{"id":12258,"date":"2020-03-01T21:54:38","date_gmt":"2020-03-01T21:54:38","guid":{"rendered":"https:\/\/www.environment-hawaii.org\/?p=12258"},"modified":"2020-09-24T17:32:25","modified_gmt":"2020-09-24T17:32:25","slug":"appellate-court-overturns-award-of-damages-to-bridge-aina-lea","status":"publish","type":"post","link":"https:\/\/environment-hawaii.org\/?p=12258","title":{"rendered":"Appellate Court Overturns Award Of Damages to Bridge \u2018Aina Le\u2018a"},"content":{"rendered":"\n

Chalk one up for the state. A big one.<\/p>\n\n\n\n

A three-judge panel of the 9th U.S. Circuit Court of Appeals has shredded the takings claims of Bridge \u2018Aina Le\u2018a, LLC, over the state Land Use Commission\u2019s decision in 2011 to revert 1,060 acres of land in the Big Island district of South Kohala to the Agricultural District. Bridge had sought more than $30 million in damages as a result of the LUC action.<\/p>\n\n\n\n

The appellate ruling, issued on February 19, not only nullified a nominal damage award of $1 that had been ordered by Judge Susan O. Mollway of the U.S. District Court in Honolulu following a jury trial, it also deprived Bridge of its status as prevailing party \u2013 which would have allowed Bridge to sue the state for the costs of litigating the matter. Now that the state is the prevailing party, it has a green light to go after Bridge for costs. (After the District Court decision, when Bridge was still the prevailing party, it submitted a motion to the court seeking attorney fees and costs of around $725,000.)<\/p>\n\n\n\n

Bridge could still appeal. It could ask for a rehearing by the full bench of the 9th Circuit. And it could ask the U.S. Supreme Court to consider the case. Attorney Bruce Voss, who argued the case before the appeals court, told Environment Hawai\u2018i <\/em>that his client would be doing just that.<\/p>\n\n\n\n

\u201cThis Ninth Circuit opinion effectively makes it almost impossible to prevail on a temporary takings claim. We will be petitioning for a writ of certiorari, to see if the U.S. Supreme Court wishes to use this extraordinary case to make clear that a government\u2019s taking of property still requires just compensation under the Takings Clause of the U.S. Constitution,\u201d Voss said in an email.<\/p>\n\n\n\n

Years in the Making<\/strong><\/p>\n\n\n\n

The case at issue goes back to 2011. That year, the Land Use Commission voted to revert Bridge\u2019s 1,060 acres of land in the Big Island district of South Kohala to the Agricultural District. The move came some 22 years after the land had been placed into the state Urban District. Over that time, several owners had come and gone without having fulfilled the conditions the LUC had attached to its approval of the initial, 1989 redistricting petition \u2013 conditions that had been amended several times over the same period in favor of the landowners.<\/p>\n\n\n\n

Bridge sued the LUC and won a favorable ruling from the 3rd Circuit Court in 2012, overturning the reversion. In 2014, the Hawai\u2018i Supreme Court upheld most of the lower court ruling. It agreed that the LUC did not follow the procedures it should have followed when it voted to downzone the land and the reversion was nullified, leaving the land in the Urban District. Following that, a federal lawsuit alleging unconstitutional takings and violation of due process moved forward in U.S. District Court in Honolulu.<\/p>\n\n\n\n

For a while, the state and Bridge \u2013 which sought somewhere in the neighborhood of $30 million in damages from the state \u2013 were in negotiations. The outcome was an agreement for the state to pay $1 million and be done with it. The Legislature balked and did not approve the payout, and so the lawsuit went to trial.<\/p>\n\n\n\n

In March 2018, after an eight-day trial, the jury found that Bridge had suffered damages under two different legal analyses. The first, the so-called Lucas <\/em>standard, applies when a landowner is deprived of all economically beneficial uses of its land. The second, the Penn Central <\/em>standard, applies when regulation has had a negative economic impact and has interfered with \u201cdistinct investment-backed expectations.\u201d<\/p>\n\n\n\n

Bridge also sought to have the federal court determine that it was not fairly treated by the state \u2013 that it was denied due process and equal protection, inasmuch as of all the LUC dockets where developers have not built projects in accordance with LUC conditions, Bridge was the only one that was subjected to the harsh penalty of reversion. The federal district court rejected the claim, noting that it had already been litigated (and denied) in state court.<\/p>\n\n\n\n

The Appeal<\/strong><\/p>\n\n\n\n

The appellate court disagreed with the lower court on the matter of the takings. Regarding the claim of a Lucas <\/em>taking, the court found, \u201cthe state\u2019s core challenges to that finding are that the land retained substantial residual value in its agricultural use classification and that this classification still allowed Bridge to use the land in economically beneficial ways.<\/p>\n\n\n\n

First, the court went on to say, the \u201cpermissible uses of land classified as agriculture reinforce our conclusion that the reversion did not completely deprive Bridge of all economically viable uses of the 1,060 acres as a matter of law.\u201d The court took note of the state law permitting \u201cunusual and reasonable uses within agricultural\u201d districts. \u201cAlthough Bridge offered evidence suggesting that many of the statutorily permitted uses would not have been economically feasible, Bridge did not address all of the state\u2019s permitted uses or account for any of the uses for which the commission had granted special permits in the past, such as a sewage treatment plant or rock quarrying. Some of the specially permitted uses may have been especially suitable for this land.<\/p>\n\n\n\n

Bridge intended to place a sewage treatment plant on the adjacent 2,000 acres of agriculturally zoned land. Bridge\u2019s own witnesses also recognized that the land was \u2018good for growing rocks.\u2019\u201d<\/p>\n\n\n\n

The Penn Central <\/em>theory of taking was also dismissed by the appellate judges. Bridge\u2019s appraiser, Steven Chee, testified that on April 30, 2009, when the LUC voted to require Bridge to show cause as to why the land should not be reverted, the land value dropped 83.4 percent (from $40 million to $6.36 million). The judges disputed his assumption that the drop in value took place in 2009 and not 2011, when the reversion vote occurred. While the order-to-show-cause vote may have cast a \u201cdark cloud\u201d over the project, the court found, it went on to note, citing to past precedent, \u201c[m]ere fluctuations in value during the process of governmental decision-making, absent extraordinary delay, are incidents of ownership. They cannot be considered as a taking in the constitutional sense.\u201d<\/p>\n\n\n\n

In any case, the diminished value of the land was of short duration. \u201cThe reversion lasted roughly a year, from the reversion order\u2019s issuance in April 2011 until the Hawai\u2018i state circuit court\u2019s judgment vacating the order in June 2012. When we account for the reversion\u2019s actual one-year duration, Bridge\u2019s damages are at most $6.72 million if we use the higher 20 percent rate of return that Bridge hoped to receive on its total investment… Bridge\u2019s loss thus amounts to an approximately 16.8 percent diminution in value, a number far lower than the 83.4 percent figure on which it relied at trial. This economic impact weighs against the conclusions that the reversion constituted a taking,\u201d the judges concluded.<\/p>\n\n\n\n

Bridge\u2019s Penn Central <\/em>taking argument was also supported by its claim that the reversion disrupted its sale of part of the land to DW \u2018Aina Le\u2018a, with which it had executed an agreement of sale. But, the court noted, \u201cThere is a fundamental problem with using the claimed disruptions to the … sale agreements as evidence of the reversion order\u2019s economic impact.\u201d First, \u201cDW\u2019s contractual default under the February 2009 agreement … occurred some two years before <\/em>the 2011 reversion order\u2019s issuance. …. Moreover, the record otherwise shows that Bridge\u2019s focus on the disruptions to these agreements overstated the reversion\u2019s impact on its contractual relationship with DW. After the Hawai\u2018i Supreme Court\u2019s decision, DW agreed to pay Bridge $14 million more than the previously agreed upon $40.7 million to purchase the land. Thus, the contractual defaults during the reversion\u2019s temporary duration do not affect our economic impact analysis.\u201d<\/p>\n\n\n\n

Finally, looking to the extent to which the LUC action interfered with \u201cany reasonable investment-backed expectations,\u201d which is another factor considered in the Penn Central <\/em>analysis, the court found that Bridge could not have expected any profit from its pur- chase of the land \u201cunless and until the commission amended\u201d the 1991 condi- tion it placed on the landowner to have 20 percent of all residential units built be qualified as affordable. (It did so in 2005.)<\/p>\n\n\n\n

\u201cBridge also did not expect that an amendment to the affordable housing condition would translate into immediate profits,\u201d the court found. \u201cIndeed, Bridge represented to the commission that $86 million in initial infrastructure costs and over $200 million in total development costs had to be spent before the construction and sale of any housing units could begin. At the time of the reversion, the project was nowhere near this level of investment \u2013 indeed only sixteen affordable housing units existed \u2013 and thus Bridge could have had no reasonable expectation of making the 20 percent annual return on the total investment at that time.\u201d<\/p>\n\n\n\n

The court also dinged Bridge for what it did not <\/em>acknowledge. \u201cBridge expressly committed to build 385 affordable housing units as part of the [2005] amendment to the order governing the land\u2019s conditional urban use classification,\u201d the court found. \u201cBased on Bridge\u2019s representations to the commission, the 2005 order required Bridge to build these units by November 2010. At no point in arguments before us does Bridge acknowledge this deadline, let alone Bridge\u2019s and DW\u2019s repeated representations to the commission as part of seeking the OSC [Order to Show Cause] rescission that they would complete the 385 affordable housing units\u201d <\/em>(emphasis added.)<\/p>\n\n\n\n

The judges continue: \u201cThe operative conditions in place at the time of the OSC and the reversion order, and Bridge\u2019s failure to meet them, dispel the notion that Bridge could reasonably expect that the commission would not enforce the conditions.\u201d<\/p>\n\n\n\n

After eviscerating Bridge\u2019s arguments on taking, the judges reversed the lower court\u2019s denial of the state\u2019s motion for judgment as a matter of law: \u201cWe vacate the judgment for Bridge and the nominal damages award and remand with instructions for the district court to enter judgment for the state.\u201d<\/p>\n\n\n\n

\u2014Patricia Tummons<\/strong><\/p>\n\n\n\n

For Further Reading<\/em><\/p>\n\n\n\n

Environment Hawai\u2018i <\/em>has reported extensively on the ups and downs of the \u2018Aina Le\u2018a development. For further background on this litigation in particular, see:<\/p>\n\n\n\n