Settlement Lets Pacific Paradise Owner Pay DLNR Cents on the Dollar for Damage to Reef

posted in: December 2019, Fisheries | 0

At approximately 10:30 p.m. on October 10, 2017, the Commercial Fishing Vessel (CFV) Pacific Paradise, a 79’ longline fishing vessel owned by TWOL, LLC, ran aground in shallow waters of the Waikiki-Diamond Head Shoreline Fisheries Management Area (FMA). Over the next several days, multiple towing operations proved unsuccessful and resulted in a fire on board that lasted for two days. The vessel was eventually removed 58 days later on December 7, 2017. Division of Aquatic Resources (DAR) biologist and technicians conducted a series of three different investigative surveys at the vessel grounding impact to carefully document the impact to the state’s protected resources. Approximately 1,964 square meters of submerged lands were impacted during this event, including fully protected stony coral and live rock.

— Department of Land and Natural Resources Report

For nearly two months, the disabled Pacific Paradise was on full view of tourists and other members of the public who visited or worked in Waikiki. It had reefed just a quarter mile off the famed beach. Those who weren’t in the area were still able to track the frustratingly slow prog- ress of efforts to haul the damaged vessel out to sea, as the dramatic salvage attempts were the stuff of nightly news reports and daily headlines.

The Department of Land and Natural Resources’ Division of Aquatic Resources was closely monitoring events. For more than a month, its biologists were unable to get a close look at the grounding site, deterred by fires, a deteriorating vessel, and rough seas.

Finally, on November 29, while the crippled boat was still firmly lodged in the coral, the DAR biologists got their first look at damage caused by the vessel itself as it ran aground, removal efforts, and debris. Subsequent surveys were made in December and in January and February of 2018.

Damage to live rock and coral was conservatively estimated by DAR at more than a quarter of a million dollars.

Despite the massive publicity given to the grounding and following events, the state’s settlement of damages with the vessel owner received none at all. Instead, the Board of Land and Natural Resources agreed to settle for pennies on the dollar.

The Report

The results of the DAR biologists’ analysis were written up in a March 2018 report. Among other things, they found that the extent of damage to the sea floor was more than half an acre, not counting areas scarred as the vessel grounded and the full 400-meter length of the egress scar created as the vessel carcass was hauled off. “Fish density, algal biomass, reef accreting substrate, and coral species were all found to be less in the vessel grounding impact site versus reference sites on the adjacent reefs,” they found.

The report’s authors had to estimate the extent of corals lost as a result of the grounding, since, “primarily only bare substrate remained at the primary/ secondary and tertiary impact areas.” (The primary area was where the vessel first hit the reef; the secondary area refers to a site about 30 meters away, where it landed after initial efforts to haul it off failed; the tertiary impact area is about 75 meters distant from the second, and it is where the vessel ran aground after a third removal effort was made on December 6.) Altogether, DAR concluded that most likely, 1,720 coral colonies were damaged, but acknowledged that the actual number could be as low as 18 or as high as 2,400. A total of 1,362 square meters of live rock was damaged, including 301 square meters of high-value live rock – rock that includes more organisms attached to it and a more complex three-dimensional structure.

The Recommendation

While the report – marked “Attorney- Client Privilege Draft” – was finished in March 2018, it wasn’t until that following December that the Board of Land and Natural Resources took up the DAR staff’s recommendation for fines and penalties against the vessel owner, TWOL, LLC.

DLNR rules set out fines for damages to aquatic resources, including corals and live rock. Fines for first-time violators are $1,000 per violation, plus $1,000 per coral specimen injured. For live rock – defined as “any natural hard substrate to which marine life is visibly attached” – a specimen is either an individual live rock or, if the violation involves an area larger than one meter, each square meter of live rock.

On the basis of those rules, DAR staff calculated that with 18 coral colonies damaged (the low-end estimate), plus the per-incident fine, an administrative fine of $19,000 was warranted.

For damage to 1,361 square meters of live rock, the fine would come to $1.362 million.

However, the staff went on to provide a breakdown of the coral and live rock values based on “penalty matrices” the DAR has recently developed. Based on those matrices, the revised stony coral value comes to just $2,015, while the revised value of damaged live rock was placed at $266,200.

The recommendation also included a tally of staff hours and costs for the surveys done by DAR. Those costs came to $14,443.59.

Finally, staff proposed a fine of $17,835 as a result of the public’s loss of use of the area.

Total penalties and costs amounted to $300,493.59.

The Discussion

At its December 7, 2018 meeting, just moments before the Land Board took up discussion of the proposed penalties and fines for TWOL, deputy attorney general William Wynhoff informed the board that a contested-case hearing had been requested by attorney Bryan Ho, representing the company and its principals, Loi Hang and Nguyen Ngoc Tran.

But on learning that by filing a request, the board would effectively be precluded from discussing the matter, Ho requested that the request be withdrawn without prejudice.

Ho went on to state that the proposed fines were “penal and not compensatory” and “are not awardable.” The damage to live rock made up the largest part of the proposed fine, he noted, but “live rock is not considered aquatic life.”

Brian Nielson, then acting head of DAR (since appointed to the position), explained that live rock supports crustose coralline algae, which are precursors to corals. He also provided details on the DLNR’s actual out-of-pocket costs of investigating the damages.

Board member Stanley Roehrig asked why the division was going after just this one boat. “It’s small money,” he said, then asking “why haven’t we gone after the association? They got money. … The deep pocket is the association.”

Ho, however, noted that the workers who were being brought to Hawai‘i on the Pacific Paradise when it ran aground “were not brought on for an association. They were brought up [from American Samoa] for certain other vessels in the longline industry… I don’t even know what association member Roehrig” was referring to. If it was the Hawai‘i Longline Association, he said, that “is organized solely for lobbying.”

The penalties proposed “vastly exceed what’s allowed by law or what they can prove to the requisite degree of certainly,” he continued, and the board should deny the proposed fines “as a practical matter. The respondent’s financial ability is a consideration that has to be considered. I provided the deputy attorney general all tax returns for 2015, 2016, and 2017.

“They” – the company – “are existing solely for the purpose of responding to inquires like this and possibly an inquiry by the Coast Guard to be reimbursed for their expense. That’s why we have not voluntarily dissolved already.”

“This was an accident. Nobody wants their boat to go on the reef…. My clients did a Herculean effort and spent more than $1.5 million to get the boat off the reef,” he said.

Then-board member Keone Downing responded, “Yes, it’s an accident, but at the same time, for me, somebody fell asleep on the job,” referring to the fact that there was no one on duty in the wheelhouse when the vessel ran aground.

With respect to fines, he went on to say, “you’re saying that basically it should only be $1,000 here or there…. I guess from my side, I get the hard part. There was negligence. Is there a fee for negligence?”

“I personally don’t think so,” Ho replied. “Whether you want to call it criminal or civil in nature, [the proposed fine] is still penal.”

Board chair Suzanne Case then noted, “It’s a sanction.”

Board member Chris Yuen pointed out that the Hawai‘i Revised Statutes provide for a fine of $1,000 per specimen for coral, and DAR has proposed fines based on the low end of its estimate of damage to corals. Damage to live rock is measured on each square meter taken.

“That is DAR’s argument,” Ho responded. But, “the legal definition of aquatic life does not include coral.” As for damaging live rock, the maximum fine, Ho said, is $1,000.

Board member Downing said he had dived in the area, where “live rock stands up 3-4 feet like a tree, so when you break it, you break the habitat of a lot of things, from top to bottom…. It could make sand, eventually. [The grounding] destroyed an area, changed the demographics of an area.”

The board entered into executive session. On reconvening in public, Board member Tommy Oi moved to approve the fines as recommended by DAR.

Downing proposed an amendment, to eliminate the penalty associated with depriving the public of the use of the area. “I don’t think there was much public use at that time. … It was closed off for diving, and it was winter time, so there was no surf.”

Roehrig noted that paddlers were inconvenienced, and Case objected to the idea of eliminating the penalty associated with public use altogether. In the end, the board reduced the public-use penalty by $10,000, leaving it at $7,835 and reducing the total fine to $290,493.59.

At that point, Ho renewed his request for a contested case hearing.

The Outcome

In a normal contested case hearing, there’s a hearing officer who hears witnesses, reviews records and evidence submitted by the parties, and issues a proposed decision. A court reporter prepares transcripts. On rare occasions, the full board might hear the proceedings.

None of that seems to have occurred in this case.

Instead, as reported in a “proposed stipulated judgment and settlement agreement,” after the contested case was requested last December, the state and TWOL “have engaged in subsequent settlement discussions to attempt to resolve the matter prior to a contested case hearing.”

On June 17, Brian Ho and DLNR deputy director Robert Masuda signed the agreement, which knocked down the total penalty to about an eighth of what DAR had proposed – from $300,493.59 to $37, 603.59.

On June 28, at a “settlement approval hearing” held moments before the Land Board began its regular, publicly noticed meeting, the agreement was approved with the consent of four board mem- bers: Case, Roehrig, Yuen, and Jimmy Gomes.

The payment reflects the full cost of investigation ($14,443.59) and the public loss of use (proposed by DAR at $17,835 but reduced at the December meeting to $7,835). The loss of stony coral was valued at $2,015, mirroring the recommendation of DAR.

Where the settlement diverged was in the assessment of damage to live rock. Where DAR had proposed fines of $266,200, the settlement pegged damage at just 5 percent of that: $13,310.

The settlement notes that TWOL claimed that “DAR’s request to be compensated for the alleged value of natural resources lost is not a viable claim as a matter of law,” since the remedies authorized by law “are penal, not compensatory, in nature.” At most, “for any proven violation” of DLNR rules relating to damage to coral or live rock, the most the Land Board can fine TWOL is $1,000, it maintained.

TWOL raised the same argument with respect to DAR’s proposed claim of damages resulting from the loss of public use.

Finally, there was the matter of the company’s ability to pay restitution. “In deciding whether to settle a case, the board must consider not only the likelihood of prevailing on its claims, but also the likelihood of recovery in the event of a favorable judgment,” the settlement states.

“One important factor in reaching the proposed settlement was TWOL LLC’s insolvency and inability to pay a fine. TWOL LLC’s primary asset, the [commercial fishing vessel] Pacific Paradise, was disposed of at sea after removal. TWOL LLC has not generated any revenue since the grounding…. On March 8, 2019, TWOL provided DAR with a letter the company received from the U.S. Coast Guard National Pollution Funds Center (NPFC) setting forth a demand for TWOL LLC to reimburse the NPFC $1.7 million… Based on DAR’s investigation of TWOL LLC’s financial capability and resources to date, if the board did continue to pursue this action, any penalty awarded by the board or any judgment on appeal would likely be unenforceable.”

According to the DLNR’s public relations office, the settlement payment was made to the DLNR in July.

— Patricia Tummons

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