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Hawaii Supreme Court In Aina Lea: The Rationales Behind The Opinion
By Robert Thomas @ 4:23 AM :: 3316 Views :: Judiciary, Land Use

Guest Post - Hawaii SCT In Aina Lea Case: The Rationales Behind The Opinion

by Robert Thomas, InverseCondemnation, December 9, 2014

We bring you the latest guest post by colleague Paul Schwind, who has been tracking the issues and arguments that recently led the Hawaii Supreme Court to conclude, in DW Aina Lea Development, LLC v. Bridge Aina Lea, LLC, No. SCAP-13-0000091 (Nov. 25, 2014), that the Hawaii Land Use Commission wrongfully rescinded an earlier reclassification of land (read: "rezoning" to all you non-Hawaii land users).

We'll post up our thoughts on the decision in a separate post.

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Hawaii Supreme Court In Aina Lea: The Rationales Behind The Opinion

by Paul J. Schwind*

Robert has asked me to summarize the rationales behind the holdings in the Hawaii Supreme Court’s recent opinion in DW Aina Lea Development, LLC v. Bridge Aina Lea, LLC, No. SCAP-13-0000091 (Nov. 25, 2014), which he summarized the following day, outlining the litigation history of the state case below in the Land Use Commission and the agency appeal in the Hawaii Third Circuit Court. I last reported on the litigation in a post on June 24, 2014, about the status of the federal case (involving whether LUC commissioners have quasi-judicial immunity from federal law damages claims, and whether the federal court should abstain from a case also involving state law issues). Counsel for the parties now have 14 days from November 25 to notify the U.S. Ninth Circuit Court of Appeals of the Hawaii Supreme Court’s decision.

There are three primary conclusions in the Hawaii Supreme Court opinion, two of which are further bifurcated into subordinate parts. I'll take each conclusion in turn to examine the court’s reasoning behind its dicta and holdings.

I.  Background: The LUC Can "Rescind" Boundary Amendments, And "Revert" The Land To Its Prior Classification

In an Order to Show Cause proceeding to determine whether a property should be reverted to its original land use district classification, as a threshold matter the LUC must first determine whether the petitioners have “substantially commenced” use of the land.

If the answer is “yes,” the LUC is required to follow the procedures under Haw. Rev. Stat. § 205-4(h) applicable generally to land use district boundary amendments. As such, the LUC must find by a clear preponderance of the evidence that the reclassification is (1) reasonable; (2) not violative of § 205-2 (considerations for classifying all lands into four land use districts); and (3) consistent with the policies of § 205-16 (conformance to the Hawaii State Plan) and § 205-17 (consideration of applicable district standards, areas of state concern, standards and criteria for important agricultural lands, county plans, and petitioners’ representations). In addition, there must be six affirmative votes for reclassification (or reversion), and the matter must be resolved within 365 days.

If the answer is “no”, i.e. if the petitioners have not substantially commenced use of the land, the LUC need not follow the procedures outlined in § 205-4(h), as long as it complies with the procedures in Haw. Admin. R. § 15-15-93 (procedures for how conditions, representations, and commitments are enforced generally). Slip op. at 57.

The Supreme Court’s rationale for the distinction in OSC procedures to be followed depending on “substantial commencement” of petitioners’ proposed land use(s) lies in the plain language of of § 205-4(g), which provides that after approving a boundary amendment:

... [t]he commission may provide by condition that absent substantial commencement of use of the land in accordance with such representations, the commission shall issue and serve upon the party bound by the condition an order to show cause why the property should not revert to its former land use classification or be changed to a more appropriate classification. Such conditions, if any, shall run with the land and be recorded in the bureau of conveyances.

The court also detailed the legislative history of § 205-4(g), in which the legislature authorized the LUC to void a boundary amendment only where the petitioners do not substantially commence the approved land use activity. In other words, reversion pursuant to an OSC is a limited exception to the general principles for land use reclassification set forth in Chapter 205. Slip op. at 54-55. Nevertheless, the LUC has broad authority to impose conditions on boundary amendment petitions, and to downzone land for violation of those conditions, even though it is the counties that have been delegated the general enforcement power for boundary amendments. See Lanai Co. v. Land Use Comm’n, 97 P.3d 372, 393-94 (Haw. 2004).

II.  "Substantial Commencement, Not Substantial Completion"

The court then analyzed the factual questions: whether the developers had substantially commenced work on the property, and if so, whether they had done so timely within the parameters set forth under § 205-4(g).

In a nutshell, the court found that as of the deadline established by the LUC (March 31, 2010), the developers had constructed 16 townhouses ready to hook up to utilities, had partially constructed 56 more, and had completed mass grading of the site, grading for internal roadways, and foundation slabs for 64 more townhouses; in so doing, they had expended more than $20 million for plans and construction work on the project. Slip op. at 59-60. This was plainly sufficient for the Court to conclude that petitioners had “substantially commenced” use of the property.

The timing of the OSC was even more problematic. It was initially issued on December 9, 2008, but was rescinded on September 28, 2009, on the condition that the 16 townhouses be “completed” by March 31, 2010. On July 26 of that year, the LUC determined that the condition had not been satisfied, and the OSC then remained pending without resolution until the LUC filed its order reverting the property from the urban district to the agricultural district on April 25, 2011. That filing failed to make the specific findings of fact and conclusions of law required by § 205-4(h), and did not resolve the OSC within the 365 days required by § 205-4(g).

Based on its findings regarding the developers' “substantial commencement” and the LUC’s defective filing of the OSC, the court affirmed in part the lower court’s decision by holding that the LUC erred in reverting the property without complying with the requirements of HRS § 205-4. Slip op. at 64-65.

III.  Evidentiary Issues

The Supreme Court parted company with the circuit court regarding some other issues. The LUC argued that the circuit court erred during the agency appeal hearing below in denying its (LUC’s) motion to strike portions of the record on appeal designated by petitioners, consisting of 9,917 pages from six other cases. However, there was no indication that petitioners requested the court to take judicial notice of these documents, which had not been part of the LUC docket prior to the appeal, nor was there indication that the court relied on the documents. In an agency appeal, judicial review is generally confined to the administrative record. Haw. Rev. Stat. § 91-14(f); see also Diamond v. Dobbin, 319 P.3d 1017, 1033 (Haw. 2014). Accordingly, although the error may have been harmless, the Supreme Court held that the court below did err in denying the LUC’s motion to strike. Slip op. at 68.

IV.  Raising Constitutional Issues In Judicial Review Of Administrative Appeals

Although the Supreme Court normally does not decide constitutional questions if a case can be decided on statutory or common law grounds (see State v. Lo, 675 P.2d 754, 757 (Haw. 1983)), the Court, in the interest of judicial economy, made an exception here due to the pendency of the federal case on appeal (see Bridge Aina Lea, LLC v. Haw. Land Use Comm’n., Nos. 12-15971 and 12-16076 (Order; 9th Cir. June 12, 2014)). Slip op. at 69-70.

The LUC argued that the circuit court erred in determining that the LUC violated the developers' constitutional rights to due process and equal protection, in part because the LUC had no opportunity to present evidence for jury trial during the agency appeal. As a preliminary matter, the court disposed of this initial claim by noting that the circuit court has authority to reverse or modify an agency decision if petitioners’ substantial rights may have been prejudiced by violation of constitutional provisions, without any condition requiring the presentation of evidence for trial by jury; see Haw. Rev. Stat. § 91-14(g). The court therefore held that it was proper for the circuit court to have considered petitioners’ constitutional arguments in reversing and vacating the LUC’s final order. Slip op. at 70.

V.  No Due Process Violation

However, while it was proper for the circuit court to consider constitutional arguments during the agency appeal, in this case at least, the court did not reach the proper conclusions.

Regarding procedural due process, the circuit court had concluded that the LUC “denied Bridge and DW their rights to [notice and] a meaningful opportunity to be heard”, which – before governmental deprivation of their significant property interest – would violate the rule established in Sandy Beach Def. Fund v. City Council of City & Cnty. of Honolulu, 773 P.2d 250, 261 (Haw. 1989), that before an owner may be deprived of a property interest, it must receive notice and the opportunity to be heard. The court pointed out, however, that the developers had three months prior notice that the LUC was considering issuing an OSC, which was two months before DW acquired an interest in the property.

They also had no less than eleven opportunities to testify at LUC hearings, all but the last of which occurred during the pendency of the OSC. This was plainly notice that the land use district classification for the property might be reverted, and opportunity to be heard sufficient to satisfy due process. Thus, the court reversed the circuit court, concluding that that the developers' did not suffer a deprivation of due process. Slip op. at 71-73.

With respect to substantive due process, the circuit court had determined that the LUC’s final order was “arbitrary and unreasonable, having no substantial relation to the public health, safety, morals, or general welfare”, which would violate In re Applications of Herrick, 922 P.2d 942, 962 (Haw. 1996). The Supreme Court, however, found that the facts did not support this conclusion.

From the time the subject property had first been reclassified to the urban district in 1989, until 2008, the property had changed hands numerous times, but little had been done to develop the property. By late 2010 (notwithstanding the construction of 16 townhouses), petitioners had not complied with numerous other representations made to the LUC, including satisfaction of an affordable housing condition. Accordingly, the LUC’s conduct was not “arbitrary and unreasonable,” and the court held that the court below erred in concluding the LUC violated petitioners’ substantive due process rights. Slip op. at 71, 73-74.

VI.  Equal Protection

Finally, the Supreme Court took up the circuit court’s conclusion that the LUC had intentionally treated petitioners Bridge and DW differently and less favorably than others in substantially similar circumstances, without any rational basis for such adverse differential treatment. An equal protection claim such as this may be brought by a “class of one” under Vill. of Willowbrook v. Olech, 528 U.S. 562, 564 (2000). If true, such a claim would violate the equal protection clauses of the federal and state constitutions, which mandate that all similarly situated persons be treated alike by government. See State v. Freitas, 602 P.2d 914, 922 (Haw. 1979).

However, any evidence that the developers in this case were treated differently by the LUC than similarly situated developers could not be demonstrated, because documents from other LUC cases that might have made such a showing were not properly designated for inclusion in the record on appeal. Moreover, even with such a showing, the equal protection argument of differential treatment would still fail because the developers did not establish (given the long history of this project) that the LUC had no rational basis for its reversion action. Finally, the LUC has broad discretion to attach conditions to reclassification orders, and broad authority and power to determine if those conditions are breached. See Lanai Co., 97 P.3d at 393. Enforcement of such conditions affecting particular individuals is well within the ambit of discretionary decision-making acceptable under the equal protection clause. See Engquist v. Oregon Dept. of Agric., 553 U.S. 591, 603 (2008). The court thus had no difficulty in holding that petitioners’ equal protection rights were not violated, because the record did not establish that the LUC lacked a rational basis for its decisions. Slip op. at 75-77.

VII.  Conclusion

In conclusion, the Supreme Court affirmed the circuit court’s second amended final judgment to the extent it is based on the circuit court’s conclusion that the LUC erred in failing to comply with the requirements of § 205-4, and vacated the final judgment to the extent it is based on the circuit court’s conclusion that the LUC violated petitioners’ constitutional rights.

The court remanded the case to the circuit court for further proceedings consistent with its opinion. Slip op. at 78.

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*Voluntary inactive member of the Hawaii Bar.

LINK: DW Aina Lea Development, LLC v. Bridge Aina Lea, LLC, No. SCAP-13-0000091 (Haw. Nov. 25, 2014)

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