State Supreme Court, Federal Appeals Court Schedule Hearings Over `Aina Le`a Dispute

 This month, the stalled-out development on the Kohala Coast known as `Aina Le`a faces two important court hearings. On June 10, the 9th U.S. Circuit Court of Appeals will hear an appeal from the state of Hawai`i of a lower court denial of the state’s efforts to have individual Land Use Commission (LUC) members dropped from a lawsuit alleging that the LUC violated the constitutional rights of landowner Bridge `Aina Le`a and developer `Aina Le`a, Inc.

Then, on June 25, the state Supreme Court will hear arguments in the state’s appeal of a lower court ruling that overturned the LUC’s order that the land be reverted from the Urban District to the Agricultural District.

As would be expected in a dispute whose roots go back nearly 30 years, distilling the disagreements into summary form is difficult, if not impossible. We present here only highlights of the arguments the courts will hear.

The federal appeals court has before it a limited question: should individual members of the state Land Use Commission continue to be named as defendants in the civil case brought against them and the LUC by Bridge `Aina Le`a and DW `Aina Le`a (DWAL), representing, respectively, the owner of most of the land where the development is to occur and the company that will be buying and developing the land in phases? (DW `Aina Le`a, LLC, is the chief owner of `Aina Le`a, Inc., and was the developer party identified in the disputed `Aina Le`a proceedings.)

In a nutshell, the state wants the appeals court to peel off the individu
al commissioners from the case, arguing, among other things, that they should enjoy immunity inasmuch as their deliberations and decisions were done in good faith as part of their official duties.

Bridge and `Aina Le`a, on the other hand, want the commissioners to continue to be a part of their litigation and are asking the appellate judges to remand everything back to state courts. There, Bridge attorneys suggest in their filings, the plaintiffs will be able to show that they were sorely harmed by the commissioners’ “bias, animus, and knowing violations” of the law and will be free to pursue their case for millions of dollars in damages against not the state alone, but the nine additional individuals.

The underlying litigation was first brought in state court by Bridge and DWAL following a decision of Judge Elizabeth Strance of the 3rd Circuit Court in Kona. Strance determined that the LUC had improperly reverted the site of the `Aina Le`a development from the Urban District back to Agricultural. The two entities alleged Bridge and DWAL alleged several violations of constitutional rights, including violation of due process and a takings claim.

In light of the constitutional claims, the state asked that the case be removed to federal court. It was eventually assigned to Judge Susan Oki Mollway, who, on March 12, ordered the litigation to be stayed while the state appealed Judge Strance’s ruling in state court.

The State’s Position
Mollway did not rule on the state’s claim of immunity for the individual members of the LUC. That means that, unless they are dismissed from the case by the 9th Circuit Court of Appeals, they live under a cloud of potential personal liability until the underlying case is resolved – and, if it goes against them, the consequences would be disastrous, given that Bridge and `Aina Le`a are claiming damages in the tens of millions of dollars. Or, as the state put it in its appeal: the federal district court “consign[ed] the seven individual commissioners to years with the shadow of this lawsuit hanging over their heads.”

The individual commissioners – Vladimir Devens, Kyle Chock, Thomas Contrades, Normand Lezy, Nicholas Teves Jr., Ronald Heller, Lisa Judge, Duane Kanuha, and Charles Jencks – are entitled to quasi-judicial absolute immunity,” deputy attorney general William Wynhoff wrote. “It is undisputed that they acted by way of a contested case hearing which under Hawai`i law is a judicial type of proceeding.”

“The only way these immunities can be given effect is by ruling on them now,” Wynhoff argued. “A decision to defer means that the immunities are effectively lost… By subjecting individual commissioners to this suit – potentially for years – abstention strips them of the critical benefit of immunity. This is not hypothetical. At least one individual commissioner has already been denied mortgage refinancing because of the pendency of this suit….

“Any commissioner, no matter how loyal or diligent, cannot help but be influenced by knowing that a decision adverse to a developer opens him or her to a lawsuit seeking personal liability for millions of dollars under federal law. This is especially so where the commissioner knows that – no matter what – the federal claims will remain pending for years.

“Moreover, the same thought cannot help but deter citizens from volunteering in the first place to join the commission or numerous other state boards that conduct contested cases.”

‘Beyond Ironic’
The brief filed by attorneys for Bridge `Aina Le`a, LLC, paints quite a different picture. “After unlawfully reclassifying Bridge … property from Urban to Agricultural, and in the process violating almost every applicable statute, regulation, and constitutional provision since 2005, it is beyond ironic for the commissioners to now be complaining about the unfairness of this litigation,” wrote Matthew Shannon, attorney with Bays Lung Rose & Holma, counsel for Bridge.

“Because the commission assumed multiple roles as rule maker, monitor of compliance, prosecutor, and arbiter, the commissioners are not entitled to immunity,” Shannon continued. “Despite the commissioners’ worn and overused analogy in the briefs, they acted unlike any judge in the country. Therefore, the commissioners are not entitled to immunity.”

Bridge, he said, wants the case remanded to state court so that “the eventual takings litigation in this case, whether temporary or permanent,” could commence. “Indeed, this litigation involves tens of millions of dollars in damages and decades of proceedings. Bridge should not be prejudiced by several more years of delays before litigation can even begin.”

Rather than a nimbus hanging over the commissioners, it looms over Bridge, Shannon wrote. “The commission’s unlawful conduct and subsequent state court appeal created a dark cloud of litigation over the project, which was exacerbated by the commission’s refusal to re-open the docket and incorporate Bridge’s successful administrative appeal ruling” – i.e., Strance’s decision. The decision as to immunity “would be appropriate for the state court to decide,” he wrote.

“Regardless, this court should not grant immunity to the commissioners at the initial pleading stage,” he concluded. “The complaint sufficiently pleads allegations of repeated and knowing unlawful conduct by the commissioners…. The commissioners’ bias, animus, and knowing violation of the law subjects them to individual liability… Therefore, the commissioners have not met their burden of proof as public officials seeking immunity.”

The appeals court will hear 15 minutes of arguments on the issues when it meets in Honolulu. The `Aina Le`a case is the third on its June 10 schedule, which begins at 9 a.m. The hearing will take place at the federal bankruptcy courtroom, room 250L, 1132 Bishop Street.

Two weeks following the appeals court hearing, the state Supreme Court will hear oral arguments in the state’s appeal of Judge Strance’s ruling that overturned the LUC’s decision to revert the `Aina Le`a land.

The state characterizes the case as having, at its heart, the right of the LUC to set and enforce conditions on the developers of land that the LUC has redistricted. It argues that reversion is the chief, if not the only, means the state has at its disposal to make sure that developers comply with promises made. Hawai`i Revised Statutes and Supreme Court case law, argued Wynhoff in his application to transfer the case to the Supreme Court, “specifically affirm that the LUC may revert a property to its former land use classification for failure to substantially commence use of the land in accordance with conditions.” The lower court, he added, “erred by ruling to the contrary, especially because the court did not overturn or even address any of the LUC’s findings of fact.”

In addition, he wrote, the lower court’s consideration of the treatment of other developers whose land had been redistricted was not proper, inasmuch as the court’s review of administrative appeals “shall be confined to the record,” under HRS Chapter 91.

Strance’s ruling also erred, he stated, in holding that “the LUC and individual commissioners violated developers’ constitutional rights to equal protection and due process” – “without any opportunity for presentation of evidence and without regard to the right to trial by jury.”

“The question of whether the LUC can ever revert a property pursuant to [HRS] Section 205-4(g) is a question of imperative or fundamental public importance,” Wynhoff continued, noting that the question is before the LUC in at least two other pending dockets.

The public as well, he wrote, “needs to know whether conditions are enforceable. The answer to that question will affect public response to new petitions. Undoubtedly some members of the public who would conditionally support a petition will not do so if the reclassification is perforce unconditional.”

‘Orwellian Doublespeak’
The `Aina Le`a parties – Bridge and DWAL – claim that in approving the reversion, the LUC stomped all over their constitutional rights. They claim they were held to higher standards than other, similarly situated developers. Also, the process of reverting the land, they claim, should have been undertaken as a de novo redistricting, with all that this entails.

“Contrary to the LUC’s assertions,” wrote DWAL attorney David Minkin, with the firm McCorriston Miller Mukai MacKinnon, “the plain language of HRS 205-4(g) does not authorize the LUC to automatically reclassify property as punishment for any violation of an LUC condition. Indeed, there is nothing in HRS 205-4(g) that grants the LUC the authority to change a state land use classification by a process different from that which is required” in an original boundary reclassification petition. Should the court approve of the LUC’s “asserted power to automatically reclassify,” he continued, it “would impermissibly encroach upon the powers of the Legislature.”

The same point was made in Bridge’s brief, written by Shannon. The state’s argument that the boundary amendment requirements don’t apply to reversions “is classic Orwellian doublespeak,” he wrote. “But regardless of the commission’s verbal tap dancing, it is not disputed that a ‘reclassification’ and ‘reversion’ accomplish the same result: they both change land use district boundaries from one classification to another.”

Although these two cases have dragged out for years, one lawsuit brought against `Aina Le`a, Inc., last February was disposed of at near-warp speed. That case involved a complaint brought by Randstad Professionals (dba Tatum), a human-resources company, alleging that `Aina Le`a owed it approximately $50,000 in unpaid invoices for services that began around November 2012. The complaint was served on `Aina Le`a’s Hawai`i office later that month, but `Aina Le`a made no reply within the specified 20 days from the date of service. As a result, Randstad Professionals won a default judgment and an order of garnishment against the Hawai`i banks where `Aina Le`a is believed to have accounts.

In another case involving an `Aina Le`a’s creditor, the primary contractor in the early phase of work at the site, Goodfellow Bros., also won a judgment against the company. According to its attorney, Lyle Hosada, the unpaid debt amounted to approximately $2.3 million as of mid-May.

Rescinded Approval
In January, the Hawai`i County Planning Department notified `Aina Le`a that the county was rescinding its approval of the second phase of residential structures the company planned to build. Plans for the second phase, involving single-family residences, won approval from the county, but the Mauna Lani Resort Association took the county to court, alleging that the environmental impact statement that `Aina Le`a had prepared for the development and other work at the site was deficient.

The MLRA prevailed in court and `Aina Le`a was instructed to revise the EIS. On January 30, Planning Director Duane Kanuha cancelled the approval. “In light of … Judge Elizabeth Strance’s ruling of March 28, 2013, that compliance with Hawai`i Revised Statutes (HRS) Chapter 343 was inadequate, and considering that there has been no action relative to compliance with redoing or supplementing the EIS, the Planning Director hereby rescinds the approval,” Kanuha stated in a letter to Michael Riehm, architect for the developer.

For Further Reading

Over the years, Environment Hawai`i has published numerous articles on the `Aina Le`a controversy. Here are several that will provide additional background to the dispute:

“Judge Halts Work at `Aina Le`a and Orders Supplemental EIS,” March 2013;

“LUC Takes Another Step Forward in Reversion to Ag of `Aina Le`a Land,” April 2011;

“Some Progress Reported at Site that Won Reprieve from LUC,” March 2010;

“Under New Management, `Aina Le`a Is Given Yet Another Chance by LUC,” October 2009;

“Bridge `Aina Le`a Gets Drubbing from the Land Use Commission,” March 2009;

“Two Decades and Counting: Golf ‘Villages’ at Puako Are Still a Work in Progress,” March 2008.

Volume 24, Number 12 — June 2014