CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (ICA NO. 28358; CIV. NO. 05-1-0103)
Wesley H.H. Ching and Kathleen M. Douglas for petitioner
William J. Wynhoff for respondent Department of Land and Natural Resources
Diane Erickson and Russell A. Suzuki for respondent Board of Land and Natural Resources
ACOBA, McKENNA, AND POLLACK, JJ., WITH CIRCUIT JUDGE TRADER, IN PLACE OF RECKTENWALD, C.J., RECUSED, WITH NAKAYAMA, J., ACTING C.J., CONCURRING AND DISSENTING
This case requires us to consider whether Pila'a 400, LLC (Pila'a 400) was properly held responsible for remedial, restoration, and monitoring costs assessed against it by the Board of Land and Natural Resources (BLNR) for despoilment of state conservation land resulting from unauthorized land use by Pila'a 400, which included significant harm to a near-pristine coral reef.
We hold that BLNR had jurisdiction to institute the enforcement action, the BLNR was not required to engage in rulemaking before imposing a financial assessment for damages to state land against Pila'a 400, and Pila'a 400 was afforded a full opportunity to be heard at a contested case hearing following reasonable notice. Accordingly, we affirm the Judgment on Appeal of the Intermediate Court of Appeals (ICA).
Pila'a 400 owns a 383-acre parcel of rural land (Property), located on the north shore of Kaua'i. The Property is a level to gently sloping plateau broken by four gulches extending from Kuhio Highway and Koolau Road toward the shoreline. The plateau above and between the gulches naturally drains water and sediment along contours that form distinct geographic drainage areas.
At the makai terminus of the Property is Pila'a Beach and Pila'a Bay. Pila'a Beach is a white sand beach approximately fifty to one hundred feet wide, bisected by Pila'a Stream. Pila'a Bay contains a well-developed fringing reef, extending from Ke'ilu Point on the west to Kepuhi Point on the east. Wave action over the reef flushes the inner reef area, creating a lush environment for a wide variety of marine life. Pila'a Bay's inner reef is one of only a few shallow reefs on the northeast coast of Kaua'i protected from ocean swell by an outer reef. Prior to November 26, 2001, Pila'a Bay was well-known for its striking beauty and as an excellent site for swimming, snorkeling, fishing, and gathering edible seaweed. According to the DLNR, the reef at Pila'a Bay was one of the "few remaining high value coral reef flats in the state that had largely escaped encroachment from development and stress from improper land practices." The reef was "an extremely valuable resource" with a wide range of reef habitats, abundant marine life, and almost fourteen percent coral cover.
Pila'a Beach and Bay are public lands owned by the State of Hawai'i, subject to several privately owned kuleana.The Department of Land and Natural Resources (DLNR) is responsible for managing, administering, and exercising control over all of the public land in the state, including water and coastal areas. The DLNR is "headed" by BLNR. Hawai'i Revised Statutes (HRS) § 171-3(a) (2011). The BLNR is constitutionally mandated to conserve and protect Hawai'i's natural resources.
The BLNR defines "land" to include coastal areas and submerged land. Hawai'i Administrative Rules (HAR) § 13-5-2 (1994). Pila'a Beach and Bay lie within a State Land Use Conservation District (Conservation District) as a strip of land ranging from 175 to 250 feet wide and running along the makai edge of the Property. The Conservation District is divided in two sections. The Conservation District land located maukaof the shoreline boundary is in the "limited" subzone, consisting of the white sand beach. The Conservation District land makai of the shoreline boundary consists of the near-shore submerged lands and is in the "resource" subzone. Regulated land use in a resource subzone includes the placement of fill on submerged land. HAR § 13-5-24. Pila'a reef is a part of the resource subzone.
Sometime prior to November 26, 2001, Pila'a 400 or its predecessors conducted extensive grading, filling, and other work on the Property. None of the work was authorized by permit. The unauthorized land use included: (1) large-scale grading on the plateau above the bay; (2) a vertical cut creating a cliff forty to sixty feet in height within the Conservation District; (3) construction of a road along the base of the vertical cut; and (4) installation of a 30-inch pipe or culvert under the road that drained water and mud directly from the Property onto Pila'a Beach.
On November 26, 2001, the Property experienced heavy rainfall typical of the area at that time of year. The consequent erosion of the recently graded and filled hillside on the Property resulted in a massive mudflow into the Conservation District. Mud flowing from the Property poured into Pila'a Bay and covered land within the Conservation District in several feet of mud.
The November 26, 2001 mudflow severely damaged Pila'a Bay and reef. A scientific assessment begun in June 2002 by the DLNR and continuing through September of that year noted several indications of significant damage: (1) the shallow areas of the bay suffered from chronic turbid conditions; (2) corals were bleached, dead, dying, and becoming overgrown by algae; and (3) approximately 2, 943 square meters of live coral were destroyed by the November 26, 2001 mudflow and subsequent sedimentation. The assessment concluded that, although much of the sediment had been cleansed from the beach due to natural wave action, sediment and its negative impacts remained at Pila'a. According to the assessment's conclusion, Pila'a might never be returned to its pre-mudflow conditions.
On January 28, 2002, pursuant to HRS Chapter 183C, the DLNR issued a Notice and Order (First Notice and Order) to Pflueger Properties, Limited Partnership (Pflueger Properties) for "illegal work conducted within the Conservation District at Pila'a [, ] Kilauea, Kauai, Hawaii." The First Notice and Order included the DLNR's initial assessment of potential unauthorized land uses in violation of state law.
We have determined that:
(1) The subject property, identified as tax map key 5-1-004:008 is in the Conservation District and is classified as Limited Subzone;
(2) The following uses were conducted on the subject premises: grading, grubbing,  cutting, and culvert construction;
(3) These uses were not authorized by the Department of Land and Natural Resources.
YOU ARE HEREBY ORDERED TO CEASE any further activity on the subject premises. Should you fail to cease such illegal activity immediately, you will be subject to fines up to $2, 000 per day pursuant to Chapter 13-5, [HAR], in addition to administrative costs incurred by the Department and damages to State land.
On June 20, 2002, following a June 13, 2002 site inspection, the DLNR issued a second Notice and Order (Second Notice and Order) to Pflueger Properties for "Illegal Activity in the Conservation District." The Second Notice and Order required Pflueger Properties to submit a remedial Best Management Practices Plan for the affected conservation land and emphasized that the natural environment at Pila'a Bay suffered "unauthorized despoliation" due to "almost unimpeded" sedimentation resulting from the illegal land uses conducted on the property.
[A] massive vertical bench was cut into the hillside and remains unprotected from erosion. Evidently, this was done to construct a new dirt road .... This road now serves as a conduit for water and sediments, which end up in the sea almost unimpeded. A small valley that terminates near the beach was filled with large quantities of excavated soil. This area remains partly unvegetated. This latter action resulted in the diversion of a small stream, which originates from a spring several meters up the valley. This fill area is a serious source of sediments transported to the nearshore waters during periods of rainfall.
It was generally agreed that some immediate remedial actions could be taken, such as implementation of Best Management Practices (BMPs), to help abate sedimentation on nearshore waters. . [T]here is a need for immediate physical intervention to slow down runoff and sediments.
The Second Notice and Order also memorialized future remedial action the DLNR intended to take:
The landowner is reminded that these interim remedial actions in no way whatsoever, cures, exonerates or pardons the unauthorized despoliation of conservation values at Pila a by the landowner. The matter of the unauthorized work at Pila'a Bay will be presented to the BLNR at a future date, time and place to be announced. In addition to fines and penalties for damages to State land, the landowner should be made aware of the possibility of the imposition of the requirement to conduct complete land restoration and long term monitoring to assess the recovery of the marine envi r onment.
On August 22, 2002, the DLNR issued an order for the implementation of emergency erosion and water pollution controls (First Implementation Order) detailed by the plan submitted by Pfleuger Properties. The First Implementation Order reiterated that erosion and sedimentation resulting from the illegal uses conducted on the Property continued to threaten Pila'a Bay.
On June 20, 2002, the DLNR issued you a second order, directing you to submit a Remedial Best Management Practices Plan to construct filter fences, plug a drainage culvert and grass certain areas in order to reduce erosion and sedimentation of waters within Pila'a Bay.
These measures would include the construction of a large rock berm within the eastern gulch, a series of smaller rock dams, sedimentation ponds, hydro mulching, etc. [t]hese emergency measures would be implemented with the sole intent of forestalling erosion and prevention of further degradation of marine waters, which could occur this rain season unless appropriate measures are undertaken immediately.
In addition to fines and penalties for damages to State land, the landowner should be made aware of the possibility of complete land restoration and long term monitoring to assess the recovery of the marine environment.
On November 20, 2002, the DLNR issued a second implementation order (Second Implementation Order) to implement erosion and water pollution control measures within the shoreline area of Pila'a Bay. The Second Implementation Order emphasized that erosion continued to pose a threat to the immediate shoreline area and the marine waters and echoed the language of the previous order. "These emergency measures would be implemented with the sole intent of forestalling erosion and prevention of further degradation of marine waters which could occur this rainy season unless appropriate measures are undertaken immediately." (Emphasis added) . Both the First and Second Implementation orders reiterated the intention of the BLNR to take future action.
The damage to the coral reef at Pila'a Bay was a central and continuing concern of the DLNR. On behalf of the BLNR, Dr. Paul Jokiel completed a scientific study entitled "Reef Coral Communities at Pila'a Reef in Relation to Environmental Factors" on December 12, 2002 (the Jokiel Report). The Jokiel Report extensively examined the effects of the November 2001 mudflows on Pila'a reef and the surrounding area. It concluded that "the mudflow from the 2 6 November 2001 event entered the reef [at a time of low wave energy] ... so all of the sediment was deposited and retained in the shallow reef system, " and "the shallow coral reef areas at Pila'a have undergone recent degradation." The degradation was shown by the impact of the sediment on the reef corals:
c. Hard substrate in impacted areas is covered with mats of algae and terrigenous sediment rather than the pink crustose coralline algae that would be expected. Sediments have combined with the fleshy algae into a thick matrix on hard surfaces.
d. Presence of terrigenous mud has mixed with the carbonate sands on the beaches, intertidal and subtidal areas. The mixture bakes into a "hardpan" layer on impacted beaches.
3. Mudflows and increased rates of sediment input have resulted from grading of steep slopes along the shoreline with consequent accelerated erosion of soil onto the reef. Increased mud input is the cause as shown by the pattern of damage in relation to sediment sources and in shore ocean patterns .
4. Recovery of the damaged areas cannot begin until terrigenous input of sediment is curtailed.
The DLNR also conducted additional studies that examined the effects of sedimentation on the reef at Pila'a Bay. The "Report on Reconnaissance: Level Sedimentology Survey of Pila'a Reef Beaches, Kauai, Hawaii, August 5, 2002" concluded that "the reef and bay at Pila'a contain significant quantities of terrigenous mud, " compared to a control beach which was "pristine." At the time of the report, some eight months after the November 26, 2001 mudflow, the report also noted:
A concentrated plume of mud was continuously observed during the survey .... Presumably, this process has been ongoing since the November 2001 and May 12, 2002 rain events and will continue for months, perhaps even years into the future ....
A second report entitled "Initial Data Regarding Pila'a Assessment, " also completed in August 2002, noted particular concerns for the endangered Hawaiian green sea turtle. The report determined that there were significant long term impacts and concerns relating to displacement of native plants and animals by invasive species; enhancement of "fleshy algae" and cyanobacteria; decreased larval and planktonic organism survival; decreased fertilization success, sex reversal and deformities, and impacts to non-coral cryptic systems, mobile reef systems, and loss of three-dimensional substrate. The report also discussed economic values of the impact to the reef and possible mitigation strategies.
Pila'a 400 also commissioned two of its own scientific studies on sedimentation following the November 2001 mudflow and its effects on the reef. The first study, completed in February 2003 was entitled "Preliminary Sediment Runoff Analysis for Pflueger Property Restoration." The purpose of the study was to "estimate the potential annual historical sediment runoff from the Pila'a property." The study determined that the sediment run-off that occurred during the November 26, 2001 incident was not extraordinary for the area.
A second study, completed in March 2003 was entitled "Ecology of the Reef Ecosystem of Pila'a, Kauai and Analysis of Alleged Environmental Impacts Associated with Recent Sediment Run-Off, " and was directed at determining the relationship between the November 2001 mudflow and the alleged damage to the reef. According to this report, the low coral cover at Pila'a was due to the naturally harsh ecological conditions. In addition, the study asserted that the sediment spill in November 2001 did not exceed the range of natural variability at Pila'a, suggesting that Pila'a 400 should not be held responsible for the damage.
On August 22, 2003, a public meeting (Public Meeting) was held before the BLNR, during which DLNR staff presented a report (Staff Report) regarding "Alleged Unauthorized Grading, Grubbing, Filling, Road Construction, Landscaping, Drainage, Improvements, and Damages to State Land and Natural Resources Due to Excessive Sedimentation at Pila'a." The Staff Report enumerated four unauthorized uses within the Conservation District.
[T]his report documents the unauthorized land uses within the conservation district. The unauthorized uses include  [a] . . . dirt road through gulch 2, and along the shoreline,  [a] . . . vertical cut in the coastal bluff,  . . . fill and grading at the seaward extent of gulch 2, . . . storm drain construction adjacent to the beach.
The report continued: "These unauthorized improvements resulted in extensive damages to the shoreline and marine resources at Pila'a Bay, which was the focus of this report." (Emphases added.)
The Staff Report concluded "there is a strong evidentiary record . . . linking the unauthorized work of Mr. Pflueger to coral reel damages at Pila'a Bay. The area of damages calculated ... is 5, 830 square meters. . . . The comprehensive survey of corals provide strong statistical proof that the damages are a result of massive sedimentation events caused by the abutting landowner."
The Staff Report recommended, inter alia: (1) a penalty of $12, 000 for "failing to obtain the appropriate approvals for road construction, grading, filling, and storm drain construction in six (6) instances within the conservation district;" (2) an assessment of $5, 830, 000 for "damaging state land and natural resources stemming from the unauthorized lands [sic] uses;" and (3) a fine of $38, 000 for administrative costs.
Before the close of the Public Meeting, the Pflueger Properties, James H. Pflueger (Pflueger) and Pila'a 400 (collectively, the "Pflueger Parties") made an oral request for a contested case hearing. On September 2, 2003, the BLNR issued a letter (September 2, 2003 Letter) to "James Pflueger, Pflueger Properties" that referred to the Public Meeting and acknowledged the oral request for the contested case hearing.
The focus of the contested case hearing was framed by the parties in pre-hearing statements. The first statement was an August 29, 2003 letter by the Pflueger Parties to the BLNR supplementing their oral request for a contested case hearing (Written Hearing Request). In the Written Hearing Request, the Pflueger Parties affirmed that the subject of the contested case hearing would be damages to Pila'a Bay and reef resulting from excess sedimentation caused by unauthorized grading activities in the Conservation District:
The matter being considered by the [BLNR] concerns alleged damage to the reef flat and near-shore marine environment stemming from grading activities in the conservative [sic] district which allegedly resulted in discharges of sediment following a severe rainstorm on the night of November 26, 2001, December 2001, and early 2002.
(Emphasis added). The Written Hearing Request also contested the following facts and issues contained in the DLNR staff report presented at the Public Meeting:
• the statutory legal authority
• the responsible parties
• the scope and extent of the alleged damage to the reef flat and near-shore marine environment at Pila'a
• the amount of alleged damage that was directly caused by the Petitioners' grading activities as opposed to other causal factors
• the specific dates (s) when the alleged damage occurred
• evidence regarding assessment of the damages to the reef flat and near-shore marine environment and the alleged causes
• the amount of penalties proposed by the DLNR staff
• the statutory authority for and the method used by the DLNR to calculate penalties for the alleged damage to the reef flat and near-shore marine environment
• all factual and legal issues addressed in the DLNR staff report dated August 22, 2003
• DLNR staff recommendation items nos. 2, 4, 5, 6, 7, 8 and 9 as described in the DLNR staff report and
• any and all finds [sic] of fact and conclusions of law that may arise during the course of the contested case proceeding.
In its prehearing Statement on the Issues, dated February 17, 2004, the DLNR framed the purpose of the contested case hearing as follows:
The only issue in this contested case proceeding is the determination of the amount of damages to be assessed against the Pflueger Parties for damages to the beach, reef, and marine environment . . . which were largely the result of excessive sediment input dating from November 2001 and thereafter.
In its Responsive Statement of the Issues dated March 1, 2004, the Pflueger Parties presented an extensive list of disputed facts and issues to be determined at the contested case hearing that included sedimentation, damages, causation, and the authority of the BLNR, both generally and specifically to assess penalties and to require remediation. The Pflueger Parties contested that it violated the provisions of HRS § 183C and HAR Chapter 13-5 "by damaging state land and natural resources stemming from unauthorized land uses, for a penalty of $5, 830, 000." The statement disputed many of the findings of the Staff Report presented at the Public Hearing, including the sources and historic patterns of sedimentation into Pila'a Bay, "causation as to the alleged damage to the beach, near-shore marine environment, reef flat and/or deep water coral shelf at Pila'a"; "the scope and extent of the alleged damage to the beach, near shore marine environment, reef flat, and/or deep water coral shelf at Pila'a;" and "the amount of alleged damage that was directly caused by [the Pflueger Parties'] grading activities as opposed to other causal factors."
On October 3, 2003, the BLNR published a Notice of Contested Case Hearing (Contested Case Hearing Notice). It provided:
The [BLNR] will conduct a contested case hearing on DLNR File No. KA-04-02 regarding an enforcement action involving the alleged damages to State land(s) and natural resources due to excessive sedimentation at Pila'a, District of Hanalei, Island of Kauai, seaward of TMK: 5-1-4:8 (por.). The hearing will be held pursuant to Chapters 91 and 183C, Hawaii Revised Statutes, and Chapters 13-1 and 13-5, Hawaii Administrative Rules (HAR). (Emphasis added) .
The contested case hearing began on July 20, 2004, and continued over 13 days through August 13, 2004. The first activity in the contested case was a site visit by the hearing officer (Hearing Officer), who spent several hours exploring the reef with mask and snorkel and examining the beach. The Hearing Officer heard testimony and received exhibits from experts in marine science regarding damage to Pila'a Bay and reef. Both sides also presented multiple kama'aina witnesses who testified as to the impact of the unauthorized land uses on fishing and beach-related activities at Pila'a Bay.
DLNR presented six experts in marine science to establish the damage to the Pila'a reef. Those experts included Dr. Paul Jokiel, an international expert on coral reefs and coral reef monitoring; Dr. Charles Fletcher, an internationally recognized expert on coastal sedimentary geology and carbonate reefs; David Gulko, a senior aquatic biologist with the DLNR and an expert in coral reef ecology; Dr. William Walsh, an aquatic biologist and resource manager with the DLNR and an expert in aquatic biology; Ryan Okano, a graduate student at the University of Hawai'i and an expert in algae; and Dr. Robert Richmond, a research professor at Kewalo Marine Laboratory and an expert in coral reef biology and their valuation.
Pila'a 400 called five expert witnesses to address the issues of excessive sedimentation and its effects on the reef at Pila'a. These experts included Dr. Richard Grigg, an expert in coral reef ecology and oceanography, Dr. Eric H. De Carlo, an expert in sedimentary geology, and Dr. Steve Dollar, an expert in biological oceanography, all co-authors of the sedimentation study submitted by Pila'a 400. Pila'a's 400's other experts were Paul Wallrabenstein, an author of a second sedimentation study submitted by Pila'a 400, an expert in civil engineering, and Dr. John Dixon, an expert in the field of environmental economics.
Following the contested case hearing, both parties submitted proposed findings of fact, conclusions of law, and decision and recommendations. The Proposed Findings of Fact, Conclusions of Law, Decision and Recommendation submitted by Pila'a 400 (Pila'a 400 Proposal) included, inter alia, the following arguments: (1) as the principal land use activities and source of the mudflow was land outside the Conservation District, the BLNR therefore lacked jurisdiction over those land use violations, and (2) Pila'a 400 was denied due process by DLNR's failure to engage in rule-making, as mandated by HRS § 183C-3(3), before assessing the damage penalty.
The DNLR Proposed Recommended Findings of Fact, Conclusions of Law, Decision and Order (DLNR Proposal) noted that the Pflueger Parties did not contest the September 2, 2003 Letter's findings of "violation[s] of the provisions of Chapter 183C HRS, and Chapter 13-5, HAR, by failing to obtain the appropriate approvals for road construction, grading, filling, and storm drain construction in four (4) instances within the conservation district." The DLNR Proposal described the unauthorized work on the Property and resultant mudflow, and extensively detailed the impact to the Conservation District and the damage to State land. The DLNR Proposal stated the damage to the reef and ecosystem were violations of HAR §§ 13-5-24, 30(b). The DLNR Proposal recommended the following "Discussion and Conclusions":
18. The November 26, 2001 mudflow and subsequent sedimentation constitute placement of solid material on land and the grading of land and are therefore a regulated land use with the meaning of [HRS] § 183C-2  .
19. Pila'a 400 did not have a [DLNR] or [BLNR] permit authorizing any land use in the [Conservation District] .
20. The November 26, 2001 mudflow and subsequent sedimentation constitute marine construction within the meaning of HAR § 13-5-24.
21. Pila'a 400 did not have a [DLNR] or [BLNR] permit authorizing marine construction (including filling of submerged land). Nor could a permit be obtained for the filling of submerged land where protected marine resources are destroyed. Chapter 13-5 does not provide otherwise that Pila'a 400 could undertake marine construction.
22. The November 26, 2001, mudflow and subsequent sedimentation events constitute violation by Pila'a 400 of [HRS] chapter 183C and violation of rules adopted in accordance with chapter 183C.
On December 22, 2004, the Hearing Officer entered Proposed Findings of Fact, Conclusions of Law, and Recommendation (Hearing Officer's Proposal). The Hearing Officer recommended that the BLNR assess Pila'a 400 $2, 315, 000,  representing the sum of restoration costs, the value of coral destroyed, the intrinsic value of Pila'a Bay, compensation for interim loss, and five years of monitoring the Pila'a reef community. The Hearing Officer's Proposal noted generally the provisions of HAR §§ 13-5-24 and 30(b), as well as other relevant sections of HAR Chapter 13-5. In regards to HAR §§ 13-5-24 and 30(b), the Hearing Officer's Proposal adopted the ...