Feud turns into lawsuits over control of Market City firm
By Andrew Gomes
Advertiser Staff Writer
A simmering corporate power struggle involving a popular shopping center and a prominent kama'aina family has spilled into court, where public complaints have been lodged against members and associates of the family of former U.S. Sen. Hiram Fong Sr.
Eugene Tanner • The Honolulu Advertiser
The dispute, local business consultants said, is one of the most troubled involving a Hawai'i family business because it is a multigenerational, multifamily feud over valuable assets.
The courts will settle lawsuits by Marvin Fong, suing his father, former Sen. Hiram Fong; and by a group of shareholders who accuse Marvin Fong and his supporters of misusing company money invlolving Market City Ltd.
The rift also illustrates the importance of succession planning and designating control of a family business as shares pass from generation to generation.
Folded into the dispute are about 80 descendants of Hiram Fong, Mun On Chun and brothers K.K. Chang, Y.K. Chang and Charlie Chang — friends of Chinese descent who nearly 60 years ago pooled their resources to establish Market City Ltd.
Today the business is still a financial success, but many members of the owner families are no longer friends.
Dividing lines are blurred between the three families represented on the board, with factions of Fongs and Changs supporting the Chuns in a minority group trying to take control of the company from a majority of primarily Fong and Chang directors.
Caught up in the litigation is an outsider, director emeritus of the Family Business Center of Hawai'i, a privately financed educational partnership between the University of Hawai'i and family businesses.
The center of contention is Market City, which owns a Kapahulu shopping center by the same name, a retail center in Oregon and other Hawai'i real estate, including an interest in the historic Kress Building in Hilo.
The battle for control could affect the Kapahulu shopping center, home of the first and highest-volume Foodland Super Market, Blockbuster Video, Ben Franklin, Fun Factory and a variety of restaurants and specialty retailers.
Who should run the business and how has been a point of discontent for years, according to Marvin Fong, who has helped operate Market City for 19 years and in November 2000 took over as president from his father, the former senator.
Marvin Fong, the youngest son of three by Hiram Fong, is a key figure in both lawsuits — as a plaintiff suing his father in one case, and as defendant in the other, brought by shareholders trying to oust him and most of his supporters on the board.
Both suits, filed recently in state Circuit Court, aim for control of Market City. The first, filed by Marvin Fong in October, alleges that his father and mother, Ellyn, reneged on an agreement to option their stock to Marvin and his wife, Sandra Au Fong.
The former senator, 96, and his wife are contesting the buyout in court, stating they either did not sign the agreement or did so without understanding the terms.
Shareholder suit
The second suit was filed last month by minority shareholders who allege that Marvin Fong and his wife, who is senior vice president, have mismanaged Market City.
Patrick Chun, son of the late Mun On Chun and chief executive officer of another family business started by his father with Hiram Fong, Finance Realty Co. Ltd., filed the suit on behalf of shareholders owning more than 10 percent of Market City.
Chun alleged in the complaint that Marvin and Sandra Fong two years ago used voting rights from Hiram and Ellyn Fong, plus rewards to other shareholders, to install a board that has allowed the couple to enrich themselves unjustly at the expense of the business.
Among the board majority are Marvin and Sandra Fong, two of Marvin's cousins and three descendants of the co-founding Chang family. In the minority are three other Changs, Chun family members, Hiram Fong Sr. and his eldest son, Hiram Jr.
Merie Ellen Gushi, Hiram Fong's daughter and twin to Marvin Fong, who was on the board for 15 years before being displaced two years ago with her mother, said she also supports Chun's suit.
Chun's suit said that after Marvin and Sandra Fong became Market City's two top officers, they sought to reduce dividends and increased their salaries by 350 to 680 percent, despite an outside compensation consultant's recommendation against raises. Marvin Fong and Patrick Chun's attorney, Charles McKay, both declined to disclose salary figures in dollars.
The suit also alleges the couple bought a Kahala home owned by the company and that the company partly financed the purchase.
Sandra Fong also received a 9 percent commission, amounting to more than $90,000, for brokering the sale of a company-owned property on the North Shore, and a 700 percent retroactive bonus, according to the suit. The amount of the bonus was "six figures," according to McKay.
Marvin Fong said he could justify every action raised in the complaint, which he asked the court to dismiss Tuesday. The court has yet to act on the motion.
The raises and bonus, he said, made up for years of being underpaid at the direction of his father.
Regarding the Kahala home, he said he and his wife bought it at market price and at the suggestion of Patrick Chun after the property sat empty for about a decade.
He said his father had the North Shore property on the market for 10 years and that his wife earned the commission for brokering sale of the vacant 200-acre parcel.
"It's easy to make allegations," Marvin Fong said. "(Patrick Chun) can't prove them. We can justify everything we do."
"The whole thing is control," he continued. "It's crazy. Chun thinks he can run the company better. My dad is 96. He doesn't want to let go. It's a three-way fight for control. If they get control, they're going to mess it up."
Loss of control
Advertiser library photo
Marvin Fong said the center, known for its shortage of parking, became a financial disaster in the early 1980s, with low occupancy and declining rents. He said he, as chief operating officer, and his wife, as vice president, revived profits by starting community events, renovating the center and leasing 100 percent of its space. During the couple's leadership from 1984 to 2002, he said, gross sales increased by 375 percent, though he would not disclose dollar figures.
A photo identifies family members as, front row, from left: Mrs. Hiram Fong Jr. holding daughter Jennifer; former Sen. Hiram Fong and wife Ellyn; their daughter Merie Ellen. Back: Hiram Jr., Marvin and Rodney. Marvin is suing his father and being sued by company shareholders.
Now he fears that if others gain control of the company, they will abandon expansion plans in favor of distributing cash and increasing dividends.
Gushi disagrees. "(The center) could do a lot better if it didn't have its present management," she said.
Hiram Fong Sr. said his son Marvin "doesn't think the right way. He's trying to take over. We're trying to stop him."
The retired senator, until recently board chairman of Market City, declined to say who should run the company. "Those are internal affairs," he said. "It'll work out."
Gushi said she believes that the company can be run fairly only by an independent manager with a board representing family shareholders equally.
McKay, Patrick Chun's attorney, said his client just wants to see the center operated at an arm's-length basis with management earning market-level pay.
Marvin Fong said he would accept court resolution of the family's differences in Market City, but believes the only way peace will be restored is for some shareholders to cash out.
He added that as president he had tried unsuccessfully to resolve differences through private mediation, splitting the company's assets between factions and offering to buy out some shareholders.
"It's personal," he said. "If it were rational, it would have been resolved already. It's sad, because my relationship with my family is very strained."
Jean Santos, vice president of Honolulu-based Business Consulting Resources, said such disputes tend to fracture family relationships forever. "The only thing worse is if the problem leads to financial trouble of the business," she said.
Good landlord
Tenants at the center said the fighting between owners had not outwardly affected upkeep of the center or tenant-landlord relationships.
"They've done a lot to support us," said Lyle Fujioka, owner of wine merchant Fujioka's, which opened four years ago on the back side of the center, then considered a "no-man's land."
"They've done things to enhance the property — no doubt," he said. "It's flourishing."
Dean Matsushima, executive director of four Catch of the Day Sushi restaurants, said the Market City location is the most profitable and center management has been among the best he's known overseeing several restaurant chains.
While the center continues to function, it is clear that internal troubles need to be resolved.
As the only outside director on the Market City board, Ralph Hook Jr. is stunned by the escalation of feuding that made him a defendant in Chun's lawsuit.
Two years ago, before he retired as co-director of the Family Business Center, where Sandra Fong is a member, Hook said he agreed to join the Market City board to help "bring order into chaos." All he can say today is that he wasn't successful.
Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.
Correction: Marvin Fong is the youngest son of former U.S. Sen. Hiram Fong Sr. A previous version of this story incorrectly described him as the elder Fong's middle son.
