Hawaii Supreme Court Decision Reaffirms Government Duty to Protect Public Trust

posted in: April 2014, Water | 0

“We ended up on the short end of this opinion…. Minds immeasurably superior to ours will have to do the analysis on this one, at least for now,” wrote Honolulu attorney Robert Thomas in a recent post on his blog, inversecondemnation.com.

After a decade of bottling mountain spring water in Koloa, Thomas’ client, Kaua`i Springs, Inc., lost its fight for the Use, Special, and Class IV Zoning permits it needs to operate.

On February 28, in a 107-page decision, the Hawai`i Supreme Court found that the Kaua`i Planning Commission had properly denied the permits in January 2007. However, the court directed the commission to clarify the findings and conclusions of its Decision and Order so they are consistent with the court’s decisions regarding the protection of public trust resources.

Like its 2006 decision in Kelly v. 1250 Oceanside Partners, which involved marine pollution caused by excessive grading, the court’s Kaua`i Springs decision reaffirms that the public trust doctrine requires state and county agencies – not just the Commission on Water Resource Management – to “take the initiative in considering, protecting, and advancing public rights in [trust resources] at every stage of the planning and decision-making process.”

Furthermore, the court found, agencies must determine whether proposed water uses are reasonable and beneficial, and applicants carry the burden to prove the proposed use won’t affect a protected use. (Protected uses include the traditional and customary Hawaiian practices, the maintenance of waters in their natural state, and municipal drinking water, among other things.)

How does the ruling affect future decisions by government agencies that deal, even in small, tangential ways, with water?

For now, Thomas is mum on the subject, and with regard to how it affects his client, he also has little to say.

“In cases that aren’t finally resolved, I try not to say too much. If the court resolved it, I might have more to say,” he says. “Obviously, we’re disappointed. … It was not to be.”

Whether or not he agrees with the decision, it’s the law now, he says.

Throughout the appeals process, Kaua`i Springs has continued to bottle water under an injunction against the county ordered by 5th Circuit Judge Kathleen Watanabe.

How the Supreme Court’s decision affects the operation is unclear.

“We’ll have to figure that out with the Planning Commission,” Thomas says. “This has gone on so long now … a lot of people who were on the county side may not be there.”

In an email, Kaua`i County public information officer Beth Tokioka states that the Kaua`i Planning Department is still reviewing how the decision affects the continued operation of Kaua`i Springs.

She adds, however, that the Supreme Court’s decision “makes it clear that all state and county agencies that make decisions that affect water and its uses must proceed through a public trust analysis so as to ensure that such uses protect the public trust resource and are reasonable and beneficial….

“As outlined in the [decision], the county took its public trust duties very seriously in this case as it does in all cases. The county is highly aware of its public trust duties and obligations under the law and … remains committed to ensure that any decision it makes regarding water and its uses complies with its obligation under the public trust.”

Water Commission director William Tam predicts that the Supreme Court’s decision may lead to some “difficult procedural issues.”

With counties now apparently having to analyze things like alternative soruces of water and determining what reasonable and beneficial uses are when reviewing things like zoning permits, counties may start asking the Water Commission for advice, he says.

“It will heighten the water-land relationship,” he says.

The Water Commission was scheduled to discuss the Kaua`i Springs case at its March 21 meeting.

In 2003, Kaua`i Springs obtained building and zoning permits from the county for a 1,600-square-foot “watershed.” A year later, the state Department of Health granted it a permit to bottle water. The Garden Island newspaper shortly thereafter ran a feature story on Kaua`i Springs, a new entry in the local water bottling market that until then had been dominated by O`ahu-based water bottlers.

Under a licensing agreement with the EAK Knudsen Trust, Kaua`i Springs takes water from a spring in Kahili mountain that has been diverted miles away to a tank owned by Grove Farm Company. The trust owns the land surrounding the spring as well as the transmission system that delivers the water. Grove Farm operates the system, and its water tank serves Kaua`i Springs as well as dozens of residences.

Water that is not used overflows the tank into Waihohonu Stream.

Spurred by a complaint, allegedly from an employee of an O`ahu water bottler, the Kaua`i Planning Department in 2006 issued a cease and desist letter to Kaua`i Springs’ landlord, Makana Properties, charging that industrial processing and packaging were occurring on the property, which lies in the state Agricultural District, without the necessary permits.

After some initial resistance, Kaua`i Springs applied to the county for a Use permit, a Special permit, and a Class IV zoning permit.

During the commission’s hearings on the permits, Kaua`i Springs owner Jim Satterfield testified that he planned to increase production from 2,500 gallons a week to 35,000 gallons a week. He went on to say that there was no limit on how much water he could extract.

The Planning Commission asked the state Water Commission and the Public Utilities Commission whether either of those agencies would require Kaua`i Springs to apply for permits for its operation. The Water Commission said it might require permits under certain circumstances, such as if the source of the water had been modified (as it apparently had been). The PUC said Grove Farm might be required to obtain authorization to sell water as a public utility, but Kaua`i Springs would probably not.

As the Planning Commission continued to seek more information from Kaua`i Springs, the deadlines to decide on the Use permit and the Class IV Zoning permit passed. The commission planned to decide on all three permits by the Special permit’s approval deadline, January 31, 2007.

Given the PUC’s and Water Commission’s advice, and the limited information provided by Kaua`i Springs, the Planning Commission denied the permits on January 23 of that year.

In its Decision and Order, the commission wrote that the land use permit process should “insure that all applicable requirements and regulatory processes relating to water rights, usage, and sale are satisfactorily complied with prior to taking action on the subject permits. The applicant … should also carry the burden of proof that the proposed use and sale of the water does not violate any applicable law administered by CWRM, the PUC or any other applicable regulatory agency.”

The Planning Commission found that Kaua`i Springs failed to provide any substantive evidence that it had the authority to extract and sell the water.

Satterfield appealed to the 5th Circuit Court, which on April 30, 2007, found in his favor and granted him a preliminary injunction against the county. Circuit Judge Watanabe ordered the Planning Commission to issue the permits.

A year ago, the Intermediate Court of Appeals vacated Watanabe’s decision, but still found that the Planning Commission’s decision was “arbitrary and capricious.” The ICA remanded the case with instructions on how to better review the permits in light of the Planning Commission’s duty to protect public trust resources.

“[T]he Planning Commission’s public trust duty under [the state Constitution], coupled with the state’s power to create and delegate duties to the counties, establishes that the Planning Commission had a duty to conserve and protect water resources in considering whether to issue the special permit to Kaua`i Springs,” the ICA found.

Despite standards set forth in the Kaua`i General Plan, zoning ordinances and the state’s land use law requiring the protection of water, however, the Planning Commission failed to apply them, the ICA found. The Planning Commission merely focused on whether Kaua`i Springs’ water use was “legal and met all potentially applicable regulatory requirements,” it stated in its decision.

Automatic Approvals
Last November, the Supreme Court heard oral arguments in the case. In its final decision, the majority of the Supreme Court supported some of the ICA’s findings and disagreed with others.

The court’s decision first addressed whether the Use and Class IV Zoning permits had been automatically approved when the Planning Commission failed to decide on them in time. Kaua`i Springs argued that they had been approved. The ICA and the Supreme Court, however, found that Kaua`i Springs had, by its actions and behavior, assented to a time extension.

The ICA had focused on the fact that the company and its representatives had continued to negotiate on permit terms, and that Kaua`i Springs had even amended its permit application, then retracted the amendment, after approval deadlines had passed. The Supreme Court, however, found that the ICA erred when it used Kaua`i Springs’ post-deadline behavior as evidence of assent.

Assent must occur before an automatic approval deadline, and in this case, Kaua`i Springs had assented to an extension before the deadlines for the Use and Class IV Zoning permits, the court found.

“[B]oth Kaua`i Springs and the Planning Commission treated the application for the three permits as comprising a consolidated application request. In accordance with this understanding, the parties agreed, as repeatedly evidenced by their conduct, that the Planning Commission would be required to render a decision on the consolidated application by January 31, 2007, which was the latest deadline possible for the Special Permit,” wrote Justice Richard Pollack in the majority decision.

Kaua`i Springs needed both the Special permit and the Use permit to operate in the Agriculture District. Thus, “[f]rom the Planning Commission’s position, it would have been illogical and impractical to decide separately upon the Use Permit and Special Permit, given the similarity of the permits’ requirements,” he wrote.

Arbitrary and Capricious
The Supreme Court majority also disagreed with the ICA’s conclusion that the Planning Commission’s decision was arbitrary and capricious. In the ICA’s view, the Planning Commission’s requirement that Kaua`i Springs prove that its proposed use complies with all applicable laws administered by the Water Commission, the PUC, or other applicable regulatory agencies created “an obscure and indefinite burden of proof.”

Kaua`i Springs had similarly argued that the public trust doctrine doesn’t empower agencies to deny applications based on a simple lack of information that is “within its [the agency’s] power to obtain, thus shifting the burden to the applicant.”

However, the Supreme Court found, “a lack of information from the applicant is exactly the reason an agency is empowered to deny a proposed use of a public trust resource.” And in this case, it stated, Kaua`i Springs failed to prove it had the legal authority to put to commercial use a public trust water resource.

“There is also no indication in the record of the substance of any water purchase agreement, nor of the water supplier’s right to make the public trust resource commercially available,” the decision states.

The Planning Commission had identified specific permits or authorizations Kaua`i Springs might need from the Water Commission and the PUC, the decision continues.

“The Planning Commission correctly imposed on Kaua`i Springs the burden to demonstrate the propriety of its proposed use of the public trust resource, which, under the circumstances of this case, required Kaua`i Springs to demonstrate that any necessary permits and applicable regulations from the Water Commission and PUC were complied with,” the decision states.

Thus, the court concluded, the Planning Commission’s decision was neither arbitrary nor capricious.

Those seeking a commercial use of water use can’t simply say a use is grandfathered or get some sort of perfunctory response from agencies and that’s the end of it, says Earthjustice attorney Isaac Moriwake. Arguments Moriwake raised in an amicus brief in the case, filed on behalf of Hawai`i’s Thousand Friends and Malama Kaua`i, closely track those made by the Hawai`i Supreme Court.

“In so many cases in land development, despite questions, [agencies] just punt, issue a permit subject to conditions that never get enforced and are practically meaningless,” he says.

In the Kaua`i Springs case, the responses the PUC and Water Commission gave to the Planning Commission were inconclusive, Moriwake says.

“At that point do they sweep it under the rug and keep it hanging? … To the Kaua`i Planning Commission’s great credit, they didn’t just try to sweep this under the rug.”

In backing the Planning Commission’s denial of Kaua`i Springs’ permits, the Supreme Court’s opinion clarifies that under a trust fiduciary duty, that kidh of business as usual is unacceptable, he says.

Dissent and a Rebuttal
The Supreme Court’s decision was not unanimous. Chief Justice Mark Recktenwald issued a 13-page dissent in the case.

“This case requires us to address how [the public trust doctrine] should be applied by governmental entities other than the Commission on Water Resource Management, in light of our decision in Kelly,” Recktenwald wrote.

He pointed out that the ICA had considered the role of the Kaua`i Planning Commission first, then assessed additional duties imposed by the public trust doctrine.

The ICA decision directed the Planning Commission to simply make “appropriate assessments and require reasonable measures to protect water resources.”

“In contrast,” Recktenwald wrote, “the majority’s approach requires that the applicant prove that all potentially applicable regulatory requirements, including those applicable to third parties not under the applicant’s control, have been satisfied.”

The majority’s decision would require Grove Farm “to seek a declaration from the PUC on its status as a utility,” he continued. “It is unclear … how that additional regulatory review will further the purposes of the public trust doctrine. And, if Grove Farm decides not to pursue it, Kaua`i Springs’ application will be at an end.”

Recktenwald also pointed out that the Planning Commission did not seek a decision supporting its denial of the permits. Rather, the commission had agreed with the ICA’s decision to remand the matter, and with the court’s directions on how to evaluate the permits.

“[T]he majority is crafting an outcome that neither party sought,” he wrote.

To Recktenwald, the majority’s decision went too far.

“There are a large and diverse array of agencies that might issue permits or approvals that could in some way affect a water resource. Would the Kaua`i building division, in considering a request by Kaua`i Springs for a permit to expand its facility, be obligated to consider Kaua`i Springs’ use of the water that would be processed in the expanded facility? What if Kaua`i Springs sought to add a second floor to its processing facility, and wanted to install an elevator to access it – would the Boiler and Elevator Inspection Branch of the Department of Occupational Safety and Health be required to consider the impact of granting an elevator installation permit on water use issues? The answers presumably would depend on the extent to which those agencies had a regulatory interest in water use. Thus, starting the analysis with an examination of the agency’s regulatory mandate, as suggested by the ICA, makes sense,” he wrote.

The seemingly extreme examples Recktenwald posed don’t seem to concern Moriwake.

“That’s the job of dissents …. You throw out the parade of horribles [to try to illustrate] that this rule, left to its ultimate conclusion, is going to result in disaster,” he says.

But the majority opinion simply clarifies what the public trust requires of private companies that wish to use public resources for profit, he argues.

The Supreme Court concluded that the standards laid out by the ICA incorrectly inverted the public trust doctrine by mandating the evaluation of “appropriate assessments” and “reasonable measures” before the propriety of the proposed use has been assessed.

“[T]he ICA’s proposed test is deficient because it does not provide the degree of protection of the public trust required by the law that our prior holdings recognize,” the majority decision states.

Moriwake notes that the standard to make “appropriate assessments” and impose “reasonable meaures” – terms drawn from the Kelly case – comes into play late in the planning process. Had the Supreme Court agreed with the ICA, it would have set a “diluted and superficial standard,” he says.

WMA Designation
Designation all of Hawai`i as a water management area (WMA), which is what was originally proposed when the state Water Code was created, would give the Water Commission more authority over water issues statewide. Designation might “make it clear that there’s a primary agency where the buck stops,” Moriwake suggests. Currently, only Moloka`i, most of O`ahu, and as small part of Maui have been designated.

But in the absence of statewide designation, “we’re not going to say it’s a water free for all. The state has a trust duty,” he adds.

While designation might help centralize decision making with regard to water, it comes with its own problems, according to the Water Commission’s Tam. Once an area is designated, the work required to simply process water use permits is enormous, he says.

He also warned against letting isolated conflicts drive designation.

“In areas not under stress, you don’t need to permit everything right now because of a conflict. There’s always the danger of the tail wagging the dog, of using a water conflict to get the zoning,” he says.

“We’ve got a lot on our plate,” he says, referring to three contested case hearings on Maui, management of Central O`ahu water use, a petition to designate an aquifer in Kona, and stream issues on Kaua`i.

(For more background on this case, see the story published in our June 2013 edition, “Kaua`i Water Bottler’s Permit is Vacated by Appellate Court.”)


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