Board Talk

Pflueger Company Is Fined $4 Million
For Reef Damages at Pila‘a Bay, Kaua‘i

In the end, even having a powerful state senator as its attorney couldn’t save Pila‘a 400, LLC – a company established and run by maverick developer and former Honda magnate James Pflueger – from being slapped June 30 with a $4 million fine, the largest ever levied by the state Board of Land and Natural Resources.

Honolulu attorney Wesley Ching, who with state Sen. Colleen Hanabusa repre sented Pila‘a 400 in the contested case hearing leading to the fine, says he was disap­pointed with the Land Board’s decision, and “shocked that they would almost double the hearing officer’s recommendation [of $2.8 million].” Ching told Environment Hawai‘i that he planned to file an appeal in Fifth Circuit Court on Kaua‘i before July 30.

Pila‘a 400 currently owns the cliffside property overlooking north Kaua‘i’s Pila‘a Bay. Under Pflueger’s direction, the land had undergone massive grading and con­struction, without permits, over the last several years. Although some portion of the work had been done when another Pflueger company, Pflueger Properties, owned the land, Pila‘a 400 was the owner of record on November 26, 2001, when untold tons of mud, loosened by a heavy rain, broke from the unstable plateau, smothered the beach and reef, and killed coral and other marine life in the bay’s sheltered waters.

In August 2003, the Land Board tried to fine Pila‘a 400, Pflueger, and Pflueger Prop erties $5.8 million – or $1,000 per square foot of damaged coral at Pila‘a. Attorneys for the Pflueger parties requested and were granted a contested case hearing, during which Pflueger and Pflueger Properties were dropped from the enforcement action, leav ing only Pila‘a 400.

The case pitted state, university, and private experts in oceanography, coastal geology, coral reef, algae, and other aquatic areas against one another. It also delved into the murky waters of environmental eco nomics, as both sides tried to assign dollar values to a coral reef ecosystem and damages to it.

After a year of hearings, Mike Gibson, the hearing officer assigned to the case, recommended last December that the board fine Pila‘a 400 $2.3 million, and that the fine be held in trust and used to remediate the company’s property. Deputy attorney gen eral Bill Wynoff, representing the DLNR, vigorously challenged Gibson’s recommen­dations when the Land Board heard final arguments last March. Pila‘a 400 should pay to fix its own property and not be allowed to use the fines to repair it, he argued.

Wynhoff’s arguments carried the day on June 30, when the Land Board took final action on the case. In its decision, the Land Board concluded that Pila‘a 400 alone was responsible for the condition of its property and for preventing runoff from it. When it failed to prevent such runoff, $3.333 million in damages was done to state Conservation District land in Pila‘a Bay. In addition to paying for those damages, the Land Board ordered Pila‘a 400 to pay $630,000 in moni toring costs ($63,000 a year for 10 years) and roughly $70,000 in administrative costs, for a total fine of about $4,033,000. The fine is to be paid into the state Special Land and Development Fund.

“Under the circumstances of this case, the Hearing Officer’s recommendation as to the amount of damages is too lenient to reflect the BLNR’s duty to protect this valu­able natural resource under constitutional and statutory law,” the board’s decision and order states.

For Pflueger, the incident has proven costly. As a result of this fine and other liabilities that have resulted from work his companies have done on the land, he and his companies may end up spending mil lions more than what they paid to purchase the land in the first place. Pflueger Proper ties bought the 400-acre hillside in 1997 from the Mary Lucas Trust for $6.4 million. In 2001, James Pflueger signed as the seller, buyer, and lender (being a trustee of the Mary Lucas Trust) when Pila‘a 400 as­sumed Pflueger Properties’ mortgage and acquired the parcel. Pflueger or Pila‘a 400 have already paid roughly $550,000 in state and county fines related to illegal grading, construction and Clean Water Act viola tions stemming from work on the property. And according to the Land Board’s findings of fact, the Pflueger parties have also spent approximately $1 million on emergency sediment control measures and will spend between $3 million and $5 million on Con ceptual Remediation Plans to further mini mize erosion of the property. A civil suit, filed by Pila‘a residents whose beachfront homes were damaged by the mudslide, is pending. Ching, who is representing Pflueger in that case, says a tentative trial date has been set for May 2006.

During the contested case, Pila‘a’s attor neys argued that because the state had no administrative rules or laws that spelled out how the Land Board should calculate fines for damages, the Land Board had no au thority to assess them. Both deputy attor ney general Wynhoff and hearing officer Gibson, however, believed the board could consider whatever factors it deemed appro priate in determining a fine.

In the end, the Land Board rejected Pila‘a 400’s arguments and incorporated a broad range of factors into its fine.

“Economic and use (market) values alone cannot and do not capture the full value of Pila‘a,” the Land Board’s June 30 order states. (Pila‘a is popular among Kaua‘i resi­dents for limu-gathering.) “Economic valu ation alone understates the true social loss from natural resource damage.”

Based on evidence presented during the case, the Land Board determined that 26,750 square meters of state and Conserva tion District land had been impacted by the mudflow. In addition to the many values of Pila‘a Bay (including existence value, cul tural value, commodity value, and use value), the board also considered reef resto­ration costs ($550 to $10,000 per square meter of destroyed coral), coral reef expert Paul Jokiel’s estimate of decreased live coral coverage, beach cleanup cost estimates ($390,000 for 5,000 cubic yards of sand), and compensation for interim losses.

A case involving the second-largest fine ever levied by the Land Board, against Big Island loggers fined $1.5 million for log ging state land without a license, has hit a snag: On June 9, the Land Board dismissed without prejudice a contested case hearing over the amount of the fine. (Dismissal without prejudice means the matter can be brought back to the board if legal conditions change.)

Two years ago, the Land board fined Steve Baczkiewicz, his company Steve’s Ag Services, Ltd., and Wesley and Raymond McGee of Contract Milling, LLC, for cut ting nearly 400 koa and kolea trees from a 169-acre state parcel in South Kona without a license. Attorney William Chikasuye, rep resenting the loggers, argued at the time that the state’s property boundaries were possibly inaccurate and asked that the log gers be allowed to do their own damage assessment. When the board instead voted to fine the loggers, Chikasuye requested a contested case.

During the case hearings that followed, attorneys for the loggers contended that the land the state claimed did not really belong to the state, and that it was actually a part of land owned by Damon Estate at the time the logging occurred — and is now part of Hawai‘i Volcanoes National Park. The state argued that surveying mistakes made dur ing the sales of adjacent government land to private landowners resulted in a 169-acre strip of land being un-conveyed into private ownership. So by operation of law, the state argued, that land belongs to the state.

In January, hearing officer Benjamin Matsubara decided “the preponderance of the available evidence does not establish State ownership of the subject parcel and there is a genuine dispute as to the existence and legal ownership…A determination that the state or some other third party has title to the subject parcel would be tantamount to a ruling quieting title,” he wrote in his recommendation to the board. But quiet ing title is not within the Land Board’s legal jurisdiction, and can only be done by circuit court, Matsubara noted. He recommended that the Land Board dismiss the case with out prejudice until legal ownership has been properly determined.

On June 9, the Land Board adopted Matsubara’s recommendations. On July 11, the loggers filed an appeal of the Land Board’s decision in Third Circuit Court, asking the court to reverse the board’s ac tions, determine that the case should have been dismissed on the basis of lack of juris diction, determine and order that because the state did not prove ownership of the parcel the case should be dismissed with prejudice, and order just and appropriate relief.

Wynhoff, the deputy attorney general for the DLNR, says the department is still “thinking about what we are going to do,” with regard to the appeal as well as the Land Board’s decision.

Damon Estate Restoration
In a separate case related to logging by Steve’s Ag and Contract Milling, the Land Board
found on June 24 that Damon Estate has met its obligation to restore Conservation District land damaged by illegal logging on its property. The board also voted to release the $480,000 bond the estate had posted to ensure adequate restoration.

In 2003, the Land Board fined the Damon Estate roughly $480,000 for allowing Steve’s Ag and Contract Milling to log Conservation District land owned by the estate without a permit from the board. The Land Board allowed the estate to restore the land in lieu of paying the full fine, so long as the estate posted a bond for the full amount while a restoration plan was implemented.

Shortly after the board’s action, Damon Estate sold its Kahuku Ranch, which includes the affected area, to Hawai‘i Volcanoes National Park, which it then partnered with to implement the restoration plan.

At the June 24 Land Board meeting Damon and HAVO representatives presented their final report on the plan’s progress. Division of Forestry and Wildlife staff had already reviewed the report and recommended that the board release the bond.

“It exceeded what we… hoped to see over the course of this project,” DOFAW forester Michael Constantinides told the board in June.

Attorney Linnel Nishioka, representing Damon Estate, said the estate spent more than $200,000 on the “lemons-to-lemonade” project, which included 10 miles of fencing, ungulate control and helicopter services, and monitoring. HAVO resource manager Tim Tunison told the board the aerial hunts were key to the plan’s success.

“Since 2003, the ungulates have been kept at remnant levels,” he said. According to the estate’s final report, 212 mouflon and 56 goats were removed from the project area. “The area has been monitored three times and there are now thickets of a`ali`i (a native hardwood). We saw rare natives never seen in Hawai‘i,” Tunison said, adding that some of the new koa saplings are nearly head high, and there are lot of them.

Tunison noted that the park’s acquisi tion of Kahuku Ranch came with no staff and no money to manage the new acreage, and it was Damon Estate’s contribution that made for a “successful model for ungu late control on a large landscape.”

“It seems in this case, the restoration was more effective than [just getting] the money,” said Maui Land Board member Ted Yamamura.

It was the kids who made it so hard for the Land Board to decide to end Makua Lani’s kayak tour at Makua Bay, on O‘ahu’s Wai‘anae Coast. The young, tan, earnest local boys who pleaded with the board in June to keep their company’s commercial operating permit alive spoke glowingly about how much they were learning about their culture and how much they loved and needed their work.

After hours of testimony by those both for and against the issuance of a new permit to Makua Lani, the Land Board voted to deny the company’s request. But the vote was not unanimous.
“I’m not comfortable with taking jobs away from kids,” said Ted Yamamura of Maui, the only member to vote against the motion to deny.

While Makua Lani, a non-profit kayak tour company that caters to Japanese tour ists, provided an opportunity for its em ployees to learn Hawaiian chants and the hula, “They also need to learn that life is not all-or-nothing,” board chair Peter Young said at the June 24 meeting where the board made its final vote. Young was responding to Makua Lani executive director Richard Holland’s claim that Makua was the one and only place they could operate success fully.

On June 9, with only five members in attendance, the Land Board had deadlocked on a State Parks recommendation to deny a new permit to Makua Lani, whose trial revocable permit was set to expire June 30. Young decided to rehear the item two weeks later hoping the full board could come to a decision. Many members of the Wai‘anae community showed up at both meetings to oppose the permit, citing the operation’s incompatibility with the Makua’s cultural sacredness, local dolphin population, and fishing activities. Some testifiers offered to help Makua Lani’s local employees find new jobs.

Makua is “a very important cultural, sacred area. That’s a difficult thing to fight,” said outgoing O‘ahu board member Kathryn Whang Inouye. Last year, the Land Board had approved the issuance of a revo cable permit to test whether a commercial operation at Makua State Park was appro priate. “The test didn’t work,” she said.

After the Land Board’s vote, Young en couraged Holland to work with his depart ment and offered his personal commitment to help find a new place for the company to
operate. (Separately, the 2005 Legislature overrode a governor’s veto to enact a law calling for a moratorium on commercial permits for the entire Wai‘anae Coast. This is covered more fully in a separate article on legislative action that appears in this issue.)

While upgrading its Sand Island Waste water Treatment Plant over the last few years, the City and County of Honolulu has discovered PCBs – polychlorinated bi phenyls – on its property, and suspects they may have been tracked onto adjacent state land, according to a June 24 Land Division report to the Land Board.

On November 27, 2000, the DLNR issued a right-of-entry to the city over 16 acres of state land to use as a staging, stockpiling, and dewatering area. The land is part of a 45-acre parcel slated for develop ment as an industrial park.

The right-of-entry was to have expired on June 30, 2005, but because the state property may now be contaminated with hazardous waste from the city’s construc tion activities, the Land Division recom mended an extension to allow the city to properly clean the land. However, to make sure the city remediated and returned the land quickly, staff also recommended that the Land Board authorize its chair to charge the city $16,000 a month “for any period in which the city continues to occupy the ROE site or in which the site remains con taminated after the expiration of the ROE. This fee is consistent with the revocable permit rent being charged … for an adja cent 10-acre parcel,” the report states.

The city expects to complete work on its WWTP in October, and complete PCB remediation by next June, the Land Division report states.

The Land Board approved the exten sion, but rejected the Land Division’s rec ommendation to charge the city $16,000 a month for continued occupation or con tamination of the property.

“Let’s continue to work with the city without the hammer,” board member Tim Johns suggested.

— Teresa Dawson

Volume 16, Number 2 August 2005