It has been more than a year since the Big Island Dairy in Oʻokala, along the Hamakua Coast of the Big Island, shut down. The closure followed a series of disastrous spills of manure into streams that outraged residents and prompted investigations – and fines – from the state Department of Health. Given environmental considerations, it seems unlikely a dairy will ever be sited there again.
Yet in the eyes of the California Energy Investment Center, LLC (CEIC), the Oʻokala dairy is one of several targets for acquisition by foreign investors hoping to acquire permanent residency in the United States through the EB-5 visa program. That program allows wealthy foreigners to jump to the head of the line in the award of so-called green cards if they invest significant resources into qualified projects in the United States.
Then there’s the Cloverleaf Dairy near Hawi, on state-owned land near the northern tip of the Big Island. In June, the state Board of Agriculture approved the sale of the dairy by its longtime owner, Ed Boteilho and Boteilho Hawaiʻi Enterprises, Inc., to Dutch-Hawaiian Dairy Farms.
That dairy, too, is among the enterprises that the CEIC says it is planning to purchase.
Finally, consider the Honokaʻa Land Company, LLC. That affiliate of CEIC was authorized by the Legislature in 2017 to float up to $50 million in special purpose revenue bonds. The purpose: to develop a facility to manufacture soil amendments and compost animal waste at the old Hamakua Sugar mill site in Haina, near Honokaʻa.
GGR Real Estate Holdings, LLC, yet another affiliated entity, did purchase the site in 2014, but lost it in a foreclosure action that became final earlier this year.
All three of these ventures were to be undertaken as part of what, under the rules of the EB-5 visa program, are called a New Commercial Enterprise, or NCE. In this case, the enterprise pulled together by CEIC and placed under the corporate umbrella of Hawaiʻi Agriculture, Energy and Earth Products, LLC, was intended to attract 50 foreign investors with a total investment of $25 million.
It now appears uncertain that CEIC will be able to move forward with any of these ventures, much less all three, but that has not stopped it from moving forward with litigation in hopes of salvaging the project.
‘Contiguity’ Challenge
The system that has been set up to implement the EB-5 visa program involves a network of what are called regional centers. As the term suggests, each regional center operates within a given geographic area, subject to approval of the DHS’s Citizenship and Immigration Services (USCIS). Thirteen such regional centers have been approved to undertake investment projects in Hawaiʻi, according to a DHS website. CEIC is not among them.
On August 31, 2016, CEIC applied for permission to expand its geographical jurisdiction to include Hawaiʻi. That same month, HAEE Products, LP, was registered in Hawaiʻi with the state Department of Commerce and Consumer Affairs. Another entity closely tied to CEIC changed its name from Haina Mill Holdings, LLC (established July 14, 2012) to HAEEP Holdings, LLC. A month later, HAEEP GP, LLC, was registered with the state.
In July of this year, the USCIS informed CEIC that it was denying the request to include Hawaiʻi in the region where CEIC could operate.
On October 22, CEIC and HAEE sued Chad Wolf, the acting secretary of the Department of Homeland Security, Kenneth Cuccinelli, acting director of USCIS, Sarah Kendall, chief of the Immigrant Investor Program Office, and the USCIS itself. The lawsuit is in the form of a complaint for a writ of mandamus, asking the court to order the DHS to overturn its denial of the application for expanded regional authority. It also seeks to recover attorney fees and costs.
According to the complaint, CEIC “provided sufficient evidence” to DHS “documenting that Hawaiʻi is in the same economic region as plaintiff’s already approved geographical region within the state of California.”
The complaint acknowledges that a regional center “cannot sponsor a project in an area outside of its territory until USCIS approves an amendment to that territory.” Nonetheless, CEIC established HAEE, which was intended to “raise up to $25 million from 50 foreign investors through the EB-5 program, and loan that money to the developer of the project, which includes: the acquisition, construction, and operation of the two remaining dairies located in Oʻokala, Hawaiʻi, and Hawi, Hawaiʻi; construction of solar barns and energy and water recovery facilities; extraction and processing of the highly enriched soil from the Haina Mill site (soil amendments which reduce water consumption in agricultural production and greatly enhance crop yields thus further reducing energy consumption); and developing root and feedstocks and using animal wastes.”
“For more than 15 months from the submission of the application, the plaintiff heard nothing on the application until Defendants issued a request for evidence on December 15, 2017,” the complaint states. The sole issued raised with respect to the expansion of the regional center’s territory, it says, was that “the proposed geographical region is not ‘contiguous.’”
In its response, filed on March 9, 2018, CEIC argued “that because California is the closest state to Hawaiʻi and shares economic ties with Hawaiʻi, the regional center should be allowed to expand its territory to include Hawaiʻi.”
When the denial finally came last July, it “was based solely on a finding that the geographical area of the regional center should not be extended to cover the project in Hawaiʻi,” the CEIC says in its court filing.
The law establishing regional centers “makes no specific reference to a requirement that a regional center be limited to a geographic or economic region,” the complaint notes. Further, USCIS policy at the time the application to expand CEIC’s region was filed “reiterates the regulatory requirement of promoting economic growth in the proposed geographic area of the regional center. There is no mention of a contiguity requirement.”
CEIC goes on to say that the USCIS has approved regional center sponsorship “of many projects in geographical areas not contiguous to the regional center’s previously approved geographical boundaries, including applications” from CEIC itself.
“One reason given for the denial of the … application is that the regional center requested that its geographic area include the Pacific Ocean, which is not part of the ‘United States’ as defined in the Immigration and Nationality Act,” the complaint states. However, “[i]t is not correct that the regional center proposal sought to include the Pacific Ocean as part of the geographic region of the regional center.”
In arguing its case, CEIC’s attorneys Terri Fujioka-Lilly and Jason Braswell, of Kailua-Kona, point out that the USCIS “has approved many regional centers that include bodies of land separated by bodies of water,” including regional centers covering all of the Hawaiian islands, the Virgin Islands, and the Commonwealth of the Northern Mariana Islands.
In 2019, they note, USCIS regulations changed to require “contiguous census tracts” in determining so-called “targeted employment areas” that qualify for EB-5 investment. Contiguity can include census tracts separated by a “waterway,” the complaint says.
If CEIC “cannot add Hawaiʻi to its territory, the only way it could sponsor the project is if it were to apply for the designation of a brand new regional center …, together with a filing fee of $17,795, and waiting for many years for defendants to act on that application,” the complaint says.
Even if contiguity is a requirement for the geographical area of a regional center, the complaint concludes, “under the facts of this case, Hawaiʻi and California should be considered to meet any contiguity standards.”
A Broken Contract?
Meanwhile, in Hawaiʻi’s 3rd Circuit Court, the Honokaʻa Land Company is suing Boteilho and Dutch-Hawaiian Dairy Farms, alleging that Boteilho breached a contract to sell the dairy to HLC and that Dutch-Hawaiian Dairy Farms’ principals engaged in tortious interference to block that sale.
Back in 2017, the land under the Boteilho dairy was still part of the state Department of Land and Natural Resources’ portfolio. On December 8 of that year, the DLNR’s Land Division brought to the Board of Land and Natural Resources a recommendation that it consent to the assignment of the Boteilho dairy’s lease to HFD Farms 1, LLC, an entity that – according to a company “organizational breakdown” provided by HFD Farms — had as its sole member HFD Partners, LLC, which in turn had as its sole member Hawaiʻi Agriculture, Energy, and Earth Products, LLC, which, in turn, had as its sole member Gemco Green Resources, Inc. (That last entity is not registered in Hawaiʻi, although GGR Real Estate Holdings, LLC, is; its sole member is Hawaiʻi Agriculture, Energy, and Earth Products Holdings, LLC.)
The Land Division’s report took note of the fact that in August 2016, the board had consented to Boteilho’s request to assign the lease to Mauna Kea Moo, LLC, which is another company owned by the Kea family (the same who own the Dutch-Hawaiian Dairy). But the sale of the lease fell through, the report says, “as a result of prolonged negotiations and the inability of Mauna Kea Moo, LLC, to secure the necessary funding.” Boteilho and Kees Kea formally signed an agreement cancelling the proposed sale on November 7, 2016.
Less than a year later, Boteilho informed the Land Division he wished to assign the lease to HFD Farms 1, LLC, an entity that, the Land Division report states, “was formed specifically for the purpose of purchasing the assets of the lessee.”
Attached to the Land Division’s report was a letter from Scott Enright, chairperson of the state Board of Agriculture, to Josh Gottlieb, CEO of HAEE, supporting the lease assignment. “HAEE’s acquisition of the Cloverlef Dairy, one of two remaining dairies in Hawaiʻi and its conversion to Certified Organic will present the first and only Certified Organic dairy in Hawaiʻi,” Enright wrote.
Enright also mentioned HAEE’s association with the EB-5 program, writing that this connection “initiates an exposure to foreign investment not able to be secured through the state of Hawaiʻi directly.”
The Land Board approved the transfer of the lease to the HAEE subsidiary. At the same time, it reaffirmed its prior approval of a set-aside of the leased land to the state Department of Agriculture. That set-aside was finally accomplished on April 12, 2018.
The sale to HFD Farms 1 or any other HAEE subsidiary did not go through. Instead, in 2019, Boteilho agreed to sell once more to Dutch-Hawaiian Dairy Farms.
On June 30, Brian Kau, administrator of the Department of Agriculture’s Agricultural Resource Management Division, forwarded to the Board of Agriculture the staff recommendation that the board approve the sale of the lease and cattle for the purchase price of $700,000.
Of that amount, $411,000 was to be used by Boteilho to pay off indebtedness he had incurred to Paul Pozzi, dba Poz Trading, of Petaluma, California. Boteilho had taken out a loan from Pozzi in late 2017. But, Kau’s report states, “in 2019, severe drought conditions caused a significant increase in [the dairy’s] feed costs, which put them in poor financial condition.” Since then, he continued, the dairy “has not recovered from their losses and their financial condition remains poor and they are at risk of shutting down operations.”
At the BOA meeting, Gottlieb, CEO of HAEE, objected to the transfer, claiming that his company had an existing agreement to purchase the dairy.
Boteilho told the board, however, that his contract with Gottlieb back when the Land Board approved the transfer in 2017 called for a signing bonus of $100,000, of which he had received $50,000. According to the BOA minutes of the June 23 meeting, Boteilho said that the performance timelines in the agreement had all passed, and while he had been trying to repay the $50,000, Gottlieb “had not been cooperative.”
Boteilho’s attorney, Alan Okamoto, said that Gottlieb had been notified in 2019 that there was possible environmental contamination on the property and that an environmental study had been done. “With the passage of time, the value of the dairy decreased, and the offer was made to reduce the price if Mr. Gottlieb wished to proceed,” Okamoto told the board. No response was received, Okamoto said. “Mr. Boteilho is still prepared to return the money but he needs the proceeds from the sale to Mr. Kea to do so.”
On a vote of 7-1, the board approved the transfer.
Sixteen days later, Honokaʻa Land Company sued Boteilho, Boteilho Hawaiʻi Enterprises, Dutch-Hawaiian Dairy Farms, Mauna Kea Moo, Kees Kea, Cornel Kea, and Malena Kea. The complaint states that on numerous occasions, the contract between Boteilho and HLC was amended “to accommodate difficulties that arose in BHE’s ability – or perhaps, in hindsight, willingness – to close the contemplated transaction, such as environmental issues related to underground storage tanks on the properties to be transferred.”
“Undeterred, HLC patiently waited for BHE to fulfill its obligations and close the transaction. HLC remains ready, willing, and able to fulfill its obligations under the contract and close the transaction,” the complaint says (emphasis in the original).
In response, Francis Jung, attorney for Dutch-Hawaiian Dairy and related parties, argued that the complaint should be thrown out if, for no other reason, it fails to name the Department of Agriculture as a necessary party. He noted that from January 2017 to June 2020, “the plaintiff never sought the consent of the DOA to the assignment of the lease. … Consequently, there was never an enforceable or legally valid or enforceable contract for the defendants to breach.”
In October, Judge Robert D.S. Kim denied the defendants’ motion for summary judgment; a hearing on their motion for partial summary judgment is to be heard December 20.
— Patricia Tummons
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