News for the Hospitality Executive
|By Susan Chandler, Chicago Tribune
Knight Ridder/Tribune Business News
Mar. 22, 2004 - Two separate legal cases are wending their way through the Cook County Court System concerning the same issue: how the $15 billion Pritzker family empire should be broken up among the grandchildren of A.N. Pritzker.
In one case, Liesel and Matthew Pritzker, the youngest grandchildren, allege that they have been wrongly cut out of the family fortune, which includes the Hyatt Hotel empire and a chunk of Royal Caribbean Cruise Lines.
In the other, the rest of the Chicago family is seeking court approval of a so-called family settlement agreement, a plan to give 11 other Pritzker heirs assets worth an estimated $1.3 billion a piece.
Until recently, Liesel, an actress and sophomore at Columbia University in New York, and Matthew, a junior at American University in Washington, D.C., weren't aware of the second case, which has been sealed almost since it was filed two years ago. But now they are, and the pressure is on.
If attorneys for Matthew and Liesel convince Chancery Court Judge Patrick McGann that their trust funds should be restored, the current break-up plan before Chancery Court Judge John Madden won't fly.
So far, Matthew and Liesel think things are going their way.
In 100 pages of "memorandum opinion" issued March 5, McGann knocked down the Pritzker family's strongest arguments as to why emptying the trust funds was legal.
While the judge technically dismissed the case, he provided a detailed blueprint on how Matthew and Liesel's attorneys can best present their case to carry the day when it is re-filed in the coming weeks.
"The opinion gives us a roadmap of how the court wants us to proceed and tells us which facts we need to establish to win the case," said Lazar Raynal, the McDermott, Will & Emery attorney representing Liesel. "We believe we can prove all of those facts."
The lawyer representing Robert Pritzker says he isn't discouraged.
"The court's decision suggests the case will rise or fall on the facts," said Barry Rosen of Chicago law firm Sachnoff & Weaver.
"We are confident the facts will show that Bob loves Matt and Liesel, that he provided very well for them, and that his actions were not only fully authorized by the trust documents but entirely proper and lawful.
Other attorneys representing family members declined comment or did not return phone calls.
The Pritzker clan won a few points of its own.
The judge said Matthew and Liesel were overreaching when they sued 10 cousins who received assets from their trust funds. He dismissed conspiracy allegations against the cousins because they didn't know about the transfers to their trust funds until after the transactions were complete.
But the judge allowed the two to sue on behalf of their trusts for punitive damages in addition to seeking the restoration of an estimated $1 billion in assets in each of their trust funds. He also gave them the green light to seek reimbursement of legal fees if their claim succeeds.
Most importantly, the judge let stand the most serious allegations against Thomas Pritzker, chairman of Hyatt Corp.; his uncle Robert Pritzker, the former head of the family's $6 billion Marmon Group conglomerate; and Marshall Eisenberg, the family's longtime adviser.
"The trustees were hard hit," said James Lindgren, a professor at Northwestern University Law School who specializes in trusts and who reviewed the judge's opinion at the Tribune's request.
"It seems the facts, if proved, tell a pretty powerful story on their own. The question is whether the trustees' discretion was broad enough to allow them to do what they did. In trust law even 'absolute discretion' is not usually absolute. It must be exercised in good faith for the benefit of the beneficiaries."
At the heart of the case is whether Matthew and Liesel's father, Robert Pritzker, violated his fiduciary duty as trustee of their trust funds when he virtually emptied the funds in the mid-1990s during bitter post-divorce squabbles with his second ex-wife, Irene Pritzker.
Thomas Pritzker, the current head of the family business empire, and Eisenberg are accused of violating their fiduciary duties by stepping aside as co-trustees of Matthew and Liesel's trusts when they learned what Robert planned.
At the time, Robert Pritzker was outraged to read in the newspaper about his young daughter's starring role in an upcoming Hollywood movie, "The Little Princess," court papers show. He also was upset about Liesel's purported antipathy toward his new wife.
The assets in some trust funds were given or sold at below market prices to trust funds belonging to Matthew and Liesel's cousins and half-siblings from Robert Pritzker's first marriage.
In one set of trusts known as the P.G. Trusts, Robert donated the children's combined 10 percent share of Hyatt stock to the Pritzker Foundation. The other 11 trusts made no such contribution.
If Matthew and Liesel can prove that Thomas Pritzker knew Robert planned to empty the trust funds, the judge said, they have gone a long way toward proving their case for breach of fiduciary duty
Liesel's attorney says he can do just that.
In arguments before McGann last month, Raynal speculated that Robert Pritzker told the trustees bluntly, "You know what? I want to empty out my kids' trust." They replied, "I don't want to do it, you do it."
"And they hand [Robert] the pen," Raynal said.
In his opinion, McGann indicated that Raynal's argument had struck home.
Reasonable people must ask, the judge wrote, "Why, more than 30 years after the P.G. Trusts were created, does Robert Pritzker have an interest in becoming a co-trustee?"
Next step: depositions
Now that the judge has refused to dismiss the lawsuit, the case moves into the discovery phase. That means attorneys for Matthew and Liesel soon will begin taking depositions from Pritzker family members, something family members fervently had hoped to avoid.
Their attorneys also will be able to request a copy of the family settlement agreement, a document Pritzkers attorneys have guarded so jealously that it has not been admitted into evidence before Judge Madden, where it is the centerpiece of the sealed case.
Such prospects might give the Pritzker family incentive to settle with Matthew and Liesel, but no overtures have been received so far.
Lessening the chances of an amicable settlement are the fissures that have developed in the family in recent years, sources close to the case say.
One only has to look at the array of lawyers on the family side to see that, they add.
Dan Webb, the Winston & Strawn attorney representing Matthew, doesn't expect settlement talks any time soon.
"When I first got involved in this case, I made a sincere and sustained effort to settle," Webb said in an interview. "Those settlement discussions failed, and nothing has changed since then. I have no indication anything will change now."
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