Honolulu’s former budget director, who is terminally ill, will have to discuss his knowledge of former police chief Louis Kealoha’s severance agreement in a deposition, U.S. District Court Judge Leslie Kobayashi ruled Wednesday.

Nelson Koyanagi was interviewed by federal investigators in 2018 about the $250,000 retirement deal with Kealoha. The investigation has since led to the indictment of former city attorney Donna Leong, former managing director Roy Amemiya and former police commission chairman Max Sword. All the defendants have pleaded not guilty.

Attorneys for Leong, Amemiya and Sword have argued that Koyanagi is key to their defense and that not securing his testimony now could violate their right to a fair trial. At a status conference on Wednesday, the judge agreed.

Koyanagi’s doctor submitted a confidential letter to the court advising on his condition, but Kobayashi said it lacked the specificity required to demonstrate that a deposition would be dangerous to Koyanagi’s health.

“It certainly will be frustrating,” she said of the deposition. “It will be burdensome given his medical condition. But I can’t conclude, based on what’s provided to me, that there’s been a showing of a specific and documented risk to his health as a result of the deposition.”

The deposition will have a time limit, Kobayashi said, but she didn’t set parameters during the status conference. Whether Koyanagi’s attorneys will pre-screen questions or whether Koyanagi will sign a declaration will be a matter for the attorneys in the case to decide among themselves, the judge said.

“Certainly I’m not envisioning an eight-hour deposition,” Kobayashi said. 

Federal prosecutors had asked the court to declare Koyanagi as an “unavailable witness,” but defense attorneys objected.

Lynn Panagakos, an attorney for Leong, said in court filings that Koyanagi can prove her client’s innocence.

“He is essential to refute these allegations,” she wrote.

The indictment alleges that the defendants conspired to pay Kealoha using money from the Honolulu Police Department’s salary fund, which would then be supplanted by money from an HPD fund for vacant positions.

To do this, the indictment says they would falsely claim to the Honolulu City Council that money was needed for new hires. According to the indictment, this would avoid the need for the council to directly vote on the Kealoha deal.

Council members at the time likely would have rejected it.

But Panagakos said in a legal brief that no money from the vacant positions account was ever used in the payment of Kealoha’s severance. According to Panagakos, the indictment is based in part on misinterpretations of two recorded conversations that officials had with then-interim Police Chief Cary Okimoto.

When the severance was being discussed, Okimoto had claimed that HPD didn’t have the money to cover Kealoha’s severance payment, according to the indictment. But unbeknownst to Leong, that wasn’t actually true, Panagakos said.

“Leong, in a good faith effort to address Okimoto’s stated concern, contacted Koyanagi, who mentioned the possible option to transfer funds from the (Provision for Vacant Positions) account to HPD,” Panagakos wrote.

On a recorded Jan. 13, 2017, call among Koyanagi, Okimoto, Sword and Leong, Okimoto allegedly “made the unfounded claim that he was being asked to ‘fib,’” according to Panagakos.

“Leong emphasized that she would never ask them to do anything illegal,” Panagakos wrote.

According to Panagakos, Koyanagi explained that “if HPD needed money in the future, one way to possibly get money to HPD would be to transfer funds from the PVP account if HPD had vacancies that they either filled or needed to fill.”

Koyanagi never suggested that he would transfer PVP funds to HPD based on any false statements, nor submit false information to the city council, Panagakos said.

Attorneys for Amemiya and Sword echoed Panagakos’s concerns.

In a filing ahead of Wednesday’s court appearance, Amemiya’s attorney Lyle Hosoda wrote that the government had “unfettered access” to Koyanagi during two interviews in March and October of 2018. Prosecutors knew at least as early as August 2020 that Koyanagi was terminally ill but didn’t disclose that information until January, he said.

It’s only fair that the defendants should also be able to question Koyanagi, who has two decades of experience in budget and finance and whose “state of mind, intentions, and communications are critical to the defense,” Hosoda wrote.