Recent Court Rulings May Complicate State’s Ability to Grant A&B a Holdover

“House Bill 2501 invites litigation.”

That succinct reply was all Native Hawaiian Legal Corporation (NHLC) attorney David Kimo Frankel provided Environment Hawai`i when asked back in May whether a holdover of water rights granted in accordance with the bill could be challenged, given the requirement that it must comply with the public trust doctrine.

Determining whether or not a water diversion is in accordance with the public trust doctrine is something that can take more than a decade to ultimately resolve, as Frankel’s client, Na Moku Aupuni o Ko`olau Hui, is well aware. In 2001, Na Moku and the non-profit Maui Tomorrow requested a contested case hearing over Alexander & Baldwin’s request for a lease to continue its century-long diversion of dozens of East Maui streams. The groups argued, among other things, that the diversion violated the public trust doctrine. The case is still ongoing.

A lawsuit over the state Board of Land and Natural Resources’ December 2014 renewal of holdover permits to allow A&B’s diversions to continue pending a final decision on the company’s lease application resulted in a 1st Circuit Court ruling in January that those permits were invalid. The court later granted an injunction to the Maui Department of Water Supply to ensure that the county’s portion of diverted water — around eight million gallons a day — continues to flow. However, A&B did not receive, nor did it ask for, such relief.

Despite the injunction, the state Legislature worried that the county’s water supply was still in danger. To keep the water flowing to the tens of thousands of residents in Upcountry and Nahiku, as well as to A&B’s agricultural fields in Central Maui, the Legislature passed HB 2501, which gives the Land Board the ability to authorize annual holdovers of water rights for up to three years pending the resolution of a lease application for that same water.

“[N]ot continuing [A&B’s permits] could result in people being left with no drinking water, farmers being left with no water for their fields, and schools and hospitals being forced to shut down,” the Legislature’s conference committee stated in its report on the final version of the bill.

The committee also noted that A&B’s planned transition from sugarcane to diversified agriculture could be jeopardized without affordable, sufficient water. “Embracing this transition is in line with the state’s constitutional duty to conserve and protect agricultural lands, promote diversified agriculture, increase agricultural self-sufficiency and assure the availability of agriculturally suitable lands. Currently, there are 27,000 acres of Important Agricultural Lands (IAL) whose status may be threatened if water rights were terminated,” the report stated, noting that the IAL law states that if water is insufficient to allow for profitable farming, a landowner may seek to remove the IAL designation.

Many of the bill’s critics have suggested that it all but guarantees that A&B and its subsidiary, East Maui Irrigation Co., Ltd. (EMI) will be allowed to continue the diversions at least until its water lease application is resolved.

But now that the bill has become law (Act 126), will A&B and EMI actually be granted such a holdover while the state Commission on Water Resource Management inches toward a decision on flow standards for those streams and while the companies work toward completing a long-overdue environmental impact statement for the proposed lease? Will they even need one?

Shifting the Burden

Even though 1st Circuit Judge Rhonda Nishimura declared their permits invalid, A&B and EMI have continued to divert water from East Maui and neither the Department of Land and Natural Resources (DLNR) nor the Land Board has moved to stop them. The DLNR has continued to receive payment for the water, according to department staff. What’s more, statements by Land Board members during oral arguments on June 24 in the contested case regarding A&B’s lease application suggest that the board will likely allow the diversions to continue unless ordered by the court to do otherwise.

During those arguments, which centered largely around a request Na Moku made in April that the board halt the diversion of water for commercial uses, Land Board member Chris Yuen asked NHLC counsel Summer Sylva why her clients had not asked the court to issue such an order. Sylva stated that was an option, but because A&B hadn’t yet completed an environmental assessment (EA) or impact statement (EIS) for its lease application, the burden of supplying an evaluation of the diversions’ harm to her clients “is shifted improperly, we believe, to us, to Na Moku, when that burden should properly sit with the diverter.”

Yuen seemed uncomfortable ordering the return of water to streams that are part of a related contested case hearing before the Commission on Water Resource Management on amendments to the interim instream flow standards (IIFS) of 27 streams that Na Moku says it relies on for traditional and customary Hawaiian practices.

“I’m a person that likes to do things in an orderly way. And it seems to me the orderly way of dealing with this is to wait for the IIFS to come out, and then we know what is the minimum [amount of water] that could possibly be awarded under a lease after that. And then we take up the question of the lease application,” Yuen said. “In the meantime, they’re [A&B] working on whatever elements of the EA or EIS that can be done without knowing the maximum amount of water that could possibly be taken out under a lease.”

When asked by Sylva what he thought the basis was for A&B and EMI’s continued use of its diversions, Yuen replied, “I believe that it’s the RP [revocable permit].”

“But they have been invalidated,” Sylva said.

“But there has been no injunction,” Yuen replied. “I’m correctly stating the state’s position, right? That there has not been an injunction issued, and that the state disagrees with the invalidation of the RPs and it’s on appeal. Am I …”

“That’s correct,” interjected deputy attorney general Linda Chow, who is representing the Land Board in its appeal of the 1st Circuit Court’s ruling.

“That’s where we part,” NHLC attorney Alan Murakami said. Without a stay of the court’s ruling, there is no legal authority for the diversions, he argued. “I find it somewhat disingenuous to then throw the burden on us to say, well, you didn’t get an injunction [and] troubling that the lack of an injunction should preclude you from doing the right thing,” he said.

By mid-July, neither A&B nor EMI had requested a holdover under Act 126, according to a review of permit files at the DLNR’s Land Division. Neither company had sought an injunction or stay to forestall enforcement of the 1st Circuit Court’s ruling, either.

One-Two Punch

Given the divide between the Land Board’s and the NHLC’s positions on what the board is legally required to do, Frankel sent a letter on June 27 to board chair Suzanne Case, state Attorney General Douglas Chin, and Chow informing them of Na Moku’s intent to sue the board, the DLNR, Case, and Chow in 60 days for “egregious breaches of their trust duties.” The letter, also addressed to A&B attorney David Schulmeister, stated that the NHLC intended to sue the company within 45 days for failing to obtain government approvals required under state laws regarding the use of public land.

A&B and EMI have been diverting water from East Maui streams without any authority or any need and causing damage to public trust resources, Frankel wrote. (The NHLC has argued that the companies don’t really need the stream water because, first, HC&S’s sugarcane currently needs no water, and second, the company has an adequate supply of well water.)

State agencies and officials “appear to be completely unaware of their affirmative duties,” he continued, citing the state constitution as well as a litany of court decisions, including the Hawai`i Supreme Court’s decision voiding the Conservation District Use Permit granted by the Land Board for the construction of the Thirty Meter Telescope on the slopes of Mauna Kea, a place considered sacred by many Hawaiians.

Na Moku plans to seek declaratory and injunctive relief, as well as damages and attorneys’ fees, unless the state takes steps “consistent with that of a prudent landlord and trustee,” Frankel stated.

In a follow-up letter to Case on June 30, Frankel requested on behalf of his clients a contested case hearing on any efforts to grant A&B a holdover pursuant to Act 126. He argued that it would be “nothing short of outright lawlessness and defiance of the Hawai`i Supreme Court” if the board granted a holdover without the requested hearing. “Simply stated, sequence matters,” he wrote.

In addition, Na Moku and East Maui residents Sanford Kekahuna, Lurlyn Scott, Healoha Carmichael, and Lezley Jacintho are asking that the Land Board give NHLC at least five days’ notice before it considers granting a holdover to A&B and EMI, require an EIS, and comply with its duties pursuant to the public trust doctrine.

A holdover would prolong the harms to native Hawaiians who use the streams for growing taro, gathering, and recreation, Frankel wrote. “In addition, gates and locks used by A&B and EMI improperly obstruct Native Hawaiians’ access to gather, hike, even malama the `aina and kahawai located on these 33,000 acres. …

“Approval at this time would violate due process, HRS Chapter 343 [Hawai`i’s environmental review law], Article XII section 7 of the Hawai`i State Constitution [which protects traditional and customary rights], and the public trust doctrine,” Frankel wrote, referencing specifically the Hawai`i Supreme Court’s decisions overturning Conservation District Use Permits issued by the Land Board for telescopes on Haleakala on Maui and Mauna Kea on Hawai`i island. The court made clear in both cases that the board must hold a contested case hearing before making a decision on something that harms native Hawaiians’ ability to exercise rights protected by Article XII, section 7, he stated.

Frankel further cited recent statements made by Environmental Court judge Jeannette Castagnetti, who is presiding over Na Moku’s appeal of a Land Board decision in December 2015 that reaffirmed the holdover status of A&B’s and EMI’s permits. The Land Board granted A&B and EMI holdovers for years, but the NHLC has contended that they have long since expired.

While Castagnetti has not yet ruled on the merits of the board’s decision to reaffirm the holdover, she stated during a June 9 hearing that by its action, the board effectively approved the prior holdover decisions, which authorized A&B and EMI to continue using state land and diverting stream water. Had the board not affirmed or reaffirmed the holdover status, the permits would have expired on December 31, 2015, and A&B/EMI arguably would not have been authorized to use the land and divert the water, she continued.

“The court concludes that a hearing was required by law,” she said.

The Public Trust

In addition to Frankel’s arguments about contested case hearings, he also cites several passages in a 2014 state Supreme Court decision in a case regarding a Kaua`i bottler’s diversion of water. The court recognized four public trust purposes: maintenance of waters in their natural state, domestic water use, the exercise of native Hawaiian and traditional and customary rights, and the reservation of water “enumerated by the state Water Code.” The court specifically noted that private commercial use is not protected by the public trust and that “a higher level of scrutiny is therefore employed when considering proposals for private commercial use.”

“The applicant is obligated to demonstrate affirmatively that the proposed use will not affect a protected use,” the court stated, adding that the applicant’s proposed use must be denied if the applicant fails to prove that it has no practicable alternative water source.

Frankel argued that there is no evidence that the holdover would not harm public trust purposes and also no evidence that A&B lacks alternative water sources. “In fact, A&B has its own, private groundwater sources from which it pumps regularly to fill its needs,” he wrote.

“Without further factual findings, the holdover violates the constitution and cannot be authorized,” he stated.

In contrast, the state claims in filings with the Intermediate Court of Appeals that the Land Board did all the analysis required under Act 126 nearly a decade before the law was passed. The new law sets requirements for the Land Board to authorize a holdover, wrote deputy attorney general Chow in a filing last month: 1) that an application be made for a lease; 2) the application is to continue a previously authorized disposition of water rights; and 3) the holdover is consistent with the public trust doctrine. With regard to the first two requirements, Chow notes that A&B is seeking a lease to continue its diversions. With regard to the third requirement, Chow states that in 2007, the Land Board “affirmed that the holdover of the revocable permits was based on the public trust and recognized in particular the need to protect domestic water uses by Maui County.”

“Other reasons cited by the board include the impact it would have on Maui Land and Pineapple’s [MLP] economic viability, the continued economic viability of HC&S and EMI and the resulting loss of over 800 jobs on Maui, and the reduction in Maui Electric Company’s ability to provide electricity service to its customers based on the electricity by HC&S’s operations,” she wrote. Today, some of those “other reasons” no longer apply, since MLP closed in 2009, HC&S will close its operations at the end of the year, and the power purchase agreement between HC&S and Maui Electric was terminated in January.

Chow noted that the Land Board in 2007 recognized the water needs of native Hawaiian taro farmers in Wailuanui valley and ordered that more water be restored to Waiokamilo stream.

“The fact that the holdover decision was made in 2001 and affirmed in 2007 does not affect the applicability of Act 126. The board has fulfilled all of the requirements of Act 126. When the board’s decision to put the revocable permits into holdover status is reviewed by this court, it must be reviewed under the lens of the current law. The current law allows for the action that was taken by the board in putting the permits into holdover status,” she wrote.

Chow failed to note, however, that Act 126 requires that holdovers be approved annually and that they not exceed three years in total. The holdover permits that had been invalidated by the 1st Circuit Court had been renewed annually for more than a decade.

Even so, A&B’s Schulmeister and co-counsel Elijah Yip made similar claims in a filing with the appellate court. “The Legislature recently validated the legal basis by which the BLNR maintained the status quo pending resolution of the Water License [contested case hearing],” they wrote. In any case, they present arguments suggesting that Act 126 is superfluous.

“If a state agency is to carry out public trust duties, it must have the powers of a trustee. Legislative enactments do not limit the exercise of public trust powers,” they wrote. They, too, make reference to the Hawai`i Supreme Court’s decision in the TMT case, which referenced the Kaua`i Springs case: “As the public trust arises out of a constitutional mandate, the duty and authority of the state and its subdivisions to weigh competing public and private uses on a case-by-case basis is independent of statutory duties and authorities created by the Legislature. [Emphasis is added]”

— Teresa Dawson

For Further Reading

Environment Hawai`i has given extensive coverage to East Maui water issues over the years. For more background, see the following:

• “Land Board Set to Hear Arguments In Dispute Over A&B’s Water Lease,” June 2016;
• “Water Commission Chair Reopens Case On Interim Stream Flows in East Maui,” April 2016;
• “Recommendation of Hearing Officer Favors Restoration of East Maui Streams,” and “Despite Invalid Permits, Lack of Stay A&B’s East Maui Diversions Continue,” March 2016;
• “Hawaiians Seeking Stream Restoration Challenge ‘Holdover Status’ of Diversion,” and “Impending HC&S Closure Raises Questions About Future of East, West Maui Diversions,” February 2016;
• “Judge Stays Ruling to Invalidate Permits for Maui Stream Diversion,” EH-XTRA, February 2, 2016;
• “Hawaiian Farmers, Cultural Practitioners Demand Environmental Review for East Maui Water Diversion,” May 2015;
• “Appeals Court Orders Contested Case in East Maui Water Dispute,” EH-XTRA, November 30, 2012;
• “Water Commission Inaction Frustrates Legal Appeal of East Maui Stream Decision,” November 2011;
• “Water Commission Denies Hearing on Flow Decisions for East Maui,” November 2010;
• “Water Commission Amends Flows for Six of 19 East Maui Streams,” July 2010;
• “Water Commission Defers Vote on East Maui Stream Restoration,” March 2010;
• “Water Commission Amends Standards for Six Diverted East Maui Streams,” and “Land Board Resumes Discussion of Diversion of East Maui Water,” November 2008;
• “Land Board Orders EMI to Release Water to Meet Needs of East Maui Taro Farmers,” May 2007;
• “Commission Gains Funds, New Tools to Pin Down Water Use, Stream Needs,” September 2006;
• “Ex-Judge Says East Maui Farmers Don’t Need More Water for Taro,” August 2006;
• “East Maui Taro Farmers May Receive Interim Relief From Water Diversion,” December 2005
• “Water Commission is Urged to Look at Lessons from Mono Lake Dispute,” August 2005;
• “While Commission Ponders Stream Policies, Communities Make Headway With Petitions,” February 2005;
• “Board Talk: Land Board Favors EMI Water Diversion,” March 2003;
• “Board Talk: East Maui Water Dispute Heats Up with Hearing Officer’s Recommendation,” January 2003;
• “Board Talk: Contested Case on Renewal of EMI Water Permits,” July 2001;
• “Battle Looms Over Waters Diverted from East Maui Streams” and “Complex Legal Issues Surround A&B’s Taking of East Maui Water,” August 1997.