The lawsuit claims that the Carlsmith Ball law firm and a number of the firm’s partners in Honolulu and Saipan were instrumental in carrying out a scheme to deceive the local shareholders and strip away their shares in the Hafadai Beach Hotel for the benefit of the firm’s large Japanese and U.S. clients. The suit, which was originally filed in July 2009, asks for general and punitive damages in excess of $25 million.
One of the plaintiffs, Herman T. Guerrero, said “the Carlsmith firm was instrumental in carrying out a scheme to strip away the families’ interests in the hotel for essentially nothing. They concealed information and conflicts from us and even misrepresented to the court what we had agreed to regarding the sale of our shares in the hotel. What made it worse is that they were our lawyers too; they had a duty to us. But we were sold down the river for a bigger client. That is just plain wrong. We basically lost everything with respect to the hotel and Carlsmith is responsible. Our claim for damages will exceed $25 million.”
Carlsmith Ball LLP is a Hawaii law firm with over 70 attorneys in offices in Honolulu, Los Angeles, Hilo, Kona, Maui, Guam and Saipan. The firm has been on Saipan since 1986.
In the amended complaint, lawyers from Carlsmith are accused of selling out the interests of local Saipan clients, who they were still representing at the time the sale of the hotel took place in 2004, to further the interests of a large Japanese client, Kinki Nippon Tourist Ltd., the international investment firm of Morgan Stanley, which was negotiating with KNT to purchase the hotel, and Mitsubishi Securities, which was serving as agent for KNT on the deal.
The amended complaint describes how in addition to decimating the value of the shares of the local shareholders in the hotel, Carlsmith structured an unfavorable lease agreement depriving these local landholders of the full value of their property. Plaintiffs settled a related lawsuit against KNT in 2009, but Carlsmith was “carved out” of the settlement by the parties.
The amended complaint’s allegations explain how Carlsmith lawyers pushed through the transaction over the objection of minority shareholders, who they also represented, without disclosing the true facts and circumstances, knowing that the minority shareholders’ holdings would be rendered almost worthless by the transaction.
“We were shocked that Carlsmith betrayed us,” said Guerrero. “And our parents would have been mortified. They were so proud of the Hotel and of having built the tourism industry on the island. They wanted us to continue their work. But Carlsmith took that away from us. We didn’t want to sue, but we felt we had to protect the families’ rightful interest.”
The amended complaint details how in betraying its clients, Carlsmith committed legal malpractice, including breach of
fiduciary duty, conflict of interest, fraud, and professional negligence.
The case is Jesus T. Guerrero and Herman T. Guerrero as Trustees of the Guerrero Family Trust, Carmen Deleon Guerrero Borja, and Annie T. Sablan, Clarence Tenorio and Norman Tenorio as Trustees of the Jose C. Tenorio Trust, and Juan S. Tenorio as Administrator of the Estate of Santiago C. Tenorio, Juan T. Guerrero, Jesus T. Guerrero, and Brenda Y. Tenorio and Lynette F. Tenorio as Trustees of the AJT Trust v. Carlsmith Ball, LLP and Marcia K. Schultz, Mary Jane Connell, Nancy M. Beckner, and Charles A. Sweet, Civil Case No. 09-0305, Superior Court for the Commonwealth of the Northern Mariana Islands.
