Mahalo for supporting Honolulu Star-Advertiser. Enjoy this free story!
A failed business deal between the YMCA of Honolulu and a real estate development firm has descended into another legal dispute after the developer was ordered to pay the nonprofit $2 million.
The Y filed a federal lawsuit June 20 against developer Aloha Kai Development LLC and its principals in San Francisco and Japan, alleging that the company isn’t paying a
$2 million judgment issued by an arbitrator in January and confirmed by a federal judge June 5.
The nonprofit claims that Aloha Kai has ignored at least two requests to pay the judgment over a failed deal to redevelop the Y’s property on Atkinson Boulevard next to Ala Moana Center.
“It very much appears that (Aloha Kai) has no intention of paying,” the Y said in its lawsuit filed in U.S. District Court.
In its complaint the Y
alleges that Aloha Kai and its principals — Michael Blumenthal of MB Property Acquisitions LLC in San Francisco and Japanese-based Tama Home Co. — had $19 million available for the real estate deal two years ago and should be able to pay the judgment.
The Y also alleges that Aloha Kai’s principals
provided enough money to pay several top Honolulu lawyers to fight the Y in arbitration and court for more than a year yet now are shirking their obligation to pay damages after
losing.
As part of its claims, the Y argues that Blumenthal and Tama Home should be responsible for the damage award.
Bill McCorriston, a local attorney representing Tama Home, said that only the limited-liability company (Aloha Kai) is obligated to pay the award — not its members. Any argument to the contrary goes against well-established legal principles and the whole concept of limited-liability companies, he said.
“The legal theory is a Hail Mary,” McCorriston said of the Y’s claim seeking to hold Blumenthal and Tama Home responsible for the debt.
An attorney representing Aloha Kai did not respond to a request for comment on the lawsuit.
The Y, through its attorneys at Honolulu law firm Alston Hunt Floyd &Ing, said it’s not fair to use Aloha Kai as a shell company that tied up Y real estate during litigation and now won’t pay the judgment.
“They wanted to use it as a vehicle that would allow them to reap the upside of prevailing in the arbitration, while at the same time avoiding its debts if it lost the arbitration,” the lawsuit said.
The Y, Blumenthal and Tama Home were partners in a venture designed to shore up the nonprofit’s finances and make money for the developers using the Y’s prime site on the edge of Waikiki.
Maintaining the 67-year-old “Central Y” facility had become a burden for the nonprofit. So it sought to build new Y facilities and a condominium tower on the 1.8-acre site to replace a fitness center, pool, youth program facilities and
115 hostel rooms.
A deal to sell Aloha Kai 1.5 acres of the site for
$19 million was signed in 2012. The developer obtained regulatory approvals, including a city zoning change. Y facilities except for the hostel closed in 2015 in preparation for redevelopment. However, Aloha Kai failed to complete its purchase by a March 2016 deadline.
Efforts to salvage the deal fell through even though Aloha Kai claimed that it had put money into an escrow account to complete the purchase in August 2016. The Y claimed Aloha Kai was insisting on new terms for the purchase that weren’t acceptable to the nonprofit, so a belated sale was rejected.
In November 2016 the Y requested arbitration and claimed it suffered between $14.9 million and $19.7 million in damages.
Local attorney and arbitrator David Fairbanks ruled that the Y was entitled to about $2 million — $1 million in damages, $820,000 in legal fees and $126,000 in costs. The Y also had previously retained $800,000 from a deposit Aloha Kai made in return for giving the developer an extra month to complete its purchase.
Aloha Kai had argued that the purchase contract limited damages to $1 million and that the forfeited $800,000 in deposit money should have counted toward that sum. But Fairbanks disagreed, and his decision was confirmed by U.S. District Judge Alan Kay approving the award and rejecting Aloha Kai counterclaims.
Michael Broderick, YMCA of Honolulu president and CEO, said the organization looks forward to when it can market the Central Y property for future use.
79