RICO Lawsuit: Harmon v. Marsh & McLennan, Trustees of Kamehameha Schools, et al.

“Using or investing the proceeds of any income derived from a pattern of racketeering or the collection of an unlawful debt, in which that person participated as a principal, to establish, operate or acquire any interest in any enterprise engaged in or affecting interstate commerce.”

Defendants Federal, et al., did knowingly, unlawfully, and intentionally combine, confederate, conspire and agree together with each other, and with co-conspirators and others whose names are both known and unknown, to benefit and use proceeds from Defendants pattern of racketeering activity for the furtherance of the legitimate aspects of the organizations, as stockholder dividends, employee and executive salaries, bonuses and operating expenses, to purchase and acquire goods and services, direct the proceeds of the racketeering activity into the general funds of these Defendant organizations, their employees, their executives, their stockholders, their subcontractors and others. This violation was in concert with lax and/or corrupt regulatory and law enforcement agencies and officials, constituting an association in fact for the purpose of racketeering activity. After being apprized of the illegal activities by Plaintiff, none of these regulatory and law enforcement agencies or individuals made adequate, if any, effort to investigate, report or remedy the illegal activities, although they are legally obligated by statute and fiduciary duty to do so.

b) VIOLATION OF 18 U. S. C. SECTION 1962 (b):

“acquiring an interest in or control of an enterprise through a pattern of racketeering activity or through the collection of unlawful debt.”

Defendants Federal, et al., did knowingly, unlawfully, and intentionally combine, confederate, conspire and agree together with each other, and with other co-conspirators whose names are both known and unknown, participate in a conspiracy to acquire and to maintain markets in the insurance industry through the sale of fraudulent policies of insurance; to acquire ownership interest and/or control of financial institutions, insurance companies and other business enterprises; to unfairly compete with other insurance companies, agents, brokers, accounting firms, claims adjusters and attorneys to gain market advantage through a pattern of racketeering activity; and to affect interstate and foreign commerce through a pattern of racketeering activity. This violation was in concert with corrupt and/or inept regulatory and law enforcement officials, constituting an association in fact for the purpose of racketeering activity. After being apprized of the illegal activities by Plaintiff, these persons made little, if any, effort to investigate, report or remedy the illegal activities, although they are legally obligated by statute and fiduciary duty to do so.

c) VIOLATION OF 18 U. S. C. SECTION 1962 (c):

“conducting the affairs of an enterprise through a pattern of racketeering activity or through collection of an unlawful debt.”

Federal, et al., in concert with all other defendants and each of them, did knowingly, unlawfully and intentionally combine, confederate, conspire, and agree together with each other, with named co-conspirators and with others whose names are both known and unknown, to conduct the affairs of an enterprise through a pattern of racketeering activity to promote the affairs of the enterprise. After being apprized of the illegal activities by Plaintiff, none of the defendants made reasonable effort to investigate, report or remedy the illegal activities, therefore condoning the activities.

d) VIOLATION OF 18 U. S. C. 1962 (d):

“unlawful for any person to conspire to violate Sections 1962 (a), 1962 (b), and 1962 (c).”

Federal, et al., in concert will all other defendants and each of them, did knowingly, unlawfully and intentionally combine, confederate, conspire, and agree together with each other, with named co-conspirators and with others whose names are both known and unknown, commit violations of the Racketeer Influenced and Corrupt Organizations Act, and to prevent the conspiracy from becoming known to the public. After being apprized of the illegal activities by Plaintiff, none of the defendants made reasonable effort to investigate, report or remedy the illegal activities, therefore engaging in a conspiracy by condoning the activities through their inactions..

2. THE DEFENDANTS AND THE ALLEGED MISCONDUCT AND BASIS OF LIABILITY OF EACH DEFENDANT.

a) Defendant Federal Insurance Company, Inc. (Federal), a member of The Chubb Group, conducts business in the United States and was, at all times, registered with the Insurance Commissioner, State of Hawaii, as an admitted foreign insurance company. Federal conducts business through insurance brokers as well as through licensed general agents of the company. In Hawaii, one of Federal’s licensed general agents is Marsh & McLennan, Inc. (M&M).

Federal’s schemes are multitudinous. On or about October 27, 1995, Plaintiff, in his capacity as Risk/Insurance & Safety Manager for Kamehameha Schools Bishop Estate (KSBE), caused Federal, through its agent M&M, to bind coverages under an Association Liability Insurance policy. Harmon obtained this “Errors & Omissions” insurance on behalf of KSBE and the majority of its subsidiaries, based on written proposals containing representations by Federal and M&M that this policy would protect KSBE, its trustees and employees, and the officers and directors of the for-profit subsidiaries of KSBE, against claims for “Wrongful Acts” as defined in the policy.

These proposals; the subsequent binders and policies; and premium invoices and payments were transmitted by mail and/or wire. Plaintiff relied upon these inducements and representations when obtaining this insurance on behalf of KSBE and its subsidiaries, and when accepting the position as P&C’s president.

Plaintiff alleges that the failure of Federal, and its agent, M&M, to provide defense coverage to Harmon in Civil No. 97-0512-02 constitutes mail fraud, wire fraud, misrepresentation and fraudulent inducement to purchase this insurance.

Defendant Federal, its officers, directors and employees benefitted financially from the premiums charged for this policy in the form of salaries, commissions, bonuses, or other means of compensation.

As detailed in Plaintiff’s complaint, there was collusion among the Defendants, the primary purpose of which was to increase their profits through the awarding of non-bid insurance contracts to Federal and its agent, M&M. Profits were further enhanced by Federal through reduction in their claims payments by means of fraudulently “back-dating” an exclusion endorsement in their Association Liability Policy in order to wrongfully deny defense coverages to Plaintiff in Civil No. 97-0512-02, P&C et al. vs. Bobby N. Harmon. Federal further engaged in misrepresentations, deceptions, delays, and continual denials of Plaintiff’s legitimate claims, and refused to respond to Plaintiff’s numerous good-faith offers to negotiate an out-of-court settlement. These wrongful acts constitute extortion, and extortion by color of official right, and the wrongful denial of money and benefits rightfully owed to Plaintiff.

b) Defendant P&C Insurance Company, Inc. (P&C), is a single parent captive insurance company formed in September, 1994, and was a wholly-owned subsidiary of Pauahi Holdings Corporation which, in turn, was a wholly-owned, for-profit subsidiary of KSBE. Plaintiff Harmon was instrumental in the formation of P&C, and was named its president shortly after its formation.

Although Harmon was the president of P&C, he alleges that he was actually set up as a “straw man” to be controlled by Henry H. Peters, Trustee of KSBE and Chairman of the Board of P&C; Nathan Aipa, KSBE General Counsel and Assistant Secretary/ Assistant Treasurer of P&C; Louanne Kam, Esq., Litigation Manager for KSBE, and others known and unknown. Although it was Harmon’s firm understanding that he was to be transferred from his employment as Risk/Insurance & Safety Manager at KSBE, to President of P&C, due largely to “arms-length” requirements of the I.R.S., Peters and Aipa never allowed this transition to materialize. Harmon remained as a paid employee of the tax-exempt charitable trust, KSBE, and an unpaid officer of the for-profit insurance company, P&C, despite written opinions from KSBE’s and P&C’s professional tax advisor, Price Waterhouse, that this arrangement could jeopardize KSBE’s tax-exempt status, and have other detrimental consequences to KSBE. This arrangement continued until Plaintiff was terminated from both positions on November 20, 1996.

Plaintiff Harmon alleges that a major reason for his terminations was his refusal to follow the directives of Henry Peters, Nathan Aipa and Louanne Kam for P&C to pay M&M substantial service fees for work that was not under contract and which could not be justified, in addition to KSBE’s payments of premiums to M&M for insurance which could be obtained through other insurance brokers at substantially lower cost. Aipa, Kam and Trustee Richard Wong, were also attempting to improperly influence the settlement of a P&C claim involving flood damages to the property of a Bishop Estate lessee, Larry Ching.

These “sweetheart deals” with M&M, the attempted claims settlement with Ching, and the threats to Harmon that he could be terminated for failing to follow the directives of Peters, Aipa and Kam to “go along” with these improper deals, constitute conspiracy to defraud P&C and the beneficiaries of the Estate of Bernice Pauahi Bishop; racketeering; mail fraud; wire fraud; extortion; breach of fiduciary duties; and violations of the “interim sanctions” regulations of the I.R.S., as detailed in Plaintiff’s complaint.

c) Defendant Marsh & McLennan Companies, Inc. (M&M) is the world’s largest insurance brokerage firm that conducts business throughout the United States and in many foreign countries, and is a licensed General Agent for Federal in the State of Hawaii.

On or about May 25, 1994, Plaintiff, in his capacity as Risk/Insurance & Safety Manager for KSBE, obtained a Captive Management Fee Proposal from Peter Lowe, VP, M&M Insurance Management Services, Inc. (M&MIMS), which detailed their proposed services and fees for managing P&C. Their services were to be on a time and expense basis, with an estimated annual cost of around $70,000. There was no mention in this proposal that their related subsidiary, M&M, would charge an additional flat annual fee of $200,000 for providing “brokerage”, “risk management” or other purported services to the captive.

This proposal, the subsequent contract, and periodic invoices from M&MIMS and M&M were transmitted by mail and/or wire. Plaintiff relied upon this proposal, its costs and representations, as an inducement to contract for these captive management services. Plaintiff alleges that M&M’s failure to disclose in their proposal an additional flat annual fee of $200,000 constitutes wire fraud, mail fraud, fraudulent inducement and misrepresentation.

Defendants M&M and M&MIMS, their employees, Rocco Sansone and Peter Lowe, and others in their organizations benefitted financially from these excessive fees in the form of salaries, commissions, bonuses, or other manner of compensation. Plaintiff alleges that M&M’s acts in collusion with some or all of trustees of KSBE, with officers and directors of P&C, and with Federal constitutes a conspiracy to defraud P&C and the beneficiaries of the Estate of Bernice Pauahi Bishop; racketeering; mail fraud; wire fraud; extortion; and violations of the “interim sanctions” regulations of the IRS, as detailed in Plaintiff’s complaint.

d) Defendant PricewaterhouseCoopers, LLP, (Pricewaterhouse) is one of the nation’s largest accounting firms, and conducts business in Hawaii and throughout the United States.

Despite written opinions from Pricewaterhouse that P&C should operate at “arms-length” from KSBE, all or some of the Trustees of KSBE, and all or some of the directors and officers of P&C, conspired to disregard these opinions and to conceal violations of I.R.S. “interim sanctions” regulations. Plaintiff Harmon personally reported his concerns regarding the apparent “sweetheart deals” with M&M at the direction of Peters, Aipa and Kam, to representatives of Coopers & Lybrand in October, 1996, and followed this up in writing on November 20, 1996. At this meeting and in his letter, Plaintiff explained that he would not sign P&C’s annual financial statements due to the apparent conspiracy between certain trustees, managers, directors and officers at KSBE, P&C and M&M, to defraud KSBE, P&C, and the I.R.S. Plaintiff also sent a copy of this letter to the Insurance Commissioner, State of Hawaii, along with all enclosures which provided documentary evidence of these wrongful activities. Neither entity responded to this report. Plaintiff later learned that Nathan Aipa had approved P&C’s annual financial statements, and that Coopers & Lybrand had not disclosed in their review the information that M&M was charging excessive fees, and that certain claims were intentionally inadequately reserved.

Plaintiff alleges that Pricewaterhouse had knowledge of these improper activities and financial statements, had a professional duty to report improper and illegal conduct regarding the preparation of these financial statements, and knowingly and wrongfully colluded with some or all of trustees of KSBE, with officers and directors of P&C, in a conspiracy to defraud the beneficiaries of the Estate of Bernice Pauahi Bishop and P&C; racketeering; mail fraud; wire fraud; and violations of the “interim sanctions” regulations of the I.R.S., as detailed in Plaintiff’s complaint.

e) Defendant Torkildson, Katz, Fonseca, Jaffe, Moore & Hetherington (Torkildson, Katz) is a law corporation conducting business in the State of Hawaii.

In a letter dated January 30, 1997, Robert S. Katz, Esq. of Torkildson, Katz, wrote regarding Plaintiff’s Wrongful Termination Settlement Proposal:

“I have been retained by Kamehameha Schools Bishop Estate (“KSBE”) to assist and advise it in connection with your December 29, 1996 settlement proposal in the above referenced matter. Due to the extent and complexity of your settlement proposal, it will not be possible for KSBE to respond by your requested date of January 31, 1997. . . Although I cannot provide you with a specific date, I wish to assure you that every effort will be made to provide a reasonably prompt response to your settlement proposal (emphasis added).

“In the meantime, your settlement proposal raises a serious matter that requires immediate action. Your settlement proposal discloses confidential, privileged and/or proprietary KSBE internal documents, memoranda and discussions to third parties because of its distribution to various insurance agencies, and also evidences your retention of such memoranda and documents.

“. . . Your unauthorized retention and usage of confidential KSBE documents and memoranda may result in serious legal sanctions, including civil claims for Hawaii’s Trade Secrets Law (H.R.S. Chapter 482B) which provides for injunctive relief and payment of reasonable attorney’s fees to the prevailing party, common law contract and tort claims for breach of contract, violation of fiduciary duty, and misappropriation of confidential business records. Accordingly, you should consult with legal counsel and return by no later than February 4, 1997 all KSBE documents, records, memoranda, in whatever format . . . you may possess such material. . .”

In Plaintiff’s response to Katz, dated February 2, 1997, he stated:

“. . . I find it difficult to accept your explanation that it was due to the ‘extent and complexity of my proposal’ that it was not possible for KSBE to respond to my settlement proposal by the January 31, 1997 deadline, or even to provide me with a specific date for a response . . .

“Your letter does not disclose other information which is important in my responses to you and in my pursuit of these claims:

1. You state that you have been retained by Kamehameha Schools Bishop Estate. You do not indicate that you are also representing P&C Insurance Company, Inc. (P&C). Does this mean that your comments regarding disclosure of confidential information, etc. apply only to KSBE documents? Could you please provide me a copy of your retention letter in order to confirm your appointment.

2. Could you please clarify your statement that you have been retained by KSBE ‘to assist and advise it’ in connection with my claims. Does the scope of your responsibilities extend to actual settlement negotiations?

3. Has your engagement by KSBE been approved by the insurance carrier(s). If so, may I please have a copy of any letter evidencing this fact.

“. . . You do not specify which internal documents, memoranda and discussions you consider to be confidential, privileged and/or proprietary. My settlement proposal contains thirty-one exhibits and over three hundred fifty pages. Many of these documents are contained in my Personnel File as a consequence of my performance evaluation and responses to Pers-9 reprimand letters from Nathan Aipa and Louanne Kam. Some are copies of correspondence addressed to me, or copies provided to me in my capacity as Risk/Insurance & Safety Manager for KSBE or as President of P&C Insurance Company. Most, if not all, of these documents deal with risk, insurance or safety matters which relate directly to my claim. I am not aware of any information which may violate Hawaii’s Trade Secrets Law (H.R.S. Chapter 482B). However, if you will specify which documents you believe may be in violation of either KSBE’s policies or any applicable statutes, and detail valid reasons, I will certainly consider their immediate return.

“. . . Your letter states that my settlement proposal discloses this information to third parties because of its distribution to various insurance agencies. Since this is an insurance claim, and these insurance agencies and companies are parties to the claim, I fail to see why disclosure of this information to these parties would be considered improper or illegal. To the contrary, insurance contracts require the full cooperation of the insureds in claims matters and disclosure of all relevant information. Please advise which documents, in your opinion, should not be released to specific insurance agencies or companies.

“As I am preparing to release certain information regarding this matter to other parties as early as February 4, 1997, it is important that you respond by this date. As you may consider it appropriate to provide certain information to certain entities but not to others, the following is a partial list of intended contacts:

— State of Hawaii, Dept. of Labor & Industrial Relations

— Insurance Commissioner, State of Hawaii

— Attorney General, State of Hawaii

— Internal Revenue Service

— Coopers & Lybrand

— Price Waterhouse

— Dept. of Occupational Safety & Health

— Environmental Protection Agency

— Hawaii Captive Insurers Association

— Hawaii Bar Association

— Risk & Insurance Management Society (RIMS)

— Society of Chartered Property & Casualty Underwriters (CPCU)

— United Educators Insurance Company

— Hobbs Group/Arkwright Insurance Company

— Prospective employers

— Legal counsel

“Although the deadline for acceptance of my settlement proposal has passed, I am still hopeful that KSBE and P&C, and their insurance carriers, are willing to enter into meaningful settlement negotiations in order to avoid litigation. However, these negotiations must be in earnest and begin immediately if we are to make any progress in settling this out-of-court.”

Copies of this letter were sent to Henry Peters, Richard Wong, Lokelani Lindsey, Gerard Jervis, Oswald Stender, Sandie Wicklein, Michael Goolsby (Chubb Group), David Loo (John Mullen & Co.), and Pat Onogi, (Marsh & McLennan, Inc.).

In a letter dated February 7, 1997, Robert Katz stated:

“In response to your February 2, 1997 letter, I wish to advise you as follows. First our law firm is representing both P&C Insurance Company, Inc. and Kamehameha Schools Bishop Estate. For convenience I will refer to them collective as ‘KSBE’. Our representation of KSBE would include settlement negotiations as deemed appropriate by KSBE. Finally, our representation of KSBE does not require approval by any insurance carrier.”

“. . . we believe you should return all KSBE documents in your possession that relate to or discuss KSBE activities excepting only personnel documents related to your own performance that were issued to you. . . .”

“. . . your announced intention to disclose confidential KSBE documents and information to various private and governmental agencies seems to be at odds with your stated desire to seek a settlement of your claims against KSBE. While no decision has been made by KSBE regarding your settlement proposal, any further disclosure by you may eliminate any incentive for KSBE to pursue a settlement. Accordingly, we again urge you to obtain legal counsel as quickly as possible if for no other reason than the fact that your stated intention to make additional disclosures of confidential KSBE documents and information leaves KSBE no choice but to pursue appropriate legal protection.”

The only indicated copy of this letter was sent to Colleen I. Wong, Esq. There was no indication that Katz sent any copies to the trustees of KSBE, the officers and directors of P&C, or to any insurance carriers or their independent claims adjusters.

On 04/11/97, Plaintiff, and his then-attorney, John Marshall, met with Katz and Sandie Wicklein, Personnel Director, KSBE, to discuss a settlement proposal. The outcome of that meeting was that Trustees might approve a settlement package, as discussed, but that Wicklein would be required to submit a Staff Report to Trustees.

On 05/08/97, Plaintiff made a counter-offer to P&C/KSBE via fax from John Marshall to Katz. The offer was to remain open until midnight, 05/15/97.

Plaintiff received NO WRITTEN RESPONSE from Defendants to this settlement proposal, or to numerous subsequent proposals, as detailed in Plaintiff’s Complaint.

Plaintiff alleges that Torkildson, Katz, through its complicity; deceptions; threats; failure to disclose settlement proposals to all interested parties and insurance carriers; and failure to respond to Plaintiff’s good faith settlement proposals, acted in bad faith and in collusion with some or all of trustees of KSBE, with managers and employees of KSBE, and with officers and directors of P&C, constituted a conspiracy to defraud the beneficiaries of the Estate of Bernice Pauahi Bishop and P&C; racketeering; mail fraud; wire fraud; extortion; and violation of I.R.S. interim sanctions regulations as detailed in Plaintiff’s complaint.

f) Defendant John Mullen & Co., Inc. (Mullen) is an independent claims adjuster operating in Hawaii and contracted by KSBE and P&C to handle automobile, property, general liability and workers’ compensation claims.

On numerous occasions prior to his termination, Plaintiff had discussions with Mullen with regard to improper interference by Aipa, Kam and others in the handling of claims. After his termination, Harmon reported his wrongful termination claim against KSBE and P&C directly to Mullen by way of a copy of his letter dated December 27, 1996 to Trustees. Mullen acknowledged receipt of the claim, but advised that they were excusing themselves as the adjuster as some of their employees had been named as potential witnesses should the case proceed to litigation.

Plaintiff alleges that Mullen, through its complicity and failure to meet its contractual obligations to handle P&C’s general liability claims, wrongfully acted in collusion with some or all of trustees of KSBE, with managers and employees of KSBE, and with officers and directors of P&C, in a conspiracy to defraud the beneficiaries of the Estate of Bernice Pauahi Bishop and P&C; racketeering; mail fraud; and wire fraud, as detailed in Plaintiff’s complaint.

g) Defendant Trustee Henry H. Peters, was appointed in 1984 by the Justices of the Supreme Court of the State of Hawaii, acting as individuals, and was entrusted with the fiduciary duty to administer the Estate of Bernice Pauahi Bishop for the education of the children of Hawaii.

At the time of appointment and until 1992, he was a member of the Hawaii House of Representatives. He also served as speaker of the House of Representatives form 1981 to 1986. His latest annual compensation for 1998 has been reported to exceed $1,000,000.

Defendant Peters is also Chairman of the Board of Directors of P&C. Peters has also served on the Board of Directors of Mid-Ocean Reinsurance Co. (a Bermuda company); Underwriters Capital (Merritt) Insurance Co. (a Bermuda company); SoCal Holdings, Inc.; and numerous other companies owned by, or related to, KSBE.

From Equity No. 2048, Petition of the Attorney General on Behalf of the Trust Beneficiaries to Remove and Surcharge Trustees:

“The Trustees have been unfaithful to the Will and the purpose of the Trust. They have failed to comply with clear directives of the Will. They have subordinated the sole purpose of the Trust to their personal gain. They have squandered Trust assets intended for education by their excessive compensation, and by imprudent and improper Trust management and investments. They have violated Hawaii statutes and court orders. They have engendered hostility between themselves and the Beneficiaries whose interests the Trustees were appointed to serve.

. . . Peters became lead trustee for asset management in 1993 and assumed responsibility for Trust investments and for due diligence on prospective investments.

Peters as lead trustee purposely withheld information on existing and potential investments from his co-Trustees, dismantled the Trust’s internal audit function, instructed staff employees to withhold information from the co-Trustees, and used his position to approve Trust payment of improper non-Trust expenditures.

. . . As to Peters, the effect of these violations has been that Trust assets have been mismanaged and misspent to the detriment of the Trust purpose.

. . . Trustees Peters, Wong, and Lindsey have violated their duty of loyalty to the Beneficiaries by using their positions as Trustees and by using Trust assets and opportunities to benefit themselves and their relatives and friends.

. . . In 1992, the Trust invested approximately $31 million in Mid Ocean, Ltd. (Mid Ocean), a Bermuda-based insurance company, and acquired 310,000 Mid Ocean Class A shares.

In 1993, when Matsuo Takabuki retired as a Trustee of the Trust, Peters succeeded to Takabuki’s seat as a director of Mid Ocean.

Peters served as a Mid Ocean director until early 1998.

Peters’ service as a Mid Ocean director fell within his duties as Trustee and was a Trust opportunity.

Peters used Trust personnel to prepare him for Mid Ocean directors’ meetings.

While a director of Mid Ocean, Peters received substantial director’s fees and received options to acquire 6,000 shares of Mid Ocean stock.

The Mid Ocean fees and stock options are assets that belong to the Trust and not to Peters individually.

Peters has enriched himself at the expense of the Beneficiaries by retaining the fees and stock options for his personal benefit.

(Note: Marsh & McLennan, and its subsidiary, Guy Carpenter, were major players in the creation and management of Mid-Ocean .)

. . . During his 1986, 1988, 1990, and 1992 political campaigns while a Trustee, Peters used Trust employees to photograph his and his supporters for his campaign materials, in violation of Trust restrictions on political activity by the Trust and its employees.

. . . The Trust presently qualifies as a charitable non-profit entity under the Internal Revenue Code and thus is exempt from federal, state, and local income and other taxes.

Maintaining the tax exempt status is critical to the Trust and its ability to serve its intended purpose.

The Trustees’ duty to protect the interests of the Beneficiaries includes zealously protecting the Trust’s tax-exempt status.

By taking excessive compensation and by using Trust assets for private inurement, the Trustees have imperiled the Trust’s tax-exempt status and hence the full effectuation of the Trust’s purpose.”

Beginning around March 1996, Harmon began questioning what appeared to be excessive premium charges being made by M&M for KSBE’s property insurance, and for the fees M&M was billing to P&C. He again raised the issue of his job transfer from KSBE to P&C.

For the next several months, Plaintiff was subjected to threats, intimidation and various abuses from Aipa and Kam for questioning the excessive fees of M&M and his transfer to P&C. In a meeting in early 1996, with Aipa and Sansone, Harmon asked Aipa about the status of his transfer. Aipa’s response was that it wasn’t going to happen because “arms-length was no longer an issue,” (referring to previous legal opinions from Price Waterhouse that the IRS might revoke the Trust’s tax-exempt status if it did not maintain arms-length from its taxable subsidiaries).

On October 11, 1996, Harmon was called into a meeting with Peters and Aipa. At this meeting, Peters instructed Harmon that he was to report to Aipa on all matters relating to P&C. Peters also stated that he would hold Aipa responsible for all matters relating to P&C. He also informed Harmon that he could be replaced as President of P&C if he failed to follow Aipa’s directives.

On November 20, 1996, Peters made good with his threat and terminated Harmon’s appointment as President of P&C. No explanation was given for the termination.

Harmon was also terminated by Aipa from his position as Risk/Insurance & Safety Manager for KSBE, allegedly due to “differences in philosphy”.

Plaintiff Harmon alleges that a major reason for his terminations was his refusal to follow the directives of Henry Peters, Nathan Aipa and Louanne Kam for to pay M&M substantial fees for work that was not under contract and which was not justified.

These “sweetheart deals” with M&M, and the threats to Harmon that he could be terminated for failing to follow the directives of Peters, Aipa and Kam to “go along” with these improper deals, constitute conspiracy to defraud the beneficiaries of the Estate of Bernice Pauahi Bishop; racketeering; mail fraud; wire fraud; extortion; breach of fiduciary duties; and violations of the Interim Sanctions provisions of the IRS Code, as detailed in Plaintiff’s complaint.

h) Defendant Trustee Richard S. Y. Wong, was appointed in 1993 by the Justices of the Supreme Court of the State of Hawaii, acting as individuals, and was entrusted with the fiduciary duty to administer the Estate of Bernice Pauahi Bishop for the education of the children of Hawaii. He acts as Chairman of the Board of Trustees. Prior to his appointment, he was a member of the Hawaii Senate and served as its president from 1979 to 1992. His annual compensation as trustee was reported to exceed $1,000,000 in 1998.

Although Plaintiff alleges that Wong’s wrongful acts, both known and unknown, are multitudinous, only one of the most documented cases is presented herein as an example:

Louanne Kam, in a letter dated November 12, 1996, reprimanded Harmon for allegedly failing to follow an alleged directive of Aipa to Harmon to allow Kam to handle the Larry Ching flood damage claim. Ching leased his residential property in Kauai from Bishop Estate. After heavy rains, flooding caused damages estimated around $7,000 to his home and contents. After being reported as a liability claim under the general liability insurance policy issued by P&C Insurance Company, Mullen’s adjuster, Neal Seamon, investigated the claim and concluded that the flooding was an “act of God”, and that KSBE was not liable for the damages.

Ching reportedly had gotten word to Trustee Wong that he was hiring an attorney to sue the estate for approximately $70,000 in damages. Wong reportedly asked Kam to “see what she could do” to settle the claim. Kam subsequently proceeded to become directly involved in the handling of the claim, which breached the trustees policy of maintaining an “arms-length” relationship between KSBE and its for-profit subsidiaries. Kam initiated a meeting with Neal Seamon and Bob Kuroda of John Mullen & Co.; Kapu Smith of KSBE, and Plaintiff. At this meeting it was everyone’s opinion, except Kam’s, that Mullen had made the right decision in denying the claim. Kam suggested that P&C should hire a hydrologist to make a study and report in order to obtain an “expert” opinion. The cost of an expert’s report, according to Seamon, might be $10,000 or higher. He indicated that it would not be economical to pay for an experts report at that time and recommended that P&C wait to see if Ching actually litigated the case.

Aipa and Kam’s improper interference and involvement in the handling of the claim eventually resulted in Kam’s reprimand letter to Plaintiff which was used to intimidate and threaten Harmon with termination from his employment.

Plaintiff alleges that this proposed “sweetheart deal” with Ching, and the threat to Harmon that he could be terminated for failing to follow the directives of Aipa and Kam, constitute conspiracy to defraud P&C and KSBE; racketeering; mail fraud; wire fraud; extortion; breach of fiduciary duties; and violations of the Interim Sanctions provisions of the IRS Code, as detailed in Plaintiff’s complaint.

i) Defendant Trustee Lokelani Lindsey, was appointed in 1993 by the Justices of the Supreme Court of the State of Hawaii, acting as individuals, and was entrusted with the fiduciary duty to administer the Estate of Bernice Pauahi Bishop for the education of the children of Hawaii. Her annual compensation for his services as trustee was reported to exceed $1,000,000 in 1998.

Plaintiff alleges that Lindsey’s wrongful acts were multitudinous. The following is only one documented example:

In early 1995, KSBE undertook the environmental cleanup of the Waterpark Tower site in Kakaako. As KSBE’s general liability insurance policy excluded coverages for environmental damage or pollution claims, Harmon advised Neil Hannahs, manager of KSBE’s Kakaako development, that KSBE should make certain that either the contractor hired for the cleanup, or KSBE, itself, should obtain insurance for the project.

At the time Harmon was initially advised of the cleanup operation, KSBE had already entered into a contract with Stay & Sons, Inc. (Stay) to handle the job. Harmon requested copies of the bid specifications for the project, the bid bond, and copies of Stay’s insurance policies to ascertain what coverages, if any, Stay was providing for environmental impairment liability. These were not provided, and Harmon learned through his investigations that Stay & Sons, Inc. was not listed in either the yellow or white pages of the telephone directory; that they were not licensed with the Contractors’ Licensing department of the State; that their insurance agent was unaware that their client was doing this type of work (they were told that the firm was doing composting work); and that the firm had no environmental impairment liability insurance. Harmon called other reputed bidders for the project to inquire if their bids had included environmental liability insurance, and was advised by some of those contacted that coverages were included. One contractor, however, advised that there were no bid specifications, and that the bid was basically done “over the phone”.

Ed Tabangay, a former employee in the Engineering Department of KSBE, was hired by Nathan Aipa as an independent contractor to handle certain aspects of KSBE’s environmental projects, including the Waterpark Tower site. When Harmon inquired for a copy of Tabangay’s contract, he was advised that there was none. When Harmon asked for a copy of Stay’s bid bond, Tabangay stated that he had waived the bid bond requirement.

Stay’s original bid for the project was around $700,000. After Stay’s initial cleanup efforts of the site were unsuccessful, another staff report was submitted to Trustees to authorize an additional $700,000 or so to haul the contaminated soil to another site on Oahu for further remediation. Harmon later learned that Trustee Lindsey’s stepson was employed by Stay, creating the appearance, at least, of a conflict of interest and of yet another “sweetheart” deal.

After careful investigation, this project appeared to Plaintiff to actually be a non-bid contract, which was fraudulently concealed by presenting it in a staff report to the Trustees as a “bid” situation with Stay being the low-bidder. Plaintiff alleges that Lindsey, Stay, Aipa, Kam, Tabangay, Allan Yee and others engaged in a conspiracy to defraud KSBE; racketeering; mail fraud; wire fraud; extortion; and violations of the Interim Sanctions provisions of the IRS Code. The failure of the Trustees to take prompt and proper action to remediate the environmental hazards at this site also endangered public safety and health.

j) Defendant Trustee Gerard Jervis, was appointed in 1994 by the Justices of the Supreme Court of the State of Hawaii, acting as individuals, and was entrusted with the fiduciary duty to administer the Estate of Bernice Pauahi Bishop for the education of the children of Hawaii. His annual compensation for 1998 was reported to exceed $1,000,000. Jervis also served as the Chairman of the Board of Directors of Kamehameha Investment Corporation.

Plaintiff alleges that Jervis’ duties and fiduciary responsibilities as a Trustee required his honest and diligent attention to the proper management and expenditures of estate assets. Plaintiff alleges that to the extent Jervis failed to sufficiently investigate and halt the fraudulent expenditures of the estate, he breached his fiduciary duties and participated, either directly or indirectly, in a conspiracy to defraud KSBE; racketeering; mail fraud; wire fraud; extortion; and violations of the “interim sanctions” regulations of the I.R.S.

k) Defendant Trustee Oswald Stender, was appointed in 1989 by the Justices of the Supreme Court of the State of Hawaii, acting as individuals, and was entrusted with the fiduciary duty to administer the Estate of Bernice Pauahi Bishop for the education of the children of Hawaii. His annual compensation for his services as trustee was reported to exceed $1,000,000 for 1998.

Plaintiff alleges that Stender’s duties and fiduciary responsibilities as a Trustee required his honest and diligent attention to the proper management and expenditures of estate assets. Plaintiff alleges that to the extent Stender failed to sufficiently investigate and halt the improper expenditures of the estate, he breached his fiduciary duties and participated, either directly or indirectly, in a conspiracy to defraud KSBE; racketeering; mail fraud; wire fraud; extortion; and violations of the “interim sanctions” regulations of the I.R.S.

In fairness to Trustee Stender, however, Plaintiff states that he has no knowledge of any improper or self-serving acts committed by him. Based on his limited contacts with Trustee Stender during his employment at KSBE, Plaintiff was, in fact, of the opinion that Stender was possibly the only trustee that was trustworthy. Subsequent media reports regarding Stender’s efforts to expose the wrongdoing of the “majority trustees” has reinforced this opinion.

l) Nathan Aipa, Esq., is General Counsel and Principal Executive in charge of the Legal Group, KSBE, and Assistant Secretary/Assistant Treasurer, P&C. Plaintiff was an employee in the Legal Group under Aipa’s supervision. Gilbert Ishikawa, Tax Manager, also reported directly to Aipa.

Plaintiff alleges that Aipa’s wrongful acts are multitudinous. These acts include, but are not limited to:

∙ Facilitating the Trustees’ intentional disregard of federal and state laws and regulations, such as the Americans with Disabilities Act, the Environmental Protection Act, the Occupational Safety and Health Act, the Equal Employment Opportunity Act, the Family Emergency Leave Act, and the “Interim Sanctions” regulations of the Internal Revenue Service. One frequent abuse of the legal system was the misuse of the “attorney-client privilege” doctrine in order to conceal deliberate violations of these acts.

∙ Facilitating and concealing the Trustees’ use of Estate assets in mergers and acquisitions of businesses and properties without performing proper due diligence, which was, in major part, the direct responsibility of the Legal Group personnel under Aipa. Examples include the N