By JOHN BURNETT
By JOHN BURNETT
Tribune-Herald staff writer
Hilo businessman Ken Fujiyama and Ken Direction Corp. have been ordered to pay almost $10.7 million to a North Carolina bank holding a mortgage on the Naniloa Volcanoes Resort.
Hilo Circuit Judge Greg Nakamura issued the summary judgement on Thursday morning in favor of First Citizens Bank & Trust. The bank argued that Hawaii Outdoor Tours, the Naniloa’s parent company, is in default of a $10 million construction loan.
“There’s no dispute here that the loan was made to Hawaii Outdoor Tours in January of 2006 and that Mr. Fujiyama and KDC are guarantors of the loan and the related documents. There’s no dispute here that Hawaii Outdoor Tours, the borrower, is in default. … Therefore, KDC and Fujiyama and KDC are obligated to pay the indebtedness of Hawaii Outdoor Tours under the guarantee,” Dana Lyons, the bank’s Honolulu attorney, told the judge during Thursday’s hearing.
Asked afterwards if the judgment against him would have any effect on the hotel’s business, Fujiyama replied: “Hope not,” and laughed. “… They could come after us later for foreclosure or something like that.”
First Citizens filed to foreclose on the loan Aug. 6 in Honolulu Circuit Court, but the foreclosure case was moved to Hilo. Fujiyama, owner and CEO of Hawaii Outdoor Tours, managed to stave off the foreclosure action by filing for Chapter 11 bankruptcy reorganization on Nov. 20, just minutes prior to a scheduled hearing before Nakamura on the foreclosure.
“Right now the two attorneys are trying to negotiate something out on a sale,” Fujiyama said, referring to Lyons and Honolulu attorney Kevin Herring, who represented Fujiyama in the hearing. He added that the proposed sale would be of “other properties,” not of the Naniloa.
“Until they decide on that, we don’t know where they’re heading. We’re not ready to make any decisions right now,” he said.
Bankruptcy proceedings are still underway. U.S. Bankruptcy Judge Robert Faris in Honolulu on Tuesday approved David C. Farmer as trustee in the case. Honolulu attorney Neil J. Verbrugge withdrew as HOT’s attorney in the bankruptcy case late last month. The court on Thursday approved the application of Kahului, Maui-based attorney Ramon J. Ferrer to take over the case.
The bankruptcy petition claimed debts of between $10 million and $50 million.
Fujiyama acquired the 382-room Naniloa and its nine-hole golf course in a 2006 auction for a 65-year lease of the state property with a bid of $500,000 a year. The lease also required Fujiyama to pay $6.1 million to the previous lessee, a Japanese firm.
When the foreclosure suit was filed, the bank stated that Fujiyama owed the state $760,000 in lease rent on the Waiakea peninsula property on which the hotel sits. He’s defaulted more than once on the $500,000 annual lease payments to the state. In 2011, Fujiyama was given permission to cover the lease payments with half of a $1 million performance bond he’d put up for the hotel. Fujiyama missed a semi-annual lease payment last year and the state took $259,000 from the performance bond to make the payment. The bank later restored the performance bond to its full $500,000, it said, to prevent the state from terminating the hotel’s lease.
Gordon Heit, Hilo land agent for the state Department of Land and Natural Resources, said Thursday that both the rent and the bond are currently up to date due to payments by the bank.
Fujiyama’s financial woes with Naniloa Volcanoes Resort came to light shortly after his sale of the Nani Mau Gardens in March 2012. Foreclosure proceedings on the Nani Mau property — 53 acres including a botanical garden and restaurant — alleged Fujiyama was in default on loans to acquire the property in the amount of $3 million.
Email John Burnett at jburnett@hawaiitribune-herald.com.