Ching heir files lawsuit to stop sale of Kukui Gardens complex

An attorney says several requests to mediate were ignored

The escalating controversy over the sale of Kukui Gardens to a California real estate firm landed in court yesterday.

Wallace S.J. Ching, the only board member to vote against the sale of the 857-unit rental complex to Carmel Partners Inc., filed the lawsuit in Circuit Court, a move that could potentially stop the sale.

"Going to court was the last resort," said Ching's attorney James Wright. "Mediation was requested several times, but all efforts at reconciliation were ignored."

Representatives for Kukui Gardens declined comment because they had not seen the suit.

The lawsuit pits the two surviving sons of the late businessman and philanthropist Clarence T.C. Ching in a fight over the fate of the housing complex built by their father 36 years ago for families of low and moderate incomes.

Tenants have protested the sale, arguing the new owners likely would raise rents to drive out current residents to make way for a luxury housing development.

According to the lawsuit, Wallace Ching wants to stop his older brother, Lawrence S.L. Ching -- and the majority trustees of Kukui Gardens Inc. -- from selling the complex to benefit Catholic organizations with strong ties to some of the trustees: St. Francis Healthcare System of Hawaii and the Marianist Center of Hawaii, which operates Chaminade University and Saint Louis School, hold seats on the board.

Wallace Ching alleges that his brother and the other trustees have ties to these organizations, which motivated them to sell the complex. He alleges that the other trustees are violating their "higher fiduciary duty to protect the assets of the charitable trust."

Kukui Garden's board is composed of 15 members. Five are from the Clarence T.C. Ching Foundation, which formed Kukui Gardens Inc.; five are from the Marianist Center; and the remaining five are from St. Francis.

Ching alleges that his brother Lawrence, who holds one of the five foundation chairs, has a conflict of interest because he also serves on the board of Chaminade.

Other trustees with similar conflicts, according to the suit, are C.T. Loo, who served on the Chaminade board until his recent resignation; Raymond Tam, who serves on the Saint Louis board; and Peter Ng, who serves on the Marianist board.

Spokesmen for the majority trustees have in the past denied that the Marianist Center and St. Francis hope to benefit from the sale.

In the suit, Ching acknowledges that the Ching Foundation and Kukui Gardens documents do not specifically name beneficiaries.

However, his suit says the Marianist Center and St. Francis "were looking forward to the sale of Kukui Gardens to enhance their portfolio, considering the fact that they had gratuitously and diligently served" on the Kukui Gardens board since 1967, and "given their need for money despite receiving millions" from the Ching Foundation in the past.

Ching said the majority trustees have not allowed him to review trust documents and other information so that he can assess the sale and other issues in accordance with his fiduciary duty. He asked the court to order the release of the documents.

In a petition that accompanies his lawsuit, Ching also asked the court to remove two trustees he believes were put on the board because they would vote in favor of the sale. He argues their appointments violate the 1967 corporate bylaws dictating trustee succession from an existing list of candidates.

Ching asked the court to appoint the two top candidates on the list: his niece, Ann Dorothy Ching; and his daughter, Celia H.S. Ching. *

Carmel Partners Inc. has repeatedly said it would keep rents affordable until 2011. It has also said that it is willing to work with the state and anyone else to come up with a way to keep housing affordable for existing tenants.

The company also has mentioned a voucher system and other solutions aimed at keeping rents affordable but not necessarily at the Kukui Gardens site.

Kukui Gardens was built with a $16 million loan from the Ford Foundation that was secured by the federal Department of Housing and Urban Development. HUD has oversight of the project until 2011, when the mortgage expires.

Ching's suit also alleges that the sale of the complex would terminate Kukui Gardens Inc. That action, he said, would trigger corporate bylaws that would transfer all the sales proceeds and any remaining assets to the Ching Foundation. In that event, one-third of the assets of the foundation would be donated to St. Francis and two-thirds to the Marianist Center, according to corporate bylaws.

However, if those assets remained subject to HUD under its rules, rather than subject to trust bylaws, the money would be held in a third-party trust to be spent -- with HUD's approval -- on affordable housing.

Recently, Kukui Gardens Inc. announced it hoped to prepay the mortgage now rather than wait until 2011.

Ching's suit challenges the prepayment on grounds the trustees did not vote properly. His suit also raises the question of whether the prepayment is a strategy to sidestep HUD's control so that the sale to Carmel can proceed without HUD approval and the money can go to the Ching Foundation rather than a third-party trust.

HUD has not yet received sale documents necessary to review the sale to Carmel.