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Monday, July 22, 2024 | Back issues
Courthouse News Service Courthouse News Service

Hawaii Seeks Money From DLA Piper

HONOLULU (CN) - Hawaii claims that a law firm that DLA Piper acquired through merger drained $39 million from state-regulated prepaid funeral and cemetery contracts.

The State of Hawaii and The Huntington National Bank, as trustees for 18 Hawaii funeral and cemetery trust funds, sued DLA Piper, "successor in liability through merger to the now-dissolved law firm of Verner Lqpfert Bernhard MacPherson and Hand."

The complaint is related to an intervenor complaint filed in February, by former successor trustee Comerica Bank and Trust, consolidated as In re RightStar Related Cases.

Hawaii and the bank "seek damages from Piper arising out of the wrongful acts of a former Verner Lqpfert partner and employee, former Governor John D. Waihee III, as alleged in the intervenor complaint and set forth below."

The intervenor complaint is against four former trustees, including Waihee, of 14 preneed trusts and four perpetual care trusts. It seeks an accounting and damages for "inter alia, the trustees' breaches of fiduciary duty by permitting improper withdrawals from, and imprudent investments by, the trusts, and other wrongful conduct".

The funds, established between 1965 and 1988, were operated by Loewen Group International, which owned several Hawaii funeral homes and cemeteries.

Preneed contracts are prearranged funeral, cemetery and interment services, or "bundled contracts" that are placed into trusts "perpetual care trusts." The state regulates them to protect consumers and requires audits.

Loewen reorganized under bankruptcy filing and sold its assets in 2001.

The purchaser was a start-up of nine affiliated corporations, collectively known as RightStar. With little capital to execute the purchase, they acquired a series of short-term, high-interest rate loans, according to the state's complaint.

"The RightStar Principals and the lenders knew (or should have known) that RightStar had no source of funds to repay the amounts it planned to borrow to acquire Loewen's Hawaii Assets, other than by raiding the Trust funds," the complaint states. (Parentheses in complaint.)

To close the sale, RightStar retained John D. Waihee III as a lobbyist and consultant, and in November 2001 he was appointed a trustee for the trusts, according to the complaint. Waihee was a partner in Verner Lqpfert during this time. The states claims that from November 2001 through the end of 2004, "Waihee was instrumental in planning, facilitating, and effectuating the misappropriation of funds from the trusts as set forth herein and in the intervenor complaint."

"Within days of the Loewen Asset Sale, the trustees, including Waihee, together with the RightStar principals and others began withdrawing over $39 million from the Trusts," the state says. "These wrongful withdrawals violated (1) Hawaii state law; (2) the terms of the agreements between the trustees, RightStar and the State of Hawaii; and (3) common law principles of fiduciary duty."

The state removed the trustees in 2004, and replaced them with Comerica Bank and Trust, Huntington National's predecessor, which filed the intervenor complaint to fulfill the pooled claims of settling parties - some 40,000 contract holders and beneficiaries - whose claims are believed to exceed $20 million.

Pursuant to the RightStar settling agreement, public foreclosure sale of the properties closed last year, which was a prerequisite to this action.

The plaintiffs seek to recovery of money disgorgement of ill-gotten gains. It alleges successor liability, breach of fiduciary duty, gross negligence and legal malpractice.

Hawaii Attorney General David Louie represents the state. Huntington National Bank is represented by Michael Lilly with Ning, Lilly & Jones.

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