The Hawai“i Supreme Court recently delivered a ruling that affirms the right of the counties to enforce regulation of coastal development against claims that regulation amounts to an unconstitutional taking.
The case, Douglas Leone v. County of Maui, stems from the apparent effort of Douglas Leone, one of the richest men in the country, and his wife, Patricia Perkins-Leone, to acquire permits to build a single-family residence on an oceanfront lot in Makena, Maui.
The lot was one of nine that Maui County had wanted to purchase in 1996 to create a park at Palau‘ea beach. The county ultimately purchased just two of them and the remaining lots, including the one the Leones would buy, were sold to private parties.
All the lots were zoned “hotel-multifamily,” which allows for single-family residences. In 1998, the county approved the Kihei- Makena Community Plan that designated the lots as “park” land.
In 2000, the Leones purchased the lot for $3.7 million. Within four months of the purchase, they listed it for sale at $4.75 million. Two years later, without having sought any permits for improvements on the property, they listed it for sale at $7 million and then reducing the asking price to $5.95 million. Two offers came in — one for $4.5 million, another for $4.6 million — and were rejected.
In 2004, a consultant hired by the Leones undertook preparation of a draft environmental assessment, a preliminary step in any application for the requisite Special Management Area permit. The consultant, Munekiyo & Hiraga, Inc., stated that the owner “intends to file a community plan amendment and change in zoning application with the County of Maui, Department of Planning for review by the Maui Planning Commission, and final action by the Maui County Council to achieve land use consistency for the parcel. Since a community plan amendment will be sought, the applicant will submit a draft environmental assessment.” A short time later, Munekiyo was instructed by the Leones to stop its efforts. As the consultant explained in an inter-office memo, Douglas Leone “felt that the political climate is much too difficult to be seeking any land use entitlements for the property…”
Three years passed before Munekiyo was asked to resume work on the permit. In September 2007, the firm submitted to the county Planning Department an SMA assessment application to start the permitting process for a house. As county deputy corporation counsel Brian Bilberry noted in argument before the Supreme Court, though, the required shoreline survey that accompanied the application was five years out of date, the proposed swimming pool was placed in the shoreline setback area (not allowed), cultural remains on the property had not been properly addressed, and the applicant didn’t even include a check for the filing fee. “Clearly, they were not looking for approval,” he told the justices.
“It was evident from the county’s perspective that the application was not serious,” Bilberry told Environment Hawai‘i. “It was submitted as a pretext for the Leones to pursue their legal claims.” Buttressing that view was the fact that the Leones’ real estate lawyer appeared to know the deputy planning director would return the application. As the county argued, “the letter returning the application was requested so that the Leones’ lawyer could stake out a legal position with the Maui Planning Commission.” However, instead of appealing to the Planning Commission, the Leones went to Circuit Court, claiming that the refusal to process their deficient application itself resulted in a taking of their lot.
In their initial court filing, the Leones sought punitive damages of $50 million in addition to payment for the loss of their lot, which they valued at $12.5 million, or more than three times the $3.7 million they paid for it in 2000. The $50 million claim was thrown out, but they pressed forward with the lower claim for the loss of use and/or the value of their property.
Judge Joseph Cardoza of the 2nd Circuit Court originally dismissed the claim, agreeing with the county that the Leones had options other than seeking remedies through the courts. “First, plaintiffs may still proceed with a new application via an appropriate submission. Plaintiffs are still free to seek amendment to the [Kihei-Makena Community Plan]… Such proposed amendment could be submitted concurrently with a new SMA assessment application… Plaintiffs still have the ability to … and apply for a Special Management Area use permit….”
In March 2009, the Leones appealed to the Intermediate Court of Appeals, which found that the Leones were not required to apply for an amendment to the community plan before bringing their case. In June 2012, the ICA vacated Judge Cardoza’s order and remanded the case to the lower court.
The county and attorneys for the Leones engaged in efforts to arrive at a settlement, but those talks bore no fruit. Finally, in 2015, the case went to trial before a jury.
The trial lasted 23 days, from March 30 through May 5, on which day the jury returned a verdict that found the county did not deprive the Leones of any economic use of their property and did not deprive the Leones of any constitutional right. In addition, the county was awarded more than $40,000 in costs.
The Supreme Court Case
The Leones appealed and the state Supreme Court agreed to hear the case directly. Oral argument was made in January. And on October 16, the justices issued their order.
The Leones had raised four points on appeal:
• That the lower court should not have allowed Ted Yamamura, an appraiser with decades of experience in Maui County, to testify as to the economic value of the lot. “[G]iven Yamamura’s considerable experience and expertise in appraising real property, and specifically Maui real property, the circuit court did not abuse its discretion in allowing Yamamura to testify as an expert witness.”
• That three of the instructions to the jury were erroneous. After reviewing the arguments presented by the Leones’ attorneys on these claims, the justices rejected them all.
• That the Circuit Court should have overturned the jury verdict as a matter of law. “The Leones assert that the evidence presented at trial permitted only one reasonable conclusion: The county’s regulation of the Leones’ property constituted a taking for which they are owed just compensation,” the high court noted. “A motion for judgment as a matter of law can be granted only when ‘it can be said that there is no evidence to support a jury verdict in the [non-moving] party’s favor.’ Additionally, a court must give to the non-moving party’s evidence ‘all the value to which it is legally entitled’ and to indulge ‘every legitimate inference which may be drawn from the evidence in the non-moving party’s favor.’” After a quick review of the evidence presented to the jury, the justices “conclude that there is evidence to support the jury’s verdict… Accordingly, the circuit court did not err in denying the Leones’ motion for judgment as a matter of law.”
• That the award of costs to the county was in error. “Because we affirm the circuit court’s judgment, the Leones’ argument that the circuit court erred in awarding costs to the county is unavailing,” the high court found.
During the jury trial, the wealth of the plaintiffs was specifically not allowed to be raised. However, in giving context to the dispute, it is worth noting that Douglas Leone, managing partner of the venture capital firm Sequoia Capital, is one of the richest men in the world. As of last month, Forbes put his net worth at $3.3 billion.
The Palau‘ea area is one of great historical and archaeological value, as former Maui County Council member Dain Kane testified. The remains of an ancient Hawaiian fishing village are found in a 20-acre cultural preserve just mauka of the beach lots. Human remains are known to occur on several of them, which has required other landowners to obtain approvals from the Maui Burial Council and State Historic Preservation Division before building houses on their lots.
Finally, in arguing for the loss of the value of their property, the Leones noted that in September 2011, a storm surge “came up over the coastal dunes and into their property and left debris much further inland than it had been before. The debris line creates a shoreline and since the debris line came so much farther inland than it had before, the Leones were unable to build.”
In a footnote to the Supreme Court order, the justices go on to note that the Leones claim to have applied for a shoreline certification in January 2014 but were told by the Department of Land and Natural Resources that the DLNR had to consider historical evidence in making any shoreline determination. “The Leones contended that, because of the 2011 storm and the court’s decision in Diamond [v. Dobbin], the shoreline setback on the property would have overlapped the front yard setback, leaving no buildable area on the property. At this point, the Leones withdrew their shoreline certification application.”
State regulations on how shorelines should be determined, however, exclude debris lines created by storms or tsunamis: “‘Shoreline’ means the upper reaches of the wash of the waves, other than storm or seismic waves, at high tide during the season of the year in which the high wash of the waves occurs, usually evidenced by the edge of vegetation growth, or the upper limit of debris left by the wash of the waves.”
— Patricia Tummons