Dirty Money, Dirty
Politics and
Bishop Estate
Stealing the Legacy of a Hawaiian Princess
Sightings from The Catbird Seat
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PART IV - The Conspiracy Continues ...
* * *
Where we left off in Part III ...
Kamehameha Schools’ first CEO, Hamilton McCubbin had been fired for inappropriate sexual activities with a female staff member, and the trustees had just announced that Dee Jay Mailer would be his new replacement; a major real estate development project - the John A. Burns School of Medicine - had begun in cooperation with the University of Hawaii and Kajima Construction; some Kamehameha students had been arrested for making porn movies of their classmates, and the school had been sued by a former student who claimed she had been sexually assaulted over a period of several years by a fellow student; and members of their legal department, under acting CEO Colleen Wong, were hard at work (along with their public relations department and one of their outside law firms, Torkildson Katz Fonseca Jaffe Moore & Hetherington), practicing damage control....
June 22, 2004
Governorship floated on
river of corruption
By Don Michak, Journal Inquirer
HARTFORD - Gov. John G. Rowland’s resignation was forced by an array of questionable dealings with his political cronies and personal friends, who helped him live like the highly paid corporate executives he saw as his rightful counterparts....
While pundits point to Rowland’s belated admission last winter that he had accepted gifts from contractors as the main reason for his resignation, those probing the governor’s finances say it was all but assured a year ago after Rowland’s former deputy chief of staff, Lawrence E. Alibozek, admitted helping to steer state contracts.
Rowland and his top aides for years personally approved all big contracts awarded by state agencies, administration officials told the Journal Inquirer last year.
Aided by Alibozek, federal prosecutors began gunning for the real decision-makers in Rowland’s administration – the governor himself and officials like Peter N. Eilef, who, as the governor’s co-chief-of-staff, presided over the state trash authority’s disastrous $220 million deal with the now-bankrupt Enron Corp....
For more, GO TO > > > A Connecticut Yankee in King Kamehameha’s Court
April 26, 2004
PRESS RELEASE
Kamehameha Schools Tests
Aerial Rodenticide Drop
Kamehameha Schools tested an experimental aerial application of rodenticide pellets in the Keauhou, Ka‘u forest in August to study the feasibility of controlling feral rat populations in hard-to-reach sections of one of Hawai‘i’s most pristine native forests.
Rats are a primary culprit in the decimation of Hawaii’s native bird populations and the extinction of several species. As part of the study, wild pig populations in the area were also monitored.
After the Keauhou drop – which consisted of a single application over an area of roughly 750 acres of Kamehameha Schools land – 240 rats and 71 mice were confirmed killed by the rodenticide within the first two days of the drop. In addition, 12 wild pigs were found dead in the test area. The inadvertent animal deaths were immediately reported to health, forestry and wildlife officials.
“Kamehameha Schools regrets the inadvertent loss of the pigs in this situation,” said Robert Lindsey, Kamehameha’s Hawai‘i Island Region manager. “While we do work with the local hunting community to control wild pig populations on our land, our target in this case was the rat. The lessons we learn from this incident should be of value to all of us as we develop safe and effective tools to help control pests, and to manage our forests to the benefit of future generations.”
Use of the rodenticide had been allowed under an Experimental Use Permit (EUP) issued to Kamehameha Schools by the US Environmental Protection Agency in May 2003. Dropping rodenticide pellets by air is a methodology used successfully in New Zealand and on the Channel Islands off the California coast. However, aerial applications are not yet widely allowed in Hawai‘i. The aerial application in Keauhou was permitted as part of the EUP. Results from this experiment are of great interest to bird and forest conservation groups and other Hawai‘i landowners, including the state and federal governments, as a potentially effective, efficient method of controlling feral rat populations in highly sensitive areas.
The discovery of the pigs came as a surprise to researchers since the active ingredient in the pellets, diphacinone, is consid- ered safe for large mammals. In fact, diphacinone was originally developed – and is still used -– as a blood-thinning agent for humans. Prior laboratory tests of diphacinone on domestic pigs had not resulted in any animal fatalities. Tests and follow-up study have confirmed that the pigs died from eating an excessive amount of rodenticide pellets. Preliminary conclusions are that the consumed pellets were either raided from bait boxes, foraged from the forest after the aerial drop, or foraged from the test staging area.
In addition to the devastating impact rats and other rodents have had – and continue to have – on Hawai‘i’s native birds, they are also a major contributor to retarding the natural recovery of native forest and grass species. Rats and mice forage on the seeds and young sprouts of native trees and other plants, reducing or eliminating the natural seed stock available for forest and grassland regeneration. Rats are also considered a major vector in the spread of leptospirosis in Hawai‘I.
KS Press release dated April 26, 2004. Contact: Kekoa Paulsen, 808-523-6369
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Children's Health Environmental Coalition
HealtheHouse
Remember, the health effects noted in these profiles assume exposure to the pure form of the substance. The risk you face is affected by how much of the substance you are exposed to, its concentration, its form, the timing of the exposure (when and how long exposure occurs), other substances your child is exposed to, and his or her own individual sensitivity, which in turn can be influenced by age, sex, health status, and genetic make-up.
Chemical Profile
diphacinone
Rank: Red
Red = Danger! Prevent Exposure
Orange = Warning - Avoid Exposure
Yellow = Caution - Limit Exposure
Common Names: diphacin, ratindan, dipazin, diphenadione, diphenacin
Diphacinone is a restricted use rodenticide in the indandiones family, used in and around buildings, sewers, landfills and in agricultural settings. Diphacinone, an anticoagulant, causes bleeding and blood-thinning. It is more effective against rats than mice. Children may come into contact with diphacinone in its powder, pellet or bait forms. It should never be used anywhere near children!
Diphacinone is also used for medical purposes.
Significant Statistics:
According to American Association for Poison Control Centers, 20,206 people were exposed to rodenticides in 1999. Young children are the most common victims of exposure to rodenticides: 17,498 cases of exposure (87%) were children under six years of age.
Source: Litovitz, Toby, et al. “1999 Annual Report of the American Association for Poison Control Centers Toxic Exposure Surveillance System,” American Journal of Emergency Medicine, Vol. 18, No. 5 (September 2000).
http://www.aapcc.org/Annual%20Reports/99report/Entire%20Report.pdf
January 13, 2004
Panel touts doubling
Kamehameha salaries
The recommendation for the trustees is based on
"unanticipated" duties the board performs
The annual pay for Kamehameha Schools' five trustees would nearly double under a plan submitted by a court-appointed panel.
In a Dec. 22 report filed with Probate Court, the Trustee Compensation Committee for the Kamehameha Schools recommended the annual pay for each trustee increase to $180,000 from the current $97,500.
The three-member panel also proposed that the board chairman's annual pay increase to $207,000 from $120,000.
The new pay requires the approval of Probate Court, which has scheduled a Jan. 23 hearing.
"We are mindful that our determination and recommendation may be viewed by the casual observer on first impression as a significant increase in trustee compensation. However, on balance, during our study we also learned of the unanticipated and substantial demands on the time and talents of the trustees," the report said.
"Your committee is convinced that presently and for the foreseeable next few years, being a Kamehameha Schools trustees is virtually a full-time job."
The attorney general's office, which serves as the estate's court-appointed guardian, said it plans to raise objections with the court on the pay plan.
A recent study by Philanthropic Research Inc. for the attorney general's office found that average trustee pay for public charities nationwide with assets of more than $500 million is about $6,500 a year, said Deputy Attorney General Hugh Jones.
Philanthropic Research, which operates the Guidestar.org national database of U.S. charitable organizations, concluded that the proposed increase would make Kamehameha Schools' trustees among the highest paid in the nation for public charities, Jones said.
Kekoa Paulsen, a spokesman for the roughly $5.7 billion trust, said the board is declining comment on the report until the Probate Court takes action on the matter. One person familiar with the trust said the committee did not consult with the estate's board when it made its recommendation, although its consultants did interview several trustees about their day-to-day duties....
Trustee pay has been a source of controversy at the Kamehameha Schools, going back to the late 1980s and 1990s when board members were each paid up to $1 million a year. Legislative and court-mandated reforms implemented since then have capped board members' pay at "reasonable levels" set by an outside trustee compensation committee.
The committee, whose members include local attorneys Allen Hoe and David Fairbanks and Kamehameha Schools graduate Michael Rawlings, said the new pay structure is partly in response to recent challenges experienced by the trust.
Federal court lawsuits seeking to overturn the school's Hawaiian-preference admission policy, efforts to expand the school's educational programs and the abrupt resignation last year of the estate's chief executive officer, Hamilton McCubbin, have forced the estate's five-member board to spend more time and effort on trust matters, the committee said.
In its 28-page report, the committee noted that trustees Nainoa Thompson, Diane Plotts, Constance Lau, Robert Kihune and Douglas Ing attended more than 130 board meetings, executive briefings and community gatherings during the past fiscal year.
That is nearly three times the 45 yearly meetings the committee envisioned in 1999 when it capped trustee pay at $97,500 a year, the report said.
The committee's report is largely based on a study by Mercer Human Resource Consulting, which recommended an $180,000 annual retainer for board members and $225,000 annual compensation for the trust's chairman.
While trustees of many of the nation's largest public charities serve with less or no compensation, Kamehameha Schools' board members "spend far greater than double the amount of time spent by most corporate directors and trustees of large foundations," the Mercer report said.
"The issues confronted by the trustees from expansion of the schools, land use, environmental issues, to litigation concerning admission policies are most significant, complex and time-consuming matters that cannot be delegated or disposed of in a monthly meeting," the Mercer report said.
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For the complete article - along with a paid advertisement
by Mercer Human Resource Consulting - go to...
http://starbulletin.com/2004/01/13/news/story1.html
January 17, 2004
Trustee Raises Opposed
The state argues that a proposal to double
the Kamehameha board’s pay is flawed
By Rick Daysog, Honolulu Star-Bulletin
A proposal to nearly double the pay of Kamehameha Schools’ trustees relies on “flawed analysis” and could “again endanger the trust’s tax-exempt status,” the state attorney general’s office said.
In documents filed in state Probate Court yesterday, Deputy Attorney General Hugh Jones argued that a court-appointed committee’s recommendation to increase trustees’ annual pay would make Kamehameha’s board among the highest paid in the nation for public charities.
Collectively, the pay raises for the five trustees would be $412,000, which is equivalent to the annual tuition for “231 children at Kamehameha Schools’ Kapalama Heights campus,” Jones said.
“Adoption of the committee’s recommendation would ... place the trustees among the most highly compensated trustees of any public charity in the nation and may invite further scrutiny by the (Internal Revenue Service) and possibly again endanger the tax-exempt status of the trust,” Jones said.
Trustee pay has been a source of controversy for the for the $6 billion Kamehameha Schools, going back to the late 1980s and 1990s when board members paid themselves up to $1 million a year each. The excessive pay of the estate’s former trustees Henry Peters, Richard “Dickie” Wong, Lokelani Lindsey, Gerard Jervis and Oswald Stender prompted the IRS in 1990 to threaten to revoke the estate’s tax-exempt status.
Legislative and court-mandated reforms implemented since then have capped board members’ pay at “reasonable levels” set by an outside trustee compensation committee....
The compensation committee, whose members include Kamehameha graduate Michael Rawlins and local attorneys Allen Hoe and David Fairbanks, relied in large part on a report by Mercer Human Resource Consulting, a mainland executive pay consultant hired by the committee for $50,000, Jones said.
The Mercer report said trustees spend more than double the amount of time on trust business than board members and trustees of other large foundations do. The abrupt resignation of the estate’s first chief executive officer, Hamilton McCubbin, last May combined with last year’s lawsuits challenging the schools’ Hawaiian preference admission policy have turned the trustee post into a full-time job, the committee said.
According to Mercer, Kamehameha Schools trustees’ pay compares with that paid to board members and directors of native Hawaiian trusts and local nonprofit organizations. The report stated that the Liliuokalani Trust, which provides services for native Hawaiian orphans and destitute children, paid its trustees more than $195,000 in 2001 and that the Queen’s Medical Center paid its board members about $100,000 that same year.
Jones said “it is illogical” to raise trustees’ pay based on last year’s experience. He noted that the board recently named former health-care executive and 1970 Kamehameha Schools graduate Dee Jay Mailer to succeed McCubbin as chief executive.
He added that Mercer erred in reporting pay at Queen’s and Liliuokalani. The Queen’s Medical Center and its nonprofit parent Queen’s Hospital do not pay board members, while the Liliuokalani Trust has sharply reduced the compensation paid to its trustees since 2001 to about $93,800 this year, he said.
Retired Circuit Judge Patrick Yim, a trustee of the Liliuokalani Trust, said the trust’s board changed its pay structure several years ago from a commission-based system to a flat salary at the recommendation of its outside consultants.
Yim added that the $195,000 pay figure for 2001 was skewed because some of that included trustees’ pay authorized for the year 2000, which was not paid until 2001.
Jones said Mercer’s study is also flawed because it includes data from smaller organizations such as the $500,000-in-assets Alu Like and the $14 million Lunalilo Trust, which are not directly comparable to the Kamehameha Schools.
Alu Like, which provides social services for more than 17,000 native Hawaiians, does not pay its directors, and the Lunalilo Trust, which cares for elderly Hawaiians, paid its trustees between $2,000 and $5,000 a year.
January 23, 2004
Maximum pay of Kamehameha
trustees increased
By Vicki Viotti, Honolulu Advertiser
A state Probate Court judge today increased the number of paid meetings Kamehameha Schools trustees are allowed, effectively raising their maximum pay from $97,500 to $165,000, with the chairman receiving a maximum of $210,000....
Judge Colleen Hirai rejected the proposal of the court-appointed Trustee Compensation Committee that the annual salary of each trustee rise to $180,000. But under the judge’s order, the chairman’s raise would be even higher than the panel’s recommended $207,000, up from $120,000 a year.
She also rejected the counterproposal by the state attorney general, who argued Kamehameha Schools could keep trustee pay where it is, which is already higher than what trustees earn at 98 percent of public charitable trusts.
Hirai instead decided to go with an alternative option presented by Martin L. Katz, an executive compensation consultant with Mercer Human Resources Consulting.
In this option, each of the trustees receives a $30,000 retainer. Additionally, the chairman is paid $2,000 per meeting and the remaining four trustees earn $1,500 per meeting. The number of meetings would be capped at 90 per year, double the number of meetings in the current pay structure.
Hugh Jones, the deputy attorney general who wrote the state’s proposal, said today that “the attorney general’s position is still that the trustees are reasonably compensated.”
“If they are going to be paid per meeting, then the allowable meetings should be only official board meetings,” he added.
Attorneys Michael Rawlins, Allen Hoe and David Fairbanks were on the court-appointed compensation committee. After the hearing, Hoe said the ruling “was better than what the state wanted: no compensation.”
That was a reference to a 1999 position taken by the previous administration that has since been rescinded, Jones said.
This is the first raise for trustees since the reorganization of the $4.3 billion trust in 1999. Before that, trustee pay was based on a percentage of the estate’s gross receipts. For the fiscal year ending June 1998, the five trustees each received more than $1 million.
Nainoa Thompson is the current board chairperson. Other trustees are J. Douglas Ing, Constance Lau, Robert Kihune and Diane Plotts.
In its court filings, the compensation committee had maintained that “for the foreseeable next few years, being a Kamehameha Schools trustee is virtually a full-time job.” But Jones argued that the workload being analyzed had been especially heavy because the trust lacked a chief operating officer. A chief operating officer has since been hired.
Hirai said that raising the number of paid meetings would allow for some flexibility in trustee compensation, with the new chief executive officer, Dee Jay Mailer, taking office this week.
According to the panel’s report, Mercer surveyed national data, interviewed the trustees, staff with the state attorney general’s office before submitting his report in November. The committee decided that the compensation should be a “service-based” retainer fee, without regard to the number of meetings the trustees attend.
Jones said the Guidestar report indicated the national average for compensation to boards on public charities is $6,190. The Kamehameha board already is paid more than 98 percent of public charities, he added....
For more, GO TO > > > The Marsh Birds; Marsh & McLennan’s Mercer Consulting; The Harmon Arbitration
February 18, 2004
The Kamehameha Schools newsletter "Imua" refuses to print
this op-ed by one of their alums.
It is especially important that KS graduates see this article.
The Trouble with Kamehameha's Support of Federal Recognition
by Randall Kekoa Quinones Akee
Hawaiian Independence Weblog (http://blog.hawaiiankingdom.info/ )
A recent Kamehameha Schools CEO alert dated Feb 3, 2004 by Dee Jay Mailer states that Kamehameha Schools fully supports federal recognition efforts for Native Hawaiians.
This effort, undertaken by Hawai`i's Congressional delegation, governor, state agencies, and a small number of federally-funded non-profit agencies, has done little to foster input and dialogue with the average Native Hawaiian.
Indeed, the process as of late has been primarily state-driven, with OHA, DHHL, and the governor taking the lead in these lobbying efforts. When has the will of the Hawaiian people, let alone the will of ke ali`i Pauahi, ever been well-represented by the State of Hawai`i?
It is important to note that federal recognition will not safeguard any of Kamehameha School's assets, nor will federal recognition ensure the continuance of the institution or end the potential for other legal challenges. Federal recognition deals with the political status of Native Hawaiians as a whole in relation to the federal government of the United States; this legislation does nothing to solidify or establish a relationship between private Native Hawaiian trusts or any other privately-held Native Hawaiian organizations.
Particularly disturbing is the fact that Kamehameha Schools, as a trust in perpetuity, is not taking the long-run view of this situation. Endorsing federal recognition, as the Akaka bill now stands, is clearly taking the short-run perspective on Native Hawaiian self-government. The bill neither guarantees a permanent revenue stream or resource base for a Native Hawaiian governing entity, nor does it establish explicit protection of Native Hawaiian rights.
The current legislation really seeks to protect two state agencies and their public trust assets. While this is an important effort, the question still remains: what long-run benefits and opportunities are we giving up in exchange? The reality is we don't know. We haven't discussed the alternatives thoroughly enough to really get a sense of what could be or what is desired by the Native Hawaiian community. Instead, Native Hawaiians and other state residents have been told that federal recognition is the ultimate solution to the problems for Native Hawaiian programs, services, and funding.
As a leading Hawai`i educational institution, Kamehameha Schools could have taken
the lead in fostering community input and voice; instead, like the other institutions that
are behind federal recognition, they have sought to endorse the Akaka Bill with no
justification or sharing of their research and analysis of the bill. Why would a private,
non-profit trust undertake such an obvious political stance on such a poorly-formed
piece of legislation?
The short-sighted view taken by Kamehameha Schools really stems from a
misunderstanding about the funding of Native Hawaiian programs. The CEO alert cites
the fact that federal recognition will serve to secure services and programs for Native
Hawaiians. Unfortunately, this is not exactly true.
An important distinction must be made between Native Hawaiian entitlements and Native Hawaiian appropriations.
Most, if not all, of the federal programs and legislation established for Native Hawaiians are simply appropriations. This means that funding occurs at the will of Congress.
An entitlement, on the other hand, refers to funding or programs that are immune to Congressional dictates -- a good example of this is Social Security.
Individuals who have participated in the Social Security system are automatically entitled to receive their Social Security payments once they reach eligibility age. This program funding does not fluctuate according to political power plays or Congressional appropriations. Most Native Hawaiian programs do not enjoy this luxury. Hence, without a solid funding guarantee or resource base, a Native Hawaiian governing entity established under the current federal recognition legislation would be forced to seek federal appropriations on a continual basis.
Kamehameha was founded by Princess Bernice Pauahi Bishop to foster industrious Native Hawaiian men and women.
There's nothing industrious about begging for federal funds for a Native Hawaiian nation for the rest of eternity.
Randall Kekoa Quinones Akee
Kamehameha Schools Alumni Class of 1990
< < < FLASHBACK < < <
State deal with former trustees reported
By Rick Daysog, Honolulu Star-Bulletin
The attorney general’s office has agreed to settle its multimillion dollar lawsuit against the five former trustees of the Kamehameha Schools, according to a lawyer for former trustee Richard “Dickie” Wong....
In a sworn affidavit filed in the Hawaii Supreme Court yesterday, Wong’s lawyer Eric Seitz said he has been informed that the attorney general’s office reached a “global settlement” on Aug. 4 with ex-board members Wong, Henry Peters, Gerard Jervis, Oswald Stender and Lokelani Lindsey that resolves the pending probate, tax and civil litigation against the former trustees. The plan, which requires approval from the state Probate Court, represents a major milestone in the three-year controversy that has dogged the $6 billion charitable trust.
If approved, the deal would avert a costly, one-year trial that is scheduled to begin Sept. 18. Details of the proposed deal remain under seal but Seitz, who represents Wong in the criminal actions brought by the state, said some of the attorney general’s civil claims against the former trustees will be covered by the estate’s $25 million insurance policy with Federal Insurance Co.
It is not clear whether the former trustees will be personally liable for any of the surcharges sought by the attorney general’s office. Seitz added that the insurance company will not cover the outstanding legal for the criminal proceedings against his client and Peters, who were indicted by an Oahu grand jury on theft charges. The criminal theft charges have been overturned by Circuit Judge Michael Town, but the state is appealing those decisions.
Seitz, who is owed about $20,000 in legal fees for his work in Wong’s criminal case, criticized the proposed settlement, saying it uses the insurance company’s resources to pay for the civil cases at the expense of the criminal cases involving former trustees Wong and Peters. Until now, the insurance policy had been covering Wong’s and Peters’ criminal defense costs.
“It’s not only unfair but it’s an outrage, because it takes away ... the criminal protection that he’s entitled to,” Seitz said.
Seitz’ affidavit was in response to a request by the attorney general’s office for records relating to Federal Insurance’s payments for Wong’s legal costs, a subject of the state’s surcharge suit. Seitz argued that state attorneys shouldn’t be entitled to the insurance records since they have settle the surcharge suit.
Deputy Attorney General Hugh Jones had no comment on Seitz’ affidavit, saying the mediation process is subject to a confidentiality order.
Glenn Sato, a lawyer representing Wong in the Probate Court proceedings, also declined comment of Seitz’ filing, citing the court’s confidentiality order.
An attorney for Stender also had no response, while lawyers for Peters and Jervis could not be reached.
Michael Green, Lindsey’s lawyer, took issue with Seitz’ affidavit, calling it irresponsible given the sensitivity of the settlement talks.
“The discussions at this point are fragile at best,” Green said. “For any lawyer, including Mr. Seitz, to say this case is settled is irresponsible.”
A spokesman for the estate said there is no settlement at this time. He declined further comment.
In its lawsuit, the state is seeking multimillion dollar surcharges against the former trustees for allegedly taking excessive compensation, mismanaging the trust’s educational programs and incurring more than $200 million in investment losses....
According to Seitz, the global settlement was reached by all of the parties, including Federal Insurance, during an Aug. 4 closed-door conference with Probate Judge Kevin Chang. Seitz said the plan was placed on the record, making it enforceable.
But others familiar with the talks said that while there may be tentative agreement, there are outstanding issues.
They noted that the attorney general’s office and lawyers for the former trustees continue to hold discussions with the court-appointed mediators, David Fairbanks and James Duffy.
Minutes to the Aug. 4 meeting in Chang’s chambers are under a court-ordered seal....
For more, GO TO > > > Confessions of a Whistleblower; RICO in Paradise; The Harmon Arbitration; The United States Department of Justice, Office of the U.S. Trustee vs. Harmon; The Freedom To Sing; The Vultures in the Halls of Justice
Insurance disputes hit Bishop Trust
Companies threaten to reject coverage if the estate
takes a role in a suit against former trustees
By Rick Daysog, Honolulu Star-Bulletin
The insurance companies for the Kamehameha Schools are threatening to reject up to $75 million in coverage, in a development that could have far-reaching consequences on the litigation surrounding the $6 billion charitable trust.
In court papers filed on Friday, the estate’s interim board of trustees said that Federal Insurance Co. is reserving its right to deny $25 million in coverage if the trust takes an active role in the attorney general’s surcharge lawsuit against former trustees Henry Peters, Richard “Dickie” Wong, Lokelani Lindsey, Oswald Stender and Gerard Jervis.
Separately, Bermuda-based XL Insurance Co. also reserving its right to deny $50 million in reinsurance coverage purchased by the trust’s captive insurance subsidiary, P&C Insurance Co. over a dispute over warranties provided by the estate, several people close to the trust said.
The insurance is supposed to protect the estate from damages such as alleged in the state’s lawsuit. In that suit, the state is trying to show that the former trustees took excessive compensation, mismanaged the Kamehameha Schools’ educational programs and incurred more than $200 million in investment losses during their tenures.
Denial of the insurance coverage could mean the trust gets stuck with millions of dollars in legal costs arising from the attorney general’s surcharge suit, which is set to go to trial on Sept. 18. It also could affect the size of any potential settlement in the case.
Federal Insurance, which has been paying for the legal defenses of the embattled former trustees, is taking the position that unless the former board members take part in court-mandated mediation in the surcharge proceeding, any role in that mediation effort by the current interim board could be a basis for denying coverage, the trust said.
The trust’s policy with XL has a similar clause that allows the reinsurer to deny coverage for legal actions against the trust’s former trustees if the Kamehameha Schools interim board actively participates in the case, the estate said.
However, XL put the trust on notice that it may pull its coverage more than two years ago, people familiar with the estate said. XL, which collected $3.9 million in premiums from the trust during the past several years, told the trust back in February 1998 that it was reserving its right to deny coverage due to an August 1997 warranty by a P&C official.
The warranty – which is a statement by the insured customer that a certain condition or risk exists - noted that the trust was not a subject of any significant claims.
At the time the warranty was made, the attorney general’s office and the Internal Revenue Service had already launched their separate investigations of the estate’s former board members while retired Judge Patrick Yim had begun his encyclopedic fact-finding investigation of the Kamehameha Schools.
XL is a unit of Hamilton, Bermuda-based Excel Ltd., which previously had financial ties with the estate. Back in 1998, Exel merged with Mid Ocean Ltd., a reinsurance company in which the estate was a co-founder and once held a 5 percent stake.
Elizabeth Pitrof, XL’s Chicago-based attorney, declined response.
A trust spokesman, the attorney general’s office and the court-appointed special master for the trust’s insurance matters, attorney Michael Tanoue, also had no comment on the XL dispute, citing a protective order issued by the probate court.
As for its court filing on Friday, the estate’s interim board is asking Probate Judge Kevin Chang for guidance on its insurance matters, saying the state’s legal action places them in a bind.
While the trust would benefit from the attorney general’s surcharge suit, the estate’s involvement in such a suit could void their insurance coverages, the interim board said.
In particular, the estate’s interim board is asking Judge Chang whether they must take part in the court-mandated mediation for the surcharge proceeding or whether they must assist the attorney general in preparing their case against the former trustees.
Deputy Attorney General Hugh Jones said the interim board’s obligations in this case are crystal clear: It’s their fiduciary duty to pursue the former trustees for alleged breaches of trust or assist the state’s case even if their insurance policies won’t pay for those costs.
Just because an insurance polity doesn’t cover potential surcharges against the former trustees doesn’t discharge the board from its unabiding duty, said Jones, who recently asked for a one-year delay for the surcharge trial due to the interim board’s alleged delays in turning over pertinent documents.
“An insurance policy should not dictate a trustee’s fiduciary duty,” Jones said.
August 12, 2000
State deal with trustees rumored
By Sally Apgar, The Honolulu Advertiser
The state Attorney General’s Office has not yet reached a final settlement with the former trustees of the Kamehameha Schools, designed to avert a complicated civil trial in which the state seeks to recover more than $300 million from the former trustees on claims they mismanaged the charitable trust.
Lawyers for the five former trustees and the attorney general’s office have been meeting behind closed doors since last month with mediators, Honolulu attorneys David Fairbanks and James Duffy to settle and avoid a costly year-long trial that was scheduled to begin Sept. 18. The attorneys and trustees have been ordered by the court to keep their discussions confidential.
However, Eric Seitz, one of the attorneys representing former trustee Richard “Dickie” Wong in related criminal matters, filed a sworn statement in the Hawaii Supreme Court on Thursday that said a settlement had been reached Aug. 4 and put under seal with the court....
Seitz has represented Wong on criminal matters and has not been a participant in the negotiations to settle the civil surcharge suit.
But the negotiations could affect Seitz, because the outcome could determine whether he gets fully paid for past legal work. The payment would be made from a $25 million policy the estate has with Federal Insurance Co.
Yesterday Seitz said Federal Insurance has paid him $60,000 and he is still owed $20,000....
Seitz wrote in his statement filed at the Supreme Court that also on Aug. 4, Attorney General Earl Anzai was requested to inform the court of the settlement and withdraw the petition to surcharge the former trustees for alleged mismanagement of the trust. He wrote that “the attorney general’s knowing and deliberate failure” to inform the court of a settlement “is contemptuous and sanctionable.”
Seitz also wrote that just after the Aug. 4 meeting, Deputy Attorney General Jones informed him that the issue of producing certain documents, including ones concerning how much Federal Insurance had paid him for Wong’s criminal case, was “moot” because of the settlement.
The insurance policy has been paying criminal defense costs for ousted trustees Wong and Henry Peters. The attorney general wanted documents from Seitz showing how much of the insurance money had paid Wong’s legal fees, as that was one subject of the September surcharge trial.
Seitz successfully defended former Bishop Estate Trustee Richard S.H. “Dickie” Wong on theft charges last year, and is suing the state Attorney General’s Office in federal court for alleged malicious prosecution for reindicting Wong in December 1999.
The surcharge trial has created tensions between the attorney general’s staff and the trust. As parens patriae, the attorney general is responsible for protecting charitable trusts. Typically, when the attorney general pursues such litigation using state money, it is seeking repayment to the state. In this case, the attorney is seeking repayment from the trustees to the $6 billion charitable trust for alleged financial mismanagement and other alleged misdeeds.
Further complicating the situation is the issue of the insurance money that would be used to pay for the trial and some of the damages. Terms of the $25 million insurance policy with Federal Insurance are an ongoing subject of debate.
However, the interim trustees have been advised that legally they cannot help the attorney general gather evidence for the trial because it would nullify the insurance policy.
September 25, 2000
Kamehameha Schools gets decent settlement
An Editorial in The Honolulu Advertiser
None of the parties to the settlement finalized last week between the state and the five former Bishop Estate trustees hit a “home run,” but all sides received substantially more in settling than they risked in taking the case to trial:
> The Former trustees, Richard Wong, Henry Peters, Lokelani Lindsey, Oswald Stender and Gerard Jervis, are spared admitting any wrongdoing – not a minor consideration in light of the names they’ve been called – and from having to pay any restitution to the estate from their pockets.
> The trust supporting Kamehameha Schools receives $14 million, its share of the $25 million insurance policy that covered the former trustees. Had the case gone to trial, that $14 million likely would have been consumed by legal costs, leaving the trust to collect – assuming a judgment were winnable – from the former trustees, who may or may not have recoverable assets remaining after their many months of legal wrangling.
> The state and the taxpayers are spared the great expense of an extended trial, which might have produced a Pyrrhic victory in nailing the hides of the former trustees to the wall while recovering no money from them. More important, the state now has in place, as a result of this case, a far less politically disruptive mechanism for the selection of new trustees.
> The Kamehameha Schools ‘ohana receives, as Gov. Benjamin Cayetano put it, a new start. After all, this case wasn’t so much about punishing former trustees as it was about giving the schools a new governance structure, expanded educational programs, a more stable investment policy, more reasonable compensation for trustees and preservation of the schools’ tax-exempt status. All of that is happening.
If there is a loser in the settlement, it might be the Internal Revenue Service, which appears quietly to have agreed to let the former trustees off the hook for substantial penalties for their “excessive compensation,” which approached $1 million a year. The IRS may have decided it needed a more solid case with which to make its first court test of the new intermediate sanctions law.
With that possible exception, all of the parties to the settlement owe a debt of thanks to mediators Clyde Matsui, David Fairbanks and James Duffy for discerning common ground in a swamp of disagreement, and to circuit Judge Kevin Chang, who forced serious negotiating by refusing to further delay the trial....
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– Catbird Note: What this Honolulu Advertiser Editorial overlooks is the big winner in this case: XL Insurance Company, a Bermuda Company, which carried a $50 MILLION Excess Liability Policy for Kamehameha Schools. It appears that XL may have paid $ZIP in this case. Wonder WHY? The Million Dollar answer may be in the following letter:
April 27, 2000
Hamilton I. McCubbin, CEO
Robert K.U. Kihune, Chair
David P. Coon
Francis A. Keala
Constance H. Lau
Ronald D. Libkuman, Esq.
Kamehameha Schools Bernice Pauahi Bishop Estate
567 South King St., Suite 200
Honolulu, Hawaii 96813
Dear CEO McCubbin, and Trustees Kihune, Coon, Keala, Lau, and Libkuman:
I am writing about the excess lines reinsurance agreement between P&C Insurance Company and X.L. Insurance Co., Ltd. (the Agreement).
The Agreement encompasses association liability, has an inception date of September 1, 1997, and, as to association liability, has limits of $50 million excess of $25 million. The policy premium was approximately $1.3 million annually and has always been timely paid.
X.L contends that there is no coverage for the claims asserted in the AG Surcharge Petition, primarily because of alleged misstatements in representations and warranties by trust employees Christine Lee and Louanne Kam.
It is beyond argument that the Interim Trustees have a fiduciary duty to redress the breaches of trust of the former trustees. It may be that any dispute with X.L. will create embarrassment for trust employees. It may also be that, because the arbitration provision of the X.L. Agreement combines New York law and the United Kingdom Arbitration Act 1996, the claim against X.L. will be more difficult to pursue than if it were strictly a Hawaii matter. Nonetheless, what is at stake here is $50 million for the education of Hawaiian children. There is no reason for the Interim Trustees to walk away from $50 million.
On behalf of the trust beneficiaries, I request that the Interim Trustees discharge their duty to redress the breaches of trust by the former trustees by initiating action against X.L. to enforce the Agreement. I also request that you put J&H Marsh & McLennan (MM) on notice and ensure their participation in the mediation. MM set up the P&C integrated risk program and installed American Re as the reinsurer for the first two years. Yet at the critical juncture in late summer 1997, MM assisted the trust in applying to X.L. for reinsurance rather than simply renewing with American Re. WE understand that MM was instrumental in preparing the application for reinsurance, that the trust relied on the professional expertise of MM, and that MM may have an ownership or other interest in X.L.