Judge Fires Herbalife Heir's Custodian

On Point Legal News/November 13, 2006
By Matthew Heller

Finding several violations of probate law, a Los Angeles judge has ruled that the grandfather of 14-year-old Herbalife heir Alex Hughes should be removed as custodian of a $40 million bequest from the boy's father.

The bequest, originally consisting of two million Herbalife shares, is part of the fortune of Herbalife founder Mark Hughes, which is now worth more than $400 million. His son Alex will inherit most of it when he turns 35.

Mark Hughes, who died in 2000, put most of his assets in a trust and appointed his father Jack Reynolds and two Herbalife executives –- Conrad Lee Klein and Christopher Pair –- to administer it.

Alex's mother, Suzan Hughes, has accused the trustees of mismanagement in various probate court proceedings that one attorney has called the legal equivalent of “World War III.” The trustees have claimed “enormous success” in managing the estate.

But in a recent decision, Superior Court Judge Paul Gutman sided with Suzan Hughes and granted her petition to remove Reynolds from supervision of the $40 million custodial account.

“[T]he custodian, Jack Reynolds, having failed to comply with the requirements of [California] Probate Code section 3912 ... the court intends to order that he be suspended as custodian,” he wrote.

Section 3912 requires, among other things, that a custodian “take control of” and “hold” custodial property. But in July 2005, Reynolds agreed to convert the bequest into a minority interest in an investment partnership controlled by the trust and managed by Klein.

That agreement, Gutman found, “effectively cedes control of the custodial property” to Klein and the Hughes Investment Partnership (HIP) and also violated the Probate Code by commingling the custodianship assets, “the sole property of Alex,” with those of the partnership.

The judge said he intends to order Alex's attorney to nominate three candidates to replace Reynolds as custodian.

After an investor group acquired Herbalife in 2002, HIP distributed $1.95 million in cash to Reynolds for the shares Mark Hughes had left him. “Only the custodianship for Alex was deprived of its distribution,” Gutman noted.

Separately, Suzan Hughes has appealed the dismissal of her sexual harassment lawsuit against trustee Pair.