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Sunday, August 22, 2021
Trustee: Criminal Al Hee Rakes in $15M While on Parole
By Selected News Articles @ 5:51 AM :: 5172 Views :: DHHL, Ethics

Excerpts from Trustee’s Status Report Case #18-01319 (RJF) In Re: Paniolo Cable Co, LLC Aug 16, 2021

… On December 28, 2020, the (Federal Bankruptcy) Court entered its Order Authorizing And Approving the Sale of the (Paniolo Cable Co, LLC) Assets Free and Clear of All Liens, Claims, Interests, and Encumbrances…which, among other things, approved the sale of substantially all of the assets of Paniolo to Hawaiian Telcom, Inc., for a purchase price of $50.0 million … subject to the approval of the FCC, and Paniolo’s entry into an Operational Support and Sales Services Agreement with Hawaiian Telcom, Inc. to operate the Paniolo Cable Network until the expected closing of the asset sale in the third Quarter of 2021. 

On August 11, 2021 FCC granted approval of the transaction….

Because of the potential obstacles to closing created by the actions and inactions of Sandwich Isles Communications, Inc. and its affiliates set forth below, the Trustee believes it is in the best interests of Paniolo to alert the Court to the following matters….

On December 17, 2019, the Court entered a Judgment against SIC for $256,552,854.00, representing amounts owed as of September 30, 2019, plus pre- and post-judgment interest as provided by law. That Judgment was not appealed….

Importantly, even after entry of the Judgment, SIC failed to make required payments under the lease, accruing additional liability to the Trustee totaling more than $15,711,300 for rental of the Paniolo Cable Network after September 30, 2019….

…Upon taking over operating responsibility for the network pursuant to the Operational Support and Sales Services Agreement, Hawaiian Tel began to conduct inspections of Paniolo’s assets and properties. As those inspections proceeded, Hawaiian Tel discovered serious failures in SIC’s performance of its obligations under the Settlement Agreement and the Sale Order. …

As of this date, SIC has not provided entitlement information and has affirmatively indicated its refusal to do so. Additionally, SIC has also affirmatively indicated that post-closing, it intends to maintain “dead-hand” control of the Paniolo Premises through manipulation of Waimana’s license from the Department of Hawaiian Home Lands…

As of this date, SIC has not provided the master key for all Paniolo Premises….

As of this date, SIC has not turned over to the Trustee the spare equipment, test equipment, or subsea cable splice kits required to manage and maintain the Paniolo Network….

SIC is using the Paniolo Premises beyond its authorized use, including maintaining office and workspace for SIC employees and storing SIC equipment…

As of this date, SIC has not removed waste materials (abandoned vehicles, electronic waste, batteries, etc.) being stored at the Paniolo Premises….

As more fully set forth in e-mails and letters received from SIC (attached hereto as Exhibits “A” – “C” for the convenience of the Court), SIC/Waimana is apparently attempting to assert standing on behalf of the Department of Hawaiian Homelands and thus use Paniolo’s bankruptcy process, and interpret the Waimana license, in at least three distinct ways, each in apparent violation of the Settlement Agreement and this Court’s orders, including the Sale Order:

(i) As a means of relieving itself of its own financial obligations to the DHHL, by creating a claim against the Paniolo estate and Buyer for amounts tied to SIC’s obligations to the DHHL;

(ii) As an offset and affirmative defense to non-payment of its defaulted trade payables owing to its vendors; and

(iii) As a means of establishing the right to dictate operations on the Paniolo Premises before and after the closing of the transaction….

SIC’s actions and inactions suggest an actual or anticipatory repudiation of its obligations under the Settlement Agreement. Other than as explicitly contained within agreed-upon commercial relationships for which there is privity of contract, the Trustee is operating and selling, and Buyer will assume and operate, all Paniolo Premises and Assets free and clear of all claims and obligations, especially those occasioned by SIC’s previous but now-extinguished association with Paniolo’s Assets, and those that SIC would seek to leverage via attempted dead-hand control….

C. SIC’s Failure to Pay for Services under the MRA

In addition to its failure to pay Lease obligations accruing after September 19, 2019, SIC has also failed to pay amounts due under monthly MRA invoices beginning January 1, 2021 for Collocation Space, including relay racks, cabinets, and power. SIC has never filed any dispute of those invoices, which total approximately $900,000.00 through September 30, 2021….

As this Court is aware, SIC has filed a largely (if not entirely) unsupportable Request for Payment of Administrative Expense [Claim 5-1, filed May 3, 2021] totaling $11.6 million, which appears to include expenses SIC has never incurred or advanced or for which it is otherwise not entitled to reimbursement. Even if SIC had some legitimate post-petition claim, it would be more than offset by SIC’s remaining $15.7 million obligation to Paniolo under the Lease. Upon information and belief, the Trustee alleges that the filing of the claim was done with the purpose of delaying or hindering closing of the transaction….

D. SIC’s Failure to Make Necessary Repairs to the Paniolo Cable Network
Historically, there have been multiple fiber breaks along the Paniolo Cable Network that were not adequately repaired by SIC or others responsible for such breaks. In most cases, where repairs were performed, those repairs were temporary in nature with the permanent repair work still to be initiated.

SIC has failed to complete all permanent repairs or to pay the cost thereof. These permanent repairs are currently in progress, and the costs are estimated to be approximately $541,400.

E. SIC’s Failure to Remove Traffic from Fibers No Longer Authorized for Its Use

The MRA provides that the Trustee (and his successors) would provide SIC with nominally-priced and limited purpose use of four identified fiber strands of the Paniolo Network. Despite the provisions of the MRA, SIC has failed to limit its permitted traffic to the four identified fibers….

F. Unauthorized Use of the Paniolo Cable Network

The Trustee has confirmed that SIC or its affiliates, contrary to SIC’s representations and promises, have allowed third-party telecommunication carriers to use the Paniolo Cable Network without the Debtor’s permission, without compensation to Paniolo and in violation of the Settlement Agreement and MRA. In addition, there is a risk that SIC may have also allowed use of the network by customers with locations outside of the DHHL area in violation of the Settlement Agreement and MRA. The Trustee does not know, and has been unable to obtain information from SIC regarding, whether these customers are being invoiced by SIC or affiliates, nor is it known if these customers have contracts with SIC or affiliates for these services….

PDF: Court Trustee Documents

PDF: Replies from DHHL and Sandwich Isles

Audio: Court Status Hearing Aug 23, 2021

PDF: UPDATE Aug 31, 2021 Paniolo Assets Transferred to HawaiianTel, SIC lease of Paniolo cable terminated due to Hee's violations

(IDEA: Call his federal parole officer.)


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