$1 Million Settlement of `Aina Le`a Case Is Rejected in Final Days of Legislature

posted in: June 2017 | 0
Work was found to be ongoing at the `Aina Le`a site when Hawai`i County conducted an inspection last August. Credit: Hawaii County Planning Department

The long-awaited settlement of a multi-million dollar lawsuit against the state Land Use Commission was signed in February. Lawyers from both the Attorney General’s office and the company that, for a while, proposed to develop the Villages of `Aina Le`a on the Kohala Coast of the Big Island had signed on to a settlement calling for the state to pay $1 million rather than risk an uncertain and possibly very expensive outcome should the lawsuit, claiming up to $30 million in damages and violations of due process rights, have proceeded in federal court.

The t’s were crossed, the i’s dotted. All that remained was for the Legislature to appropriate the sum needed to pay off the settlement.

That didn’t happen.

House Bill 1022, which made appropriations for “claims against the state, its officers, or its employees,” did not include any amount for settling the lawsuit brought by Bridge `Aina Le`a, LLC, when it was drafted, since the agreement was signed only after the Legislature began.

When the bill went to the Senate Judiciary and Labor Committee on March 22, testimony from Attorney General Douglas Chin asked that a number of additional claims be added to the bill, including the $1 million `Aina Le`a settlement, to be paid for out of general funds.

The lawsuit stemmed from the Land Use Commission’s decision in 2011 to revert the `Aina Le`a land, subject of a redistricting petition in the late 1980s, back to the Agricultural District, given the failure of the developer to complete 385 affordable housing units, one of the conditions of approval. By the LUC’s deadline, “the only ‘affordable housing’ at the site was several incomplete multi-unit dwellings that did not have utilities and could not actually be used,” the AG’s testimony stated.

“The LUC found as a matter of fact that this work did not constitute ‘substantial commencement with the affordable housing requirement. The [state] Supreme Court reversed, reasoning that $20 million of planning and other preparation constituted ‘substantial commencement.’ … Bridge’s lawsuit claimed that the improper reversion was a temporary regulatory taking requiring payment of just compensation. The state agreed to the settlement shortly before trial in federal court.”

Apparently, members of the Judiciary and Labor Committee, including its chairperson, Sen. Gilbert Keith-Agaran of Maui, were not convinced that the deal was a good one for the state. The draft that emerged from Keith-Agaran’s committee allotted just $1 for the settlement. “Your committee has concerns regarding the general fund appropriation amount of $1,000,000 for Bridge `Aina Le`a v. State of Hawai`i Land Use Commission … and notes that reducing the requested amount to $1.00 will encourage further discussion as this measure moves through the legislative process,” the committee report stated.

Next stop in the legislative process was the Senate Ways and Means Committee, chaired at the time by Senator Jill Tokuda. (In the final days of the session, Tokuda was replaced by Donovan Dela Cruz, with Keith-Agaran now vice-chair of Ways and Means as well as chair of Judiciary and Labor.)

At a meeting of the committee on April 4, Chin appealed for the restoration of the full amount to the `Aina Le`a settlement.

“Bridge `Aina Le`a brought this lawsuit against the Land Use Commission (LUC) and individual commission members alleging that when the LUC changed the classification of the subject property on Hawai`i Island from urban to agriculture, it constituted a regulatory taking that required just compensation,” Chin said. “Bridge `Aina Le`a was seeking approximately $29 million in damages. The Department [of Attorney General] believes that a settlement of $1 million is in the best interests of the state because, if plaintiff prevailed at trial, the award would almost certainly be a much larger amount.”
Tokuda’s committee restored full funding to the settlement.

The bill then went to conference to iron out the substantial differences between House and Senate versions. Representing the lower chamber in the conference were Scott Nishimoto and Sylvia Luke, chair of the House Finance Committee. The Senate appointees were Keith-Agaran and Tokuda.

On April 26, the conferees met, releasing their version of the bill two days later. Missing from the list of approved settlements was any mention of `Aina Le`a.

The amended bill was passed on May 2 and transmitted to the desk of Gov. David Ige, where it awaits his signature.

The state informed Susan Oki Mollway, senior judge of the U.S. District Court in Honolulu and the judge presiding over the `Aina Le`a case, that the agreement had not been funded by the Legislature. She has set a scheduling conference for 4 p.m. on June 2, so that the trial can proceed.

In response to a query from Environment Hawai`i, Keith-Agaran explained his actions in this way: “I had concerns about that particular settlement when the claims bill was heard in the Judiciary and Labor Committee. Unfortunately, the deputy attorney general who appeared at the hearing could not answer some of my specific questions so to flag the issue, I included the claim but with a $1 amount as a ‘marker’ or ‘placeholder.’

“The Attorney General’s office did meet with me about the claim subsequently to discuss the LUC position and the litigation, and I let the Ways and Means chair know that I was okay with the claim going forward for further consideration in conference. In conference, conferees still had concerns about settling a claim where it appears the Land Use Commission was within its authority to take some action to enforce the developers failure to meet conditions of the LUC’s approval of the project.”

Environment Hawai`i also sought comment from Rep. Luke. She did not respond by press time.

Another Puzzle

The `Aina Le`a settlement was not the only one that missed the final cut in HB 1022. Last August, the state reached an agreement to settle two closely related cases – Ah Chong et al. v. McManaman and Sheehey, et al. v. State of Hawai`i – involving the rate at which foster parents would be paid.

Among other things, the agreement called for the state to make restitution of $2,341,103 to foster parents who provided care between August 17, 2015, and March 5, 2017. It also required the state to pay $1.1 million in legal fees to the firms representing the plaintiffs – fees that, according to a report by Susan Essoyan in The Honolulu Star-Advertiser, were heavily discounted. In addition, the settlement called for increasing future payments to foster parents as high as $776 per month per child, resulting in total outlays of state and federal funds of $6.9 million a year for the next two years, Essoyan reported.

On May 12, Chin and Claire Wong Black of Alston Hunt Floyd & Ing, one of several firms representing the plaintiffs, notified U.S. District Judge Leslie E. Kobayashi in a joint status report of the Legislature’s failure to approve the settlement. “The case will instead proceed to trial,” they wrote.

A scheduling conference has been set in that case for June 20, at 10 a.m.

A Changed Settlement Strategy

Aside from the lack of funding for these two settlements, House Bill 1022, in its final form, differs significantly not only from the bill as first drafted but also from measures in past years that paid for legal claims against the state.

In most cases, the settlements are paid with appropriations from the state’s general fund, that pot of money that awaits the Legislature’s instruction as to how it is to be spent – as opposed to special funds earmarked for one or another purpose or grant monies directed to specific state programs.

HB 1022 began life in this fashion as well, with all the judgments, settlements, and claims to be paid out of general funds except for those brought against the Department of Transportation. The DOT has special funds for harbors, highways, and airports; it is able to reach into those to pay three settlements totaling $15.843 million made against it. Among the claims is one for $10.08 million to pay subcontractors hired by DCK Pacific, the company hired to build a cargo and maintenance hangar at Honolulu International Airport. DCK Pacific was pulled off the job after a series of problems in 2015, leaving many of its subcontractors unpaid.

In its final form, however, just $3,843 in miscellaneous claims is to be paid out of newly appropriated general funds. Of the remaining $17,887,484, all but $2,045,465 is to be taken from DOT special funds.

What’s left after this is just over $2.045 million in claims against the Department of Human Services ($1,189,348); Department of Public Safety ($643,000); Department of Education ($51,000); Department of Land and Natural Resources ($93,000); and the Campaign Spending Commission ($69,116).

In each case, the final House Bill 1022 reaches into the agencies’ appropriation for the current (through June 30) fiscal year, apparently identifying unspent funds in specific accounts. For example, in the case of the Department of Education, one claim of $30,000 is to be paid out of the DOE’s account for charter schools (totaling $76 million), while another for $21,000 is to come from the line reflecting funds for public schools based on enrollment (with $1.421 billion in general funds).

The entire 2016-17 budget for the state Land Use Commission comes to just under $600,000. If the ability to pay for claims is to come from previous year budgets, the LUC is SOL.

As to the source for funding settlements, Keith-Agaran told Environment Hawai`i that this is something that has been discussed in the past: “I recall the Legislature suggesting back in the Cayetano administration that the departments responsible for the claim should pay the claim,” he said. The use of department special funds to pay claims has been long-standing practice.

“The Legislature has rejected claims in the past,” he continued. “I am also told one year the entire claims bill was rejected. All settlements are subject to legislative appropriation.”

The Legislature did add $5 million to the litigation budget of the Department of the Attorney General this year. This, Tokuda told the Star-Advertiser, was to send a signal that the attorney general would be better able to fight off legal challenges.

“We need to make sure that the attorney general takes very seriously those claims that come against us,” she was reported to have said, “… so that people realize that if they challenge us, even those [claims] that are frivolous, that we will take that seriously.”

— Patricia Tummons

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