TRUST CREATED UNDER THE WILL OF SAMUEL M. DAMON, Deceased
TO THE INTERMEDIATE COURT OF APPEALS (CAAP-12-0000731; P. NO.
6664; EQUITY NO. 2816-A)
Bernard Bays and Michael C. Carroll for petitioner
Christopher Damon Haig
Rebecca A. Copeland, Peter Van Name Esser, and Thomas R.
Sylvester for petitioner Myrna B. Murdoch
Thomas Van Winkle, Duane R. Miyashiro, and Melissa H. Lambert
for respondent Trustees under the Will and of the Estate of
Samuel M. Damon
W.Van Buren for respondents Brendan Damon Ethington and John
RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, WILSON, JJ.
case concerns the objections of two beneficiaries,
Christopher Damon Haig ("Christopher") and Myrna B.
Murdoch ("Myrna"), of a testamentary trust created
under the will of Samuel M. Damon ("Damon Trust" or
"Trust"), to the decisions made by the Probate
Court of the First Circuit ("Probate
Court")that underpinned its August 2, 2012
Judgment, specifically the approval of the Trust's
accounts from 1999 to 2003. The Intermediate Court of Appeals
("ICA") affirmed the Probate Court's August 2,
2012 Judgment. See In re Estate of Samuel M. Damon &
Trust Created under the Will of Samuel M. Damon (In re Trust
of Damon), No. CAAP-12-0000731 (App. June 2, 2016)
Christopher and Myrna each timely applied for a writ of
certiorari from the July 11, 2016 Judgment on Appeal entered
by the ICA pursuant to its June 2, 2016 Memorandum Opinion
("Mem. Op."). Among other things, both Christopher
and Myrna assert that the Trustees violated their duty to
inform beneficiaries pursuant to trust law and Hawai'i
Revised Statutes § 560:7-303 (2006), that their due
process rights were violated when they were not granted
access to documents disclosed to the court-appointed Master
by the Trustees of the Damon Trust ("Trustees")
thereby preventing them from making informed objections to
the Master's Report regarding the Trust's accounts
from 1999-2003, and that the Trustees breached their
fiduciary duty to keep full, accurate, and orderly records of
the status of the Trust's administration when certain
documents went inexplicably missing.
reasons discussed, the ICA erred in affirming the Probate
Court's approval and adoption of the Master's Report
without first granting Christopher's and Myrna's
requests to access Trust administration documents, contrary
to the requirements of HRS § 560:7-303.
probate case was previously heard by this court regarding a
separate issue. See In re Estate of Damon, 119
Hawai'i 500, 199 P.3d 89 (2008) (holding that the
court-appointed master was disqualified due to a conflict of
interest and that objector-beneficiary's challenge to
master's appointment was timely). Accordingly, some of
the following factual and procedural background is repeated
from that opinion.
On November 10, 1914, a testamentary trust was created by the
Last Will and Testament of Samuel M. Damon
("Trust"). Samuel M. Damon died on July 1, 1924.
During the 1999-2003 accounting period, the Trustees managed
the Trust's assets with roughly half of its value in
publicly traded securities and the other half in real estate.
The securities portion of the Trust's assets consisted
mostly of a 13% interest in BancWest Corporation common
stock. The real estate portion of the Trust's assets
consisted primarily of prime industrial and commercial lands
in Honolulu under long-term leases, a sizeable cattle ranch
on the island of Hawai'i, two walnut ranches located in
California, and an industrial property located in California.
In 2001, the Trust sold its entire 13% interest in BancWest
Corporation common stock. In 2003, the Trust sold its prime
industrial and commercial land in Honolulu, two walnut
ranches, and a significant portion of real estate located on
the island of Hawai'i. The net proceeds from these
transactions has [sic] been reinvested into a diversified
securities portfolio that is being advised and managed by
Goldman, Sachs & Company.
In re Estate of Damon, 119 Hawai'i at 501-02,
199 P.3d at 90-91.
Trust terminated on November 9, 2004 when the last measuring
life, Samuel M. Damon's granddaughter, Joan Damon Haig,
passed away. On termination, the Trust's estate was
valued at $836 million. There is no dispute that Christopher
and Myrna were beneficiaries of the Trust from 1999 to
2003.According to counsel for the Trustees,
Christopher's and Myrna's interests in the Trust
total "slightly over three percent [3%]." Three
percent of $836 million is approximately $25 million.
April 30, 2004, the Trustees filed a "Petition for
Approval of 1999, 2000, 2001, 2002 and 2003 Income and
Principal Accounts" ("Petition") in Equity No.
2816-A and Probate No. 6664. The Petition represented that
sent annually to all adult beneficiaries who are entitled to
income by the terms of the Will copies of their annual
accounts for the calendar years 1999, 2000, 2001, 2002 and
2003, showing detailed expenditures of [sic] receipts and
income and principal for these years, together with
inventories as of the end of each year, and copies of
Consolidated Financial Statements and Schedules of the Estate
of S.M. Damon, and the Independent Auditor's Reports
prepared by KPMG LLP, for each year.
the Probate Court's initially appointed master for the
Petition was disqualified upon Christopher's objections,
see In re Estate of Damon, 119 Hawai'i 500, 199
P.3d 89, the Trustees petitioned for another court-appointed
master to examine the Estate's accounts. Christopher
objected to the Trustee's petition for the appointment of
another master, and instead filed a "Petition for
Assignment to Civil Trials Calendar of the First Circuit
Court" ("First Assignment Petition") on
February 11, 2010, asserting the following issues regarding
the Trust's 1999-2003 accounts:
1. Whether the trustees adequately managed the estates'
[sic] securities portfolio[.]
2. Whether the trustees obtained a satisfactory premium for
the First Hawaiian Bank stock.
3. Whether the trustees obtained fair market value for the
real estate portfolio of the trust.
4. Whether the trustees had conflicts of interest in the
pro se, appeared to join in Christopher's concern
regarding the appointment of a new master and his request for
the assignment of the case to the civil trials calendar. The
hearing for the First Assignment Petition was set for April
1, 2010, which fell after the date set for the court's
hearing on the appointment of a new master.
hearing on February 18, 2010, the Probate Court granted the
Trustee's petition for the appointment of a new master
("Master"), who was appointed by Order of Reference
filed March 22, 2011. In accord with Hawai'i Probate
Rules ("HPR") Rule 29,  that Order stated that
"[t]he [Trustees] shall . . . make all books and records
of the Damon Estate available to the Master."
court held a hearing on the First Assignment Petition on
April 1, 2010. After hearing argument from the parties, the
court decided to continue the matter until the court had an
opportunity to review the Master's Report.
October 7, 2011, the Probate Court received Christopher's
"Petition to Renew Request for Assignment of Case to
Circuit Court Pursuant to Probate Rule 20 or in the
Alternative, for Appointment of a Discovery Master"
Renewed Assignment Petition"). On October 10, 2011,
through counsel, Myrna similarly filed a "Petition for
Assignment of Case to Circuit Court Pursuant to Probate Rule
20(a) through 20(c) or in the Alternative, for an Order
Pursuant to Probate Rule 20(d) Compelling Discovery and
Appointing a Discovery Master" ("Myrna's
Assignment Petition"). Both Christopher's Renewed
Assignment Petition and Myrna's Assignment Petition
asserted that each had requested information from the
Trustees regarding Trust administration, those requests were
denied or ignored, and that when assistance was sought from
the Master, the Master stated that she did not have the power
to compel the Trustees to provide discovery and advised Myrna
and Christopher to take up the issue with the Probate Court.
hearing on Christopher's Renewed Assignment Petition and
Myrna's Assignment Petition was held on December 1, 2011.
At the hearing, the Master indicated that the Report would
not be completed until sometime in mid-February 2012 because
deadlines for submissions were suspended pending the outcome
of Christopher's and Myrna's petitions. The Probate
Court judge reminded the parties that the First Assignment
Petition had been continued so that the Master's Report
could be completed. The court also indicated the parties
would be better able to focus on discrete issues of concern
after the Master's Report issued, which would limit the
scope of any potential discovery.
explained that he filed the Renewed Assignment Petition
because "[al]though the trustees provided information in
the past, they have now refused." Christopher and Myrna
argued that they had a right as beneficiaries to the
requested information, or, at the very least, information
that was disclosed to the Master, and that they had already
narrowed their objections. In their memoranda, Christopher
and Myrna each cited to HRS § 560:7-303, Bogert's on
Trusts § 962 ("Duty to Respond to
Beneficiaries' Requests for Information"),
the Restatement (Second) of Trusts § 173 ("Duty to
show that the Trustees had a duty to provide them with the
requested Trust documents and information. Moreover, because
the Master's document review was in part based on the
general objections already noted by Christopher and Myrna,
they explained they would be unable to "submit . . .
more meaningful objection[s]" to the Master if they did
not get access to those very documents provided to the Master
by the Trustees. As an example, Christopher's memorandum
cited his securities and real estate experts, who indicated
"they cannot [issue] a report unless they have more
information." The Trustees countered that "[t]he
Order of Reference by definition is an ex parte process. We
are required to meet with the Master, again, as the eyes and
ears of the Court and provide her with access to the books
and records. We're doing that."
Probate Court concluded that Christopher and Myrna failed to
show that discovery was necessary prior to the completion of
the Master's Report. The court emphasized that
Christopher's and Myrna's issues were preserved, and
that they would be given an opportunity to respond to the
Master's Report. Accordingly, the court denied their
Master's Report, concluding the Trust's 1999-2003
income and principal accounts should be approved, was filed
on March 9, 2012. In it, among other things, the Master noted
Your Master verified the accuracy and reliability of the
Trust's financial accounts by examining the statements of
assets and liabilities, income and expenses, and random
examination of the 2003 receipts and invoices. The 1999-2002
receipts and invoices were unlocatable and, according to
Controller Mizuno, were probably destroyed as part of the
Trust's regular document culling process. Controller
Mizuno assured the Master that he has seen and audited most
of the 1999-2002 receipts and invoices when he was part of
the KPMG LLP (hereinafter KPMG) audit team and approved some
of the 2002 receipts and invoices when he was hired as the
Estate's Controller in October 2002. The 1999-2003 annual
statements, which were mailed annually to all Beneficiaries,
were created from the receipts and invoices. He also
confirmed that the Trust's internal controls requiring at
least three levels of approval, including those of the
Trustees, were uniformly followed in all of the years in the
1999-2003 Accounts Period.
The Damon Trust accounts are annually audited by KPMG who
issued annual "Independent Auditors' Report" of
its findings. The audits process included, inter alia, random
reviews of the receipts and invoices to confirm that internal
controls, such as the approval process for all invoices, were
in place and properly followed. KPMG's audits are
attached to the 1999-2003 Accounts Petition.
Based on the examination of the financial statements,
receipts, and KPMG's annual audits, your Master is
satisfied that the Trust's 1999 - 2003 financial accounts
as presented to the Probate Court are fair and accurate.
status conference on March 20, 2012, the court set the
following deadlines: April 25, 2012 for responses or
objections to the Master's Report; May 25, 2012 for any
reply; June 21, 2012 for the hearing on the Trustee's
April 17, 2012, Christopher submitted to the Probate Court a
"Petition to Compel Production of Documents and Continue
Deadline to Respond to Master's Report"
("Petition to Compel"), which was joined by Myrna.
The Trustees objected to the Petition to Compel on numerous
grounds, including that Myrna's requested documents were
irrelevant to the Trustee's Petition, or were ones she
already received from the Trustees or could have received
from other sources. The Petition to Compel was set for a May
31, 2012 hearing.
to submitting briefing on the Petition to Compel, both Myrna
and Christopher timely submitted their objections to the
Master's Report on April 25, 2012. Christopher maintained
that although he submitted general objections to the
Master's Report, he was unable to adequately and
completely respond to the Master's Report because he was
not provided with the documents he requested of the Trustees.
On May 25, 2012, the Master and Trustees filed their
responses to these objections.
May 31, 2012 hearing on the Petition to Compel, the Probate
Court listened to the parties' arguments but made no
additional inquiries or comments. The Probate Court ruled on
the Petition to Compel by way of a minute order issued on
June 19, 2012:
After review of the record and pleadings herein, review of
the Master's Report filed on March 9, 2012 and objections
and responses thereto, and having considered the
representations, arguments and objections made, the court
hereby denies the Petition [to Compel].
The court finds that there is no basis to compel the trustees
to produce all the documents reviewed by the Master. The
court also denies the Petitioner's request to transfer