David C. Farmer, Trustee vs. Harmon

Mr. Pettit concentrates his practice in the areas of bankruptcy, business reorganization, and collections.

He has published numerous legal articles including: Hawaii Collection Law Manual, HSBA Publications (3rd ed.2006); "Esquire and Discrimination in the Legal Profession", 2 Haw. B.J. 22 (1998); "The Legal Status of Johnson Atoll and Its Exclusive Economic Zone", 10 University of Hawaii Law Review 183 (1988).

Mr. Pettit frequently lectures on topics pertaining to bankruptcy, creditor-debtor law, and collection law. Recent seminars include: "Commercial Real Estate Financing In Hawaii", Lorman Education Services, 2002-2006; "Bankruptcy Law and Procedure”, NBI, 2006; “Landlord and Tenant Law in Hawaii”, Lorman, 2007. In April 2007, he was Co-Chair of the Symposium on Cross-Border Insolvency (Honolulu), Institute of Asian Pacific Business Law. Mr. Pettit is a Director of the Bankruptcy Law Section, Hawaii State Bar Association.

Mr. Pettit has extensive experience in large bankruptcy cases. He served as local counsel for a group of investors in the acquisition of Aloha Airlines through a confirmed Chapter 11 plan. He was counsel for Amfac, Liberty House, Crazy Shirts and Oahu Construction Company. He served as counsel for the creditors' committee in the Aquasearch, Thrifty Rent-A-Car, and H&W Foods cases, and has represented lessors and secured creditors in many cases.

Ted N. Pettit is rated AV by Martindale Hubbell and was named one of America's Leading Business Lawyers by Chambers and Partners for 2004-2005 and Bankruptcy/Restructuring (2006-2007). He is included in The Best Lawyers in America, Bankruptcy and Creditor-Debtor Rights Law (2006-2008). Mr. Pettit was honored as a Leading Litigation Attorney by Benchmark Litigation (2008).

Business Reorganization; Bankruptcy; Real Estate Litigation; Commercial and Business Litigation; Collection Law

State of Hawaii; U.S. District Court, District of Hawaii; U.S. Court of Appeals, Ninth Circuit

B.A., University of Missouri, 1972;Ph.D.(Medical Physiology), University of Hawaii at Manoa, 1980; J.D., William S. Richardson School of Law, University of Hawaii at Manoa, 1986

Junior attorneys get the humblest jobs. In 1960, when Dan Case was a junior attorney and his firm, Pratt, Moore, Bortz and Vitousek was moving from the Alexander and Baldwin Building to the then new First Hawaiian Bank Building, he and fellow attorney and Olympic gold medal swimmer Al Stack were assigned the unenviable job of cleaning out old files from the attic in their office.

Pouring for days through yellowed folders of old cases for now deceased clients, Case found in one file a treasure -- sheets of music written in the hand of Queen Liliuokalani. There was also a hefty packet of correspondence to and from the Queen's representatives in Honolulu and Washington, D.C. regarding her claim for damages from the United States arising from the seizure of her kingdom. He ran his hand reverently over the music and correspondence, bundled up the file and took it to Trustees of the Liliuokalani Trust.

The songs were later included in a book of Queen Liliuokalani's music, published by Hui Hanai, an advisory body established by the Liliuokalani Trustees. Another file yielded a tracing of the key to the tomb of King Lunalilo, which was turned over to the Lunalilo Trust by Senior Partner Louis Warren.

For more than a century, some of the most important legal proceedings in the Hawaiian Islands have been conducted by the firms through which Case Lombardi & Pettit traces its roots....

In 1888, during the reign of King David Kalakaua, W.O. (William Owen) Smith, son of a missionary doctor, hung out his shingle at 66 Fort Street in downtown Honolulu. Smith, born at Koloa, Kaua'i in 1848, played a prominent role in the annexation of Hawaii to the United States, yet later became the trusted friend and advisor to Queen Liliuokalani. The firm today continues to represent the Liliuokalani Trust, now a multi-million dollar charitable trust serving orphaned and destitute children of Hawaiian blood.

During his life, Smith was at various times, sheriff on Kauai and Maui, and President of the Board of Health. He was also deputy attorney general of the Kingdom for seven years, and later, attorney general of both the Provisional Government and the Republic. He was elected to the legislature and served for twenty years through four governments: the Kingdom, the Provisional Government, the Republic and the Territory. During his last two years in office, he was president of the Territorial senate. Nearly every important board of directors in his day, both corporate and charitable, benefitted from his presence.

Roy Vitousek was elected to the Territorial House of Representatives 1923-1939 and served as speaker for four years. He was chairman of the Republican party and a delegate to its national conventions. His work as Chairman of the Commission on Crime was highly acclaimed. He worked tirelessly for the cause of statehood and sponsored definitive legislation in the areas of civil service, labor relations, police organization, workmen's compensation, unemployment compensation and public welfare. The feat that always aroused the most interest, however, was purely coincidental. He loved flying, and on the morning of December 7, 1941 he happened to be aloft with his son during the Japanese attack on Pearl Harbor. With enemy bombers diving all around him, he managed to land his plane safely with quite a story to tell.

C. Dudley Pratt, of missionary descent, attended Yale University where he was an All-American swimmer. As a boy, he was an Eagle Scout, and after returning to Hawaii to practice law, he continued his support of the Boy Scouts. The organization bestowed on him numerous local and national scouting awards. He was the father of the Red Cross Life Saving Program, a deacon and trustee of Central Union Church, and a trustee of Punahou School for thirty-five years. He devoted countless hours to Palama Settlement, the Honolulu Academy of Arts and the Amateur Athletic Union. The business community knew him as "Mr. Rotary". He served as the President of the Rotary Club of Honolulu and as the Governor of the Rotary District for Hawaii. Professionally, he was recognized for his work in real property law, probate and estate planning. He served a term as president of the Hawaii State Bar Association.

C. Nils Tavares, born in Pukalani, Maui in 1902, served as Attorney General of the Territory, a post he resigned to become a senior partner in the firm which was renamed Pratt, Tavares & Cassidy. He was a delegate to the Hawaii State Constitutional Convention in 1950 and chairman of the Hawaii Statehood Commission. He was appointed a United States District Judge in 1960. His community service included terms as president of the Better Business Bureau and Legal Aid Society, which he founded.

Charles E. Cassidy was a former football star at Cornell who became one of Hawaii's premier trial attorneys. While serving in the Public Prosecutor's office, he assisted in prosecuting the sensational Massie case. He was later appointed a judge in the Oahu Circuit Court. He resigned in 1947 to become a senior partner in Pratt, Tavares & Cassidy. Upon Hawaii becoming a State in 1959, Justice Cassidy became a member of the first Supreme Court of the State of Hawaii.

Alan C. Kay, a distinguished attorney and former partner, resigned from the firm in 1988 to become a United States District Judge. Judge Kay served on the boards of several leading corporations and charitable organizations prior to becoming a federal judge.

Five of the partners of the firm served as Presidents of the Territorial and then the Hawaii State Bar Association, namely Roy A. Vitousek, W. L. Stanley, C. Nils Tavares, C. Dudley Pratt and Daniel H. Case. Pratt was President of the HSBA in 1969 when the annual American Bar Association meeting was held in Hawaii for the first time. Neil Armstrong, just back from the moon, was a featured speaker. Case, as president of the HSBA in 1978, was its principal spokesman in support of the adoption of the Judicial Selection Commission in the Constitutional Convention that year. The law was approved by the voters in 1979. Case is currently chairman of the firm.

For more than a century, the firm has handled cases involving prominent individuals and events in Hawaii's history. Among these are:

Suit to Rescind the Liliuokalani Trust. Queen Liliuokalani executed a trust deed in 1909, creating the Liliuokalani Trust and conveying substantial lands to it. W. O. Smith prepared the documents as the attorney for the Queen and was one of the original trustees along with Curtis Iaukea and Samuel M. Damon. In 1915, Prince Kuhio, as the Queen's next of kin, was persuaded to file suit alleging that the Queen had been "of weakened mind" or had been unduly influenced at the time she executed the documents; therefore they should be annulled. The Queen and trustees filed demurrers. The Queen forcefully asked for a preliminary hearing to prove her competence. The circuit judge denied all such motions, so the Queen appealed to the Supreme Court which reversed the Circuit Court. Upon the remand, W. O. Smith and his law partner, Louis Warren, successfully defended the Queen and the trustees of the Liliuokalani Trust. The Court's decision quotes W. O. Smith as trumpeting: "The Queen is sane."

Ulupalakua Ranch Shoreline Case. Title to the 1,995 acres of Ulupalakua Ranch on Maui was granted by an 1850 deed from King Kamehameha III. The deed from the king contained, however, "a reservation of a landing place shoreward adjoining Makena Harbor and 60 fathoms adjoining high water mark of Makena Harbor extending inland." [English translation]. The State of Hawaii contended that this language reserved a strip of land 360 feet (60 lineal fathoms) above the high water mark all the way along the entire one-mile seaward boundary, an area of 40-50 acres.

After extensive research, it was discovered that in the early days after the arrival of the missionaries, there were very few surveyors, and so it was not uncommon for officers or seamen from the visiting ships to survey real property and measure property by the fathom (six feet) rather than by feet or rods. Further, there were cases found from the Supreme Court recognizing the use of "square fathoms" (six feet by six feet).

As attorney for the Ranch, Case contended that the reservation intended to reserve an area of 60 square fathoms (2,160 square feet), sufficient for a canoe landing. A study of the Makena shoreline revealed an area looking very much like a former canoe landing and it covered about 2,160 square feet. After hearing all the evidence and personally inspecting the site, Judge Samuel P. King upheld the Ranch's position, and the land court application was granted, subject to this 2,160 square foot reservation for a canoe landing....

The Lindbergh Case. Because he owned land at Kipahulu, there was an ancillary probate on Maui of Charles Lindbergh's estate. A man from Georgia named Kerwin filed a probate claim asserting that he was the lost Lindbergh baby who had been kidnapped and never found. Kerwin sought to be treated as a beneficiary as a "pretermitted" child. It was believed that the purpose of the lawsuit against the estate was to (1) obtain a nuisance settlement by causing discomfort to Lindbergh's wife by taking her deposition and having a trial, or (2) create substantial publicity in anticipation of a lucrative book contract or series of newspaper articles.

Case, as attorney for the estate, obtained the dismissal of the claim as a matter of law because Hawaii law did not accept the theory of "pretermitted" children at the time of Mr. Lindbergh's death. The Hawaii Supreme Court affirmed.

Aloha Airlines has reached a new deal with its investors that soon could fly the carrier out of bankruptcy.

The company, whose emergence from bankruptcy was delayed last month by an appeal from the federal agency that guarantees pension plans, filed a motion yesterday seeking a hearing Tuesday before Bankruptcy Judge Robert Faris on a restructured reorganization proposal.

A NEW BEGINNING

Key features of Aloha Airlines' modified reorganization plan:

» $43.25 million in cash from the Yucaipa Corporate Initiatives Fund I LP

» $16.8 million in cash and converted debt from the Aloha Aviation Investment Group

» $2.2 million from Aloha Hawaii Investors LLC, consisting of the Ing family partnership of Richard Ing and his sister, Louise Ing Sitch; Hawaii developer Stanford Carr; Duane Kurisu; and Colbert Matsumoto

» $750,000 from GMAC

» $35 million in exit debt financing

» $4.5 million in cost savings

Aloha also is asking for a waiver of the 10-day comment period if Faris approves the new plan....

David Banmiller, president and chief executive of Aloha, said in a statement yesterday that he hopes the modifications allow for a successful completion of Aloha's bankruptcy reorganization and the recapitalization of the company.

"The new equity investment clearly strengthens Aloha's financial position and has the added advantage of participation by new Hawaii investors," Banmiller said.

Aloha's new plan includes $43.25 million in cash from the Yucaipa Corporate Initiatives Fund I LP, headed by billionaire grocery magnate Ronald Burkle, and $16.8 million in cash and converted debt from Aloha Aviation Investment Group, led by former National Football League star Willie Gault. Yucaipa's cash investment is a $10 million increase from its previous proposal.

In addition, $2.2 million in cash is coming from a new group, Aloha Hawaii Investors LLC, which consists of the Ing family partnership of Richard Ing and his sister, attorney Louise Ing Sitch, both of whom are among the current owners of the airline; Hawaii developer Stanford Carr; Duane Kurisu, who has Hawaii commercial real estate and communications holdings; and Colbert Matsumoto, president of Island Holdings Inc., the parent company of Island Insurance.

Kurisu and Matsumoto are board members of Oahu Publications Inc., publisher of the Honolulu Star-Bulletin and MidWeek....

GMAC, the finance arm of General Motors, also is putting in $750,000 in cash....

Included in the new cost savings are the elimination of a proposed $2 million note and $175,000 cash distribution to Aloha's unsecured creditors. The total amount of unsecured claims against the carrier is approximately $207 million, according to the motion, and it is uncertain how many cents on the dollar unsecured creditors will get. However, the motion said the recovery to unsecured creditors under the modified plan will be reduced by less than 1 percent from what creditors were going to receive under the previous plan. Under that plan, unsecured creditors were expected to receive less than 5 cents on the dollar.

The attorneys and advisers connected with the case also have agreed to reduce their fees collectively by $1 million.

Aloha said in its filing that all key constituents support the plan and that it must be approved expeditiously.

"If not," the motion said, "there is the distinct possibility that (Aloha) could run out of cash and would be forced to cease operating, rendering 3,500 residents of the state of Hawaii unemployed, and severely harming the state of Hawaii's passenger and cargo operations."

The new deal became necessary when investors Yucaipa and AAIG balked after Aloha failed to emerge from bankruptcy by a Dec. 15 deadline. Aloha's first reorganization plan was approved on Nov. 29.

Aloha, which filed for bankruptcy on Dec. 30, 2004, saw its goal of emerging from Chapter 11 in less than a year thwarted when the federal Pension Benefit Guaranty Corp. filed several last-minutes appeals last month. The agency and Aloha have since reached a tentative settlement, though details have not been disclosed.

Aloha blamed the PBGC's appeals and rising fuel prices for the need to restructure the deal.

"These cost increases make the original plan's capital and price structure unworkable," the motion said.

The U.S. Trustee's office yesterday challenged the selection of the Case Bigelow & Lombardi law firm to represent the creditors in Aloha Airlines' bankruptcy case, saying the Bishop Street firm has a conflict of interest because it once represented Aloha.

Case Bigelow & Lombardi and a Park Avenue-based law firm, Otterbourg, Steindler, Houston & Rosen PC, applied in February to jointly represent the official committee of unsecured Aloha creditors. But Case Bigelow failed to disclose that it had issued opinion letters on Aloha's behalf in 2000 regarding loans made by First Hawaiian Bank, according to the U.S. Trustee's motion.

The office of the U.S. Trustee represents the federal government in bankruptcy proceedings and argued in its motion yesterday that Case Bigelow's "failure to disclose its direct conflict of interest in representing the interests of its client, the (creditors) committee, disqualifies it as counsel. ... The committee should not be represented by a party with a direct financial stake favoring an outcome against the committee's interests."

Case Bigelow has filed subsequent disclosure statements about its past relationship with Aloha, according to the U.S. Trustee's motion, but "it appears that the firm still falls short of providing full and forthright information."

Case Bigelow attorney Ted Pettit, who filed the motion to employ Case Bigelow in the case, did not return telephone calls yesterday.

Members of the Wilcox family filed a civil suit claiming that they were allegedly "duped" into selling their Grove Farm shares to America Online co-founder Stephen Case for a fraction of the company's value.

In the lawsuit, the family members allege that Grove Farm's attorneys and members of its board of directors "betrayed Grove Farm from within" to ensure that Case, the son of the managing attorney of Grove Farm's law firm, could buy the company for $26 million in December 2000.

The Wilcox family members seek a jury trial at which they hope to be awarded compensatory damages of $750 million, plus punitive damages of $2 billion against Case, punitive damages of $2 billion against leaders of the company's law firm, and $2 billion in punitive damages against members of the company's board of directors....

In a statement sent to The Garden Island, Case's attorney, Paul Alston, responded to the lawsuits.

"These two new lawsuits recycle old and unfounded allegations against Steve Case and his companies. The merger between Grove Farm and Steve Case's company was approved by almost 99 percent of the shareholders — including the plaintiffs in these lawsuits — in a process that was thorough and appropriate," said Alston.

"This new challenge, brought by a few disgruntled investors who apparently have a bad case of sellers' remorse, has no merit. Mr. Case looks forward to being fully vindicated by the courts in both cases."

Warren Haruki, president and chief executive officer of Grove Farm, also responded by e-mail to queries from The Garden Island.

"Steve Case's investment in Grove Farm has been instrumental in solving Grove Farm's financial problems, and in helping us build a future that will be good for both the company and Kaua'i as a whole. We are truly grateful for his commitment, his vision, and his investment," said Haruki....

"This lawsuit, filed by a few disgruntled shareholders, has no merit," said Haruki. "Nonetheless, Steve and Grove Farm will have to divert the time and resources to deal with it. However, we are confident that, in the end, the shareholders' arguments will be rejected by the court."...

According to the lawsuit, the plaintiffs in the case controlled approximately 61,000 shares of Grove Farm, or more than 36 percent of the 171,126 shares of outstanding stock.

The lawsuit claims that leaders of Grove Farm's law firm allegedly represented both the seller and the buyer.

"Just as a person playing both sides of a chess match decides whether white or black wins, a lawyer representing two sides with directly conflicting interests controls who will come out on top," the lawsuit says.

According to the lawsuit, the Wilcox family members allege that attorneys in the firm Case Bigelow & Lombardi helped Case buy Grove Farm.

According to the lawsuit, in 1999 and early 2000, Scott Blum, the son-in-law of Grove Farm's President and Chief Executive Officer at the time, Hugh Klebahn, allegedly attempted to take over the company with help from within.

The lawsuit alleges that a series of letters were ghost-written by attorney James Cribley and sent to Grove Farm shareholders over the signature of Klebahn and director Randal Moore in 1998, 1999, and 2000.

The lawsuit claims that the shareholders were allegedly led to believe that the company was "in dire financial straits."...

The Wilcox family members allege that the younger Case "picked up and finished off Grove Farm." They allege that he was "fed insider information by his father and by the company's CEO."

The lawsuit claims that, after the sale, the Wilcox family members found out that the fair market value of the company's 21,600 acres after debt was "in excess of $26 million," and that the true value of the company was concealed.

Members of the Wilcox family in their lawsuit allege that they were not informed of a Bank of Hawaii appraisal that was done four months before shareholders voted to sell the company. That appraisal estimated Grove Farm's land to be worth $152 million.

According to the lawsuit, the Wilcox family members allege that Case was given the appraisal, and used it in considering whether or not to buy Grove Farm.

The lawsuit alleges that members of Grove Farm's board of directors did not get the highest dollar amount for the company, and that board members misled shareholders about the company's financial standing.

According to the lawsuit, the Wilcox family members allege that Grove Farm's chief executive officer conspired with attorney Daniel Case, with other Grove Farm attorneys, and with Stephen Case, to defraud shareholders into believing that $152 per share was the highest price that could be attained, when another, superior offer was made at $170 per share.

The Wilcox family members claim that Case profited from the sale by "liquidating Grove Farm in earnest." According to the lawsuit, Case recently sold Kukui Grove Center for $63 million, and received about $26.5 million for selling 88 lots in a Lihu'e-Puhi housing project.

The family members point out that Case may expect about $54.3 million more after another 191 lots were recently put on the market.

In 2003, according to the lawsuit, Grove Farm leaders sold 10 acres to officials at The Home Depot, and brought in $10 million to $20 million to Grove Farm.

"After reaping some $150 to $200 million from selling off bits of Grove Farm, Stephen Case still has over 20,000 acres of land in Grove Farm," the lawsuit says.

According to the lawsuit, the Wilcox family members believe that the remaining land is worth at least another $1 billion.

The Wilcox family members allege in their lawsuit that they were led to believe that, over the course of 1999 and 2000, the company "was on the brink of insolvency."

They claim that the board members allegedly withheld information for the purpose of having the shareholders vote in favor of selling the company....

KAHULUI – One way to quantify the difference between the old Maui Land & Pineapple Co. and the new ML&P is to compare two employee housing projects – Kapua Village and Pulelehua.

Kapua Village was the 11-acre employee housing project at Mahinahina that ML&P began planning in the early 1990s, receiving initial approvals in 1997. But opposition from surrounding residents blocked development for more than five years, with construction and sales finally allowed in 2003.

Pulelehua is a 312-acre project district planned as a mixed-use residential development primarily for ML&P workers, which ML&P is trying to get permitted almost 10 times as fast. New Chief Executive Officer/Chairman David Cole unveiled the concept last year and expects shovels in the ground by this time next year.

But they do not sit well with two former directors: members of the Cameron family that put together, and managed ML&P over nearly four decades.

Mary “Maizie” Cameron Sanford says, “I feel sorry for the old-timers, not just the executive ones but the workers.

“They haven’t come to me (to complain), but I have certainly heard when I have listened to them. They miss the old days. It’s not the same company anymore.”

The man who is changing it, Chairman Cole, would hardly accept such a critique without qualifications.

He is trying to restructure ML&P from the ground up. He says that when he came aboard (as president, at first) in late 2003 and did a 100-day assessment, “the company was broken in every single line of business.”

Last month, he told employees that, without changes, Kapalua Resort was “heading for extinction.”

At the same time, he contends that the business changes can be made without giving up the qualities that made ML&P, the largest company with headquarters on Maui, a community stalwart. Qualities that Sanford sums up as “integrity.”

Under her father, J. Walter Cameron, and her brother, Colin Cameron, she says, ML&P “did have integrity. It was a company to be relied upon.”

It was not unique in Hawaii, but it was a notable example of a company that made it its business to get involved in lots of things – from the founding of the J. Walter Cameron Center to the Maui Pacific Center to the Kapalua Music Festival.

Cole, who got to know Colin Cameron through The Nature Conservancy, also considers that he is carrying forward that tradition of being a corporation concerned with more than profit-and-loss statements.