‘Aina Le‘a, Inc., owner of more than 1,000 acres of land near the Big Island town of Waikoloa, has effectively lost a foreclosure lawsuit that was brought against it by the creditor whose loan allowed the company to climb out of bankruptcy two and a half years ago. A minute order issued by 3rd Circuit Judge Wendy DeWeese on November 23 granted the motion for summary judgment and foreclosure decree sought by Iron Horse Credit, LLC.
The company has been struggling for more than a decade to develop the property, which was first placed in the state Urban land use district more than 30 years ago. A decade ago, it began to build townhouses on the most mauka (upland) portion of the property, but, for a number of reasons, including a dispute over requirements of the state’s environmental disclosure law and financing issues, work on the property has stalled.
Following a court hearing in November, DeWeese issued her order, stating that the court “finds it is undisputed that borrower ‘Aina Le‘a, Inc., and its related entities … have failed to make the agreed monthly payments under [Iron Horse’s] note and mortgage, that such failure constitutes an ‘Event of Default’ under the loan agreement, and that the loan agreement gives Iron Horse Credit, LLC, the right to accelerate the note and take possession of the project.” Iron Horse attorneys were instructed to draft the order, which was filed with the court on December 10.
The draft order authorizes a foreclosure auction of Iron Horse’s interests in the secured property. The sale is to be subject to confirmation by the court and shall be “free and clear of any and all claims … except for the interests of” three other ‘Aina Le‘a creditors: Libo Zhang, a Chinese national; Romspen Investment Corporation, of Canada; and Bridge ‘Aina Le‘a, LLC, of the Commonwealth of the Northern Mari- ana Islands. Bridge ‘Aina Le‘a was the owner of the land prior to its sale to the corporate predecessor of ‘Aina Le‘a.
DeWeese’s minute order dealt not only with Iron Horse’s claim against ‘Aina Le‘a, but it also addressed ‘Aina Le‘a’s third-party claim against the County of Hawai‘i, in which ‘Aina Le‘a blames the county for its inability to perform on the Iron Horse loan. County attorneys had argued for dismissal of the complaint. Among other things, they noted that much the same claim was being litigated in a different lawsuit that ‘Aina Le‘a made against the county in 2020. Litigation in that case was put on hold shortly after the administration of Mayor Mitch Roth was installed in the hope that the county and ‘Aina Le‘a could work out a way to move its development forward that would satisfy the interests of both parties.
During the November hearing, comments from the judge suggested she was sympathetic to ‘Aina Le‘a’s claim that the county bore at least some responsibility for the difficulties it had experienced.
‘Aina Le‘a has argued, DeWeese said, “that the county somehow wrongfully refused to move forward with the environmental impact statement, or what have you, and that that then interfered with ‘Aina Le‘a’s ability to carry out its land use action plan, which then led to default.”
“If that is indeed the case,” she continued, “then … why is the third-party complaint under those facts not correct procedurally?”
Ryan Thomas, the deputy corporation counsel arguing for the county, replied that the “land use action plan” – a unilateral plan presented to the creditors during bankruptcy as providing a path- way to move forward with development plans – “was all on ‘Aina Le‘a.”
The following week, when DeWeese issued her minute order, she indicated that she was not convinced by the county’s arguments. She rejected the county’s motion to dismiss, noting that the third-party complaint “includes claims for breach of covenant of good faith, interference with business advantage, [and] negligence,” in addition to the claims made in the 2020 complaint.
The court, she wrote, “cannot find that the claims in the third-party complaint are independent of those” in the original complaint (that is, they differed from those alleged in the 2020 lawsuit), nor could the court determine that they are the same. In light of that, DeWeese rejected the county’s motion to dismiss.
Among the many twists in the long ‘Aina Le‘a saga is this: the county corporation counsel, Elizabeth Strance, who now represents the county as it is being sued by ‘Aina Le‘a, was the 3rd Circuit judge who, back in 2012, sided with ‘Aina Le‘a when it challenged the state Land Use Commission’s action to revert the property from the Urban district to the state Agricultural district.
— Patricia Tummons
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