On July 12, 1990, Richard A Stellmacher, an appraiser hired by the state, accompanied George A. Magoon II on a tour of a 40-acre shoreline parcel owned by members of the Magoon family at Mahai’ula, just north of the Keahole Airport on the west coast of the island of Hawai’i. The state had hired Stellmacher to prepare an appraisal of the land’s value, in anticipation of acquiring the property for inclusion in a five-mile long coastal wilderness park.
Stellmacher submitted his report to the state on July 31, 1990. The “highest and best use” of the land, in the state Conservation District, was in accordance with the ‘grandfathered’ residential use,” Stellmacher wrote. And while there was no clear legal access to the parcel, Stellmacher added, he “assumed that the access granted under revocable permit the state to the lessee of a portion of the subject property for commercial luaus was its legal access.”
Stellmacher’s conclusion was that a “fair and reasonable” value of the property was $17,110,000.
Background
At the time of Stellmacher’s tour of the prop–erty, it was well known that the state was seeking to purchase the land. As early as March 28, 1990, William Paty, then the director of the Department of Land and Natural Resources, had written Thomas M. Foley, attorney for the Magoon estate, that the state would be “making an offer to purchase the property upon completion of the independent appraisal establishing its fair market value.”1
Another client of Foley’s was Robert Iwamoto, who, at about the same time, began negotiations with Foley to buy the property from Magoon. Iwamoto, owner of Roberts Hawai’i and a host of related tourist-service firms, also has had several business relation–ships with Larry Mehau, a former member of the Board of Land and Natural Resources. When Iwamoto heard that Larry Mehau was showing Big Island property to a Japanese investor in the spring of 1990, Iwamoto asked Mehau: “Well, why don’t you show her mine?” – referring to the Magoon land.2
By July 19, 1990, Iwamoto and the investor, Chiyoko Isayama, through her company, Tenzan Corporation, agreed on a purchase price of $23 million for the Mahai’ula prop–erty, even though Iwamoto did not himself own it at that time. According to Iwamoto, “I believe when I was negotiating with Tom Foley, Tenzan was interested in that property. And I required them to put down a $2.3 million deposit, unconditional deposit. And then I used two million dollars of that money to put down the initial deposit to Tom Foley.”3
At that time, however. Iwamoto had yet to seal the deal with Magoon. Probate court records show that in late June, Iwamoto had offered to purchase the land from Magoon for $17 million – an offer that George Magoon Jr., who was claiming a 70 percent interest in the property, and Nancy Magoon, George Jr.’s mother and George Sr.’s second ex-wife who held a 30 percent share, accepted on June 24. But the agreement was not completed until July 30, 1990, when Iwamoto himself finally signed the purchase contract.
Aborted Sale
A year earlier, in September 1989, the court had approved sale of the property to Haseko (Hawai’i), Inc. Haseko had offered $18 mil–lion, but for reasons that remain hidden from public view, the deal fell through.
In September 1990, notice of the second court confirmation hearing was posted, as required by law, on the courthouse bulletin board in Kona, but apparently no one from the state Department of Land and Natural Re–sources took heed. With no better offer pre–sented at the hearing, the court confirmed sale of the land to Iwamoto.
On September 24, Land Board Chairman Paty wrote Foley, attorney for Magoon (and Iwamoto), making a formal offer to purchase the property for $17,110,000, which was the value assigned to the land by Stellmacher. “However,” Paty wrote, “we have now heard that the property may have been sold. We are very concerned and disappointed that the land owners would take such action knowing full well the intention of the state. If this is true, please provide us with the name of the new owner so that we can proceed with filing of a condemnation action.
At the time Paty wrote, the property was still owned by the Magoons. Not until Sep–tember 27 were the documents signed that conveyed title to Iwamoto. When that oc–curred, Iwamoto immediately resold the land to Tenzan, raking in a clear profit of $6 million.
Too Late
On October 5, the state filed a lis pendens, which put anyone with an interest in the land on notice of the state’s intent to acquire the land by condemnation. In the condemnation suit itself, filed the same day, Iwamoto was named as a defendant, although Tenzan’s purchase of the land had been recorded at the Bureau of Conveyances on September 28, 1990.
The same day the lis pendens was filed in court, title to the Mahai’ula land flipped again, landing this time in the lap of Blue Point Land Development, Inc. The purchase price re–ported to the Bureau of Conveyances was $30 million.
The sale probably would not meet the criteria of an arm’s-length transaction. As became clear in documents obtained by the state during pre-trial discovery and in records obtained by Environment Hawai`i from the Department of Commerce and Consumer Affairs, Tenzan and Blue Point shared many of the same owners and officers. In addition, Tenzan never collected from Blue Point any part of the $30 million reported purchase price.
Interlocking Directors
In 1990, Isayama was president of both Tenzan and Blue Point, which was incorporated in September 1990. Ownership of Tenzan’s stock is unclear, but Isayama was identified as owner of 60 percent of Blue Point’s stock. In a deposition taken by the state of Hawai’i, Isayama said she owned stock in Tenzan, although her ownership interest was not disclosed.4
Blue Point, according to Isayania, was established by Tenzan to develop the Mahai’ula property. Isayama said Tenzan ob–tained the money to purchase Mahai’ula through a loan from a Japanese bank; when asked to name the bank, she could not, saying the loan had been arranged by Ryozo Ito, a Tokyo resident who was vice president of both Tenzan and Blue Point and owner of 25 percent of Blue Point’s stock.
Other shareholders in Blue Point were Kiyoshi Wakaume, a Tokyo resident and Blue Point’s corporate secretary; Brian Sturdivant of Honolulu, who was Blue Point’s treasurer; and Andy Hirama of Honolulu, a director of Blue Point. Each of these three men held a to percent interest in Blue Point. Hirama also identified himself as Tenzan’s secretary in correspondence with the DCCA in 1989.
Chairman of Blue Point’s board of direc–tors was Larry Mehau. In a deposition, Mehau described his role in the Mahai’ula transac–tions as merely that of a go-between. Isayama, however, had promised to build him a house there, he said:
“Chiyoko was going to build me a home. There is a small, little sandy area on the Kawaihae side of the property. And she took a picture of it, brought it to my office. Mehau– said, ‘here, I would built you a house over here.’ Later on, it’s, ‘You and I will build a house.’ That kind of deal.
“I said, ‘Chiyoko, I just wanted to help you. If it happens, fine. If it doesn’t happen, no problem. Don’t make any commitments.’ But that was her commitment, that I would have a home there.”
Meanwhile, in Court
None of this was known to the state at the time the state sued to take possession of Mahai’ula. For the better part of the next three years, the state battled lawyers for Iwamoto, Tenzan and Blue Point in an effort to deter–mine who had paid what for the land.
Iwamoto’s lawyers asked that he be dropped from the lawsuit. The state’s attor–neys said they’d be willing to dismiss Iwamoto, if he would produce records related to the sale that verified he had no ongoing interest in the property. In lieu of that, Iwamoto filed an affidavit on August 16, 1991, in which he said he sold all his interest in the property to Tenzan on July 15, 1990. In a brief filed with the court on Septem–ber 12, 1991, the state disputed the claim, noting that the “Deposit Receipt Offer and Acceptance Agreement (DROA) covering the tentative sale of the subject property… is dated July 19, 1990.” Had the state been aware of the records that were available in probate court, it would have had even greater evidence to dispute Iwamoto’s affidavit. In any event, in September 1991, the court granted Iwamoto’s request to be dismissed as a defendant, although it denied his request for attorney’s fees.
Soon after filing the condemnation suit, the state asked to take possession of the prop–erty. The request was granted by the court, subject to the state’s paying $10 million to Blue Point as a down payment.
The state had asked for a jury trial. Many of the pre-trial disputes concerned what ap–praisals or other evidence of land value could be presented to the jury. Soon after the state had received the Stellmacher appraisal, set–tling the land’s value at $17,110,000, the state hired a second appraiser to review Stellmacher’s figure. That appraiser, Mitsuo Shimizu, put the value at between $8 million and $10 million. On the other end of the spectrum, Peter Young, an appraiser hired by Blue Point after the condemnation suite was filed, found the property to be worth $25 million.
In January 1993, the matter was ready to go to trial and jury selection had been scheduled for the following month. With property val–ues in the Kona area having begun a precipi–tous fall, Blue Point appears to have been motivated to settle with the state. The price Tenzan had paid for the land $23 million – was accepted as the price the state would pay.
On February 16, 1993, a check for $13 million, the balance owed to Blue Point under terms of the agreement, was given to a representative of Blue Point by the fiscal officer of the Third Circuit Court in Hilo. Thus ended nearly two decades of efforts by the state to acquire the land.
1. Source of information is a letter dated September 24, 1990, from Paty to Foley.
2. Source: Deposition of Larry Mehau taken by State of Hawai`i, September 4, 1992, page 19.
3. Source: Deposition of Robert Iwamoto, Jr., taken by State of Hawai`i, September 13, 1991, page 21.
4. Source: Deposition of Chiyoko Isayama taken by State of Hawai`i, November 6, 1991.
Volume 5, Number 10 April 1995