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Lawsuit alleges fraud by Mauna Kea Properties

March 27, 2014 - 12:05am

One Mauna Kea community association is suing another, claiming the second group defrauded the first of millions, by failing to pay a proportionate share of common areas maintenance and other fees.

Members of The Uplands at Mauna Kea Community Association, which formed in 1999, are suing Mauna Kea Resort Services, claiming the latter passed along costs to the Uplands group for security services, road repairs and other maintenance of common areas, without properly including its own lots in the calculation determining what share the Uplands association would pay, according to a civil lawsuit filed Tuesday in the 3rd Circuit Court in Kona.

Preliminary estimates put the figure in unpaid fees at about $5 million, Uplands’ attorney Jerry Hiatt said in an email Wednesday afternoon.

A property manager for Mauna Kea Resort Services, which formed via the merger of Mauna Kea Properties Inc. and Mauna Kea Development Corp., declined to comment on the lawsuit Wednesday.

The Uplands group is an umbrella association of four different homeowners associations and several undeveloped lots, attorney Bruce Voss said. They represent a total of 166 lots.

According to the lawsuit, the various community associations on the property have a formula by which their respective shares of common area costs are calculated.

“Since 2002, Mauna Kea Properties has intentionally and fraudulently failed to include (any of their share) assigned to (their lots) in its calculations of liability payment of the Uplands entry road expenses,” the lawsuit said. “As a result, its affiliate Mauna Kea Development — which has now been merged into the same limited liability company as Mauna Kea Properties — has wrongfully avoided paying its proportional share of the Uplands entry road expenses for more than 10 years all the while concealing its obligation to do so.”

Mauna Kea Properties also failed to provide an accounting of funds actually spent, the lawsuit alleged.

Hiatt wrote that the plan was a “scheme to avoid paying millions of dollars” that was “created by, and subsequently endorsed by, Mauna Kea Properties’ senior management.”

Mauna Kea Properties officials submitted false billings to the Uplands association, Hiatt said.

In addition to restitution for the unpaid fees, Uplands members are seeking “special, compensatory and/or consequential damages,” as well as punitive damages, prejudgment interest and late fees on all amounts not paid.

Developers across the state build residential subdivisions in higher-end projects, often creating an owners association to manage and pay for common area maintenance, Hiatt said. This is a common practice, with the developer eventually turning the owners association over to buyers as the project’s lots and homes are sold.

“Developers commonly draft the Declarations for these owner associations in a way that strongly favors the developer, trying to push as many maintenance responsibilities and costs onto the owners’ association as they can, so the developer doesn’t have to pay for those costs as it continues to develop and sell other lands in the project,” Hiatt wrote. “Mauna Kea withheld millions of dollars in payments to the Uplands Association for maintenance expenses, and then actively concealed its non-payment from the Uplands Association.”