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▪ 2006 Land Use in Review: Hawaii Water Law is Not a Federal Case

Just in case you were wondering whether Hawaii water rights issues were matters of federal or state law, the Hawaii Supreme Court has provided the answer. 

In Maui Tomorrow v. State of Hawaii, 110 Haw. 234, 131 P.3d 517 (Apr. 5, 2006), the court held that prevailing on a state law water rights claim in state court does not entitle the victor to federal civil rights attorneys fees. 

That conclusion may seem a touch obvious, one might think, but despite a rather clever and "tenuous" argument by the party seeking to fee-shift, the court correctly determined that issues of water rights and the common law public trust were matters of state law.  Disclosure: I represented the Hawaii Farm Bureau Federation, one of the prevailing parties in this appeal.

The appeal arose when the owner of a private water transport system on Maui sought a long term lease from the State Board of Land and Natural Resources, allowing the use of surface water originating in state-owned land.  Several individuals and organizations intervened in the administrative process, alleging that the lease would interfere with their preexisting water rights, rights as Native Hawaiians, and rights under Hawaii's public trust in water, and that before entering into a lease, the agency must undertake an environmental assessment under the  Hawaii Environmental Policy Act, Haw. Rev. Stat. ch. 343.

The agency rejected the claims, and the intervenors appealed to state court, adding a claim for due process violations.  The trial court ruled against the intervenors and in favor of the state on the due process claims, for the intervenors on the EA and public trust claims, and remanded the case back to the agency.  After judgment was entered, the intervenors sought nearly a quarter of a million dollars in attorneys fee under the federal fee-shifting statute, 42 U.S.C. § 1988.  That statute allows a party who prevails on a federal civil rights claim (42 U.S.C. § 1983) to make the loser pay attorneys fees.  The trial court denied the motion and the intervenors appealed.

The Supreme Court held that despite characterizing their water rights and public trust claims as claims under the law admitting Hawaii as the 50th state (the Admission Act), the claims made by the intervenors were, in reality, arguments under state law. The court compared the claims actually made by the intervenors to the claims the intervenors said they made, and found no federal civil rights claim was present, much less a federal claim on which the intervenors prevailed.  The court characterized the request for attorneys fees as "tenuous," but refused to impose Rule 11 sanctions for a frivolous argument.

    

▪ 2006 Land Use in Review: What to do if the Government Changes its Mind

A touch of self-promotion.  In February 2006, the University of Hawaii Law Review published an article written by me and my Damon Key colleagues Ken Kupchak and Greg Kugle. 

The title "Arrow of Time: Vested Rights, Zoning Estoppel, and Development Agreements in Hawaii" pretty much sums up the contents.  The article seeks to answer the question: can the government change its mind after it gives a property owner the "green light" to develop?

Details, including how to obtain a copy, here.

▪ 2006 Land Use in Review: Land Reform Revisited

City & County of Honolulu v. Sherman, 110 Haw. 39, 129 P.3d 542 (Feb. 28, 2006), is the latest chapter in the use of eminent domain to effect "land reform" in Hawaii.

I.  Background

The story begins long ago when the Hawaii legislature enacted the statute that was challenged and sustained in Hawaii Hous. Auth. v. Midkiff, 467 U.S. 229 (1984).  Finding that the economic ills purportedly caused by the concentrated ownership of private single-family residential property in Hawaii, Haw. Rev. Stat. ch. 516 allowed homeowner/lessees to petition the Hawaii Housing Authority to exercise eminent domain on the homeowner's behalf and condemn the fee simple interest underneath their homes from the lessor, and transfer it to the lessee upon payment of just compensation.

After that statute was upheld by the U.S.Supreme Court against a Fifth Amendment public use challenge in Midkiff, and under the Hawaii Constitution's public use clause by the Hawaii Supreme Court in Hawaii Hous. Auth. v. Lyman, 68 Haw. 55, 704 P.2d 88 (1985), efforts were made to pass similar legislation affording condominium owners the same ability to force condemnation of their leasehold interests. 

At the state level, those efforts were ultimately unsuccessful, but the City & County of Honolulu eventually enacted a local version, codified as Hon. Rev. Ord. ch. 38.  That ordinance, like the Land Reform Act, was challenged under the public use clauses of the U.S. and Hawaii Constitutions, but as in Midkiff and Lyman, those challenges were rejected by both federal (Richardson v. City and County of Honolulu, 124 F.3d 1150 (9th Cir. 1997)) and state courts (Richardson v. City and County of Honolulu, 76 Haw. 46, 868 P.2d 1193 (1994)). 

Under chapter 38, the owners of many Honolulu condominium projects were permitted to condemn and take the leasehold interests from their lessors.  By 2005, however, public sentiment regarding eminent domain had turned, and the City Council surprisingly repealed chapter 38. 

The story does not end there, however, because at the time of repeal, several condominiums had begun the process to condemn their leaseholds, and were entitled to continue. 

II.  Taking of a Church's Private Property - RLUIPA

Sherman involved one of those condominiums in the process of condemnation.  In that case, the apartment owners petitioned to condemn the leasehold interest from the owner, a church, which raised the federal Religious Land Use and Institutionalized Persons Act (RLUIPA) as a defense, asserting that the lease-to-fee conversion was a "land use regulation" that impermissibly interfered with the church's free exercise of religion.  The trial court denied the church the opportunity to prove these allegations, ruling against it on a motion for summary judgment.  Relying on federal cases, the Hawaii Supreme Court held that chapter 38's condemnation scheme was not a "land use regulation" as defined by RLUIPA, and the defense was therefore unavailable. 

The text of RUIPA defines "land use regulation" as a "zoning" or "landmark" law.  There is a split of federal authority on whether an exercise of eminent domain is a "land use regulation," with most courts holding that a typical condemnation of property that is owned by a religious organization does not trigger RLUIPA, while a few other courts disagree. 

It does seem odd for Congress to have excluded an outright appropriation of a church's property, while requiring strict scrutiny for mere regulation. If onerous regulatory decisions should be judged strictly by the courts to insure they do not interfere with the free exercise of religion, how is that actually depriving a church of its property should be immune from such scrutiny?  Alas, such questions are not the province of the courts -- especially state courts -- and despite the apparent logical gap in RLUIPA, it is up to Congress to amend the statute, not the courts, so the Hawaii Supreme Court's decision appears sound. 

III.  Delegation of Eminent Domain Power

The court also rejected the church's claim that the City improperly delegated the power of eminent domain to the City Department of Community Service.  The church argued that even though the City Council ultimately had the duty to approve chapter 38 takings, the DCS and the lessees were, in reality, the parties that actually determined what property was to be condemned. 

The court did not really address the church's argument, holding instead that the legality of delegation to DCS had already been decided in a prior case, Richardson v. City and County of Honolulu, 76 Haw. 46, 868 P.2d 1193 (1994).  In that case, the court had reviewed the chapter 38 procedures and held that DCS "merely" designated property, and it was the City Council's ultimate decision whether to actually take it. 

While that may be how chapter 38 was designed to work, the church alleged the reality was much different, and once DCS and apartment owners designated property, the City Council would never be anything more than a "rubber stamp."  The church was denied the opportunity to support that argument with evidence, however, because the Supreme Court upheld the trial court's grant of summary judgment to the City. 

Thus, under Sherman, it seems not to matter what actually happened in the decision whether to take property, but only what the law states is supposed to happen.  If read to apply broadly, this conclusion does not hold up to the standards of Kelo v. City of New London, particularly the warning in Justice Kennedy's concurring opinion that an exercise of eminent domain is not automatically immune from judicial review, and plausible allegations of extra-legal conduct must be taken seriously.  Thus,Sherman must be read narrowly in the context of the facts of the case; the property owner only alleged that the delegation violated Haw. Rev. Stat. § 101-13, and Haw. Rev. Stat. § 101-14, not that the delegation  violated federal and state constitutional standards.  That issue, apparently, must be decided in some other case.

IV.  Impact

Finally, the court addressed technical issues of the City's compliance with chapter 38, and the number of apartment owners who qualified for conversion, but since the ordinance has been repealed, this analysis holds little current interest.  If you need to know more, it's best to read the opinion.

In the end,Sherman will probably not be remembered as a landmark eminent domain case, since it dealt primarily with an ordinance that had already been repealed.  But the two key issues in Sherman are sure to arise again, as governments become even more aggressive taking property in the wake of Kelo -- including church property -- and more willing to delegate that authority to third parties.

      

▪ 2006 Land Use in Review: Environmental Assessments, Early and Probably Often

When is the "earliest practical time" to prepare an environmental assessment under Hawaii's environmental statutes? 

In Sierra Club v. State of Hawaii Office of Planning, 109 Haw. 411, 126 P.3d 1089 (Jan. 27, 2006), the court determined if and when an environmental assessment is required during the boundary amendment process.

The property owner asked the State Land Use Commission to amend the land use classification from "agricultural" to "urban" to permit it to develop the "Koa Ridge" project in central Oahu.  This procedure, known as a "boundary amendment," is required by Hawaii's top-down system of land use, under which the State classifies all land into one of four categories: agricultural, conservation, rural, or urban.  Only then are the counties permitted to separately zone the land classified as urban.  The "boundary amendment" process, despite its unusual moniker, is similar to a rezoning. 

The Sierra Club and others intervened in the petition process, arguing that before the LUC was permitted to grant the boundary amendment, the agency must have completed an Environmental Assessment under the Hawaii Environmental Policy Act, Haw. Rev. Stat. ch. 343 to determine whether a full-blown Environmental Impact Statement was required.  Section 343-5 of HEPA requires an agency to undertake an EA if an applicant proposes the "use of state lands." 

The intervenors claimed that the Koa Ridge project would do so because it contemplated construction of a sewage and water lines which would require tunneling under state-owned land.  The landowner agreed that an EA was required, but argued it could be accomplished later because section 343-5 requires only that the agency prepare the EA "at the earliest practical time."  The landowner asserted it was too early in the process to accurately set out the possible environmental impacts since the project at the boundary amendment stage was preliminary and conceptual, and the end product might be different. 

The court disagreed, holding that because environmental information is important, such information must be provided sooner rather than later, since a later determination may make the final decision fait accompli because the agency may be less inclined to disapprove a request further down the path after more time and money are spent:

We agree with the reasoning of Citizens [for Prot. of N. Kohala Coastline v. County of Hawaii, 91 Haw. 94, 979 P.2d 1120 (1999)] that early environmental assessment comports with the purpose of HEPA to alert decision-makers early in the development process because, "[a]fter major investment of both time and money, it is likely that more environmental harm will be tolerated."

The court did not address what would happen if, as the landowner predicted, the scope of the project was altered in the future, either on the landowner's initiative, or in response to a requirement from the LUC, which has the discretion to impose conditions on boundary amendments.  Under the court's reasoning -- environmental information is "important," and care must be taken to insure that the agency's decision to approve is not a foregone conclusion -- it is not difficult to imagine that yet another EA could be required.   

    

▪ 2006 Land Use in Review: Depends What the Meaning of "Shall" Is

When a statute or ordinance states that an agency "shall" do something, but because of practical limitations or longstanding practice the agency does something else, what will a court do about it?

Leslie v. Board of Appeals, County of Hawaii, 109 Haw. 384, 126 P.3d 1071 (Jan. 25, 2006) involved the meaning of the word "shall" in statutes and regulations and how statutory language may or may not be affected by how the government implements the law.  The decision also involved the meaning of the term "development within the SMA" as used in Hawaii's Coastal Zone Management Act.

 

▪ Property Taxes and Eminent Domain

Both eminent domain and property taxes are hot topics of the moment. 

Eminent domain because the recent approval by the Honolulu city council of the multibillion dollar mass transit project will require the taking of private property.  Home and business owners are rightly concerned about their options if the transit system, where ever it is eventually located, will run through or near their property. 

Property taxes are in the headlines because in Honolulu, property values, according to the City, rose an average of 15% since last year, and property tax bills are expected to increase accordingly.  Also, in February 2007, the Hawaii Supreme Court will hear arguments in an appeal on how the counties structure their property tax systems that may have lasting impact statewide.

These two issues intersect in an obscure statute that property owners who are contemplating appealing their tax assements should know about.  Generally, in eminent domain proceedings, a landowner's testimony regarding the value of her property is admissible as evidence of the property's fair market value under Haw. Rev. Stat. § 101-12:

In addition to rules of evidence otherwise provided by law, in all proceedings brought under this part the valuation claimed by the taxpayer shall be taken into account.

That statute also provides that if an owner disputes the county's valuation of the property in a tax assessment appeal, the owner's claim of value is admissible in any eminent domain action:    

The valuation claimed by the taxpayer in any appeal regarding the assessment of real property tax shall be admissible in evidence as an admission of the fair market value of the real property as of the date of assessment irrespective of the fact that the assessed value from which the taxpayer appealed is adjusted to one hundred per cent fair market value

Thus, there are two competing dynamics at play.  On one hand, in a tax appeal, a property owner is claiming their property has been overvalued by the government, and therefore overtaxed, because it is worth less than the government claims.  In eminent domain proceedings, on the other hand, the property owner should seek to maximize the fair market value of the property, and seek to prove that it is worth more than the government claims.   

What section 101-12 tells a property owner is be careful if you intend to challenge the tax assessment if you believe that your property may be subject in the near future to condemnation.  Because if so, your claims that your property is worth less "can and will be used against you in a court of law."

 

▪ A Camel is a Horse Designed by Committee

Is it just me, or is Honolulu's proposed rail system -- whoops, sorry, "fixed guideway" -- beginning to look like the camel in the timeworn cliche?  The city council has approved a transit system, while leaving decisions about the actual location of the route, and whether the system will be rail or something else, until later (but the tax to pay for a portion of the $4B+ cost will be charged starting 1/1/2007). 

On Friday, the council first delayed the final vote on the transit system's footprint in order to consider adding another section, then reconsidered the delay and decided it would vote, then voted 7-2 in favor of the system, whatever it might be.  The delay was suggested in order to consider adding another section to the line, which would have resulted in the need to take even more private property by eminent domain. 

While there may be sound arguments on both sides of Honolulu's mass transit issue (rail? bus? toll lanes?), the one thing for sure is that if the system is expanded, more private property will be needed, and more Honolulu property owners will be receiving the dreaded "dear interested person" letter in the mail.    

   

▪ Should Property Owners be Grateful Their Property is Condemned?

As reported here, and blogged about here, Susette Kelo, the lead petitioner in 2005's infamous Kelo case, has sent a holiday greeting card to her tormentors that is anything but friendly: 

The text, accompanying a sparkling, snowy image of Kelo's iconic pink house in the Fort Trumbull neighborhood, reads, in its entirety:

Here is my house that you did take
From me to you, this spell I make
Your houses, your homes
Your family, your friends
May they live in misery
That never ends.
I curse you all
May you rot in hell
To each of you
I send this spell
For the rest of your lives
I wish you ill
I send this now
By the power of will

The recipients, "some 30 or so current and former members of the City Council and New London Development Corp." had varying reactions, from calling it "childish" because the taking of Ms. Kelo's home was "nothing personal," to asserting that "It's amazing anyone could be so vindictive when they've made so much money." 

How do you react to statements such as these, which seem to reflect a lack of understanding or empathy for what it is like to be on the business end of eminent domain?   

Yes, Ms. Kelo is angry.  Yes, she is reacting badly.  But her feelings are understandable.  Even though the attempt to take her home was surely "nothing personal."  Recall that the Kelo majority took great pains to lay out the supposedly comprehensive process that resulted in the decision to take her property, and the record showed no evidence of ill will or governmental funny business.  But does the fact that it was not a personal attack make much of a difference to a property owner? 

People who are having their property involuntarily taken tend to take even objective actions badly.  No one likes to have their family home, their business, or property that may be their life's work taken away against their will, even if they eventually receive compensation.  (Hawaii angle: as noted in this post, at least the mayor of Honolulu appears to recognize that no one is all that happy when their property is targeted for acquisition.)

Finally, what to make of the statement reportedly made by a recipient of the Kelo holiday card that Ms. Kelo should not be angry since she "made so much money?"  Whatever you may think of the hard-won settlement achieved by Ms. Kelo and her fellow litigants who championed in the Supreme Court the issue that many thought was a dead letter, certainly money is no salve to the affront and pain she obviously feels since her government has treated her only slightly better than a common criminal, when her only offense was owning property that someone else wanted.

▪ Eminent Domain and the Holy Rail

While much of the public's attention on the Honolulu City Council's upcoming vote on the proposed mass transit system focuses on the choice between rail or bus, and the location of the route, another issue -- eminent domain -- is beginning to surface. 

In a story posted here (video included), Honolulu's mayor acknowledges the impact of the use of eminent domain on property owners in the path of the rail lines, but suggests they "wait and see" before they react:

As the route nears town, more properties will see partial easements along road frontages, in addition to some full buyouts.

"As we come into town, it's going to be a little tricky," said Mayor Mufi Hannemann. “We're going to run into those problems, and rightfully so. We're going to run into landowners who say, ‘That's my land. I don't want it for rail. I'll take you to court.’ "

Robert Thomas, a Honolulu eminent domain attorney, says he's already heard from property owners worried they may be in the way and vowing to fight if so. Governments have power to force sales when owners resist.

“The city has an obligation to the taxpayer to not overpay, so it will generally come in with the lowest possible figure that reason can bear," Thomas said.

State law provides for a jury trial to settle price disputes.

"I would say to people who may be concerned, we appreciate your concern, but why don't you just wait to see what actually comes out," Hannemann said of the pending transit route.

The Mayor correctly points out that very few owners whose property is targeted by condemnation will be happy.  When asked to sacrifice their family home or a lifetime of work establishing a business, a property owner cannot be faulted for objecting.  On that point, the Mayor is 100% correct. 

However, I wish I could agree with the Mayor's suggestion that potentially affected property owners "wait and see" whether the City is coming after their land, home, or business, and if the City's initial take-it-or-leave-it offers will adequately compensate those who are forced to give up their property.  History and experience tell us that property owners who do not passively wait for the eminent domain summons to arrive, and who actively question the government's valuation of their property, are more likely to obtain compensation for their property that they consider just.

   

▪ Two New Eminent Domain Cert Petitions

Two cert petitions have recently been filed in the US Supreme Court on eminent domain. 

Didden v. Village of Port Chester, is a Kelo follow up.  The case is detailed on the Institute for Justice's web site, which includes links to the petition and amicus briefs urging granting of the petition.  The Question Presented in the case raises two interesting issues. 

The first is whether Kelo precludes judicial review of public use claims if a condemnation takes place "within an integrated development plan."  Recall that in Kelo, the majority took great pains to highlight the fact that the condemnation of Mrs. Kelo's house took place within a detailed and apparently comprehensive plan.  The majority opinion relied on the Rosetta Stone zoning case, Euclid v. Ambler Realty Co., and implied (if not held) that the Kelo taking was just fine because of the detailed process that allegedly preceded it.  Like zoning, it appeared that the majority was trusting the result of the procedures that resulted in a taking simply because it was comprehensive, thus equating public use analysis with substantive due process analysis.  The Questions Presented:

     In Kelo v. City of New London, this Court held that economic development within an integrated development plan was a "public use" under the meaning of the Fifth Amendment to the U.S. Constitution.  Does Kelo therefore completely preclude all claims of private purpose takings within an integrated development plan area, including a claim that eminent domain was used for financial extortion and the purely private financial gain of a single party?

     What limits if any do the Fifth and Fourteenth Amendments to the U.S. Constitution place on demands for cash in exchange for refraining from the use of eminent domain?

The second issue is a convergence of Nollan and Kelo, asking the Court what standards should apply to extortionate demands, backed up by eminent domain, rather than permit denial.  The amicus brief I filed in Kelo anticipated this issue somewhat, since it suggested the Court apply the Nollan-Dolan standard for examining monetary exactions, to public use analysis:

     In undertaking the review of public use issues reserved to the judiciary in Midkiff, 4687 U.S. at 240, this Court should adopt the same heightened scrutiny for exercises of the eminent domain power justified by promises of a better economy as it has established for suspect regulatory takings: a taking justified only by economic development is invalid if it fails to substantially advance a legitimate state interest.

The second eminent domain petition was filed in Detroit International Bridge Co. v. United States.  The Questions Presented in that petition do not involve public use, but rather the other main issue in eminent domain cases, that of Just Compensation:

1.  Whether requiring courts to apply the interest rate set in the Declaration of Taking Act 40 U.S.C. § 3116, to determine the compensation due when the government delays payment of compensation for private property taken under the Act violates the Just Compensation Clause and the separation of powers when applying the statutory interest rate would materially undercompensate the landowner.

2.  Whether a court’s reduction of the amount of compensation paid to a property owner based on the fact that the intended taking had been made public at the time the owner purchased the property contravenes this Court’s repeated holding that the just compensation due to a landowner under the Fifth Amendment is not to be affected by the government’s decision to condemn the property. 

At oral argument in Kelo, several justices, most notably Justice Kennedy expressed their concern that the Court should examine the fairness of the compensation rules in eminent domain, perhaps as a way of counterbalancing the grossly inequitable law that favors the condemnor in public use questions.  We'll see.