Board Talk: Board Settles Helemano Land Fight For a Fraction of Appraised Values

posted in: Board Talk, February 2020 | 0

At its January 10 meeting, the Board of Land and Natural Resources accepted Dole Food Company’s offer of $39,000 to settle a dispute over whether the company inadvertently sold the state 58.54 acres in Central O‘ahu that the state already owned. This, despite testimony from the Department of Land and Natural Resources’ (DLNR) Land Division that Dole’s offer was “simply too low.”

The lands were part of a 2018, $15 million purchase of 2,822 acres that now make up the state’s Helemano Wilderness Area. In preparing the maps necessary to add those lands to the ‘Ewa forest reserve, staff with the Department of Accounting and General Services (DAGS) discovered last year that the parcel was “not a lot of record, but rather a remainder parcel created from the boundaries of surrounding parcels. It was discovered that the parcel was never actually conveyed by the state and had remained under government ownership,” according to an October 25, 2019, report to the board by the DLNR’s Division of Forestry and Wildlife (DOFAW).

In a June 21 memo to DOFAW administrator David Smith, state surveyor Reid Siarot explained that the land came to be treated as a private parcel due to a misinterpretation of the northerly boundary of an adjacent piece of land sold by the Hawaiian government to James Robinson, Robert Lawrence, and Robert Holt in 1852. Dole and its predecessor owners have interpreted that northerly boundary to be along the south bank of Poamoho Stream. However, Siarot wrote, the metes and bounds description of that parcel, Grant 973, states that the boundary is along the south bank of Poamoho Gulch.

“This portion of land” — the 58.54 acres between the gulch and stream banks — “was always under ownership of the government of Hawai‘i, currently as the state of Hawai‘i,” he wrote.

Title Guaranty, which prepared the title report for the 2018 sale, disputed Siarot’s argument that a mis-interpretation had occurred. After meeting with DLNR staff to hear its case, Title Guaranty senior vice president and legal counsel Lorrin Hirano argued in a May 22 email that there are a number of official maps that contradict the department’s interpretation.

One such map shows that the Poamoho gulch and stream banks are “clearly the same boundary,” Hirano wrote. He added that his company had overlaid the metes and bounds from Grant 973 onto the current tax maps and found that the northern boundary of the grant is mostly northward of the 58.54-acre parcel, as well as a portion of another parcel included in the Helemano Wilderness Area.

“[W]e found nothing in the tax records dating back to the 1930s that would indicate that the northern boundary of Grant 973 is substantially to the south of what the current tax maps show,” he wrote.

In a July 3 letter to Smith, Siarot rebutted Hirano’s arguments, stating among other things that tax assessment records “cannot be used to correctly locate the limits of Grant 973,” and arguing that some of the maps Hirano was relying on were either inaccurate or irrelevant. “[T]here is no evidence that [the north boundary of Grant 973] would have run along the south bank of the stream, as Mr. Hirano asserts,” Siarot concluded.

Recourse

Based on DAGS’s findings, the state filed a claim with First American Title Insurance Company in February 2019. Initially, the claim involved the 58.54-acre parcel (aka Parcel 11), as well as a portion of another parcel that was part of the 2018 purchase. However, after DAGS revised its assessment in July, the state chose to pursue a claim only for Parcel 11. The state claimed a loss of $710,000.

In a July 19 let- ter to state deputy attorney general Julie China, attorney Aimee Hui, representing the insurance company, rejected the state’s claim.

Hui pointed out that the state’s title insurance policy states that losses due to a discrepancy or conflict in a boundary line, “which a correct survey or archaeological study would disclose,” are not covered.

She continued that First American is not liable for issues relating to how the purchase was achieved or the price negotiated, but that it would cover losses if the title were found to be vested with an entity other than the state. However, she wrote, “That is not the case here.”

She added that the state could not rely on the preliminary report issued by Title Guaranty to make its claim, because that report “is not a representation regarding condition of title, it is not an abstract of title, and it cannot be relied upon as such.”

With its title insurance claim denied, DOFAW turned to Dole for reimbursement. In our November 2019 “Board Talk” article, Environment Hawai‘i determined that the state paid about $308,000 for Parcel 11, based on a statement from the DLNR that because the purchase was part of a bulk sale, “the valuation was spread evenly over each acre.”

However, according to a January 10 DOFAW report to the board, the division hired John Child & Company to conduct a supplemental appraisal of Parcel 11. The company, which had done the initial appraisal for the bulk purchase, determined that the parcel was worth $661,200.

“The conveyance tax certificate for theacquisition had allocated $570,000 of the total purchase price to the subject parcel. DOFAW subsequently sent a letter to Dole requesting a refund of $570,000 for the value of the subject parcel,” DOFAW’s report states.

After meeting with the state, the title company, and the Trust for Public Land in August to discuss the matter, Dole hired its own appraiser, Benavente Group, LLC, which determined that Parcel 11 was worth only $117,000 as of June 2017.

“Dole offered a counter proposal of $39,000 to fully settle all claims by the state with respect to this matter, which DOFAW accepted, subject to approval by the Department of the Attorney General and the BLNR,” DOFAW’s report states.

“A lawsuit would be based on inter- pretation of a relatively complex set of historical maps and documents and would rely on opposing experts who are all well-respected surveyors and abstractors,” the report continues. It adds that despite aid from the DLNR’s Land Division and the attorney general’s office in the Helemano purchase, “The issue concerning the title of the property was only discovered after the acquisition was complete and in-depth historical research was completed for the subject parcel.”

In arguing for the settlement, DOFAW pointed out that the fair market value of the 2,882 acres had been determined to be $16.56 million, which is $1.4 million more than what the state paid for them. So even if the higher appraised value of $661,200 were subtracted from the total fair market price, the state still would have paid less than fair market value for the total acquisition, the division wrote.

Moving On

At the board’s January 10 meeting, DOFAW’s Smith said that if the state were to press its case, the outcome would be uncertain. “I’d just as soon settle it and be done with it. Land Division thinks we should continue to negotiate. We think we should just settle and move on,” he said.

In a January 9 memo to the board, Ian Hirokawa, special projects coordinator for the Land Division, expressed his office’s significant concerns that the proposed settlement amount was too low given the appraisals done. Even though the total purchase price for the acquisition is less than the fair market value adjusted to exclude Parcel 11, he continued, “[a]t no point during the acquisition process was it discussed that the parcel was being gifted to the state due to a potential title issue. Furthermore, the seller executed a warranty deed with the state, with the seller warranting the title to the subject parcel. Given this background, we do not believe there is adequate justification to accept the proposed settlement amount.”

Hirokawa also took issue with the fact that DOFAW’s recommendations to the board regarding the settlement did not include any further action on the denied insurance claim.

“The department conducted reasonable due diligence in obtaining a title report and a title insurance policy to safeguard against unforeseen issues that may arise, such as in this very instance. With respect to thejustification provided by the title insurerto deny the claim, we note that there is no evidence any appropriate disposition, formally approved and executed in writing, by the state of its interest in the subject parcel to a private party. To accept this justification would essentially acknowledge that the state could divest itself of fee interest in public lands by merely a survey or mapping error,” he wrote before urging the board not to waive any potential claims against First American and to allow the DLNR to pursue those claims.

After discussing the matter in executive session, Land Board member Chris Yuen made a motion to approve DOFAW’s recommendation to accept Dole’s settlement offer.

“Looking this over, there is a good faith dispute between the parties as to ownership of the property. The state has a good case. Dole has some case,” he said.

He also said the state’s appraised value of $661,200 was much too high, given that the property consisted of a steep gulch. During the executive session, Yuen noted, the deputy attorney general informed the board that Dole, before selling the lands to the state, had offered Parcel 11 for sale between $78,000 and $100,000 and had no takers. “That indicates to me the property’s value, the $117,000 appraisal, is not far off and not greatly lowballed. Given the uncertainties of success and cost of litigation, the proposed settlement … is reasonable,” Yuen said.

The board then unanimously approved his motion.

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