`Aina Le`a Makes $200 Million Claim Against State Over Stalled Development

posted in: April 2017 | 0

One of the companies that is involved in attempting to develop about 1,000 acres of land near Waikoloa Village, on the island of Hawai`i, has filed a complaint in state court that seeks $200 million in damages from the state, plus additional “compensatory consequential, and punitive damages,” along with interest, attorneys’ fees, and other costs.

The lawsuit, filed by DW `Aina Le`a, LLC, on February 23 in 1st Circuit Court, dates back to a decision the state Land Use Commission made six years ago to revert land where the company had begun to build 385 affordable housing units from the state Urban District to the Agricultural District. On March 13, the case was transferred to federal court.

The land had been in the Urban District since 1989, when the original redistricting petition was approved. In the intervening years, title to the area changed several times, with DW `Aina Le`a entering the picture in 2009 as a development partner with Bridge `Aina Le`a, which owned the land at that time.

As Environment Hawai`i has reported in numerous articles over the years, in April 2011, the LUC took the vote to revert the land use classification to Agricultural after it determined that Bridge (and DW `Aina Le`a) had not fulfilled a condition to have at least 16 affordable units built by March 31, 2010.

Judge Elizabeth Strance of the 3rd Circuit ruled that the LUC had violated Bridge’s due process rights, among other things. On appeal to the state Supreme Court, this determination was rejected, although the high court did find that the LUC should have gone through a more thorough redistricting hearing before reverting the land to Agricultural.

In a separate federal lawsuit, Bridge claimed damages of upwards of $15 million. Last year, this was settled for $1 million, with the final agreement signed in February this year.

Since filing that lawsuit, Bridge sold almost all its land in the Urban District to DW `Aina Le`a Development (DWAL). The first purchase was in 2009 of 61 acres, which included the area where it planned to build the affordable housing units plus additional market-based single-family houses and upscale condominiums. In 2015, DWAL took title to an additional 1,011 acres, leaving Bridge with a 27-acre parcel, zoned for commercial development. (Bridge continues to hold title to roughly 2,000 acres in the state Agricultural District that surround the Urban land on three sides.)

In the most recent filing, DW `Aina Le`a claims that the 2011 LUC action amounts to inverse condemnation – a taking that is prohibited under the 5th Amendment to the U.S. Constitution.

A Disillusioned Suitor

DW `Aina Le`a Development, LLC, owns a major stake in another company, `Aina Le`a, Inc., a Delaware corporation formed in 2012 to raise more than  $35 million in capital needed to move the Villages of `Aina Le`a development forward. The offerings of shares failed to generate the required funds, but last year, `Aina Le`a (the corporation) did locate a promising investor: the Origo Acquisition Corporation, based in the Cayman Islands.

As Environment Hawai`i reported last month, Origo is a “blank check” company with no business activity of its own, except to identify takeover targets. The merger agreement was signed in December, but Origo then had two months in which to conduct due diligence.

In late December, one of `Aina Le`a’s Chinese investors, Libo Zhang, filed a lawsuit seeking to foreclose on a 23.6-acre parcel where DW `Aina Le`a is proposing a residential development. Zhang had obtained a mortgage on the parcel in return for providing a $6 million loan to `Aina Le`a, Inc.

The lawsuit may have been one of the factors in Origo’s decision to terminate its merger agreement.

On February 17, Origo notified `Aina Le`a that in light of certain breaches of the agreement as well as a “material adverse effect” on the company that was “uncured and continuing,” it would not be going forward with the merger.

In a notification to the Securities and Exchange Commission, `Aina Le`a stated that the company disputed the facts that Origo had cited in its termination notice. “However,” it added, “after careful evaluation, the company decided that it is not in the best interest of its stakeholders to continue pursuing the merger.”

In addition to the unpaid loan from Libo Zhang, `Aina Le`a also is in arrears on a $14 million loan it took out from Bridge to finance purchase of the bulk of the Urban area in 2015.

— Patricia Tummons

For Further Reading

Environment Hawai`i has reported extensively on the `Aina Le`a development. Here are a few recent articles:

  • “`Aina Le`a Update: A Settlement, an Overdue Note, and a Possible Suitor,” March 2017;
  • “As One Court Case over `Aina Le`a Is Settled, Another, Larger One Looms,” August 2016;
  • “Hawai`i Planning Director Questions Whether `Aina Le`a Complied with Zoning Conditions,” April 2016;
  • “Whatever Happened to the Villages of `Aina Le`a?” January 2016.

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