The state Division of Boating and Ocean Recreation informed the Board of Land and Natural Resources on April 13, 1995, that for about three years, it had failed to collect rents owed by a tenant at Honokohau Harbor, on the Kona coast of the island of Hawai`i. In addition, the property is being investigated by the Department of Health for contamination resulting from leaking underground fuel storage tanks.
The consequences of DOBOR’s failure to monitor the tenant’s account are complex. The party wanting to take over the lease now, Kona Fuel & Marine, Inc., owned by Jack Hall, was a secured creditor of the parties in default, James L.K. Dahlberg, a former Republican member of the Hawai`i County Council, and Diane Dahlberg. Hall also happened to be the party to whom the lease was originally issued, in 1983.
Before the Division of Boating cleared the way for Hall to re-assume the lease (covering a marine fuel station and store), it wanted him to pay all of the back rent owed by the Dahlbergs. Hall, who brought the Dahlberg’s delinquency to the attention of the state in the first place, did not think that was right, arguing that the state should really be going after the Dahlbergs for the unpaid rent. In an effort to work out a rapid settlement of the dispute, however, Hall agreed to pay the principal amount owed ($168,594.87), but was reluctant to pay the penalties and interest. (Time was of the essence in settling the dispute, because if there was no approved lessee on the premises by late April, the store would lose its liquor license. Without that, there would be little chance of Hall, or any other tenant, for that matter, being able to pay back rent as well as current obligations.)
DOBOR also wanted Hall to assume all responsibility for cleaning up contamination on the site — although, again, it was Hall who brought the matter to the attention of the state. Moreover, liability for this kind of contamination is established in federal and state law; it is not a proper subject for decision-making by the Land Board. Still, in what might be interpreted as a generous (albeit ineffective) gesture, the board agreed that other parties in addition to Hall might be held responsible.
History
The lease was approved by the Land Board in 1983. Lease terms call for payment of 5 percent of gross receipts or an annual minimum (which has been $6,524 since July 1990). In 1989, the Department of Transportation allowed the lease to be assigned from the lessee originally approved by the Land Board (Kona Fuel & Marine, Inc.) to the Dahlbergs. (Whether the DOT action was binding on the Land Board is a legal matter that remains unsettled. At the time the lease was assigned, the DOT collected a $75,000 “assignment premium” from the owner of Kona Fuel & Marine.)
The Dahlbergs purchased Hall’s leasehold interest by taking out a first mortgage from HonFed Bank (now Bank of America) and by taking out a second mortgage from a company owned by Hall, Lenders Document Service.
From almost the outset of the Dahlbergs’ tenancy, the reports on gross receipts required to be provided to the state (to figure the percentage rental) were not forwarded. When the Dahlbergs had not paid Hall for some months, Hall began making inquiries, which ultimately called DOBOR’s attention to the mounting delinquency.
In March 1993, the Boating Division demanded sales reports be submitted within two weeks, so that the state could perform an audit to determine compliance with lease terms. When that demand produced no result, DOBOR sent a formal “Notice of Breach” and gave the Dahlbergs 60 days to cure it.
Still Nothing
David Parsons, administrator of DOBOR, told the Land Board that the Dahlbergs cured the breach in June 1993 — not by paying the amount owed, but simply by submitting the documents needed for figuring what was owed, which eventually was set at $168,594.87. (According to Larry Cobb, DOBOR property manager, this figure may not be complete, since some receipt reports are missing for 1990 and 1991.)
Not only were the Dahlbergs behind in what they owed the state, they were also in default on their loans to HonFed (by now Bank of America) and Hall. Bank of America began foreclosure proceedings against the Dahlbergs. To save his own stake in the operation, Hall satisfied the bank’s claim (which cost him $1.4 million, he told the Land Board), and thus cleared the way for him to reassume the lease.
As described earlier, the agreement that Hall and DOBOR worked out called for Hall to pay off the principal amount owed, but for the state to “eat” the penalties and interest. The Land Board refused to go along with this arrangement and agreed to approve assignment of the lease back to Hall only if he assumed responsibility for payment of all the debt accumulated by the Dahlbergs.
Spills
According to the report DOBOR prepared for the Land Board, the state learned of the possible contamination of the site only in March 1995. The Department of Health is investigating, with the full cooperation of Hall’s company, Parsons told the board.
A staffer with the Department of Health’s underground storage tank program was asked about this. “Yes, I suppose you could say he was cooperative,” he told Environment Hawai`i. “He was the one who brought it to our attention.”
According to Colin L. Love, Hall’s attorney, Hall became aware of a problem around November. Hall had been operating the site, at the request of the receiver, since the property was placed in receivership in March 1994.
“There was a lot of concern over the manner in which the fuel supplier had been maintaining equipment. The equipment was leaking, in bad shape, and wasn’t being properly repaired and maintained.”
After extensive groundwater tests and soil-gas tests, the contamination was confirmed and the Department of Health was notified, Love said.
Results of the groundwater analysis were faxed to the state by Hall on January 19, 1995, and results of the soil gas investigation submitted on February 22, 1995. Following that, on March 7, 1995, Steve Chang, manager of the Department of Health’s Solid and Hazardous Waste Branch, notified both Hall and Jack Humphrey, owner of the tank and distribution system, of the problem. They were instructed to perform tests of the system intended to find the leaks in it, if any, and to report the results of those tests to the Department of Health within 30 days.
Testing began April 11, according to a letter from Hall to the Department of Health, with underground probes to remain in place for at least two weeks. Results would probably be available seven days after the tests were completed, Hall said.
— Patricia Tummons
Volume 5, Number 11 May 1995
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