Tuesday | January 17, 2017
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Landowner asks to be removed from Hu Honua lien application

The owners of a 25-acre Pepeekeo site of an electrical power plant under construction are looking to be dismissed from a $35 million mechanic’s lien filed by the former construction contractor.

On Wednesday, Hilo Circuit Judge Glenn Hara took a motion for summary judgment by Maukaloa Farms LLC against Hawaiian Dredging Construction Co. under advisement. Maukaloa, the property owner, is named in the lien application by Hawaiian Dredging, which claims lessee Hu Honua Bioenergy LLC owes $35 million in unpaid construction bills. Hawaiian Dredging withdrew from the site in January, and Hu Honua announced in February that Performance Mechanical Inc. is the new contractor.

Jessie Schiel, Maukaloa’s attorney, argued under Hawaii law the lessor is not responsible for unpaid bills by the lessee unless the lease requires the improvements — in this case, the construction of the plant, which if completed, would burn wood chips to generate 21.5 megawatts of electricity.

“There is no provision that requires Hu Honua to construct a power plant,” Schiel told the judge. “The lienor is relying on them lease provision that (the property) be used for power plant, but it can be used by any other use permitted by law. … Any use permitted by law includes 62 other permitted uses in the industrial district, any of which … are permissible per this law.

“… Moreover, the construction taking place on this property by the lessee, Hu Honua, the lease is very clear. No improvements over $500,000 without prior approval of the contractor by the lessor, prior approval of the plan by the lessor, a (construction) bond …. None of those pre-construction requirements occurred.”

Schiel described a clause in the lease stating the land is to be used for operating an electrical power plant and selling energy as “a boilerplate provision in any lease of this sort.”

“It’s a standard provision. It does not require the lessee to undertake the improvements,” he said.

Schiel added Maukaloa notified Hu Honua in July it breached the lease and noted Maukaloa has a pending lawsuit against the bioenergy company.

Keith Yamada, one of two lawyers representing Hawaiian Dredging, argued Maukaloa is liable for Hu Honua’s alleged delinquent bills because the lease requires the power plant be built.

“I’ll just read the clause …,” he said. “‘Lessee shall use the land only for the business of … operating an electric energy generation power plant and selling energy generated therefrom to HELCO or some other purchaser and’ — not or, and — ‘other uses incidental thereto and’ — another and, not an or, and — ‘any other use permitted by law.’

“… It’s not only a permitted use … but it’s a mandatory use because it says here ‘lessee shall use the land only for the business of operating an electric energy generation power plant.’”

“Isn’t the import of that whole section saying you will not violate the facility ordinance by having something unpermitted on the property?” Hara asked.

“Well, that’s part of it, but it’s also requiring an electric energy generation power plant. It says that. You have to do that. … There’s other provisions in this lease that specifically point to the fact that an electric energy power plant is gonna be operated on these premises,” Yamada replied.

“But isn’t there a plant already there?” the judge inquired.

“There is, but it’s not a biomass-to-energy power plant. It hasn’t been used for years, your Honor.” Yamada said.

The site is the former Hilo Coast Processing Co. electrical power plant that at one time burned bagasse, a sugar cane byproduct. The plant was later converted to burn coal.

Hu Honua’s attorney, Blake Bushnell, said his client “is in support of the motion for summary judgment” in Maukaloa’s favor.

Maukaloa’s listed principals are J. Barron Strother and Jere Henderson, who also own Continental Pacific LLC, developers of nearby Pepeekeo Point subdivision. A number of neighbors attempted, unsuccessfully, to stop the re-fitting of the power plant for operation.

A probable cause hearing on Hawaiian Dredging’s lien application is scheduled for 9 a.m. July 30 before Hilo Circuit Judge Greg Nakamura. There also are a number of smaller lien requests filed against Hu Honua by project subcontractors and suppliers.

Hawaiian Dredging also filed a civil suit against Hu Honua and Paragon Construction Consulting — the latter specializes in crisis management — claiming they locked Hawaiian Dredging out of the site and stole its property, including computers with proprietary information.

That suit was dismissed with prejudice, which means it won’t be refiled, on May 9.

Email John Burnett at jburnett@hawaiitribune-herald.com.


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