Trial begins over sale of Kauai's Grove Farm
Former shareholders claim they got a raw deal in the sale to Steve Case
LIHUE » Opening arguments were heard yesterday in the first civil trial regarding the sale of former sugar plantation Grove Farm Co. to AOL co-founder Steve Case.
The current trial pits former shareholder Michael Sheehan against five former members of the Grove Farm board. Other civil suits filed by other former shareholders, both in federal court in and in Lihue state circuit court, are scheduled for trial next year at the earliest.
In Sheehan's case, his lawyer Richard Wilson argued yesterday before Circuit Judge Kathleen Watanabe that Grove Farm's board members deliberately deluded Grove Farm shareholders, who, in many cases, were their cousins.
Wilson said yesterday that, instead of selling to the company offering the best price, the other board members went with Case, whose father Daniel was a partner in the law firm that represented Grove Farm. The elder Case, a minority owner of the Honolulu Star-Bulletin, grew up on Grove Farm land and his father was an employee of the sugar plantation.
Wilson also said that the board members falsely made the company appear to be in dire financial straits and "cornered, obfuscated, and pushed aside" Guy Combs, the lone board member who questioned the deal.
While the company was "land rich and cash poor," Wilson continued, the Kauai economy was showing signs of a turnaround.
The board never received an accurate appraisal of how much money the company was worth, Wilson told the jury, and it rushed through a deal without completely examining other offers. Even during the last weeks before the sale, new companies came forward with offers for more money, but the board members refused to hear them, Wilson added.
They never even told shareholders about the other offers, he said.
Corey Park, the board members' attorney, said that the company was in financial trouble, with two bank payments totaling almost $4 million due at the end of 2000. The $36 million loan had already been restructured, and, if the payment wasn't made, the company could have defaulted on the loan and lose thousands of acres in property involved in its Puhi-Lihue development.
The company, which owned about 22,000 acres including the Kukui Grove Center, the lone mall on Kauai, was falling apart and needed a buyer fast, Park said. It was $73 million in debt and its mall needed repairs quick, he added.
The younger Case turned out to be a financial savior, stepping in when an earlier deal fell through and paying more money per share than what the original buyer agreed, Park said.
And despite Wilson's claims, Park said, board members and Chief Executive Hugh Klebahn were always trying to push up the price and negotiate.
He described the two other offers, which did offer more money per share, as lacking in solid financial backing. They also would have taken much longer, Park said.
The sale to Case, for $26 million plus the accumulation of debt, was approved by more than 98 percent of shareholders on Dec. 1, 2000, less than a month before the $4 million payment was due.
