Nephew Sues Richard E. Jacobs over Handling of Late Brother's Estate; Suit Filed by Walter & Haverfield LLP.

CLEVELAND -- Suit Claims 'Ongoing Campaign of Conflicts of Interest, Self-Interested Transactions and Self-Dealing'

Richard E. Jacobs, the shopping center magnate and former owner of the Cleveland Indians, has used his control of family trusts and partnerships to further his own interests at the expense of his late brother's widow and children, according to a lawsuit filed today by nephew David H. Jacobs Jr.

The complaint, filed in U.S. District Court in Cleveland, accuses Richard Jacobs of a "consistent and ongoing campaign of conflicts of interest, self-interested transactions and self-dealing" in his roles as trustee of two family trusts and as general partner and managing partner of two family partnerships.

The lawsuit seeks Richard Jacobs' removal as trustee of the two trusts, which were established by his late brother, David H. Jacobs, for the benefit of David Jacobs' family, and seeks the appointment of a fully independent trustee. It also asks for damages and demands a full accounting of financial transactions of the trusts and related family businesses.

Total damages are not known, the suit alleges, but may include at least $50 million that family trusts could have netted if Richard Jacobs had called a $200 million loan used to finance properties in downtown Cleveland. Additional charges that Richard Jacobs breached his duties to the trusts' beneficiaries stem from the sale of family-owned shopping centers to two real estate investment trusts (REITs), from a Jacobs investment of $218 million and from the expenditure of more than $30 million for severance and incentive pay for employees of the Richard E. Jacobs Group (REJ Group), which, the lawsuit claims, was inappropriate and not justified from a business perspective.

David Jacobs Jr., of Santa Monica, Calif., is one of three children of David Jacobs, who, with his brother, built a lucrative real estate and shopping center empire -- the largest privately held regional shopping center business in the country -- that consisted of 37 shopping centers as well as hotels and office buildings. In Cleveland, the Jacobs brothers were key figures in the development of the downtown skyline, investing millions in projects that included Society Center (now Key Center), the Galleria and Tower at Erieview and the old Ameritrust Bank complex. They owned the Indians from 1986 to 2000, and Jacobs Field bears the family name.

Since David Jacobs' death September 17, 1992, Richard Jacobs has served as trustee of, among other things, a marital trust to benefit David's widow, Barbara, and another trust to benefit his children, Marie, David Jr. and John W.

"I'm trying to do what my father did -- preserve for my mother and our family, including my nieces and nephews, the estate that he built over his lifetime," said David Jacobs Jr. "Regrettably, I am forced to intervene to remove a trustee whose self-dealing has negatively affected our family. We would not tolerate such action from an independent trustee, and we certainly cannot tolerate it by my father's only sibling -- to whom my father entrusted the well-being of his wife, his children and his grandchildren."

David Jacobs Jr. said he had attempted to resolve issues without going to court, but his uncle had resisted for years as he tried to obtain information about the trusts and other entities.

After the sale of most of the family-owned shopping centers, David Jacobs' reasons for appointing his brother as trustee no longer exist: "Our father appointed his brother trustee because he never wanted an outsider interfering with operation of the family businesses. Now that the family owns REIT shares instead of the shopping centers, that justification no longer exists. Nevertheless, my uncle has refused all reasonable requests to voluntarily step down as trustee," said David Jacobs Jr.

"This is a very private family," said Jonathan D. Greenberg, of Walter & Haverfield LLP, one of David Jacobs' lawyers. "We don't want to be in a courtroom, but we're left with no choice."

The suit alleges that Richard Jacobs breached his fiduciary duties at the two family trusts and at two family partnerships -- Jacobs Realty Investors (JRI) and Jacobs Group Investment Co. (JGIC).

According to the suit, Richard Jacobs:

--Arranged the sale of shopping centers he and his brother developed to the CBL & Associates Properties Inc. REIT to provide tax benefits to himself. The deals did not provide similar benefits to David Jacobs' family, which would have done better if the shopping centers had been sold outright.

--Has prevented the family trusts from gaining approximately $50 million -- but saved himself $150 million -- by renewing loans between Jacobs businesses instead of calling the notes on the loans. The more than $200 million in loans, which should have been paid three years ago, were made by JGIC, of which Richard Jacobs is managing partner, to three limited partnerships he controls for the development of downtown Cleveland properties. Richard Jacobs personally guaranteed $150 million of the notes and obligated the marital trust to guarantee $50 million. Acting as both lender and debtor, Richard Jacobs renewed the loans and extended the final payment date to 2010. Richard Jacobs has no plan for how to pay these loans, which cannot be supported by the assets, the suit says. Calling the notes instead of renewing them would cost Richard Jacobs $150 million -- but the family trusts, which are JGIC partners, and the family members would realize a net gain of at least $50 million.

--Placed a disproportionate burden on JRI, where he is general partner, when he obligated the partnership to pay more than $30 million for severance or "stay pay" packages for employees of the REJ Group. The suit says Richard Jacobs arranged the payments without seeking the consent of JRI's limited partners, including David Jacobs' children and the family trusts, and without informing them until significant funds were paid to the employees. The payments were aimed at preventing REJ Group employees from leaving as Richard Jacobs negotiated the sale of properties to the CBL REIT; "stay pay" packages are bonuses to induce employees to remain with their employers. JRI paid all of the "stay pay" and severance expenses of the REJ Group; other Jacobs business entities that also used the REJ Group's real estate management services did not share the burden, the suit says. Moreover, it is believed that stay pay bonuses went to employees who also had been given ownership interests in the properties being transferred. The bonuses were unnecessary, the suit maintains, since these employees already had incentives -- profit from their own interests -- to continue working through the transaction.

--Acting as both lender and debtor, arranged for JGIC to lend JRI $218 million for an investment. The suit says that if Richard Jacobs were to allocate and distribute the note on the loan to JGIC's partners, they could contribute their shares to JRI in exchange for additional interest in JRI. Such a move, according to the suit, would provide great benefit to the family trusts and David Jacobs Jr. Richard Jacobs, whose personal interest in JRI would be reduced by this move, has refused to do it.

--Used his control of the marital trust to benefit himself and his children. The suit says Richard Jacobs invested a significant portion of marital trust funds with Goldman Sachs, an investment banking, securities and investment management firm, despite the objections of the David Jacobs family. He also invested a small amount of his own children's trust funds and is believed to have received reduced fees for himself and his children's trusts because of the large investment from the marital trust.

Also named as a defendant is Western Fiduciary Corp., which is believed, according to the complaint, to be controlled by Richard Jacobs or his close associates. It is believed, according to the complaint, that Western Fiduciary is co-trustee of the family trust benefiting the Jacobs children and that Richard Jacobs has named it or will name it successor trustee of the marital trust. Besides seeking Richard Jacobs' removal as trustee of the family trusts, the suit asks the court to remove Western Fiduciary as co-trustee or successor trustee.

Note to Editors: The Jacobs brothers developed shopping malls in 13 states: Illinois, Indiana, Kentucky, Michigan, Missouri, Nebraska, North Carolina, Ohio, South Carolina, Tennessee, Texas, Washington and Wisconsin. Most of the shopping centers were sold to real estate investment trusts.)