ʻAina Leʻa Update: From State Court, To County Planners, to U.S. Supreme Court

posted in: December 2020, Land Use | 0

For years, the various owners of land in South Kohala where the ʻAina Leʻa development is proposed have struggled to move forward with their plans. The problems they have faced related to permitting and entitlements, but also to finances.

The current owners of the 1,100 acres in the state Urban land use district that are at the heart of the development are all subsidiaries of ʻAina Leʻa, Inc. That company, headed up by Robert Wessels, has gone through several metamorphoses since Wessels first came onto the scene more than 10 years ago.

In August 2019, ʻAina Leʻa emerged from bankruptcy, thanks largely to a loan from Iron Horse Credit, secured by the property. But since June, Iron Horse alleges in a 3rd Circuit complaint filed October 13, ʻAina Leʻa has been in default. “As of October 1, 2020,” the complaint says, ʻAina Leʻa “owed plaintiff the sum of $5,429,772.97,” with additional amounts “continuing to accrue.” The loan agreement states that interest has been prepaid, but ʻAina Leʻa will still pay 8 percent annual interest on the principal balance of the loan. If the loan goes into default, the interest rate jumps to 18 percent.

The complaint also names as defendants three parties known to hold superior mortgages: Romspen Investment Corp., Bridge ʻAina Leʻa, LLC, and Libo Zhang, a Chinese national.

On November 29, ʻAina Leʻa filed its response. Among other things, argued its attorney, Mike Matsukawa, “the circuit court may lack subject matter jurisdiction” because the federal bankruptcy court retained jurisdiction “over certain subjects and issues that pertain to or are related to the bankruptcy plan” referred to in the Iron Horse complaint.

In the main, the defense comes down to blaming the county. “The Defendants’ inability to fully perform their obligations for the loan and the defaults that the Plaintiff has asserted … are the result of and caused by the County of Hawaiʻi and the Planning Director, Department of Planning for the County of Hawaiʻi’s failure and refusal to perform the obligations on their part to be performed under the bankruptcy plan, which performance conditions the Defendants’ obligations to the Plaintiff…,” the brief states.

As Environment Hawaiʻi reported in 2019, when ʻAina Leʻa was emerging from bankruptcy, the company claimed that it possessed all necessary permits to move forward with construction of 385 units of affordable housing and other projects it had dangled before investors.

Yet even then, the county Planning Department put the company on notice that it was still required to prepare an environmental impact statement, as the county had earlier determined that one prepared more than a decade ago was inadequate. That determination followed a legal challenge to the EIS brought by the Mauna Lani Resort Association, which owns property that lies between ʻAina Leʻa’s property and the ocean.

But earlier this year, Lulana Gardens, LLC, one of the companies ʻAina Leʻa established to develop the affordable housing project, filed a complaint against the county and Michael Yee, its planning director, asking the court to find that that earlier EIS is sufficient, notwithstanding the county’s determination.

Third Circuit Judge Robert Kim heard arguments in July on Lulana Gardens’ motion for partial summary judgment, and ruled against it on August 24.

Since that ruling, there have been no additional documents filed in that litigation.

Perhaps recognizing that they would need to prepare a new EIS after all, last month, representatives of ʻAina Leʻa met with Planning Department staff to discuss what was needed to get the department to accept an EIS preparation notice for the development. Once the EISPN is accepted by the county, the county can then forward it to the state Office of Environmental Quality Control for publication in its bi-monthly Environmental Notice.

In the normal course of events, the EISPN triggers a range of comments from the public and interested agencies, which comments are then used in developing a draft EIS. The draft EIS is once more considered by county planners before being forwarded for publication in the OEQC’s Environmental Notice. Following a comment period, a final EIS is prepared and published. If no legal challenge is brought, the way is cleared for the county to issue the necessary permits.

From the time an EISPN is published to final, unchallenged acceptance of an EIS can take a year or more.

Bridge ʻAina Leʻa Seeks Cert

In July, Bridge ʻAina Leʻa, which once owned the ʻAina Leʻa project site and which still owns about 2,000 Agricultural acres wrapping around the Urban land on three sides, appealed a 9th Circuit Court decision to the U.S. Supreme Court. That appellate court ruling earlier this year had the effect of denying Bridge compensation that it says was owed to it by the state when the Land Use Commission reverted the Urban land – now owned by ʻAina Leʻa – to the state Agricultural District. The reversion was effected in 2011 following Bridge’s failure to complete construction of at least 16 affordable housing units by March 31, 2010 – the deadline set by the LUC following years of delay in fulfilling conditions set in the redistricting order.

That reversion was overturned in state court but Bridge has claimed that it nonetheless is owed compensation for the period of time in which the reversion was in effect.

Bridge filed its petition for a writ of certiorari on July 17. Since then, a host of organizations and individuals have filed amici curiae briefs in support of Bridge, including the Pacific Legal Foundation (joined by the Cato Institute and New England Legal Foundation), University of Hawaiʻi law professor David Callies with three other “takings” scholars, the National Association of Home Builders, the Owners’ Council of America, the National Association of Reversionary Property Owners, and Reason Foundation. 

No one has stepped forward as an amicus of the state.

On September 30, however, the outside legal counsel retained by the state filed his request to extend the deadline for the state’s response. It was filed on November 25.

“The extension is warranted because the undersigned counsel … was recently retained as counsel of record and must familiarize himself with the issues and record,” he wrote in the request, which was granted by the court.

That undersigned counsel? None other than Neal Katyal, the former acting solicitor general of the United States, but perhaps better known for his frequent appearances on MSNBC, where he is the resident legal analyst.

Patricia Tummons

For Further Reading

Over the years, Environment Hawaiʻi has written numerous articles on the ups and downs of this proposed development. All articles may be viewed free of charge on our website, www.environment-hawaii.org. For a full list, readers may wish to use the search engine in the upper right corner of the home page.

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