After seven years of litigation, the state of Hawaiʻi has finally prevailed in the lawsuit brought by DW ʻAina Leʻa Deveopment, LLC – DW for short.
The company, owner of about 1,000 acres of land in the Big Island district of South Kohala, claimed back in 2017 that the state owed it some $200 million as a result of a decision six years earlier by the Land Use Commission to place the land back into the Agricultural land use district. The LUC action followed decades in which a succession of owners had failed to build so much as a single inhabitable structure in an area where thousands of houses, schools, golf courses, and commercial enterprises were to have arisen from the lava.
On February 12, U.S. District Judge Susan Oki Mollway issued an order granting two of the state’s motions for summary judgment. In it, she strongly suggested that DW’s own attorney stove in his client’s boat.
“Years of litigation before the LUC, the Hawaiʻi trial court, the Hawaiʻi Supreme Court, the 9th Circuit, the Bankruptcy Court, and this court have resulted in rulings that provide the framework for the present summary judgment ruling,” Mollway wrote, noting dryly that “this court, as it has noted in earlier rulings, does not write on a blank slate.”
“Particularly relevant is a recent DW statement … DW said emphatically and clearly that, if this court granted Hawaiʻi’s motion in line No. 8 … DW would have no case,” she continued.
Mollway must have been surprised by this admission, going on to note that at the February 6 court hearing on that motion in limine, “DW said that if [it] were granted, summary judgment should be granted in favor of Hawaiʻi. With these statements, DW appeared to be acknowledging that DW was seeking damages belonging to a non-party, not to DW itself.”
The state’s motion, filed in January, argued that, notwithstanding DW’s initial claim of damages amounting in the hundreds of millions of dollars, about the best it could come up with as litigation progressed was a claim that another, different organization — ʻAina Leʻa, Inc. (same parties, more or less, but two different businesses) – owed it $17 million, in the form of a note that called for payment after the sale of the part of the land where houses would be built.
The state’s Motion in Limine asked Mollway to exclude any evidence or testimony about the existence of this claimed note. Although the claim had been sufficient to satisfy the 9th Circuit Court of Appeals that the case should be remanded back to the district court after Mollway had issued an order granting the state’s motion for summary judgment back in 2022, no evidence of its existence had ever been brought forward by DW.
Earlier, Mollway had ruled that DW had no right to sue on the basis that it held rights to the land from the time the LUC issued a written order of reversion, in April 2011, to the time the 3rd Circuit Court effectively voided the reversion, in June 2012. Before the reversion, she held, DW had transferred its rights to a ʻAina Leʻa and thus had no claim. When DW appealed to the 9th Circuit, DW maintained that ʻAina Leʻa had given it an unsecured $17 million note, to be paid when ʻAina Leʻa began selling off houses. The 9th Circuit held that the note gave it standing to bring a takings claim, remanding the case back to Honolulu District Court.
The state had asked DW to produce documents supporting its takings claims back in 2022. No such note was produced at that time.
Then came the remand and the further hearings, including the December hearing, at which Mollway questioned DW’s attorney, Sang J. Peter Sim, about the claimed note.
“Where in the case file [is it] that the 17 million is identified?” she asked. “I don’t think I have the actual note, do I? … The 9th Circuit says DW holds an unsecured note… [I]f so, where is it in the record?”
Sim replied: “I do not believe that there’s a physical note…”
Mollway: “I see. So if I don’t have a physical note, what is the source of the assertion … by DW, that it is entitled to the first $17 million that ʻAina Leʻa receives?”
The sole reference to a $17 million obligation, Mollway noted in her order, “apparently arose from a January 2012 agreement through which DW assigned its rights to the residential property to ʻAina Leʻa. The parties to the agreement said that, if ʻAina Leʻa acquired the residential property, ‘Aina Leʻa shall pay DW … the sum of $17,000,000, to be paid by ʻAina Leʻa issuing its unsecured note, which note shall then be paid from the proceeds of future parcel resales.”
In fact, however, as she goes on to write, that obligation did not arise in the initial January 2012 agreement, but from a “Second Amendment” to it. That amendment, she notes, “bears a date of December 30, 2015, but was actually drafted in March 2022 to oppose the earlier summary judgment motion on standing in this case.
“It is this document that DW claims establishes that ‘DW retained the right to collect the first $17 million following bankruptcy’ with ‘any amount over this $17 million … belong[ing] to ʻAina Leʻa Inc., pursuant to the bankruptcy disclosure.”
(This same document, claiming to be the second amendment to the previous agreement, was purported to be signed in 2015, 18 months before ʻAina Leʻa sought protection from its creditors by filing for bankruptcy. Nor is this the first time DW sought to have the court rely on a back-dated document. In early 2022, in response to the state arguing that DW had no standing since it had assigned all rights to litigation to ʻAina Leʻa, Inc., DW claimed that ʻAina Leʻa had, in fact, assigned the claims back to DW on January 29, 2021. DW presented an agreement purporting to show the assignment to the court. “At a hearing,” Mollway wrote in a previous order of May 25, 2022 granting the state summary judgment, “this court questioned the authenticity of the document, which allegedly had not been produced in discovery. Eventually, DW admitted that the document ‘was drafted … on March 7, 2022, and finalized on March 9, 2022.”
(“DW nevertheless contends that the parties had ‘always agreed’ that DW would prosecute this action on behalf of ʻAina Leʻa… No admissible evidence supports that assertion. This court notes that DW has frustrated this court’s efforts to ascertain which entity had the right to sue at what time. DW’s assertions sometimes lack support in documents in the record, and are sometimes actually contradicted by the very documents that DW cites.”)
Mollway dutifully analyzes all the various ways in which DW may have been able to assert a takings claim – and disposes of all of them.
In short, “DW’s admission that it has no viable takings claim if it cannot introduce evidence of ʻAina Leʻa’s damages demonstrates that DW is not attempting to enforce its own rights,” Mollway writes. “This is particularly unexpected given the allegations in the complaint and DW’s earlier arguments with respect to standing. DW, after all, prevailed before the 9th Circuit by arguing that DW itself had standing to proceed in this case. DW is either now relinquishing that victory or admitting that it was never pursuing its own damages… In any event, having granted HawaiʻI’s Motion in Limine No. 8 and thereby precluded evidence of Aina Leʻa’s damages, and taking DW at its word that it has no claim if precluded from seeking ʻAina Leʻa’s damages, the court grants summary judgment in favor of Hawaiʻi.”
Meanwhile, in State Court
The lawsuits brought against ʻAina Leʻa, Inc., by its creditors continue to work their way through state courts.
Last August, title to the 69-acre tract where work began more than a decade ago on the affordable housing portion of the overall development was finally transferred to a Canadian company, RIC (Lulana), LLC, successor to Romspen Investment Corporation. Completion of the foreclosure had been held up for more than a year by difficulties in obtaining a title report. A source at the County of Hawaiʻi Planning Department told Environment Hawaiʻi that representatives of the new owner have not let the county know what plans, if any, it has for the stie.
In 3rd Circuit Court, SDCK I, which holds a second mortgage on the three remaining discrete tax-map parcels held by ʻAina Leʻa, was the winning bidder at a commissioner’s auction held January 17 for title to two of the three lots, having a total area of around 1,011 acres. The title is still subject to a first mortgage on both properties held by Bridge ʻAina Leʻa. No bidders came forward to bid on the third parcel, consisting of 24 acres and subject to a first mortgage held by Libo Zhang, later transferred to Xinhui Wang.
A hearing is scheduled for March 24 before Judge Wendy DeWeese on SDCK’s motion to approve the sale. SDCK bid $25,000 for the two lots, with the amount to be set off against the total amount owed by ʻAina Leʻa to SDCK. As of December 31, that amount came to $9.69 million.
Since then, and until the commissioner’s sale is approved, ʻAina Leʻa is still being charged the following fees, according to a statement submitted to the court on behalf of SDCK: “(a) monthly asset management fee of $5,000…(b) interest at the daily rate of $2,465.75 … (c) late fee on unpaid interest payments at the rate of $7,500 per month … and (d) late fee on any unpaid monthly asset management fee … at the monthly rate of $500.”
The delinquent loan was originally made to ʻAina Leʻa by Iron Horse Credit, LLC, a lender of last resort. The loan allowed ʻAina Leʻa to emerge from bankruptcy in 2019. Terms of the $5 million loan called for it to be repaid at 18 percent interest. As of December 31, the principal amount of the loan remained at $5 million. After suing for foreclosure, Iron Horse sold its note to SDCK, which, if DeWeese approves the commissioner’s sale, will then own the bulk of what was to have been the Villages of ʻAina Leʻa.
The litigation will continue, even though following the court hearing next month, both Iron Horse/SDCK and Romspen/RIC (Lulana) will not be part of it.
ʻAina Leʻa and its affiliated companies – Lulana Gardens, LLC, Hoʻolei Village, LLC, and B-1-A D-1-A, LLC – appealed the 2021 foreclosure action. Even though the original claims of Romspen and Iron Horse/SDCK have been satisfied, the appeal lives on. Cross-claims from Bridge and Xinhui Wang still need to be settled. Also, Hawaiʻi County remains a party to the litigation, thanks to a lawsuit that ʻAina Leʻa brought against it, claiming that the county’s delays were responsible for the company’s failure to perform on its loans.
— Patricia Tummons
For Further Reading
Over the last quarter of a century, Environment HawaiʻI has followed the trials and tribulations of ʻAina Leʻa, through Land Use Commission proceedings, state circuit courts, state appellate court, state Supreme Court, federal district and appellate courts, and bankruptcy court.
All articles – nearly 50 of them – are available to download from our website, environment-hawaii.org. There is no charge.
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