Honolulu’s rail transit authority says it will not publicly disclose an “independent, third-party” review of $361 million of bond guarantees provided by Ansaldo Honolulu JV, which was awarded the project’s core systems contract at the end of last month.

The review was requested by several members of the Honolulu Authority for Rapid Transportation board prior to the final vote on the contract in light of public questions about the financial stability of the contractor, a joint venture formed by two subsidiaries of Italian conglomerate Finmeccanica.

The review was conducted by the law firm of Kobayashi Sugita & Goda, which has received substantial amounts of city legal business in recent years.

The city cited Exemption 5 of Hawaii’s public records law, which applies to records protected by law, asserting that the document is covered by “attorney-client privilege” and is not required to be disclosed.

The Uniform Information Practices Act provides:

§92F-22 Exemptions and limitations on individual access. An agency is not required by this part to grant an individual access to personal records, or information in such records:…

(5) Required to be withheld from the individual to whom it pertains by statute or judicial decision or authorized to be so withheld by constitutional or statutory privilege.

According to one Justice Department guide to the Freedom of Information Act, which was the model for the Hawaii provision:

The purpose of the attorney-client privilege is to protect from discovery in civil litigation those “confidential communications between an attorney and his client relating to a legal matter for which the client has sought professional advice….” Therefore, the privilege “normally extends both to the substance of the client’s communication as well as the attorney’s advice in response thereto.” (citation omitted). Such confidential communications are shielded from disclosure in order to encourage full and frank discussion between the client and his legal advisor…. Indeed, as the Supreme Court has phrased it, “[t]he privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer’s being fully informed by the client.”

Transit authority directors said the “independent” review provided the necessary level of confidence that Ansaldo Honolulu JV would be able to finish the job even if ownership or other changes were to take place in the company or its parent corporation.

During HART’s October 13, 2011 board meeting, director William “Buzz” Hong pressed for the independent review. According to the minutes:

Mr. Hong reiterated that he would like to see a third-party review of the bond language. Ms. Okinaga stated that, per the City Charter, HART’s attorneys are Corporation Counsel, but did not that the Board did ask Coarporation Counsel to look at the request. Mr. Horner agreed that there should be an independent review of the bond language. Board Member Wayne Yoshioka affirmed that a third-party review would be a good idea.

Director Keslie Hui underscored the bonds’ perceived importance.

He noted that once Ansaldo Honolulu JV comes back with a signed contract, then the bonds become the critical “safety valve.” Mr. Hui stated that if a third-party review finds that the bonds are adequate, then he is comfortable with Hart moving forward.

Other directors agreed.

Acting HART executive director Toru Hamayasu, formerly the city transportation official in charge of rail development, reported back on the review during the board’s November 17, 2011 meeting.

Mr. Hamayasu reported that, per the request of the Board, Kobayashi, Sugita, & Goda (“KSG”) was asked to provide an independent legal opinion to determine if the performance bond provided by Ansaldo satisfied the requirements set forth in the RFP, pre-bid documents and the contract. KSG concluded that the bonds provided by Ansaldo are in compliance with the requirements of the RFP, any pre-bid documents and the contract itself. Mr. Hamayasu reminded the Board that the finding of KSG is consistent with the conclusion of a separate Corporation Counsel review.

The only document made public was a letter from the law firm consisting of a single paragraph reiterating its conclusion. In addition, a graphic provided by Ansaldo, the company referred to a letter of commitment for the bonds provided by Chartis Insurance, through its subsidiary, National Union Fire Insurance Company of Pittsburgh, PA. Chartis is the former property casualty insurance subsidiary of AIG.

Although the law exempts attorney-client communications from mandatory disclosure, agencies can choose to make the information public. The continued withholding of information about the critical bond review will not certainly not contribute to greater public confidence in the city’s handling of the rail project.

The single page summary of the legal review was submitted to the board by attorneys Bert T. Kobayashi, Jr. and Joseph A. Stewart for the firm.

Kobayashi is a senior partner in the firm as well as one of its founding members.

According to the law firm’s website:

Mr. Kobayashi is intimately involved with the governmental, political and business fabric of the State of Hawaii and is there by in touch with the vibrant business pulse of the State of Hawaii. These extensive and comprehensive contacts enable Mr. Kobayashi to effectively advise his clients in their business activities in the State of Hawaii.

In addition, the brief bio notes: “He has been a director of First Hawaiian Bank since 1975 and now also sits as a director of its holding company, BancWest Corporation.”

First Hawaiian Bank chairman, Don Horner, is a HART board member and chairman of its finance committee, which did the main work in reviewing Ansaldo’s finances.

Kobayashi was among the top contributors to Mayor Peter Carlisle’s 2010 campaign, and his law firm represented former mayor Mufi Hannemann in proceedings before the state Campaign Spending Commission. Kobayashi also hosted a Hannemann fundraiser in 2009, campaign records show.

As an aside, attorney and Hart director Ivan Lui-Kwan disclosed a conflict of interest on October 26, 2011 because another director of his law firm, Peter Starn, is now legal counsel to the Ansaldo joint venture. The disclosure came less than two weeks following the October 13 board meeting, cited above.

Lui-Kwan said he would recuse himself from future votes relating to Ansaldo.