A settlement has ended the massive litigation involving former Gov. George Ariyoshi and others seeking hundreds of millions of dollars from major financial companies over the 2002 acquisition of a Hawaii high-technology company.
Ariyoshi, high-tech entrepreneur Lambert Onuma and others who owned stock in Pihana Pacific alleged they were improperly iced out of compensation when it was acquired by Equinix Inc.
Their lawsuit sought more than $700 million from Equinix and Goldman Sachs, Morgan Stanley, USB AG, Columbia Capital and their related companies.
In a settlement given final approval by the Hawaii Supreme Court this month, both sides essentially gave up claims against each other.
Ariyoshi and the other plaintiffs reached settlements earlier giving them $500,000 from Morgan Stanley and USB, a sum considered to be nominal in view of the magnitude of the litigation.
In what’s known as a "walk-away" agreement, Ariyoshi and the others settled with the rest of the companies, dropping all claims that could have ended up totaling more than $1 billion as Equinix grew in value over the years.
In exchange, all the companies gave up a $3.4 million judgment for attorney fees and costs against the former governor and the co-plaintiffs incurred in defending the suit.
John Edmunds, the plaintiffs’ Honolulu lawyer, said they had "great hopes" of prevailing, but were not able to stave off the companies’ attempt to collect on the attorney fee judgment and garnish the plaintiffs’ bank accounts.
He said they were particularly concerned about plaintiffs who were minor shareholders.
"The governor and Lambert felt they did not ever want (those) plaintiffs to be exposed to that," Edmunds said.
Equinix and the other companies mounted a vigorous defense, winning a dismissal of the lawsuit they contended was meritless and obtaining the attorney fee judgment.
But Ariyoshi and the others filed an appeal seeking to reinstate their lawsuit and set aside the attorney fee award.
Equinix and other defendant companies believed it was better to settle rather than continue litigating the costly appeal. Both sides were represented by Honolulu and mainland lawyers.
Lyle Hosoda, the Honolulu attorney for Columbia Capital, said the settlement ends "a very unfortunate situation."
"I believe all parties are equally unhappy about the terms and conditions of the settlement, but are relieved that it is over so that everyone can move on," he said.
Ariyoshi and Onuma, Pihana’s founder in 1999, owned the bulk of Pihana’s common stock. The data center company managed to raise $240 million within two years, the largest single venture investment in a Hawaii tech operation.
Goldman Sachs and the other financial institutions were among investors and received Pihana preferred stock.
But as economic conditions took a downturn, Pihana shut down and Equinix took over. Ariyoshi and the other Pihana common-stock holders were notified the company’s value drastically fell and they would not receive any money.
The investors who held preferred stock received 22.5 percent of Equinix’s common stock.
Equinix itself was considered virtually bankrupt at the time of the acquisition, but grew in value to about $3.3 billion when Ariyoshi and the other Pihana common-stock holders filed their lawsuit in 2008.
They sought the value of 22.5 percent of Equinix or roughly $725 million. Among the minor Pihana common stockholders was the University of Hawaii, which did not pay money for shares it was given for helping establish a network facility.
The lawsuit, however, was dismissed in 2010 by Circuit Judge Rom Trader, who ruled the suit filed six years after the acquisition was barred by the statute of limitations.
Trader also awarded Equinix and the investor companies the $3.4 million judgment for attorney fees and costs.
Morgan Stanley and USB each settled earlier for $250,000, giving up their share of the attorney fee judgment. In exchange, the plaintiffs dropped their litigation against them.
The rest of the companies later reached the walk-away settlement.
According to the court file, the expense of continuing the litigation was cited as a factor in reaching the settlements. Both sides, according to the agreements, will bear the costs of their legal fees.
