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Kawashima v. State, Department of Education

Supreme Court of Hawaii

June 28, 2017

DIANE KAWASHIMA, individually and on behalf of all others similarly situated, Petitioner/Plaintiff-Appellee/Cross-Appellant,
v.
STATE OF HAWAI'I, DEPARTMENT OF EDUCATION; KATHRYN S. MATAYOSHI, in her official capacity as Superintendent of Schools; LANCE A. MIZUMOTO, BRIAN J.DELIMA, PATRICIA BERGIN, GRANT Y.M. CHUN, MAGGIE COX, HUBERT MINN, KENNETH UEMURA, BRUCE VOSS, JIM WILLIAMS, ANDREA LYN MATEO, and COLONEL PETER P. SANTA ANA, in their official capacities as members of the STATE OF HAWAI'I BOARD OF EDUCATION, Respondents/Defendants-Appellants/Cross-Appellees DAVID GARNER, PATRICIA SMITH, ANDREA CHRISTIE, ALLAN KLITERNICK, KAREN SOUZA, JO JENNIFER GOLDSMITH, and DAVID HUDSON, on behalf of themselves and all others similarly situated, Petitioners/Plaintiffs-Appellees,
v.
STATE OF HAWAI#I, DEPARTMENT OF EDUCATION, Respondents/Defendants-Appellants. ALLAN KLITERNICK, DAVID GARNER, JO JENNIFER GOLDSMITH, and DAVID HUDSON, individually and on behalf of all others similarly situated, Petitioners/Plaintiffs-Appellees,
v.
KATHRYN S. MATAYOSHI, in her official capacity as Superintendent of Schools, LANCE A. MIZUMOTO, BRIAN J. DELIMA, PATRICIA BERGIN, GRANT Y.M. CHUN, MAGGIE COX, HUBERT MINN, KENNETH UEMURA, BRUCE VOSS, JIM WILLIAMS, ANDREA LYN MATEO, and COLONEL PETER P. SANTA ANA, in their official capacity as members of the STATE OF HAWAI#I BOARD OF EDUCATION, DEPARTMENT OF EDUCATION, STATE OF HAWAI#I, Respondents/Defendants-Appellants.

         APPEALS FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT CAAP-15-0000462, CIV Nos. 06-1-0244, 03-1-000305, 05-1-00031.

          William J. Wynhoff and David D. Day for appellants

          Paul Alston and Eric G. Ferrer for appellees

          RECKTENWALD, C.J., NAKAYAMA, AND WILSON, JJ., CIRCUIT JUDGE CHANG, IN PLACE OF McKENNA, J., RECUSED, AND CIRCUIT JUDGE CRANDALL, IN PLACE OF POLLACK, J., RECUSED

          OPINION

          RECKTENWALD, C.J.

         I. Introduction

         This is a consolidated case involving substitute and part-time temporary teachers who were employed by the State of Hawai'i, Department of Education ("State" or "DOE"), and who claim they were underpaid by the State.

         Plaintiffs in the Garner case include more than 8, 000 substitute teachers (collectively "Garner Plaintiffs" or "substitute teachers") who were paid on a per diem basis. Approximately half of the substitute teachers in Garner also worked in a part-time capacity for which they were paid hourly wages.

         During a prior interlocutory appeal in Garner, the Intermediate Court of Appeals (ICA) found that the circuit court properly ruled that the substitute teachers were underpaid and thus entitled to their per diem back wages pursuant to Hawai'i Revised Statutes (HRS) § 302A-624(e). See Garner v. State, 122 Hawai'i 150, 154-55, 223 P.3d 215, 219-20 (App. 2009) (Garner I). On remand, the circuit court ruled that the Plaintiff class included the substitute teachers who were paid hourly wages and calculated the amount of those wages due, and that Plaintiffs were entitled to interest on their hourly and per diem back wages under HRS § 103-10.

         In 2014, the State paid a partial settlement to Garner Plaintiffs in the amount of $14, 031, 874.70, which settled all per diem wage claims for the claim period from November 8, 2000 through June 30, 2005. The State continued to dispute its liability regarding the payment of the substitute teachers' hourly back wages, and whether the teachers are entitled to interest on their per diem and hourly wages.

         In 2015, the Circuit Court of the First Circuit (circuit court) entered final judgment in Garner, awarding hourly back wages to Plaintiffs who worked in a part-time capacity in the amount of $6, 789, 175.21 for the period from November 8, 2000 through June 12, 2012.[1] The circuit court also awarded interest on both the per diem and hourly back wages owed, in the amount of $13, 542, 186.74.

         Plaintiffs in the Kawashima case include approximately 20, 000 part-time temporary teachers (collectively "Kawashima Plaintiffs, " "part-time teachers" or "PTTs") who were paid on an hourly basis. Similar to the substitute teachers claiming hourly back wages in Garner, the PTTs in Kawashima argued that their hourly pay rate, which was set forth in School Code Regulation 5203, was linked to the substitute teachers' per diem pay rate under HRS § 302A-624(e). Thus, based on the claimed linkage between Regulation 5203 and HRS § 302A-624(e), the PTTs argued that because the substitute teachers were underpaid, they too were underpaid. The circuit court in Kawashima ruled that the PTTs were underpaid and entitled to hourly back wages in the amount of $24, 026, 329.52 for the period from February 20, 2004 through June 12, 2012.[2] In contrast to Garner, however, the circuit court in Kawashima ruled that the PTTs were not entitled to interest on their unpaid hourly wages under HRS § 103-10. Nevertheless, the circuit court determined that had Plaintiffs been entitled to interest on their hourly back wages under HRS § 103-10, they would have been entitled to interest payments in the amount of $9, 450, 085.40.

         On appeal in Garner, the State argues that the circuit court erred in: (1) determining that Plaintiffs' claims for hourly back wages were "properly part of this case"; (2) determining that School Code Regulation 5203 is an HRS chapter 91 rule; (3) granting summary judgment in favor of the substitute teachers on their hourly back wages contract claim; and (4) determining that the substitute teachers were entitled to interest on their hourly and per diem back wages under HRS § 103-10.

         On appeal in Kawashima, the State argues that the circuit court erred in: (1) determining that School Code Regulation 5203 is an HRS chapter 91 rule; and (2) denying the State's motion for summary judgment on the PTTs' hourly back wages contract claim. Kawashima Plaintiffs also cross-appealed the circuit court's rulings, arguing that they are entitled to interest on their unpaid hourly wages under HRS § 103-10.

         This court accepted transfer of both Garner and Kawashima, and subsequently consolidated the cases.

         We conclude that Plaintiffs are not entitled to hourly back wages, or interest on any back wages (whether per diem or hourly) under HRS § 103-10. Because we decide the case on the merits, we do not reach the question of whether the substitute teachers' hourly back wages were properly within the scope of the Garner Plaintiffs' claims.

         Therefore, the circuit court's May 19, 2015 judgment in Garner is reversed and remanded for entry of judgment in favor of the State. Additionally, the circuit court's May 18, 2015 judgment in Kawashima is affirmed in part to the extent that the circuit court determined that Plaintiffs are not entitled to interest under HRS § 103-10, and reversed on all other remaining grounds and remanded for entry of judgment in favor of the State.

         II. Background

         We first provide essential background information regarding the compensation of substitute teachers and PTTs employed by the State.

         A. Substitute Teachers' Compensation

         In 1996, the legislature recodified the education statutes and enacted HRS § 302A-624(e) (Supp. 1997), which established the following per diem rate of pay for substitute teachers:

(e) Effective July 1, 1996, the per diem rate for substitute teachers shall be based on the annual entry step salary rate established for a Class II teacher on the most current teachers' salary schedule. The per diem rate shall be derived from the annual rate in accordance with the following formula:
Per Diem Rate = Annual Salary Rate ÷ 12 months ÷ 21 Average Working Days Per Month.

         A "Class II teacher" is defined as "any teacher who holds a certificate issued by the department based upon four acceptable years of college education and other requirements as may be established by the department[.]"[3] HRS § 302A-618(b)(2) (Supp. 1997).

         B. Part-Time Teachers' Compensation

         Since at least 1945, the DOE has had a body of internal guidelines called the "School Code." In 1976, the Board of Education (BOE) adopted School Code Regulation 5203, which linked the hourly wage of PTTs to the per diem wage paid to substitute teachers. Regulation 5203 provides:

E. Part-time Temporary Teachers (Academic and Non-Academic)
EFFECTIVE SEPTEMBER 1, 1976:
Pay rates for Part-time Temporary Teachers (Academic and Non-Academic) employed on an hourly basis shall be based on the most current Per Diem Rates established for Substitute Teachers as follows:
Class I Per Diem Rate for Substitute Teacher
Class II Per Diem Rate for Substitute Teacher
Class III Per Diem Rate for Substitute Teacher
Hourly Rates shall be derived from Per Diem Rates in accordance with the following formula:
*Hourly Rate = Per Diem Rate ÷ 6 average working hours per day

         The regulation remained unamended until 2005, when the first of a series of changes occurred. In January 2005, the DOE issued a new version of the Regulation 5203, which stated, "Compensation for Part-time Temporary Teachers on an hourly basis shall be determined by the [DOE]." In a July 2005 memorandum, Superintendent Patricia Hamamoto adjusted the pay rate of PTTs as follows:

Beginning July 1, 2005, all employees hired as part-time teachers will be assigned to two classes. Compensation will be determined by the academic qualifications of the employee. The following is a breakdown of the classes:
• Class A: Employees with a minimum of a Bachelor's Degree from an accredited institution.
Compensation Rate: $22.43 per hour
• Class B: Employees with no Bachelor's Degree. Compensation Rate: $20.67 per hour
Payment for these employees will be retroactive to July 1, 2005.

         In 2006, the BOE retroactively ratified the Superintendent's July 2005 memorandum establishing the PTTs' pay rate. In 2009, the DOE issued "Standard Practice Document SP 5203" (SP 5203), which was intended to supersede Regulation 5203 that was amended January 2005. SP 5203 stated that compensation for PTTs "shall be determined by the Department." In 2012, the DOE adopted Hawai'i Administrative Rules (HAR) chapter 8-66 (effective June 14, 2012) pursuant to HRS chapter 91's rulemaking procedures, which provided compensation rates for part-time temporary teachers.[4]

         C. Garner Circuit Court Proceedings

         In 2002, Plaintiffs David Garner, Patricia Smith, Andrea Christie, and Allan Kliternick filed a class action complaint in the Circuit Court of the Second Circuit, claiming that the DOE failed to pay the substitute teachers' wages mandated by HRS § 302A-624(e), and seeking back pay for the 2000-2001, 2001-2002, and 2002-2003 school years.[5]

         The circuit court certified the Plaintiff class in Garner to include:

[a]ll persons who have served in position numbers 75100, 75101, 75102, as identified on a DOE SF-5 as a substitute teacher for the Hawaii DOE at public schools of the State of Hawaii from November 8, 2000 through the present.

         The class includes approximately 8, 000 substitute teachers. Approximately half of the substitute teachers in Garner also worked in a part-time capacity for which they were paid hourly wages, and argue that they are entitled to both their per diem back wages and hourly back wages.

         In 2005, Plaintiffs Allan Kliternick, David Garner, Jo Jennifer Goldsmith, and David Hudson filed a similar class action complaint in Kliternick v. Hamamoto (Kliternick case), which covered the 2004-2005 school year. Garner and Kliternick were consolidated (collectively, the "Garner" case).

         In Garner, Plaintiffs raised two claims for relief in their operative complaint, seeking monetary damages and injunctive relief for: 1) violation of HRS § 302A-624(e) (underpaying the substitute teachers); and (2) violation of contract rights (breach of obligation to pay teachers per diem rate under HRS § 302A-624(e)). The State moved for summary judgment as to all claims and parties, and Garner Plaintiffs moved for partial summary judgment with respect to liability for damages for the period from November 8, 2000 to June 30, 2005. The circuit court granted in part and denied in part Garner Plaintiffs' motion for partial summary judgment, ruling, inter alia, that the State violated its contractual obligation to pay the substitute teachers per diem wages prescribed by HRS § 302A-624(e). However, the circuit court ruled that the State had sovereign immunity as to prejudgment interest, and thus denied Garner Plaintiffs any prejudgment interest. The circuit court then authorized an interlocutory appeal from its summary judgment order.

         The ICA affirmed, inter alia, the circuit court's determination that the DOE violated its obligation to pay the substitute teachers by failing to pay the per diem rate prescribed by HRS § 302A-624(e). Garner I, 122 Hawai'i at 154, 223 P.3d at 219. The ICA also ruled that: (1) pursuant to HRS § 661-1, [6] the substitute teachers' claim for breach of contract damages was not barred by sovereign immunity; (2) HRS § 302A-624(e), as a pay mandating statute, provided an alternative basis for invoking jurisdiction under the "founded upon any statute" language in HRS § 661-1; and (3) HRS § 661-8[7] barred any award of prejudgment interest under HRS § 478-2.[8] Id. The ICA specifically rejected the State's argument that the substitute teachers had assented to a lower rate of pay than required by HRS §302A-624(e), reasoning that it was part of the parties' agreement that the rate of pay was "subject to applicable State laws, " and the parties "could not contract to violate a law determining the rate of pay."[9] Id. at 170, 223 P.3d at 235 (citations omitted).

         On remand, the substitute teachers pursued a different theory regarding their interest claim and moved for an award of interest on their unpaid per diem wages pursuant to HRS § 103-10 (1993).[10] At a hearing on the motion, the circuit court explained that according to Garner I, the substitute teachers were unquestionably in a contractual relationship with the State, and that HRS § 103-10 was a "pertinent statute incorporated by the contractual relationship." Thus, the circuit court determined that HRS § 103-10 "constitute[d] a contract expressly stipulating for the payment of interest as required under [HRS §] 661-8, " and concluded that Garner Plaintiffs were entitled to interest on their per diem back pay under HRS § 103-10.[11]

         The State moved for a ruling as to the scope of the Garner Plaintiff class, and sought to preclude the Garner class members' recovery for unpaid hourly wages, seeking to limit recovery to only per diem wages. Garner Plaintiffs filed a counter motion, seeking to affirm the scope of the class, or in the alternative to amend the class definition or the complaint. The circuit court granted Garner Plaintiffs' motion and denied the State's motion, ruling that the class members were entitled to recover both per diem and hourly back wages.

         Garner Plaintiffs then sought summary judgment for hourly back wages owed and interest thereon under HRS § 103-10. The State filed a counter summary judgment motion. During a hearing on both motions, the circuit court stated that in the "interest of comity, " it would follow the circuit court's ruling in the Kawashima case, finding that Regulation 5203 has the same force and effect as law and is subject to HRS chapter 91.[12] The circuit court also determined that HRS § 103-10 was incorporated into the parties' contracts and awarded interest on the substitute teachers' hourly back wages. The circuit court subsequently filed an order granting Garner Plaintiffs' motion and denying the State's motion, ruling that the substitute teachers who also worked in a part-time capacity were entitled to hourly back wages from November 8, 2000 until June 14, 2012 and interest thereon under HRS § 103-10.

         In 2014, the State paid a partial settlement to Garner Plaintiffs in the amount of $14, 031, 874.70, which settled all per diem wage claims for the claim period from November 8, 2000 through June 30, 2005. The State continued to dispute its liability regarding the payment of hourly back wages.

         On May 19, 2015, the circuit court entered final judgment, awarding $6, 789, 175.21 to the substitute teachers for their hourly back wages, and $13, 542, 186.74 for interest owed under HRS § 103-10 on the hourly and per diem back wages through May 18, 2015.

         D. Kawashima Circuit Court Proceedings

         In 2006, Diane Kawashima filed a class action complaint, alleging that the DOE had underpaid all PTTs because DOE's School Code Regulation 5203 linked the hourly pay rates of PTTs to the per diem pay rates for substitute teachers.[13] Kawashima argued that because the DOE underpaid the substitute teachers, it followed that the DOE underpaid the PTTs as well.

         Kawashima moved for class certification, and the circuit court granted the motion, appointing Kawashima as class representative for a certified class of:

All persons employed by the State of Hawai'i Department of Education, who were paid according to the pay rates for Part-Time Teachers with or without a differential (excluding the class members in [the Garner and Kliternick cases]) at any time within the applicable statute of limitations.

         The Kawashima case was stayed pending resolution of the interlocutory appeal in the Garner case. After the ICA issued its decision in Garner I, the stay was lifted.[14] Kawashima Plaintiffs then filed a motion for summary judgment, arguing that: (1) the DOE's School Code Regulation 5203 expressly linked the hourly pay rate for PTTs to the most current per diem pay rate for substitute teachers, and because the State had underpaid the substitute teachers, the State had necessarily underpaid the PTTs; and (2) the DOE's and BOE's "litigation-driven" attempts to amend Regulation 5203 beginning in January 2005 were improper and ineffective.

         At the hearing on the motion, the circuit court determined that Regulation 5203 has the "same force and effect as law, " and is subject to HRS chapter 91. The court also found that Regulation 5203 did not fall under the two exceptions of an HRS chapter 91 rule because it did not involve internal management or affect the private rights of the public. The court reasoned that Regulation 5203 should have the same force and effect as law because it "in all shape and form, refers to [HRS §] 302A-624(e) with regards to how the part-time teachers should be paid." Accordingly, the circuit court granted Kawashima Plaintiffs' motion for summary judgment. Because the court determined that Regulation 5203 is an HRS chapter 91 rule, any amendments to Regulation 5203 would have had to be made in accordance with HRS chapter 91's rulemaking processes, which was not completed until 2012 when the DOE adopted HAR chapter 8-66. However, if the court had determined the Regulation 5203 was not a rule, the DOE could have amended Regulation 5203 at any time, and it would not have been subject to HRS chapter 91's restrictions.

         Kawashima Plaintiffs filed a motion for interest under HRS § 103-10 on the hourly unpaid wages, arguing that the circuit court's ruling in Garner that awarded substitute teachers interest on their per diem back wages under HRS § 103-10 was persuasive. The circuit court denied the motion without prejudice. Kawashima Plaintiffs filed a renewed motion for interest, arguing that the circuit court's ruling in Garner that the substitute teachers were entitled to interest on both their hourly and per diem back wages under HRS § 103-10 was persuasive. The circuit court denied Kawashima Plaintiffs' renewed motion. Kawashima Plaintiffs filed a second renewed motion for summary judgment for interest, and the State filed a cross-motion for partial summary judgment as to interest. At the hearing on the motions, the circuit court determined that HRS § 103-10 did not apply to Kawashima Plaintiffs, and that the purpose and intent of HRS § 103-10 "is to address goods and services being provided by independent contractors, small business people, [and] maybe persons in general [that are] not even considered a contractor but [are] providing a service or goods to the State." Thus, the circuit court granted the State's motion and denied Kawashima Plaintiffs' second renewed motion, ruling that as a matter of law, Kawashima Plaintiffs were not entitled to interest on their hourly back wages under HRS § 103-10.

         In 2015, Kawashima Plaintiffs moved for summary judgment to establish the amount of hourly back wages Plaintiffs were owed, and the interest thereon under HRS § 103-10 had they been entitled to it. The circuit court granted Kawashima Plaintiffs' motion, and on May 18, 2015, entered final judgment, establishing that Kawashima Plaintiffs were entitled to damages in the amount of $24, 026, 329.52 for their hourly back wages for the period from February 20, 2004 through June 12, 2012. The circuit court also determined that had Plaintiffs been entitled to interest on their hourly unpaid wages under HRS § 103-10, they would have been entitled to $9, 450, 085.40 through May 6, 2015.

         E. G ...


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