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Tuesday, May 17, 2022

Herbalife Heir Makes a Case for $400M Trust

Ever since he was in grade school, Alex Hughes has been at the center of one of L.A.’s most contentious battles.

Alex was only 8 in 2000 when his father, Herbalife founder Mark Hughes, died and left a $400 million trust for his only son to inherit at 35.

But in the decade since the death, Mark’s divorced wife, Suzan, has fought to get more money from the estate. Since she’s gotten little, in her view, she’s waged a multimillion-dollar legal battle to replace the trustees charged with overseeing her son’s money.

Trustees hoped that the battle would stop or slow when Alex became a legal adult at 18. But now 19, he appears to have joined his mother and renewed the fight, reinforcing its status as one of the county’s largest, longest and most bitter trust and estate cases.

In December, Alex filed documents affirming that he will pursue his mother’s legal actions against the trustees. Last month, he applied for an order to have the trustees suspended for allegedly misappropriating money.

Conrad Lee Klein, one of the three trustees, said the actions indicate there’s no end in sight for the dispute, which has dragged on since 2002. He estimated each side has spent more than $10 million in legal fees.

“It’s no more pleasant now than it was before,” said Klein, a solo practitioner who was personal counsel to Mark. “I had the hope that when (Alex) became an adult and went away to college, that it would resolve itself, that he would have the opportunity to see the world through his own eyes.”

Alex’s attorney, Eric Rowen of Greenberg Traurig LLP, disputes the idea that his client is prolonging the case. He said Alex would not comment.

“I don’t believe (Alex) views himself in any respect as perpetuating disputes that existed between the trustees and his mother,” Rowen said. “He has reached the age of maturity and he is taking a fresh look at everything.”

In any event, the long-running case is a morass. There are more than one dozen outstanding legal issues, including two pending petitions for removal of the trustees. Most of them stem from Suzan’s, and now Alex’s, belief that the trustees have not more generously distributed money on a discretionary basis. In response, the trustees say they are prevented from communicating with Alex to make sure what the payments are for.

But there are other disputes as well. She claims the trustees are not good stewards; they agreed to pay a lender $12 million to settle a separate legal matter, which she believes was too much. She claims the three trustees have a financial stake of their own. They currently are splitting between $700,000 and $1 million a year in fees from managing the estate.

So far, the trustees have managed to hold on to their positions, despite the sometimes nasty fight, though one resigned under pressure in 2006 as the custodian of a separate $40 million account for Alex. Suzan had alleged he made an improper investment.

Among the other ugly charges: Suzan tried to remove trustee and former Herbalife Chief Executive Christopher Pair by claiming that he sexually propositioned her, but she ultimately lost that case in California Supreme Court last year. Also last year, during a hearing regarding attorneys’ fees, she testified that she believed Klein to be complicit in her ex-husband’s death, which has been ruled by authorities to be the result of an accidental overdose of alcohol and antidepressants.

Repeated attempts to reach Suzan for comment were unsuccessful. A call to Suzan Hughes Enterprises, a company run by her, was not returned.

Edward Woods, an attorney at Century City-based Browne Woods George LLP who represents the trustees, called it one of the most unpleasant battles he’s handled.

“I know of very little litigation that isn’t nasty to begin with,” he said. “But this is litigation that has been filled with wild and unsupported charges.”

Rags to riches

The fortune at issue was amassed by a man armed with only a ninth grade education. Mark founded Herbalife in Los Angeles in 1980, selling weight loss products out of the trunk of his car. By the time of his death, sales had reached nearly $1 billion a year.

He married Suzan, his third wife, in 1987. The two divorced in 1998. At the time of his death, the two shared custody of Alex. Afterward, Alex spent all of his time with his mother in her Beverly Hills home.

Upon Mark’s death, his wealth was transferred into a trust overseen by Klein; Pair; and Jack Reynolds, who was Mark’s father (Mark took his mother’s surname). The trust is to be turned over to Alex when he turns 35.

Mark also put Reynolds in charge of a separate custodianship, now estimated to be worth between $40 million and $70 million, to be handed over to Alex when he turns 25. At that age, Alex also will begin receiving annual payments topping $1 million a year, one-third of the $400 million trust’s annual income.

Two years after Mark’s death, Herbalife was sold after an unsuccessful attempt by Suzan and other investors to buy the company. Now, none of the parties of the legal dispute has a stake in the company. But the trustees claim the failed deal is what spurred her to begin her legal actions. That year, Suzan filed the first of many petitions to remove the trustees. The underlying theme of the petitions has been that the trustees take a hostile position toward any requests for money.

She has alleged further improper behavior. Although she lost her sexual harassment lawsuit against Pair, she succeeded in removing Reynolds from the custodianship for an allegedly inappropriate investment. In 2006, Reynolds resigned as custodian after a preliminary ruling by a judge suspending him for investing that money into an investment partnership controlled by the trust. He remains a trustee of the big trust.

Despite some legal setbacks, Klein, the other trustee, dismisses Suzan’s charges as unsubstantiated.

“I treat these actions to remove us as background static,” he said. “They have no basis in fact and they have no basis in law.”

Acting on his own?

Klein claims the trust had paid the mother and son more than $200,000 a year, although he acknowledged that most of that is required under Suzan’s divorce agreement. The settlement requires that she be paid $10,000 a month in child support and about $80,000 a year for taxes and insurance on her home, in addition to money for Alex’s medical bills and tuition.

The trust also has paid for the rental of a summer home in Malibu, winter vacation and travel expenses to visit colleges. Currently, there are no requests for tuition and other payments, and the child support payments stopped when Alex turned 18, so she’s getting relatively little.

Despite the lack of communication, Woods, the trustees’ attorney, said he was hoping Alex would be more open to a settlement than his mother, although he hasn’t “seen anything to indicate he would be more willing.”

Woods also said it was possible that when the $40 million-plus custodianship is handed over to Alex at 25, he may drop the fight.

But the trustees wonder if Alex is acting on his own.

“I don’t know whether he’s doing it or his mother is pulling puppet strings,” Klein said. “I recognize statements by Alex in documents that were statements made in the past by Suzan.”

Woods also expressed doubts.

“I think it’s reasonable to conclude based upon what he’s done since he turned 18 that he’s still pretty much following the lead of other people, as opposed to acting truly independently,” he said.

Rowen, Alex’s lawyer, shot down any notions that his client isn’t his own man.

“That’s been their mantra,” he said of the trustees. “We don’t take marching orders from Suzan. Alex is a grown young man now who is looking at analyzing things from his own perspective and in order to protect his own interests.”

He also was more optimistic that the legal issues would not linger for years. He noted that a new judge, Mitchell Beckloff, took over the case in Los Angeles Superior Court last year and has made it clear he wants to hurry things along.

“I do think it’ll be resolved,” Rowen said. “We have a new judge and Alex is a new player in this circle.”

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