Over the last year, Hu Honua Bioenergy, LLC, builder of the proposed biomass-fueled, 28-megawatt power plant on the Big Island coast a few miles north of Hilo, has faced multiple applications for mechanic\u2019s and materialman\u2019s liens filed by contractors and subcontractors. Now Hawaiian Dredging Construction Company, Inc., the largest of the lienholders, has brought a foreclosure action against the plant\u2019s owners in an effort to force payment of bills in excess of $30 million.<\/p>\n
Attorneys for Hawaiian Dredging, the former general contractor on the site, filed the foreclosure suit on October 27 in 3rd Circuit Court. The filing came just days after Judge Glenn Hara approved the company\u2019s lien application, in the amount of $29,411,422.69.<\/p>\n
John Sylvia, a principal of Hu Honua, has said that the company intends to pay off Hawaiian Dredging. He told the Hawai`i Tribune-Herald that the company \u201cintends to clean all this mess up\u2026. I understand some of [Hawaiian Dredging\u2019s] irritation. Unfortunately, these things are complicated and they take time to clean up.\u201d<\/p>\n
Pressure to Subordinate<\/i><\/b>
\nThe events laid out in the lawsuit suggest that promises by Hu Honua to pay its debt to Hawaiian Dredging are nothing new. According to the complaint, in 2012, Hawaiian Dredging began work to refurbish the old power plant, which had burned bagasse, then coal, until shutting down in 2008. By the middle of 2013, Hu Honua had already fallen \u201csignificantly behind in paying [Hawaiian Dredging\u2019s] and other contractors\u2019 and subcontractors\u2019 invoices for services and labor performed and materials purchased.\u201d<\/p>\n
A year ago, Hu Honua informed Hawaiian Dredging that it would be able to obtain funds from NIV, LLC (another defendant in the lawsuit) to pay off Hawaiian Dredging\u2019s claims only if Hawaiian Dredging and other creditors agreed to subordinate their claims against Hu Honua to any claims of NIV. Of the $6.5 million to be loaned by NIV, the lawsuit states, just $4.5 million would be available to Hu Honua to pay down Hawaiian Dredging\u2019s balance; the remaining $2 million would be retained by Island Bioenergy, LLC (IBE), the sole member of Hu Honua.<\/p>\n
Hawaiian Dredging was not tempted, and on December 18, 2013, it informed Hu Honua that it was \u201cunwilling to subordinate our $32 million mechanic\u2019s lien.\u201d<\/p>\n
Hu Honua did not give up. On December 30, after another creditor had filed an application for a lien in the amount of $215, 174, Hu Honua pressed Hawaiian Dredging to enter into a \u201cstandstill agreement,\u201d calling for Hawaiian Dredging to hold off on any legal action to collect its debt. When that didn\u2019t work, Hu Honua asked for a \u201crevised standstill agreement,\u201d stating: \u201cWe have drafted this agreement in a manner that allows us to move forward with the bridge lenders, who need some assurance that the project contractors are not going to start exercising remedies before the next round of construction financing is secured\u2026. It is in everyone\u2019s interest to not have the subcontractors file lien notices or to start any lawsuits.\u201d<\/p>\n
Again, Hawaiian Dredging held firm. But Hu Honua continued efforts to induce the company to subordinate its claims to those of NIV, the \u201cbridge lender.\u201d \u201cWe would like to avoid a lien debacle,\u201d Hu Honua wrote on January 10, 2014, \u201cas it would only prolong [sic] complicate the financing process which is in neither of our interests.\u201d<\/p>\n
Not waiting for Hawaiian Dredging to reply, that same day Hu Honua mortgaged to Island Bioenergy all its personal property as well as its leasehold interest in the land and its interest in any of the improvements on it. Island Bioenergy (IBE) then turned around and assigned the mortgage to NIV. In return, the Hawaiian Dredging complaint states, NIV agreed to loan IBE up to $35 million, and IBE in turn agreed to loan a like amount to Hu Honua. Before the month was over, Hawaiian Dredging filed its lien application with the 3rd Circuit Court.<\/p>\n
Over the next several months, Hawaiian Dredging perfected its claims against Hu Honua. In April, both companies entered into a settlement agreement, later approved by the 1st Circuit Court, that called for Hu Honua to pay Hawaiian Dredging $30 million. In mid-October, Judge Glenn Hara of the 3rd Circuit Court approved the lien application filed last January.<\/p>\n
\u2018Fraudulent Transfers\u2019<\/i><\/b>
\nBut beginning last July, attorneys for NIV attempted to assert what they said was a superior claim to Hu Honua\u2019s assets. In a letter dated July 16, the complaint states, NIV\u2019s counsel informed Hu Honua that the mortgage \u201cwill be superior to any mechanics lien that may be filed by HDCC\u201d and that \u201ca trustee\u2019s sale of HHB\u2019s assets will result in a purchaser taking the assets free of any mechanic\u2019s liens filed by\u201d Hawaiian Dredging.<\/p>\n
This, Hawaiian Dredging attorneys say, was basically an admission that HHB, Island Bioenergy, and NIV had planned \u201cto hinder, delay, or deny [Hawaiian Dredging] the ability to be paid for its claim for unpaid invoices.\u201d The back-to-back mortgages in January had been done without notice to Hawaiian Dredging. \u201cHHB concealed from Plaintiff the existence and extent of its security interests and obligations to IBE that were created on January 10, 2014, and immediately transferred to NIV,\u201d the complaint says \u2013 this despite HHB having \u201ca duty to disclose \u2026 the facts that the Loan and Transfers would not be used to pay any portion of plaintiff\u2019s claim and were instead undertaken with the intent to hinder, delay, or defraud Plaintiff from collecting on its claim against HHB.\u201d<\/p>\n
The effect of those mortgages became clear when, in early September, NIV sought to intervene in the special pleading in the 1st Circuit. Hawaiian Dredging had been pushing for a court order to force the sale of assets held by Hu Honua when NIV \u201capplied to intervene \u2026 and demanded that HHB be provided full access to and use of its real and personal property.\u201d NIV could make the demand, NIV\u2019s attorneys stated, because \u201cNIV has a first secured priority position in all improvements.\u201d Any restriction on work at the site \u201chas and will directly and immediately devalue NIV\u2019s collateral.\u201d<\/p>\n
In any case, NIV continued, \u201c[g]iven NIV\u2019s prior secured interest on its $35,000,000 loan,\u201d and its senior claim on liquidated assets, even if Hawaiian Dredging were able to force a sale of Hu Honua assets, Hawaiian Dredging probably would \u201creceive negligible proceeds at best.\u201d<\/p>\n
The special pleading in 1st Circuit has been assigned to a mediator. In the meantime, Hawaiian Dredging has filed a lis pendesn<\/i> on the real property leased by Hu Honua and owned by Maukaloa Farms, LLC.<\/p>\n
Efforts to reach a spokesperson for Hu Honua were unsuccessful by press time. Keith Yamada, attorney for Hu Honua, declined to comment on pending litigation.<\/p>\n
Volume 25, Number 6 December 2014<\/p>\n","protected":false},"excerpt":{"rendered":"
Over the last year, Hu Honua Bioenergy, LLC, builder of the proposed biomass-fueled, 28-megawatt power plant on the Big Island coast a few miles north of Hilo, has faced multiple applications for mechanic’s and materialman’s liens filed by contractors and … Continued<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[322],"tags":[7],"class_list":["post-6107","post","type-post","status-publish","format-standard","hentry","category-december-2014","tag-patricia-tummons"],"_links":{"self":[{"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=\/wp\/v2\/posts\/6107","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=6107"}],"version-history":[{"count":0,"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=\/wp\/v2\/posts\/6107\/revisions"}],"wp:attachment":[{"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=6107"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=6107"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=6107"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}