Feud leads to Chapter 11
By Andrew Gomes
Advertiser Staff Writer
A long-running family dispute between brothers who own McCully Shopping Center and other commercial property on O'ahu has led the Marn family partnership McCully Associates LP to seek bankruptcy protection.
Gregory Yamamoto • The Honolulu Advertiser
The Chapter 11 filing earlier this month is the latest legal move in what has been more than five years of litigation between Marn family members who also own the Iolani Regent apartment building, the ground under a Kaimuki 7-Eleven and other Hawai'i real estate.
The McCully Shopping Center is among the feuding Marn family's holdings. A bankruptcy attorney and court-appointed receiver say the center is doing well financially.
Jerrold Guben, a local bankruptcy attorney representing McCully Associates, said the filing was made to block any attempt to auction the company's assets, which late last year were put under control of an independent receiver appointed by a state Circuit Court judge.
But the receiver, Thomas Hayes, said the bankruptcy motion, which automatically puts the civil litigation on hold, is a desperation move by Marn family members losing ground in the state court battle.
"It is a last-gasp kind of move," Hayes said. "There's no reason for (McCully Associates) to be in bankruptcy. Our goal will be to get it out."
Guben and Hayes said the company and the shopping center are doing well financially and will continue normal operations.
The civil court dispute was initiated in December 1998 when James Yee Marn sued his brothers, Alexander Yee Marn and Eric Yee Marn, over the operation of McCully Associates, which is equally owned by the three brothers and the estate of their deceased sister, Annabelle Yee Marn Dunn, through various trusts and another family company, Ala Wai Investment Inc.
James Marn alleged that his brothers, who were the top officers of McCully Associates, had been misusing company assets for their personal benefit.
In the suit, James Marn alleges that the company paid at least $80,000 in life insurance premiums for Beatrice Marn, the adopted sister of the three brothers, while the company was not a beneficiary of the policy and Beatrice was not a partner in the company.
Other improper company expenditures, according to the suit, included paying for a company car, country club membership and fees for accounting and legal services used in part for the personal benefit of Alexander or Eric Marn.
James Marn also took issue with the company contributing $3,800 to the Chinese Chamber of Commerce for the Narcissus Festival, giving $5,000 to Punahou School to continue the "Marn Quartet" and making a $500,000 loan to another Marn family partnership.
Alexander and Eric Marn in court filings defended their use of company money. They said it is not wrong to make the life insurance payments and that the car, country club and professional fees were business related. They also said the loan is earning the company interest and that the charitable contributions indirectly benefit the company as a good corporate citizen.
Alexander Marn said he preferred not to comment beyond what has been filed in court. Michael Freed, an attorney representing James Marn, also did not wish to comment on the case.
The suit — one of seven ongoing between Marn family members and companies — has led to fights for access to McCully Associates records and has resulted in sanctions against Alexander and Eric Marn for not complying with orders from Judge Virginia Crandall, who in October appointed Hayes to take control of McCully Associates.
Under authority of receivership, Hayes removed officers and directors of McCully Associates and said the only asset he intends to sell is a company-owned duplex in the Moanalua area to raise money to pay fees associated with the litigation, including expenses of a previous business master in the case.
Alexander and Eric Marn were able to place McCully Associates in bankruptcy because under bankruptcy rules only the general partner of a limited partnership such as McCully Associates can voluntarily file for bankruptcy. Alexander and Eric Marn operate Ala Wai Investment, the general partner of McCully Associates.
McCully Associates has estimated assets and debts both ranging from $10 million to $50 million. More precise figures are expected to be disclosed later. The largest creditor of the company is Bank of Hawaii, which has a mortgage on McCully Associates assets.
The company is disputing about $420,000 in unsecured claims largely for legal fees related to the civil litigation and property management fees.
McCully Associates developed the shopping center at McCully Street and Kapi'olani Boulevard in 1986.
Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.
