On November 24, the state Land Use Commission considered, as attorney Steve Lim described it, a “death penalty” case. Would the commission decide to revert more than 700 acres of land near Waikoloa Village to the Agricultural land use district? Or would it allow the land to remain in the Rural district, the classification it received in 2008?
That was the fundamental question when the LUC heard arguments on its order to show cause issued last May to Waikoloa Highlands, Inc., the owner of around 731 acres of land where a development of 398 lots for single-family houses had been proposed.
Despite Lim’s representation of his client as having been subjected to anti-Russian prejudice on the part of the commissioners and his claims that it was defrauded by a former company director, his arguments were for naught. At the close of a full day of testimony, the commissioners voted, seven to one, to revert the land to the Agricultural district.
The vote was not taken lightly. The case was heard against the backdrop of a protracted court case involving another LUC vote to revert land – about 1,000 acres of it, just a stone’s throw from the Waikoloa property – proposed for the Villages of ‘Aina Le‘a development. (That case, in which the state is being sued for around $50 million, is proceeding through federal district court in Honolulu, after the Legislature rejected a proposed $1 million settlement in 2017.)
It was clear from the discussion that ‘Aina Le‘a was never far from the minds of the commissioners – or the parties to the hearing: Lim’s client, Waikoloa Highlands, Inc.; the state Office of Planning; and the Hawai‘i County Planning Department.
One of the topics the commission had specifically asked the parties to address on this day was the effect of the Hawai‘i Supreme Court’s decision in that case – ultimately favoring the developer – on the Waikoloa matter. Specifically, the commission wanted to know whether the developer had met the standard of “substantial commencement of the use of the land,” which was a key factor in the ‘Aina Le‘a decision.
Lim argued that, indeed, that standard had been met by his clients, even though all parties acknowledged that the land itself had not seen so much as a shovel of earth turned in the decade since the LUC had reclassified the land. He pointed to language in the Supreme Court’s decision that stated, “a determination of whether a party has substantially commenced use of the land will turn on the circumstances of each case, not on a dollar amount or percentage of work completed.”
The third condition of the commission’s order approving the redistricting states that the developer will be subject to having the land reverted if it does not complete buildout of the project or has not secured a bond providing for that. “This condition,” Lim wrote in his brief to the commission, “implicitly recognizes that WHI [Waikoloa Highlands, Inc.] can attain ‘substantial commencement’ with- out breaking ground or constructing any improvements.” (“Buildout” was defined in the second condition as “completion of the backbone infrastructure to allow for the sale of individual lots.”)
He goes on to argue that “substantial commencement” could be said to include things such as obtaining subdivision approvals from the county, getting “competitive bids for the infrastructure improvements,” and applying for and obtaining approval for the sale of lots from the Department of Commerce and Consumer Affairs. “All of these steps – none of which involve touching the ground, but all of which are very costly in terms of time, money, and resources – are actions taken in pursuit of ‘substantial commencement,’” Lim writes.
For this reason, “WHI respectfully submits that the preparation of plans and studies, the securing of entitlements and other governmental approvals, the subdivision of the land, and the irrevocable conveyance of land in satisfaction of a petitioner’s affordable housing obligations … are ‘uses’ of the land for the purpose of determining whether there has been substantial commencement,” Lim argues.
In its own statement of position, the state Office of Planning relied on the plain language of both the statute and the ‘Aina Le‘a decision of the Supreme Court to argue that the phrase “substantial commencement of the use of the land” was a standard as yet unmet by Waikoloa Highlands.
“In sum, ‘substantial commencement of use of the land’ must be considerable in amount or value and large in volume or number, use or occupancy of the land as opposed to it remaining vacant and un- touched, and determined on a case-by-case basis,” wrote OP director Leo Asuncion.
The Hawai‘i County Planning Department, in its brief on the issues before the commission, staked out a position on this point that mirrored that of the Office of Planning.
Should the LUC not buy into his argument that WHI had “substantially commenced” work on the development, it would then need to determine whether good cause existed for that failure.
Ever since the LUC issued the order to show cause to WHI, Lim and WHI’s current principals have argued that the lack of progress in the proposed development was the result of bad-faith actions by Stefan Martirosian, the former director of WHI who is now facing charges in Armenia, where the ultimate owner of WHI, Vitaly Grigoryants, has alleged that Martirosian defrauded him of some $50 million.
Lim pointed out that the LUC doesn’t have specific rules addressing what consti- tutes “good cause.” Still, “WHI has submit- ted substantial evidence and elicited credible testimony that Mr. Martirosian’s numerous bad acts resulted in the delay of the project being timely developed,” Lim writes. This argument was also linked to Lim’s discussion of a question asked by commissioner Gary Okuda about whether “internal management issues” of WHI are at all relevant to the LUC’s consideration of the Order to Show Cause.
After reciting the statements of Valery Grigoryants (Vitaly’s brother who claims to hold power to make decisions involving WHI) as to the misdeeds of Martirosian, Lim concludes: “For these reasons and the significant steps WHI has taken to get the project back on track, WHI respectfully submits that good cause exists to excuse its failure to timely develop the project.”
The Office of Planning agreed with Lim that, in fact, “internal management issues” were relevant to the LUC’s consideration of the show-cause order, but noted that those issues were hardly beyond the control of WHI.
“The commission must determine whether the delay due to Mr. Martirosian’s misdeeds is excusable,” Asuncion stated. “‘Good cause’ may include circumstances that are unforeseeable and beyond the control of the petitioner, e.g., a turn in the economy or a natural disaster. … Here it is unclear that Mr. Martirosian’s fraud and mismanagement were beyond the control of petitioner. Mr. Valery Grigoryants admit- ted that he was ‘responsible’ for the project and he completely trusted but was betrayed by Mr. Martirosian. … Mr. Grigoryants testified that he had oversight of Mr. Martirosian, including speaking to Mr. Mar- tirosian every day while he was in charge of the project. Mr. Grigoryants’ supervision, or lack thereof, over Mr. Martirosian may have had a role in the mismanagement of the project, which would be within the control of petitioner.”
One of the major supports that WHI relied on for its claim that it had substantially commenced work on the development involved its purported compliance with the affordable housing requirement imposed by the LUC in its 2008 decision. The LUC had required that the company satisfy the affordable housing requirements of all new developments as set forth in Chapter 11 of the Hawai‘i County Code.
In satisfaction of that requirement, WHI agreed in late 2016 to transfer more than 11 acres of its land for an affordable housing development.
Despite a July 2017 release from the county Office of Housing and Community Development (OHCD), which stated that WHI had indeed complied with that condition, the Office of Planning and the county Planning Department contended that the land transfer failed to meet the clear requirements of the county’s law.
At the October 25 hearing on the show-cause order, the county’s deputy corporation counsel Ron Kim stated that the release – signed by the director of the OHCD Neil Gyotoku, deputy corporation counsel Amy Self, and deputy mayor Will Okabe – could not possibly be binding on the county since on its face it violated Chapter 11. That violation was to be found in the fact that the land was not transferred either to the county or a county-approved nonprofit, as Chapter 11 anticipates, but in fact was deeded over to a for-profit limited liability corporation, Plumeria at Waikoloa, LLC. (Last August, it changed its name to Peaceful Ventures, LLC.)
Even if the LUC were to agree with Lim’s argument that the land transfer did satisfy its affordable housing condition, the Office of Planning argued that this did not meet the “substantial commencement” standard. “The transfer of the 11.8 acre lot amounts to merely 1.6 percent of the total 731.581 acre petition area. The 11.8 acre lot remains vacant, without any affordable housing units developed thereon, and has not been graded or otherwise ‘used,’” the OP stated.
One of the claims Lim made was that his client was the subject of discriminatory treatment at the hands of the Land Use Commission, violating the constitutional guarantee of equal protection.
Commissioner Gary Okuda questioned him at length on this claim, noting that a Hawai‘i Supreme Court decision, Mahiai v. Suha, set forth the standards for making a valid claim of discriminatory enforcement. Among them, the alleged victim must show that the action against them had to be “deliberately based on an unjustifiable standard such as race, religion, or other discriminatory standard.”
“I’m very conscious for many reasons of claims of discrimination,” Okuda stated. “We must be vigilant. … All people should be treated equally under the law.” But, he went on to say, claims of discrimination had to show how enforcement was based on an unjustifiable standard.
“So,” he said, “is it petitioner’s contention that the Order to Show Cause was deliberately based upon an unjustifiable standard such as race, religion, or other arbitrary classification?”
Lim: “That’s the elephant in the room. We think the commission has taken ag- gressive action against this project because they are from Russia, and we also think the commission was prejudiced from the very start of the proceedings due to some – I don’t know what you would call it – by periodical reporting by Environment Hawai‘i.”
Okuda then asked what evidence in the record supported Lim’s claim that there was any discrimination based on race, ethnicity, national origin, or the language anyone spoke.
“The fact that we have an order to show cause issued against this project,” Lim replied.
Okuda was not convinced: “Based on the response, it does not satisfy Mahiai v. Suha. Based on that, the evidence is irrelevant.”
— Patricia Tummons