Wednesday, January 3, 2024

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. 

Kakaako Station
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.”

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