Clark final award

1. E JOHN McCONNELL
33 N. Market Street, Suite 200
Wailuku, Hawaii 96793
Telephone: (808) 244-6531
Email: judgemcconnell@msn.com
Arbitrator
DISPUTE PREVENTION & RESOLUTION, INC.
STATE OF HAWAII
STEVE CLARK and ANDREA CLARK,
Claimants,
vs.
THE ASSOCIATION OF APARTMENT
OWNERS OF THE HALE KAANAPALI,
Respondent.
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DPR No. 15-0270-A
FINAL AWARD OF ARBITRATOR
FINAL AWARD OF ARBITRATOR
The undersigned Arbitrator was duly selected by Steve and Andrea Clark (Clarks
or Claimants) and the Association of Apartment Owners of Hale Kaanapali (Respondent
or AOAO) to conduct a binding arbitration pursuant to their arbitration agreement dated
November 4, 2015. An arbitration hearing was held on March 15, 16 and 17 at which
each of the parties was afforded full opportunity to call and examine witnesses and to
offer evidence. Terrance M. Revere, Esq., and Malia R. Nickison-Beazley, Esq.,
appeared for Claimants. Philip A. Lei, Esq., appeared for the Respondent. Timely post
hearing proposed findings of fact (FOF) and proposed conclusions of law (COL) were
submitted on April 10, 2017. Claimants filed an Arbitration Memorandum on April 10,
2017 and Respondent filed its opposition thereto on April 24, 2017. Objections to

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Respondent’s proposed FOF and COL were filed by Claimants on April 19, 2017 and
were stricken as authorized. Requests for an award of attorneys’ fees and costs were
submitted on May 11, 2017. Having carefully considered the totality of the evidence in
light of the claims and contentions of each of the parties, the undersigned Arbitrator
FINDS, CONCLUDES and AWARDS as set forth below.
I. BACKGROUND FACTS
The Hale Kaanapali (Project) is a beach front condominium formed in the 1960s
consisting of approximately 260 fee simple residential units. The owners of
approximately 225 units rent them as short-term vacation rentals. Of these,
approximately 181 owners rent their units through the Aston Rental Program (ARP) and
approximately 59 owners rent their units independently. These latter units, which include
Claimants, are designated as nonparticipating units or NPUs.
Aston Hotels and Resorts, LLC., (Aston) has three roles with respect to the
Project: (1) it is the managing agent for the entire AOAO, including all owners; (2) it
leases the front desk area (a common element) from the AOAO; and (3) 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% going to owners and 45% to Aston. A majority of the members of the
AOAO’s Board of Directors participate in the Aston rental program.
The foregoing facts are not in dispute. The Arbitrator’s analysis of the disputed
issues is set forth under separate headings below. The disputed issues 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

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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 by-law amendments (an issue which
the AOAO considers untimely).
A. The Lease to Aston
The front desk was leased to Aston on January 1, 2005 for a 5-year term
expiring December 31, 2009. Thereafter the term of the lease was extended by simple
amendments to the original document as follows:
January 1, 2010 to December 31, 2014
September 10, 2013 to January 31, 2015
August, 2015 to August 31, 2016
December 30, 2016 to March 1, 2017
At no time did Respondent obtain approval of the lease by owners of 67%
of the common interest. Claimant contends Respondent thereby violated HRS §514B-
38(B)(5) and Section 9 of the Bylaws. HRS §514B-38(B)(5) in relevant part states:
“(5) The right of the board, on behalf of the
association, to lease or otherwise use for the benefit of the
association those common elements that the board determines are
not actually used by an of the unit owners for a purpose permitted
in the declaration. Unless the lease is approved by the owners of at
least sixty-seven percent of the common interest , the lease shall
have a term of no more than five years and may be terminated by
the board or the lessee on no more than sixty days prior written
notice; provided that the requirements of this paragraph shall not
apply to any leases, licenses, or other agreements entered into for

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the purposes authorized by section 514B-140(d); and” (emphasis
added)
Respondent argues that its Board carefully considered the “all
opportunities” when it approved these extensions and that there is no prohibition on
subsequent leases to the same tenant. The statute however contains no provision
authorizing extensions and clearly requires a 67% approval for terms that exceed 5 years.
The apparent legislative purpose of the provision, in the Arbitrator’s view, is to require
owner approval for longer term rentals of common elements. Circumstances may change
markedly in 5 years and the Legislation plainly requires that longer terms receive owner
approval. Here, the requisite owner approval was never obtained. Accordingly, the
Arbitrator must agree with Claimants that the lease to Aston, including its amendments,
violated HRS §514B-38(B)(5). While the Arbitrator recognizes the difficulty and
expense of obtaining such approval in circumstances in which many of the owners do not
reside in the State, that circumstance is immaterial to the legal issue. The lease to Aston
along with the various amendments thereto accordingly must be declared void.
B. The Board’s Authority and Conflicts of Interest
In the Arbitrator’s view the issue of the validity of the AOAO’s actions
requiring owners and guests of NPUs to check in at the front desk run by Aston and (in
the case of NPU guests) pay a check-in fee to Aston, the issue of the validity of the
AOAO’s requirement of unit evaluations and the validity of the AOAO's approval of
Aston’s servicing, advertising and marketing of APUs to the exclusion of NPUs all turn
on questions involving the limits of the Board’s authority and its conflicts of interest. In

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addition, inasmuch as NPUs and APUs plainly are in competition, the issue of whether
the Board’s actions constitute unfair competition in violation of HRS § 480-2 arises.
The most serious issue in this matter is the Board’s leasing the front desk
to Aston for the primary purpose of providing hotel services solely for guests of the
APUs. A majority of the Board members are owners of APUs and receive 55% of their
rental revenue from Aston. Potential guests who contact Aston are offered APUs. Aston
will not rent NPUs. NPU guests are told that maid services, linen services, lock services,
maintenance service, plumbing services, check cashing and safe deposit services will not
be provided. The NPU guests are permitted minimal contact with Aston that cannot be
avoided because they must check in to pick up their keys and parking permits at the front
desk. For these minimal services they formerly paid the $40.00 fee negotiated by the
Board with Aston.
Much of the vacation rental business is obtained through the internet. The
Project is known by the name Maui Kaanapali Villas or “MKV”. Indeed, it is known by
no other name even though legally it is Hale Kaanapali. The AOAO trademarked
“MKV”, which is owned by all owners. The AOAO website contains only Aston’s
contact information. These circumstances permit Aston and the APUs to unfairly
compete with NPUs for guest business.
The Board by rule has required NPUs to pass and pay for an inspection in
order to use the referenced trademark. Initially this requirement applied only to the
NPUs, although there was testimony it now applies to all units. This action, however,
exceeds the powers the Board may exercise by mere rules and regulations under HRS
§514B-105(b). That section permits a board to regulate uses and behavior that violate the

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declaration or bylaws or interfere with the use and enjoyment of other units or the
common elements. It states:
“(b) Unless otherwise permitted by the declaration,
bylaws, or this chapter, the association may adopt rules and
regulations that affect the use of or behavior of units that may be
used for residential purposes only to:
(1) Prevent any use of a unit which violates the
declaration or bylaws;
(2) Regulate any behavior in or occupancy of a unit which
violates the declaration or bylaws or unreasonably
interferes with the use and enjoyment of other units or
the common elements by other unit owners; or
(3) Restrict the leasing of residential units to the extent
those rules are reasonably designed to meet
underwriting requirements of institutional lenders who
regularly lend money secured by first mortgages on
units in condominiums or regularly purchase those
mortgages.
Otherwise, the association may not regulate any use of or behavior
in units by means of the rules and regulations.” (emphasis added)
There is an absence of evidence that inspections prevent uses that violate
the declaration or Bylaws or prevent behavior that interferes with the use and enjoyment
of other units or the common elements. Moreover, the inspection requirements purpose
is to prevent negative internet reviews by guests that may impact future rentals. This may
be a laudable purpose from a business perspective, but it is beyond the rule making
powers of the Board.
Additionally, the AOAO’s actions with respect to Aston violate
HRS §514B-133(b). That provision states:
“No employee of the Association shall engage in selling or renting
apartments in the Project except Association owned apartments,
unless such activity is approved by an affirmative vote of sixty-
seven percent (67%) of the Owners.” (emphasis added).”

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As stated above, the AOAO has never sought owner approval of its
contract with Aston. The Board may argue that Aston is not an employee within the
meaning of this provision in the usual sense of the word in tort litigation, but it is most
certainly is the agent of the AOAO and subject to its control. For this reason the
Arbitrator holds that HRS §514B-133(b) requires a 67% approval of owners, as does
HRS §514B-38(b).
Respondent Board contends it owns a duty to the association as a whole
but not to individual owners. Under the circumstances of this matter, the Arbitrator must
disagree and follow the California authorities holding that the association has a fiduciary
relationship with Claimants at least with respect to dealing with their unit. Cohen v. Kites
Hill Community Assn., 142 Cal.App.3rd 642 (1983). Further, HRS §514B-9 imposes an
obligation of good faith in the performance of any contract or obligation governed by the
Chapter. Here a majority of the Board is comprised of APU owners who obviously are in
competition with Claimants. These members had a conflict of interest in making the
decision to lease the front desk to Aston. No such conflicts were disclosed and the Board
thereby breached its duty to Claimants. The failure to obtain a 67% approval of owners
also violated the Bylaws and amounted to a breach of contract and unfair competition.
For the foregoing reasons, the Arbitrator concludes that the AOAO has
breached its contract with Claimants, breached its fiduciary duty owed them, and that its
action in entering the lease with Aston amounted to unfair competition in violation of
HRS §480-2.
C. Keys and the VING Card System

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The Declaration by which the project was created expressly permits the
AOAO to require perimeter doors to be equipped with locks provided and installed by the
Association at the per capita expense of the apartment owner. Further the Declaration
provides that the AOAO:
“may prohibit the installation of any additional locks, latches, chains,
deadbolts, and other access control devices by apartment owners.”
Thus the Declaration specifically forbids lock boxes. Further the AOAO’s
installation of the VING system appears reasonable. There are various legitimate
purposes for the AOAO to enter a unit that are specifically authorized by the Declaration.
Moreover, such a system is reasonable given the need to manage a large number of
short-term vacation rentals. Claimants nevertheless complain that their unfettered access
to their own real property has been compromised. That issue however was successfully
resolved in mediation through the issuance of master cards to Claimants. Clearly the
VING or a similar system can provide owners the means to feely access their units.
D. Amendments to the Bylaws
In September, 2015, the Board proposed several amendments to the
Bylaws which the parties have designated as Amendments 2, 3 and 4. Claimants assert
that these amendments violate Chapter 514B or were not adopted with the required
number of owner votes.
Proposed Amendment 3 states:
“The Association shall be entitled to recover fees and costs, including
attorney’s fees, in any action against the Association by an Owner, if the
Owner does not prevail in the action. Any such fees and costs awarded to
the Association shall be a special assessment against the Owner’s Unit.”

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Claimants concede Proposed Amendment 3 was passed by the requisite
number of votes. They argue however that it violates HRS §514B-157 which provides:
“If any claim by an owner is not substantiated in any court action
against an association, any of its officers or directors, or its board
to enforce any provision of the declaration, bylaws, house rules, or
this chapter, then all reasonable and necessary expenses, costs, and
attorneys’ fees incurred by an association shall be awarded to the
association, unless before filing the action in court the owner has
first submitted the claim to mediation, or to arbitration under
subpart D, and made a good faith effort to resolve the dispute
under any of those procedures. (emphasis added.)
Respondent argues this provision applies only to actions filed in Court as
opposed to arbitration, and further serves to deter any owner dissonance. In this regard
the Arbitrator must agree with Claimants that the amendment at a minimum is one-sided
and misleading since HRS §514B-157(b) authorizes an award of costs, expenses and
legal fees to an owner whose claim is substantiated. That provision is not limited to
actions filed in court. Moreover, Respondents contention violates the public policy of
encouraging alternative dispute resolution. For these reasons, the Arbitrator concludes
Amendment 3 violates the section in question, and is void.
Amendment 4 authorizes the Board to lease certain common elements for
terms longer than 5 years and without a 60 day termination provision. It does not set
forth the terms of any lease, but instead gives the Board blanket authority to enter future
leases exceeding those statutory limitations. This appears to exceed the authority set
forth in HRS § 514B-38 which requires owner approval of specific leases. It certainly
does not retroactively validate the lease to Aston. Indeed the Arbitrator has been unable
to determine with confidence that the description in the amendment matches that in the
2005 lease. Further, the evidence is undisputed that the AOAO has never sought bids for

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the front desk lease, and has used the negotiations with Aston to better the terms of the
contracts between Aston and APU owners. The Arbitrator agrees with Claimants that
this violates the Board’s fiduciary duty to the Association as a whole.
The validity of Amendment 2, although apparently not as controversial, turns
on what category of votes may be cast for amendment of the Bylaws. The specific
provision of HRS Chapter 514B dealing with Bylaws is HRS § 514B-108(b)(8) which
forbids the casting of votes allocated to various lobby and similar common areas
“regardless of their designation in the declaration.” HRS § 514B-123(c) relied on by
Respondent simply bars the casting of votes allocated to a unit owned by the association
in an election of directors. Respondent argues this impliedly authorizes the casting of
such votes in an election related to Bylaws. The Arbitrator holds the more specific
provision, HRS § 514B-108(b)(8), controls. Even if the units owned by the AOAO are
counted, the amendment would not pass: 67.984 minus 2.714 and 0.484 equals 64.786,
less than 67%. Accordingly Amendment 2 was not validly adopted and is void.
II. RELIEF GRANTED AND AWARD
A. The Arbitrator concludes that Claimants have not proved monetary or
economic damages with reasonable certainty.
B. The Arbitrator concludes that although only the rights of Claimants are
adjudicated herein, an actual controversy exists and accordingly hereby ORDERS that
Claimants are entitled to the following declaratory relief:
1. The lease between the AOAO and Aston violates HRS §514B-38
and is void.

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2. The AOAO lacks authority to require Claimants as opposed to
their guests to go through Aston and the front desk to obtain a key to their unit.
3. The AOAO lacks authority to require Claimants to go through
Aston and the front desk to pay any registration fee.
4. The AOAO owns the MKV trademark which may be used by
Claimants regardless of whether they participate in a rental program or not.
5. The AOAO lacks authority to require Claimants to undergo unit
evaluations and pay fees before using the MKV trademark.
6. 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.
7. The AOAO has breached its fiduciary duty and contract with
Claimants.
8. Proposed Amendments 3, 4 and 2 are void.
9. Claimants are determined to be the prevailing parties herein and
are awarded attorneys’ fees and costs as follows:
Attorneys fees $ 76,419.00
Costs $ 3631.79
GET $ 3184.35
Total $ $83,235.14
SO ORDERED this __19th__ day of May, 2017.

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/s/ E. John McConnell
E. JOHN McCONNELL
Arbitrator