Law firm's representation becomes tangled between wealth manager and family fortune
By Heather Cole
The Daily Record Newswire
ST. LOUIS, MO - When investment adviser Jay Hegeman needed a lawyer for some transactional work, he knew whom to call. From his days as a banker at First National Bank of St. Louis, he remembered the name Salivar & Harms.
Fourteen years, and almost as many suits, countersuits and bar complaints later, the firm's principals might wish he hadn't. Since riding the tiger of their association with the wealth manager, David Salivar and Joe Harms II have expressed regret, remorse and the willingness to accept probation on the prospect of having their licenses suspended.
The epic journey that brings them nearer and nearer an as-yet-unscheduled disciplinary hearing has its origins in the ancient herb from which a Chinese-born scientist derived both a miracle drug and a family fortune. As those assets dwindled from $210 million to about an eighth the size, most of the losses occurring under Hegeman's oversight, the legendary fortune spawned legendary litigation.
Eventually Salivar and Harms entered that gravitational field. Their transactional work got more complicated, and so did their client relationships, not just with Hegeman but also with the heiress who hired the money manager and then sued him. They ended up representing her in a suit against Hegeman who, in turn, sued his former attorneys for malpractice.
It all makes the pending Salivar and Harms disciplinary cases a cautionary tale about how complicated transactions involving many millions and multiple parties can create complications of their own.
The swirl of events has drawn in two other attorneys: Christopher Hunter, an attorney who affiliated as of counsel with Salivar & Harms, and Thomas Manns, who represented Hegeman in related litigation. Hunter also faces a discipline case; Manns is named as a defendant in the legal malpractice lawsuit.
None of the attorneys responded to a reporter's phone calls. A.J. Bronsky, a Brown & James attorney representing Manns, and Daniel Tobben, a Danna McKitrick attorney representing Salivar and Harms in the malpractice lawsuit, declined to comment.
A fortune's founding
The fortune at issue is that of Dr. Amy Ling Chen, the daughter of an imperialist Chinese scribe and widow of world-renowned Eli Lilly & Co. pharmacologist Dr. Ko Kuei Chen.
They both immigrated from China and studied in the United States. They married in 1929 and began to work at Eli Lilly in Indianapolis a few weeks after their wedding, according to a book written by Sasha Su-Ling Welland, one of their granddaughters. K.K. Chen was the company's first director of pharmacological research, and Amy Chen was a researcher in the department.
K.K. Chen isolated ephedrine from a Chinese herb, then took its chemical structure and synthesized it, Dr. Thomas Chen, their 80-year-old son who is a retired surgeon, said in a phone interview from Stockton, California.
K.K. Chen received Eli Lilly stock options and purchased shares for himself and Thomas, according to Welland's book, "A Thousand Miles of Dreams." When Amy Chen learned about the purchases, she met with the president of the company and asked to buy the same number of shares for herself and the Chens' daughter, Mei.
K.K. Chen held onto the stock, which split seven or eight times, for 50 years, Thomas Chen said. Amy Chen ultimately had 2 million shares after K.K. Chen's 1988 death.
Melted away
Mei Chen, who became Mei Welland when she married a University of Missouri-St. Louis mathematician, met Jay Hegeman in 1993 when he was a senior vice president at First National Bank and she was buying rental property as an investment, according to the court pleadings.
By all accounts in court documents, the two had a close relationship. Welland eventually turned to Hegeman for investment advice, and he made recommendations on moving the Chen family assets several times starting in 1998.
Hegeman in 2000 became the main adviser on the assets. Before he struck out on his own in that role, he called on Salivar & Harms - whose partners each had more than 25 years' experience in complex business, commercial real estate and estate planning matters - for help. Familiar with the firm from his time at First National Bank, Hegeman hired Salivar & Harms to draft articles of organization and an operating agreement to form Yorktown Investments, an investment advisory firm. The firm also aided with developing strategies for registered investor adviser agreements, according to documents in the discipline cases.
The next year, Salivar & Harms drafted and completed estate planning documents for the Hegemans. Hegeman didn't call on the attorneys for the next four and a half years, but the firm came to mind after Amy Chen passed the century mark.
At that point, Welland's estate planning attorney Kimberly Springer advised Amy Chen and Welland that transferring control of the assets would allow them to reduce estate taxes, according to Hegeman's pleadings. (Springer didn't return two phone calls).
Salivar & Harms' role was to create the vehicle, a corporation called Ninety Three LLC, named after the year Welland and Hegeman met. The corporation was funded by the Chen fortune, and a Chen family partnership had a 49 percent interest in the profits from investments. Yorktown and another company owned by Hegeman had a 51 percent interest.
The change in control helped save the family $10 million in taxes when Amy Chen died in November 2006, Hegeman claims in court documents.
But by the time Salivar incorporated Ninety Three, only about $27 million remained of the Chen fortune. The rest had melted away in investment and tax losses. In later litigation, Hegeman said a decline in Eli Lilly's stock price before he started monitoring the investments cost the portfolio $70 million to $80 million. Welland claimed Hegeman's advice and oversight was the responsible for the loss of more than $125 million.
Harms and Salivar, meanwhile, emphasized in their responses to the discipline cases that they never provided investment advice nor had any information about what was happening with the assets.
Reached by phone, Welland declined to comment for this story. "I don't think it would be the right thing to do at this point," she said.
Hegeman couldn't be reached by phone and didn't respond to an emailed request for comment. Francis Pennington III, one of his attorneys, said in an email that they will let filings in the legal malpractice lawsuit and a counterclaim in Welland's lawsuit "speak for themselves."
Chen's death let loose a storm of litigation. "The Chen [cases] were the most hyper-intense, all encompassing, intellectually challenging, high stakes, cutthroat, hotly contested, stupefyingly complex and insidiously acrimonious litigation they have ever been involved in," Thomas Lang noted in disciplinary defense pleadings on behalf of Salivar & Harms' Joe Harms.
Central to that litigation was the probate suit Mei Welland filed against her brother Thomas Chen. "When we read the will and we discovered how much money we lost, we started investigating," said Chen, who brought in lawyers from Lathrop & Gage. "Then my sister filed suit [against me] for not cooperating for the closing up of the estate."
Strained loyalties
Less than a year after that first lawsuit was filed in St. Louis County Probate Court, conflicting loyalties started to pull at Salivar & Harms attorneys. The firm, which had formed corporations and done promissory note and real estate work for Ninety Three, agreed in August 2007 to represent Hegeman in potential litigation Chen would bring against the corporation, according to Hegeman's lawsuit against his employers. They also agreed to represent Welland and, in October, asked Hunter to help represent her, according to Hunter's response to the discipline case against him.
They didn't have long to wait for Thomas Chen's claims. Lathrop & Gage attorney Barry Haith filed a counterclaim to Welland's lawsuit for Chen in February 2008.
Hegeman and his companies were never named in that case, Harms said in discipline filings, but the firm's representation became tangled nonetheless. Salivar & Harms attorneys, who continued corporate work for Ninety Three and represented Hegeman in a personal dispute with a plumber, advised Hegeman to hire another attorney for depositions in the probate case, their filings in their discipline cases said.
Hegeman hired St. Louis area attorney Thomas Manns and testified in an August 2008 deposition that Manns was his lead counsel, though Salivar also represented him in the deposition, the answers said. Hegeman, in his malpractice lawsuit, said that Manns throughout the litigation "served in little more than a tangential role."
The conflict issues kept cropping up as Salivar & Harms attorneys tried to beat them down. Chen's attorneys filed a motion to disqualify the firm. That was addressed in early September 2008 by an agreement to let Harms withdraw from the case. Salivar & Harms, in turn, agreed not to do corporate work for Ninety Three or its subsidiaries unless they were working with Chen's lawyers, according to online court records.
Harms' discipline answer said this was to allow him to be deposed on the question of whether he and Salivar represented or communicated with Chen or Welland about the organization of Ninety Three and its subsidiaries, which they hadn't.
Later that month, Salivar also sent Hegeman a letter about a "potential" conflict of interest because his firm represented Welland in the probate case and Hegeman in the deposition, according to the discipline case against Harms and Salivar. Hegeman agreed, in writing, to let the firm keep representing him in current and future litigation.
Less than two weeks later, after Chen's lawyers unsuccessfully tried to convince Welland to join in a lawsuit against Hegeman and his companies, Chen sued his sister, Hegeman and the corporate members of Ninety Three in St. Louis County Circuit Court. Salivar & Harms represented Welland and was co-counsel with Manns in representing Hegeman, according to the discipline cases against them.
The cases were purportedly resolved after nearly 12 hours of negotiation in a since-disputed verbal settlement commemorated only in the court transcript of a March 3, 2009, hearing. The cases were consolidated after the settlement, according to disciplinary documents. Manns was counsel of record for Hegeman at the hearing.
Under the agreement, Chen would get $3.8 million. Hegeman, meanwhile, for two years would lose control over Ninety Three and be banned from taking draws on profits. To compensate for the loss of his livelihood, Hegeman claimed, Welland agreed to pay him $30,000 a month for those two years.
Welland never agreed to the monthly salary, Salivar said in his discipline case. Even so, it was a good result for Hegeman, who was released from claims that could have resulted in a judgment of tens of millions of dollars, Salivar's filing said. Experts hired in the Chen litigation said the portfolio would have been worth $126 million in December 2008 had it remained intact with gains, dividends and interest reinvested, according to Salivar's answer.
"I'm done and I'm out and I don't have to deal with the people anymore." - Thomas Chen
Thomas Chen finished with the litigation in May 2013, after the parties reached an agreement in appeals court. Chen got about $400,000 on top of the original $3.8 million in the agreement outlined in the court transcript, he said.
"I'm done and I'm out and I don't have to deal with the people anymore," Chen said.
'Hoodwinked'
While the dispute over the March 2009 agreement still brewed, Hegeman hired a new attorney, Paul Simon Jr. of Sauerwein, Simon & Blanchard, to represent him.
In November 2009, Simon sent an email to Salivar & Harms raising concerns about conflicts of interest, according to filings in the three discipline cases. He followed it with a letter the next month.
But the email and letter also used the allegations as a lever to push for Welland to pay Hegeman the $30,000 a month for two years she allegedly had promised, according to Harms' and Salivar's answers to the discipline cases. If she paid, "Jay would not have to unnecessarily force Mei to retain new counsel," the email said. The letter had similarly implied that all other issues would disappeared if Welland paid up, the two attorneys' discipline answers said.
The documents also allege that Simon told Harms, Salivar and Hunter in 2010 that Hegeman had information that "would be very damaging to Mei," but if Mei honored the agreement, he wouldn't disclose it. The attorneys asked for details, but Simon wouldn't provide any, the answers said.
Simon told a reporter via email that he had been subpoenaed to testify before the disciplinary committee, and did so truthfully. But because the disciplinary cases and malpractice lawsuit are pending, it wouldn't be prudent to comment, he said.
Then Salivar took the step that he later recognized as a potentially devastating mistake.
In January 2011, Welland sued Hegeman, his wife, and his companies in St. Louis County Circuit Court. With Salivar and Hunter signing the pleadings, the complaint said Hegeman was "motivated by unabashed avarice and fueled by having gained Mei's [Welland's] trust in 1999, Hegeman hoodwinked Mei to engage him," to manage investments, despite having "not even a scintilla of relevant credentials."
About four months later, Sauerwein Simon lawyers filed a motion to disqualify Salivar, other Salivar & Harms attorneys and Hunter from representing Welland in the lawsuit against Hegeman.
The motion quoted Salivar's September 2008 conflicts of interest letter to Hegeman. The letter said the Salivar & Harms attorneys were prohibited from representing Welland in any claims against Hegeman, according to the motion.
The attorneys "have represented EVERY individual and entity currently listed in the caption of this litigation," according to the motion filed by Sauerwein Simon attorneys.
The attorneys "have represented EVERY individual and entity currently listed in the caption of this litigation." - motion filed by Sauerwein Simon
Salivar was devastated when the motion landed in Salivar & Harms office, he told a disciplinary committee in October 2012.
"It's, oh, my God, what what is this, what did we miss here, what mistake did we make?" Salivar said, according to a committee document.
In his answer to the document, Salivar said via his attorney that the quote was accurate, but was taken out of context.
About two weeks after the motion was filed, Salivar emailed Hegeman's attorneys, saying he, his firm and Hunter were withdrawing from representing Welland.
Hunter and his attorney, Michael Downey of Armstrong Teasdale, didn't return phone calls. In discipline filings, Downey said Hunter had never knowingly represented Hegeman or his companies in anything connected to the Chen family; that Salivar & Harms represented only Welland in the lawsuit filed by Chen in circuit court, though the defendants cooperated in their defense; and, as an "of counsel" with a separate law practice, Hunter didn't believe Salivar & Harms' client relationship with Hegeman also would be credited to him.
Salivar and Harms, though outlining extenuating circumstances, also were apologetic. Their answers to discipline documents say that their professional judgment was compromised by a number of factors, including the nature of the Chen litigation.
Each attorney "profoundly regrets his violations and is truly remorseful," the answers said. The two are willing to accept probation on a suspension of their licenses.
Any suspension without a hold on it for probation would damage their practices and could end the careers of the attorneys, who are in their 60s, according to their answers to the discipline cases, submitted by Clayton attorney Thomas Lang. Lang couldn't be reached for comment.
Published: Fri, Sep 05, 2014
