Is Total Payout of $11 Million Enough For Condemned Land at Ma’alaea Harbor?

posted in: September 2019 | 0

On June 27, 2013, the state of Hawai‘i deposited $4.165 million with the 2nd Circuit Court. The action was the first step toward condemning about an acre of land adjoining Maui’s Ma‘alaea harbor that the state had been leasing since September 1994 from Don Williams. At the time, 11 years remained under terms of the lease.

In October 2013, Williams withdrew the deposit and paid off the mortgage on the property. From that time forward, the state ceased its rent payments to Williams of nearly $1,000 a day over the last 17 years. Lease rent alone from the commencement of the lease until condemnation came to roughly $7 million.

At the moment, the method by which the value of the land at condemnation was calculated is pending before the Intermediate Court of Appeals.

Should the amount the state paid to Williams in 2013 be upheld, the total amount of money the state will have shelled out to Williams since 1994 comes to more than $11 million, or eight times his initial investment of $1.35 million. Should it not be upheld, Williams’ return on investment could be much, much higher.

According to Maui County, the assessed value of the 1.1-acre property comes to just under $2.1 million. The county, incidentally, still lists the Williams Op- portunity Trust as landowner, with the state as lessee.

In October 2018, Judge Rhoda L.L. Loo of the 2nd Circuit issued a judgment based on stipulated facts, thereby allowing for an immediate appeal by Williams of the method by which the state arrived at the land’s value used in the condemnation proceedings.

In court filings in 2017, the state admitted it had erred in setting the estimated condemnation value at $4.165 million. The appraised value in June 2013 was just $3.115 million. In determining the estimated value, the state had considered the value of the remaining term of the lease with Williams. “There is no sugar-coating the fact that the state deposited the higher estimated amount of $4,165,000.00 incorrectly, proceeding on the assumption that valuation would be based on Williams’ leased fee interest rather than the lesser value of the undivided fee,” the state wrote in a filing with the ICA in July.

Still, in the stipulation, the state agreed to up its valuation of the unencumbered land to the amount that Williams had received in 2013. “This means that even if the [ICA] appeal were unsuccessful, Williams would not owe any excess deposit back to the state,” deputy attorney general Daniel Morris wrote in the state’s reply to the appeal brief.

But that $1 million excess payment – excess, in any case over what the state claimed was the value of the fee simple land – is not sufficient for Williams.

In the appeal of the 2nd Court judgment, Williams’ attorney, Robert Thomas, lists two “points of error” in arguing that “Don Williams is being treated even worse than the usual condemnee.”

The first is that the date of the original appraisal was not the same date as the condemnation action was filed. The appraisalwas dated June 17, 2013, while the condemnation action was filed June 27, 2013.The fact that Judge Loo did not consider this 10-day discrepancy significant is not“harmless error,” Thomas writes. When the law says that “condemned property be valued ‘at the date of summons,’ it means the date of summons,” Thomas writes (emphasis in original). “Not even a day earlier, nor a day later.”

Thomas also disputes the state’s claim that the land’s value should not include the future income stream that would be received by Thomas if the lease were to remain in effect. The lease itself, he argues, is included in the “state of title” he said. Leases themselves are “compensable property” and “when taken, just compensation must be paid.”

Morris, the deputy AG representing the state, takes exception to Thomas’s insistence that the date of the appraisal must match exactly the date the condemnation action was filed. “This is common sense: even if Hallstrom’s [the appraiser’s] opinion of value is solely for a date nine days prior to the date of summons, his expert testimony of value on that date is surely relevant, because [Hawai‘i Rules of Evidence] 401 defines relevance broadly enough to include evidence ‘having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.”

As for any consideration of the value of the remaining term of the lease, Morris points to the language of the lease itself. In a clause addressing what should happen in the event of condemnation, the lease states, “this lease shall cease and terminateas of the date the Lessee is required tovacate the premises, and any rent reserved shall be apportioned and paid up to that date.” Thus, Morris argues, “Williams had no contractual right to compensation for a future income stream from the lease itself because the lease (and its contractual income stream) ended when the state took possession, precisely as Williams bargained for when he drafted the lease.”

With regard to Thomas’s claim that the lease is “compensable property” whose taking without compensation is a constitutional violation, Morris counters: “Williams also had no constitutional right to compensation for loss of the incomestream … because consequential andcontract damages are not recoverable components of just compensation under Fifth Amendment law.”

Thomas filed a reply to the state on August 19. He repeats his argument that a date of valuation “reasonably close” to the statutory date of summons “is inadmissible. Second, he reiterates the claim that under the Fifth Amendment, “any effects of the condemnation itself” – in this case, the termination of the lease – “be excluded.”

In effect, he says, the state is arguing that the remaining lease term has no effect on the property’s value. “Somehow, the present value of the unexpired lease term – which an arm’s-length buyer who could not force acquisition of the property by condemnation … would undoubtedly consider as being a vital component of the property’s value – has, by the state’s calculus, simply disappeared: it is not part of the property’s value in condemnation, nor is the state liable for breach of contract. … [W]here did the decade-plus of rental income the state was unquestionably obligated to pay under its lease go?” Patricia Tummons

For Further Reading

Environment Hawai‘i has published numerous articles on the state’s lease of the Ma‘alaea land.

  • “Boating Division Lease at Ma‘alaea Costly to State, While Serving No Use;” “Terms of Ma‘alaea Lease Tend to Favor Owner over State;” “Land Under Lease by State was Owned by Scientologists;” “The Ma‘alaea Mystery: Why?” (Editorial), November1996;
  • “DOBOR Staff Admits Ma‘alaea Lot a Boondoggle,” Board Talk, November 1997;
  • “Boating Division Tries to Buy Ma‘alaea Lot,” Board Talk,October 2001;
  • “Whatever Happened to …the State’s Lease of Land atMa‘alaea Harbor?” January2004;
  • “Whatever Happened to DOBOR’s Lease of Land at Ma‘alaea?” June 2010;
  • “State Prevails in PreliminaryRound of Ma‘alaea Condemnation Proceeding,” May 2017.

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