Homeowners’ Association Is Sued By Ka‘u Developer with Big Plans

Homeowners’ Association Is Sued By Ka‘u Developer with Big Plans

posted in: April 2018 | 2
The development proposed for Discovery Harbour in the 1960s included retail and office space, as well as two high- rise hotel towers.

A half-century-old plan to build a lavish resort in Ka‘u is at the heart of litigation that’s been brought by the current owner of the land where two high-rise hotel towers were once proposed to be built, along with restaurants, bars, offices, condominiums, and other visitor lodgings.

The land in question consists of two parcels — one just over 11 acres, the other about 18 acres — separated by a roadway in the Discovery Harbour subdivision, near the community of Waiohinu.

The owner is South Point Investment Group, LLC (SPIG), which in 2009 purchased the two parcels as well as the golf course that lies at the center of Discovery Harbour.

Perhaps surprisingly, the litigation pits the landowner not against Hawai‘i County or another governmental entity whose zoning or land use regulations might pose a bar to development. Rather, the defendant is the Discovery Harbour Community Asso- ciation (DHCA). Its claim that the 29 acres that SPIG wants to develop are subject to association regulations — and have been since the early 1970s — is a central factor in not one but two lawsuits brought by SPIG in 3rd Circuit Court.

The first complaint, filed in May 2016, is well along the path to trial. The community association has filed a counter-claim against SPIG in that case. The dispute revolves around the association’s claim that its covenants, conditions, and restrictions apply to SPIG-owned lots.

The second complaint was filed on February 28 of this year, alleging that the claims of the association had damaged SPIG as the county was developing the Ka‘u Community Development Plan. While some Discovery Harbour residents had supported the new plans of SPIG to build a restaurant, “hotel lodge,” “hotel villas,” a retail center, timeshare units, and condominiums, among other things, on the two large lots, the association spoke against the plan. The committee advising the county on the CDP then fashioned its recommendations to accord with the limitations that the association said applied to the area. When the plan was adopted in October by the Hawai‘i County Council, the planning map identified the SPIG commercial lots as suitable for “low density urban” zoning. (The second lawsuit had not been served on the DHCA by press time.)

A Divided Community

Discovery Harbour began life in the 1960s as the second phase of several proposed by a California developer, with the phases to be developed in increments of “from 300 to 500 acres” each.

In 1969, the developer sought approval from the Hawai‘i County Planning Commission of a special permit for what it described as a $40 million project on the two parcels. A special permit was required since the land was in the state Agricultural District. (It still is.)

A sales brochure submitted to the county at that time identified the first phase as the Mark Twain Estates, a 700-lot subdivision on 370 acres. Discovery Harbour would be built just west and south of the first phase. It was to consist of 540 acres divided into about 800 house lots, 200 acres set aside for a “championship” golf course, and 18 acres for a “Mark Twain Hotel.”

“Many tour experts predict that the ‘Mark Twain Hotel’ will be among the most popular in the islands due to its wonderful climate, its excellent recreational facilities and geographic location — half way between Kona and Hilo,” the sales brochure states. Eventually a “dude ranch” would be built: “There are many miles of excellent riding trails for the horse enthusiasts,” the publicity states. Also, “Located approximately 3 miles from the bottom portion of Mark Twain Estates is the Ka‘alu‘alu Bay small boat harbor. In recent years this harbor has been little used. However, the developers have been informed that the harbor will be rehabilitated if there is sufficient demand for its use.” (Ka‘alu‘alu Bay was identified in 1992 as a “refuge harbor” by the Army Corps of Engineers. It was in use at the turn of the 20th century but has not undergone any improvements to speak of since then.)

The application itself sought village-commercial use “to permit the construction of a small hotel-motel type operation with a restaurant, bar, and office space.” “There are only a limited number of hotel rooms in the District of Ka‘u,” the application stated. “Yet the drive from Hilo to Kona or vice-versa is long and arduous. A stopover at the subject property would be welcome. Further, the golf course will encourage people to stay overnight.”

Yet when the Planning Commission heard from the developer at its May meeting that year, the architect for the project, Shigenori Iyama, described much more ambitious plans.

The first phase of development, he said, would involve construction of a golf course clubhouse, a restaurant, two seven-story buildings with 200 hotel units, plus restaurants, stores, and shops. A second phase of commercial development would include

more hotel units and 60 condominium units, all with underground parking. All totaled, there would be 950 hotel rooms, with most of them in two 20-story “twin towers.”

Architectural drawings of what the area would look like once it was all built out show multiple high-rise, mid-rise, and low-rise buildings and even a helipad.

Commissioners expressed concerns over the adequacy of water supplies and also over “incremental development.”

The application came at a time when the Planning Department was said to be on a “crash program” to include Ka‘u in the county’s General Plan. For that reason, the department asked the commission to defer action on the application. Separately, a Planning Department analysis of the application concluded there was “no basis for this amt commercial this time.” It is not clear that this was ever transmitted to the Planning Commission.

Permit or No?

Work on the golf course was completed in the early 1970s, but the two lots where the developer had wanted to build hotels and other amenities remain vacant to this day. And that’s not all that’s vacant. Of the more than 800 house lots that were established in the Discovery Harbour subdivision, only about 25 percent have houses built on them.

The golf course fell into disuse in the 1990s. In 2009, however, Gary McMickle, an investor from the Fort Worth area, and several others formed the South Point Investment Group and purchased it as well as the two large lots where the hotels had once been proposed. (Separately, McMickle has purchased several hundred acres south of the subdivision.)

In 2012, SPIG argued before the Hawai‘i County Board of Appeals that the permit sought back in 1969 was valid, despite the planning director’s determination that it was never approved. The county’s “failure to act on the application means that it should be deemed approved,” wrote SPIG attorney Randy Vitousek in his petition to the board. “Alternatively, appellants submit that hotel and commercial uses have in fact been approved by the county and that these should be considered pre- existing and non-conforming uses on the subject parcels.”

The appeal was rejected. The BOA determined that the planning director lacked the authority to make any such determination regarding a special permit. (Under the county charter, special permits are to be approved by the Planning Commission.)

In a letter to the planning director on Valentine’s day of 2014, Vitousek notified the county that SPIG “currently plans to file a complaint in the Circuit Court of the Third Circuit asserting due process viola- tions and inverse condemnation.”

“It is SPIG’s position,” he continued, “that since 1961 both the state and county have been aware of and involved in the plans to develop a commercial district on the subject parcels. Based on this history, SPIG has invested substantial resources in acquiring the parcels, making development plans, and seeking approvals for such plans.”

The threatened lawsuit did not materialize — against the county and state, at least. Instead, as the Planning Department began to work on its community development plan for Ka‘u, a new spanner was thrown into SPIG’s plans when the community association leadership argued to the group advising the Planning Department that the lots in question were subject to its CCRs.

“In 2015, … the DHCA began to aggressively oppose SPIG’s development in Ka‘u CDP meetings,” SPIG claims in a brief to the court filed in association with the first lawsuit it filed against the homeowners’ association, in 2016. “As a result, while the Ka‘u CDP steering committee was prepared to propose designating the commercial lots for use as a Retreat Resort area, it abruptly shifted gears. Between October 2015 and December 2015, it changed its recommendation to Low Density Urban.

… The DHCA’s interference in the Ka‘u CDP process has delayed development of the commercial lots and repair of the golf course lots, has cost SPIG a favorable land use designation, and has caused it to incur significant other monetary damages.”

As finally adopted, the land use policy map for SPIG’s parcels designates the lots as “low density urban,” which allows only single-family residential, multiple-family residential, or residential-commercial mixed use development.

A scheduling hearing is to be held on June 29 by the judge hearing the first lawsuit. If the landowner prevails, then it will still need to obtain changes in the state land use district classification and zoning.

Prevailing in that first lawsuit would also clear the way for the second one, seeking damages from the homeowners’ association for its statements during the preparation of the Ka‘u CDP. Vitousek denied that this amounted to a SLAPP action (a strategic lawsuit against public participation).

“No, I don’t think it’s a SLAPP. You’re not privileged to make false testimony,” he said. The litigation is “essentially dealing with the fact that some of the members of the homeowners’ association made representations to the regional plan steering committee as to whether the SPIG properties were subject to the CCRs. It had an impact on the property.”

If, on the other hand, the homeowners’ association prevails in the earlier litigation, then the second lawsuit is pretty well mooted.

— Patricia Tummons

2 Responses


    I would like to say that I was at the CDP planning sessions, as well as at the final CDP briefing to the community. The County stated that any issue with zoning was between the developer and the County, it had nothing to do with the DCH HOA. I believe that if the County were asked the question, they would agree. I also believe that SPIG sued the county at some point, and lost? That might not be correct, but…

  2. Melissa Wheeler

    A pretty accurate telling of this miserable story, a few incorrect facts…I never saw this article last year and wonder who Patricia Timmons relied on for her information. Whether SPIG actually “sued” the county or not, the response from the county on their requests, twice, was that plans nor zoning are not applicable from 60 years before if they had never been acted upon. They have been told by the county what they need to do, having nothing to do with our HOA.

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