Labor group shows
clout in passage
of recent bill

Only Unity House
allegedly gained from
nonprofit rule changes

A bill that sailed through the Legislature in 2003 and is now a key part of the federal investigation of indicted labor leader Tony Rutledge underscores how a special-interest group can use its political clout to get state law changed for the group's benefit -- even if no one else is pushing for the change.

The original bill was written by Unity House lawyers, introduced by a state legislator who was a full-time Unity House employee and, after becoming law, was used by Rutledge as part of an illegal scheme to effectively steal the nonprofit labor organization from its members, federal officials allege in the government's criminal case against Rutledge and his son.

The Rutledges have denied any wrongdoing, and an attorney for former Rep. Romy Mindo, who introduced the House bill, said there was nothing unethical about the way the legislation was handled.

But federal authorities cite the bill's passage as an example of what they called the organization's political influence -- fueled by handing out Unity House contracts and political contributions over the years -- that ultimately benefited Rutledge personally. Rutledge was the longtime president of Unity House until a receiver was appointed by the court last month as part of the tax evasion and fraud case against Rutledge and his son, Aaron.

After Unity House arranged to have the legislation introduced in the House and Senate in 2003, the labor group was the only organization to push for the bill during that session, according to legislative records.

Even though the proposed change was touted as being potentially beneficial to many nonprofits, no other nonprofit testified for the bill, the records show.

And about a half-dozen officials from Hawaii's nonprofit community contacted by the Star-Bulletin last week couldn't name any organizations besides Unity House that might benefit from the law change.

The new law enables nonprofit organizations to propose to their members the elimination of all membership classes, effectively giving total control to their boards of directors. Two-thirds of an organization's members must approve the proposal before it can take effect.

Legislators unanimously passed the measure in late April 2003 after it moved through the legislative process with virtually no opposition. Gov. Linda Lingle, who worked for Unity House founder Arthur Rutledge in the mid-1970s and whose chief of staff, Bob Awana, was a paid consultant to Unity House before Lingle became governor, signed the bill several weeks later.

Lingle's approval came after Rutledge wrote to Awana on May 1, 2003, and asked for his help in getting the governor to sign the bill, according to the three-page Rutledge letter obtained by the Star-Bulletin.

Lingle told reporters last week that the legislation received no special treatment from her staff and that she spoke to no one from Unity House or her administration before signing it. She said bills that pass unanimously don't receive much attention from her office.

Russell Pang, Lingle's spokesman, said on Friday that neither the governor nor Awana recall seeing the Rutledge letter and that it wasn't in their files.

The way the Unity House bill moved through the legislative process without raising any red flags illustrates the influence that special-interest groups can wield over legislation, political observers say.

"On its face, it sounds really bad," said Robin Loomis, president of Hawaii Pro-Democracy Initiative, a volunteer government-watchdog group. "It sounds like a conflict of interest, it looks like a conflict of interest, and it just doesn't pass the smell test."

That the bill so easily became law illustrates the difficulty the public has -- and sometimes lawmakers themselves -- in scrutinizing the hundreds of measures that come before the Legislature each session, Loomis said.

Rep. Scott Saiki, listed as one of the co-sponsors of Mindo's 2003 bill, said he wasn't aware at the time that Mindo worked for Unity House or that the organization had written the bill. He said he intends to introduce legislation in the coming session to repeal the law change.

Sen. Ron Menor, whose Commerce and Consumer Protection Committee heard the bill on the Senate side, said he also wasn't aware of those Unity House connections and agreed that they should've been disclosed.

The measure didn't receive much scrutiny because it was considered among the many noncontroversial, technical bills that came before legislators, several lawmakers said.

"It really moved under the radar," said Sen. Les Ihara Jr., who also was unaware of the Unity House connections.

But attorney Eric Seitz, who represents Mindo, said his client's job as a Unity House lobbyist was common knowledge then and Mindo made no attempt to hide it. Seitz also said outside organizations and businesses frequently write legislation they want introduced and provide the drafts to lawmakers.

Seitz said he didn't know if Mindo disclosed the Unity House connections to the 2003 bill but nonetheless defended the way the legislation was handled. "I don't believe there was anything unethical or impermissible at all. That's the way many bills get through."

Menor said his committee supported the bill because he and other members believed it would benefit nonprofit organizations throughout Hawaii, though he acknowledged not checking with other nonprofits to verify that belief.

Menor said he believed state law in 2003 already permitted nonprofits to propose eliminating membership rights and converting to non-member organizations, but the bill added safeguards to ensure that opposing views were provided to members -- at no cost to the opponents -- before a vote was taken.

"That to me represented a significant improvement to existing law," Menor said.

Rutledge and other Unity House representatives told legislators in 2003 that the bill was needed so the organization could avoid the major expense of trying to get enough members to attend meetings so decisions could be made. Unity House at the time had more than 12,000 members.

By converting to a non-member organization, the savings could be spent on services that benefit the former members, Unity House representatives testified.

Kate Lloyd, vice president of the Hawaii Community Foundation, an advocacy group for nonprofits, told the Star-Bulletin that Unity House's reasoning sounded plausible.

A big problem for nonprofits with large memberships is getting the required quorums at meetings to make corporate decisions, Lloyd said.

But the federal government noted that the reasons Unity House cited in asking members to relinquish their voting rights were misleading, contained false claims and left out critical information.

At the special meeting held to vote on the proposal, only 38 Unity House members, including Mindo, showed up, the government said. The measure was approved because Rutledge himself had accumulated enough proxy votes to ensure passage, the government said.

About two weeks after that meeting, Mindo requested and received from Rutledge a $40,000 loan with Unity House funds, according to a sworn statement of Internal Revenue Service special agent Gregory Miki. No collateral was required and Unity House's board was not aware of the loan until after Mindo was called to testify before a grand jury, Miki said.

Seitz, Mindo's attorney, has denied any connection between the loan and Mindo's legislative actions and said it would be paid back.

Even though Unity House in private e-mails initially expressed concern about the attention the legislation might attract in 2003, Mindo and then-Sen. Cal Kawamoto introduced the respective House and Senate versions on Jan. 24, 2003, a day after getting requests from Unity House, according to legislative records and Unity House e-mails obtained by the Star-Bulletin.

E-mails to legislators included copies of the proposed bills written by Unity House.

Kawamoto was among the politicians that Unity House supported with contributions. From 1999 to 2001, Unity House gave $4,000 to the Waipahu lawmaker, and in 2004 he received another $4,000 from the group, according to Campaign Spending Commission records.

Kawamoto, who lost his re-election bid last year, could not be reached for comment.

IRS agent Miki said in his court declaration that "the unchecked use of Unity House contracts and monies have resulted in political influence that has opened doors from which Rutledge has benefited personally."