Appeals Court Hears Arguments in 2001 Pila'a Reef Damage Case

posted in: December 2012 | 0

The end may be near for a decade-old case involving the largest fine ever levied by the state Board of Land and Natural Resources.

After five years in stasis, the Intermediate Court of Appeals finally heard oral arguments on October 10 on the appeal of Pila`a 400, LLC, of a 5th Circuit Court ruling. That ruling upheld a 2005 Land Board decision to fine the company $4 million for damages to the reef at Pila`a Bay on Kaua`i’s North Shore resulting from grading and other activities on 400 acres owned by the company.

Judging by the court’s questioning of Pila`a 400 attorney Wesley Ching, Ching’s arguments –nearly identical to those he made before the Circuit Court and during the Land Board’s contested case hearing — may again be falling flat.

The state already has a lien on Pila`a 400’s land. Whether it remains depends on the ICA, or possibly, the state Supreme Court. Given that Pila`a 400 manager James Pflueger has already paid more in federal fines and restoration costs than the $6.7 million he paid for the property in 1997, an appeal to the Supreme Court (should the ICA uphold the Circuit Court’s decision) would be no surprise.

After the Flood

Heavy rains in November 2001 washed tons of mud from Pila`a 400 property onto the beach and across the reef, nearly smothering the home of kuleana landowners Rick and Amy Marvin along the way.

A plateau on Pila`a 400’s property had been extensively and illegally graded by the land’s previous owner, Pflueger Properties. Both companies are owned and operated by Pflueger. (Pila`a 400 is no longer a company in good standing, according to the state Department of Commerce and Consumer Affairs.)

In August 2003, the Land Board fined Pflueger and his two companies $8,000 for unpermitted work in the Conservation District. In addition, the board imposed damages, to the tune of $1,000 per square foot of damaged coral at Pila‘a. The total fine came to nearly $6 million.

During the ensuing contested case hearing over the damages portion of the fine, Pflueger and Pflueger Properties were dropped from the enforcement action — at Pila`a 400’s request — since Pila‘a 400 was the owner of the property at the time of the mudslide.

In late 2004, contested case hearing officer Mike Gibson recommended a fine of $2.3 million to be held in trust and used to remediate the company’s property. Gibson noted in his recommendation that Pila`a 400 was going to have to spend several million dollars remediating its property to resolve a separate enforcement action for Clean Water Act violations. (That case involved the state Department of Health and Attorney General’s office, the federal Environmental Protection Agency, Kaua`i County, the Limu Coalition, and the Kilauea Neighborhood Board Association. It culminated in a consent decree filed in U.S. District Court in June 2006.)

On behalf of the Department of Land and Natural Resources, deputy attorney general William Wynhoff vehemently opposed Gibson’s recommendation. Allowing the fine to offset remediation costs would be tantamount to mooting any penalty, he argued, and Pila`a 400 should be required to fix its own property at its own expense. The Land Board agreed.

The board ultimately fined Pila`a 400 just over $4 million, to be paid to the DLNR: $3.333 million in damages to the Conservation District and $700,000 in monitoring and administrative costs.

“Economic and use (market) values alone cannot and do not capture the full value of Pila‘a,” the Land Board’s decision and order stated. “Economic valuation alone understates the true social loss from natural resource damage.”

In calculating the amount of damages, the board considered the impact to the intrinsic and commodity values of the bay, as well as reef restoration and beach cleanup costs, among other things.

On July 27, 2005, Pila`a 400 appealed the decision to the 5th Circuit Court. In December 2006, Judge Kathleen Watanabe ruled that the Land Board’s fines were reasonable and that no procedural errors had occurred during the contested case.

The Arguments

In its appeal to the ICA, Pila`a 400 regurgitated many of the same arguments it presented to Watanabe:

Because the mud that flowed into the ocean came from Pila`a 400’s property in the Agriculture District, the DLNR lacked jurisdiction to seek damages under Conservation District statutes and rules.

The DLNR did not reveal until the end of the contested case hearing — just before final arguments — that it was intending to seek damages under an administrative rule prohibiting the dumping of solid material in the Conservation District without a permit (HAR 13-5-24). Therefore, Ching argued, the department violated Pila`a 400‘s due process rights. Mud is not a solid material, he told the court.

The DLNR lacked administrative rules to levy fines for damages to state land.

The Land Board lacked the authority to penalize Pila`a 400 for land use violations that occurred before the company owned the property.

The Land Board’s fine amount was not supported by the record in the contested case.

Ching also argued that Watanabe should have vacated the Land Board’s decision because the matter was resolved in June 2006, when the U.S. District Court approved the consent decree regarding the Clean Water Act violations.

To this, deputy attorney general Russell Suzuki pointed out in a brief to the ICA that the consent decree was entered nearly a year after the Land Board issued its final decision. (Suzuki represents the Land Board in this case. Deputy attorney general Wynhoff represents the DLNR.)

What’s more, Suzuki added, the state Department of Health and the DLNR are separate departments. “Neither department is authorized to enforce the other department’s laws,” he wrote.

With regard to Ching’s complaints that Pila`a 400 failed to receive adequate notice, Suzuki observed that the contested case hearing notice stated that the hearing would deal with “an enforcement action involving the alleged damage to state lands and natural resources due to excessive sedimentation at Pila`a.”

The notice also stated that the hearing would be held pursuant to chapters 91 (regarding contested case hearings) and 183C (regarding the Conservation District) of Hawai`i Revised Statutes, and chapters 13-1 (DLNR practices and procedures) and 13-5 (Conservation District) of Hawai`i Administrative Rules.

The notice did not specifically refer to HAR 13-5-24. Even so, the notice satisfied requirements of HRS Chapter 91, Suzuki wrote.

“The notice refers to the statute and rules involved by chapter. Nothing more is required,” he wrote. He added that if Pila`a 400 wanted more information, it could have asked for a more detailed statement of charges (a ‘bill of particulars’) – and “not wait three years and claim, on appeal, that it needed more information.”

“If appellant somehow felt it was in the dark (which of course it did not), its remedy was to apply for a bill of particulars. Having failed to do so, it cannot now argue that the notice was inadequate,” he wrote.

“The idea they didn’t realize the issue was about destroying the reef struck me as being rather disingenuous,” Wynhoff told the ICA.

Both Wynhoff and Suzuki argued that it does not matter what land use district the mud came from.

“I fail to see how it makes a difference that [the mud] came from the Ag District. … What if they dug it from the Ag District and dumped it on the reef? Would that make a difference?” Wynhoff asked the ICA. “The fact of the matter is, dumping intentionally or causing it to slide into the Conservation District is a land use.”

Regarding Ching’s argument that the Land Board cannot issue a fine for damages absent administrative rules, Suzuki argued in his brief that because of the myriad ways state land can be damaged, it would be impossible to devise a single rule prescribing a methodology for quantifying damages. Determining damages must be made on a case-by-case basis, he wrote.

Finally, Wynhoff ridiculed Pila`a 400‘s attempt to shirk its liability in the case. The company’s claim that “it is not liable because Plflueger Properties did it shows the quality of their arguments,” he told the court. “Liability for physical harms is with the possessor of land,” he said. Pila`a 400 itself had argued that point successfully in the contested case.

“To now come back and continue to argue that Pila`a 400 is the wrong person is wrong,” Wynhoff said.

Probing Questions

Coincidentally, one of the three appellate judges assigned to review the case was former DLNR director and Land Board chair Mike Wilson. (Alexa Fujise and Randal Lee were the others.) During oral arguments, Wilson asked most of the questions and, at times, almost seemed to be arguing the case on the state’s behalf.

Wilson asked Suzuki what legal authority allows the Land Board to make a damages determination on something as intangible as cultural value.

“That’s a tough question. … I would say that the board is required to exercise their responsibilities to make a determination and the reviewing standard that you would apply would be, was their decision an abuse of their discretion?” Suzuki replied.

When Wilson pressed him about whether the Land Board included damages to intrinsic (i.e., cultural and recreational) values in its fine, Suzuki said, “I didn’t really look at that particularly. … I think they were looking at restorative cost to rehabilitate the reef. I think that was the standard that applied.”

Wilson then directed similar questions to Ching. For example, is intrinsic value something susceptible to determination by the Land Board?

Ching replied that Pila`a 400’s expert economist, John Dixon, had addressed intrinsic value during the contested case hearing, stating that intrinsic value is hard to measure. And if it could be measured, “it’s very small,” Ching said.

“So, he did consider that in his valuation. That’s why I wanted to get your viewpoint on the appropriate, if you will, decision-maker for intrinsic value,” Wilson said.

Wilson then referred to a case from the 1950s where a fisherman sued Lihu`e Plantation over runoff damages. A jury decided that case. In the Pila`a case, it was the Land Board determining damages, acting as a sort of konohiki or group of elders, Wilson said.

“Theoretically, they’re the spokespeople for the community on certain issues and, in this case, I guess we would concede, intrinsic value. Certainly, Mr. Dixon was in a position where he was conceding there should be intrinsic value,” Wilson said.

“So that brings me to the issue about valuation being susceptible to rule making. How is it you would anticipate the Land Board members would make a decision on intrinsic value? And wouldn’t it seem that they would be a more appropriate group to do so, perhaps, than a jury that hasn’t been selected through the Constitution, through the intent of the Legislature to have certain groups speak on behalf of natural resources and enforce the law in order to protect the resource?” he asked Ching.

The Land Board could have adopted Dixon’s damages calculation or one of the figures offered by the state’s expert, which reached into the tens of millions of dollars. Instead, Wilson continued, the Land Board members made a determination based on the record and on consultation amongst themselves.

“I’m interested in your thoughts as to whether that was a legally appropriate process to follow,” Wilson asked Ching.

“That goes back to our lack of rule making,” Ching replied. When he tried to explain what factors – in addition to intrinsic value – the Land Board should have taken into account, Judge Lee interrupted.

“Are you suggesting that the board didn’t consider multiple factors when they rendered their decision?” Lee asked.

“What we’re saying is they didn’t articulate those factors,” Ching said, adding that the board certainly didn’t take into account the remediation Pila`a 400 was doing to its property.

“Wouldn’t you fairly conclude that the board … took the effort to listen to all of the experts, and looked at the extent of the damage, and that you could reasonably conclude from their award that they did consider these factors?” Lee asked.

Again, Ching stated that the Land Board did not articulate what factors it took into account.

The ICA had not issued a decision in the matter by press time.

For Further Reading

For more background on this case, read the following articles available on our website, www.environment-hawaii.org

“EPA Imposes Largest Fine Ever for Runoff Violations in North Kaua`i,” April 2006;

BOARD TALK: “Pila`a 400 Appeals Fine for Coral Reef Damage,” September 2005;

BOARD TALK: Pflueger Company Is Fined $4 Million For Reef Damages at Pila‘a Bay, Kaua‘i,” August 2005;

BOARD TALK: “$2.3 Million Fine Is Proposed For Reef Damage at Pila‘a Bay,” March 2005;

“Pflueger Contested Case Overshadows Additional Problems at Pila`a Sites,” November 2003;

BOARD TALK: “Contested Case to Resolve Pflueger Damages to Pila’a,” October 2003;

“At Pila`a, Kaua`i, A Reshaped Landscape Sparks Litigation,” August 2003;

BOARD TALK: “Honda Magnate Bulldozes Kaua`i Bluff, Causing Mud to Blanket Pila`a Bay,” September 2002.

Teresa Dawson

Volume 23, Number 6 — December 2012

environment hawaii james pflueger pilaa bay kauai rick amy marvin board land natural resources intermediate court appeals william wynhoff wesley ching russell suzuki

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