High Court Ruling Favors ‘Aina Le‘a On Question of Statute of Limitations

posted in: January 2021 | 0

The Hawai‘i Supreme Court has rendered a decision that closes a chapter in the ongoing litigation over the planned ‘Aina Le‘a development.

On December 17, the court ruled that the statute of limitations under a “catch-all” provision in state law is six years – a ruling that allows a 2017 lawsuit brought by DW ‘Aina Le‘a Development, LLC, against the state to move forward.

DW ‘Aina Le‘a (DWAL) is the predecessor owner of most of the thousand-plus acres of land in the South Kohala district of the Big Island where a large urban development has been proposed since the late 1980s. Despite the longevity of entitlements, for the most part, the land still looks much like it did at the time the state Land Use Commission first placed it into the state Urban land use district. About the only difference is the presence of several buildings in the more mauka part of the tract erected a decade ago in a rush to fulfill a condition set by the LUC to show the landowner’s sincere intent to comply with affordable housing requirements.

When the LUC determined that DWAL had not met that condition, it voted to revert the land use classification to Agricultural. Bridge ‘Aina Le‘a, the company that owned most of the land at that time, appealed, arguing the LUC did not follow its own statutes and rules for redistricting. The judge hearing the case in 3rd Circuit Court, Elizabeth Strance, determined that the reversion was invalid. On appeal, the state Supreme Court disagreed with part of Strance’s findings, but upheld it on the key issue, and the land was returned to the Urban district.

Notwithstanding the fact that the land it was intending to develop was back in the Urban district, in 2017, DWAL sued the LUC, claiming damages of $200 million. The reclassification, it argued, increased the purchase price of the property DWAL was required to pay to Bridge, destroyed its “sophisticated funding arrangement” with Asian investors for developing the property, and caused the company to have other increased costs and lost business opportunities.

The state removed the lawsuit to federal court, where Judge Susan Oki Mollway determined that the lawsuit was untimely, since it was filed more than two years after the alleged injury.

Mollway’s decision relied upon a prior decision of the state’s Intermediate Court of Appeals, Maunalua Bay Beach Ohana 28 v. State. On appeal to the 9th Circuit, however, the appellate court found that the Maunalua case was contradicted by the state Supreme Court’s ruling in Kaho‘ohanohano v. State.

Before making any determination on the merits of the case before it, the appellate court decided, on March 7, 2019, to have the state Supreme Court weigh in on the subject of what statute of limitations should govern.

The state pressed its case for the two-year statute of limitations, based on HRS §661-5 and §657-7. DWAL argued for six years, relying on a “catch-all” provision for claims not governed by other statutes, HRS §657-1(4). And an amicus, the Owners Counsel of America, suggested the limit should be 20 years, relying on the state’s law on adverse possession (HRS §657-31).

In its December ruling, the court found that DWAL’s claims were based on Article 1, Section 20 of the Hawai‘i Constitution, which states: “Private property shall not be taken or damaged for public use without just compensation.” Because this clause does not contain the phrase that it applies “as provided by law,” the court’s ruling states, the clause is therefore self-executing “and needs no further legislation to facilitate a private right of action.”

In conclusion, all five Supreme Court justices agreed: “the statute of limitations for a takings claim under the Hawai‘i Constitution is six years pursuant to HRS §657-1(4).”

What next?

The case now returns to the 9th Circuit and then probably back to federal court in Honolulu. But, as one of the sources close to the litigation said, “What exactly happens depends on a couple of decision points by those courts.”

County Added to Lawsuit

Meanwhile, ‘Aina Le‘a, Inc., the successor to DWAL as the parent company developing the property, is being sued by Iron Horse Credit, LLC. That’s the company whose $5 million loan in 2019 allowed ‘Aina Le‘a to emerge from bankruptcy. Since June, Iron Horse claims in the lawsuit it filed in 3rd Circuit Court on October 13, ‘Aina Le‘a has been in default. Iron Horse is seeking an order allowing it to foreclose on ‘Aina Le‘a’s property, which it pledged as collateral.

In its reply, filed November 29, ‘Aina Le‘a deflected blame for its inability to perform on the loan to the County of Hawai‘i and its planning director, who has insisted that ‘Aina Le‘a prepare a new environmental impact statement for its proposed development.

The next day, Mike Matsukawa, ‘Aina Le‘a’s attorney in this case, filed with the court a third-party complaint against the county and then-Planning Director Mike Yee.

That complaint argues that ‘Aina Le‘a should never have been required to prepare a supplemental EIS for its project.

What’s more, the very fact that ‘Aina Le‘a had to enter bankruptcy is placed on the county’s shoulders. In 2017, the planning director issued a stop-work order after discovering that ‘Aina Le‘a’s contractors were on site and working on the affordable housing site. That stop-work order, Matsukawa writes, “caused the third-party plaintiff, ‘Aina Le‘a, Inc., to seek bankruptcy protection.”

Many of the same arguments had been brought by ‘Aina Le‘a in a lawsuit filed against the county last March. As Environment Hawai‘i reported last month, there had been no new filings in that case following the ruling by Judge Robert Kim against ‘Aina Le‘a’s motion for partial summary judgment.

But on December 11, four days after Mayor Mitch Roth was sworn in, the county and Lulana Gardens, the subsidiary of ‘Aina Le‘a that filed the complaint, filed a stipulation with the court.

“The parties plan on starting settlement negotiations, which could lead to the resolution of this case,” they stipulated. They then asked the court to postpone any ruling on the county’s motion to dismiss “until the parties file a second stipulation which will either resolve the case or ask the court to issue a ruling on the county’s motion to dismiss.”

As reported elsewhere in this issue, Robert Wessels, CEO of ‘Aina Le‘a, donated $3,000 to Roth’s campaign, while ‘Aina Le‘a donated $1,000.

— Patricia Tummons

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