Hokukano Sandalwood Logging Scheme Coming to a Head in Bankruptcy Court

posted in: January 2011 | 0

Within the next few weeks, a judge in federal Bankruptcy Court in Honolulu may decide the fate of a company that is logging thousands of tons of sandalwood from lands high above Kealakekua Bay, in what was once one of the densest stands of sandalwood in the islands.

The company, Jawmin, LLC, is in bankruptcy not because it has no income, but because it defaulted on a note it gave to acquire 2,800 acres at the top of Hokukano Ranch, some eight miles mauka of the Hawai`i Belt Road at an elevation of more than a mile above sea level. Jawmin was to pay $9 million for the land: $1 million down, $3.5 million due June 13, and the balance on August 12, according to the promissory note it gave to seller Tom Pace, owner of Hokukano Ranch.

A month after Jawmin missed the June payment, Pace brought a foreclosure lawsuit in 3rd Circuit Court. But before that could move forward, Jawmin filed for Chapter 11 protection in Bankruptcy Court, putting on hold any action in state court.

More than six months later, it remains there, with a pending motion from Pace’s attorneys for a court-appointed trustee to manage the company’s assets and another motion, from Jawmin, asking the court to approve a reorganization plan. On January 25, Judge Robert J. Faris is scheduled to hear the motions.

‘Cat Will Be Out of the Bag…’

Documents filed with the court show the behind-the-scenes maneuvers of Jawmin’s principals – Wade Lee, Arthur “Jeff” Lee, Matthew Charbonneau, and Allen Gourley – to obtain the land without disclosing to Pace their interest in the sandalwood. According to a statement of Wade Lee, made in a November deposition, at first, he and his partners were looking at lands for sale that might be suitable for growing koa. But then “the topic of sandalwood had come up, brought up by my brother Jeff… He had heard that the sandalwood world was looking for a new supply because the Chinese had just bought out all the sandalwood in Fiji.”

Wade Lee acknowledged in the deposition that he had no prior knowledge of sandalwood markets. “To see what kind of market really existed there for Hawaiian sandalwood and what people knew about it,” he said, he advertised sandalwood for sale online, through another company of his called Keala Ke Aloha.

At this point in the process – early 2009 – Lee had no access to a source for sandalwood other than “several logs,” he said, and the only reason he made the internet posting was to test the market. When a potential buyer did come forward, Lee sent him photos of sandalwood logs belonging to someone else.

By March of 2009, emails among the Jawmin principals were focused on the presence or absence of sandalwood on the several properties in North and South Kona that were then being offered for sale. In an email dated March 19, referring to the “Pace acreage,” Jeff Lee wrote that the most important thing “is being clear that the resources are owned” when the option to purchase is exercised. “I may be a little over sensitive to undermining strategies but I believe this is a great opportunity and I know Tom [Pace] is surrounded by torpedoes.” (Pace needed quick cash to settle several outstanding claims on other properties owned by him or Hokukano Ranch.) 

The “cat will be out of the bag soon enough on Sandlewood [sic],” he continued. “… Better get the option formalized so that opportunity is protected.”

Even as Lee and his partners were calculating how much value was in the sandalwood on Pace’s upper-elevation lands, they were representing to Pace that their interest in purchasing the property was solely in reforesting the area for some “futuristic” profit, Pace said in a deposition last July. At no time, he insisted, did they show any interest in logging sandalwood.

Student Help

In his deposition, Lee described his intention to have Randy Senock prepare a thorough forest management plan sometime in the coming summer months. Senock, formerly a professor at the University of Hawai`i-Hilo and now with California State University-Chico, has a private consulting firm called On Solid Ground that conducted a sandalwood inventory for Jawmin last year.

Developing the new management plan will involve, among other things, taking inventory of and grading every tree on the property, “probably 160, 170,000 trees,” Lee said.

“How much is this going to cost to mark every single tree?” Hokukano attorney William Harstad asked.

“About $50,000,” Lee replied, adding that Senock would be doing the marking along with two assistants and 20 graduate students “on a two-credit course from the University of Hawai`i and Chico State.”

“Are they being compensated for this?” Harstad asked.

Lee replied that they would not be, but “Jawmin is…. We’re negotiating that now, but it looks like for their one-month stint each student will pay Jawmin $2,000 to gain the experience.” Jawmin would be paying Senock for the forest management plan, but as far as his teaching role was concerned, “the university will be paying him,” Lee said.

Environment Hawai`i asked Senock about this arrangement. He acknowledged in an email message that even though this was a “private consulting project for me, I have considered trying to incorporate the project into a CSU-Chico … intersession course offering on tropical natural resource management.” The Hokukano project would be one part of the overall course, he wrote.

The students would pay, not for the ‘privilege’ of working, he said, but for the “opportunity … to experience firsthand the real-life issues of ecological restoration.”

Such courses, he added, need to be self-supporting, “which means that student tuitions have to have a minimum enrollment to cover most of the cost of the course, including the instructor’s salary. System employment rules/regs will not allow me to collect additional salary, and I certainly cannot and would not expect any additional compensation from Jawmin for this.”

Patricia Tummons

Volume 21, Number 7 — January 2011

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