Nathan W. Smith

Broker (VP)

PRINCEVILLE II COMMUNITY ASSOCIATION – DISCLOSURE OF LITIGATION

Princeville II Community Association (“PVII”) is currently involved in litigation with Princeville at

Hanalei Community Association (“PHCA”) and Emmalani Court condominium association.

Emmalani Court has also brought the current developers of Princeville II, Princeville Development

LLC and Princeville Associates LLC (together “Developer”) into the lawsuit, and the Developer has

filed a counterclaim against PHCA. This document summarizes the background and possible

outcomes of the cases.

In January 2013, Princeville Development LLC conveyed the Ka Haku entry to PVII, in accordance

with an agreement that had been in place since 1994. At the time of the conveyance, the parties

agreed to further negotiations relating to the funds necessary to bring the Ka Haku entry into good

condition. This process is continuing and awaiting final figures on the cost of the restoration work.

Prior to the conveyance to PVII, PHCA had contributed nothing at all to the ongoing cost of

maintenance for the Ka Haku entry, even though its members had been using the entry for more than

20 years. Therefore, in preparation for the conveyance, PVII’s representatives had also been in

negotiations with PHCA to establish the amount each member of PHCA should contribute to the cost

of ongoing maintenance of the entry, once it was conveyed to PVII.

At the time of the conveyance to PVII, there were a combined total of 3,335 units (lots, houses,

condos, hotel rooms) in PHCA and PVII. Of those 3,335 units, only 882 of those units had been

contributing to the cost of maintaining the Ka Haku entry. The 882 units included all of the units in

PVII, plus the two hotels located in Princeville at Hanalei, and Emmalani Court, one of the

sub-associations in Princeville at Hanalei.

Following the conveyance, PHCA would not commit to paying a fair share of the cost of maintaining

the Ka Haku entry. In addition, Emmalani Court unilaterally cut its maintenance payment to PVII

by more than two thirds. This occurred even though Emmalani Court’s own declaration requires it

to pay 4.68% of the cost to maintain the Ka Haku entry. As a result PVII filed a claim against

Emmalani Court in the Circuit Court of the Fifth Circuit of Hawaii on September 5, 2013, but later

agreed not to pursue the claim pending the outcome of mediation.

After three mediation sessions with one of the most experienced mediators in the state, PHCA,

Emmalani Court, and PVII were unable to reach an agreement on the amounts that PHCA and

Emmalani Court should contribute to the cost of maintaining the Ka Haku entry. PVII’s position

was simple: that every one of the 3,335 units in PHCA and PVII should contribute an equal share to

the cost of maintaining the Ka Haku entry. PVII estimates that under this proposal, THE COST

FOR EACH MEMBER OF PVII AND PHCA WOULD BE LESS THAN $6.00 PER MONTH.

PVII believed this position was more than reasonable because Hawaii law provides that anyone with

an easement to use the property of another has an obligation to contribute to the cost of maintaining

that property. Under a 1994 deed, PHCA received an easement to use the Ka Haku entry to access

the Prince Albert Park parcel. In addition, Emmalani Court has an easement through its declaration

to use the Ka Haku entry to access its property.

PHCA and Emmalani Court had other ideas, and they presented proposals that PVII could not accept.

These proposals included having PVII convey or give control over the Ka Haku entry to PHCA.

PHCA also indicated that: (i) it would not contribute to the cost to operate and maintain the Ka Haku

entry until the Ka Haku entry was completely restored; and (ii) it was not prepared to share the cost

of repairing the roadway even though its members have been using it for over 20 years.

Since the mediation was not successful and since PHCA was paying nothing towards the

maintenance of the Ka Haku entry, PVII was forced to conclude that the court would have to resolve

the dispute. Therefore, on August 28, 2014, PVII filed a complaint in Fifth Circuit Court of Hawaii

requesting a determination that PHCA had an obligation to pay a proportionate share of the cost to

operate and maintain the Ka Haku entry based on: (i) the easement granted to PHCA; and (ii) the fact

that PHCA members were using and benefiting from the Ka Haku entry on a regular basis.

In PVII’s civil action against Emmalani Court, Emmalani Court filed a counterclaim against PVII and

third-party claims against PHCA, Princeville Development LLC and Princeville Associates LLC in

the Fifth Circuit Court of Hawaii on September 2, 2014. In the counterclaim against PVII,

Emmalani Court alleged, among other things, that it should only have to pay a proportionate share of

the cost of maintaining the Ka Haku entry rather than the set amount stated in its declaration (on the

basis that all members of PHCA and PVII should be required to contribute equally towards the

maintenance of the Ka Haku entry since all members of those associations use the entry).

Emmalani Court’s third party claims against the Developer, Princeville Development LLC and

Princeville Associates LLC, alleged, among other things, that the Developer had an obligation to

maintain the entrance facilities and fund any necessary repairs and failed to do so. The Developer

thereafter countered with a crossclaim against PHCA for failing to contribute toward the maintenance

of the Ka Haku entry. The crossclaim also sought reimbursement for PHCA’s proportionate share of

the maintenance costs the Developer incurred up to the time the Developer conveyed the Ka Haku

entry to PVII. That claim is based on the fact that PHCA’s members had used the Ka Haku entry for

more than 20 years but had failed to pay for any of its maintenance and repair.

The two cases have since been consolidated. The consolidated case is still continuing and PVII’s

insurance company is defending the counterclaim by Emmalani Court against PVII.

The outcome of the case cannot be predicted at the current time, but PVII believes the case should be

and will be resolved in favor of PVII based on fairness and the law. In other words, ultimately,

every association member who uses the Ka Haku entry – be it a member of PHCA or PVII – should

have an obligation to contribute proportionately to the cost of operating and maintaining that entry.

That is especially true because the members of PHCA and Emmalani Court are also claiming an

easement to use the Ka Haku entry.

Moreover, the law in Hawaii and elsewhere recognizes the users of an easement have a duty to

contribute to its maintenance and repair. PHCA is the only party that has taken the opposite position

and the basis for its position is not supported by Hawaii law.

In addition, PVII has had an extensive study done on the condition of the Ka Haku entry. Based on

that study, PVII will soon have a definitive cost estimate for restoring the entry roadway to good

condition. Once this data is available, PVII will continue its negotiations with the Developer.