By S. Haunani Apoliona / Chairperson, Board of Trustees

In the course of our 40-plus statewide meetings on the proposed settlement of past-due amounts on ceded lands, people took the opportunity to raise many other questions and comments. As Administrator Clyde Nāmu'o wrote last month in Ka Wai Ola, the most common comment that Hawaiians had was they want more interaction with OHA. We have heard you, and as the Administrator noted in his column, one immediate way will be to participate in the process to update our OHA Strategic Plan, which will begin soon.

Another set of related questions and comments (in the meetings and in blogs and e-mails) has had to do with OHA's recent creation of limited liability companies (LLCs): Hiÿilei Aloha, Hiÿipaka, and Hiÿipoi. Here, I would like to share the reasoning behind why OHA created these entities and answer some related questions that have been raised.

What is an LLC?

A limited liability company is a legal entity that is formed when certain requirements in Hawaiÿi Revised Statutes Ch. 428 are met. It is similar to a corporation, in that it protects the owners of the company from liability for the debts and obligations of the company. Standard corporations have owners/shareholders; with limited liability companies the owners are called “members.” An LLC has a less cumbersome management structure than a corporation and is generally easier to administer than a corporation. Like a corporation, however, it must comply with applicable state law and is subject to state oversight.

Why did OHA create the LLCs?

The move to create nonprofit LLCs of which OHA is ultimately the only member came up because of our acquisition of Waimea Valley in 2006. OHA acquired Waimea at the request of beneficiaries and we were able to do so because our partners covered the majority of the costs.

At the time we purchased Waimea, the National Audubon Society was the lessee, and OHA anticipated entering into a long-term lease (10-20 years) with them. After many months of difficult negotiations, we could not reach agreement and we negotiated a transitional lease that expired on Jan. 31, 2008. One reason we could not reach agreement was that we were not confident that the cultural mission of the Valley and beneficiary participation would be a priority.

OHA then had three options before it:

1) To try and find another party to lease the Valley who could be excellent in their management of the cultural, business and botanical operations;

2) To manage it ourselves by hiring the 40-plus employees directly; or

3) To create an organization that could manage Waimea.

OHA found after searching that there was no other party to whom we wanted to lease this precious Valley. OHA also decided that keeping ownership and management of the Valley within OHA would mean that people could sue OHA if they were injured. If OHA owned and/or managed Waimea directly, our trust assets would be exposed to claims. As Trustees, we have a fiduciary obligation to protect the Trust, and that is why we decided to create an LLC to manage Waimea.

In the course of these deliberations we also thought about the future and the many kinds of assets that we were either in the process of acquiring (such as Makaweli Poi) and other assets that people have asked us to acquire (such as other cultural lands). That led us to the decision to create not just one LLC for Waimea but a family of LLCs. In the end we had three main reasons for creating a family of LLCs – the “parent” Hiÿilei Aloha and the “subsidiaries” Hiÿipaka and Hiÿipoi. They were to protect against liability to OHA, to have a “parent” LLC coordinate the “subsidiaries” that would each own property, and to achieve cost savings. Insurance and other services and goods can be purchased more cheaply and administered more efficiently when they are centralized.

Are the LLCs obligated and accountable to the Trustees and beneficiaries?

OHA, through its Board of Trustees, is the only member of Hiÿilei Aloha, and Hiÿilei Aloha is the only member of Hiÿipaka and Hiÿipoi. What that means is the OHA Board still has ultimate control over the LLCs – they decide who the managers are, they provide funding and they can remove the managers or dissolve the companies. The LLCs and their managers are obligated and accountable to the OHA Board of Trustees.

Moreover, the purposes of the LLCs – outside of which they cannot legally act – are exclusively to further the purposes of OHA.

The OHA Trustees are elected – our ultimate accountability to the beneficiaries is that we can be voted out of office.

Did OHA create the LLCs to hide information about its assets from its beneficiaries?

The LLCs were created under Hawai'i's limited liability company laws to protect the Trust. They are subject to the same disclosure requirements as all other Hawai'i LLCs. Their Articles of Organization which contain detail on the LLCs' organization are publicly available at the Department of Commerce and Consumer Affairs. In addition, the January 2008 Board action to fund the LLCs was taken in open session.

Why are OHA employees managers of the LLCs? Is there a conflict of interest?

The managers of the LLCs are named in the Articles of Organization, which are public documents that have been filed with the State. The managers of Hiÿilei Aloha are the Administrator and the Deputy Administrator for Beneficiary Advocacy and Empowerment; the managers of Hiÿipaka are the Administrator and the director of Land Management; the managers of Hiÿipoi are the Administrator and the director of Economic Development.

OHA could have named non-employees as managers of the LLCs, and we considered it. However, in the interest of ensuring that the LLCs remained accountable to the Board, we decided it was best to have managers who were also OHA employees.

The employees who are also managers of the LLCs receive no additional pay or compensation for their role as managers. In addition, each of the LLCs has a conflict of interest policy that prohibits the managers from financially benefiting from the LLCs.

Because the LLCs are serving the purposes of OHA and not any individual or private interests, there is no conflict of interest between the LLCs and their managers and OHA.

Is creating the LLCs part of a “Plan B” in case the Akaka Bill fails?

Our Board of Trustees continues to support passage of the Akaka Bill – a position that we fully know is not supported by everyone. We continue to believe the bill will pass and are working to those ends.

If the bill does not pass, the LLCs are not part of a Plan B. They were only created for the reasons stated above. If one of the lawsuits seeking to disband OHA were to pass, all of OHA's assets – including the LLCs' – would likely be taken by the State of Hawaiÿi, unless another plan (by a Constitutional Convention, the courts or the Legislature) was made.

Is this legal for OHA to create and fund LLCs?

Yes, under Article XII of the Hawaiÿi Constitution and Chapter 10 of the Hawaiÿi Revised Statutes, OHA has the power to create and fund the LLCs. Not only is it legal, it is standard and prudent business practice to create LLCs – dozens are created in each week in Hawaiÿi, undoubtedly for the same reasons OHA did – to protect the member and its assets from liability.

Other questions?

If you have other questions about the LLCs, or any other issue, we want to try and answer them. Please email them to info@oha.org or call us at 594-1888.