by Ian Lind

Honolulu Weekly, April 9, 2008

First Hawaiian Bank, the state’s largest financial institution and corporate trustee for a multi-million dollar trust established by the late island businessman A.L. Kilgo, collected over a half-million dollars in fees from the trust in the five years after Kilgo’s death in late 2000, but made no cash payments to beneficiaries.

Kilgo's was a landmark on Sand Island for six decades, selling everything from fishing supplies to tools and building supplies before it closed abruptly last year.

Kilgo’s sisters, both elderly and in ill-health, were not even told of the trust’s existence for more than five years, according to documents filed in probate court in Honolulu

Kilgo’s niece, Bernice Ferguson, of Milton, Florida, described her feelings after finally being notified in June 2006 that her mother was named in the trust.

“I started crying because Mama has lived in poverty for years now,” Ferguson said in a statement filed in probate court in Honolulu. “I did tell my mother on her birthday that Uncle Aubra did not forget her.”

Ferguson said her mother, Ida Pauline Brown, 87 years old in 2006, was legally blind, hearing impaired, and a laryngectomy patient whose voice box was removed due to cancer more than 30 years ago. She said Brown had been living in a trailer placed on a lot next door with her 63-year old son, John, who himself suffers from “significant arthritis” and is also hearing impaired.

“During many months there is not enough money for Ida and John to pay their bills, therefore my husband and I pay what is necessary to keep their utilities on and their house payments made,” Ferguson wrote. Ferguson’s wish list for her mother included a motorized wheel chair, new false teeth, a new pair of glasses, money for the co-payments for doctor visits, and hurricane debris cleanup.

Ida Brown died in January 2007, just two months after an agreement was finally reached to make initial “interim distributions” of cash to the trust’s beneficiaries, including Kilgo’s wife, Trinidad; Ida Brown and her sister, Christine Mickle, of Madison, Tennessee; and Harue Okimoto, the Kilgo’s former housekeeper.

The internal affairs of the Kilgo Trust became a matter of public record in April 2006 when First Hawaiian went to court seeking advice and assistance in sorting out the trust’s affairs.

Court appointed master, Honolulu attorney Robert Bruce Graham Jr., reported he was “shocked” by the handling of the trust.

First Hawaiian’s trust officers watched from the sidelines and failed to take action as Kilgo’s sales and profits collapsed and the value of the company’s assets plummeted between 2000 and 2004, according to Graham’s report to the court.

Kilgo’s, the tool and building supplies store that stood as a landmark on Sand Island for six decades, was valued at $11.3 million in 2000, but fell to just $3.3 million in 2004, a loss of $8 million or 70 percent, according to Graham.

“Whether the apparent decline in value of Kilgo’s was inevitable or not, it has occurred, it is not satisfactorily explained, and it does not appear to have been monitored,” Graham wrote.

Graham also questioned whether First Hawaiian Bank’s fees had been inflated by assigning Kilgo’s stock the same value it had at the time of his death, which Graham called both “questionable” and, less generously, “probably fictitious”.

By the time the bank started to take action, triggered in part by a 2005 FDIC audit, Kilgo’s had become an “$8.7 million white elephant,” Graham wrote. The company abruptly ceased operating at the end of April 2007, and its remaining inventory was sold at auction.

Graham, in a grand understatement, said the bank appears to have taken “a very casual approach to the administration of the Trust.”

Attorney Arthur Reinwald, representing Kilgo’s sisters, went further, calling the bank’s performance “evidence of reckless indifference”. However, Reinwald told Honolulu Weekly the situation improved once the bank assigned its “first team” to handle the trust’s affairs. He said all remaining issues are expected be resolved by the end of the year.

First Hawaiian’s attorney, Judy Lee, could not be reached for comment last week.

She has argued in court documents that the bank was stymied by co-trustee Kathleen Ka'auwai, who Kilgo selected to take over as president of the company when he retired from active involvement in 1992. Kilgo also designated Ka'auwai co-trustee of the trust with specific legal power to remove and replace the corporate trustee, First Hawaiian, at her discretion.

Ka'auwai simultaneously served as co-trustee of the Kilgo Trust, as “investment counselor” for A. L. Kilgo Company with “exclusive authority” to make decisions for the business, and as the company’s only officer and director, creating “a classic conflict of interest”, according to one attorney in the case.

“She (Ka'auwai) may be struggling against the tides of commerce to keep the doors open or she may be the cause of the problems. This master does not know,” Graham wrote. “But the situation is unacceptable. A trust cannot be placed in the situation of there being no accountability because the accountant and the ‘accountee’ are one and the same person.”

As the bank tried to get more information about the status of Kilgo’s ongoing business, Ka'auwai failed or refused to respond to repeated requests for information and documents concerning THE company’s finances, including tax returns, corporate by-laws, and lease agreements.

Due to the tangled web of authority spelled out in the trust, First Hawaiian “cannot independently act without the concurrence of Kathleen,” the bank’s attorneys argued in court filings.

Carroll Taylor, Ka'auwai’s attorney, could not be reached for comment. In court filings, however, he said Ka'auwai took no actions for her own personal benefit and never violated her fiduciary duty to the trust.

According to Taylor, Ka'auwai relied on FHB to run the trust while she tried to run what was left of Kilgo’s.

Attorney Reinwald, said Ka'auwai and First Hawaiian share the blame.

“Kathleen didn't now what she was doing and whoever was assigned by the bank as trust officer was less than attentive,” Reinwald said. “If somebody with business sense had taken a good look at it, they might have advised the trust to get a real manager or sell the company. That did not occur.”

Janice Downey, whose mother, Christine Mickle, is Kilgo’s sister, said her family was pleased with Graham’s investigation of the trust.

“My uncle, Al Kilgo, put everything into the hands of someone, several someones, that he thought he could trust to carry out his wishes,” Downey said. “The family here just wants what my uncle wanted for his sisters.”

Downey declined to comment on Ka'auwai’s role. But in a statement filed in court, she said Ka'auwai failed to respond when the family sent flowers and a eulogy following Kilgo’s death, and never responded to her mother’s repeated requests for copies of her brother’s obituary, newspaper articles about his death, or Mrs. Kilgo’s new address “so we could send our love and support.”

Downey said she had spent two years working at Kilgo’s while attending the University of Hawaii in the early 1960s.

“We all love Aunt Trini as much as we love Uncle Al,” Downey said. “She was like my mother to me when I was in Hawaii. Please tell her that her family in Tennessee loves her very much.”