Bishop Estate 1997 Master's Report
Price of Paradise · Hawaii Public Radio · aired 1997-11-21
Guests: Carroll Taylor (trust lawyer)
Duration: 1:05:00

[00:00:03] Randall Roth: Aloha, this is Randy Roth, host of the Price of Paradise radio show. We're broadcast live each Sunday morning at 8:00 on KHPR and KKUA and then rebroadcast Sunday evenings at 8:00 on KIFO and KIFO is found at 1380 a.m. Everyone who brings this show to you is a volunteer who believes in the importance of lively and informed dialogue. We believe that the brightness of any community's future is directly related to the level of activity in its marketplace of ideas. Today is the last in a series of shows on the Bishop Estate. Specifically, we're going to focus on the court appointed Master's report that was issued earlier this week, November 17th, Monday afternoon.
[00:00:46] Randall Roth: Carol Taylor is my guest here in the studio. Carol has an undergraduate degree from Yale University and a law degree from the University of California, Bolt Hall, School of Law. He was admitted to practice law in Hawaii in 1969. He's the past president of the Hawaii Institute for Continuing Legal Education and is the current vice chairman of the Disciplinary Board of the Hawaii Supreme Court. He practices law with the firm of Taylor, Leong and Chi, and his practice emphasizes estate planning, wills, trusts, and litigation relating to wills, trusts, and estates.
[00:01:22] Randall Roth: He represents the plaintiff in he represented the plaintiff in the Kapiiolani Park litigation, the most recent Supreme Court case involving charitable trusts, that was decided by the Hawaii Supreme Court in 1989. He does not represent anyone with respect to the Bishop Estate matter and Carol, you're perhaps the only attorney in Hawaii that doesn't have some sort of vested interest in this thing. Good morning.
[00:01:45] Carroll Taylor: Good morning. Thank you.
[00:01:47] Randall Roth: Um, Carol, you are recognized in in this community and outside this community as being an expert in in Trust Law. And one of the questions I think that a lot of people are asking right now is what is this court appointed Master's report all about? Who's the master? How does a person become a master? What's the master's job? Uh, help us understand what's going on here.
[00:02:10] Carroll Taylor: Sure. Uh, the master is an attorney appointed by the judge who's sitting handling probate matters, and his job is to act sort of as a deputy judge to investigate facts relating to the the trust on on which he is reporting.
[00:02:27] Randall Roth: A deputy judge, so it's almost as if the court is taking a look to see how this thing is operating.
[00:02:33] Carroll Taylor: That's correct. The um, the judge obviously doesn't have the time him himself or herself to go out and do the type of investigation that Mr. Matsumoto has done. So he or she appoints a master to do that job for the judge, report back to the judge.
[00:02:47] Randall Roth: Why would the court do this? Is it just the Bishop Estate for which a master is appointed, or is it just charitable trusts, or just situations where the court is curious? Under what circumstances is a court going to appoint a master?
[00:03:02] Carroll Taylor: Uh, masters get appointed in several situations, um, usually involving trusts and estates wherein there is a a request for an accounting. I.E., the Trustee has come to the judge and says, um, this is what I've done for the past year. Is it okay? Will you relieve me from any further liability? The judge then appoints a master to investigate to make sure that the the facts as represented are true and to recommend to the court uh, what steps the court should take.
[00:03:31] Randall Roth: So this is initiated by the trustees. If if they didn't ask to be relieved of liability for things that have happened in the past, then the court might not get involved at all.
[00:03:40] Carroll Taylor: That's correct. Except in in this particular will, in in the Bishop will, there is a specific requirement that the uh, trustees get these accountings approved, but you have private trusts where the trustees have not had accountings approved by the court for years.
[00:03:55] Randall Roth: And and to what extent does the will control when it says do something where generally the law doesn't require it, or it says don't do something where the law generally requires it? What's the impact of of the legal document itself, the will in this case?
[00:04:09] Carroll Taylor: The will sets sets the rules by which the um the um the master operates, the court operates. The the will is the governing instrument. It is the duty of the court to to implement the will.
[00:04:22] Randall Roth: Okay. So we've got this court appointed Master and he's just issued his report for fiscal 94 and I guess he's got a report for fiscal 95 coming out in January and fiscal 96 coming out later in in 1998. But on December 5th, that's just a week or two away, the probate court is going to have a hearing on this report. What's that all about?
[00:04:46] Carroll Taylor: Well, this is the opportunity for the court to receive the report. Uh, the trustees have the opportunity to respond to the report. And given the um the extent of the report and the the number of issues covered thereby, I would not be surprised if the trustees were to ask for additional time within which to respond because there are so many issues. But in any event, the trustees file a response, and then the judge considers the report, the response and starts making some decisions.
[00:05:17] Randall Roth: Is it possible that on December 5th, assuming that the trustees don't ask for more time and this hearing actually comes off on December 5th, is it possible that the court will actually be making some decisions and issuing some orders or is this just the beginning in a in a series of uh of hearings?
[00:05:35] Carroll Taylor: Uh, this be very unlikely for the court to uh issue orders, especially uh based on this Master's report because much of what the Master's report says is that uh adequate information was not available for the master to opine and for the court to rule.
[00:05:53] Randall Roth: But what can the court do if if the trustees have been ordered in the past to do certain things that according to this Master's report they haven't yet done? Does the court just say this time I really mean it or what happens?
[00:06:05] Carroll Taylor: The court has um uh a whole wide variety of sanctions. The the most extreme of which would be you remove trustees. Um, the least extreme of which would be you say please do what I've told you in the past and you better do it this time. Um, you know, it would be not not um out of the order for the court to order the trustees who have not uh complied with past orders to pay for the cost personally of of incurred by the master in as a result of that noncompliance.
[00:06:40] Randall Roth: How does the Attorney General fit into this whole thing? We all know that she has an investigation going on. Let's assume for a minute that December comes around and she's not finished with her investigation. Is she simply not going to show up to this hearing, or is she going to say, let's hold off until I've finished my investigation? What are the possibilities?
[00:06:58] Carroll Taylor: Well, the Attorney General has a has an entirely separate interest. Um, she represents the beneficiaries. She is, it is as if she were the beneficiary of the trust. She has a right to come in and make comments on the Master's report, make comments on the um the uh trustee's response to the report, give her own opinion to the to the judge. And in addition, uh continue her own investigation that she has going separately from this.
[00:07:26] Randall Roth: So if the court wants to act based on the Master's report, it can. If the court decides that in light of the fact that the Attorney General on behalf of the beneficiaries is looking at this herself and perhaps is going to be bringing a lawsuit sometime down the road, that might be a factor in the court's deciding to hold off on anything rather drastic, at least for now.
[00:07:46] Carroll Taylor: Yes, absolutely.
[00:07:48] Randall Roth: Let's talk a little bit about the Master's report itself, uh very long and anyone out there who hasn't had a chance to see the Master's report, probably the most convenient way you can take a look at the report is to go to the internet. And if you don't have a computer, just ask around. There's somebody close to you who does. But the address is www.starbulletin.com. It's the regular website of the Honolulu Star Bulletin, and if you go to its homepage, there's there's uh a phrase, Bishop Estate archives that you click on and you can't miss all of the coverage including this uh 120 or 30 or 40 page Master's report. And it's very long, but it doesn't take long to skim it, and even non lawyers that I've talked to who have read it have found it very enlightening.
[00:08:39] Randall Roth: Carol, I know you've read the Master's report very closely. Uh what are a couple of the the key points in that report that you think will have an impact one way or another on the court December 5th or whenever the court does take a look at that report?
[00:08:55] Carroll Taylor: Well, two two things sort of leap out at me, one of which is that the um there have been past orders by the court to for the for the trustees to supply certain types of information at particular times. And that, according to the report, has not been complied with in at least three separate types of instances instances.
[00:09:22] Carroll Taylor: Um uh that's one. Number two, the the report as a whole is of concern to me because of its emphasis because of the emphasis which it says the trustees devote to confidentiality and secrecy. We we are talking about a public trust. And I know there have been some people say, no, it's not a public trust. It's a certain kind of a foundation. But in trust law, you have public trusts and private trusts and this falls into the public trust. And the whole concept of confidential information and secret private information in a public trust is a bit of an oxymoron to me. I don't see how you can they cannot coexist in my judgment.
[00:10:22] Randall Roth: So, when when the trustees say that they need to keep a lot of information confidential, your reaction?
[00:10:33] Carroll Taylor: That that doesn't register. I mean, the nature of a public trust is that it's it is a it's like the state government saying we're not going to show you our books because we have some some important dealings here.
[00:10:52] Randall Roth: And you would feel that way even if the will was silent about this sort of thing, but I know you and I were chatting before the program that there's something specific in the will on this?
[00:11:09] Carroll Taylor: That's correct. That that this trust of of any trust has specific uh mandatory instructions within it that require publicity and and require this type of review.
[00:11:30] Randall Roth: Uh you mentioned that the trustees are going to be responding to this report. According to the media over the last few days, uh Trustee Henry Peters says that Colbert Matsumoto, the the the the master, had an opportunity to be professional and he fell short of the mark. And so that's that's a very general sort of critique, but he's clearly not happy with with the report. And um we've had in the newspapers the last few days a paid advertisement that is suggesting that since 1979, the trustees have generated a a 15% annual compounded rate of return, which directly goes against the grain of what's at least implied by this Master's report. What's your reaction to this?
[00:12:15] Carroll Taylor: Well, playing with numbers can be very tricky and can be very deceptive. Um, um if the trustees have earned the rate of return which they claim that they have earned in the newspaper, they must have information which has not been disclosed to the master. Because as I read the Master's report, he could not compute that based on the information that was given to him. So assuming that the trustees are telling the truth in their advertisement, then then there is more information which which should be made available to the master.
[00:13:03] Randall Roth: So the master found $264 million of of losses and and reserves for losses which which indicates that there's an expectation that there's going to be loss in that dollar amount. But the master didn't find offsetting gains. And the implication I think from the the paid ad is that the corpus went up in value by enough during that year to more than offset those losses. And yet according to the Master's report, the trustees aren't valuing the corpus at the beginning of the year or the end of the year. So how how does one determine how much it went up if you don't know what it was worth before and after?
[00:13:37] Carroll Taylor: Yeah, that that that's I'm at a loss to explain that. I don't know how how the trustees could calculate the 15%, and I presume that they had somebody who did that. Um but you based on the information that the master says is is available to him, and he should have access to everything, uh I don't know how you could do that.
[00:14:14] Randall Roth: A couple of other things from the Master's report. What's your impression of the types of investments that the trustees have been making? Uh not typical of trust generally, certainly not typical of charitable trusts. From the standpoint of a a trust law specialist, what's your reaction to them?
[00:14:38] Carroll Taylor: It's it's um it's an unusual mix of investments. Um uh trustees are are paid and are duty bound to be conservative. Their obligation is twofold. Number one, generate income, number two, preserve the the corpus. I was um surprised to see that they had invested more in in oil and gas than they had in stocks and bonds. Uh that that's very much out of the ordinary for um this sort of a this sort of a trust.
[00:15:23] Randall Roth: What about um benchmarks to measure their own performance? Uh is there something in place that would give us some indication as to whether they met their own expectations, their own goals?
[00:15:43] Carroll Taylor: Well, that's that's seems to be one of the deficiencies that the master is concerned about in that they're supposed to have a strategic financial plan, which integrates with their educational plan.
[00:16:04] Randall Roth: And and right there, what is a strategic investment plan? And and what do you mean by integrate with the educational plan?
[00:16:15] Carroll Taylor: Well I am I am looking at what the master reported and it seems to me what the master is looking for uh and what past masters have have recommended, is that the trustees set a a educational goals. For instance, we want to have one campus on each island within 10 years. And then you look at the assets and say, okay, how can we use these assets that we have, the money that we've generated from the lease fee sales, etc. How can we use the assets to to generate the amount of money we need to implement the plan that we've decided upon? And then once you've decided how you're going to generate that money, you have to allocate the assets into different types of investments, real estate, mortgages, stocks, bonds and whatever. Uh and it seems that from reading the report that that undertaking has not yet been completed by the trustees, even though I think it was first raised about 7 years ago in in the Dodd report, as I as I recall.
[00:17:35] Randall Roth: Why wouldn't the trustees adopt a strategic plan? Uh after all, it as you describe it, it sounds like it makes a lot of sense generally. But if they've been uh if it's been recommended by past Masters and ordered by the court in the past, why isn't it there? Is there any indication of that in this Master's report?
[00:18:03] Carroll Taylor: I I don't know why it's not there, and I I I didn't see any indication, did you?
[00:18:08] Randall Roth: I didn't. So I I suspect that's on the list of things that we can expect the trustees to um comment on.
[00:18:16] Carroll Taylor: I would I would assume so.
[00:18:19] Randall Roth: Okay. Well, in case you tuned in late, what you're listening to is the Price of Paradise Radio Show. My name is Randy Roth. I'm sitting here with Carol Taylor. Carol is a an expert on Trust Law. He has an undergraduate degree from Yale, a law degree from the University of California, the Bolt Hall School of Law. You're a prodigy of Ed Hallbach whose name pops up from time to time uh in Bishop Estate conversations. Carol was admitted to practice in Hawaii in 1969. He's the past president of a group called Hickle, the Hawaii Institute of Continuing Legal Education, and he's currently the vice chairman of the Disciplinary Board of the Hawaii Supreme Court. That's the group that hears complaints about lawyers and decides whether lawyers should be sanctioned uh the ultimate sanction being disbarment. Uh he's the current vice chair of that group.
[00:19:00] Randall Roth: And the Supreme Court of the United States a long time ago said, can't do it.
[00:19:03] Speaker 2: That's correct. And I I the only reason I wrote the letter was I didn't want people to think that there was an an easy legislative fix, have that be done and then five years from now discover that it's it was invalid.
[00:19:07] Randall Roth: He practices law with the firm of Taylor, Leong and Chi and his practice emphasizes estate planning, wills and trusts and litigation relating there to. He represented the plaintiff in the Kapiiolani Park litigation, which is the most recent case involving charitable trusts that's been decided by the Hawaii Supreme Court and very importantly he doesn't represent anyone having to do with this Bishop Estate series of issues that we're talking about. Mhm. Okay. Anything else in the letter you want to mention before we take a call?
[00:19:18] Speaker 2: Nope, that's fine. All right. Let's start with Harvey from Kona Ohe. Good morning, Harvey.
[00:19:22] Speaker 3: Good morning, Randy.
[00:19:23] Randall Roth: You're on the air.
[00:19:24] Speaker 3: Thank you. The question I have is I was interested in both your comments and Carol's comments regarding the court ordering uh uh as much as seven years ago for the trustees to develop uh a uh strategic plan.
[00:19:35] Randall Roth: If you'd like to ask a question or make a comment, our number is 955-8821. If you're on a neighbor island call 1800-955-88 21. Again, we're talking about the Bishop Estate and specifically we're trying to help listeners understand what's going on with respect to this Master's report. How does that person get his job, what is his job, what perhaps is next, what are some of the salient points in the uh report that was issued very recently.
[00:19:41] Speaker 3: Are there no um accountability? Is there no repercussions if uh the uh trustees ignore masters uh recommendations, then why bother with the process in the first place?
[00:19:54] Randall Roth: Good question, Carol.
[00:19:56] Speaker 2: Yes, it is a good question. Um Yes, there is accountability. The accountability lies with the judge. The the trustees can ignore Master's recommendations, but not once those recommendations become court orders.
[00:20:07] Randall Roth: If you'd like to ask a question or make a comment our number is 955-8821.
[00:20:10] Speaker 2: And um it is it is surprising to me that there were some orders previously entered that apparently have not been complied with. And I imagine the trustees will be responding to the judge as to why that has happened, and then it's up to the judge to decide what she wants to do about it.
[00:20:15] Randall Roth: Carol Taylor, I mentioned that you don't represent anybody in all of this, but I did notice that earlier this week you wrote a a letter to the editor and I was curious because I I know that you're considered uh one of the top experts in this area and yet you hadn't publicly really said anything about what's been going on until earlier this week. I saw a letter to the editor in the Advertiser. What was that all about?
[00:20:28] Speaker 3: I see, so apparently in the past some judges have not been uh uh in assessing the situation have not turned the masters recommendations into a court order.
[00:20:38] Speaker 2: No, I think as I read this Master's report, the judges in the past have been returning have been turning the Master's reports into court orders, but it appears that those orders have not been completely complied with.
[00:20:49] Speaker 3: And then, what uh what typically is the consequences of not complying with a court order?
[00:20:55] Carroll Taylor: Well, the um the Sunday Advertiser had an article about uh proposed legislation that the uh legislature was considering. And one thing that is very clear from the Kapiiolani Park decision is that the legislature cannot legislate changes in the terms of charitable trusts. And and there's an old Dartmouth College case wherein the um the uh legislature of New Hampshire tried to change the method of selection of the trustees of Dartmouth College and the number of trustees of Dartmouth College. The United States Supreme Court said they could not do that. It was it was a it would be unconstitutional.
[00:20:56] Speaker 2: Um Boy, that's up to the judge and I I don't want to get involved in that.
[00:21:01] Randall Roth: But I I think, Harvey, your point, I believe, is that at least up until now there hasn't been a consequence to ignoring these particular court orders.
[00:21:10] Speaker 3: Right. Right.
[00:21:11] Randall Roth: And and it's possible that that the issue has not previously been brought to the court's attention.
[00:21:17] Speaker 3: Uh has the particular uh Master's report always been heard by a one particular judge or are there a number of judges in the probate court?
[00:21:30] Speaker 2: That's that's another good question. Um The answer is it's a number of different judges because the the judge who happens to be sitting in probate at the time that the report is filed is the judge who hears it.
[00:21:39] Randall Roth: So so far at least as I'm listening to you, one of your points in this letter was to indicate that if the legislature wants to try to change the will of the Princess, forget it, can't be done.
[00:21:41] Speaker 2: In this particular instance, that judge is Judge Crandel who who has recused herself who is not hearing Bishop state matters because her husband is an attorney with a firm that does work with Bishop estate. So she she's passed the ball in these to Judge Herai who hears a lot of uh trust and state matters because of uh referrals from Judge Crandel.
[00:22:03] Speaker 3: I see.
[00:22:04] Speaker 2: But other judges in the past, you you Judge Im, Judge Shimabakuro uh there have been other judges in the past who have heard these um matters.
[00:22:13] Speaker 3: And so far none of them have um called in a sense called the trustees on the carpet for ignoring court orders.
[00:22:22] Speaker 2: Not to my knowledge, and as I as I indicated earlier, it's possible that no prior Master's report has indicated that the trustees haven't previously complied.
[00:22:30] Randall Roth: Um, this is is Randy Roth. I I just wanted to jump in and and ask Carol to what extent is that understandable if the beneficiaries aren't complaining. And as you mentioned earlier, it's really the attorney general who is the voice of the beneficiaries. If attorney generals in the past have not complained, whether it's about something going on or failure to obey a court order or what have you, is it understandable that a court would not pay a lot of attention to a uh a failure to follow an order?
[00:23:00] Speaker 2: Absolutely. You know, the the courts are there to resolve disputes and if if something it does does not appear to be a dispute, they don't go out looking for disputes. They have enough to handle already without searching out new ones.
[00:23:13] Randall Roth: Harvey, thanks for your call.
[00:23:15] Speaker 3: My pleasure. Thanks uh for I really appreciate the public service, Randy.
[00:23:18] Randall Roth: Okie dokie. You know, Carol, Harvey was asking about prior court orders that haven't been obeyed. I was trying to make a a little list and I did this very quickly this morning. It's probably incomplete, but in reading this recent Master's report, I think court orders that seemingly have been ignored include number one that the trustees are supposed to be determining the fair market value of the assets periodically and reporting that to the court and and publicly as well because of the will requirement.
[00:23:48] Randall Roth: Secondly, they're supposed to be reporting to the court and publicly in in a newspaper each year a schedule of specific gains and losses and then thirdly as you were mentioning earlier, the strategic plan that over and over and over the masters have recommended and the court in fact has ordered. Um does that all ring true with your recollection of what's in there?
[00:24:09] Speaker 2: That's correct.
[00:24:11] Randall Roth: Big question. In the past, trustees each year have asked the court to approve their accounting and year after year after year, the court has approved the accounting. If trustees in the past haven't provided information any better than what the current trustees are described as having provided information in this Master's report, are these former trustees or trustees for past years, are they off the hook as a result of the approval of those accounts, or is there something about the failure to to provide this information that could have an impact on that?
[00:24:51] Speaker 2: Um, good question, Randy. Uh As I indicated earlier, one of the the the outcomes of these accountings and these reports and these approvals is that the trustees um are absolved from any liability for the for the matters which have been reported on. There is an exception, however, where information has not been supplied in the report. Um In fact, there's an old Hawaii case wherein um the court approved a sale of stock and then later developed that the sale of stock had been to a trustee.
[00:25:23] Speaker 2: And that the the the fact that the sale had been to the trustee had not been disclosed, and the Hawaii Supreme Court said there is no protection for the trustees, even though the sale was approved, all the relevant facts were not approved. So therefore, that that issue was reopened and the trustees could be held liable.
[00:25:39] Randall Roth: So for example, in this Master's report, uh the Master says he has has demanded and still has not gotten a list of any investments that the estate has made in which individual trustees also have an investment in in the same thing. It's called co-investment. He still hasn't gotten that. If past accountings were approved without the court knowing that there was co-investment, is that a possible example of where that approval would not let those trustees off the hook?
[00:26:11] Speaker 2: Yes.
[00:26:12] Randall Roth: Okay. Well, if you want to ask a question or make a comment, our numbers 955-8821, we go to Steve in Waikiki. Good morning, Steve.
[00:26:20] Speaker 4: Two very brief comments and two very brief specific questions. Brief comment number one. You frequently say to your readers or to your readers, I should say to your listeners, um that this is available on the web and that if they don't have a computer themselves, they can surely find one. I'd like to add that the Hawaii public libraries, nearly all of them have these so that you I know the Kaimuki public library does, where I go.
[00:26:43] Randall Roth: That's a great point, great point. So
[00:26:45] Speaker 4: And so does the University of Hawaii Hamilton Library which is open to the public, folks can go in, sit down, dial up the web and see it. Okay. So you don't have to have your own computer. Great point. Second, I've been listening to these programs over the over the past few months and it does seem to me, especially with your last question about the liability of trustees for past misdoings, uh that the noose is slowly tightening and that what what we're seeing here in public is a very lawyerly, slow, creeping uh closing of the circle which I think is very interesting.
[00:27:14] Speaker 4: Two specific questions to your um to your guest who is a specialist on trusts. One, uh as I as I read on the web the the the uh the will, the text of the will, and it is available on the web, um the the two specific beneficiaries of the trust are to be indigents and members of the Protestant religion. Uh has anyone brought any action to court or has anybody investigated these two categories as as beneficiaries and whether they are in fact being benefited by the trust as as the uh as the will requires. My second question is Okay Steve. I'll come I'll reserve the second question. I'll come back to you.
[00:28:00] Randall Roth: All right. Carol Taylor.
[00:28:02] Speaker 2: Um uh Steve I think you you misread uh the will a little bit. I think the the class of beneficiaries is larger than just indigents and and Protestants. Um it's certainly larger than Protestant indigents. Uh uh the the um the will generally speaks about setting up schools uh to educate um with preference being given to indigents and orphans of the of Hawaiian blood, or words to that effect. So basically it's an educational institution. The Protestant uh has to do as I recall, there was something in there about only uh Protestants could be teachers as I as I think the is that correct Randy?
[00:28:45] Randall Roth: Uh teachers and trustees.
[00:28:48] Speaker 2: Okay. And I think the uh the um US Supreme Court of the Ninth Circuit Court of Appeals has has struck down as unconstitutional the restriction on um the teachers being only members of the Protestant religion.
[00:29:01] Speaker 4: Uh I I I think I misspoke myself. I meant indigents and orphans uh Okay, not indigents Protestants Excuse me, indigents and orphans I just wondered if anyone had has brought any question before the court whether those two categories of people had been in fact uh benefited.
[00:29:16] Speaker 2: Not not to my knowledge, Randy.
[00:29:18] Randall Roth: And and because Carol and Steve I think are in total agreement that in the will, there are class of people who are supposed to be benefited, that it's it's not discretionary, they're supposed to be benefited, both in terms of education and support and they are orphans and indigents and then in this context it's with preference given to Hawaiians and part Hawaiians. And I don't know Carol doesn't know and by asking the question evidently Steve doesn't know of any action that has been brought at any point in time. Um doesn't mean that it hasn't been but uh I think we would know about it if it had been. Yes.
[00:29:55] Speaker 2: And Steve let me just say that that trustees are given broad discretion in discharge of their duties. Um um and the the law is real clear that you and I, Randy and a judge may disagree with how the trustee exercises that discretion, but so long as it was not on its face, uh invalid and in bad faith, the fact that we disagree doesn't mean that it was a bad exercise of discretion.
[00:30:32] Speaker 4: as beneficiaries as beneficiaries as beneficiaries as beneficiaries. Um as I understand it the Bishop Trust is the largest entity of its kind in the United States um and that number two stands the uh the trust uh for Harvard. And uh comparing the activities of those two institutions, uh their output at least, one finds a a vast difference in what they've been able to accomplish with the moneys at hand.
[00:31:04] Speaker 4: I'm wondering are you familiar with, can you compare the way very large other very large important educational trusts in America such as Harvard or your alma mater, Yale, which control also enormous sums of money, how they operate, how they invest, and and how they produce benefits for their institutions. And I'll hang up and listen to your answer.
[00:31:26] Speaker 2: I wish I could uh uh tell you um uh how they invest. I know um in my case we get reports as an alum of of Yale. We get reports on on types of investments, but it's it's pretty broad. I do know that they they um they do more than the old traditional charitable trust investment of nothing but stocks and bonds. Um stocks and bonds are are major part of their investment portfolio, but it's not the only thing. They're into real estate and they're into um venture capital and and those sorts of investments.
[00:32:03] Speaker 2: It used to be that that trustees had a very very limited um investment discretion. They at one point they could basically only invest in mortgages and that has broadened now.
[00:32:16] Randall Roth: In fact, Carol, I think a lot of people are surprised to hear that there isn't anything necessarily wrong with speculative investments. There isn't anything necessarily wrong with getting into a an oil and gas deal for example, but it's got to be as part of some sort of strategic plan.
[00:32:33] Speaker 2: That's absolutely right. It used to be it you will find old cases that say it is a breach of trust to own land. Believe it or not, there are cases that say that because land is too speculative. Why? Because you have to manage it and it may not produce income. Um the the modern investment portfolio theory recognizes that there are all sorts of different types of investments, they all have their role, and and the issue is is how do you how how much do you allocate to each type of an investment and how does it fit your unique mission?
[00:33:02] Randall Roth: That's correct. Okay. Well, in case you'd like to ask a question or make a comment, I'm here with Carol Taylor, who is a trust specialist here in Hawaii. Our number is 955-8821. We have some open lines. If you're on a neighbor island, the number is 1-800-955-8821. If you tuned in late, and would like to hear the show in its entirety tonight at 8:00 on KIFO, that's 1380 AM, you can hear the show in its entirety. Also if you'd like to participate in a uh internet discussion on this topic, if you go to www.popweb.org, you can click on Bishop Estate and engage in uh a lively and informed conversation there.
[00:33:48] Randall Roth: We had a a comment this morning that was made by Scott Allen on Pop Web. It's very interesting. It's a little bit too long for me to read, but I would encourage everyone to take a look at that and to weigh in with their own opinion as well. Again, our number is 955-8821. Carol, real quick question, and we're going to go to some callers. In your biographical sketch, I mention to listeners that you represented the plaintiffs in a case involving Capiolani Park. Real quickly, why is that relevant to what we're talking about today?
[00:34:21] Speaker 2: Well, Capiolani Park is is the uh result of a charitable trust created before the turn of the century. And um um the city which was acting as trustee had had some plans to use the asset, Capiolani Park, in a manner which my clients did not think was appropriate. They wanted I think it involved a Burger King or a And your clients didn't like that.
[00:34:43] Speaker 2: They didn't like McDonald's might have been okay, Burger King was not okay. They didn't like the commercialization. That's correct, I I just um um they thought it was an inappropriate use of of park property. And um interestingly, um normally uh a private plaintiff could not sue on that, but in that case, both the um Attorney General and the city and county of Honolulu did not go to the court for instructions as to whether or not this was proper. And so the court said that a private plaintiff did have standing to sue to enforce the trust, which is what we did.
[00:35:16] Randall Roth: So in in the Bishop Estate context, if the attorney general for example, would do nothing and the court had the feeling that maybe something ought to be done, then it could give standing to a group like the Nupua group for example, or or any group that might step forward in an in a responsible sort of way allege that something wrong is going on.
[00:35:39] Speaker 2: That's correct.
[00:35:40] Randall Roth: And Capiolani Park would be the precedent that they would cite. That's correct. Okay, well we go to Mike from Manoa. Good morning, Mike.
[00:35:46] Speaker 5: Good morning. Uh two questions. Um something that the previous caller um pointed brought up. It's fascinating to me when it says about indigents in the will. I'd never realized this. It seems that there's two possibilities here. One is to investigate any potential wrongdoings that have gone on in the past. But more positively to look at the future, you know what could and perhaps should be being done.
[00:36:08] Speaker 5: Is it true if if indigents um have some claim under this, does it mean for example that homeless Hawaiians on the beach uh could be uh getting a good lawyer and suing uh because they haven't been being dealt with uh by the under the will. That's the first question. And secondly, and this I I apologize if this is old, old, old news, but I'm still not clear who qualifies as Hawaiians under this.
[00:37:03] Randall Roth: Okay. Mike, stay on the line. Carol, I think Mike has asked a couple of questions. Uh take your pick as to where you start.
[00:37:10] Speaker 2: Um with respect to what constitutes Hawaiian, the only the only reference in the will that I recall, and I'm I'm looking at the the will right now and I think this is the only reference um is with respect let me read it. The trustees are to devote a portion of each year's income to the support and education of orphans and others in indigent circumstances, giving the preference to Hawaiians of pure or part aboriginal blood. Okay. Now, from a a a legal standpoint, a legal analysis standpoint, since at that portion in that provision, there is a real specific definition if you will, of Hawaiians. It's talking about uh
[00:38:00] Randall Roth: pure or part Aboriginal blood, then the lawyers would argue that if elsewhere there's a reference to a school for boys and girls, that it wouldn't be so limited. Right or wrong?
[00:38:14] Carroll Taylor: Well, yes, the lawyers could argue that.
[00:38:16] Randall Roth: Because sooner or later there's going to be a legal argument about this, and I guess what I'm asking you, Carol, is is tell me what the the the lawyers on each side are going to be arguing.
[00:38:26] Carroll Taylor: The the lawyers on on on the trustee side are going to say that the trustees have the discretion to set up an educational institution to to educate boys and girls in Hawaii. Um, it is within their discretion to determine the the um the eligibility for application and admission. Um, given the fact that the Princess has has indicated some uh uh concern about Hawaiians of pure or part part Aboriginal blood. the lawyers for the trustees would say it is not abuse of it is not an abuse of that discretion to limit the admissions to the school to those to people who fit that category.
[00:39:10] Randall Roth: And what would the lawyers on the other side say?
[00:39:13] Carroll Taylor: The lawyers on the other side would say that there is no requirement that the um the uh schools be limited to people of of pure or part Hawaiian blood and they would probably argue that there is there is no educational benefit to having a race based uh admissions process.
[00:39:34] Randall Roth: What about the tax law? Does that fit into this whole thing?
[00:39:38] Carroll Taylor: Well, you're talking uh it gets an entirely different element as to whether or not um uh you will be able to maintain your charitable status uh if you have um this sort of an admission process. Um, and the trustees could always make the decision, in my judgment, the charitable status is is not as important as as um preserving the the benefit for people of Hawaiian blood.
[00:40:05] Randall Roth: Okay. What what about Mike's comment? Um, could some of the funds be used to help homeless Hawaiians because earlier in the will it talks about a school for boys, a school for girls, but in the language that you read, it talks about not just education, but also support. And this is the part that talks specifically about Hawaiians of of pure or part Aboriginal blood. Um, can the trustees go out and help the homeless Hawaiians?
[00:40:33] Carroll Taylor: No, I think um I don't have the case site at at mine, but I'm pretty sure there's been a Hawaii Supreme Court decision that says that this clause, to which we are now referring, is in the context of that school. It's the same paragraph as the school for for boys and girls. Um and therefore the the support and education is support and education in the context of of that um educational endeavor.
[00:41:07] Randall Roth: So this is an educational charitable trust first and foremost and then the trustees have a lot of discretion in terms of how they go about carrying out that educational mission.
[00:41:10] Carroll Taylor: Correct. And and one of the things that that they do do, Mike, is they do give scholarships to um uh even non-Kamehameha Schools graduates who go on to college. You can you can be a graduate of a public high school and you can get a Kamehameha Schools scholarship to go to to college.
[00:41:26] Randall Roth: Mike, does that respond to your question?
[00:41:28] Mike: One tiny bit, this is still unclear to me. Um definition of boys and girls, it's not sort of like school age in the sense of 18 and under, it can be higher. Couldn't it, couldn't people in the sort of categories I had in mind still try this to claim support um because they're adults, uh but they they were looking for education as a way of getting them out of indigence as it were, um if they're part Hawaiian, and I'll hang up with that one.
[00:41:53] Randall Roth: Thank you very much.
[00:41:55] Carroll Taylor: You bet.
[00:41:56] Randall Roth: Carol? I'm glad he hung up. Tough question.
[00:42:00] Carroll Taylor: Yeah, Mike, I'm sorry, I don't know the answer to that.
[00:42:03] Randall Roth: Okay. Um, you're listening to the Price of Paradise radio show. My name's Randy Roth. I'm here with Trust Lawyer Carol Taylor. If you'd like to ask a question or make a comment, our number is 955-8821, on a neighbor island, it's 1-800-955-8821. We're talking about the Bishop estate in general, the Masters report in particular, and a couple of things Carol, that haven't come up and I'm a little bit surprised. First of all, in the Master's report, there's something about a Kahala Hilton deal that troubled the master and yet he didn't have enough information to say anything critical, but he was very troubled by it. What's going on there?
[00:42:48] Carroll Taylor: Well, that's the problem. We don't know what's going on from from reading the Masters report. Um, um what we do know about the Kahala Hilton from is from a property tax uh uh Hawaii Supreme Court decision where certain facts were uh included in the opinion and it had nothing to do to do with the Bishop estate. But in that opinion, um it it is noted that the Kahala Hilton transaction is supposed to generate the economic equivalent of 5.6 million dollars a year of of lease rent income to the estate.
[00:43:23] Carroll Taylor: And that transaction was consummated during the course of the year that this master's report covers and yet the master could find no records in the minutes of the trustees or in the information provided to the court or in the list of real estate transactions. no no record of of that transaction and it's a 5.6 million dollar question at this point.
[00:43:47] Randall Roth: And I guess people wouldn't even know enough to ask the question if it weren't for the accident that there was this litigation over a tax issue.
[00:43:54] Carroll Taylor: Yes. Yes.
[00:43:55] Randall Roth: And so the Master, as I understand, he's simply saying, I've got to have some information about this.
[00:43:59] Carroll Taylor: Correct.
[00:44:00] Randall Roth: Okay. Um, we've got a caller and I'll come back to a couple of other things in the Master's report that haven't come up, but first let's go to John from Kakaako. Good morning, John.
[00:44:08] John: Good morning. Got a question about uh the political implication and realities of the fact that the judges that are going to be hearing these particular issues are all appointees as are the current host of trustees. And bottom line, what is the impact that that's going to have in the situation. Secondly, question would be, would we be here at all if there wasn't a break between the Kaito and at strations as far as their political aspirations and which way the machine was pointing and is pointing at the moment?
[00:44:56] Randall Roth: Well, does my trust lawyer have an answer? This is uh, I think outside your area of expertise.
[00:45:02] Carroll Taylor: This is not Dan Boylan.
[00:45:04] Randall Roth: John, I'll tell you what, we're going to take your questions as comments because I think the implications of what you're suggesting are are really quite clear but but neither Carol nor I really are are in a position to to answer them.
[00:45:17] Carroll Taylor: Okay. But John may may I make um um I I would like to say in the the course of the many years that I practiced here that um um our judges may not get pay raises, but they do do good work and they work long hours and um I am pleased with the quality of justice that's being dealt dealt out from the bench.
[00:45:40] Randall Roth: Carol, is it fair to say from that that you're optimistic that whatever is decided by the probate court with respect to the bishop estate in this context is is in all likelihood going to be a good decision. You're optimistic that it's it's going to be the right decision whatever that is.
[00:45:56] Carroll Taylor: Yeah, I um I have really come to the belief that when a judge makes a bad decision, it's because the lawyer didn't do a good job of educating the judge. I I really do believe that. And um I am optimistic that that our judiciary is going to produce the appropriate response.
[00:46:12] Randall Roth: Well, the Attorney General is an excellent lawyer and the trustees have hired excellent lawyers and if your uh belief is true, then I guess we're going to get a a good decision.
[00:46:23] Carroll Taylor: I I expect it.
[00:46:24] John: Well, I'm guardedly optimistic, but uh, you know, as rampant as some uh throughout the rest of the milieu of politics within the state has the smacked of uh you scratch my back, I'll scratch yours, uh I am, let's just say I'm optimistic that he's right.
[00:46:46] Randall Roth: Okay. Thank you John. Carol, something else that's in the Master's report and and the media has made a big deal of it is this statement that the Master made that trying to get information from the Bishop Estate trustees and to learn about the Bishop Estate, it felt more like he was dealing with the CIA than with a charitable organization. Um what's your reaction to that, and is there anything in the Master's report that would tend to to support that? That's a pretty extreme provocative statement.
[00:47:20] Carroll Taylor: Yes, it is, and and it's um it's a surprising statement when you consider the fact that the Master is, as I indicated earlier, a deputy judge. The judge has a responsibility of reviewing and passing on the accounting. Um, it it's it's incredible that um uh you should ask the judge to make that sort of a decision without giving him or her the information on which to uh make the appropriate decision.
[00:47:50] Randall Roth: Well let me let me see if I can defend the trustees for a minute here. They are in business. I mean, they they've made some passive investments but they've got a a lot of active business activity out there. They're involved in a lot of real estate transactions with others who would love to have information in terms of the thinking of the trustees, how they arrived at at the offer that they made, that sort of thing. Just playing Devil's advocate for a minute here, why wouldn't the trustees be entitled to to keep this information confidential?
[00:48:23] Carroll Taylor: Because this is the court that's asking for it. You you can't go to court and say, please approve my accounts, but I'm not going to give you the information that you need to make that decision.
[00:48:32] Randall Roth: Oh and this was initiated by the trustees. They're the ones asking the court to get involved.
[00:48:36] Carroll Taylor: That's right. And and they're required to ask the court under the terms of the will. The will says they've got to get an accounting, they've got to get it approved. And now you go to court, ask for approval and you you just can't withhold any information. There was some mention in here of of the uh in the Master's report of the inability to get information relating to Goldman Sachs and and and the due diligence that they had done. Right.
[00:48:59] Carroll Taylor: Um because that that might breach the the confidentiality agreement between Bishop Estate and Goldman Sachs. Well, um you can't go to court and say, Judge, I've got a secret. I'm not going to tell you something, but please approve what I've done. Um, if there is any such confidentiality agreement, it it falls in the face of a judicial inquiry.
[00:49:20] Randall Roth: A day or two ago, there was an Island Voices piece on the editorial page of the advertiser uh by retired Justice Frank Padgett. Did you see that?
[00:49:30] Carroll Taylor: I did.
[00:49:32] Randall Roth: Tell us about it.
[00:49:34] Carroll Taylor: Well, um uh Paget quoted um uh decision, a much quoted decision from uh Justice Cardoso at the New York Appellate Court.
[00:49:44] Randall Roth: And this is a Justice who's revered in the legal community.
[00:49:46] Carroll Taylor: Right. There are a few people in in the legal community that everybody knows and everybody respects and he is at the top of the list. And the point that that Paget was making and that Cardoso had well-made was that conduct which would be uh acceptable and proper for a businessman to engage in would not necessarily be acceptable and proper for a trustee to engage in. That the trustees are held to more than the morals of the marketplace. Um it is they have the highest obligation of fiduciary duty um um and and you they they just get judged by an entirely different standard.
[00:50:26] Randall Roth: Okay. And they are in business, but they're also trustees which preempts the other.
[00:50:30] Carroll Taylor: Oh the trustee capacity, absolutely. They they they they are trustees first and foremost and last. That's what they are. They may have some business investments in their trustee capacity, but they are trustees.
[00:50:42] Randall Roth: Some of my students, uh I asked them to read that Island Voices piece that retired Justice Paget wrote and their comment was, a lot of people who haven't gone to law school are going to say, you know, what he's describing is is unreasonable. How can we demand so much of people? How can we demand the trustees behave to this standard? And the comment they were making is that the public ought to also be told that nobody can be forced to be a trustee. That the demands that the legal system make are so stringent that it always has to be a voluntary decision on the part of the trustee to to take that job.
[00:51:19] Carroll Taylor: No, that's absolutely right. You're you're this is a volunteer position.
[00:51:23] Randall Roth: But what about uh somebody saying, well, I just didn't realize when I accepted the job as trustee, I just didn't realize what was required of me. I didn't realize just how open this had to be or how informed I had to be or anything like that.
[00:51:38] Carroll Taylor: That's no defense. Uh in fact, there are cases saying that the mere fact that you relied on legal advice is not an excuse for a breach of trust.
[00:51:46] Randall Roth: So even if the trustee goes to a lawyer and the lawyer says, do this or do that, and the trustee follows the instructions of that lawyer, if it turns out that that was a breach of trust, that trustee is is accountable.
[00:51:58] Carroll Taylor: That's right, the trustee's responsible.
[00:52:01] Randall Roth: So and you know, just uh or Judge King, um I think made a comment earlier this week that he doubted that four of the Bishop Estate trustees could even spell the word fiduciary and a lot of people got a kick out of that but the point is that fiduciary duties are not something that a person on the street would necessarily know about and yet, as trustees, they should know about it. Tell us a little bit more about fiduciary duties.
[00:52:29] Carroll Taylor: Well, fiduciary duties are the the highest duties known to and imposed by law. Um uh there is an absolute duty of loyalty. You have you have no you can you can have no self-interest, no profit for your own purpose uh once you assume the the position of say a trustee or personal representative of an estate.
[00:52:51] Randall Roth: Has to be absolute loyalty toward those beneficiaries.
[00:52:53] Carroll Taylor: Absolute loyalty. No exceptions. Can't even create the perception of a possible conflict of interest. That's correct. You you um I let me take an exception. Maybe you you might inadvertently create a possible perception of a conflict of interest and still not have breached your fiduciary duty, but your fiduciary duty is that that everything you do has to be for the benefit of whoever that beneficiary happens to be in in your every waking moment. That has to be the primary concern.
[00:53:28] Randall Roth: What about one trustee who says, well, first of all, a lot of this stuff was done before I became a trustee. You know, somebody else did that. And then, secondly, there's some things other people were doing that I didn't know about and so, I'm in the clear.
[00:53:43] Carroll Taylor: Well, one of those duties is to um number one, be informed as to what your cotrustees are doing. And number two, report to the court um any perceived breaches of those duties that your cotrustees may be guilty of. Um if there were actions done before a trustee came on board, uh I don't know how he could remedy that, but the cotrustees serving at the time uh do have a an obligation to report to the court.
[00:54:12] Randall Roth: Okay. Um, how serious are the allegations in this Master's report?
[00:54:20] Carroll Taylor: They're very serious. One thing I would like to emphasize, however, is that trustees, unlike businessmen, um are not judged solely on result. Um, they are judged as much on effort as on result. For in, and by that I mean this, you know, a businessman who who in a year produced a quarter of a billion dollar loss, um might risk for his job. He might fear that he's about to become unemployed.
[00:54:54] Carroll Taylor: Um, the trustee, however, um um as long as he can demonstrate that the decisions that were made were appropriate and reasonable uh and were made in good faith, um uh is not held to a isn't is not as likely to be fired just because they had a bad year.
[00:55:12] Randall Roth: So if there's a good, clear strategic plan and if they followed it closely in a disciplined sort of way and their real good minutes indicating that they've talked completely about with all of the trustees, the various options before making decisions under circumstances like that, even if with hindsight, it turns out to have been a series of bad decisions, they're probably okay.
[00:55:33] Carroll Taylor: That's correct. They're not guarantors.
[00:55:35] Randall Roth: But if they're making decisions in an ad hoc sort of fashion that isn't part of some larger framework and they're really not discussing things as a group and making group decisions and keeping good minutes of all of this, then even if the decisions worked out just fine, they could be exposed.
[00:55:53] Carroll Taylor: That's correct.
[00:55:55] Randall Roth: Okay. Effort counts. Um, as the court sooner or later, maybe December 5th, maybe sometime after that point in time, takes a look at trustees in terms of whether they should continue to be trustees. As a trust law expert, what what's the standard here? For for starters, are these trustees innocent until proven guilty?
[00:56:22] Carroll Taylor: Um, the removal of a trustee is a very serious is a very serious step. Um, interestingly though, that the trustees originally appointed by the Settlor, the person who created the trust, are given more leeway than trustees who are later appointed. Um, the burden would be on whoever is challenging the trustees' actions to prove that the trustee has breached the trust.
[00:56:47] Randall Roth: And when we talk about breach of trust, are we talking about something that amounts to a crime or is is close to a a crime? What what sort of transgression are we talking about that's a serious enough that it would warrant removal.
[00:57:03] Speaker 2: Well, the the clearest one is where the trustee has has personally profited in some manner from his duty as a trustee. If if if you have obtained some private benefit from your service as a trustee um
[00:57:18] Randall Roth: Well, let me stop you right there. The newspapers this last week talked about trustees getting free membership at at country clubs because they're trustees. Is that an example?
[00:57:28] Speaker 2: Well, well, they have honorary memberships or something like that. I'm an honorary citizen of the state of Texas. I've got a certificate that says that, but it doesn't give me any benefits.
[00:57:37] Randall Roth: Well, let's assume that they enjoy all of the benefits of a dues-paying member, somebody who paid the $44,000 or whatever the upfront cost is at Wilai Country Club, for example. And I'm really not trying to paint you into a corner and I guess part of my question is, how much subjectivity is involved here when the court ultimately addresses this issue. Is it very subjective or is it pretty clear in an instance like that where there is personal benefit by virtue of being a trustee, this benefit is going to them as individuals as opposed to going to the beneficiaries? Is that the sort of thing that could cause a trustee to lose his job, or is that not in that category?
[00:58:15] Speaker 2: Well, that that's obviously going to be of concern to a judge. Um if that were the only thing that that had been done wrong, um I can't see a trustee being removed for that. I can see the trustee being advised to stop it and to pay back to the trust the value of the benefit.
[00:58:32] Randall Roth: Okay. Well, Carol Taylor and I remind listeners that Carol is an undergraduate degree from Yale, law degree from University of California, Boalt Hall School of Law. He's a trust law specialist here in Hawaii. Carol, you've got about one minute to tell us what has to be added or highlighted or anything else, as the public is trying to understand the master's report and its impact on the Bishop estate.
[00:58:56] Speaker 2: Well, you you have to recognize that this is a a snapshot of one year. And and um to the extent to which it documents bad investment decisions for one year, that's not a fair way to judge the trustees. It has to be looked at as a part of a continuum. Um, and unfortunately, it appears that the master doesn't have enough information to to make um a proper analysis in the in the proper context. So, this this is not the end of it.
[00:59:27] Randall Roth: This is not the end of it, but I guess going back to what you were saying before, um, the court needs to get to the bottom of this. Yes, indeed. Okay. Well, thank you, Carol Taylor. You've been listening to the Price of Paradise radio show. Our producer is Suzy Roth. She's had help from Tom Roth, Director of Operations, Jeff Alardi. You've been listening to the Price of Paradise radio show. I'm Randy Roth. Aloha.
[00:59:32] Randall Roth: Yes indeed. Okay. Well thank you Carol Taylor. You've been listening to Price of Paradise Radio Show. Our producer is Susie Roth. She's had help from Tom Roth. Director of Operations Jeff Alardi. You've been listening to the Price of Paradise Radio Show. I'm Randy Roth. Aloha.