Former Gov. John Waihee

BY JIM DOOLEY – Former Hawaii Gov. John Waihee and three associates have agreed to pay $1.3 million to

Former Gov. John Waihee

settle claims by the state Attorney General that they helped to illegally divert some $30 million from funeral and burial plans sold to thousands of Hawaii residents.

The lawsuit was one of many filed after the 2004 financial collapse of funeral homes and cemeteries owned by the RightStar group of companies.

Waihee and fellow trustees who oversaw RightStar’s customer trust accounts consistently denied wrongdoing and agreed to settle the claims against them to put an end to eight years of litigation, according to interviews and court papers.

The Attorney General’s office has also agreed to settlements in a series of other legal claims against various parties involved in the failure of the RightStar companies.

“I’m a trial lawyer and I want to try cases, so I guess you could say all of this is ending with a whimper instead of a bang,” said Deputy Attorney General C. Brian Fitzgerald, who has been pursuing the RightStar lawsuits brought by state the over the past eight years.

“But those 40,000 contracts that were bought by (RightStar) customers and were at risk are now safe,” said Fitzgerald.

Among the businesses owned and operated by RightStar were Valley of the Temples cemetery and Diamond Head Mortuary on Oahu, Maui Memorial Park, and Homelani and Kona Memorial Parks on the Big Island. RightStar also owned several companies that sold and administered “pre-need” and “perpetual care” funeral and burial plans, including 50th State Funeral Plan.

The companies were sold last year to NorthStar Hawaii LLC, a subsidiary NorthStar Memorial Group, operator of cemeteries and funeral homes in California, Florida, Illinois, Ohio, Oklahoma, Tennessee and Washington.

Fitzgerald said NorthStar’s business operations here are safe, well-run and thriving.

State Circuit Judge Rhonda Nishimura approved a series of settlement agreements earlier this month that are winding down nearly a decade of contentious litigation involving dozens of companies and individuals connected to RightStar.

One of the central legal disputes involved a Las Vegas-based lender, Vestin Group, Inc., which provided more than $30 million in financing  to RightStar after it first entered the Hawaii “death care” market in 2000.

Vestin’s mortgage foreclosure suit against RightStar in 2004 began the blizzard of litigation that is dissipating now.

In a settlement agreement approved by Judge Nishimura September 3, Vestin agreed to end its litigation, surrender title to Maui property worth some $800,000 and redeem what remains of some $20 million in RightStar funds held in a real estate investment vehicle called Venstin Fund II.

Paul Alston, local attorney for Vestin, estimated that his client lost “north of $30 million” as a result of its

Paul Alston

RightStar experiences in Hawaii.

“In the end we decided to walk away,” Alston said.

“We were taken advantage of by a group of con artists and we paid a high price,” he said.

Alston was referring to the original RightStar principals, including chief executive John Dooley, the only man ever charged criminally in connection with the RightStar debacle.

Dooley pleaded no contest in 2010 to stealing some $50,000 from customer accounts and is now serving a five-year probation sentence.

According to court records, Dooley and his associates believed there was a huge surplus of money held in trust accounts for customers who had purchased funeral and burial plans from the-then bankrupt previous owner of the Hawaii funeral homes and cemeteries.

The RightStar plan was to use the “surplus” trust money to pay back loans borrowed to buy the assets here, according to court records.

RightStar turned to Vestin after unsuccessfully trying to borrow money from other lenders.

The state alleged that RightStar illegally removed some $20 million to $30 million from trust accounts and that another $20 million was improperly invested in Vestin Fund II.

The trust fund transfers were approved by a four-member group of trustees — Waihee, Stephen E. Harris, M. Tyler Pottenger and Reed B. Rohrer — appointed to oversee use of the trust money.

According to court records, each of the RightStar trustees was paid a $200,000 “inception fee” plus $5,000 to $10,000 per month.

Waihee had earlier been hired as a consultant by RightStar to help the company obtain licensing from the state Department of Commerce and Consumer Affairs to operate cemeteries and sell pre-need funeral plans.

Waihee and the other trustees said through their attorneys that they were first to warn state officials about what Dooley and his associates were up to at RightStar.

In petitioning Nishimura to approve the settlement with the former trustees, Attorney General David Louie said

David M. Louie

the four had raised “various and vigorous defenses” to the state’s claims and going to trial would be expensive, time-consuming and not necessarily successful.

“The issues in controversy involve a time span from 2000 through 2004 (and) concern the accounting for 14 pre-need and 4 perpetual care trusts,” Louie said in his petition.

“The litigation would examine hundreds of disputed transactions, involve dozens of fact and expert witnesses and tens of thousands of pages of documents,” the petition continued.

Louie said he believed the $1.3 settlement figure “reasonable in light of the relative degree of fault on the part of the former trustees.”

And Louie expressed doubt about the state’s ability to collect more from the men even if it prevailed at trial.

Insurance policies are paying the trustees’ settlement and going to trial would only reduce the amount of available insurance, the petition argued.

“The former trustees are individuals with limited personal assets to pay any judgment obtained against them,” Louie said, adding that the state’s chances of collecting more than $1.3 million from them were “low.”

Attorney David Minkin, who represented the trustees, said his clients “are happy to put this behind them.”

Waihee and the others were “the first to report problems at RightStar” to state regulators and later “cooperated in the criminal investigation of Dooley, providing statements and testimony against him,” said Minkin.

Other settlements approved by Judge Nishimura were reached with James Wagner, a former attorney for RightStar, and securites dealer Cantella & Co. Terms of those settlements were sealed by Nishimura.

Deputy Attorney General Fitzgerald said the settlement payments were “substantial.”

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Jim Dooley joined the Hawaii Reporter staff as an investigative reporter in October 2010. Before that, he has worked as a print and television reporter in Hawaii since 1973, beginning as a wire service reporter with United Press International. He joined Honolulu Advertiser in 1974, working as general assignment and City Hall reporter until 1978. In 1978, he moved to full-time investigative reporting in for The Advertiser; he joined KITV news in 1996 as investigative reporter. Jim returned to Advertiser 2001, working as investigative reporter and court reporter until 2010. Reach him at Jim@hawaiireporter.com