The Board of Land and Natural Resources almost always puts into its leases of state property a clause that requires the board to approve the transfer of any lease from one party to another. In the case of Harbor Lease No. 70-14, however, that clause has been ineffective in preventing the transfer of the leased property without board approval. And on those two occasions when the board did approve the transfer, the parties involved in the transfer were not correctly or fully identified to the board.
All told, the lease has changed hands four times, and the two most recent changes occurred without any notification of the Land Board at all. If the intent of the lease condition requiring board approval was to ensure that the agency designated by the Legislature to have statutory responsibility for managing nearly all the state’s real property kept a measure of control over its tenants, that intent has most certainly been frustrated in the case of Ke`ehi Marine.
Musical Moorings
Harbor Lease No. 70-14 was awarded in 1970 by the Board of Land and Natural Resources to Ke`ehi Drydock Corp., which later changed its name to Amfac Marine Supply, Inc. The lease took effect in February 1971 and is to expire in February 2016.
In 1984, the Land Board approved transfer of the lease from Amfac to Ke`ehi Marine Center. In addition to approving the assignment of lease, the Land Board gave its consent to use the lease as security for a mortgage of more than $2 million.
The Land Board was informed by the Boating Division that Ke`ehi Marine Center was “a Hawai`i limited partnership,” but no record exists at the Department of Commerce and Consumer Affairs to suggest it ever registered to do business in the state. At the DCCA today, the only registration that can be found for Ke`ehi Marine Center identifies it as a trade name, registered for one year only, by Ke`ehi Marine, Inc. Ke`ehi Marine, Inc., incorporated in 1984, was owned by Frank B. Rice, Charles B. Pires, Richard W. Frazier, and Renton L.K. Nip. Rice, Pires, and Frazier each held 30 percent of the stock. Nip held 10 percent.
In 1986, Ke`ehi Marine Center assigned the lease (with Land Board consent) to Ke`ehi Marine, Inc. At no point was the Land Board informed that the assignor of the lease and the assignee were effectively one and the same corporation.
Stock Transfers
In 1990, the owners of Ke`ehi Marine, Inc., sold all the company’s stock to Arudy U.S.A., a Hawai`i corporation owned by Japanese nationals, for more than $7.2 million. (Liabilities assumed by Arudy amounted to almost $1.5 million, making the price paid for corporate assets closer to $5.8 million.) Because the corporate take-over of the company’s assets occurred through sale of stock, and not through an inter-company transfer, Nip argued, no approval of the Land Board was needed. “Because under the stock purchase agreement the lease will remain in Ke`ehi Marine’s name and will not be transferred or assigned, we believe that such provision [relating to Land Board consent of assignment of lease] is not applicable and that no Land Board approval is necessary,” Nip said in a letter to the DOT Harbors Division property manager, Art Delos Reyes. The Department of Transportation, which at the time bore responsibility for managing the Ke`ehi property on the state’s behalf, agreed with Nip. As a result, the Land Board was not informed of — much less did it consent to — the change in ownership of the lease.
According to Charles McKay, attorney for Ke`ehi Marine, Arudy then pledged its stock in Ke`ehi Marine as security on a loan it received from another Japanese corporation, Takayasu Kanko. Terms of the lease require the Land Board to give its consent before the lease is used as security or collateral, but such consent was not sought or received.
Details of Arudy’s financial problems are not available in Hawai`i. According to McKay, the attorney for Ke`ehi Marine, Arudy could not perform on its loan from Takayasu Kanko. Rather than the company declaring bankruptcy, going into receivership, or facing foreclosure by its creditors, McKay told the Land Board, Arudy surrendered its assets to them. In this fashion Ke`ehi Marine, Inc., orphaned by Arudy, was adopted by its new parent, Takayasu Kanko, which continues to hold the stock.
— Patricia Tummons
Volume 5, Number 11 May 1995
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