Aina Le’a suits seek damages, reversal of ruling

A regulatory battle over developing a 2,300-home community on Hawaii island near Waikoloa has moved to court.

Two developers have filed three lawsuits against the state Land Use Commission over the agency’s decision earlier this year prohibiting the development of the estimated $1 billion project called The Villages of Aina Le’a.

Two suits were filed to appeal the decision. But a third suit wants the commission — and commissioners — to pay for stopping the project after developers spent $25 million on infrastructure and the first few dozen homes.

The project’s original developer, Bridge Aina Le’a LLC, filed the suit seeking damages, claiming the commission should pay at least $35.7 million.

Bridge’s suit, which was filed in state court in June and since transferred to federal court, could result in a big liability for the state. But it also could test how much authority the commission has to impose conditions for allowing urban development on agricultural land.

The state attorney general’s office promises to defend the suits on behalf of the commission and believes it will prevail.

The Aina Le’a suit is the second pending case against the LUC involving master-planned communities with projected costs of at least $1 billion.

In an unrelated case, the Sierra Club sought in November to disqualify one commissioner whose vote was key to approving a 5,000-home project on Oahu known as Koa Ridge. A state judge sided last month with the Sierra Club, though the LUC could still prevail after the judge allowed the commission to challenge the environmental group’s right to file its suit in the first place.

The Aina Le’a case is focused on whether the LUC unjustly imposed and enforced a deadline for a developer to build affordable housing.

Bridge is an affiliate of the U.S. Virgin Islands-based real estate and lending firm Bridge Capital that bought the 1,060-acre project site in 1999 and launched a plan in 2005 to develop a community with 2,300 homes, two golf courses, a regional shopping center, a public school and 26 acres of park space.

The site won LUC approval for urbanization in 1989. At that time, California-based developer Signal Puako Corp. intended to build 2,760 homes. As part of the approval, Signal agreed to make 60 percent of the homes affordable to moderate-income buyers in line with state housing policy in force at the time.

Signal never developed the land, and a subsequent attempt by Japanese developer Nansay Hawaii Inc. also failed.

Bridge won approval from the LUC in 2005 to reduce the 60 percent affordable housing requirement to 20 percent in line with present Hawaii County policy. But the commission also imposed a five-year deadline to build all 385 affordable homes.

The developer anticipated finishing the affordable homes within three years but encountered unexpected financial difficulties and permitting delays, including a new requirement in late 2007 to produce an environmental impact statement in the wake of a legal ruling over the Hawaii Superferry.

Another developer, Nevada-based DW Aina Le’a Development LLC, bought land under the affordable-housing component from Bridge in 2009 to help expedite construction. But DW had completed or nearly finished fewer than 60 homes when the deadline passed in November.

At hearings before the LUC, DW pleaded for a deadline extension that was strongly supported by county officials and community members who said the need for jobs and new homes was more important than an arbitrary deadline.

"I think it’s our firm belief that we would like to give them that opportunity to proceed," Gerald Takase, Hawaii County corporation counsel, said during a hearing. "What does it cost us? What does it cost the state? It’s merely time. … And to shut them off at this point in time when they are still making an effort would be like pulling the plug on a patient that’s still trying to survive."

The commission, with encouragement from the state Office of Planning, voted 6-2 in April to revoke the 1989 approval reclassifying the land for urban use.

Bridge is suing the commission as well as the six commissioners who voted in the majority to recover $35.7 million, which is what DW agreed to pay Bridge for the rest of the property on which Aina Le’a was to be developed. Bridge also aims to collect punitive damages and other costs.

The two commissioners who opposed revoking Aina Le’a’s land-use approval, Charles Jencks and Duane Kanuha, are not being pursued for financial damages.

Two separate lawsuits are appealing the LUC’s Aina Le’a decision to state judges — one brought by DW in Third Circuit Court on Hawaii island, and one brought by Bridge in First Circuit Court on Oahu.

In Bridge’s lawsuit pursuing damages, the landowner said the commission made arbitrary and discriminatory decisions that extinguished its development rights.

Bridge said the LUC allowed affordable housing requirements to be reduced from 60 percent in at least seven other projects — including Kukui’ula on Kauai and secondary phases of Mililani, Royal Kunia and Ko Olina Resort & Marina on Oahu — without imposing affordable-housing construction deadlines.

Bridge also said developers of other projects — including Turtle Bay Resort, Kaloko Heights and Waikoloa Heights — have made commitments to the commission that weren’t fulfilled but haven’t resulted in voided land-use approvals.

"This case is being brought because the state of Hawaii Land Use Commission, and certain of its commissioners, in their official and individual capacities, arbitrarily and capriciously extinguished all the entitlements and vested property rights of Bridge," the landowner said in the suit.

Bridge also alleged that the commission contributed to challenges for completing the affordable housing when it questioned whether the affordable housing deadline could be met and threatened to revoke development approval.

Various other claims made in the suit include allegations that the commission made mistakes in following hearing rules and that one commissioner had a conflict of interest and should not have voted.

The state attorney general’s office plans to vigorously defend against all three Aina Le’a lawsuits, according to Deputy Attorney General Bill Wynhoff. "We believe we will prevail," he said.