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Leone v. County of Maui

Supreme Court of Hawaii

October 16, 2017

DOUGLAS LEONE and PATRICIA A. PERKINS-LEONE, as Trustees under that certain unrecorded Leone-Perkins Family Trust Dated August 26, 1999, as amended, Plaintiffs-Appellants/Cross-Appellees,
v.
COUNTY OF MAUI, a political subdivision of the State of Hawai'i; WILLIAM SPENCE, in his capacity as Director of the Department of Planning of the County of Maui, Defendants-Appellees/Cross-Appellants.

         APPEAL FROM THE CIRCUIT COURT OF THE SECOND CIRCUIT (CAAP-15-0000599; CIVIL NO. 07-1-04 96(2))

          Patrick K. Wong, Bilberry and Thomas Kolbe for defendants-appellees/cross-appellants

          Andrew V. Beaman, Leroy E. Colombe, and Daniel J. Cheng for plaintiffs-appellants/cross-appellees

          Mark E. Recktenwald, Sabrina S. McKenna, Paula A. Nakayama, Richard W. Pollack, Michael D. Wilson

          NAKAYAMA, J.

         I. INTRODUCTION

         Over seventeen years ago, Plaintiffs-Appellants/Cross-Appellees Douglas Leone and Patricia A. Perkins-Leone (collectively, the Leones) bought a beachfront lot in Makena, Maui with the expressed intent of building a family house on it. Today the house has not yet been built, and the Leones contend that the County of Maui's land use regulations and restrictions prevented them from doing so. In 2007, the Leones filed suit against Defendants-Appellees/Cross-Appellants County of Maui and William Spence, in his capacity as Director of the Department of Planning of the County of Maui (collectively, the County), asserting, among other counts, that the County's actions constituted a regulatory taking for which the Leones were entitled just compensation. On May 5, 2015, a jury delivered a verdict in favor of the County.

         This case requires this court to decide, inter alia, whether the County's land use regulations constituted a regulatory taking of the Leones' property. But we do not decide on a blank slate. The jury determined that the County did not deprive the Leones of economically beneficial use of their property. We conclude that there was evidence to support the jury's verdict in favor of the County. As such, we affirm the Circuit Court of the Second Circuit's (circuit court): 1) June 1, 2015 judgment in favor of the County and against the Leones, 2) August 5, 2015 order denying the Leones' renewed motion for judgment as a matter of law or, in the alternative, motion for a new trial, and 3) August 5, 2015 order granting in part and denying in part the County's motion for costs.

         II. BACKGROUND

         In 1996, the Maui County Council (county council) adopted Resolution No. 96-121, authorizing the Mayor to acquire nine beach lots at Palau'ea Beach in Makena, Maui for the creation of a public park. The county council noted that Palau'ea Beach was "one of the last undeveloped leeward beaches on Maui" and that the community supported the creation of a beach park. Because of budgetary constraints, the County was able to buy only two of the nine lots (Lots 18 and 19), and the seven remaining lots were sold to private individuals.

         The beach lots were subject to the following regulations and designations:

1) The 1998 Kihei-Makena Community Plan (the community plan), which designated the lots as "park" land. Maui Cty., Kihei-Makena Community Plan 59 (1998). This designation "applies to lands developed or to be developed for recreational use." Id.
2) A Special Management Area (SMA) designation pursuant to the Hawai'i Coastal Zone Management Act (CZMA) . Any development within an SMA is prohibited unless the developer applies for and receives an SMA permit.[1] Hawai'i Revised Statutes (HRS) §§ 205A-21 and 205A-26 (2001).
3) A "Hotel-Multifamily" zoning designation, which permits, inter alia, the building of single-family residences.
4) A Declaration of Covenants and Restrictions (the declaration), which states, "[a] lot shall be used only for single family residential purposes regardless of whether the applicable zoning would permit a more intensive or different use."

         In February 2000, the Leones bought one of the lots ("Lot 15" or "the property") for $3.7 million. The Leones initially relisted the property for $7 million and, in 2002, they received two offers for its purchase, [2] which the Leones refused.

         Four years after buying Lot 15, the Leones hired a land use planning firm, Munekiyo & Hiraga, Inc. (Munekiyo), to prepare a draft environmental assessment (DEA) of Lot 15 so that they could eventually apply for SMA and development permits to build a single-family residence. As part of the environmental assessment process, Munekiyo sent out an early consultation letter, seeking comments from governmental agencies and non-profits on the Leones' proposed development of Lot 15. In this letter, Munekiyo described the property and the development plan as follows:

The parcel is located within the "Urban" district, is zoned Hotel "H-M" by the County of Maui and is designated as "Park" under the Kihei-Makena Community Plan. The owner intends to file a community plan amendment and change in zoning application with the County of Maui, Department of Planning for review by the Maui Planning Commission, and final action by the Maui County Council to achieve land use consistency for the parcel. Since a community plan amendment will be sought, the applicant will submit a Draft Environmental Assessment (DEA) in accordance with Chapter 343, Hawaii Revised Statutes (HRS).

         On May 20, 2004, the County of Maui's Department of Planning (the Department) sent Munekiyo comments in response to the early consultation letter. The Department initially noted that "the proposed action requires a Community Plan Amendment which therefore triggers Chapter 343, HRS." The Department then provided the following comments:

1. Provide a view analysis from Makena-Keoneolo Road. The analysis should assume a 60% buildable area and 40% open view corridor for the property and address impacts of the structure's massing.
2. The Erosion Rate for the Property is approximately one foot per year. As such, the shoreline setback area is calculated as 60 feet from the certified shoreline.
3. Lateral access along the shoreline shall be provided.
4. In addition to the applications for a Community Plan Amendment and Change in Zoning, the proposed action requires a Special Management Area assessment.

         On June 3, 2004, the Leones directed Munekiyo to stop work on the project. In an intra-office email, Munekiyo explained why the Leones instructed the firm to halt work on the project:

I received a call from Doug Leone this morning. He asked that we stop work and close the project. He felt that the political climate is much too difficult to be seeking any land use entitlements for the property. He was not willing to accommodate a 40% road frontage view corridor and felt that it would be better for him to just hold on to the property for now.

         In 2007, the Leones restarted the permitting process and Munekiyo submitted the SMA assessment application to the Department on September 28, 2007. One month later, the Department sent a letter declining to process the SMA application with the following explanation:

The subject property is designated "Park" on the Kihei-Makena Community Plan (Community Plan) . The proposed Single-Family dwelling is inconsistent with the Community Plan. An application for a Community Plan Amendment was not submitted concurrent with the subject application.
Section 12-202-12 (f) (5) states that an application "cannot be processed because the proposed action is not consistent with the County General Plan, Community Plan, or Zoning, unless a General Plan, Community Plan, or Zoning Application for an appropriate amendment is processed concurrently with the SMA Permit Application."

         The letter further explained that, in order for the Leones to proceed, they would have to file a new application consistent with the community plan and with the appropriate submittals.

         A. Initial Circuit Court Proceedings[3]

         On November 19, 2007, the Leones filed a lawsuit against the County, alleging that, because of the County's actions, the Leones were left with no economically viable use of their property. The Leones brought five counts against the County: 1) inverse condemnation pursuant to article I, section 20 of the Hawai'i Constitution, 2) inverse condemnation pursuant to the Fifth and Fourteenth Amendments of the United States Constitution, 3) equal protection violation pursuant to 42 U.S.C. § 1983, 4) substantive due process violation pursuant to 42 U.S.C. § 1983, and 5) punitive damages under 42 U.S.C. § 1983. The Leones asserted that the County was required to provide the Leones with just compensation for their property, and that they were also entitled to punitive damages in the amount of $50 million.

         The County filed a motion to dismiss, which the circuit court granted on March 2, 2009. The circuit court determined that "there [were] effective remedies still available" to the Leones, such as proceeding with a new application with appropriate submissions, seeking an amendment to the community plan, or applying for a special management use permit pursuant to the provisions of HRS §§ 12-202-13 and 12-202-15. Because "effective remedies" were still available to the Leones, the circuit court concluded that the Leones had "failed to exhaust their administrative remedies." As such, the circuit court ruled that the case was "not ripe for adjudication" and that the circuit court lacked jurisdiction over the subject matter of the case.

         B. Initial ICA Proceedings

         The Leones appealed this decision and on June 22, 2012, the Intermediate Court of Appeals (ICA) published an opinion which vacated the circuit court's judgment and remanded the case for further proceedings. See Leone v. Cty. of Maui, 128 Hawai'i 183, 284 P.3d 956 (App. 2012) (Leone I). The ICA concluded that the circuit court erred in determining that it lacked subject matter jurisdiction because the Leones' claims were not ripe for adjudication. Id. at 196, 284 P.3d at 969. The ICA specifically determined that the Department's letter, which declined to process the Leones' SMA assessment application, satisfied the finality requirement for ripeness, and that the Leones were not required to seek a change in the community plan, which amounted to seeking a change in the existing law, before they could bring their inverse condemnation claims. Id. at 193-96, 284 P.3d at 966-69.

         Of import to the proceedings on remand, the ICA commented in a footnote on the inconsistencies of the Maui County permitting process:

[T]he proposed use - the construction of single-family residences - is not considered a "development" under the CZMA unless the authority finds a cumulative impact or significant environmental effects. HRS § 205A-22. Although the CZMA does not expressly require consistency for proposed land uses that are not considered "developments, " the Maui County Code (MCC) renders the Community Plan binding on all county officials. MCC 2 . 8 OB . 030 (B) (2006) . Under the express language of the code, neither the director nor the Planning Commission may approve land uses that are inconsistent with the Kihei-Makena Community Plan. The language of the SMA Rules comports with this outcome, stating in mandatory terms that "the director shall make a determination . . . that the proposed action either:
(5) Cannot be processed because the proposed action is not consistent with the county general plan, community plan, and z oning[.]" SMA Rule 12-202-12 (f) (emphasi s added). In any case, the Director's decision that Appellants' assessment applications could not be processed had the same effect as a determination that it was a development. If, because of a "cumulative impact or a significant environmental or ecological effect, " a single-family residence is considered a development, then an SMA permit would be required. If a permit were required, it could not be approved because it would be inconsistent with the Community Plan. Thus, regardless of the denomination of the assessment application, the Director's determination of inconsistency with the Community Plan precludes further processing under applicable law.

Id. at 194 n.8, 284 P.3d at 967 n.8 (alterations in original) (citations omitted). Accordingly, the ICA vacated and remanded the case to the circuit court for further proceedings. Id. at 196, 284 P.3d at 969.[4]

         C. Circuit Court Proceedings on Remand[5]

         A jury trial was held from March 30 through May 5, 2015 on the same five counts.[6] During opening statements, the Leones showed the jury a tax map that depicted the Palau'ea Beach properties and explained who owned them and how they were developed:

And these are the present owners of properties. The north end of the beach you have Mr. Sweeney and Mr. Lambert's properties. They have homes on them today, and the reason why they have homes on them, we'll explore in more detail.
This is the Leones' property. It has a path on it leading from Old Makena Road to the beach that is used every day by members of the public.
This is the Larsons' properties. These two lots are owned by Bill and Nancy Larson. This parcel, Lot 52, is now being built upon, and the reasons why Mr. Larson got approval to build on his property we'll go in to also.
These two lots in the middle of the beach are owned by the County. The County bought them for beach-park purposes back in the end of 1999, but never improved the property.
This property is owned by Mr. Altman. This next property is owned by an associate of Mr. Leone's named Dan Warmhoven, Galando, and Luzco, and these three properties are on the rocky point at the south end of the beach, and they're improved with homes on them today.

         According to the Leones, the shifting political climate on Maui was the reason why some landowners at Palau'ea Beach were allowed to build homes on their properties, while the Leones were denied that same right:

Under Mayor Apana's administration, some of the other lot owners were able to get those approvals. They got SMA Assessment Applications filed. The exemptions were granted by Planning Director Min, building permits were issued, and they went forward and started building their homes; Lambert and Sweeney among others.
After Mayor Arakawa took office, during his first administration, he appointed a new Planning Director named Michael Foley, and within eight days after taking office, Planning Director Foley announced there would be no more approvals for homes at Palauea Beach and stopped granting extensions at Palauea.

         The Leones contended that it was at that time that they sought to obtain permits for building a single-family residence on their property, after Mayor Arakawa took office and the new Planning Director decided to stop development at Palau'ea Beach. The Leones further explained that after Mayor Arakawa took office for the second time, the policy shifted again, but it was too late for the Leones to build at that point:

Now, after Mayor Arakawa takes office for the second time, the political winds shift again, and beginning in 2012, the current Arakawa administration begins granting approvals to some of the other lot owners to build.
The problem from the Leones' perspective is that in September of 2011, there was a 40-year storm off of New Zealand, which came up over the coastal dunes and into their property and left debris much further inland than it had been before. The debris line creates a shoreline, and since the debris line came so much farther inland than it had before, the Leones were unable to build.[7]

         As such, the Leones contended that the "effect of the County's actions was to deprive the Leones of all economically viable use of their land."

         For its part, the County presented the following opening argument:

The County submits that the evidence in this case is not going to show that the Leones were denied the right to build on their lot. The evidence in this case is going to show that they did not want to go through the same process, the difficult process that each of the other seven lot owners out here who have single family residences on their lot went through. That's why we're here today.
Regulations are not inflexible. We've got seven other lot owners out there who are, again, living in very luxurious single family homes. They dealt with these regulations. They built on the lot. There's a guy out there building now.

         The testimony during trial focused almost exclusively on two distinct but interrelated inquiries: 1) whether the County's regulations prevented the Leones from building a single-family residence, and 2) if so, whether this deprived the Leones of economically beneficial use of their property. As to the first query, the circuit court ultimately instructed the jury that the County's actions had prevented the Leones from building a house on their property:

Ladies and gentlemen, at an earlier point during the trial, I read to you the law as you must apply in this case. I'm going to read three additional portions of the law that you must apply to the facts of this case.
The first instruction to you is as follows: Following an appeal at an earlier stage of this case, the Hawaii Intermediate Court of Appeals issued an opinion entitled Leone, et al., vs. County of Maui, et al. That opinion is the law of this case and is binding on the parties and this Court.
Second instruction. In the Leone opinion, the Intermediate Court of Appeals stated as follows: The language of the SMA Rules state in mandatory terms that the Director shall make a determination that the proposed action either cannot be processed - actually that's either, five, cannot be processed because the proposed action is not consistent with the County General Plan, Community Plan, and Zoning. That's SMA Rule 12-202-12, subparagraph F.
In any case, the Director's decision that the Leones' Assessment Applications could not be processed has the same effect as a determination that it was a development. If, because of a cumulative impact or a significant environmental or ecological effect, a single family residence is considered a development then an SMA permit would be required.
If a permit were required, it could not be approved because it would be inconsistent with the Community Plan. Thus, regardless of the denomination of the Assessment Application, the Director's determination of the inconsistency with the Community Plan precludes further processing under applicable law.
The final instruction at this point of the case is as follows: Under the Maui SMA Rules, the Planning Director may not legally process an application for an SMA exemption for a land use that is inconsistent with the Kihei-Makena Community Plan.

(Formatting altered.) These rulings shifted the parties' focus to the second inquiry: whether the County's regulations deprived the Leones of economically beneficial use of their property.

         Both parties called expert witnesses to testify as to the use and value of the Leones' property. The County called Ted Yamamura (Yamamura), a real estate appraiser with over thirty- five years of experience appraising Maui real property, to testify on the value and use of the Leones' property.[8] At the outset, Yamamura testified that he has done thousands of real estate appraisals on Maui over decades and that he determines the "best uses" for the real estate in doing an appraisal. Yamamura explained the test that he uses for determining highest and best use: "There's a four-item test; that use must be legally permissible, physically possible, financially feasible, and maximally productive, which means that use will yield the highest value for that land."

         Counsel for the County then asked Yamamura about investment use:

[COUNTY:] Mr. Yamamura, let me start by asking, what is meant by investment in land?
[YAMAMURA:] It's the use of land as an investment tool. In other words, people would buy land, hold it for a period of time, and as it increases in value and depending on the buyer's strategy and financial objectives, sell it for profit.
[COUNTY:] Do you have an opinion as to whether investment is a use of land?
[YAMAMURA:] I consider investment as a bona fide use of land. It happens all the time. People by [sic] land, hold on to it; after it appreciates over time, people sell it for profit. I think that's a bona fide land use.
[COUNTY:] In your opinion, Lot 15 at Palauea - based on your analysis of Lot 15 at Palauea, does it have potential use as an investment?
[YAMAMURA:] Absolutely, yes.
[COUNTY:] And looking at the first factor of your analysis, which is legally permissible, why do you draw that conclusion based on that particular factor?
[YAMAMURA:] Legally permissible. It's -- the underlying Zoning of that lot is HM.
[COUNTY:] Meaning?
[YAMAMURA:] Hotel.
[COUNTY:] Hotel.
[YAMAMURA:] But there's a conflict in the Community Plan, but if - under the context of legally permissible, if the issue of that conflict can be mitigated, then we can look at it as being a legally permissible use in the context of highest and best use because that issue or that conflict can be mitigated.

         The circuit court overruled the Leones' objections to this testimony.

         Rick Tsujimura (Tsujimura), a real estate attorney, testified as an expert witness for the Leones. Tsujimura opined that the inconsistences between the community plan and the zoning requirements left the Leones "deprived of all ...


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