BOARD TALK: Keawakapu Reef, Ha`ena Rentals, Kohala Fish Farm, and More Maui Windmills

posted in: Board Talk, December 2010 | 0

Land Board Settles Dispute Over Reef Damage at Keawakapu, Maui

The attorneys negotiated until the last possible moment, and even after the vote, it wasn’t entirely clear whether the approved language assigned responsibility for the incident.

On November 12, after months of fruitless attempts to resolve the matter administratively, the state Board of Land and Natural Resources approved a settlement amount of $132,000 for damage caused to roughly 312 square meters of coral near Maui’s Keawakapu artificial reef when American Marine Corporation (AMC), a state contractor, inadvertently dropped 125 concrete forms onto an existing reef. The amount is roughly equivalent to one-third of a proposed $400,000 fine for the damage.

Although AMC representatives argued that the state Department of Land and Natural Resources’ Division of Aquatic Resources was to blame for the December 2, 2009, incident, the attorney representing the company’s insurance provider said he would rather settle the matter than have the board impose a fine, which he would then have to contest.

AMC would like to avoid a contested case hearing, Joachim Cox told the board. “The party that will benefit from a contested case is my law firm,” he said.

But a contested case hearing is exactly what Land Board chair and DLNR director Laura Thielen thought was the best way to flesh out the facts of the case while maintaining momentum to resolve the issue with an incoming administration.

“We put forward a fine so that we could be assured to go into a contested case,” Thielen told the board.

Based on the evidence and testimony presented at the board’s meeting on Maui, however, board members wanted no such delay.

A Complication

Some of the state’s biggest payments for natural resource damage have come from private individuals or companies whose actions impacted coral reefs. In the case involving AMC, DAR’s proposed a fine of about $824,000 for the coral damage could have been one of the largest, except for one thing: DAR, by all accounts, was partly responsible.

Since the early 1960s, DAR has overseen the construction of artificial reefs in barren or sandy ocean habitats around O`ahu and Maui. The reef at Keawakapu was first built with junked cars, then old tires, an old vessel, then, finally, recycled concrete forms known as Z-modules. According to a report by AMC, it has been DAR’s primary contractor for 20 deployments and has been working with the division since the mid-1980s.

DAR biologist Francis Oishi told the board that the best way to deploy the forms is to build an underwater mound rather than spread them out. Before a contractor deploys any forms, DAR staff surveys the ocean floor around the project area with cameras to determine where the drops should occur to avoid sensitive habitats, he said. For the Keawakapu project, staff completed a survey in late November.

On December 2, 2009, AMC’s 80-yard-long barge, a tug, and two other boats containing DAR staff motored out to the buoy at the site, and, under DAR’s direction, AMC deployed approximately 1,400 Z-modules, each weighing a little over a ton.

The very next day, a follow-up survey found that coral had been damaged and the DLNR launched an investigation. Thielen stated in a press release that her department took “full responsibility for any possible damage to live coral” and added that it had suspended the artificial reef program. She promised mitigation would occur as soon as possible.

By the following March, an independent investigation by the National Oceanic and Atmospheric Administration and the U.S. Fish and Wildlife Service of the extent of the damage had been completed. The DLNR, in announcing a public informational meeting on the findings, issued yet another apology, this time from then-DAR administrator Dan Polhemus: “We are extremely sorry and deeply embarrassed that live coral damage occurred during the deployment of an artificial reef project overseen and managed by the Division of Aquatic Resources …. The Division of Aquatic Resources apologizes to the citizens of the State of Hawai‘i for this unfortunate incident,” he said.

Damage Assessment

At the Land Board’s November 12 meeting on Maui, DAR explained that it was proposing an $843,000 fine, which was derived by assigning a per-square-meter value of impacted coral using two recent coral damage cases for comparison.

In one case, where the tour boat Kai Anela damaged high-value ecosystem habitat in the Marine Life Conservation District at Molokini atoll, the settlement amount came to an average of $3,644 per square meter of damaged reef. In the second case, involving the boat Kai Kanani, the habitat affected was mostly barren and the settlement amounted to a mere $140 per square meter.

DAR staff determined that the habitat impacted at Keawakapu had “medium ecosystem value,” even though most of the coral impacted — 77 percent — was of low-ecosystem value. It applied a discount of $1,000 per square meter from the high-value ecosystem rate, since the area that was damaged had less ecosystem value than what was damaged at Molokini and the damage did not occur in an MLCD. The Keawakapu reef value that DAR then came up with was $2,644 per square meter, or roughly $11 million per acre, as O`ahu Land Board member John Morgan pointed out.

In DAR’s report to the Land Board, staff noted that AMC’s contract for the job requires the barge to be anchored or to hold itself in position at all times no more than 50 yards on either side of a deployment marker installed by DAR. The report states that AMC’s barge appeared to have drifted 100 to 133 yards away from the marker and had to be called back twice by DAR staff.

While DAR admitted that it had not surveyed the area as much as it would have liked, it pointed out that the nearest Z-module impacting coral was 62 yards from the marker — 12 yards past where the boat should have been. The furthest Z-modules were 200 yards away.

“The evidence suggests AMC was negligent and failed to meet its contractual obligations,” the report states.

A Rebuttal

In his response to DAR’s report, AMC president Scott Vuillemot argued that 95 percent of the modules were deployed in accordance with the contract. He tried to argue that his 80-yard barge (plus a tug boat) couldn’t fit within the project area and presented a map showing that the bow of AMC’s barge had stayed in contact with the edge of the 50-yard limit most of the time the 125 modules were being dropped on the reef. Only seven modules were dropped when the barge drifted past the 50-yard limit, he claimed.

He said that despite the contract condition, the 50-yard limit had never been an issue in past deployments. Last December 2, he continued, the deployment occurred as it always had, with DAR monitoring the position of the barge and directing AMC’s captain where to move. He admitted that DAR staffers had called the barge back a couple of times when it drifted too far, but he said they never halted the deployment.

“It is unfair for the DLNR to admit responsibility for the incident, yet to fine AMC for the full amount of the damage,” he said. Even so, he said, AMC was open to settling the matter. However, if the parties failed to reach an acceptable amount, Vuillemot asked for a contested case hearing.

When at-large board member David Goode asked whether the company would take responsibility for the seven modules that had been dropped in apparent violation of AMC’s contract, Cox said that it would.

During public testimony, fisherman Darrell Tanaka, who supports the artificial reef program, pointed out that keeping just the bow within the 50-yard limit doesn’t make sense, since the company was pushing the modules off the middle.

The middle of the barge should had been within the 50-yard limit, he argued, adding that since DAR adequately surveyed the area within the 50-yard limit, “how responsible is the DLNR?”

To Big Island Land Board member Robert Pacheco, the fact that DAR staff directed AMC where to drop the modules was a key factor in determining responsibility.

“I have a hard time thinking, based on what’s presented, that the department is not responsible,” he said. If he had hired a contractor to dump soil on his yard, overseen its placement, then realized afterward that it had been misplaced, he wouldn’t blame the contractor, he said. He added, if Atlantis Submarines, and not a state agency, had hired AMC, “would we be going after AMC or Atlantis Submarines?”

Whether Vuillemot accurately described the events of December 2 is unclear. After Vuillemot’s presentation, Thielen told the board that DAR’s report does not contain everything that happened. DAR’s Oishi had a chance to rebut Vuillemot and said he had a “lot of things to say,” but didn’t say them. He said only that Vuillemot’s account of events contained a lot of interpretation and speculation, he pointed out that AMC is supposed to be an expert at these deployments, and he suggested the company could have used a different technique to keep the barge from drifting.

Hashing It Out

O`ahu board member Morgan had heard enough.

“I’ll have to go with Rob [Pacheco]. The evidence was compelling that AMC was not liable for the majority of what happened,” he said. He was not comfortable with Thielen’s suggestion that the board could vote to go directly into a contested case. “They want to settle and we’re dragging them in [to a contested case] against their will,” he said.

Pacheco said that he also didn’t want to “punt the issue” to a contested case hearing officer. “I want to hash it out,” he said.

After an executive session, the board struggled to find a better way to calculate damages. Among other things, they tried to assign different dollar amounts to the high-, medium-, and low-ecosystem value corals that were damaged, using the Kai Anela and Kai Kananicases as proxies. But even those numbers, Thielen pointed out, were settlements that factored in things, like willingness to cooperate, that were unrelated to the actual value of the coral.

“No matter what,” Morgan said, “there’s always going to be some arbitrary [element to the calculations.]”

Board members Sam Gon and David Goode supported the idea of splitting a fine of $400,000 evenly between AMC and DAR.

While Pacheco and Morgan said they felt the state was mainly to blame, “in the spirit of settlement,” Morgan noted that splitting the fine 1/3-2/3 resulted in a $132,000 fine for AMC.

Following advice from deputy attorney general William Wynhoff, Thielen phrased a motion for Gon to direct the board chair to negotiate a settlement for $132,000, “representing a 1/3 responsibility for the total damage,” and direct DAR to recommend a course of mitigation for the remaining 2/3 responsibility within 60 days.

Apparently concerned about the language regarding responsibility, Cox said that because it is a settlement, AMC would not be admitting any liability.

When Thielen asked Wynhoff to confirm that the language she had used was adequate, Wynhoff said it was. With that, the board unanimously approved the motion.

Board Grants Contested Case Over Ha`ena Vacation Rentals

Statutes, rules and permit conditions regarding commercial use and renting of homes in the Conservation District are set to be picked apart in a contested case hearing granted October 28 by the Land Board in response to a petition by a hui of Ha`ena, Kaua`i, landowners.

The decision came despite advice from the board’s deputy attorney general that a contested case wasn’t necessary and against recommendations from the Department of Land and Natural Resources’ Office of Conservation and Coastal Lands.

OCCL administrator Sam Lemmo argued that not only are contested cases a hassle, the issue of the most concern to the Ha`ena hui — whether or not vacation rentals are allowed in the Conservation District — may be resolved by rule amendments, expected to come to the Land Board for approval within a few months.

Those amendments revise standard conditions on land uses in the Conservation District so that rentals of less than 180 consecutive days are prohibited, except for campsites approved by the Land Board. The current standard conditions simply ban all rentals and commercial use.

A Long Slog

In March 2007, the DLNR sent 16 cease and desist letters to landowners allegedly using their homes in the Ha`ena Conservation District for commercial use. When most of them requested, through their attorney, Randy Vitousek, more time to stop their operations, the DLNR tried to negotiate a commitment from them to stop using their homes for rental or any other commercial purpose.

Instead, Vitousek filed a petition for a deviation from the permit conditions, arguing before the Land Board that the prohibition on rentals is unreasonable and unenforceable. The OCCL opposed the petition and asked the Land Board to allow it to continue its enforcement proceedings.

At an October 2007 board meeting, deputy attorney general Colin Lau pointed out that failing to secure board approval for a deviation before it occurs is cause for permit revocation. Vitousek said he believed some owners were operating vacation rentals. As an alternative to revocation, on December 7, Vitousek proposed that his clients’ permits be amended to prohibit commercial uses, but allow rentals, including vacation rentals under certain conditions. He also proposed creating a special Ha`ena Hui conservation/residential subzone.

That proposal went nowhere and at the Land Board’s December 14 meeting that year, Lemmo argued that the proposed deviation did not meet any criteria set forth in rules. He also reminded the board that a deviation request must be made before the deviation occurs.

Several Ha`ena residents testified against the deviation and one of them submitted a petition signed by 106 Ha`ena residents against it.

The Land Board denied the deviation request, but Vitousek followed up with petitions for a contested case hearing, which Land Board chair Laura Thielen denied on her own in January 2008.

The landowners appealed her decision in 5th Circuit Court, which found in Thielen’s favor. In their appeal, the landowners argued that the no-rental rule and conditions are vague, ambiguous, and do not give fair notice of prohibited conduct, and that enforcement has been inconsistent. This past June, the Intermediate Court of Appeals did not address the concerns raised about the no-rental prohibition, but did find that the Land Board, not just its chair, must decide whether or not to grant a contested case hearing.

Board Discretion

When the contested case hearing petition was brought to the Land Board on October 28, Lemmo’s report to the board cited Hawai`i Administrative Rule 13-5-42(a), which sets forth the standard conditions for any land use within the Conservation District. The fifth condition listed prohibits rentals.

“Despite the no-rental conditions in their CDUPs and in the rule, some of the owners (by their own admission) rented their properties for short-term vacations. Some were doing so for decades. Others would like to do so,” Lemmo wrote.

He stated that, with regard to the contested case hearing request, the Land Board’s December 2007 decision to deny the deviation request did not decrease or take away any of the appellants’ property or property rights.

“Refusal to grant additional rights is not the due-process equivalent of taking away already existing rights,” and therefore, a contested case was not required by due process, he argued.

Lemmo recommended denying the contested case, noting that the Land Board had already rejected the owners’ request to be exempted from the no-rental prohibition and arguing that a contested case would not help the board exercise its discretion.

“Moreover, staff does not believe it is good policy in general to allow a contested case in connection with a request, like this one, that seeks a wholly discretionary change to long established CDUP conditions,” he wrote.

Deputy attorney general William Wynhoff, who had helped draft Lemmo’s report, said the board had the discretion to grant or deny a contested case, except when it came to whether or not the no-rental rule was valid. A court, not the board, has the jurisdiction to decide the validity or constitutionality of the board’s rules, he said.

In the past, items brought to the Land Board regarding contested case hearing requests mainly dealt with whether or not a petitioner had standing, not whether or not a case should be granted. In this case, with standing not at issue, Big Island Land Board member Robert Pacheco was confused about what, exactly, he should be weighing.

Wynhoff tried to explain. There are two separate but related issues, he said: one, whether someone is entitled to a contested case because it is required by law or by due process, and two, whether a petitioner has standing. “In this particular case, the issues overlap,” he said.

“I can’t remember … having this issue brought forward where … we had this discretion [to determine whether or not to grant a contested case]. I’m just wondering … what we need to evaluate in order to make that decision,” Pacheco said.

Wynhoff said, that for future cases, the board could ask the deputy attorney general to determine the scope of board’s discretion.

Pacheco, however, said he was concerned that the board could be setting policy regarding contested cases and wanted a clear “path down the line” that illuminates how the board’s decision will impact other situations.

Addressing Pacheco’s concerns about the scope of the board’s discretion, Vitousek said he was astounded that neither the OCCL report nor Wynhoff had mentioned the recent Hawai`i Supreme Court decision of Kaleikini v. Thielen.

“This involves you … on the issue of contested case hearings,” Vitousek told the board.

Vitousek, who now represents only a subset of the original petitioners, said the court decision, issued in August, found that a contested case hearing is required if it is needed to determine the rights, duties, and privileges of parties involved. He also said that the court found that the board’s discretion is limited to whether the petitioners meet the procedural criteria for a contested case hearing, and if they do meet it, they are mandated to get it.

“In this case, the AG remarkably admitted these people have standing … and yet he’s arguing a contested case hearing is not required by law,” he said.

Seeking Clarity

A discussion of the state’s ban on rentals in the Conservation District followed.

Vitousek claimed that the DLNR’s no-rental rule — 13-5-42(a)-5 — refers only to permit conditions and that there isn’t an actual rule that bans commercial use or rentals outright. He claimed that this is why the OCCL had only pursued enforcement action against those whose permits contained conditions specifically prohibiting commercial use and rentals.

Vitousek had contended in court that the CDUP conditions prohibiting commercial use exceed the board’s statutory authority and are inconsistent with the standards of Chapter 183C. He said that Chapter 183 requires any conditions on land use to further the preservation of natural resources.

Chapter 183C doesn’t include any ban on commercial use, but does require the DLNR to hold a public hearing “in every case involving the proposed use of land for commercial purposes.”

“All we’re trying to do is get this issue addressed … what is the scope of the limitation on these owners’ use of their own homes and is that scope of limitation consistent with statutory authority and constitutional protections for private property,” he said.

The board then convened an executive session with Wynhoff. Upon returning, Wynhoff insisted that the administrative rules prohibit rentals in the Conservation District “in all cases.”

Addressing Vitousek’s contention that the rules and permit conditions are vague with regard to the definition of a rental, Wynhoff said, “The rule may or may not be vague in some instances. For instance, if you let your father use it and he mows the lawn. That’s not the situation here. People are doing vacation rentals.”

Lemmo added that the only time that a vacation rental would be allowed in Conservation District without Land Board approval would be if it was occurring before the district was created.

Pacheco asked why the OCCL chose to shut down only those with conditions in their permits and why some permits contained no-rental provisions and some didn’t.

Lemmo addressed the second question only. He explained that, originally, Conservation District rules didn’t have any conditions regarding vacation rentals, and that applications for residences in the 1960s and ‘70s were approved with no special conditions. In the 1980s, the board began including specific conditions regarding rentals, and those conditions subsequently evolved to a rule, he said.

Regardless of Vitousek’s arguments about whether or not the rule or conditions are valid or clear enough, Land Board chair Thielen pointed out, “These people were more than happy to accept those permits at the time to build single family homes and I think they full well understood what the condition was.”

Addressing Vitousek’s claim that Conservation District conditions must deal only with natural resource protection, at-large Land Board member Samuel Gon argued that they can indeed address broader issues. To him, the Conservation designation provides guidance on appropriate land use.

“Whether or not residential units should be allowed on Conservation District lands at all is a question in my mind and certainly when you take it to a commercial or vacation use, that pushes it further,” he said.

Gon echoed the sentiments of all of the board members when he said he’d rather be involved in deciding these issues than pushing them to the courts.

Kaua`i Land Board member Ron Agor made a motion to deny the OCCL’s recommendation.

“I want to be part of the process to bring clarity to this issue and I feel like I need a process of facts and findings to be able to take part in the final decision. … If [Vitousek] just takes it to court, then we have no say,” he said

Lemmo made a final pitch against a contested case. “I’m speaking selfishly, but it is a bit frustrating for staff if we have to go through a contested case on this when we’ve already figured it out. It’s a huge input of resources of time, effort and money. We should have contested cases for many things, but in this case, I feel we corrected it and I would like to move on,” he said.

Despite his protest, the board voted unanimously to allow a contested case hearing.

Fish Farm Wins Lease

Hawai`i Oceanic Technology, Inc., (HOTI) now has a 35-year lease to construct and operate a floating fish farm in some 247 acres of ocean off the North Kohala coast. The first year’s rent has been waived to offset the substantial improvements that will be required for the operation.

The company must still obtain a permit from the U.S. Army Corps of Engineers.

The fact that the company recently changed the design of its test cages did not deter the board from approving the lease, despite concerns expressed by environmental groups, including KAHEA: the Hawaiian-Environmental Alliance, and the Sierra Club’s Maui group.

HOTI had originally proposed to raise tuna in large, untethered ocean spheres that would be submerged deep underwater and kept stationary by a system powered by ocean thermal energy conversion. The Land Board approved a CDUP for three cages in October 2009, but the Army Corps of Engineers required HOTI to modify the design and limited the Army Corps permit term to five years. In September, HOTI resubmitted its Army Corps permit application, this time for just a single cage that is closer to the surface than the design approved under the CDUP and which uses a different feeding system.

At the Land Board’s October 28 meeting, DLNR Land Division administrator Russell Tsuji explained that while the Army Corps is planning to grant only a five-year term for the test cage, HOTI needs a longer-term lease for financing purposes.

KAHEA program director Marti Townsend and the Sierra Club/Food & Water Watch’s Rob Parsons argued that HOTI’s change in scope and design should require a supplemental environmental impact statement, an amendment to the CDUP or both. Sam Lemmo, administrator for the DLNR’s Office of Conservation and Coastal Land said HOTI might need to amend its CDUP.

HOTI president Bill Spencer explained that the company still plans to use ocean spheres, but it is using the smaller test cage to “answer a lot of questions” about how the project should proceed.

When board chair Laura Thielen asked whether the $100,000 performance bond proposed by the lease would be sufficient to cover any resource damage the spheres might cause, Tsuji said he wasn’t sure. According to the Land Division’s report to the board, the bond amount roughly reflects the $90,000 it would cost to dispatch a tug from Honolulu Harbor to where a lost cage would likely drift, plus six hours (at $1,200/hour) to secure the cage and tow it back to the lease site or to Kawaihae Harbor in west Hawai`i.

Despite requests by Townsend and Parsons to defer the matter, the Land Board approved a 35-year lease for the farm, on the condition that, should HOTI fail to obtain a new Army Corps permit after the initial five-year permit expires (assuming it’s granted), the lease would be void.

Board Grants Lease for 2nd Maui Wind Farm

Kaheawa Wind Power II received Land Board approval of a lease for a 21-megawatt wind farm on 333 acres of state land adjacent to an existing farm owned by parent company First Wind Energy. The board is allowing the company to break ground before receiving various state and federal approvals regarding its power purchase agreement (PPA) and endangered species protection that would normally need to be acquired beforehand.

To ensure that the company is eligible for tax credits, the company asked for permission to begin construction — but not erect any windmills — before the state Public Utilities Commission approves the PPA with Maui Electric Company, Inc., the state approves a Habitat Conservation Plan and Incidental Take License, and the U.S. Fish and Wildlife Service issues an Incidental Take Permit for the injury or killing of any species listed as threatened or endangered (especially nene).

At the Land Board’s November 12 meeting on Maui, public testimony on the lease was mixed, with environmental groups like Maui Tomorrow and the Maui group of the Sierra Club’s Hawai`i chapter in favor, and others concerned about natural resource impacts and native Hawaiian property rights arguing against the project.

Some members of the public and the board were concerned about whether the lease ensures that there will be sufficient funds to remove the wind turbines should the project fail or be abandoned. Representatives from the DLNR and the Department of Business, Economic Development and Tourism assured the board that the $1.5 million performance bond being required is sufficient, since research has shown that it costs about $100,000 to remove one turbine.

The board unanimously approved the lease with certain conditions regarding monitoring and notification that had been recommended by the U.S. Fish and Wildlife Service.


Teresa Dawson


Volume 21, Number 6 — December 2010


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