Widow, trustees battle over $100 million estate

Sunday, February 28, 1999

Widow, trustees battle over $100 million estate

Charles H. Dater wanted to leave a legacy to Cincinnati. He didn't count on a struggle over his fortune.

Charles H. Dater.
| ZOOM |

For a man with a multimillion dollar fortune, Charles H. Dater kept a pretty low profile. He lived in a modest, two-story house on Cincinnati's west side and rarely traveled because he thought airline tickets were too expensive.

He complained about taxes, avoided making loans to friends and meticulously recorded his transactions in an old, leather-bound ledger.

And when he went out to dinner, usually to Frisch's, he never tipped more than 10 percent.

“He counted it out exactly,” recalls his widow, Ann Dater. “He was very careful with his money.”

But just six years after his death, the money Charles Dater guarded so closely as his legacy to the community is mired in a legal battle over accusations of mismanagement, deception and fraud.

At issue is more than $100 million that is now divided into several trusts and one of the largest charitable foundations in Greater Cincinnati.

The fight is taking place in Hamilton County Common Pleas Court, where Mr. Dater's widow has accused two lawyers and three investment brokers of raiding her husband's life savings after convincing the elderly man to give them control over his assets.

In her lawsuit, Mrs. Dater claims her usually frugal husband signed away the fortune of one of Cincinnati's oldest families while suffering from Alzheimer's disease and chronic dementia.

At various times, the lawsuit states, her husband thought his Cincinnati hospital room was in Kansas, San Diego, London or Japan during World War II.

Documents filed with the lawsuit also show that Mr. Dater routinely signed checks at his nursing home, including payments to the defendants. The payments, most of which were for fees, eventually totaled more than $4 million.

With the stroke of a pen, Mrs. Dater said, the family's 170-year legacy was lost to “bandits.”

“They helped themselves to Charles' money,” said Mrs. Dater, who says she wants to end the defendants' control over the money, not the foundation or the work it does.

DATER DONATIONS

The Charles H. Dater Foundation provides grants to charities throughout the community. From 1996 to 1997, it donated more than $2 million to charities including:
• YMCA Clippard Family Branch — $110,000
• Children's Museum Project — $100,000
• Greater Cincinnati Foundation, children's programs — $90,000
• Cincinnati Arts Association — $80,000
• Children's Hospital programs — $67,000
• Cincinnati Scholarship Foundation — $50,000
• Tom Geiger Guest House — $50,000
• Inner City Youth Opportunities — $40,000
• Starfire Council of Greater Cincinnati — $40,000
• Emmanuel Community Center Urban Ministries — $35,000
• Cincinnati Chamber Orchestra — $35,000
• Purcell Marian High School — $30,000
• Bethany House — $25,000
• Cincinnati Association for the Blind — $30,000

But the defendants' attorneys say Mr. Dater was of sound mind when he hired their clients to manage his estate.

They argue that the brokers — Stanley Frank Jr., David Olberding and John Silvati — are responsible for dramatic growth in Mr. Dater's financial portfolio.

And they say Mr. Dater's lawyers — the late Paul Krone and his son, Bruce — helped build a charitable foundation that benefits causes ranging from Children's Hospital Medical Center to the Cincinnati Opera.

If Mrs. Dater succeeds, they say, she could claim millions of dollars for herself.

“She's been getting huge amounts of income,” said Joseph Dehner, the attorney for the three brokers. “I guess now she wants more.”

He also noted that Mrs. Dater cannot argue many of her claims at the trial in May because a judge has ruled she should have argued them years ago in probate court. Mrs. Dater has vowed to appeal that ruling.

No matter who prevails, both sides agree the case is an extraordinary struggle that could affect thousands of people throughout Greater Cincinnati.

It is, they say, the kind of struggle that the intensely private Mr. Dater spent a lifetime trying to avoid.

The quiet millionaire
Charles Dater's wealth has its roots in a Western Hills farm his family founded after arriving from Germany in the 1830s. His ancestors turned the place into a thriving business and, decades later, co-founded the old Stockyard Bank.

As the only direct descendant of the original Daters, it was Mr. Dater's responsibility to watch over the family fortune.

Mrs. Dater said her husband took the job seriously: He didn't spend on luxuries and he shrewdly invested his inheritance in companies such as IBM and Procter & Gamble.

When she became his third wife in 1972, Mr. Dater told her he didn't want anyone to know he was a millionaire.

“Don't talk about my money,” she recalled him saying. “Don't tell anyone how much I have.”

FAMILY HISTORY

The Dater family began amassing its fortune almost as soon as it arrived here from Germany in the 1830s.

The family farm in Western Hills was a thriving business and, during the Civil War, it became a profitable winery. Charles H. Dater's grandfather, Gilbert, invested the money in hundreds of acres of land in Kansas, which he eventually sold for five times what he paid for it.

Mr. Dater's father, Charles Sr., was a frugal man who continued to expand the family's wealth. As one of the founders of the old Stockyard Bank, his family joined contempories such as the Kahns and the Krogers as business pioneers in Cincinnati. Mr. Dater shared his father's business acumen, shrewdly investing in up-and-coming companies like IBM and Procter & Gamble.

Based on Dater family history provided by Ann Dater

Mr. Dater kept track of it all by duly noting every dividend and interest payment in his ledger. But by 1985, Mrs. Dater said, her husband noticed his math wasn't adding up. He was making mistakes.

Months later, Mr. Dater decided to remove his assets from the Central Trust Co. and appoint Mr. Krone as trustee.

At a meeting to discuss the move, Mr. Dater described the new arrangement as “more practical.” According to a transcript of the meeting, Central Trust officials cautioned him that an individual trustee would have tremendous control over his assets.

“I know you disagree with me, but I think you are taking a very large step, and I would have to say that I think you are making a mistake,” Cortland Meader, then-manager of the company's trust department, said in the transcript.

“Well, I hope I am doing what is right,” Mr. Dater said later in the meeting. “I don't know.”

During the next few years, Paul Krone would place the assets into a trust to provide income to the Daters and to Mrs. Dater's child from a previous marriage.

Since Mr. Dater had no children of his own, he also created the foundation to carry on the family name. “He's the last of his family,” said Leon Weiss, attorney for Bruce Krone. "His memory is being perpetuated through the foundation.”

A "conduit for theft'
The problem, Mrs. Dater said, is that a 1990 amendment to the arrangement could entitle the five defendants and their families to a lifetime of income from her husband's estate.

Most surprising, she said, is a clause in the trust agreement that allows the defendants' relatives to inherit their paid trustee positions when they die, as did Paul Krone's wife, Dorothy, following his death in 1995.

While it is legal, the trustees' attorneys acknowledge the structure is uncommon.

“I'd say it's unusual, but not completely unheard of,” said Mr. Dehner, whose clients would not comment on the case.

The lawsuit contends the clause also entitles the defendants' successors to inherit annual attorney or advisory fees as high as $200,000.

Mrs. Dater's lawyer, Quintin Lindsmith, wrote in the lawsuit that the benefit continues as long as the successors “are willing to accept such income.”

In addition to their jobs with the trust, the lawyers and brokers also became trustees for the foundation. State records show each was paid a $70,000 salary in 1997 for working six hours a week.

According to the Council on Foundations in Washington, D.C., most foundations do not pay their trustees. Of those that do, the average salary for one the size of the Dater foundation is about $14,300.

Mr. Lindsmith argues that the documents appointing the defendants as trustees were signed when Mr. Dater was mentally incompetent.

He also has questioned the many fees that were paid to the defendants during the same period. At a recent court hearing, he suggested that Mr. Dater's “senile brain” was a “conduit for theft.”

“During this very period ... of extreme disability, checks are being written to the defendants in extraordinary amounts,” Mr. Lindsmith wrote in one of his court filings.

Records he filed with the lawsuit show that the defendants collected fees for their work as attorneys, investment advisers, brokers, trustees, tax planners, executors and for other services identified only as “extraordinary.”

The more than 50 checks bearing Mr. Dater's signature ranged in size from a few hundred dollars to about $60,000. Most were for between $5,000 and $20,000. Mr. Lindsmith said the checks reveal Mr. Dater's poor physical and mental condition.

“The handwritten signature of Charles Dater is virtually unintelligible,” he wrote in a recent motion. “It is apparent he can barely hold the pen.”

“This is what Charles wanted. It was Charles' money, not Ann's or anybody else's,” he said. “It was he who said this is how it should be allocated and spent.”

"Progressive dementia'
Mr. Lindsmith, however, contends that medical records he submitted with the lawsuit support Mrs. Dater's claims.

Excerpts of those records show that in 1988, before most of the checks were written, a doctor concluded that Mr. Dater had suffered minor strokes and was afflicted with “progressive dementia.”

After his admission to a nursing home in 1991, the records note that Mr. Dater was “disoriented,” “restless” and so confused that he sometimes was placed in restraints to prevent him from wandering.

On Dec. 28, 1992, the lawsuit states, Paul Krone signed a form declaring “Charles Dater incompetent to make informed medical decisions.”

One week later, case records show, Mr. Dater signed four checks to the defendants totaling $85,000.

On several occasions, the medical records describe Mr. Dater as suffering from seizure activity and as being “disoriented to time and place.” They include:

• December 1991: “States he is in London, England ... States he is in San Diego and it's 1948.”

• February 1993: “States he is 49¹/₂ years old and was born in 1912; he states that this is 1939. He feels that he is now in Kansas in a place where they examine people.”

Mr. Dehner said the excerpts do not paint an accurate portrait of Mr. Dater's state of mind. “You read a few of those and you conclude the guy couldn't tie his shoes,” he said. “You read the whole record and that's not the case.

The records do note that the degree of Mr. Dater's confusion would fluctuate from day to day.

They also mention that Paul Krone frequently visited Mr. Dater and was “very attentive to patient needs,” on one occasion even stopping by to drop off Christmas presents.

“Paul had a close relationship with him,” Mr. Weiss said. “Mr. Dater had no family. Mrs. Dater was not in town.”

Mrs. Dater, 81, said she was in Arizona for health reasons during most of her husband's hospitalization. “I was between a rock and a hard place,” she said. “I wanted to get well so I could take care of him.”

"A lot of money'
Following Mr. Dater's death at age 81 in September 1993, records cited by the lawsuit show that several large checks were written on the trust account to Paul Krone's law firm and the three brokers.

The firm, Eichel & Krone, received a $500,000 check for “partial attorney fees” on Nov. 19, 1993. On the same day, the three brokers got a $300,000 check for “financial advisory for estate.”

In a sworn statement taken last year, one of the brokers, Mr. Olberding, said neither he nor the others requested the payment. He said Mr. Frank called Paul Krone to ask what it was for.

“(Mr. Krone) said, "Cash it, you earned it,'” Mr. Olberding recalled in his statement. “I don't know whose decision it was. I mean, I know where the check came from, and we were absolutely shocked.”

He said he was equally surprised in November 1994, when the three brokers got another $300,000 check. He said they got the same response when another call was made to Paul Krone: “We earned it, and that was the end of it.”

More large checks also were written to the law firm. They included a $500,000 executor's fee in 1994, a $250,000 “attorney fee” in 1994 and a $200,000 “attorney fee for estate” in 1995.

All told, from 1990 to 1997, the records show that the defendants received payments totaling more than $4 million.

Mr. Lindsmith said that total does not include the brokers' commissions or the trustees' foundation salaries. In the lawsuit, he described the fees as “grossly disproportionate to any services provided.”

But the defendants' attorneys say the size of the estate justifies the payments. “That's a lot of money to anyone,” Mr. Dehner said. “But when you're dealing with huge estates, you have to weigh the reasonableness involved.”

Since Judge Arthur Ney has ruled he will consider claims only from after Mr. Dater's death, the fee issue will be a key part of the May trial.

Mr. Weiss said the $500,000 executor fee falls within state guidelines that allow a 1 percent commission. He said the other fees will be evaluated by the judge.

“I think when all the evidence is in, the judge will say that's appropriate,” Mr. Weiss said.

A thriving foundation
Mr. Lindsmith has argued that the problems go beyond the fees. He said the trustee arrangement created several conflicts of interest, including one that allowed the brokers to invest the assets while also acting as the trustees who oversee the assets.

The brokers, all employed by Merrill Lynch at the time, lost their jobs for what company officials describe as a failure to disclose their positions as paid trustees.

Mr. Dehner said the company took the action because of a policy dispute, not because it is improper to serve as both a broker and a trustee.

“There's an argument as to whether they disclosed fees they received,” Mr. Dehner said. “Merrill Lynch asked them to depart, and they did.”

Mr. Lindsmith said interests conflicted again when Paul Krone acted as the attorney for both Mrs. Dater and her husband, while also serving as trustee and executor for the estate.

Mrs. Dater said Bruce Krone asked her to sign the probate papers after telling her that Mr. Dater had “left everything to you.” Mr. Weiss said it didn't happen that way.

“Mrs. Dater was a party to the probate proceedings,” he said. “She had an opportunity to oppose it and did not.”

Judge Ney agreed and will not hear arguments based on events prior to Mr. Dater's death, including the formation of the foundation.

Mr. Lindsmith said he will appeal that ruling after the trial, contending the lawsuit raises serious issues about the trust and the foundation.

State records show the foundation has grown each year and in 1997 was worth $53 million, compared to about $45 million in 1995. “The people that have managed the money have done very well with it,” Mr. Weiss said. “The value of the foundation has increased significantly.”

The records also show that from 1991 to 1993, the foundation's expenses were greater than the amount it gave to charity.

“There's no hard and fast rule under Ohio trust law, but that's not to say that doesn't raise concerns,” said Craig Mayton, chief of the state attorney general's charitable foundation section. “That's something that would cause us to ask some questions.”

But Mr. Mayton said he could not comment on whether his office investigated the foundation.

Bruce Krone said such a ratio of expenses to distributions is not unusual for foundations that incur start-up costs and other expenses in their early years. “It's a quirk of accounting,” he said.

By 1997, the foundation's ratio had changed: It gave about $2 million and spent about $1 million.

Mr. Weiss said the foundation has thrived under the trustees' leadership, donating millions to libraries, youth programs and cultural organizations.

“I'm sure our attorney general's office, if money was being spent improperly, would have done something about it,” he said.

He said Mrs. Dater apparently wants to redistribute money to herself and away from the foundation.

Mrs. Dater said she's not interested in getting more than the millions of dollars she's entitled to now.

Although she receives interest income from the trusts — at least $1 million annually — her attorney said she lives as conservatively as her husband once did.

He said she resides in an assisted-living center in California with “three pieces of furniture and no TV.”

Her goal, he said, is not to dismantle the foundation or trust but to remove the five trustees and eliminate their control over Mr. Dater's estate.

“They've never understood that the issue is not the money,” Mr. Lindsmith said. “It's them.”



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