1. Of Counsel:
ALSTON HUNT FLOYD & ING
Attorneys at Law
A Law Corporation
PAUL ALSTON
NICKOLAS A. KACPROWSKI
1001 Bishop Street, Suite 1800
Honolulu, Hawai'i 96813
Telephone: (808) 524-1800
Facsimile: (808) 524-4591
E-mail: palston@ahfi .com
nkacprowski@ahfi.com
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PETrrroN TO (l) voID ACTS OF
TRUSTEE IN VIOLATION OF
TRUST AGREEMENT AND
TRUSTEE'S FIDUCIARY DUTIES,
(2) PREVENT ANY FURTHER
ENCUMBRANCES ON TRUST
ASSETS; (3) REMOVE HERBERT M.
RICHARDS JR. AS TRUSTEE,
AND (4) APPOINT SUCCESSOR
TRUSTEE; DECLARATION OF
PATRICIA KUUALOHA RICHARDS ;
EXHIBITS I _ 14
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Attorneys for Petitioners
PATRICIA KUUALOHA RICHARDS
and HERBERT M. RICHARDS, III
In the Matter of
THE ATHERTON RICHARDS TRUST
DATED SEPTEMBER T9, 1972
IN THE CIRCUIT COURT OF THE FIRST CIRCUIT
STATE OF HAWAI'I
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1013958v3 I 1335-l
2. 1013958v3 11335-1 i
TABLE OF CONTENTS
I. STATUTORY BASIS FOR PETITION/JURISDICTION AND VENUE.................... 1
II. FACTUAL BACKGROUND ...................................................................................... 2
A. Summary of Dispute......................................................................................... 2
B. The Atherton Richards Trust ............................................................................ 6
C. Petitioners’ and Their Interests......................................................................... 8
D. The Trustee .................................................................................................... 10
E. The Parties’ Succession Planning................................................................... 10
F. The Trustee’s Scheme to Require Operation of the Ranch into
Perpetuity to the Financial Detriment of the Trust’s Beneficiaries................. 13
G. The Trustee’s Discrimination Against Beneficiaries and Self-Dealing .......... 19
H. The Trustee Has Completely Ignored Other Beneficiaries of the Trust.......... 21
I. The Trustee’s Mental and Physical Incapacities............................................. 22
J. The Petitioners Attempt to Convince the Trustee to Retire ............................ 22
III. PROBATE RULE 126(C) STATEMENTS................................................................ 23
IV. THE SHAREHOLDER AGREEMENT SHOULD BE VOIDED BECAUSE IT
VIOLATES THE TRUST AGREEMENT AND IS ILLEGAL UNDER
CORPORATIONS LAW ........................................................................................... 24
A. Legal Standard: The Court Has the Power to Void Transactions that
Violate the Trust Agreement .......................................................................... 24
B. The Shareholder Agreement Should Be Voided as a Breach of Trust
Because It Is Intended to Benefit Third Parties Other than the
Beneficiaries and It Harms the Beneficiaries by Encumbering Their Stock ... 25
C. The Shareholder Agreement Should be Voided as a Breach of Trust
Because It Violates Section I.4(d) of the Trust Agreement ............................ 32
D. The Shareholder Agreement Should be Voided as a Breach of Trust
Because It Discriminates Among Beneficiaries.............................................. 33
E. The Shareholder Agreement Should Be Voided Because It Violates
Contract Law and Corporations Law.............................................................. 35
3. 1013958v3 11335-1 ii
V. THE TRUSTEE SHOULD BE REMOVED FROM OFFICE DUE TO BREACH
OF TRUST ................................................................................................................ 37
VI. THE TRUSTEE SHOULD BE REMOVED FROM OFFICE DUE TO HIS
PATTERN OF HOSTILITY TO THE BENEFICIARIES OF THE TRUST.............. 40
VII. THE TRUSTEE SHOULD BE REMOVED FROM OFFICE DUE TO PHYICAL
AND MENTAL INCAPACITY................................................................................. 43
VIII. THE TRUSTEE SHOULD BE BARRED FROM ENCUMBERING THE TRUST
ASSETS AND FROM PARTICIPATING IN THE SELECTION OF A NEW
TRUSTEE.................................................................................................................. 44
4. 1013958v3 11335-1 iii
TABLE OF AUTHORITIES
FEDERAL CASES
Chao v. Malkani,
452 F.3d 290 (4th Cir. 2006) ...................................................................................................38
Neil v. Foster-Bey
228 F. Supp. 3d 707, 711 (E.D. Va. 2017) ..............................................................................31
Neil v. Zell,
677 F. Supp. 2d 1010 (N.D. Ill. 2009).....................................................................................31
O’Neill v. Davis,
721 F. Supp. 1013 (N.D. Ill. 1989)..........................................................................................31
STATE CASES
Betty G. Weldon Revocable Trust v. Weldon,
231 S.W.3d 158 (Mo. App. 2007) ...............................................................................30, 31, 38
In re Conservatorship of Abbott,
295 Neb. 510 (2017) ................................................................................................................41
DFS Group L.P. v. Paiea Prop.,
110 Hawai`i 217, 131 P.3d 500 (2006)....................................................................................14
In re Estate of Rutter,
633 N.W.2d 740 (Iowa 2001) ............................................................................................34, 39
In re Estate of Stuchlik,
289 Neb. 673 (Neb. 2014)..................................................................................................34, 39
Hartmann v. Bertelmann,
39 Haw. 619 (Haw. Terr. 1952)...............................................................................................42
McNeil v. Bennett,
792 A.2d 190 (Del. Ch. 2001), affirmed in part, reversed in part on other
grounds 798 A.2d 503 (Del. 2002)....................................................................................34, 39
Richards v. Midkiff,
48 Haw. 32, 396 P.2d 49 (1964)........................................................................................25, 26
Riegler v. Riegler,
262 Ark. 70 (1977)...................................................................................................................40
Shear v. Gabovitch,
43 Mass. App. Ct. 650 (1997)............................................................................................42, 43
5. 1013958v3 11335-1 iv
In re Trust of Bresel,
No. A-14-922, 2016 WL 1359097 (Neb. App. April 5, 2016) ..........................................43, 44
In the Matter of the Trust Estate of George H. Holt,
33 Haw. 352 (Haw. Terr. 1935)...............................................................................................37
In re Will of Crabtree,
449 Mass. 128 (2007) ..............................................................................................................39
Woods v. Stull,
182 Va. 888, 892-93 (Va. 1944) ..............................................................................................29
STATE STATUTES
Hawai`i Revised Statutes
§ 414-163(b)(2)........................................................................................................................36
§ 414-193 .................................................................................................................................27
§ 414-194 .................................................................................................................................27
§ 414D-134 ..............................................................................................................................27
§ 560:1-403(2)(c).....................................................................................................................24
§ 560:7-202................................................................................................................................1
§ 568:7-201................................................................................................................................1
RULES
Hawai`i Probate Rules
Rule 3.........................................................................................................................................2
Rule 26.....................................................................................................................................39
Rule 126.....................................................................................................................................2
Rule 126(C)..............................................................................................................................23
OTHER AUTHORITIES
Dana Brakman Reiser, Dismembering Civil Society: The Social Costs of
Internally Undemocratic Nonprofits, 82 Or. L. Rev. 829 (2003)............................................27
Restatement (Second) of Trusts
§ 193.........................................................................................................................................31
§ 193 cmt. a........................................................................................................................25, 30
Restatement (Second) of Contracts
§ 283.........................................................................................................................................36
Restatement (Third) of Trusts
§ 37(b)......................................................................................................................................37
§ 37 cmt. d................................................................................................................................37
§ 37 cmt. e................................................................................................................................40
§ 37 cmt. (f)(1).........................................................................................................................34
§ 72...........................................................................................................................................35
7. 1013958v3 11335-1 1
PETITION TO (1) VOID ACTS OF TRUSTEE IN VIOLATION OF TRUST
AGREEMENT AND TRUSTEE’S FIDUCIARY DUTIES, (2) PREVENT ANY
FURTHER ENCUMBRANCES ON TRUST ASSETS; (3) REMOVE HERBERT M.
RICHARDS JR. AS TRUSTEE, AND (4) APPOINT SUCCESSOR TRUSTEE
Petitioners Patricia Kuualoha Richards and Herbert M. Richards, III
(collectively “Petitioners”), Petition the Court for the following:
(1) An order requiring the Trustee to revoke the shareholder agreement
dated January 13, 2018 for the Trust’s principal asset, Kahua Ranch Limited, a Hawai`i
corporation. The shareholder agreement constitutes a breach of trust which harms the
beneficiaries. The Trustee should not have entered into it, and it should be revoked.
(2) An order prohibiting the Trustee from placing encumbrances on the
stock of Kahua Ranch Limited, a Hawai`i corporation, or on land owned by the company that
would devalue the land, such as long-term leases or conservation easements.
(3) An order removing Herbert M. Richards Jr (the “Trustee”) as the
trustee based on his repeated breaches of trust, fiduciary duty, and his mental and physical
incapacity.
(4) An order appointing a successor trustee.
I. STATUTORY BASIS FOR PETITION/JURISDICTION AND VENUE
1. The statutory basis for this Petition is Hawai`i Revised Statutes (“HRS”)
§ 568:7-201, which provides that the Court has jurisdiction of proceedings initiated by
trustees and interested persons concerning the internal affairs of trusts, including, inter alia,
those concerning the administration and distribution of trusts, the declaration of rights and
the determination of other matters involving trustees and beneficiaries of trusts.
2. Venue for this proceeding is in this Court pursuant to HRS § 560:7-202. As
far as the Petitioners and the Trustee himself are aware, the Trust is either registered in this
8. 1013958v3 11335-1 2
circuit or unregistered, and this circuit is a place where the Trust could have been registered.
3. This Petition is filed pursuant to Hawai`i Probate Rules 3 and 126.
II. FACTUAL BACKGROUND
A. Summary of Dispute
4. At its core this dispute is about a father, the Trustee, who at the age of 88 is no
longer fully in control of his mental and physical faculties, and to the detriment of his own
children, is using his power as Trustee to completely undermine the purpose of the Trust
Agreement that he is supposed to faithfully administer. In short, the Trustee is using the
Trust assets as if he owns them free and clear and can do with them as he pleases, and not as
if he is bound by a Trust Agreement to manage them for the benefit of the beneficiaries.1
5. The Trust is a “generation skipping trust” established by Petitioners’ great-
uncle for their benefit. (See e.g. Ex. 5) Generation skipping trusts were commonly used for
large estates because they enjoyed significant tax benefits. The settlor would leave assets in
trust, with estate taxes paid upon the settlor’s death. The second generation may enjoy trust
income, but would never have ownership of the trust assets. The trust assets would eventual-
ly be distributed free of additional inheritance tax to the third generation beneficiaries. This
structure allowed the second generation to obtain income benefits without having the assets
subject to double estate taxes by having the ownership passed to the second generation and
then ownership passed again to the third generation. Rather ownership passes directly to the
third generation and “skips” the second. The tax benefits for this type of trust are no longer
available, but the Trust at issue has been grandfathered in under federal law.
1
The Trust Agreement is attached as Exhibit 1.
9. 1013958v3 11335-1 3
6. The settlor of the Trust very explicitly intended to ultimately leave his fortune
to his four grandnephews/grandnieces, but with their father, his nephew, the Trustee, enjoy-
ing a portion of the income from it for life. That is clear both from the Trust Agreement
itself and its structure as a generation-skipping trust, which are used specifically for this
purpose. The Trust provides that upon the death of the Trustee, the Trust will terminate with
the assets distributed to the Trustee’s four children (the “Remaindermen”), which includes
the two Petitioners.
7. In the last five years, however, the Trustee has been taking actions to prevent
the ultimate beneficiaries, his own children, from obtaining the Trust assets upon his death.
The principal asset of the Trust is the Kahua Ranch of over 4,000 acres on the island of
Hawai`i. Up until 2013, Petitioners and the Trustee’s other children were on the Board of
Directors of the Ranch, and one of the Petitioners was the general manager. The family was
actively discussing succession planning. Succession planning is a very complicated issue for
tax reasons, and because of the difficulty of figuring out how to divide one ranch among four
individuals who may have different ideas about what they want to do with the asset.
Discussing succession planning was also quite timely, given that the Trustee was already in
his 80’s.
8. In 2013 and 2014, the Trustee shut down all talks about succession planning,
and completely iced his children out of the Ranch. He expelled them all from the Board of
Directors, and he had Petitioner Dr. Tim Richards fired as the general manager. Since then,
he has operated the Ranch in secrecy, with little or no transparency for the Petitioners. The
only limited financial information that has been provided came after Petitioner Dr. Richards
sued in probate court for a trust accounting.
10. 1013958v3 11335-1 4
9. The Trustee’s actions appear to be motivated in part by his desire to prevent
the break up of Kahua Ranch after his death, and in part by his personal animosity toward the
two Petitioners. Regarding Kahua Ranch, the fundamental economic issue is that the land
the Ranch owns is incredibly valuable—perhaps over $120 million. The profits available
from ranching it, however, are relatively small. Indeed the Trustee has run it at a perpetual
loss. There is therefore an economic incentive for at least some of the four Remaindermen to
want to sell the land. Petitioners, for their part, grew up on the Ranch and would like to see
the Ranch continue to operate if it is economically feasible to do so. They do not want a
situation, however, where the Ranch operates at a loss indefinitely, incurring debt or selling
off assets to float operating deficits, ultimately reducing or eliminating the value of the land
assets.
10. The Trustee has been taking actions to effectively eliminate the ability of the
Remaindermen to control or sell the Ranch after his death. Upon his death, 100% of the
stock of the Ranch will go to the Remaindermen. The Trustee has imposed a shareholder
agreement on the Ranch. Under the terms of the Shareholder Agreement, the agreement
cannot be amended or removed even if 100% of all future shareholders want it to be. Rather,
the consent of the Trustee’s hand-picked directors of the Ranch is necessary to change the
Shareholder Agreement.
11. The Shareholder Agreement violates the Trust Agreement in a number of
ways. It discriminates against the very beneficiaries of the Trust by not allowing any of the
Remaindermen to ever be officers, directors, or employees of the Ranch. It devalues the
Trust’s principal asset, the Ranch, by placing a number of onerous restrictions on the stock,
rendering it effectively unmarketable. It gives the directors the power to operate the Ranch
in perpetuity without ever giving a dime to the Trust beneficiaries. It therefore violates the
11. 1013958v3 11335-1 5
very purpose of the Trust, which was ultimately to pass the Settlor’s assets to the four
Remainderman upon the death of the Trustee.
12. The Trustee’s obvious goal in executing the Shareholder Agreement was to
prevent the Remaindermen from being able to control the Ranch upon his death, because he
does not want them to sell it or divide up the lands. But whether or not they actually would
do so, the Trust entitles them to do whatever they want with the assets upon dissolution of
the Trust, and the Trustee is prohibited from doing anything that devalues those assets. The
Shareholder Agreement the Trustee has imposed has effectively taken a trust that was to
benefit the beneficiaries and converted it into something akin to a charitable trust that exists
to keep the Ranch together in perpetuity without being broken up or sold. In other words, the
Trustee is treating the Ranch as if it is his own property and as if he is free to do what he
wants with it when he dies, as opposed to it being an asset of the Trust to be managed for the
beneficiaries’ economic benefit. The Shareholder Agreement is also illegal under
corporation law, as it places restrictions on the stock that are simply not authorized by law.
13. The Trustee has also been committing other breaches of trust. The Trust
provides that 51% of the income goes to the Trustee, and 49% to his children. But he has
used his power as Trustee to give himself disproportionate benefits. For example, he granted
himself a life estate in the main house on the ranch, which is to be enjoyed by his current
wife even after he dies. He has also discriminated among beneficiaries by providing benefits
from the Trust to his preferred children, and not to Petitioners to the same extent, with whom
he has poor relations.
14. The Trustee also no longer has the mental or physical capacity to execute
the considerable responsibilities of his position. He has difficulty paying attention to
conversations. His eyesight is poor. He recently underwent heart surgery. He has had
12. 1013958v3 11335-1 6
multiple transient ischemic attacks (“TIA”) (aka “mini-strokes”), some of which have
rendered him unable to speak clearly. He has difficulty walking. He admits to being
forgetful.
B. The Atherton Richards Trust
15. The Atherton Richards Trust, was established through a trust agreement
executed September 19, 1972. The settlor was Atherton Richards (aka “AR”). AR’s brother,
Herbert M. Richards Sr. is the Trustee’s father and Petitioners’ grandfather. AR had no
children of his own.
16. Atherton Richards was the son of Theodore Richards and Mary Atherton, and
was descended from a number of old missionary families. He had a prominent career in his
own right. In addition to being a colonel and a top official of the Office of Strategic Services
(precursor to the CIA) serving under General Donovan, he was a successful Hawai`i
businessman. He served as president of the Hawaiian Pineapple Company, which later
became Dole. He was also a trustee of the Bishop Estate.
17. In 1928, Atherton Richards acquired approximately 25,000 acres on the
island of Hawai`i as well as cattle along with business partner Ronald Von Holt, and he
incorporated Kahua Ranch Limited as a Hawai`i Corporation (“Kahua Ranch”).2
18. On September 19, 1972, Atherton Richards established the trust at issue.
Although the Trust Agreement barely mentions Kahua Ranch, the main asset of the Trust is,
and has always been, the stock of Kahua Ranch Limited. The corporation currently operates
a business under the name “Kahua Ranch” on approximately 8500 acres for the home ranch,
of which 4,400 are leased and 4,000+ are Fee Simple, on the Big Island. The fee simple
2
The land was later divided between the Von Holt Family and Kahua Ranch, with the
Von Holt’s portion becoming the Ponoholo Ranch.
13. 1013958v3 11335-1 7
lands have all been registered in land court and carry a clear title. The Ranch derives
income from ranching and also as a venue for events and activities for paying visitors. The
Trustee, on behalf of the Trust, is the sole shareholder of all the stock in Kahua Ranch.
19. The Trust provided for two trustees during the lifetime of Atherton Richards:
Atherton Richards and Herbert M. Richards, Jr. Following the death of AR, Herbert M.
Richards Jr. was to be the sole trustee. (§ I.6.) Mr. Richards continues to be the sole trustee
today.
20. The Trust provided that during Atherton Richard’s lifetime he would receive
support from Trust income. (§ I.2.) Following his death, the Trust Agreement states that the
Trust estate shall be used for discretionary payments by the Trustee for the benefit of various
relatives of Atherton Richards. (§ I.4(a).) After that, all Trust income was to split 51% to
Herbert M. Richards, Jr., 27% to Phyllis Richards, and the balance to their children in equal
shares. (§ I.4(b).) Following the death of Phyllis Richards, the split was to be 51% to
Herbert M. Richards, Jr. and 49% in equal shares to his children. As Mrs. Richards has died,
that is the current income spilt from the Trust.
21. The Trust provides that it will terminate following the deaths of AR, the
Trustee, and Phyllis Richards, provided that the youngest of Herbert Richard’s living
children has attained the age of 25. AR and Mrs. Richards have died, and all children have
reached the age of 25. (§I.4(d).) The Trust will therefore terminate upon the death of
Herbert M. Richards Jr. Upon termination, the Trust estate is to be transferred free and clear
from any trust to the living children of Phyllis and the Trustee in equal shares, with the
shares of any deceased children with their own children distributed to those descendants.
22. Atherton Richards had no heirs, and he very much considered his nephew and
the children of his nephew his heirs. The Trust was set up specifically for their benefit, and
14. 1013958v3 11335-1 8
this is spelled out explicitly in the Trust Agreement:
The primary purpose and intent in creating this trust is to benefit
those who shall from time to time be income beneficiaries.
(§II.(p)) (emphasis added). The only income beneficiaries are Trustee and his four children,
which include the Petitioners.
23. The principal asset of the Trust is 100% of the stock of Kahua Ranch Ltd..
Petitioners estimate that the assets of Kahua Ranch Ltd. are worth conservatively in excess of
$120 million.
C. Petitioners’ and Their Interests
24. The Petitioners are Patricia Kuualoha Richards Giles and Dr. Herbert M.
(“Tim”) Richards, III. They are two of the four children of the Trustee and Phyllis Richards.
The other two children are Pam Richards Ketchum and John Richards. Both petitioners grew
up on Kahua Ranch.
25. Both Ms. Giles and Dr. Richards are accomplished and successful people in
their own right. They are not, for example, wealthy heirs living off the Trust. To the
contrary, in the 45 years the Trust has been in existence, Ms. Giles and Dr. Richards have
received less than $300,000 combined in income from the Trust.
26. Ms. Giles is 56 years old. She has a Bachelor’s degree in Computer Science/
Fine Art from the University of Colorado. She also has a Master’s of Business degree from
Indiana Wesleyan University. She was the founder and co-owner of a business in Honolulu,
the Computer Training Company. Computer Training was named one of Hawaii’s fastest
growing companies 4 years out of the 10 years that Ms. Giles was a managing owner in the
company. She built the company and eventually sold it. Ms. Giles has been recognized for
her business acumen through a number of awards, including: 1) March 2010 - First recipient
of the Microsoft Innovation Award; 2) June 2009 - Finalist position for John L. Scott Real
15. 1013958v3 11335-1 9
Estate in the 2009 Inman Innovator Awards for Most Innovative Brokerage or Franchise;
3) Recognized as 1997 Ernst & Young Female Entrepreneur Of The Year®. Ms. Giles also
serves as a trustee of the Atherton Family Foundation and the Lucy K. Henriques Trust.
27. Dr. Richards is 59 years old. Dr. Richards holds a doctorate in veterinary
medicine from Washington State University. He practices as a veterinarian at Veterinary
Associates, Inc. in Waimea. He has been a veterinarian for over 30 years. He is also an
elected member of the nine-member Hawai`i County Council, representing District 9.
28. Dr. Richards has had a passion for agriculture and ranching his entire life. He
has held various roles at Kahua Ranch over the years, including mainland cattle management
beginning in 1995, livestock manager from 1999 to 2013, and the president and general
manager from 2004 to 2013. He has been a veterinarian for many of the larger ranches in the
area and statewide including Parker Ranch and Kaupo Ranch. He sits on the Board of
Directors for two major ranches, the Ponoholo Ranch and the Palani Ranch. He has been a
member of various ranching organizations and counsels, including the Hawai`i Cattle
Producers Cooperative (Board Member), the National Cattlemen’s Beef Association
(Member), the Hawai`i Cattlemen’s Council (former President), and the Hawai`i Cattlemen’s
Association (former President). Dr. Richards very much considers himself to be a rancher.
Currently he has leased lands to continue to pursue his passion of ranching and is currently
running a couple hundred head of cattle. He is so dedicated to ranching that he wants to raise
his children up around ranching as well.
29. Dr. Richards not only grew up on Kahua Ranch, he enjoyed a close relation-
ship with the Settlor, Atherton Richards. AR was Dr. Richards’s godfather. AR gave
Dr. Richards his nickname “Tim.” As a youth Dr. Richards’s responsibility was to
accompany AR on walks and while hiking around the ranch, especially when AR was in his
16. 1013958v3 11335-1 10
elder years. Through and because of this time spent with AR on the lands of Kahua,
Dr. Richards developed a deep appreciation and love for those lands and the Kohala
Mountains. Dr. Richards was about as close to AR as anyone else at the time of AR’s death.
30. Dr. Richards was the president and general manager of Kahua Ranch from
2004 to 2013, running the day to day operations of the Ranch. He was both placed in that
position and removed at the orders of the Trustee. As president of the Ranch, Dr. Richards
significantly increased Kahua Ranch’s financial health, started turning some profits, and
weathered the global financial crisis that started in 2007.
31. Ms. Giles’s and Dr. Richards’s current interest in the Trust is that of income
beneficiaries and Remaindermen. As income beneficiaries they are currently each entitled to
12.25% of all Trust income. If the Trust was to terminate today, they would both be entitled
to a distribution of 25% of the Trust assets.
D. The Trustee
32. The Trustee was born in 1929 and is currently 88 years old. He has worked in
various capacities at Kahua Ranch since approximately 1955. All four of his children were
raised on the ranch. Although he used to be involved in the day to day management of the
Ranch, he has stepped back due to his age and currently only serves as a director.
E. The Parties’ Succession Planning
33. There was a time when everybody, including the Trustee, recognized that it
was vital that a succession plan be put in place for the Trustee’s death, and also to choose a
successor trustee in case the Trustee became incapacitated and to oversee the winding down
of the Trust upon the death of the Trustee. Indeed, in a memorandum dated March 11, 2013
from the Trustee to the beneficiaries, he recognized the importance of the succession issues.
(Ex. 2.) The Trustee wrote:
17. 1013958v3 11335-1 11
As previously discussed, we have been looking into the orderly
transition of the Atherton Richards Trust after I pass away or become
incapacitated…The successor trustee would be responsible for winding
down the trust, which terminates upon my death. It has been my
feeling, and some of yours, that it would make sense to have an
organized plan that we all agree on before my death.
The Trustee even proposed a process for him and the four children/beneficiaries to nominate
potential candidates for successor trustee, interview them, and to try to reach a consensus.
34. The issues regarding what to do with the Trust assets following the death of
the Trustee and the termination of the Trust are complicated. The Trust’s principal asset is
the Kahua Ranch, which has a very high value in land, but operates on low margins.
Petitioners estimate the land value to be in excess of $120 million. The profits from
ranching, however, are relatively small, and most years the ranch operates at a loss. Even the
Trustee admitted in a 2000 interview, after running the Ranch for decades, that “Haven’t
been able to hit the profitability bell yet, but I’m still trying.” (Ex. 3 at 22.) Over the years,
the Ranch has had to sell lands to cover operational deficits. Although the Petitioners have a
longtime affection for the Ranch and would like to keep it in operation if it is economically
feasible, in 2013 there were a number of options being discussed for the Ranch after the
termination of the Trust. These options included: (1) sell the Ranch and divide the proceeds
among the Remaindermen; (2) sell the Ranch and reinvest the proceeds with professional
managers; (3) physically divide the Ranch lands among the Remaindermen; (4) keep
ownership of the Ranch but lease it to other ranchers; (5) keep ownership and have the
Remaindermen operate the Ranch; and (6) keep ownership and have outside professionals
operate the Ranch. (Ex. 4, 5.) To make matters further complicated, each of the various
options being considered had different capital gains tax consequences.
35. In 2012 and 2013, the Trustee and the Remaindermen participated in a number
of meetings, including with various different facilitators, to attempt to agree on a succession
18. 1013958v3 11335-1 12
plan. All of these attempts failed, because the Trustee would not seriously commit to any
plan. Many of these facilitators communicated to Petitioners that the Trustee was the
problem.
36. Later in 2013, the Trustee completely changed course. He used his power
to remove Dr. Richards as the manager of the Ranch, and he threw all four Remaindermen
off the Board of Directors for the Ranch.3
Since then, the Trustee and the Ranch have
shared virtually no information about the operations of business of the Ranch with the
Remaindermen. The Trustee has not engaged at all in discussions about succession planning
with the Remaindermen.
37. Matters became worse in 2014. On September 17, 2014, after being totally
shut off from any information, Dr. Richards filed a suit in probate court seeking a trust
accounting. Ms. Giles filed a declaration in support of the petition. The legal proceedings
substantially deteriorated the personal relationship between the Trustee and Petitioners, so
much so that when Ms. Giles and the Trustee spoke this year, the Trustee told her he was still
angry at her.
38. The only information that Petitioners have available to them about the Ranch
is a very basic income statement for the Trust that shows the book value of Kahua Ranch and
the net income of the Ranch. The most recent statement they received was in 2017 for the
3
The purported reason for this was because of infighting between the Remaindermen,
which the other nonfamily directors claimed was an issue. Three of these directors resigned
and refused to rejoin the Board unless all family members (including the Trustee) resigned
from Board and until the family worked cooperatively to find a successor Trustee. (Ex. 6.)
The letter was addressed to the Trustee and the children, and noted that “it is not any one of
you that has led us to this decision, but all of you.” They did not follow through on their
conditions: although the Trustee kept himself on as a director, and eventually ignored
succession planning, two of the three resigning directors came back anyway. Moreover,
the Trustee and his hand-picked directors have always overstated the issue, and in spite of
disagreements, by 2013 the Ranch had enjoyed several of its best years financially.
19. 1013958v3 11335-1 13
year 2015. The financial information is also misleading, because the net income figure may
include Ranch properties that have been sold. In other words, Petitioners believe that the
Ranch may very well be operating at a deficit (perhaps a huge deficit), and is covering it
through proceeds of the sale of other investments. The Accountant’s own summary of the
limited, pre-2016 financials provided states that they were not audited and no other
procedure was performed to verify accuracy or completeness. (Ex. 10.) In other words, the
Trustee’s mismanagement of the Trust assets described in this petition, as severe as it is,
could just be the tip of the iceberg, given that he is operating with no transparency.
39. The abandonment of all plans for succession is harmful to the Trust assets,
harmful to the beneficiaries, and is therefore inconsistent with the Trust’s purpose.
Significant decisions need to be made about the operation of the Ranch after the Trustee’s
death. If they are not made in advance, but need to be made in a hurried nature when the
Trustee dies, it will certainly have a negative effect on operations and thus the value of the
Trust assets.
F. The Trustee’s Scheme to Require Operation of the Ranch into
Perpetuity to the Financial Detriment of the Trust’s Beneficiaries
40. The Trustee’s design is to secure the operation of the Ranch into perpetuity,
no matter if that means that no beneficiary will ever receive a penny from the Trust. Indeed,
in January of 2018 he admitted to Ms. Giles that securing the operation of the Ranch in
perpetuity was the motivation behind his recent actions. He told her specifically “If you
don’t like it, sue me.” He has refused to discuss succession planning or provide Petitioners
with any information about the operation of the Ranch precisely because he wants the
freedom to execute his scheme before Petitioners are able to stop him.
41. Petitioners believe that the Trustee believes that the Ranch is his legacy and is
motivated by a personal desire to see it operate into perpetuity. Indeed, the Trustee has even
20. 1013958v3 11335-1 14
written a book about the Ranch, titled “Ranching Under the Rainbow,” where he lamented
the prospect of selling or dividing up the Ranch, even if that was the only feasible economic
option: “If you were to judge Kahua Ranch strictly on a business model, we are an abject
failure…If you really want the ranch to generate a lot of money in terms of interests,
dividends, and all, then sell the damn thing and split the money up. But you’re going to lose
one of the most beautiful spots in the entire state. I don’t think you want to do that, so suck
it up and keep going.” (Ex. 7 at 161.)
42. The Shareholder Agreement that the Trustee executed on January 13, 2018 is
a key instrument of his scheme to keep the Ranch together in perpetuity. He specifically told
Ms. Giles in a telephone conversation that the Agreement was a “loophole” that his lawyer
found to keep the Ranch together in perpetuity. As discussed below, his lawyer is incorrect
about the “loophole,” because the Shareholder Agreement is voidable because it both violates
the Trust Agreement and corporate law governing shareholder agreements. As an aside, the
lawyer involved in advising on the “loophole,” James Stubenberg, has the rare distinction of
having been referred to the Office of Disciplinary Counsel in a published opinion of the
Supreme Court of Hawai`i. See DFS Group L.P. v. Paiea Prop., 110 Hawai`i 217, 225, 131
P.3d 500, 508 (2006).4
43. At the time he executed the Shareholder Agreement, the Trustee also signed a
statement about his reasons for doing so. He gave five reasons, and not a single one of them
was that the Agreement would benefit the beneficiaries or increase the value of Trust assets.
Rather, he stated that he entered into the Shareholder Agreement for the benefit of others
who are not Trust beneficiaries. Specifically he wrote:
4
The concurring opinion of Chief Justice Moon goes on for many pages describing the
conduct that led to the Court’s referral. 110 Hawai`i at 226-233, 131 P.3d at 509-516.
21. 1013958v3 11335-1 15
1. That it will help the Ranch continue as employer and provider in
the community.
2. That the Ranch owned by Atherton Richards since March 1928 has
maintained tradition of ranching in North Kohala.
3. That the Ranch has provided a place of residence for the
shareholders.5
4. To continue the Ranch style of life which is healthy and
worthwhile.
5. Kahua Ranch has some of the most beautiful parts of Hawaii, the
rolling green hills of the Kohala Mountain. Atherton Richards agreed.
It was his intention that the Ranch should continue.6
(Ex. 8.)
44. The problem is that the Trustee’s goals are completely inconsistent with the
Trust Agreement, which does not mention perpetuating the Ranch at all. In fact, it only
mentions the Ranch once in passing when noting an agreement about it that was terminated
decades ago between Settlor and the Von Holt family. (§I.8.) Atherton Richards very well
could have established a trust with the goal of perpetuating the Ranch if he wanted to. This
is precisely what the owner of the Parker Ranch, Richard Smart, did with it when he died.
Alternatively, if AR wanted the Trustee to have the unbridled power to do with the Ranch
what he likes, AR could have dispensed with a Trust altogether and left the Ranch outright to
the Trustee. Instead AR set up a trust in a format commonly used to pass assets on to third
generation heirs with favorable tax treatment, and he noted in the Trust Agreement that “the
5
It is unclear what the Trustee meant by a place of residence for the “shareholders.”
There is only one shareholder, and that is the Trustee on behalf of the Trust. However, the
four Remaindermen have been allowed to have houses at the Ranch.
6
The Trustee often presents the impression that AR was a kind of cowboy, riding the
lands and enjoying the “Ranch style of life.” Although AR no doubt had affinity for the
Ranch and was a steward of the lands, the impression of him as a rancher is not accurate.
For example the Trustee’s book recounts a story of how AR was living in New York City in
the 1940’s, and the Trustee went to visit him at his apartment building, where the doorman
would not let him in because he was not wearing a coat and tie. The Trustee eventually
snuck in and made it up to AR’s apartment, where “the butler let me in and boy he chewed
me out” for not being property attired. (Ex. 7 at 38) (emphasis added).
22. 1013958v3 11335-1 16
primary purpose and intent in creating this trust is to benefit those who shall from time to
time be income beneficiaries.” (§II.(p)). Effectively the Trustee is trying to take assets put
in Trust for Petitioners and just give them all to charity.
45. The Shareholder Agreement has a number of provisions that are wholly
inconsistent with the Trust’s purpose as well as basic tenets of corporate law.
46. Section 1, titled “Self-Perpetuating Board of Directors,” provides that directors
will select their own successors. The Shareholders, even acting unanimously, will have no
power to remove or appoint directors. Section 8 provides that the Shareholder Agreement
cannot be amended without the consent of the directors. In other words, the Trustee’s hand-
picked directors are given the broad power to operate the Ranch in perpetuity after the
Trustee dies, and never pay the Trust beneficiaries a penny. If they do that, the Shareholders
can neither remove them, nor terminate the Shareholder Agreement. They are at the mercy
of the directors forever. The Shareholder Agreement effectively extends the life of the Trust
forever, in furtherance of the Trustee’s goal of perpetuating the Ranch, but contrary to AR’s
specific goal of having the Trust terminate upon the Trustee’s death and passing the assets to
the Remaindermen. This is the “loophole” that the Trustee thinks allows him to ignore the
Trust Agreement’s directives. As discussed below, these provisions are unenforceable
because they not only breach the Trust Agreement, they are also illegal under corporate law.
47. Section 2 prohibits any Shareholder or Immediate Family of a Shareholder
from serving as an officer, director, employee, independent contractor or agent of the
Corporation, except for the Trustee. In other words, the Trustee is violating basic trust law
by discriminating against certain beneficiaries in favor of another beneficiary, who happens
to be himself. The perpetual prohibition on the beneficiaries from ever serving as officers or
directors of the Ranch also violates the Trust. It means that even when the beneficiaries own
23. 1013958v3 11335-1 17
100% of the Ranch, they cannot even control their own asset. It also unfairly excludes the
beneficiaries from a business that is their family’s legacy. It deprives the Ranch of the
expertise in the ranching business that some of the beneficiaries have, particularly
Dr. Richards.
48. Section 4 gives the Board the power to amend the Articles of Incorporation
and Bylaws, merge, sell corporate assets, and do a wide variety of things, even if all
Shareholders disagree.
49. Section 7 puts restrictions on the transfer of stock, including a requirement that
any stock be offered for sale to third parties only pursuant to an all-cash offer, and that the
Corporation be provided a right of first refusal.
50. The net effect of all these actions is to substantially devalue the stock in the
Ranch, which is the Trust’s principal asset. The Remaindermen will neither see any
dividends from their stock, nor will they be able to sell it. No third party is going to want to
buy stock from the Remaindermen in the Ranch when: (A) they can never select the
directors; (B) the directors can never be removed even with unanimous consent of the
shareholders; (C) the directors will control the corporation forever, never need to pay
dividends; (D) the directors have been charged with a charitable directive to perpetuate the
Ranch rather than to maximize value for the shareholders; and (E) the right of first refusal
and requirement of cash sales of stock create onerous restrictions on future transfer.
51. Although some of the provisions of the Shareholder Agreement are illegal
under corporation law, others might be permissible if the Trustee personally owned the
shares, and not as a trustee on behalf of all the Trust beneficiaries. If the Ranch was his own
company, he could do whatever he wanted with it. He could give the whole thing to charity,
24. 1013958v3 11335-1 18
just like Parker Ranch. But he holds shares as a Trustee, and he is bound to exercise his
control over the Ranch consistent with the Trust Agreement.
52. Petitioners are particularly concerned about future erratic behavior of the
Trustee that could devalue the Trust assets in furtherance of the Trustee’s goal of
perpetuating the Ranch. For example, the Trustee could place certain encumbrances on the
Ranch land, such as long-term leases or conservation easements. The Petitioners have been
told by Ranch employees that they have been told by Ranch management that there are plans
to put Ranch land in conservation. That could be ruinous for the value of the Trust assets.
53. It appears that the Trustee may already be taking actions in furtherance of his
scheme to limit future use of Ranch lands, even if it significantly devalues the Ranch, and
thus the value of the Trust assets. In April 2017, the Hawaiian Legacy Reforestation
Initiative (“HLRI”) announced that it was creating a “legacy forest” in partnership with
Kahua Ranch to preserve 700 acres of land on Kahua Ranch. (Ex. 11.) The executive
director of HLRI stated that “It’s not meant to be something to build vast amounts of
wealth…This is not a build-to-sell model, it’s a build-to-give model. Working with Kahua
Ranch, they are a perfect example of this.” (emphasis added).
54. The HLRI transaction is precisely the type of action that concerns Petitioners.
First, they are completely in the dark as to what the arrangement is between the Ranch and
HLRI. For example, how long are these lands committed? Is there a restriction on sale? Is
there a restriction on higher value use? Is there any economic value to be achieved, and how
does it compare to other uses? The Trustee has provided Petitioners absolutely no informa-
tion: they learned about this transaction through the news. Second, it strikes right at the
heart of their fear that the Trustee would rather trust assets go to charitable or community
causes than the beneficiaries. In other words, at the age of 88, having lived very comfortably
25. 1013958v3 11335-1 19
off the Ranch for his entire adult life,7
the Trustee would now rather give it away than fulfill
his duty of giving it to his children.
G. The Trustee’s Discrimination Against Beneficiaries and Self-Dealing
55. The Trustee’s actions are also motivated in part by personal animosity toward
Petitioners Ms. Giles and Dr. Richards. His relationship has been strained with Petitioners
since approximately 2007. Since 2013, the Trustee and Dr. Richards are effectively
completely estranged. Ms. Giles has made efforts to stay in contact, but in January 2018 the
Trustee told her that he was still angry at her for supporting Dr. Richards in his 2014 lawsuit
to obtain a Trust accounting. Accordingly, the Trustee discriminates against Petitioners in
favor of himself and his other two children in the administration of the Trust. The Trustee
does this both to punish Petitioners, and to intimidate their siblings into not opposing him.
One of the examples of this punishment occurred when the Trustee cancelled the health
insurance for Dr. Richards and his wife when his wife was pregnant and in her third
trimester. Mrs. Richards had a triple high risk pregnancy in that she was in her 40’s,
expecting twins, and living in a rural area. The Ranch cancelled their health insurance,
which they had been paying for through COBRA, without notice to them. Mrs. Richards
contacted the Trustee, who was the acting president of the Ranch and the Chairman of the
Board, and he refused to respond. It was only after she called her lawyer and threatened to
sue that her health insurance was restated. Dr. and Mrs. Richards have not had health
insurance through the Ranch since 2014, following the birth of their children.
7
The Trustee has long treated the Ranch as a sort of baronial estate, with himself as lord
of the manor. On the cover of his book, he styles himself “Monty Richards of Kahua
Ranch.” (Ex. 7)
26. 1013958v3 11335-1 20
56. One example of disproportionate benefits for the Trustee occurred in 2014.
The Trustee took for himself a life estate in the main Ranch house and provided for a six
month estate following his death for his current wife, Eleanore Chong. (Ex. 9.) The
provisions of the life estate provide that the Ranch will pay all maintenance and repair
expenses, all utilities, and all taxes. No value appears to have accrued to the Ranch or the
Trust from these grants. When Dr. Richards was the president of the ranch, he paid for his
own vehicle, food, and living expenses. The Ranch later paid for half his vehicle expenses.
The Trustee received all those benefits when he was president, and even after he was
president even though he no longer held that position. He has even had travel to and from
Honolulu paid for when he was not president.
57. Although the Trust provides that 51% of the Trust income will go to the
Trustee and the other 49% to the Remaindermen, the Trustee takes benefits directly from the
Ranch, and divvies up benefits among his children, without any attempt to adhere to the
income split the Trust dictates. For example, although all four Remaindermen have
informally been allowed use of houses on the Ranch, there is no attempt to equalize benefits.
The Trustee has made no attempt to account for the benefits he doles out to himself and to
his preferred beneficiaries to ensure that benefits are either paid for actual work performed
for the Ranch, and if not, if the benefit split adheres to the trust income division of 51%
for the Trustee and 12.5% for each beneficiary. For example, Petitioners believe that
Remainderman Pam Richards Ketchum is still employed by the Ranch, despite the illegal
Shareholder Agreement that would prohibit that. Ironically, not only has the Trustee
imposed an illegal Shareholder Agreement on the Ranch, he apparently disregards its dictates
27. 1013958v3 11335-1 21
himself when it pleases him.8
Ms. Ketchum also received a car loan from the Trust.
Remainderman John Richards works from time to time as an independent contractor.
Petitioners, however, do not receive these benefits.9
The most recent trust accounting
provided for 2015 shows accounts receivable, apparently loans, of $13,722 to Pam Ketchum
and $36,519 to the Trustee.10
Without an accounting of all these benefits and justification for
their payment as either for work or compliant with the Trust’s income split, the Trustee is
able to distribute them without accountability as he pleases either to benefit himself directly
or to secure support from favored beneficiaries.
H. The Trustee Has Completely Ignored Other Beneficiaries of the Trust
58. The Trust Agreement also provides that various other relatives of Atherton
Richards would be beneficiaries, though not income beneficiaries or remaindermen.
Section I.4(a) lists a number of specific relatives, and provides that during the life of the
Trust, those relatives and their issue shall be provided support at the discretion of the
Trustee. The Trustee appears to have completely ignored this section. Indeed, his own
brother, who is a beneficiary under this section, did not know he was until 2014, over 40
years after the Trust was created. The Trustee appears to have made no effort to determine
if any of these beneficiaries were in need of support. This is just another example of the
Trustee simply ignoring his duties under the Trust Agreement.
8
The Trustee’s brother is still apparently on the Board of Directors, although the
Shareholder Agreement prohibits his siblings from being on the Board. (Ex. 8, § 2.)
9
Ms. Giles has no economic relationship with the Ranch. Dr. Richards’s colleagues in
his veterinary practice perform veterinary services for the Ranch, but not Dr. Richards, and
fees from those services are allocated to his colleagues and not to him. All Remaindermen
do get a check for $500 per quarter.
10
On April 12, 2018, the date this petition was filed, the Trustee’s attorneys provided an
accounting for 2016. It lists these exact same amounts due to the Trust. In a year, they had
not been paid down at all.
28. 1013958v3 11335-1 22
I. The Trustee’s Mental and Physical Incapacities
59. As his errant behavior in violation of the Trust suggests, the Trustee is not
fully in control of either his mental or physical faculties. The Trustee has had a number of
TIA attacks over the years. His eyesight is poor because of extreme cataracts. He has been
unable to have the cataracts removed because he first needed to have heart surgery, which he
recently underwent. He has difficulty paying attention to conversations, and he admits to
trouble remembering things. The Trustee also has difficulty walking. The Trustee appears to
have developed paranoia about the Petitioners, as is reflected in his actions with respect to
the Trust. His attorney also told Ms. Giles’s attorney that the Trustee sleeps with a gun
because he fears his children. This is unsubstantiated, as neither Petitioner has ever done
anything to physically threaten the Trustee. The Trustee’s job is a demanding one, and given
his age and infirmities, he is simply no longer able to do it.
J. The Petitioners Attempt to Convince the Trustee to Retire
60. The filing of this petition was the last straw after a number of years of trust
mismanagement, estrangement, and hostility on the part of the Trustee. Despite all of that,
the Petitioners tried to avoid litigation. On April 4, 2018, they sent the Trustee a letter
through counsel telling him that he should revoke the Shareholder Agreement and retire, and
notifying him that they were prepared to file this petition. (Ex. 12.) Although the letter was
candid, Petitioners communicated that they wanted to repair their relationship with him, and
that it is now clear that is impossible while he remains the Trustee. The Trustee’s response
was to commence litigation two days later. He filed his own petition, seeking to have the
court “approve Trustee’s actions regarding the Shareholder Agreement, and declare that the
Trustee acted within his authority regarding such.” (Ex. 13 at 10.)
29. 1013958v3 11335-1 23
III. PROBATE RULE 126(C) STATEMENTS
61. The information required by Rule 126(c) of the Hawai`i Probate Rules to be
set forth in this Petition is as follows:
(a) The Trust Agreement, dated September 19, 1972, between Atherton Richards
as “Settlor”, and Atherton Richards and Herbert M. Richards, Jr. jointly and
severally as “Trustee”.
(b) Name of Settlor: Atherton Richards
(c) Date of creation: September 19, 1972
(d) Nature and value of known Trust assets: See Exhibit 10, attached hereto.
(e) Name and address of the current Trustee:
Herbert M. Richards, Jr.
P.O. Box 837
Kanuela, Hawai`i, 96743
(f) Names and addresses of present permissible beneficiaries and Remainder/
Contingent beneficiaries:
Herbert M. Richards, Jr.
P.O. Box 837
Kamuela, HI 96734-0837
(income beneficiary)
Pamela Richards Ketchum
P.O. Box 837
Kamuela, HI 96743
(income beneficiary and remainder)
Herbert M. Richards, III
P.O. Box 6741
Kamuela, HI 96743
(income beneficiary and remainder)
Patricia Kuualoha Richards (Giles)
13323 NE 152nd
Street
Woodinville, WA 98072
(income beneficiary and remainder)
30. 1013958v3 11335-1 24
John Atherton Richards
P.O. Box 837
Kamuela, HI 96743
(income beneficiary and remainder)
Mary Richards Shattuck
4275 Owens Road
Cottage 707
Evans, GA 30809
(permissible beneficiary)
James Atherton Richards
583 Kamoku St., Apt. 3101
Honolulu, HI 96826-5233
(permissible beneficiary)
George Manning Richards
2255 Nuna St.
Honolulu, HI 96821
(permissible beneficiary)
62. It is submitted that the interests of any unborn or unascertained beneficiaries
are substantially identical to the interests of the current beneficiaries now in being and,
pursuant to HRS § 560:1-403(2)(c), are adequately represented by one or more of the current
beneficiaries now in being. Thus, there is no need to appoint a guardian ad litem for any
unborn or unascertained contingent remainder beneficiaries.
IV. THE SHAREHOLDER AGREEMENT SHOULD BE VOIDED BECAUSE IT
VIOLATES THE TRUST AGREEMENT AND IS ILLEGAL UNDER
CORPORATIONS LAW
A. Legal Standard: The Court Has the Power to Void Transactions that
Violate the Trust Agreement
63. There can be no question that the Court has the equitable power to void
transactions that are inconsistent with Trust Agreement and/or constitute breaches of trust.
The Court’s equitable powers to remedy a breach of trust are broad. They include “directing
the trustee to act or refrain from acting or by setting aside a transaction in which the trustee
has already acted.” Restatement (Third) of Trusts § 87 cmt. b. The Hawai`i Supreme Court
31. 1013958v3 11335-1 25
has also ruled that “Restitution of the property conveyed in breach of trust or restoration of
the status quo through cancellation is a proper remedy.” Richards v. Midkiff, 48 Haw. 32, 43,
396 P.2d 49, 56 (1964) (noting that cancellation is proper remedy even in a transaction with
a third party if the third party had notice of the breach of trust).
64. The Trustee, as owner of shares on behalf of the Trust, also has a duty to vote
them in furtherance of the interests of the beneficiaries and the Trust:
a. Duty of trustee in voting shares. It is the duty of the trustee in
voting shares of stock to use proper care to promote the interest of the
beneficiary. The trustee has discretion whether and how to vote, and if
he does not abuse his discretion the court will not control him in
voting; but he may be restrained by injunction or otherwise from
casting a vote which would violate his duty to the beneficiary.
Restatement (Second) of Trusts § 193 cmt. a.
65. The Court can thus use its equitable powers to void the Shareholder
Agreement if entering into it constituted a breach of trust, which it did. Alternatively, the
Court has the equitable power to order the Trustee, as sole shareholder of the Ranch, to
revoke the Shareholder Agreement. Given that the Shareholder Agreement is only among
one shareholder, the Trustee, neither of these acts has any effect on a third party.
B. The Shareholder Agreement Should Be Voided as a Breach of Trust
Because It Is Intended to Benefit Third Parties Other than the
Beneficiaries and It Harms the Beneficiaries by Encumbering Their Stock
66. It is clear from the facts discussed above that the Trustee’s motives in entering
into the Shareholder Agreement were charitable. He wants the Ranch to go on as long as
possible for the benefit of the community and employees, even though it has virtually never
turned a profit, and has paid minimal dividends to the beneficiaries in the last 45 years.
(See Supra ¶ 25.) This would be altruistic, if part of his motivation was not naked hostility
toward his own children. In any event, it is clear under Hawai`i law that a trustee is not free
to simply take trust assets and give them away. Richards, 48 Haw. at 57, 396 P.2d at 63
32. 1013958v3 11335-1 26
(“It is improper for a trustee to make a gift of trust property unless it is advantageous to the
trust estate”)11
That is what the Trustee has done by creating restrictions on the stock that
effectively render it unmarketable, unprofitable, but serve the goal of perpetuating the Ranch
as long as possible. He has given the Ranch over to his hand-picked directors to operate for
a charitable purpose, with no ability for the beneficiaries to control or stop it. Similarly, an
action motivated by good faith can constitute a breach of trust: “an abuse of discretion occurs
when a trustee acts from an improper even though not dishonest motive, such is when the act
is undertaken in good faith but for a purpose other than to further the purposes of the trust.”
Restatement (Third) of Trusts § 87 cmt. c.
67. The Shareholder Agreement constitutes a breach of trust because it was
entered into to benefit others rather than the beneficiaries. This is clear from the Trustee’s
statement of January 13, 2018. (Ex. 8.) The Trustee’s motives breach the Trust, which
explicitly provides that “The primary purpose and intent in creating this trust is to benefit
those who shall from time to time be income beneficiaries.” (Ex. 1, §II.(p)) Nowhere in his
January 13 statement does the Trustee state that he is entering into the agreement for the
11
The Richards in that case was none other than the Settler of this Trust, Atherton
Richards. In Richards he sued his fellow trustees of the Bishop Estate. The case shows two
things relevant to this dispute. First, AR was sophisticated when it came to trusts, and he had
counsel and knew how to assert his will when he wanted to. Second, that AR had no
illusions that undeveloped Big Island lands would be used for ranching forever. The dispute
was about an undeveloped 15-acre parcel that Bishop Estate owned as part of an 18,228 acre
tract of land known as the land of Kaupulehu, which were used for ranching. 48 Haw. at 35,
396 P.2d at 52-53. Bishop Estate leased the 15-acre parcel (along with other Kaupulehu
lands) to a third party, but AR thought he was entitled to lease the 15-acre parcel from
Bishop Estate. He wanted the lease because the ranching conducted on the parcel was
unprofitable, and he “came to the conclusion that these lands could be more profitably
utilized if leased for a long term not only for the conduct of a cattle operation but also for the
development of a resort area consisting of a number of mountain and beach sites for use by
vacationers.” Richards, 48 Haw. at 35, 396 P.2d at 53. This was in 1959. Id. AR was also
in talks at the time with a developer about developing the land. Id.
33. 1013958v3 11335-1 27
benefit of the beneficiaries. Indeed, the cover letter from counsel transmitting the agreement
to the beneficiaries is even more explicit that their interests are second class. Counsel wrote
“the reason for the Agreement is to prevent potential future disputes among shareholders that
could cause harm to the Ranch, its employees and their families, and the community in
general.” (Ex. 8.) In other words, he wants to protect the Ranch from being broken up, even
if that is not in the best economic interests of the beneficiaries. There is nothing in the
statements of the Trustee and counsel provided with the Shareholder Agreement that a
purpose of it was to increase (or even maintain) the value of Trust stock.
68. The very structure of the Shareholder Agreement shows that it is meant to
mimic a charitable trust. The first provision is titled “self-perpetuating board of directors.”
This is a board of directors that elects its own successors into perpetuity. Though common
with charitable trusts and non-profit corporations,12
these are virtually unheard of in a
for-profit corporation like the Ranch. Establishing a self-perpetuating board structure is
alone evidence of the Trustee’s intent that the Ranch operate primarily to serve a charitable
function going forward.
69. The Shareholder Agreement also violates the Trust Agreement because it
places encumbrances on the Ranch stock that reduce its value. The beneficiaries are
ultimately going to get valueless stock that they can never sell and that will never pay any
12
The Hawai`i Nonprofit Corporations Act, for example, provides that directors may be
elected by the board itself. HRS § 414D-134. The Hawai`i Business Corporations Act
covering for-profit corporations, has no such authorization. Rather it provides that directors
are elected by the shareholders. See HRS §§ 414-193, 414-194. For discussion, see, Dana
Brakman Reiser, Dismembering Civil Society: The Social Costs of Internally Undemocratic
Nonprofits, 82 Or. L. Rev. 829 (2003) (discussing how nonprofits with self-perpetuating
boards are less well run than nonprofits with directors elected by members or for-profit
corporations with directors elected by shareholders, because of the lack of accountability of
self-perpetuating boards.)
34. 1013958v3 11335-1 28
appreciable dividends. Even if all four beneficiaries decided to sell 100% of their stock,
either nobody would want to buy it, or it would go at a huge discount. This is because under
the encumbrances of the Shareholder Agreement, even if 100% of the shareholders agree,
they could not remove the Agreement. They could not select directors. They could not
affect corporate operations whatsoever. They could not liquidate the company. They would
effectively have what the Trust has now: stock in a company that operates perpetually at a
loss, paying almost no dividends, while the land assets of the Company are incredibly
valuable, but cannot be touched.
70. The beneficiaries have a valid fear that the Trustee’s hand-picked directors
will keep the Ranch going on forever at a loss, selling off assets here and there to keep
operations going, with no income for the beneficiaries. This is exactly what the Trustee has
been doing for 45 years, and he wants it go on as long as possible after he dies. He even
wrote a book where he admits to it: “If you were to judge Kahua Ranch strictly on a
business model, we are an abject failure…If you really want the ranch to generate a lot of
money in terms of interests, dividends, and all, then sell the damn thing and split the money
up…I don’t think you want to do that, so suck it up and keep going.” (Ex. 7 at 161.) Indeed,
the first sentence of the preface to the Trustee’s book about the Ranch reflects these exact
sentiments:
Kohala has been discovered. The ranches can be sold, they can make a
lot of money and the rancher can live the life of Riley, but after that,
it’s gone. Because when you start cutting up these places, you are not
going to see the expanses; you are not going to have the herds of cattle
and horses…
(Ex. 7 at iv.)
71. It breaches trust for a trustee to place an encumbrance on stock the trusts
owns that is inconsistent with the trust purpose. In a case that presented similar, though not
35. 1013958v3 11335-1 29
nearly as severe encumbrances, the Supreme Court of Virginia found such an encumbrance
inconsistent with the trust. In Woods v. Stull, the settlor of the trust at issue left his shares in
a corporation in trust for the benefit of his mother and sister. 182 Va. 888, 892-93 (Va. 1944).
He also noted that as long as the trust owned the stock, “said stock shall be so voted as to
secure continued employment” of three specific individuals “as long as their services are
reasonably satisfactory.” Id. at 893. One of the employees was discharged, and sued alleging
that the trustees breached their duty to vote shares to secure his continued employment. Id.
895. The Court ruled against the employee. It held that the purpose of the trust was obviously
to benefit the mother and sister of the settlor, and that the provision of continued employment
was narrowly defined as only to the time the trustees held the stock, and even then only if it
was in the best interests of the beneficiaries. Id. at 903. It specifically held that an encum-
brance on stock requiring certain employees was an impairment of value inconsistent with the
objective of the trust to benefit the beneficiaries: “It was not the intention of the testator to
encumber or impair the value of the trust estate by attaching a perpetual condition or
restriction which was inconsistent with the main object of the trust.” Id.
72. Here the Trustee has breached the trust with the Shareholder Agreement in a
manner that is leaps and bounds above the situation addressed in Woods. Unlike in Woods,
where the settlor actually did place some encumbrance on the stock in the trust estate,
Atherton Richards did no such thing. If he wanted the shareholder/beneficiaries to never
have any say in the selection of the directors of the Ranch or its operation, he certainly could
have structured the Trust in that manner. He did not. The encumbrances at issue here are
also far more severe. The only encumbrance alleged in Woods was the corporation’s
employment of three individuals. The Shareholder Agreement, by contrast, takes Trust stock
that allows the shareholders all control permitted to it under corporate law, and then
36. 1013958v3 11335-1 30
abdicates every single bit of that control to a perpetual board. It is about a severe an
encumbrance imaginable on a stock asset.
73. The Trustee’s folly appears to be in thinking that as the “owner” of the shares
of the Ranch, he is free to do anything with them an owner of shares can do. The problem,
however, is that there is a distinction in the law between what a shareholder can do with
shares he owns personally versus shares he owns in trust. A shareholder has wide latitude
with what he can do with shares he owns on his own account. For example, if the Trustee
owned the shares of the Ranch, he could use his voting power to liquidate the company and
give all its assets to charity. As a Trustee, however, he is duty bound to exercise his power
as a shareholder only for the economic benefit of the beneficiaries. This duty is recognized
in the Restatement. See Restatement (Second) of Trusts § 193 cmt. a. It is also embedded in
the case law. As one case has noted, when a corporation’s entire stock is held in trust, “the
corporation becomes the alter ego of the trustees and as such, the propriety of the trustee’s
acts must be determined in light of the trust and must be controlled by the provisions of the
trust.” Betty G. Weldon Revocable Trust v. Weldon, 231 S.W.3d 158, 171 (Mo. App. 2007).13
13
The Weldon case discusses exactly the type of trust that AR could have set up if it was
his goal to keep the Ranch running in perpetuity. In Weldon, the settlor was the owner of a
corporation that had a number of businesses as subsidiaries. 231 S.W.3d at 165. The
subsidiaries included a number of newspapers, and a “renowned” horse-breeding and training
farm that had raised world championship horses. Id. The settlor had founded the horse-
breeding farm in the 1940’s. Id. She established the trust in 1998 with herself and her three
children as beneficiaries. Id. at 164. One of the explicit terms of the trust was that the horse-
breeding farm not be sold during the settlor’s lifetime. Id. 177-78. By 2004, the farm had
operated at a cumulative loss of $26 million during the prior 27 years, “despite its
reputation.” Id. at 165. The settlor became incapacitated in 2001. Id. In 2005, the board of
the parent company voted to sell the horse-breeding farm, because it was a drain on the
resources of the parent. Id. at 165-66. Two of the directors voting were trustees of the trust,
who had been appointed due to the trust’s ownership of the stock of the parent company. Id.
at 166. The daughter, and a co-trustee, sued the two trustees that voted in favor of selling the
horse-breeding farm for breach of trust. Id. The two trustees argued that they were protected
(continued…)
37. 1013958v3 11335-1 31
74. A number of cases have held that a trustee must exercise shareholder power to
benefit the trust beneficiaries, and not to benefit his own interests or entrench himself. For
example, in Neil v. Foster-Bey, the trustee used his voting power over stock the trust owned
in a corporation to elect directors that would not fire him as the CEO of the company. 228 F.
Supp. 3d 707, 711 (E.D. Va. 2017). Applying the common law of trusts, the Court held that
“all courts to have considered the matter appear to agree, however, that a trustee’s self-
interested use of his or her voting power to determine the outcome of a corporate power
struggle can violate the trustee’s fiduciary duty…” Here the Trustee has done precisely that
with the Shareholder Agreement: he seeks to have the Ranch controlled by his chosen
directors beyond the grave so as to further his own interest in perpetuating the Ranch. See
also Neil v. Zell, 677 F. Supp. 2d 1010, 1028-29 (N.D. Ill. 2009) (applying common law of
trust and Restatement (Second) § 193 to hold that plaintiffs stated a claim that the trustee
violated fiduciary duties by entering into voting agreement that required them to vote trust
stock in favor of specific directors); O’Neill v. Davis, 721 F. Supp. 1013, 1014-15 (N.D. Ill.
1989) (finding complaint stated a claim for breach of trustees’ fiduciary duties where they
(…continued)
in their actions as directors by the business judgment rule under corporations law. Id. at 170.
The Court disagreed, and held that as directors serving in that capacity as trustees of the
trust, they were obligated to act consistently with the terms of the trust. Id. at 170-72. The
court held that trust law overrode any protection under corporations law, including the
business judgment rule. Id. at 171. The court held that the trust unambiguously provided that
the horse-breeding farm should continue in operation during the settlor’s lifetime, and that
though it was projected to operate at a loss, the profits from the other businesses of the parent
company could sustain the loss. Id. at 177. The court also noted that the settlor had a history
of underwriting losses on the farm with profits from other businesses. Id. The Weldon case
is significant for two reasons. First, it shows that if a settlor like AR wants to establish a
trust to keep an agricultural operation going, there are certainly ways to do so in the trust
agreement. Second, it affirms that trustees acting as directors or shareholders on behalf of a
trust have duty to act first in accordance with the trust, notwithstanding corporations law.
38. 1013958v3 11335-1 32
voted the shares of the trust stock “to reconstitute the Board of Directors and to consolidate
their control of the Company…”).
75. The Trustee has similarly breached his duty by exercising his power as share-
holder to institute a perpetual board, that also entrenches himself and his brother, so as to
further his personal goal of keeping the Ranch in operation as long as possible. This
breaches trust because it was not done with the motive of benefiting the beneficiaries, and
indeed it devalues their stock and discriminates against them.
C. The Shareholder Agreement Should be Voided as a Breach of Trust
Because It Violates Section I.4(d) of the Trust Agreement
76. Atherton Richards decided explicitly when he wanted the Trust to terminate
and when he wanted the Trust assets to be wholly at the disposal of the beneficiaries. His
wishes are expressed in Section I.4(d) of the Trust Agreement. According to that provision,
the trust terminates after the deaths of the Trustee and Phyllis Richards, provided that all
their surviving children attain the age of 25. At that time the trust estate is to be delivered to
them “absolutely and in fee simple, free and clear from any trust.”
77. The specificity of this provision is important. It shows that once their parents
were deceased, AR wanted Ms. Giles and Dr. Richards to be able to do whatever they wanted
with the trust assets “free and clear” “absolutely and in fee simple.” The fact that AR
selected the age of 25 is also significant. Not only did he want the Remaindermen to have
the assets to do with as they pleased, he considered it closely enough to pick a specific age
when he thought they would be responsible to do so.
78. The Shareholder Agreement is completely inconsistent with AR’s carefully
laid plans, as expressed specifically in the Trust Agreement. First, it creates substantial
encumbrances on the Remaindermen’s ability to dispose of or even manage trust assets.
Second, it effectively extends the time that the Ranch is in trust, despite AR’s intent that the
39. 1013958v3 11335-1 33
Remaindermen receive assets free and clear of any Trust. Once again, if AR did not think
that the Remaindermen would ever be mature enough to handle the Ranch, he could have set
up this provision differently. He could have made it so that it was held in trust during their
entire lives. Through the Shareholder Agreement, the Trustee has implemented a structure
where the Ranch will effectively be held in trust for the Remaindermen’s lives, with the
directors like trustees that the Remaindermen cannot control and cannot remove.
79. The Court can and should void the Shareholder Agreement for the additional
and independent basis that it is inconsistent with the Trust Agreement’s termination
provisions.
D. The Shareholder Agreement Should be Voided as a Breach of Trust
Because It Discriminates Among Beneficiaries
80. The Shareholder Agreement is simply a naked breach of the Trustee’s duty of
impartiality. This is yet another separate and independent basis for voiding the Shareholder
Agreement. “A trustee has a duty to administer the trust in a manner that is impartial with
respect to the various beneficiaries of the trust.” Restatement (Third) § 79. The current
directors are his hand-picked cohort. The Shareholder Agreement discriminates in favor of
one beneficiary with respect to corporation officerships, directorships, and employment:
the Trustee himself. Only he is allowed to serve as a director, officer, or employee. The
Shareholder Agreement permanently discriminates against the rest, including Ms. Giles and
Dr. Richards, even long after the Trustee dies or is no longer Trustee for any other reason.
81. The duty of impartiality is broadly defined as essentially the need for a trustee
to be impartial in all his acts as trustee. “The duty of impartiality is applicable to all duties
of the trustee.” Id. cmt a. It includes impartiality “in investing, protecting, and distributing
the trust estate, and in other administrative functions…” Id. §79(1)(a). Moreover, “it is the
trustee’s duty, reasonably and without personal bias, to seek to ascertain and to give effect
40. 1013958v3 11335-1 34
to the rights and priorities of the various beneficiaries or purposes as expressed or implied by
the terms of the trust.” Id. cmt. b (emphasis added). When the trustee is also a beneficiary,
there is a particularly heightened temptation to abuse the power for his own benefit, and
therefore “a trustee-beneficiary’s conduct is to be closely scrutinized for abuse, including
abuse by less than appropriate regard for the duty of impartiality.” Id. cmt(b)(1). See also
§ 37, cmt. (f)(1) (“when a beneficiary serves as a trustee…the conduct of the trustee in the
administration of the trust will be subject to especially careful scrutiny.”) The duty of
impartiality thus applies to his decisions regarding Ranch officers, directors, and employees,
and his decisions in that regard must be “scrutinized for abuse.”
82. Other than stealing trust assets, it is hard to imagine a less impartial act than
a trustee decreeing that a benefit of the trust can forever go only to himself, and never to
other beneficiaries. There can be no dispute that the right to serve on the Board and being
employed by the Ranch are benefits. There is also no doubt that the Trustee has wielded his
power as the sole stockholder to completely control who the officers, directors, and
employees of the Ranch are. The Trustee has used that power to permanently exclude all
beneficiaries but himself from enjoying these rewards. A trustee violates the duty of
impartiality when he administers the trust so as to route benefits to himself and away from
other beneficiaries. In re Estate of Rutter, 633 N.W.2d 740, 750-51 (Iowa 2001); In re
Estate of Stuchlik, 289 Neb. 673, 679-80, 690-91 (Neb. 2014) (co-trustees who controlled
partnership owned in part by trust potentially breached impartiality by discriminating against
one beneficiary, including by leasing or selling partnership assets to another beneficiary, who
was also a co-trustee). Indeed, a trustee violates the duty of impartiality merely by treating
some beneficiaries more favorably than others, even where the trustee is non-interested and
received no benefit from the impartiality. See e.g. McNeil v. Bennett, 792 A.2d 190, 192,
41. 1013958v3 11335-1 35
211-213 (Del. Ch. 2001) (non-interested trustees breached duty to beneficiary “by being
(perhaps unwittingly) partial to his siblings.”), affirmed in part, reversed in part on other
grounds 798 A.2d 503 (Del. 2002).
83. Finally, the breach of the duty of impartiality is particularly serious because of
the permanence of the exclusion of the other beneficiaries from the benefits of directorship
and employment at the Ranch. These are benefits that the Trustee has enjoyed for virtually
his entire adult life. They are also benefits that were previously available to and enjoyed by
the beneficiaries. Now the Trustee has declared he can keep them for life, but the
beneficiaries can never have them.
84. The Court should exercise its equitable power to void the Shareholder
Agreement and/or direct the Trustee to revoke it.
E. The Shareholder Agreement Should Be Voided Because It Violates
Contract Law and Corporations Law
85. The Shareholder Agreement should also be voided because it violates the
statute on shareholder agreements, as well as basic contract law principles. A Trustee cannot
act in a matter that is unlawful or contrary to public policy, even if the trust agreement
purports to require it. Restatement (Third) of Trusts § 72.
86. Here the Shareholder Agreement goes beyond the bounds of what the statute
authorizes, and indeed specifically contradicts it. The statute provides that “An agreement
authorized by this section shall be…subject to amendment only by all persons who are
shareholders at the time of the amendment, unless the agreement provides otherwise.”
§ 414-163(b)(2) (emphasis added). In other words, shareholders can always unanimously
take back control of their own company. Moreover, the idea that a shareholder agreement
can permanently delegate all selection of directors of the company to non-shareholders is so
fundamentally contrary to corporate practice, that if the statute allowed that it would have
42. 1013958v3 11335-1 36
said so specifically. The Trustee may argue that the language “unless the agreement
provides otherwise” means that he can eliminate the statute’s requirement that the agreement
can be amended with unanimous shareholder consent. But that language is not meant to
provide an exception to the requirement that shareholders can amend the agreement, it means
only that the shareholder agreement can dictate that amendments do not have to be
unanimous. To read it otherwise would not make any sense, since the statute is obviously
meant to impose a requirement that shareholders can amend the agreement. Indeed, the very
first phrase, and its language that agreements under the section “shall be” shows that the
section is intended to impose requirements on shareholder agreements, including amendment
by the shareholders. The Agreement should be voided as it violates the statute’s requirement
that shareholder agreements be amendable by consent of the shareholders.
87. Prohibiting the Shareholder Agreement from being amended by the
shareholders also violates fundamental tenants of contract law. Agreements can always be
rescinded with the consent of the parties. Restatement (Second) of Contracts § 283. The
Agreement at issue is between the shareholders of the corporation. That is clear both from
its title, and from the statute that purportedly authorizes the agreement, which states in its
first sentence that it governs “an agreement among the shareholders of a corporation.” Put
more simply, the agreement is a contract among shareholders. It would be simply ludicrous
under contract law to provide that all the parties to the contract cannot revoke or amend it.
But that is precisely what the agreement purports to do, by giving non-party directors the
power to veto any amendment. Thus the Agreement should be voided because it is
inconsistent with fundamental contract law.
43. 1013958v3 11335-1 37
V. THE TRUSTEE SHOULD BE REMOVED FROM OFFICE DUE TO BREACH
OF TRUST
88. The Trustee’s breaches of trust associated with the Shareholder Agreement and
his own admissions that he puts the Ranch’s perpetual, non-profitable operation above the
interest of the beneficiaries are sufficiently serious, that the Court should remove him as
Trustee. In addition to his breach of impartiality with the Shareholder Agreement, he has
also breached the duty by providing himself and favored beneficiaries special benefits not
enjoyed by Ms. Giles and Dr. Richards. These breaches also justify removal.
89. A trustee can be removed “for cause by a proper court.” Restatement (Third)
of Trusts § 37(b). This includes where “a trustee whose continuation in that role would be
detrimental to the interests of the beneficiaries.” Id. cmt. d. Grounds for removal include
“unwarranted preference to the interests of one or more beneficiaries.” Id. Moreover,
although “not every breach of trust warrants removal,” “serious or repeated misconduct, even
unconnected with the trust itself, may justify removal.” Id. See also In the Matter of the
Trust Estate of George H. Holt, 33 Haw. 352, 357 (Haw. Terr. 1935) (“A court of equity may
and will remove a trustee who has been guilty of some breach of trust or violation of duty.”)
90. There are both serious and repeated acts of misconduct that justify removing
the Trustee. These include: 1) failure to make any succession plan for the Trust, despite
being 88-years old, such that trust administration and Ranch operations are likely to be a
mess ripe for further discord upon his death; 2) admitting repeatedly that his primary goal in
administering the Trust is the perpetuation of the Ranch in its present state, despite his
inability to operate it profitably; 3) putting his plan of perpetuating the Ranch, profitable or
not, into action by encumbering the Ranch’s stock and substantially devaluing it through a
Shareholder Agreement that purports to prohibit any future shareholders from ever changing
it themselves, or from ever being able to remove his hand-picked directors, or even select
44. 1013958v3 11335-1 38
any other directors; 4) discriminating against all beneficiaries other than himself in the
Shareholder Agreement by prohibiting anyone else from being officers, directors, or
employees; 5) further breaching the duty of impartiality by unevenly distributing benefits of
the Trust among the beneficiaries (including himself), and failing to account at all for his
doling out of benefits arising from the Trust, such as an estate in the historic main Ranch
house for his new wife after his death; 6) failing to provide an accounting for any years
following 2015 despite being ordered by this Court to provide an accounting three years
ago.14
(Ex. 14.)
91. Any one of these breaches is independently sufficient ground to remove
the trustee. Cumulatively, they are overwhelming. The Trustee must be removed.
92. The breach of trust, and cavalier ignoring of key Trust provisions and the
settlor’s intent, certainly justifies removal. For example, in Weldon discussed supra at
Note 13, the court removed trustees that refused to implement precise provisions in the trust
agreement. Weldon, 231 S.W.3d at 180. See also Chao v. Malkani, 452 F.3d 290, 295
(4th Cir. 2006) (trustee removal justified when the trustee misinterpreted the trust document
in a way that deprived beneficiaries of benefits). Here, as described above, the Shareholder
14
Although the Order technically covered only the accounting provided in 2015, the
implication is clear that, at the very least, the Trustee has a duty to provide such an annual
accounting. Also, as noted above, on April 12, 2018 the Trustee finally provided an
accounting for the year 2016. The timing was by no means coincidental. On April 4, 2018,
the Petitioner’s counsel sent the Trustee’s counsel a letter specifically noting that Petitioners
would be filing suit on April 12, 2018. (See Ex. 12.) Realizing the utter indefensibility of
being two years behind in accounting, the Trustee’s counsel apparently scrambled to provide
the 2016 accounting by the filing day. Once again, they are laden with caveats from the
accountant, noting that the information was unverified, unaudited, and he relied entirely on
the Trustee. An accounting for 2017 is still outstanding. Even more concerning, however, is
that between 2015 and 2016 the assets of the Trust as stated in the accounting dropped from
$41.5 million to $27.1 million, or by over a third! This shows that either the accountings
provided are wildly inaccurate, or that the gross mismanagement of the Trustee is even worse
than Petitioners ever imagined.
45. 1013958v3 11335-1 39
Agreement breached multiple explicit and implicit provisions of the Trust. The problem
justifying removal, moreover, goes beyond just the Shareholder Agreement. The Trustee has
admitted that it is his mission to preserve the Ranch in operation, notwithstanding the effect
on the beneficiaries’ economic interests or AR’s intent that they take trust assets free and
clear upon the Trustee’s death. In re Will of Crabtree, 449 Mass. 128, 136 (2007) (“where
trustees are shown to act in disregard of the settlor’s intent, they breach their fiduciary duties
in a manner that may justify their removal.”)
93. The partiality towards certain beneficiaries (mostly himself) and complete
failure to account for the doling out of benefits to be consistent with the Trust income distri-
bution also justifies removal. In the McNeil case, the Delaware Chancery court removed a
trustee, and the Supreme Court affirmed, where the trustee favored some beneficiaries over
others with respect to access to information and other benefits, even where the favoritism
was conducted “perhaps unwittingly.” McNeil, 792 A.2d at 192, 211-213, 221, affirmed in
part, reversed in part on other grounds 798 A.2d at 513 (affirming removal of trustee).
Trustees can also certainly be removed for self-dealing, where like here one of the bene-
ficiaries is the trustee and he is favoring is himself. In re Estate of Rutter, 633 N.W.2d 740,
750-51 (Iowa 2001) (“the trial court abused its discretion in failing to remove the executor.
The executor, in breach of his duty of impartiality, clearly handled the estate in a manner that
favored some beneficiaries over others” including to his “personal advantage”); In re Estate
of Stuchlik, 289 Neb. 673, 679-80, 690-91 (Neb. 2014).
94. The failure to provide a regular accounting, particularly after the Court
ordered it, also justifies removal. On April 14, 2015, after Dr. Richards had to sue to get
one, this Court finally granted his request for an accounting and held that a Rule 26
accounting the Trust had provided during the litigation was sufficient. This order set an
46. 1013958v3 11335-1 40
extraordinarily low bar, and gives the beneficiaries such miniscule information that they have
little to no insight into the operation of the main Trust asset, the Ranch. Despite the minimal
amount of information ordered provided, the Trustee has virtually thumbed his nose at the
accounting requirement anyway. The last accounting sent was fourteen months ago. (See
Ex. 10.). It was uncertified and unaudited, and the accountant signing it noted that he relied
solely on information provided by the Trustee. The accounting was for the year ended 2015.
The Trustee fully admits in the petition he filed on April 6, 2018 that he is two years past due
on even this most basic accounting. (Ex. 13 ¶ 14.) The accounting also seems designed to
hide operational losses of Trusts assets. (See supra ¶ 38.)
95. As the Restatement and case law recognize, this refusal to account,
particularly after prior litigation and a court order, is grounds for removal. Restatement
(Third) of Trusts § 37, cmt. e. Riegler v. Riegler, 262 Ark. 70, 78 (1977) (removing trustee
who “refused to account to the beneficiaries for a long time after ordered to do so by the
court”). Moreover, given that there has been prior litigation over the accounting issue, and
the Trustee has access to legal and accounting advisors, it is hard to explain the failure to
account except hostility toward the Petitioners and the Trustee’s desire to keep them in the
dark as much as possible so he can further his own scheme for the Ranch.
VI. THE TRUSTEE SHOULD BE REMOVED FROM OFFICE DUE TO HIS
PATTERN OF HOSTILITY TO THE BENEFICIARIES OF THE TRUST
96. The Trustee’s animosity toward beneficiaries Ms. Giles and Dr. Richards is an
independent grounds for removal of the Trustee. Indeed, although this hostility is caused by
the unreasonable acts of the Trustee, the law does not even require it to be the Trustee’s fault
to justify removal.
97. The Restatement provides that “a serious breakdown of communications
between beneficiaries and a trustee may justify removal, particularly if the trustee is respon-
47. 1013958v3 11335-1 41
sible for the breakdown or it appears to be incurable.” Restatement (Third) of Trusts § 37
cmt. (e)(1) (emphasis added).
98. Here it would be an understatement that there is “a serious breakdown of
communications” between Ms. Giles, Dr. Richards, and the Trustee. Dr. Richards and the
Trustee have been almost completely estranged for five years. Ms. Giles has only a
marginally better relationship. The only communication about the Trust is the very high
level, unverified and unaudited financial information that the Trustee only provided after
Dr. Richards sued for it, and which is two years past due. There is no question that the
Trustee holds the prior lawsuit against Dr. Richards and Ms. Giles: he admitted so much to
Ms. Giles recently on one of the few occasions they have spoken in the last several years.
The breakdown in communication also, regrettably, appears incurable, at the very least while
the Trustee continues to hold that office.
99. A large number of courts have sanctioned removal of trustees where there is a
hostile relationship between them and beneficiaries. As the Supreme Court of Nebraska has
noted, “A cause for removal of a trustee is appropriate for the best interests of the trust estate
where hostile relations exist between a trustee and beneficiaries of such a nature as to
interfere with proper execution of the trust, particularly where it appears that the trustee's
personal interests conflict with, or are antagonistic to, his or her duties as trustee under the
terms of the trust.” In re Conservatorship of Abbott, 295 Neb. 510, 527 (2017). That
statement of the law describes the present situation perfectly. Not only is the Trustee
personally hostile to Ms. Giles and Dr. Richards, his personal interest in keeping the Ranch
going at all costs is in conflict the with beneficiaries and antagonistic to the terms of the
trust. See also Restatement (Third) of Trusts § 79 cmt. b (“Impartiality does mean that a
trustee’s treatment of beneficiaries or conduct in administering a trust is not to be influenced
48. 1013958v3 11335-1 42
by the trustee’s personal favoritism or animosity toward individual beneficiaries, even if the
latter results from antagonism that sometimes arises in the course of administration.”)
100. Other courts, including Hawai`i courts, have removed trustees where there
were irreparable hostile relations between them and beneficiaries. Hartmann v. Bertelmann,
39 Haw. 619, 624 (Haw. Terr. 1952) (affirming removal of trustee where “the evidence
showed there was serious dissention between the trustee and some of the beneficiaries” even
though there was nothing in the record to reflect a breach of trust or lack of integrity on the
part of the trustee); Shear v. Gabovitch, 43 Mass. App. Ct. 650, 688 (1997) (removing trustee
due to hostility and noting “hostility can be a ground for removal, even where the trustee is
without fault.”).
101. There are now three separate litigations filed in probate court in the last four
years regarding the Trust. Two filed by Petitioners, one filed by the Trustee. The hostility
between the Trustee and the Petitioners is undeniable. If the Court does not remove the
Trustee, these problems are going to go on for a long time, probably with even more
lawsuits, and interfere with the operation of the Trust. Indeed, the Massachusetts Court of
Appeal described a similar situation (though with far less trustee misconduct) in a case
affirming the removal of a trustee.
Where the duty of a trustee is so delicate, where the hostility has
arisen since the trust was created, and is attributable in part to the fault
of the trustee, where the existence of the hostility would naturally
pervert his feelings and judgment, it is competent for a justice to
remove a trustee without further proof of misconduct, upon the ground
that the removal appears essential to the interests of the beneficiary.
That is the situation here. A trustee with almost plenary discretion over
all distributions to a beneficiary cannot reasonably be expected to
exercise his power with desirable perspective and detachment when his
motives and integrity are constantly impugned by the beneficiary and
the parties have been mired for years in a draining legal equivalent of
total war. Prudence called for a change of trustees.
