Nukoli'i Owner Brings Federal Suit Against Kaua'i Over Limit on Hotel Units

posted in: October 2012 | 0

A county charter amendment approved by Kaua`i voters in 2008 is being challenged in federal court. Kaua`i Beach Villas – Phase II, LLC (KBV), alleges that the amendment and an implementing ordinance, passed by the County Council in 2011, interfere with the company’s “distinct and reasonable investment-backed expectations,” that they “substantially and negatively affect the value and use of the property,” and that its “constitutionally protected property rights” have been abridged.

The charter amendment was put on the ballot as a consequence of a petition effort launched by a group called the Coalition for Responsible Government. The petition noted that between 2000 and 2007, the county Planning Commission had granted approvals for more than 4,000 units intended for tourists – and “if each of these approved units is constructed, the resulting growth rate would be more than 4 times the high end of the growth range in the November 2000 Kaua`i County General Plan.”

It also stated that the rate of growth in transient accommodations on Kaua`i “has already surpassed the capability of the county’s infrastructure.” Growth beyond that contemplated in the General Plan, it continued, “would create detrimental impacts in areas” such as traffic congestion, police, fire, and emergency services, park use, potable water demand, and the like.

To curb such growth, the petition called for strict limits on future construction of transient accommodation units, or TAUs. They included requiring the County Council to enact a “rate of growth ordinance” limiting the increase in the number of TAUs to no more than 1.5 percent a year.

The charter amendment passed overwhelmingly, with nearly a two-to-one margin of victory.

It took nearly three years for the County Council to adopt an enabling ordinance. The resulting legislation, Ordinance 912, carves out an exception to the restrictions for “any resort projects which are under construction or where substantial sums have been expended on such projects in reliance on or pursuant to” earlier ordinances that may have authorized them. Apart from such projects, the ordinance limits the number of permits to be issued for new TAUs over the five-year period from 2012 to 2016 to 5.1 percent of the number of units included in the county’s inventory of visitor accommodations at the end of 2008 – or 252 units.

Nukoli`i Redux

As described in another article that appears in this issue, the land that is proposed for this development has been the subject of heated dispute going back nearly four decades.

A hotel and condominiums (Kaua`i Beach Villas) were built in the 1980s on the northern half of the 58-acre parcel that was put into the Urban district in 1974. The remainder of the land was kept in an undeveloped state, with ownership retained by Pacific Standard Life Insurance Co., a subsidiary of the Southmark Corp. After Southmark filed for bankruptcy protection in 1989, Pacific Standard was essentially placed in receivership. In March 1990, its remaining 33.9 acres of land in Nukoli`i was sold to Haseko for $5.1 million.

In 2005, Haseko sold the land to KBV for $5.2 million. At the time, the county General Plan described the area as planned “for resort use,” with a total allowable density of “680 multi-family units or 1,360 hotel units.” The General Plan also noted, however, that the 34 acres, then owned by Haseko, “needs state Land Use Commission re-districting to Urban.” Appropriate county zoning also needed to be obtained.

The land had been proposed (and approved) for inclusion in the Urban land use district during the 1975 state land use boundary review process. At that time, it was part of a larger 66-acre parcel, of which 58 acres were placed into the Urban district, with the remainder, along the coast, going into Conservation. The redistricting came with a caveat: at the recommendation of the Kaua`i Planning Commission, the approval called for “substantial completion of development to take place within 5 years… Non-performance shall be a basis for reversion to former classification.”

In the eyes of the county General Plan, at least, the undeveloped land had been reverted to its “former classification” of Agriculture. In the eyes of the LUC, however, and absent any petition for reversion, the land remained Urban. As of September, county zoning for the parcel was “open” and “agriculture.” According to a Planning Department employee, the agency has not received any application to upzone the land.

(The federal complaint seems to put the cart before the horse on the question of redistricting. “In accordance with the General Plan,” it states, “the state Land Use Commission placed most of the property in the Urban district.” The General Plan referred to in the complaint was drafted 25 years after the second state boundary review commission prepared its report, which was the basis for the Urban designation of the Nukoli`i land.)


In the complaint, Gregory K. Markham of Chee Markham & Feldman, attorneys for KBV, attempts to link the proposed development to the earlier one on the adjoining land at Nukoli`i. “The property,” the complaint states, “was planned for the final phase of a development project comprising approximately 60 acres of contiguous land.” But in the rezoning ordinance, adopted in 1979, just 25 acres were approved for inclusion in the county’s resort district (RR-20).

The ordinance “also imposed several exactions,” the complaint goes on to say, “including a $500,000 in-lieu fee for recreational facilities and outright contribution for [the] first phase for the unrestricted use of the county.” Other “exactions” related to traffic improvements, more than three miles of new water mains, and a pump in a county well.

Markham argues that the exactions imposed by the rezoning ordinance “were for the development of the complete 60-acre project. If the exactions had not been for the development of the complete 60-acre project, many of the exactions would have been unconstitutional.” To date, he writes, KBV and previous owners “have expended substantial sums to complete the project, including approximately $5 million in improvements for the county.”

According to the complaint, the ballot question in the 2008 referendum did not accurately describe to voters the question put to them. “The county did not inform voters of the inconsistencies between the Charter Amendment and the General Plan,” it states. “On the contrary, the county inaccurately titled the proposed amendment ‘RELATING TO IMPLEMETATION OF THE GENERAL PLAN’ ” and did not give voters an accurate description of the measure, in violation of charter language.

‘Futile and Irrelevant’

The charter amendment limiting new TAUs does provide for exceptions, if they meet the definition of already “permitted projects” or are deemed to be “eligible resort projects.” Under Ordinance 912, “permitted projects” are those that received all necessary zoning, use permits, subdivision approvals, and variance permits before December 5, 2008.” An “eligible resort project” is one that received zoning before December 5, 2008 and is in a zoning district approved before that same date.

On April 26, 2012, the complaint states, the developer applied for an exemption of 400 units to be built on the property. The application was denied by the planning director, Michael Dahilig, on June 1. He determined that the development “is not an Eligible Resort Project” and that an “exemption from the TAU Certificate process cannot be considered.”

“Solely to forestall any misplaced argument that KBV was required to ‘exhaust’ administrative remedies or ‘ripen’ its claims,” the complaint states, KBV appealed the director’s decision to the Planning Commission. A hearing officer was appointed, but, according to the federal complaint, no hearing had been scheduled as of August 27, when the complaint was filed.

In any case, Markham writes, “the appeal is futile and irrelevant.” The federal court, he continues, “should not wait for the resolution of the appeal before deciding KBV’s facial challenges” to the charter amendment and its implementing ordinance.

The company asks the court to find that both are “unconstitutional and invalid on their face,” for an injunction against the county enforcing them – not only with respect to KBV’s property but all other property owners in the county, and for the company’s fees and costs.

(In early September, the county attorney’s office had not been served with the complaint, and therefore had no comment. County Planning Director Michael Dahilig was off-island “for several weeks,” according to his office staff. No one else was available to answer questions. A Uniform Information Practices Act request seeking documents filed by KBV was filed but still pending at press time.)

Patricia Tummons

Volume 23, Number 4 — October 2012