Hawai'i Court Holds that Consideration of Severance Damages in Honolulu Rail Case Should be Left to the Jury

On December 29, 2023, the Hawai’i Supreme Court ("HSCT") issued an opinion in the City and County of Honolulu v. Victoria Ward.

The case concerns the amount of just compensation the Honolulu Authority for Rapid Transportation (“HART”) must pay for approximately two acres worth of easements on property previously owned by Victoria Ward, Limited (“Victoria Ward”), a Howard Hughes company. That property is located in Victoria Ward’s multi-billion dollar Ward Village development in the Kaka’ako neighborhood of O’ahu. HART obtained the easements to construct portions of its fixed rail system and a proposed Kaka’ako Station to be located at Halekauwila Street and Ward Avenue. 

Source: HART, Station 20 Kaka‘ako, Kūkuluae‘o

The dispute centers around a disagreement over the value of just compensation, which the City owes landowners when condemning all or a portion of their property for public uses under the state (Article I, sec. 20) and federal (5th Amendment) constitutions. HART estimated Victoria Ward’s total just compensation at $13.67 million. Victoria Ward seeks just compensation from HART for the takings comprised of (1) the fair market value of easements on Victoria Ward’s property, plus (2) between $65 million and over $100 million for alleged severance damages.  

Victoria Ward’s theory of the case focuses on severance damages. Severance damages compensate property owners for devaluing non-taken portions of the property. Victoria Ward is seeking damages for lost development opportunities because it claims it was forced to modify, redesign, and/or relocate other building plans in a manner that resulted in less efficient, less valuable, and less profitable projects relative to what the development could have been worth absent rail and the associated takings.

The questions before the HSCT on interlocutory appeals involved several summary judgment motions granted in whole and in part by the circuit court. The key holdings of the HSCT are:

•  “. . . by entering into the Master Plan Permit and Development Agreement [with the Hawai’i Community Development Authority], Victoria Ward is obligated to address and incorporate rail. But it is the province of the jury to determine the contours of this obligation and to calculate the amount of severance damages, if any, to which Victoria Ward is entitled.”
• “. . . there is a genuine dispute of material fact as to whether Victoria Ward adequately reserved the right to collect severance damages in exchange for the benefits arising from the Master Plan Permit and the accommodations of rail. Thus, Victoria Ward is not precluded as a matter of law from seeking severance damages under an estoppel by acceptance theory.”
• “. . . the circuit court properly exercised its discretion to pause the accrual of statutory interest for the duration of the appeals.”

The HSCT was critical of the circuit court’s granting of summary judgment motions where there were genuine issues of material fact that should be decided by the jury, for example:

• “[S]eeking severance damages involves disputed questions of fact and should be presented to a jury,”. . . “it is the province of the jury to determine the contours of this obligation and to calculate the amount of severance damages, if any, to which Victoria Ward is entitled.”
• “[B]oth parties present substantial evidence in support of their positions, and determination of the disputed question of whether Ordinance 07-001 and the LPA ‘established’ the rail route must be presented to a jury.” The City Council adopted Ordinance 07-001, which sets the locally preferred alternative, or LPA, for the “Honolulu High-Capacity Transit Corridor Project . . . a fixed guideway system between Kapolei and the University of Hawaii at Manoa, starting at or near the intersection of Kapolei Parkway and Kalaeloa Boulevard.”
• “[A] jury should have the opportunity to ascertain the parties’ understanding of the Master Plan Permit” to determine compensable development expectations.
• The HSCT agreed with Victoria Ward that “[t]his is a classic battle of the experts for the jury to consider.”

Read more at https://www.courts.state.hi.us/wp-content/uploads/2023/12/SCAP-22-0000335.pdf.

Presentation at the 2022 VIRTUAL BAR CONVENTION

How to Help the Maui Community after Devastating Wildfires in Lāhainā and Upcountry Maui

Last week brought us news of multiple, devastating fires across Maui, causing loss of life and property. The fires continue to burn.

According to the County of Maui, multiple structures have burned, and numerous evacuations are in place as firefighter crews continue battling brush and structure fires in the Upcountry and Lahaina areas. The American Red Cross is staffing emergency shelters.

According to the Pacific Disaster Center, as of August 11, 2023, damage assessments related to the Lahaina Fire resulted in an estimated total of 2,719 structures exposed, 2,207 structures damaged or destroyed, and 2,170 acres burned. Eighty-six (86) percent of buildings exposed to the fire were classified as residential.

The people of Maui will need our help in the days to come. Here are some ways you can help now:

• Maui Red Cross. Providing Shelter and Comfort to Victims.
• Maui Food Bank. Donate money or drop off your food donations at any Maui location.
• Maui Humane Society. Donate money to help impacted pets and pet owners; information on how to help lost pets reunite with their owners.
• University of Hawai‘i Maui College Student Aid Fund. 100% of your gift will directly support students and/or faculty or staff.
• Maui United Way. Aloha United Way has created the Maui Relief Fund that will go directly to efforts supporting victims of the fires.
• Maui Community Foundation. The Maui Strong Fund supports Maui communities affected by recent fires, including response and recovery efforts.
• Hawai‘i Salvation Army. Accepting monetary donations and large volume meal donations from restaurants and certified kitchens to aid in mass meal service at Maui shelters.

Resources for Maui folks Directly Impacted:

• Maui Nui Strong. Donate. Volunteer. Find resources. Maui Nui Strong is a County of Maui economic development program that connects its residents, businesses, and visitors to useful information about Maui County, its diverse islands, and various resources that help promote thriving and vibrant communities.
• Hawai‘i Emergency Management Agency, State of Hawai‘i. The Hawai‘i Emergency Management Agency supports wildfire response and recovery efforts in Hawai‘i and Maui counties. Daily situation updates are posted on Facebook. 
• Hawaiʻi Fire Relief Housing Program. A program offered by the Hawai‘i Housing Finance & Development Corporation, State of Hawai‘i. The program aims to connect those in urgent need of housing due to the Maui fires with Hawaiʻi homeowners willing to assist by temporarily offering unoccupied rooms, units, or houses.
• Maui Fire Resources. This list includes information on Shelters, Finding Loved Ones, Returning Home, FEMA Individual Assistance, Food Assistance, Small Business Administration Disaster Loans, Crisis Counseling, Disaster Distress Helpline, and more from the Office of U.S. Representative Jill Tokuda.
• Legal Aid Society of Hawaiʻi (LASH). Coordinates and collaborates on pro bono disaster recovery legal services, part of the State’s emergency recovery efforts. Their Maui response page is up.
• Hawai‘i Department of Commerce and Consumer Affairs. Guidance regarding Insurance Policy Claims Following Wildfires.
• Hawai‘i State Bar Association Legal Hotline. FREE legal hotline to provide legal assistance to the residents of Maui and the Big Island. Attorneys will be available to answer questions regarding document replacement, insurance claims process, landlord-tenant matters, and other issues.

May our family, friends, and neighbors on Maui stay safe.

Annual Planning Law Update at the Hawaii Congress of Planning Officials

RECENT DEVELOPMENTS IN PLANNING AND LAND USE LAW from Jesse Souki

Penn Central Presentation at 2020 Hawaii State Bar Association Virtual Convention

On Friday, October 16, 2020, I joined a panel at the 2020 Hawaii State Bar Association Virtual Convention on Regulatory Takings After Knick.  I was surrounded by takings luminaries, but I held my own with an introduction to the Penn Central Test.  Here it is.

Penn Central Regulatory Takings from Jesse Souki

Hawaii Supreme Court Defines "Potable" and "Brackish" Water -- Resort Allowed to Water its Golf Course

The Hawaii Supreme Court has been creating new real estate and land use law over recent months, e.g., HawaiiUSA Fed. Credit Union v. Monalim, No. SCWC-16-0000807 (Apr. 30, 2020) (changing foreclosure math; concurring and dissenting opinion by Nakayama, J. in which Recktenwald, C.J., joins); and Haynes v. Haas, No. SCWC-16-0000570 (May 5, 2020) (expanding public nuisance damage awards).

The latest is Lana’ians for Sensible Growth v. Land Use Comm’n, No. SCOT-17-0000526 (Haw. May 15, 2020) (concurring in the judgment and dissenting by Recktenwald, C.J., in which Nakayama, J., joins).  In this case, the central issue is what the state land use commission ("LUC") meant by its 1991 condition of approval in a district boundary amendment issued by the LUC to Lanai Resorts, LLC, which allowed it to build a golf course.  

Specifically, Condition 10 provides:

10. [The Resort] shall not utilize the potable water from the high-level groundwater aquifer for golf course irrigation use, and shall instead develop and utilize only alternative non-potable sources of water (e.g., brackish water, reclaimed sewage effluent) for golf course irrigation requirements.

Several challenges by Lana’ians for Sensible Growth ("LSG") ensued on various aspects of Condition 10.  The question before the court in the instant case is whether the LUC erred in its follow up 2017 order concluding that the Resort did not violate Condition 10 based on the quality of water the Resort was using. 

The court disagreed with how the LUC defined “potable” and “brackish” water.  The court, at length, opined on what it considered the plain meaning of those terms.  Ultimately, the court concluded that its definition of these terms resulted in the same conclusion the LUC arrived at in its 2017 order.  In other words: No harm, no foul.  

The minority disagreed with the court's departure from the record:

The LUC’s conclusions are supported by the record and correctly apply the law. The Resort’s use of brackish water from Wells 1 and 9 did not violate Condition 10, nor does such a reading of the Condition violate the public trust doctrine.

[ . . . ]

The majority, however, defines potable in reference to “county water quality standards.” This reading ignores the terms of the Condition, for “county water quality standards” appears nowhere in it. Because the majority creates a standard contrary to the text of the Condition, deprives the Resort of fair warning of its ongoing obligations under the LUC’s Order, and provides little useful guidance to the Resort for future water use, I respectfully dissent.

In the end, the same conclusion is reached by the majority and minority:  The LUC’s June 1, 2017 LUC order is affirmed.  

The challenge going forward for drafters is that courts may go beyond the four corners of an administrative order to find meaning even though, as the minority points out in this case, the terms at issue are defined in the order.

Hawaii Supreme Court Changes Longtime Method of Calculating Foreclosure Deficiency Judgments

In a 3-2 decision, decided on April 30, 2020, in Hawaiiusa Federal Credit Union v. Monalim, the Hawaii Supreme Court took the opportunity to rewrite foreclosure law from the bench. 

The Concurring and Dissenting Opinion (Nakayama and Recktenwald) summarizes the issue:

The Majority adopts a new rule that will change Hawai‘i’s traditional method of calculating deficiency judgments. Under the new rule, mortgagors are entitled to a hearing to determine the “fair market value” of a property at the time of a foreclosure sale. The circuit court will be required to calculate the amount of the deficiency judgment based on a new formula in which the greater of the “fair market value” or the court-confirmed sale price will be deducted from the outstanding debt.

The Dissent opines that the facts of this case do not support the adoption of the Majority’s new rule:

First, I believe that by rationalizing the adoption of this new method based on the possibility that the deficiency amount in other foreclosure cases could be inequitable, the Majority oversteps the authority entrusted to this court to determine, in each case, if the law was applied correctly to a specific set of facts. The Majority should exercise judicial self-restraint in this case and leave the decision of whether or not to enact this new rule to the Legislature. Second, the new rule will require the court to select from the fair market value estimations of competing experts. The additional time and expense of this process will unnecessarily burden both the parties to foreclosure actions and the courts. Finally, the new rule will not, as the Majority avers, protect both parties to the mortgage.

Noting that the “vast majority of jurisdictions which have chosen to adopt the new rule have done so by legislative action,” the Dissent concludes:

Given courts’ relative lack of expertise on these policy considerations, the new rule should not be adopted through judicial activism. It should be left to the Legislature to determine whether enacting the new rule will truly serve the State’s best interests.

In practical terms, this new judicial rule will be good for debtors, bad for lenders, and bad for new Hawaii homeowners.  First, compared to other states, Hawaii residents seek larger mortgages for purchasing homes in Hawaii’s high-priced market.  As lenders apply more stringent requirements in response to the cost of recovering defaults based on the above decision, scrutiny on loan applicants will increase making it more difficult for borrowers to qualify.  Second, in addition to the Dissent's points, one might also question whether this change by the court was required now, rather than by the legislature, since Hawaii ranks in the middle of pack (2019) when it comes to the rate of foreclosures among states.  Third, this new rule will not improve Hawaii's record among states as the longest average time to foreclose.  Under the new rule, the question of fair market value becomes a fact issue that will take more of the court's time and increase costs and fees to resolve.