Wednesday, June 6, 2001

Hawaiian Waikiki Beach Hotel employees and ILWU supporters
demonstrate on the steps of the state Circuit Court building last month
over the auctioning of the hotel. Hawaii Ventures LLC was the
only bidder with an offer of $80 million.

Hotel severance-
pay ruling
put on hold

Hawaiian Waikiki Beach workers
claim they are entitled to benefits
in the property foreclosure deal

By Russ Lynch

The 232 members of the International Longshore & Warehouse Union who work at the Hawaiian Waikiki Beach Hotel will have to wait to find out whether they will receive severance pay when they are let go at the end of the month.

Circuit Court Judge Karen Blondin yesterday heard the ILWU's claim that pay for unused vacations, severance and sick leave is a legitimate operating expense and therefore should be paid out of funds accumulated while the 715-room hotel has been operated by a court-appointed receiver.

Blondin said she would not make an immediate ruling on the issue.

Attorneys for the receiver, Patricia Kim Park, argued that the severance pay was accrued over years of service by the hotel's employees and therefore was not money earned during the receivership, which has been in place about 10 months.

Park's attorney Ke-ching Ning argued that severance pay is an issue for Otaka Corp., which owned the hotel before it went into foreclosure, or perhaps the intended new owner, Hawaii Ventures LLC, which holds the mortgage and was the only bidder in a May 16 foreclosure auction, with an offer of $80 million for the hotel.

The union's attorney, Rebecca Covert, said that without the workers there would be no operating hotel. Because the workers stayed and did their best for the hotel through its financial troubles, it is a viable property and, in fact, the receiver was able to build up some $7 million in cash and receivables because the hotel kept operating, Covert said.

She said the receiver, Park, found only about $300,000 in cash when she took over the hotel in August. Park in effect operated the hotel and inherited the ILWU union contract, which makes Park responsible for what is owed to the workers, Covert said.

Park's attorney Robert Katz, a specialist in labor issues on behalf of management, said the receiver did not inherit the union contract and is not a party to it. In any case, Katz argued, the severance and accrued vacation and sick leave pay issues do not need to be decided in what is now a foreclosure case.

For now, the union members know they will be laid off at the end of the month, the target date for the transfer of ownership to be completed and the start of a new management contract with Aston Hotels & Resorts. What they don't know is how many of them might be hired by Aston, whether they will still have a union contract or whether any of them, some with many years of service, will get severance pay they say they earned under their union contract.

Judge Blondin did not say when she might rule on the issues. Meanwhile a hearing is set for 9 a.m. Thursday in her court to confirm the $80 million auction sale of the hotel to Hawaii Ventures LLP.

Hawaii Ventures is a subsidiary of mainland financing house Leucadia National Corp., which holds the mortgage on the hotel. Leucadia entered the picture after Otaka Corp., which bought several Hawaii hotels in the Japanese investment boom of the 1980s, ran into trouble.

Otaka defaulted on an $85 million loan from Mitsui Trust & Banking Co. and Mitsui sold the mortgage to Leucadia. The deal became complicated when it was learned that Otaka had taken some of the Hawaiian Waikiki Beach Hotel's money and spent it another of its hotels, a money-loser in Kona.

The result was a court-ordered foreclosure in which Leucadia, through Hawaii Ven- tures, bought the hotel by wiping out the loan. Blondin's job is to figure out who is owed what among the parties: Hawaii Ventures as the mortgagee and intended buyer, Otaka as the company that ran up the debts in the first place, the union and several businesses that have claims against the hotel.

The union members brought their position to the public at the May 16 auction, demonstrating at the court house with signs saying they were about to be thrown out like old furniture. They made a symbolic auction bid to buy the hotel, which was denied because they did not have a required cash down payment.

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