Tuesday, September 29, 2015
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Panel Says Herbalife Heir Lacks Standing to Appeal Settlement Approval in Bankruptcy Dispute
By a MetNews Staff Writer
The son of the late founder of Herbalife International—the sole beneficiary of his father’s trust—lacks standing to appeal an order approving a settlement involving a debtor of the trust and former trustees whose removal the beneficiary successfully sought, the Ninth U.S. Circuit Court of Appeals ruled yesterday.
The ruling in favor of Tower Park Properties, LLC and against Alexander Hughes is merely the latest turn in years of litigation in state and federal courts following the death of Mark R. Hughes.
Hughes founded Herbalife International in 1980 and made his fortune on its sales of weight-loss, nutrition and skin-care products through multi-level marketing. His third of four marriages—to Suzan Hughes, Alexander Hughes’s mother—ended in a contentious divorce in 1998, and he died of an accidental drug overdose at the age of 44 in 2000, leaving a $350 million estate to his son through the Mark R. Hughes Family Trust.
Alexander Hughes stands to gain the trust principal in 2026.
The original trustees were Conrad Lee Klein, Mark Hughes’s personal attorney for over 20 years; Christopher Pair, an Herbalife executive; and Jack Reynolds, Mark Hughes’s father.
Litigation involving the family and the trustees has included several unsuccessful attempts by Suzan Hughes to remove the trustees; a suit by Suzan Hughes accusing Pair of sexual harassment, which was dismissed—in a ruling eventually upheld by the state Supreme Court—on the ground that the alleged misconduct was not extreme or pervasive; and a suit by the estate accusing Suzan Hughes of having invaded her late ex-husband’s privacy by hiring now-imprisoned private investigator Anthony Pellicano to spy on him.
(She testified at Pellicano’s trial that she hired him in 1997 to determine if Hughes was cheating on her, and that he played a tape confirming that he was. She denied authorizing Pellicano to wiretap her husband.)
While Suzan Hughes failed in her efforts to remove the trustees, Alexander Hughes convinced Los Angeles Superior Court Judge Mitchell Beckloff two years ago that they breached their fiduciary duties by lending more than $57 million to Tower Park to develop a 157-acre site in Beverly Hills. The judge found that the trustees did so despite knowing that the company’s principal had no formal real estate experience and had personal financial difficulties.
That ruling was affirmed earlier this year by the First District Court of Appeal. The case was transferred there by the state Supreme Court from this district, where Conrad Klein’s wife, Joan Dempsey Klein, formerly served as presiding justice of Div. Three.
Conrad Klein took inactive status in January—at the same time his wife left the court—after 62 years of State Bar membership.
The case ruled on yesterday stemmed from Tower Park’s Chapter 11 bankruptcy filing. A bankruptcy judge approved a plan by which interest rates on the loans—which came entirely from companies owned by the Hughes trust—would be modified, some principal was conditionally forgiven, and $7 million in exit financing is to be provided.
Alexander Hughes claimed that the settlement will cost him about $24 million in wiped-out debt. But the bankruptcy judge approved the plan, and U.S. District Judge George H. King agreed.
Ninth Circuit Judge Jay Bybee, writing yesterday for the panel, said Alexander Hughes cannot appeal King’s decision because “the trustee is the proper representative for the trust in legal actions,” and Hughes failed to show that his claim fits within any recognized exception to that rule.
The jurist did note, however, that the interim trustee is still litigating the validity of the settlement.
The case is Matter of Tower Park Properties, LLC, 13-56045.
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