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The Honolulu Advertiser
Posted on: Sunday, May 2, 2010

Big Island sues to block Hōkūli'a sale

By Nancy Cook Lauer
West Hawaii Today

HILO, Hawai'i Hawai'i County has filed suit against Hōkūli'a developers and called in the bonds securing the $35 million Māmalahoa Bypass.

The breach of contract lawsuit filed late Thursday is an attempt to forestall a likely sale by developer 1250 Oceanside Partners and its backer, the Bank of Scotland, of all or part of their interest in the $1 billion, 730-lot golf course community makai of Kealakekua.

"We regret that we must take these legal actions against the owners of Hōkūli'a, but these court filings were absolutely essential to protect the interests of the taxpayers in the County of Hawai'i," Mayor Billy Kenoi said Friday. "The developer and owners of Hōkūli'a have an absolute, irrevocable obligation to complete the Māmalahoa Bypass highway, and we intend to enforce that obligation."

At issue in the county's lawsuit is a 1998 development agreement. In exchange for the right to develop, Oceanside agreed to complete the much-needed bypass from Ali'i Drive in Keauhou to Nāpō'opo'o Road in South Kona within five years and make other improvements to roads, drainage structures, sewer and potable water systems and other infrastructure.

Oceanside CEO John De Fries said the development agreement gives Oceanside 180 days to "cure" any breach of contract without resorting to court. The county sent a notice of breach along with the court complaint.

"We look forward to the opportunity to rebut these allegations and will work diligently with the county to find a remedy within the 180-day timeframe mandated by the development agreement," De Fries said.

The lawsuit is the latest twist in a 12-year saga marked by controversy and litigation.

The developer, the county and the state were named in a raft of lawsuits. Environmental and cultural activists sued over improper land use classifications and destruction of artifacts. People who bought lots in the luxury subdivision sued the developer, the county and the state over development delays during litigation.

Landowners along the road right of way sued the developer and the county, saying they weren't fairly compensated for their property. Even the state Legislature weighed in. Some lawsuits are still ongoing.

Lot sales were halted by the court while the litigation progressed; once developers got clearance to begin selling again, the economy was taking a nosedive and investment capital dried up, prompting the development to suspend sales during financial restructuring. Other than resales of current lots, sales can't begin again until Oceanside can file required federal disclosures to show that financing is in place.

County officials say they don't know exactly who is selling what, but that they don't want the road project jeopardized during the transition. There is no specific requirement in the 27-page development agreement that successor owners inherit Oceanside's development obligations, but the agreement does allow Oceanside to sell or transfer its rights and obligations and encumber any of its property without county approval.

The county filed suit after attempting to take possession of some of the land as collateral. Instead, the county learned the developer was arranging a "private auction" of some of its land.