Maui County is looking to sell 51 lots in Maui Lani obtained as part of a legal settlement with a developer a decade ago in a dispute over land filling to increase the heights of homes that ended up towering over neighboring Palama Drive homes.

The county is seeking to sell the lots, which were part of The Fairways at Maui Lani project, as a “bulk sale” in a public auction for $9.8 million, according to a resolution forwarded by the County Council on Friday to the Budget and Finance Committee.

A hearing date in the committee has not been set yet.

The county acquired the lots in August 2011 for nearly $11.8 million in a settlement involving developer VP & PK LLC, whose construction plans faced public challenges and legal issues over fill and grade heights, Maui County Communications Director Rod Antone said Monday.

Council Member Riki Hokama, chairman of the budget committee, also is the chairman of a task force put together by Mayor Alan Arakawa late last year to determine the fate the properties. The auction proposal is the recommendation of the task force.

The task force is scheduled to meet today. Hokama declined to comment and preferred to discuss the matter publicly at the budget committee hearing, council Communications Director Kit Zulueta said Monday.

Arakawa also tapped Sandy Baz, former budget director and current Council Services director, to be on the panel along with Public Works Director David Goode, Housing and Human Concerns Director Carol Reimann and Reimann’s predecessor, Jo-Ann Ridao.

“We support the recommendation,” said Antone. “If council members feel there is a different and better use, that’s up to them.”

The dispute over the development and final grade heights triggered lawsuits and a trial in 2nd Circuit Court over grading laws and damage caused by land preparation for the lots. With developers seeking to fill some lots as high as 30 feet before building, neighbors complained about flooding due to the altered landscape, blocked views, dust and dirt stains from the fill and vibrations from tamping.

Wailuku attorney Lance Collins, one of the attorneys who represented the residents affected by the development, took issue with the sale.

“If the mayor is going to sell these lots at a loss anyway, why not just do the right thing for the people on Palama and turn it into a neighborhood park?” he said.

The county has not been keeping up with the maintenance of the swale behind and below the subdivision, which has caused flooding and damage to numerous homes along Palama Drive over the last several years, Collins said.

The neighbors’ legal dispute over the county granting developers permits to fill lots to whatever height they wanted and to build homes on top of the raised ground went all the way to the state Supreme Court.

In 2008, now-retired 2nd Circuit Judge Joel August invalidated Arakawa’s 2005 decision to exempt some Maui Lani developers from the county building height ordinance at the time, which would have limited the developer’s ability to fill in the land. (Arakawa was mayor from 2002-06).

Arakawa had overruled one of his directors and let the Fairways project proceed under rules before 1991, when the developers received initial permits. The Fairways and the New Sand Hills subdivisions at Maui Lani had been planned for as high as 30 feet of fill before construction, published reports said.

August issued a permanent injunction preventing the county from approving the development based on Arakawa’s actions.

In 2011, after August’s ruling, the County Council passed an ordinance allowing building heights to be measured from the top of the structure to whatever the finished grade in project districts or planned developments with initial permits before 1991, clearing the way for the development.

The lawsuit went all the way to the state Supreme Court, which ruled the issue moot because of the 2011 ordinance and lifted the injunction.

In another suit, homeowners were pitted against developers and contractors for damages from land preparation near Palama Drive. Some homes on Palama Drive adjoin the Fairways project, where thousands of tons of dirt were trucked in to turn a gulch into a hill, raising the elevation of the 13.5-acre property above some rooftops along Palama Drive.

In 2009, a jury awarded eight owners of six homes on Palama Drive $232,700 in damages. However, eight owners of five other houses were not awarded damages and later were ordered to pay legal costs for the defendants.

* Melissa Tanji can be reached at mtanji@mauinews.com.