Lawyer says there was never a finding of Hillbroom’s paternity

Barry J. Israel, one of the former lawyers of Junior Larry Hillbroom, says it is factually incorrect to state that DNA testing established Hillbroom as the son of the late tycoon Larry Lee Hillblom.

In a declaration filed in the U.S. District Court for the NMI, Israel pointed out that there was never a finding of Hillbroom’s paternity in either the probate or guardianship proceedings.

Israel issued the declaration in support of his motion to dismiss Hillbroom’s lawsuit against him.

Hillbroom is reportedly one of the four DNA-proven children of the late business tycoon. He is suing Israel for allegedly conspiring to inflate the attorneys’ contingency fee when Hillblom’s fortune was still undergoing probate proceedings. His complaint states that DNA testing established him as Hillblom’s son.

Hillblom died in a plane crash off Anatahan on May 21, 1995. He left an estimated $550 million to $700 million in assets.

In his declaration, Israel argued that an elaborate and complex procedure was devised by the lawyers for Hillbroom’s guardians to eliminate potential Hillblom heirs so that only those who met an agreed standard would qualify as heir claimants, entitled to share in a part of the Hillblom fortune.

Israel said the reason for this is that they (counsels), including Keith Waibel, had received tax advice warning that if there were a legal finding of paternity, it was possible the U.S. Internal Revenue Service would attempt to tax income of the qualified heir claimants’ trusts as the property of U.S. citizens or residents.

Waibel is the former trustee of Hillbroom’s trust JLH (Junior Larry Hillbroom). Hillbroom also named Waibel as co-defendant for negligence, breach of fiduciary duty, fraud, and racketeering activity. Waibel denied the allegations and filed a cross-claim against Israel.

Israel said each of the qualified heir claimants is from an independent country and therefore would not be taxable in the U.S.

Israel said that Hillbroom is a citizen and passport holder of the Republic of Palau.

“A finding by the IRS that the JLH Trust is subject to United States taxation because of a paternity finding would be undesirable,” he said.

The lawyer said at the time the JLH Trust was set up the government of Palau did not tax passive earnings, unlike the U.S. government.

As a result, Israel said, any income passed to Hillbroom from the JLH would not be taxed if he had no United States connection.

On the contingency fee issue, Israel said that Waibel in the end agreed that he (Israel) would be paid an additional 8.5 percent contingency on the sale of unliquidated assets for his work and on all funds that came into the JLH “prospectively.”

Israel said Hillbroom’s complaint falsely claims that the use of the word “prospectively” in the JLH Trust Fee Agreement relates back to the April 15, 1999, date of the agreement, implying that retroactive payments were made on money already received by JLH.

“They know this to be a false claim. As stated, the JLH Trust Fee Agreement was signed on Guam in July or August 2001 by David Lujan. I never did personally sign the agreement. I was in Southeast Asia and Mr. Lujan signed by name on my behalf,” he said.

Israel said he, Lujan, and Waibel all understood then and know now that the “prospective” payments were to be made from that date.

Israel said the reason for the agreement being dated April 15, 1999, was simple and obvious: He and Lujan were entering into an agreement with a new entity.

“We were being asked to work on the unliquidated assets,” he said.

Israel stressed that the purpose of the 1999 date was only to make clear that the new contingency applied to those unliquidated assets received from the Hillblom estate but not for cash payments on which a fee had already been earned and paid.

“There was no other purpose and I never retroactively received payments on any prior cash distributions,” the lawyer said.