A civil suit filed Monday in Delaware alleges that the owners of the Hu Honua Bioenergy plant currently under development in Pepeekeo attempted to defraud the former majority owner of the project by attempting to back out of an agreement to pay a sum of $5.5 million following state approval of a power purchase agreement with Hawaii Electric Light Company Inc.
Filed Monday by former majority stakeholder MMARV Bioenergy LLC in the Court of Chancery of the State of Delaware, the suit names among the defendants HIPP LLC, the company which purchased in 2010 MMARV’s 90 percent share of Island Bioenergy LLC, which owned and was developing the Hu Honua biomass power plant. Seven other related organizations and individuals are named as co-defendants.
At the time of the sale, Hu Honua Bioenergy was negotiating a power purchase agreement with HELCO. Once the agreement was complete, it was required to be submitted for approval to the state Public Utilities Commission before it could go into effect.
“PUC approval is necessary for the Project to begin operation,” the lawsuit reads. “PUC approval will dramatically increase its value.”
The suit claims that the project’s net worth was anticipated to approach $200 million after the approval.
As part of the sale, HIPP agreed to pay $5.5 million to MMARV upon approval of the power purchase agreement. The agreement stipulated, however, that if HIPP transferred its interest in Island Bioenergy to a third party before the PUC approval, thereby never profiting from the approval, HIPP could avoid making a large part of the payment.
The suit alleges that in late 2012, HIPP “implemented a fraudulent scheme” to avoid paying MMARV by transferring Island Bioenergy to another company before the PUC approval.
The four individuals controlling HIPP — John Sylvia, Roger Berry, Virginia Foote, and Roger Preston — are alleged to have formed their own lending group called Grandis Ventures, which subsequently made a loan to HIPP. Months later, the lawsuit says, the various parties “orchestrated a default by HIPP and a transfer of HIPP’s interest in Island Bioenergy in lieu of foreclosure” in exchange for a total of $49.7 million.
“HIPP’s transfer of its interest in Island Bioenergy to the related Lending Group was a sham transaction designed to defraud (MMARV) of the $5.5 million payment while preserving the Individual Defendants’ economic interest in the Project,” the complaint states. “Instead, HIPP conducted the transaction in secret and for less than fair-market value. Despite an obligation to provide (MMARV) advance notice and an opportunity to bid, HIPP gave (MMARV) no advance notice of the loan or the subsequent ‘sale.’”
The suit claims that HIPP representatives have said the transaction was necessitated by financial difficulties at Hu Honua. But, other statements made by company representatives have contradicted that information, according to the complaint.
“In every other instance, HIPP and the Individual Defendants represented that costs were reasonable, that PUC approval was anticipated, and that the project soon would be operational and receiving electricity at rates based, at least in part, on a projected cost-plus profit analysis conducted by HELCO and HIPP,” the suit reads.
Hu Honua General Manager Kevin Owen did not respond Thursday to a phone call seeking comment on the suit.
The power purchase agreement was finalized and executed in May 2012, with HELCO promising to purchase electricity from Hu Honua for 10 years. To date, HIPP had invested more than $30 million in the project, according to the filing, while arranging for approximately $55 million in outside investment.
Email Colin M. Stewart at cstewart@hawaiitribune-herald.com.
