Appellate Court Overturns Judge’s Ruling Allowing Kaua`i Water Bottler to Operate

posted in: June 2013, Water | 0

In a recent decision regarding the Kaua`i Planning Commission’s denial of a Koloa water bottler’s use and zoning permits, the Intermediate Court of Appeals has reaffirmed that county agencies are bound by the state Constitution to protect the public trust and that statements in general plans and zoning codes requiring the protection of water resources aren’t just platitudes.

On April 30, the ICA vacated a 2008 ruling by the 5th Circuit Court, which had found that two of the three permits Kaua`i Springs, Inc., sought from the Planning Commission should have been automatically approved. The higher court also vacated the lower court order that the third permit be issued, as well.

The issue was remanded back to the Planning Commission, with instructions that it make appropriate assessments and require reasonable measures to protect water resources.

“[B]ecause Kaua`i Springs seeks to use the water for economic gain, this case requires that the Planning Commission give the permit application a higher level of scrutiny and, although Kaua`i Springs’ use of the water is not illegal or improper per se, Kaua`i Springs carries the burden to justify the use of the water in light of the purposes protected by the public trust,” the court wrote.

The ICA had not finalized its ruling by press time. Once a final judgment is issued, Kaua`i Springs has 30 days to appeal to the Supreme Court. Attorney Robert Thomas, who represents the company, said it had not yet decided whether to appeal.

“We were obviously disappointed. We think the appeals court got it wrong,” he told Environment Hawai`i.

In the meantime, Kaua`i Springs continues to operate under an injunction against the county imposed by the 5th Circuit Court, which the county did not oppose.

Big Plans

Kaua`i Springs owner James Satterfield first got the idea to bottle the island’s water in 1992 after hurricane Iniki caused a massive power outage. He noticed a line of cars parked at Kahili mountain in Koloa, where a spring, tapped more than a century ago for sugar and now owned by Grove Farm, supplies about 50 to 60 customers with fresh water.

“They were loading up until pumps were back up. That’s when I said, we gotta bottle this. We gotta be bottling our own water,” says Satterfield, who once ran a water bottling company in Alaska.

In 2003, with a 15-year license from Makana Properties, LLC, for land with access to the eight-inch pipeline that taps the Kahili spring, Satterfield applied for and received a building permit and Class IV zoning permit from the county to build a 1,600-square-foot “watershed,” which consisted mainly of two shipping containers connected by a roof.

The county planner who processed the applications testified later that the shed “looked … like any other ag building at the time.”

“However, the ‘watershed’ was actually a semi-automated water-bottling facility capable of filling at least 1,000 five-gallon bottles per day,” the county wrote in its opening brief to the ICA.

Once the state Department of Health issued Kaua`i Springs a permit to bottle water in July 2004, Satterfield, his wife, and their five sons began operations.

After they had been bottling water for about two years, the county received a complaint — allegedly from an employee from an O`ahu water bottler — that Kaua`i Springs was illegally operating an industrial facility on agricultural land. Satterfield argued to the county Planning Department that water bottling was an agricultural use. The county disagreed and required him to apply for a special use permit to operate a bottling facility in the Agriculture District. Because the property is zoned for agriculture and open space, he also had to apply for a county use permit and a Class IV zoning permit.

On May 15, 2006, the Planning Department issued a cease-and-desist letter to Makana Properties, stating that unpermitted industrial processing and packaging was occurring on the property.

Faced with being shut down, Kaua`i Springs eventually submitted the required permit applications on July 5, 2006. Satterfield later testified before the Planning Commission that he planned to increase his production substantially, from about 2,500 gallons a week to 35,000 gallons a week.

The commission first took up the matter of Kaua`i Springs’ permits at its August 8, 2006, meeting. As it struggled to get some basic scope-of-operations information, as well as answers to complex water-related legal issues, the commission delayed decision making meeting after meeting.

“At this point there is no limit on how much water I can extract that I know of in any document that we have written out,” Satterfield told the commission at one point. He added that he did not plan to ship any water off Kaua`i “until we have saturated the island.”

In written testimony opposing the permits, Maka`ala Ka`aumoana, vice chair of Hui Ho`omalu I Ka `Aina, pointed out that Kaua`i Springs receives its water from Grove Farm, which is not authorized by the state Public Utilities Commission to purvey water.

In response to an inquiry from the Planning Department, the PUC stated that, given what little information it had on the case, it was unlikely that Kaua`i Springs would need PUC regulation, although Grove Farm, on the other hand, might.

Ka`aumoana also stated that the counties, as subdivisions of the state, have an obligation to conserve and protect Hawai`i’s natural resources, including water. And her sentiments were supported by the Hawai`i Supreme Court. A little more than a week before the Planning Commission began deliberations on the permits, the Hawai`i Supreme Court ruled in Kelly v. 1250 Oceanside Partners that counties, as subdivisions of the state, have public trust duties with regard to water.

To determine what, if any, water-related permits Kaua`i Springs needed, the Planning Department consulted with the state Commission on Water Resource Management. The Water Commission is responsible for generating the state’s Water Plan and allocating waters within designated management areas. Since Kaua`i has no such areas, Kaua`i Springs would not need a permit from the Water Commission unless the operation induced more water to flow from the spring or modified the source of the water, the commission’s Dean Nakano stated in a letter to the Planning Department. Nakano also stated that “ground-water withdrawals from this project may affect stream flows, which may require an instream flow standard amendment.”

To appease some of the concern over his expansion plans, Satterfield offered to limit his water use to 1,000 gallons a day, which would still allow him to more than double his output at the time.

Over the course of the Planning Commission’s deliberations throughout the latter half of 2006, the deadlines to decide on two of the permits — the county use permit and the Class IV zoning permit — came and went. Without assent from Kaua`i Springs to extend those deadlines, the permits would have been automatically approved.

The automatic approval deadline for the special use permit was January 31, 2007.

With equivocal advice from the PUC and the Water Commission about Kaua`i Springs’ operation, an automatic approval deadline looming, and little to no experience dealing with water issues, the Planning Commission voted on January 23, 2007 to deny all three permits.

In its Decision and Order, the commission wrote, “In view of comments received from CWRM and PUC, the land use permit process should insure that all applicable requirements and regulatory processes relating to water rights, usage, and sale are satisfactorily complied with prior to taking action on the subject permits. The applicant … should also carry the burden of proof that the proposed use and sale of the water does not violate any applicable law administered by CWRM, the PUC or any other applicable regulatory agency.

“There is no substantive evidence that the applicant has any legal standing and authority to extract and sell the water on a commercial basis.”

Satterfield asked the commission to reconsider its decision, but the commission denied his request at its February 15 meeting. He sought an appeal from the county and in March was again denied. So he turned to the 5th Circuit Court. On May 15, 2007, Circuit Judge Kathleen Watanabe granted him a preliminary injunction against the county.

The Appeal

“Under the pressure of a looming deadline when the last of three zoning permit applications submitted by Kaua`i Springs, Inc., would be automatically approved by operation of law, the Kaua`i Planning Commission cobbled together a hasty denial,” wrote Thomas and Mark Murakami, attorneys for Kaua`i Springs, in their April 2008 appeal of the Planning Commission action to the 5th Circuit Court.

“[The Planning Commission] … based its denial on criteria wholly outside of its jurisdiction and competence, and wrongly concluded it had the authority to deny the zoning permits because it believed Kaua`i Springs ‘extracts and sells’ water,” they wrote. The commission should have limited its deliberations to whether or not Kaua`i Springs’ operation was in “harmony with its neighbors on land zoned ‘Agriculture’ and ‘Open,’” they argued.

In any case, they wrote, the county use permit and Class IV zoning permit were automatically approved on October 18, 2006, and November 2, 2006, respectively.

They also argued that the letters to the Planning Commission from the PUC and Water Commission proved that both agencies “disclaimed any interest in Kaua`i Springs.”

Judge Watanabe agreed with them on all points.

With regard to automatic approvals, Kaua`i Springs’ attendance at and participation in all of the Planning Commission hearings did not constitute a waiver of any deadlines, she wrote in her September 17, 2008, order.

“[T]he record in this case is devoid of any evidence that Kaua`i Springs’ existing or proposed uses might affect water resources subject to the public trust,” she continued, adding that no evidence was presented that the company didn’t carry its burden to show it was entitled to its permits.

She ordered the commission to issue all three permits immediately and made the preliminary injunction permanent.

ICA Appeal

On October 30, 2008, the Planning Commission filed a notice of appeal with the ICA.

“In this case, the court must decide whether a county agency may deny land-use permits for an activity involving the commercial exploitation of an unregulated ground-water resource, when the permit applicant fails to establish a legal right to remove and distribute waters subject to the public trust. Appellee, an ambitious water-bottling company with big aspirations to profit from Kaua`i’s limited fresh-water resources, is attempting to circumvent the constitutional, statutory and common-law requirements standing in its way,” the county’s attorneys wrote in their opening brief. To assist in this case, the county retained David Minkin and Christopher Bayne from the firm of McCorriston Miller Mukai MacKinnon, LLP.

“The Planning Commission attempted to reconcile its duty to both evaluate appellee’s land-use application and protect Hawai`i’s water resources by seeking input from other state agencies tasked with water regulation. After carefully evaluating appellee’s application, the Planning Commission concluded that appellee failed to meet its burden of proof that the use of water was legal,” they wrote.

During the course of its deliberations, the Planning Commission was unable to get definitive answers from Kaua`i Springs or the Knudsen Trust, which owns the cave where the spring is located, on how much water is diverted. The scope of Kaua`i Springs’ operation also remained unclear, with Satterfield twice amending his proposed operating capacity at the commission’s meetings.

“As late as the November 14 and 28, 2006, hearings, commission members were still uncertain about the number of hours appellee intended to operate in its facility on a daily basis and whether the water used was subject to chlorination,” the county’s attorneys wrote.

With regard to Watanabe’s conclusion that two of the permits Kaua`i Springs sought were automatically approved, they pointed out that language in the county code requires only assent from the applicant, not a waiver. And by its conduct at the Planning Commission meetings, Kaua`i Springs had, in fact, assented to an extension, they argued.

“‘Assent’ is defined as ‘verbal and nonverbal conduct reasonably interpreted as willingness,” they wrote, citing Black’s Law Dictionary.

Not only did Satterfield and his attorney attend and participate in all of the Planning Commission’s hearings, they negotiated conditions for the county use permit more than a month after the approval deadline. Such action “could only be construed by the Planning Commission as a willingness on the part of appellee to delay a final decision on the matter,” the county’s legal team wrote.

Amicus Briefs

Given the public trust issues involved, the Office of Hawaiian Affairs and and two environmental groups — Hawai`i’s Thousand Friends and Malama Kaua`i — filed amicus briefs in the case.

OHA’s attorneys, Ernest Kimoto and John Van Dyke, argued that Kaua`i Springs was not entitled to the permits because the administrative process failed to evaluate the impact of the operation on traditional and customary native Hawaiian rights in accordance with the Hawai`i Supreme Court decision on Ka Pa`akai O Ka`aina v. Land Use Commission.

Earthjustice attorney Isaac Moriwake, representing Hawai`i’s Thousand Friends and Malama Kaua`i, added in his brief that simply consulting with other agencies does not fulfill the Planning Commission’s public trust duty to protect water resources.

“Regardless of the statutory authority granted to other agencies, including CWRM and PUC, [the Kaua`i Planning Commission or KPC] remains subject to the constitutional public trust doctrine.

“Moreover, in this case, no other state or county agency besides KPC exercised jurisdiction over Kaua`i Springs. KPC sought input from both CWRM and PUC, and both declined to act at the time. Thus, even if Kelly did not already reject the notion that KPC could pass off its public trust duties to other agencies, no other agency was willing to take any responsibility. This compelled KPC all the more to fulfill, and not abandon, its trustee obligations,” Moriwake wrote.

ICA Opinion

After hearing oral arguments on March 14, 2012, the ICA issued a 51-page opinion on April 30 largely in favor of the county.

With regard to the automatic approval issue, the ICA agreed with the county that Kaua`i Springs’ actions could reasonably have been interpreted as assent.

The ICA noted that the parties in the case don’t dispute that the county has public trust duties, but disagree on the scope of those duties and the applicable standards for the three permits.

To determine those, the ICA looked to the county zoning code, general plan, and state land use law. With regard to the zoning code, which governs county use and zoning permits, it states that the permits may be granted only if the Planning Commission finds that the permitted activity “will not cause any substantial harmful environmental consequences on the land of the applicant or on other lands or waters, and will not be inconsistent with the intent of the [zoning ordinance] and the General Plan,” which contains some broad language in its vision statement about the county playing a role in protecting the island’s waters.

The state’s land use law, Chapter 205, governs special use permits. The purpose of Chapter 205 is, in part, to conserve natural resources, including water, the ICA noted.

“Therefore, the Planning Commission’s public trust duty under [the state Constitution], coupled with the state’s power to create and delegate duties to the counties, establishes that the Planning Commission had a duty to conserve and protect water resources in considering whether to issue the special permit to Kaua`i Springs,” the ICA wrote.

Despite having clear standards, the Planning Commission failed to apply them, the ICA found.

“The Planning Commission essentially required Kaua`i Springs to prove that its water usage — and the sale of the water by the Knudsen Trust and Grove Farm’s operation of the water system — were legal and met all potentially applicable regulatory requirements. No concerns are articulated in the Planning Commission Order related per se to Kaua`i Springs’ water bottling operation or its particular use of the water,” the ICA wrote.

Raising the Bar

Although the company hasn’t decided whether to appeal the ICA decision to the state Supreme Court, for now, the ruling is seen by some as a victory for the state’s water resources.

“I think it’s significant in raising the bar for planning agencies across the state. Now everyone’s on notice you can’t put blinders on towards the effect of these planning agencies’ actions on the environment, [and] in this particular case, water,” Moriwake said of the decision.

“As far as water bottling goes, that’s a large issue that remains unresolved. It seems like the issue of can a company stick a straw in the ground and start selling the water is problematic on various levels — the environmental protection aspect [and] … selling a public resource as well. This case really didn’t resolve that,” he added.

For Satterfield, who says he is currently operating at his proposed capacity of 1,000 gallons per day, the case has been a waste of tax dollars, as well as his own.

“We’ve been operating the business for 10 years without complaint … and no quantity-of-water issues,” he says. Throughout the appeals process, he added, “we have been suppressed. If they [his competition] wanted to stifle us, they did a good job.”

Kaua`i county officials did not respond to questions by press time.

Whether counties or the state will ever develop a policy on water bottling remains to be seen.

“The Water Commission itself has not faced this issue,” says commission director William Tam.

In 2008, then-state Rep. Mina Morita introduced a bill that would have taxed water bottlers, with the proceeds going toward invasive species control. The bill morphed into one that instead would have funded water protection and planning efforts by the state and counties, but eventually died.

Last year, then-state Sen. Shan Tsutsui and six other senators introduced a bill to prevent taking and bottling water from any local source for export without a permit from the Water Commission. Currently, the commission only issues permits for withdrawals within designated water management areas.

The bill passed first reading, but went nowhere and received no written testimony.

That’s just as well, says Tam.

“There wouldn’t be a basis for a permit unless it was a designated area. It would be an awkward way to handle things,” he told Environment Hawai`i.


Volume 23, Number 12 June 2013

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