MPL is held legally responsible for the actions of its utilities.
County of Maui Press Release FOR IMMEDIATE RELEASE August 13, 2009
The First Circuit Court ruled on July 15, 2009 that Molokai Properties, Ltd. (MPL) is legally responsible for the actions of the Molokai utility companies whose stock MPL owns. The appeal arose out of MPL’s threat last year to shut down water and wastewater utilities providing service to some 1,200 Molokai residents.
On May 8, 2008, MPL notified the State Department of Health that MPL would not continue to operate water and wastewater utility systems in Molokai beyond August 2008. On July 21, 2008, the Director of the State Department of Health initiated administrative proceedings against MPL and the utilities to avoid a public health crisis that would have occurred if MPL had made good on its threat. MPL responded by claiming that the Department of Health did not have any jurisdiction over MPL because MPL was merely a stockholder in the utility companies. After an evidentiary hearing, in which the County of Maui participated as an intervenor, the Department of Health’s hearing officer ruled that although they had been set up as separate corporations, the utilities and MPL were ignoring the necessary corporate formalities and were operating essentially as one company controlled by MPL. As a result, MPL could be held legally responsible for the actions of the utilities. The hearing officer’s decision was based on an "alter ego" theory, sometimes known as "piercing the corporate veil." MPL appealed the hearing officer’s ruling that MPL was the alter ego of the utilities. The appeal was assigned to Judge Eden Elizabeth Hifo of the First Circuit Court and following oral arguments on July 15, 2009, Judge Hifo ruled in favor of the State and the County, and against MPL. Judge Hifo held that no due process rights of MPL had been violated, and she affirmed the hearings officer’s rulings on the alter ego issue.
"I’m pleased that the court has placed the legal responsibility for this crisis on Molokai Properties, Ltd, where it rightly belongs," said Mayor Charmaine Tavares. "By hiding behind the legal fiction that MPL and its wholly-owned utilities were separate corporations, MPL was trying to free itself from the utilities’ liabilities while keeping all of its valuable assets. The Department of Health’s hearings officer saw through this scheme, and his ruling has now been upheld by the First Circuit Court."
"The Molokai community has had to endure so much when the utilities walked away from their responsibility," said Council Chair Danny Mateo who also holds the Molokai seat on the County Council. "I appreciate the hard work and determination of our legal team to pierce the corporate veil of Molokai Properties."
The Department of Health was represented by Deputy Attorney General Edward Bohlen, while the County of Maui was represented by Deputies Corporation Counsel Jane Lovell and Edward Kushi, Jr. and by Margery Bronster, John Hoshibata, and Jeannette Castagnetti of the Honolulu law firm of Bronster Hoshibata. Honolulu attorneys James Duca and Malia Schreck represented MPL.