KAANAPALI – An arbitrator recently ruled that the lease between the Association of Apartment Owners of Hale Kaanapali and Aston Hotels and Resorts LLC violates Hawaii Revised Statutes 514B-38 and is void.

The arbitrator determined that the lease was granted without the board of directors first securing required approval by owners.

Arbitrator E. John McConnell of Dispute Prevention & Resolution Inc. also decided that the association – doing business as Maui Kaanapali Villas – lacks authority to require the plaintiffs, Steve and Andrea Clark, as opposed to their guests, to go through Aston and the front desk to obtain a key to their unit, and it cannot mandate the claimants to go through Aston and the front desk to pay any registration fee.

In addition, McConnell ruled that the association owns the Maui Kaanapali Villas (MKV) trademark that may be used by the plaintiffs regardless of whether or not they participate in a rental program, and the AOAO lacks authority to require the plaintiffs to undergo unit evaluations and pay fees before using the MKV trademark, among other findings.

The couple was awarded $83,235.14, including $76,419 in legal fees.

They filed suit against the association in Hawaii Second Circuit Court. An arbitration hearing was held on March 15-17 before McConnell, who issued his Final Award of Arbitrator on May 19, 2017. The Final Judgment was filed on Aug. 29, 2017.

Hale Kaanapali is a beachfront condominium formed in the 1960s comprised of 260 fee simple residential units.

According to court documents, the owners of 225 units rent them as short-term vacation rentals. Of these, 181 owners rent their units through the Aston Rental Program (ARP) and 59 owners rent their units independently.

These latter units, which include the plaintiffs, are designated as nonparticipating units (NPUs).

Aston is the managing agent for the entire AOAO, including all owners; it leases the front desk area (a common element) from the AOAO, and it is the rental agent for units participating in its rental program (APUs).

It does not provide rental services for the NPUs.

Aston enters into contracts with APUs under which revenues are split with 55 percent going to owners and 45 percent to Aston.

A majority of the members of the AOAO’s board of directors participate in the Aston rental program.

Disputed issues in the lawsuit include: (1) The validity of the lease between the AOAO and Aston; (2) The validity of a $40 check-in fee formerly imposed on NPUs; (3) The validity of the imposition of unit evaluations on NPUs as a condition of use of the association trademark; (4) The validity of the AOAO’s actions permitting Aston’s advertisements related to the project, including alleged improper solicitations and communications with NPU owners; (5) The validity of the AOAO, requirement that both guests and owners of NPUs go through Aston’s front desk to obtain access to their units; (6) The validity of the VING Card door lock system installed on all units; and (7) The validity of certain bylaw amendments, the Final Award of Arbitrator states.

After considering testimony from both sides, retired Judge McConnell issued his final report, also determining that the actions of the AOAO in authorizing Aston’s advertisements and solicitations on common elements and on the website are a conflict of interest and amount to unfair competition in violation of HRS 480-2, and that the association breached its fiduciary duty and contract with the plaintiffs who prevailed in the dispute.

Steve commented, “We hoped to expose the illegal rules in the bylaws and actions made by the board supported by its management company, Aston, for their benefit.

“When we started to examine the board of directors’ activities, it was apparent to the judge that they had exceeded their authority according to Hawaii state statutes and failed their fiduciary responsibilities,” he continued.

“Now, thousands of eyes are focused on this board and its management company to see how and when it will comply with the judge’s rulings. The next board meeting is this October 26-27.”

He explained that on July 1, 2017, Hawaii Gov. David Ige signed into law House Bill 832, mandating zero tolerance to board members failing their fiduciary responsibilities.

“The Clark vs. AOAO Hale Kaanapali was made law in July 2017 and therefore applies to all condominium associations throughout the State of Hawaii,” he concluded.