Facebook’s Zuckerberg sues to force land sales
November 23, 2017 | 76° | Check Traffic

Business| Hawaii News

Facebook’s Zuckerberg sues to force land sales

  • ASSOCIATED PRESS

    Facebook CEO Mark Zuckerberg

  • RON KOSEN / SPECIAL TO THE STAR-ADVERTISER

    Several small parcels of land within Facebook chief Mark Zuckerberg’s 700-acre Kauai property are owned by kama­aina families who have rights to cross the billionaire’s estate. Zuckerberg is suing to force the families to sell.

  • COURTESY CARLOS ANDRADE

    Andrade is helping Zuckerberg buy the family land, which encompasses four parcels totaling 2 acres including above, which contains a taro patch, through a court process intended to identify what could be a couple hundred or so relatives with partial ownership of the property and force them to sell their interests.

  • COURTESY CARLOS ANDRADE

    The family of Carlos Andrade is pictured here decades ago on the porch of a Kauai home Andrade had built in 1981 on an 11,000-square-foot parcel of kuleana land that has been in his family since 1894 and is surrounded by land owned by Facebook CEO Mark Zuckerberg.

When Facebook’s co-founder Mark Zuckerberg paid around $100 million for 700 acres of rural beachfront land on Kauai two years ago to create what Forbes magazine described as a secluded family sanctuary, he actually acquired a not-so-secluded property.

Close to a dozen small parcels within Zuckerberg’s Kauai estate are owned by kamaaina families who have rights to traverse the billionaire’s otherwise private domain.

Now the Facebook CEO is trying to enhance the seclusion of his property by filing several lawsuits aimed at forcing these families to sell their land at a public court auction to the highest bidder.

The legal action known as “quiet title and partition” isn’t uncommon in Hawaii. Yet even with an order from a judge and financial compensation, forcing people to sell land that has been in their families for generations can be off-putting — especially when it’s driven by the sixth-richest person in the world.

“The person being sued is ultimately on the defensive,” said Donald Eby, a real estate attorney and partner in the Colorado law firm Robinson & Henry who isn’t involved in the Zuckerberg actions and directed his comment to quiet title actions in general. “Their ownership is being challenged, and because of that their ownership is put at risk.”

A Center for Excellence in Native Hawaiian Law primer on quiet title and partition law titled “E ‘Onipaa i ke Kulaiwi” said using the law to compel land sales has reduced Native Hawaiian landownership: “Partition by sale in particular is highly problematic for the Native Hawaiian community because it severs a family’s connection to ancestral land.”

Zuckerberg, through several companies he controls, filed the lawsuits against a few hundred people — many living and some dead — who inherited or once owned interests in what are known as kuleana lands where ownership is often largely undocumented.

Kuleana lands refers to real estate initially acquired by Hawaii citizens through the Kuleana Act of 1850, which followed the Great Mahele, in which the Hawaiian kingdom began allowing private ownership of land. Often, kuleana lands automatically passed to heirs of the first owner in absence of a will or deed, and then down through subsequent generations of descendents who in some cases now own just fractions of an interest in the property without documentation.

Hawaii’s quiet title law can be used to establish legal title to such land. However, quieting these “noisy” real estate titles is expensive and therefore doesn’t happen often unless someone with the financial resources and interest in the property becomes engaged.

“This is a big problem in Hawaii,” said one local lawyer who isn’t involved in the Zuckerberg case, but asked not to be named because of sensitivities surrounding the issue.

A contested case with many owners can cost $100,000 or $200,000 or more. For someone to use the law to not only establish title, but to also force a sale requires that they have an ownership claim. For some of the Kauai land, Zuckerberg has done this by purchasing interests from several part-owners.

Keoni Shultz, a partner at the Honolulu law firm Cades Schutte representing Zuckerberg companies in the litigation, said in an email that it’s common for large tracts of land in Hawaii to contain small parcels that lack clear ownership title and have co-owners who might not be aware of what they own.

“Quiet title actions are the standard and prescribed process to identify all potential co-owners, determine ownership, and ensure that, if there are other co-owners, each receives appropriate value for their ownership share,” Schultz said.

Three Zuckerberg companies — Pilaa International LLC, Northshore Kalo LLC and High Flyer LLC — filed eight quiet title lawsuits Dec. 30 in state Circuit Court on Kauai.

In one suit the only named defendant is Oma, a Hawaiian woman who is believed to be the first private owner of one parcel within Zuckerberg’s property. She has no surname, as was tradition in old Hawaii.

Another case names Eliza Kauhaahaa, Annie I and long-deceased defendants including Kelekahi, Palaha, Laka, Lote, Luliana, Kapahu and Kaluuloa.

Some cases filed by Zuckerberg involve properties believed to have no living owners. In this instance, Zuckerberg’s team will have to trace ownership through genealogical records and make valid efforts to identify any living descendents and, if found, notify them so they have an opportunity to participate in the court action.

Perhaps the most complicated case was filed against roughly 300 defendants descended from an immigrant Portuguese sugar cane plantation worker named Manuel Rapozo who is listed in the complaint as having bought four parcels totaling about 2 acres in 1894.

In this case one of Rapozo’s descendents, Carlos Andrade, is helping Zuckerberg’s team as co-plaintiff.

Andrade, a great-grandson of Rapozo, is a retired University of Hawaii professor of Hawaiian studies who said he lived on his family’s kuleana land from 1977 until recently but still visits the property, on which he built a house, several times a week to maintain taro patches and fruit trees.

The 72-year-old Andrade, who was born on Kauai and is part Hawaiian, said he’s working with Zuckerberg partly to ensure that the family property isn’t lost to the county if no one takes his place paying property taxes that totaled about $6,500 in 2015. Also, documenting who in his family tree owns what share in the property is too expensive for him, and letting shares become further diluted among future generations makes the problem worse.

Andrade recently sent a letter to many of his known relatives explaining the situation.

“I feel that each succeeding generation will become owners of smaller and smaller interests, each having less and less percentage of the lands and less and less capability to make sure everyone gets their fair share of (Rapozo’s) investment in the future of his family,” the letter said.

Andrade also said in the letter that he figures more than 80 percent of his relatives don’t know that Rapozo’s legacy exists.

Marian Tavares of Hilo, a great-granddaughter of Rapozo, said she didn’t know about the family land on Kauai or the lawsuit. She didn’t know what to make of the situation offhand. Tavares is alleged to own a 1/191, or about 0.5 percent, stake in the land.

Another Rapozo descendent, Cameron Pila of Palolo, said he knew of the land but lost a connection to Kauai when his grandmother Margaret Jordan Cameron left Hawaii before she died in 1993. Pila, whose share in the family land is listed at 1/156 in the lawsuit, said he can’t be upset over losing a stake in something that he never possessed. “No hurt, no foul,” he said.

For some pulled into the quiet title action, proceeds from a sale might seem like a windfall. On the other hand, discord is also possible from relatives who include individuals who recorded partial deed interests in the family’s kuleana land that the lawsuit contends are invalid.

Defendants have 20 days to respond to the legal complaint after being served with a copy. If they don’t respond, they get no say in the proceeding. If they choose to participate, it could be expensive if they want to be represented by an attorney.

The lawsuit against Rapozo’s descendents alleges that individual ownership fractions range from about 1/7 (about 14 percent) to 17/333,396 (less than a one-hundredth of 1 percent).

Andrade owns the 1/7 share, according to the complaint, which explains that he acquired all his shares in 1976 from several aunts and uncles.

Valuing all the shares is hard to estimate. Some idea can be gleaned from property tax values and shares Zuckerberg bought in November and December.

These purchases, according to property records, include a 1/28 interest acquired for $36,453, a roughly 1/100 share for $8,607 and a 1/3,276 share for $350. Based on these prices, a whole interest would be worth around $1 million. The county values the Rapozo family’s 2 acres at $1.15 million for property tax purposes.

However, actual real estate values can be far higher than tax assessors gauge. For example, the county values about half of Zuckerberg’s land at $18 million even though he paid retired Hawaii car dealer James Pflueger about $56 million for this piece.

For the eight quiet title cases on Kauai, if a judge allows an auction, anyone with the money to back up their bid can participate. A judge also could grant a Zuckerberg request to recoup his attorney fees and other costs including research tracing family trees.

Recovering such costs from the sellers is permitted on the idea that the landowners benefit from their ownership being proven, though owners can feel as though they are charged for a service they didn’t want.

In the past, quiet title auctions have been known to result in below-market sale prices even though judges can reject a high bid that they deem grossly inadequate. But some involved with the Kauai cases expect that Zuckerberg, who Forbes said had a net worth of $44.6 billion last year, will offer a fair price.

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