the inquiries of these agencies. Kamehameha Schools must expend its time, energy and resources, to explain to these agencies the facts and circumstances surrounding Harmon’s allegations, and the completed absence of any factual and legal basis for such allegations. Kamehameha Schools still retains and pays for the services of outside legal counsel to respond to or address Harmon’s claims and allegations....”

Herein lies a basic problem with Louanne Kam’s handling of insurance claims without the authority or consent of the insurance company. In most of the examples cited above of Kamehameha Schools having to expend its resources to answer my letters and complaints, the only expenditure needed was 37 cents for postage to mail the letter to their insurance carriers’ Claim Adjuster. It’s when she assumes the responsibility for handling claims that she also incurs the expenses for Kamehameha Schools that should rightfully go to the insurance company which is being paid substantial premiums for handling and paying these claims. As it relates to insurance provided by the estate’s for-profit insurance company, this also constitutes an illegal subsidy to the for-profit subsidiary. And, it’s when she violates the “arms-length” requirements regarding the separation of the charitable estate and its for-profit subsidiary that the estate’s activities can be called into question by the IRS, with possible fines reaching into the millions of dollars.

As time and space limit my listing here of all letters regarding the Attorney of Record issue as it relates to my so-called “letter writing campaign,” I will list just the following: Claimant’s Exhibit 5, letter dated January 10, 2001, from Harmon to Bradley R. Tamm. This exhibit can also be found on the Internet at:

www.the-catbird-seat.net/AAA-Tamm-1-10-1.htm

To the question, “Do you believe that this breach of the Settlement Agreement by Harmon has injured the bankruptcy estate?” Ms. Kam answers, “Yes.”

To the question, “How has this breach of the Settlement Agreement by Harmon injured the estate?” Ms. Kam replies: “The letter writing about groundless issues prevents the bankruptcy trustee from closing the bankruptcy estate. The estate and the parties to the Settlement Agreement cannot close this case and move forward. Furthermore, the estate must expend its limited resources to address this issue because Harmon refuses to accept the advice of bankruptcy counsel and his own counsel.”

To begin with, this seems to Respondent to be an improper question to be asking one of the Defendants in Harmon’s RICO lawsuit, and one of the Debtors to the Bankruptcy Estate. Ms. Kam is not an attorney for Ms. Woo, and thus cannot speak to these questions as to how this “letter writing” issue has injured the bankruptcy estate.

Secondly, Ms. Kam is aware that my counsel withdrew from the case years ago, and that is the reason why I must write these letters myself, without the advice of an attorney.

To the question, “What do you believe needs to happen to remedy the breaches of the Settlement Agreement by Harmon?” Ms. Kam answers:

“Closure of these matters with Harmon cannot be achieved until someone of authority tells him to stop. The Arbitrator should issue an arbitration award that finds (1) that Harmon has breached the terms and the spirit of the Settlement Agreement, and (2) that Harmon’s refusal to abide by the terms and accept the advice of his own counsel and the Trustee and his incessant letter writing campaign on (a) the treatment of the settlement proceeds, (b) the demand for a W-2 and 1099, (c) questioning the representation of the parties and their counsel, (d) demands that Kamehameha Schools or P&C Insurance or their carries or adjuster must provide insurance coverage or a defense in this arbitration, and (e) refusal to stop writing directly or copying the Trustees, officers and employees of Kamehameha Schools or its subsidiaries, and other state and federal agencies, are all acts of bad faith in violation of the terms and spirit of the Settlement Agreement.

“The Arbitrator should issue a ruling that forever prevents Harmon from resurrecting this same issues and complaints with any party to the Settlement Agreement, from communicating and contacting any of the parties and their counsel as to issues and claims directly and indirectly released by the Settlement Agreement or as identified above, and requiring Harmon to remove from his web-site all materials related to as to issues and claims directly and indirectly released by the Settlement Agreement or as identified above.”

Reasons why the Arbitrator should NOT issue such an arbitration award have been given above in my responses to Ms. Kam’s answers to the questions put to her by Steven Guttman. However, I offer these final comments regarding these Arbitration proceedings:

1) It is my belief that Kamehameha Schools should have been the proper party to demand this Arbitration, as they are one of the parties to the Agreement designated as “RELEASEES”. It is my understanding that they were given the opportunity to join Trustee Mary Lou Woo in her Complaint against Respondent, but did not pursue this course of action. With the tremendous financial resources available to the Kamehameha Schools, and with the insurance coverages for which they spend millions of dollars every year, it is inconceivable that they would let a small bankruptcy estate spend it’s limited money to fight the School’s legal battles for them – thus further depleting the estate’s meager assets so that its creditors receive fewer and fewer pennies on the dollar when the estate finally settles.

2) It should be noted that at the time of Harmon’s termination from his positions at Kamehameha Schools/Bishop Estate (“Bishop”) and P&C Insurance Company, Inc. (“P&C”), the Internal Revenue Service was engaged in an extensive audit of Bishop. This IRS audit ultimately led to the removal of the five trustees named in my RICO lawsuit, as well as substantial tax recoveries and surcharges against these trustees. I consider the attempts of the Legal Division of Kamehameha Schools to silence my reports of fraud, theft and corruption at the Estate to be an effort to obstruct justice in the Attorney General’s EQ 2048, and during the audits and investigations conducted by the IRS. (For additional information related to my “letter writing campaign” to the IRS, refer to Claimant’s Exhibit 15, Exhibit 31, and Exhibit 34, and Respondent’s Exhibit 19.)

3) I do not believe the Arbitrator has the responsibility, or the authority, to “tell me to stop” reporting claims to an insurance company; to stop making complaints to regulatory or law enforcement authorities; or to rule on the tax liabilities of Kamehameha Schools with regard to the Wage issue. Again, if Kamehameha Schools felt that Respondent’s letters to them breached the Settlement Agreement, they were the proper entity to demand this Arbitration. They declined to do so, but now are taking a “free ride” at the expense of the bankruptcy estate and its creditors.

4) Respondent has filed a number of outstanding claims against Kamehameha Schools, its employees (including Louanne Kam), its subsidiaries, its attorneys, its insurance brokers and management agencies, and related companies. Therefore, it is improper and imprudent for Ms. Kam to be acting as a Claims Adjuster and providing information to these proceedings that could later be used against her employer, her fellow employees, or Kamehameha Schools’ outside legal counsel.

DATED: Louisville, Kentucky, June 14, 2004.

_________________________

BOBBY N. HARMON, pro se