Land Board Approves $400,000 Settlement For Damage Claims at Honokohau Harbor

posted in: August 2020, Board Talk, Land Use, Marine | 0

The Department of Land and Natural Resources has been under pressure in recent years to transition, where appropriate, long-held revocable permits to a long-term disposition, be it a lease or an easement. But in the case of a nine-acre lot at the Honokohau small boat harbor in West Hawai‘i, which had been under a revocable permit for 17 years, that transition has been anything but smooth. 

Barely a year into their 10-year lease for a boat storage yard at the harbor, the two men who formed the new lessee Pacific Marine Partners, LLC (PMP) were suing each other over their respective ownership interests. 

That dispute, between Jason Ho‘opai and Jonas Ikaika Solliday, led at one point to frozen bank accounts and both men trying to kick each other out of the company via competing filings with the state Department of Commerce and Consumer Affairs. 

The company fell behind on its rent, which led the state Board of Land and Natural Resources to vote in May to cancel their lease. In June, the board rejected their requests for a contested case hearing. 

But last month, the board approved a recommendation from the DLNR’s Division of Boating and Ocean Recreation (DOBOR) to rescind the lease cancellation. What’s more, the board approved a proposed $423,641.66 settlement with the company over alleged problems with the property, including an illegal cesspool, incomplete fencing, damaged utilities, and difficulties evicting a company that had been on the property for years. 

DOBOR noted in its report to the board that despite the rent arrearage, PMP had cooperated with the division on cleaning the property, improving operations, and growing revenue. It also reminded the board that PMP — which had continued to pay some of its rent despite the May lease cancellation — is paying five times more in rent than the previous tenant, Gentry’s Kona Marina (GKM), was paying. And once the settlement is paid off via rent credits, PMP will have paid more than $1 million to the state, it stated. (The settlement will cover PMP’s rent arrearage of $58,641, and for the next 20 months, reduce the company’s minimum monthly base rent by $17,000.) 

While DOBOR’s report states that PMP has agreed to the settlement, the controversies surrounding the management of the parcel are far from settled. In approving DOBOR’s recommendations, the board directed the Department of the Attorney General to investigate who else might be responsible for the costs incurred to address the problems identified by PMP and to pursue recovery of those costs. 

DOBOR stated in its report to the board that it was denying “each and every one of [PMP’s] claims in both liability and amount.” But at the board’s meeting a month earlier, deputy attorney general William Wynhoff conceded that the division would agree that some of the problems that had been identified were PMP’s fault, while others were DOBOR’s. He added, “GKM has played a very pernicious role.” 

In addition to the state’s investigation into other potentially liable parties, PMP faces a lawsuit filed by a man whose welding business was evicted from the parcel after PMP took possession. And with regard to the lawsuit between Ho‘opai and Solliday, one of Solliday’s attorneys, David Swatland, said that the parties had an arbitration meeting scheduled for October 19-20. “During the coming month they will be engaged in discovery,” he stated in an email. 

A Final Plea 

On August 17, 2017, the Land Board voted to approve a request by DOBOR to hold a public auction for a ten-year lease of the parcel. 

GKM, which has a lease from DOBOR for adjacent state land, operated the boat yard under a revocable permit since 2003. At the board’s meeting then, GKM manager Tina Prettyman urged the board not to proceed with an auction, especially with the proposed upset rent of 50 percent of gross revenue or a base rent set by an appraisal, whichever was greater. She said 15 percent of gross revenue was more reasonable. 

She also claimed that a previous administrator for DOBOR had years ago assured GKM that the department would try to issue a long-term lease to the company. This, despite a requirement under state law that public lands be disposed of through a public auction, except in very limited circumstances. 

Years later, when the current DOBOR administrator, Ed Underwood, tried to make good on his predecessor’s representations, the Office of the Attorney General advised him that a direct negotiation of a lease would not be appropriate, according to DOBOR staffer Dana Yoshimura. 

Prettyman said she worried that if the Land Board voted in favor of an auction, boaters who owe GKM back rent simply wouldn’t pay. She said GKM had $300,000 in uncollected debts. She added that her company had put in close to a half million dollars in improvements to the property over the years. “There was a lot of gravel that needed to be brought in,” she said. 

Prettyman said that GKM took in a little less than $50,000 a month in revenue from the property. Its monthly rent under the revocable permit was $7,800. Based on the current revenue, Land Board member Chris Yuen seemed to think that a rent of 50 percent of gross revenue was doable. 

“If somebody continued this business and grossed close to $50,000 and paid 50 percent as the upset … that would leave $25,000 a month left. Your operating expenses are more than $25,000 a month?” Yuen asked. 

Prettyman said the expenses were significant. “There is a huge administration side of it that people don’t recognize,” she said. 

In response to Prettyman’s concern that a new lessee on the parcel could start competing with GKM’s businesses on its adjacent parcel, Yuen said, “I would understand why you wouldn’t want competition. I don’t understand why we wouldn’t want competition.” He added that GKM had had a permit for the property for 14 years. “That’s a lot of time to recover investment,” he said. 

Before the board’s vote, there was some discussion about whether or not GKM could take its improvements, such as fencing, with it when its permit expired. Kaua‘i board member and former DLNR land agent Tommy Oi pointed out that improvements become state property upon termination of leases, but remain the permittees’ property under revocable permits. 

False Advertising 

Apparently, prospective bidders were not made privy to the board’s discussion regarding existing improvements on the property. 

DOBOR’s public notice for the auction, held July 13, 2018, described the land as an unimproved gravel lot, fenced with a chain-link fence. The upset rent was 50 percent of gross revenue or $423,000 a year, whichever was greater. 

PMP, which had formed just a few days before the auction, was not allowed to inspect the property before bidding. It was the only bidder. 

In late August, according to testimony Solliday submitted to the Land Board this past June, he was granted permission by GKM to do a post-bid partial inspection of the property with the DOBOR harbormaster. He stated that he saw that the property had water and electricity, but that there was also a business, Hotspots Welding, operating on the parcel. He said he also found that only about six of the parcel’s nine acres were graded and graveled, “with approximately 10-12 feet high berms littered with tires and debris.” The fencing was incomplete and there were hazardous waste barrels, construction debris and derelict vessels throughout the property, he stated. 

“PMP’s counsel Duane Fisher notified DLNR and deputy Hawai‘i attorney general William Wynhoff of the false advertised conditions of the leased parcel. In short, the leased property was not what was advertised,” Solliday wrote. 

GKM vacated the property in November 2018, taking with it the motor for the front gate, Solliday claimed. GKM submitted a Phase 1 environmental site assessment of the property, but PMP, which questioned the reliability of that report, hired Environmental Science International to conduct its own assessment. Before doing so, PMP confirmed in writing that between PMP and the DLNR, PMP would not be liable for any pre-existing environmental conditions found on the lot. 

PMP’s consultant wound up finding a number of environmental conditions in need of remediation, including an unpermitted cesspool associated with Hotspots Welding; uncontrolled dumping; minor releases of oil, paint, or other hazardous substances and solid wastes; and abandoned or derelict vessels. 

In a February 2019 letter to Wynhoff, attorney Ian Sandison, who was representing PMP at the time, described how the identified hazards, especially the illegal cesspool, might violate state and federal environmental and health laws, exposing it to tens of thousands of dollars a day in fines. Remediating the hazards would cost between $1.1 million and $4 million, according to his letter, which asked Wynhoff and DLNR director Suzanne Case to meet with him and his clients to discuss matters. 

Six months later, on August 21, PMP attorney Fisher asked the Land Board to approve a rent abatement, given all of the property’s defects. He claimed that PMP had incurred damages totaling $415,505 since November 2018, including lost revenue due to waste, derelict vessels and an illegal tenant occupying space that could otherwise be rented, as well as costs incurred to complete the fence around property, to hire security in the meantime, to install a new power system and security gate, and to grade and level the lot. 

While GKM was under no obligation to leave any of its improvements on the property, Fisher described the company’s decision to disconnect utilities and remove the motorized security gate as property damage. 

Fisher wrote that PMP knew there was a functioning security gate when they bid on the property and expected it to still be there when it took possession. 

He also asked that the Land Board agree to reimburse PMP the costs to remediate the environmental hazards on the property, such as the cesspool. Fisher estimated those costs could range from $474,000 to nearly $2 million. 

Before the month was over, however, PMP had begun to unravel. 

A Sinking Ship 

According to Solliday, he had learned that Ho‘opai had taken out more than $100,000 in loans without Solliday’s knowledge or consent, which was a violation of their operating agreement. The agreement requires unanimous consent of all members to take on liabilities greater than $10,000. 

That same agreement allows for a member to be involuntarily withdrawn and dissociated from the company, so Solliday filed a notice with the state Department of Commerce and Consumer Affairs that he was the sole owner. Ho‘opai followed suit with a similar filing, which led to Solliday filing another. And on it went. 

To the court, to DOBOR, and to various banks, Ho‘opai has represented that he owned 95 percent of PMP, with Solliday holding the remainder. And, he stated, because he believed Solliday owns a less than ten percent interest in the company, he did not list Solliday as a co-owner or provide any of Solliday’s financial information to DOBOR when he submitted PMP’s lease bid in 2018. Such information would have been required from any owner with more than a 10 percent interest. 

Solliday, on the other hand, has argued that it was his idea to bid on the harbor lease and that both had signed an operating agreement that gave each of them a 50 percent ownership interest. A shareholder agreement they also signed, which includes the 95-5 percent split, is invalid, Solliday’s attorneys have argued, because PMP is a limited liability company, and LLCs do not have shareholders. 

In October, after banks had frozen PMP’s accounts and would only allow expenditures approved by both men, Ho‘opai sought Land Board approval to identify him as the sole owner of PMP. By then, the company had failed to pay its rent for several months. 

The Land Board denied Ho‘opai’s request. And a few weeks later, 3rd Circuit Judge Melvin Fujino held a hearing on a petition Ho‘opai had filed for a temporary restraining order and preliminary injunction against Solliday.

At the November hearing, Ho‘opai’s attorney, Sunny Lee, conceded that PMP’s shareholder agreement had “a lot of things in there that were not intended to be. It was a document that Mr. Ho‘opai downloaded off the internet and cobbled together.” 

Lee warned that Solliday’s contestation of the ownership percentage might lead to PMP being stripped of its lease. Lee said that any assignments of interest need to be approved by the Land Board beforehand. In PMP’s case, its bid application showed a company owned by Ho‘opai to be the 95 percent owner. “Now Mr. Solliday is claiming 50/50. It is a violation of the terms of lease because that was not what DLNR agreed to when they assigned the lease to Pacific Marine Partners,” Lee said. 

Solliday’s attorneys countered that the operating agreement contains a clause that invalidates any other agreements. It states, in part, “Only the written terms of this agreement will bind the members.” 

Judge Fujino sided with Solliday. “Mr. Lee admits that his client was the one who prepared [the agreements]. At best, there is ambiguity. We believe that the shareholder agreement doesn’t apply,” Fujino said. 

He pointed out that the shareholder agreement included provisions that are not applicable and that Ho‘opai had submitted a document to the Bank of Hawai‘i in August 2019 that stated that Solliday owns more than 25 percent of the company. 

Fujino then denied Ho‘opai’s request for a temporary restraining order and preliminary injunction against Solliday. In April, the judge granted Ho‘opai’s request that the case be stayed and that the parties be ordered into arbitration. Solliday’s attorneys appealed Fujino’s April decision to the Intermediate Court of Appeals, but no hearings have been held. 

On May 22, the Land Board cancelled PMP’s lease for non-payment of rent. Ho‘opai asked the board hold off, pointing out that PMP has had to spend money curing faults with the property. “When I bid and won at the auction, I was anticipating this high price would come with all the bells and whistles…. It was very much not the case,” he said. He pointed out that PMP’s rent is many times more than previous ground rents. 

Despite owing substantial back rent, “PMP has paid more in one and a half years than [GKM did] in the past five years,” he told the board. 

“These issues down at Honkohau Harbor have been festering, for lack of a better word. [We’re] stepping up to the plate to take this on,” he said. 

When pressed by board members to specify how much PMP has paid to clean up the property, Ho‘opai could not answer. “A lot of those numbers are with my attorney,” he said. 

Board members also could not get Ho‘opai to tell them how much gross revenue PMP had generated. 

“Percentage rent requires accounting to DLNR for your income. Have you delivered any of that information to DLNR?” asked Land Board chair Suzanne Case. 

Ho‘opai said his attorneys had been in the process of delivering gross receipts. 

“You haven’t actually given it to the DLNR,” Case said. 

“Do you know your gross receipts for 2019?” board member Chris Yuen asked. 

Ho‘opai said he could contact his bookkeeper.

Before voting to cancel the lease, deputy attorney general Wynhoff reminded the board that, under PMP’s lease, it would still have 60 days to cure its default. 

‘Unfairly Targeted’ 

On June 26, the Land Board rejected Ho‘opai’s and Solliday’s petitions for a contested case hearing. Solliday had submitted testimony to the board that criticized the actions of DOBOR, Ho‘opai, and GKM. He blamed DOBOR for failing to inspect the property and ensure it was suitable before auctioning it. He blamed GKM for not fully disclosing site conditions and for Hotspots Welding’s unpermitted warehouse and cesspool, and the dumping of hazardous materials and construction waste, among other things. 

He also blamed DOBOR for Hotspots remaining on the property for years without authorization and without addressing the environmental hazards. 

“[U]pon PMP’s acquisition of the lease, DOBOR claims PMP got an ‘as is’ property and directs PMP to tackle the illegal trespassing business Hotspots Welding, including entering its trespass lawsuit. PMP is still embroiled in and at risk in expensive litigation with Hotspots Welding thanks to DOBOR,” he wrote. 

Solliday recounted that on November 15, 2019, he had to call the police after finding a man who had sneaked into the boat yard “naked with a woman out in the open.” The police found the couple hiding at Hotspots and gave them a warning against trespassing, he wrote, adding that less than an hour after the police left, PMP’s two surveillance cameras outside Hotspots’s warehouse went offline. The camera wires appeared to have been intentionally cut or damaged, Solliday wrote. 

“PMP’s water service was also turned off as the water lines ran through Hotspots. I ended up installing new water lines that went around Hotspots,” he added. 

When Land Board member Jimmy Gomes asked Wynhoff about the issues Solliday had raised, Wynhoff said, “These claims are worthy of consideration and worthy of respect.” Even so, he said the parties were not entitled to a contested case hearing. 

But a month later, after negotiation with PMP’s attorneys, DOBOR recommended Land Board approval of the $423,600 settlement and rescission the lease cancellation. 

In its July 24 report to the board, DOBOR listed the 11 issues with the property that PMP found problematic. GKM was blamed for most of them, including interfering with the transfer of boat storage customers to PMP, destroying the electrical connection and interfering with the water supply to the property, abandoning vessels, and installing an illegal cesspool. 

In testimony submitted on July 21, GKM’s Prettyman rebutted the accusations. 

With regard to the problems PMP has had getting water and electricity to the property, she explained that there never were utilities on the property. “GKM had been making do with a small amount of power supplied from GKM’s electric at its adjacent property,” she wrote. 

She pointed out that on October 24, 2018, before PMP took possession of the property, GKM and its attorney met with Land Board chair Case and Wynhoff. GKM was told that PMP wanted to buy GKM’s assets. “GKM made an offer and our offer was rejected at the last minute leaving GKM scrambling to remove GKM’s improvements and some of GKM’s equipment,” Prettyman wrote. 

As for interfering with the transfer of boat storage customers, Prettyman stated simply that once GKM got notice from DOBOR to vacate the premises by October 31, 2018, the company gave all of its tenants similar notice. 

DOBOR then posted a notice at the harbor office, and made calls and emails to GKM’s tenants telling them they did not have to leave, she stated. That “completely undermined GKM’s move-out process and eliminated any management and GKM’s ability to collect any rents owed. … [V]ery few tenants moved out and all remaining tenants continued to ignore any and all further requests from GKM,” she wrote. 

She continued, “There were no abandoned vessels as all vessels had owners and GKM was in communication with the owners. GKM also gave notice to Hotspots Welding to vacate the premises. After receiving our notice to vacate, Cameron Noftz, Hotspots Welding, approached me in the parking lot and told me that he was told by both DLNR and PMP that he did not have to vacate. Cameron Noftz completely ignored our notice to leave and became very hostile.” (Solliday and even Hotspots employees have sought temporary restraining orders against Noftz, who claims he was robbed of his interest in the company through forgery. He is suing his former partner, Stacie Horst, as well as Ho‘opai and PMP. Ho‘opai and PMP deny Noftz’s allegations against them.) Prettyman also contested the claim that GKM left PMP with an unsuitable property. GKM’s Phase 1 Environmental Assessment found no recognized environmental conditions. She said that GKM never allowed vessels to be worked on at the boat yard, but that PMP has. She added, “GKM is also unaware of any cesspool at Hotspots Welding.”

She also stated that when GKM attempted in November 2018 to remove some property that had been left, PMP reported the incident as trespassing. “We made at least five attempts to remove GKM’s equipment starting as early as November 13, 2018, without access,” she wrote.

She concluded that GKM, when it managed the property, paid its rent on time, prohibited vessel work, offered fair prices (“Rents have quadrupled for some tenants,” she said), and left the facility in a “clean and in very good condition.” 

“GKM continues to cooperate with DLNR-DOBOR despite GKM being unfairly targeted,” she wrote. 

DOBOR and attorneys for Noftz and Ho‘opai did not respond to questions by press time. 

— Teresa Dawson

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