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Dao v. Zoning Board of Appeals

Intermediate Court of Appeals of Hawaii

January 31, 2019

LELAND H. DAO, Respondent-Appellant/Appellant,


          Peter Knapman, for Respondent-Appellant/Appellant.

          Krishna F. Jayaram, Deputy Corporation Counsel, City and County of Honolulu, for Petitioner-Appellee/Appellee.



          LEONARD, J.

         This case concerns alleged unlawful transient vacation unit[1] rentals by Respondent-Appellant Leland H. Dao, M.D. (Dao) in violation of certain provisions of the Land Use Ordinance (LUO) of the City and County of Honolulu, codified as Revised Ordinances of Honolulu (ROH) Chapter 21 (1990).[2] Dao appeals from the Final Judgment (Judgment) entered on July 29, 2015, by the Circuit Court of the First Circuit (Circuit Court).[3] On secondary appeal, Dao contends that the Circuit Court erred in affirming the decision of the Zoning Board of Appeals of the City and County of Honolulu (2BA), which upheld the actions of the Director (Director) of the Department of Planning and Permitting of the City and County of Honolulu (DPP). Dao requests that this court vacate the decision of the Circuit Court and enter judgment in favor of Dao, vacating two Notices of Order issued by the Director against him. In the alternative, Dao requests that judgment be entered in favor of Dao and against the Director, vacating the first Notice of Order and reducing the civil fines imposed by the second Notice of Order.

         We hold, inter alia, that: (1) a transient vacation unit rental violation cannot be established based solely on a DPP inspector's report of a conversation with an unidentified person who is encountered at a subject property; (2) if an agency's factual determination that a violation occurred and is continuing is not grounded in reliable, probative, and substantial evidence, including any reasonable inferences that may be drawn from that evidence, then the agency's decision may be determined to be clearly erroneous and therefore unjust and unreasonable in its consequences, warranting reversal or modification; (3) in this case, the Director permissibly determined that notwithstanding the existence of written rental agreements for periods of thirty or more days, based on the parties' actual intent, understanding, agreement, and undertaking, Dao had in fact provided a dwelling unit or lodging unit to transient occupants for less than thirty days; (4) the LUO's prohibition of transient vacation unit rentals in residential districts is violated when, and only during the period that, the prohibited use occurs; and (5) although we note that the Director's discretion to determine an appropriate fine for a violation of the LUO must be exercised within the parameters stated in the DPP's administrative rules, because the fines levied against Dao are vacated on other grounds, we need not reach the issue of whether the amounts levied were improper. As explained below, we conclude that the ZBA and the Circuit Court erred in affirming Dao's first alleged transient vacation rental unit violation, and this case must be remanded for further proceedings to re-determine the period of Dao's second alleged violation, as well as the fines stemming from the second alleged transient vacation rental unit violation.


         A. The Alleged Violations

         Dao is the owner of a residential property on Kamehameha Highway in Haleiwa, Hawai'i (the Property). On October 3, 2011, the DPP received a complaint from the public alleging that unlawful transient vacation rentals were taking place at the Property. DPP Inspector Todd Labang (Labang) responded to the complaint by conducting an inspection of the Property on October 12, 2011, where he spoke with a man who did not identify himself. The unidentified man reportedly told Labang that he was renting the Property from October 11, 2011, through October 13, 2011.

         On behalf of the Director, Labang issued a DPP Notice of Violation No. 2011/NOV-10-082 (NOV #1) on October 13, 2011. The notice was addressed to Dao and specified that the dwelling on the Property was being used as a transient vacation unit without a nonconforming use certificate, in violation of ROH §§ 21-3.70-1 and 21-4.110-1 (1990).[4] The notice instructed Dao to "restore the area immediately and complete all work within 30 days" and to call Labang "after the corrections have been made" or civil fines would be imposed.

         On October 20, 2011, Dao sent a letter to Labang confirming receipt of NOV #1 and stating that he only had long- term renters on the Property and many guests during the surfing season.

         It appears that on November 30, 2011, Labang re-inspected the Property. No one was present at the Property on November 30, 2011. According to his Inspector's Report, the re-inspection "revealed no change."

         On December 14, 2011, the Director issued Notice of Order No. 2011/NOO-289 (NOO #1), which ordered Dao to (1) pay an initial fine of $1, 000 by January 17, 2012, and (2) correct the violation by December 29, 2011. NOO #1 stated that if the correction was not completed by that date, daily fines of $1, 000 would be assessed until the correction was completed. The notice also specified that Dao "was responsible for contacting the inspector ... to verify the corrective action."

         On December 16, 2011, Dao re-submitted his letter dated October 20, 2011, attaching a "rental agreement statement by tenant and bank statement of funds deposited for her payment." The "rental agreement statement" was purportedly an e-mail from Monika Iseli (Iseli), stating that she rented the Property from October 3, 2011, through November 7, 2011. The "bank statement" indicated that Iseli paid $6, 869.00 on September 2, 2011.

         According to a further Inspector's Report, on December 30, 2011, Labang re-inspected the Property and determined that the violation was corrected because "[t]he people who were there previously moved out" and Dao had "provided a rental contract and proof of payment for the new occupant[] of the dwelling, Benedict Strasser." This written contract (Strasser Lease) was dated December 22, 2011, and provided that Strasser paid $3, 077.59 to rent the Property from December 22, 2011, through January 21, 2012.

         It appears based on, inter alia, Labang's notes that on January 10, 2012, the DPP received another complaint from the public requesting investigation into alleged transient vacation rentals on the Property. On January 11, 2012, Labang inspected the Property again. According to the Inspector's Report, this inspection revealed that the dwelling was "being rented by the Lawson [Heath] family from Australia for 3 days" and that "Mr. Lawson [Heath] said they are not renting for 30 days." The report noted that these were different people than those who were identified in the Strasser Lease.

         On January 12, 2012, for the Director, Labang issued Notice of Violation No. 2012/NOV-01-080 (NOV #2). NOV #2 differed from NOV #1 in designating the violation as a "recurring violation" requiring immediate correction "within 0 days."

         On January 17, 2012, Dao sent a Petition for Appeal to the ZBA regarding NOV #1, NOO #1, and NOV #2. Dao's petition asserted, inter alia, that the "appeal is to verify that the Director's actions are based on an erroneous findings of material facts, and has acted in an arbitrary and capricious manner, and manifestly abused his discretion in imposing this fine." In the petition, Dao detailed his prior communications with Labang. Dao stated that upon contacting Labang regarding NOV #1, Labang asked for a rental agreement and proof of payment. After Dao submitted the e-mail from Iseli, [5] Labang told him that the e-mail was not sufficient and requested a rental agreement for a new tenant. Dao noted that after he provided the Strasser Lease, which corrected the violation underlying NOV #1 and NOO #1, he received a letter from the DPP dated January 5, 2012, which stated that the initial fine was still due and owing. Regarding NOV #2, Dao stated that "[t]he current tenant is renting a separate room from the previously mentioned tenant, both have valid rental agreements, for rental for 30 days."

         On January 23, 2012, the Director issued DPP Notice of Order No. 2012/NOO-011 (NOO #2), which ordered Dao to (1) pay an initial fine of $1, 000 by February 23, 2012, and (2) correct the violation by January 30, 2012. Like NOO #1, NOO #2 informed Dao that daily fines of $1, 000 would be assessed if the violation was not corrected by the date specified.

         On January 30, 2012, Dao sent a letter to Labang confirming receipt of NOV #2 and stating that Dao only had long-term renters on the Property. Attached to this letter were purported bank statements showing deposits of $1, 288.90 and $872.79 dated December 8, 2011, and August 31, 2011, respectively.

         On February 2, 2012, Dao sent a thirty-day rental contract and proof of payment to Labang which provided that Lawson Heath (Heath) was renting the Property from January 9, 2012, through February 9, 2012 (Heath Lease). The Heath Lease was dated January 9, 2012, and indicated that Heath had paid $1, 655.54. After noting in his report that the Heath Lease conflicted with the Strasser Lease, Labang determined that the violation underlying NOV #2 and NOO #2 was not corrected.

         According to his notes, on February 8, 2012, Labang re-inspected the Property and found that the dwelling was "being rented by Tim Crane [Crane] and his girlfriend, Jessie Robinson," from February 6, 2012, through February 10, 2012, with no thirty-day rental contract. Labang noted that the violation was not corrected.

         On February 22, 2012, Dao sent a second Petition for Appeal to the ZBA regarding NOV #1, NOO #1, NOV #2, and NOO #2. This petition re-asserted the facts as they had been described in the first petition and asserted that ROH § 21-5.550[6] was implicated in this matter. In addition, Dao stated that "multiple attempts have been made to try and show the Inspector the rental agreements of each tenant via fax and telephone messages."

         On April 5, 2012, John M. Friedel, for the Director, sent a letter to Dao stating that the violation underlying NOV #2 and NOO #2 was corrected on April 2, 2012, when a re-inspection of the Property revealed that "the transient vacation use was discontinued and the dwelling was occupied by the owner." The letter also notified Dao that "[a]lthough the violation was resolved, the $1, 000 initial fine and daily fines [of] $62, 000 remain unpaid."[7] The letter noted that the DPP would accept $16, 500 in settlement of the outstanding fines because the violation was corrected.

         B. The Contested Case Hearing

         On January 27, 2012, the ZBA notified Dao that the ZBA would hold a contested case hearing to consider his petition of appeal filed on January 17, 2012. On February 24, 2012, the ZBA notified Dao that the ZBA would hold a contested case hearing to consider his petition filed on February 22, 2012. The latter notice specified that the issue to be addressed in the appeal was:

Whether the action of the Director in issuing Notice of Order Nos. 2011/NOO-289 and 2012/NOO-011 for violations of ROH Sections 21-3.70-1 and 21-4.110-1 was based on an erroneous finding of a material fact, or whether the Director acted in an arbitrary or capricious manner, or manifestly abused his discretion[.]

         On March 8, 2012, the ZBA consolidated Dao's two appeals. On April 23, 2012, the contested case hearing was rescheduled to July 12, 2012.

         On June 25, 2012, Dao filed his Position Statement. In his Position Statement, Dao re-asserted the facts as they were described in his petitions for appeal. In addition, Dao asserted that he rented rooms on his Property for thirty days or more pursuant to ROH § 21-5.550. Attached to his Position Statement were the Strasser Lease, the Heath Lease, a Rental Agreement from Crane (Crane Lease), and e-mails from the Strassers and Crane stating that they had rented specific rooms. The Crane Lease provided that Crane had paid $2, 018.90 to rent the Property for thirty-one days beginning on February 6, 2012.

         On July 3, 2012, the Director filed a Position Statement. The Director argued, inter alia, that the issuance of NOO #1 and NOO #2 was not based on an erroneous finding of fact and that the actions of the Director were rational based on the site inspections and did not constitute an abuse of discretion.

         After a further rescheduling, on August 9, 2012, the contested case hearing took place. Dao, appearing pro se, called himself and Iseli as witnesses. DPP Inspector Colin Ishikawa (Ishikawa), neighbors Joyce Farrell (Farrell) and Beau Sheil (Sheil), and Labang testified on behalf of the Director.

         Regarding NOV #1 and NOO #1, Dao testified that the unidentified man who had spoken with Labang on October 12, 2011, was a friend who was not renting. Dao further testified that he had created a rental agreement with Iseli after-the-fact to reflect her stay in 2011. Regarding NOV #2, Dao testified:

Mr. Labang did not investigate sufficiently and did not know that we rent several rooms in the home and the tenant that he was inquiring about rents a room separately from the initial tenant and they both had valid rental agreements.
We had multiple attempts to try to show these to Mr. Labang; however, we were not able to give that to him.

         In summarizing his position, Dao stated "it is likely that the [DPP] has not been provided with all the facts and, therefore . . . the director acted in an arbitrary and capricious manner and manifestly abused his discretion in not closing this file." Following Dao's testimony, the Director objected to Exhibits I, J, K, and L[8] of Dao's Position Statement on the grounds that they were not provided to the Director "during the course of the events." The Director1s objections were noted, but not sustained.

         On cross-examination, Dao confirmed that he did not have a nonconforming use certificate allowing rentals of his Property for less than thirty days. Upon further questioning, Dao testified that his tenants "would rent for the month," that they "were there during the 30 days at some point," but "if they left early then they would have left early." Dao further testified that he "did not have leases at the time" and "started creating leases after Mr. Labang asked [him] to." Counsel for the Director then questioned Dao regarding the various amounts paid for the leases, as follows:

[Mr. Jayaram:[9] So the amounts that they paid for their lease, does that reflect the value based on your property for a 30-day rental or for the amount of time that they expected to stay?
[Dao:] It could be either.
[Mr. Jayaram:] Do you have a set room rate for each room?
[Dao:] In general we do, but we do vary that sometimes.
[Mr. Jayaram:] Okay. What accounts for the variance? Ms. Iseli, for example, paid about $196 per day whereas Mr. Heath paid about $51 per day. It's almost a quarter less.
[Dao:] Just depends if we know the person, you know. If they're a friend of a person we may give them a discount.
[Mr. Jayaram:] I see.
[Dao:] If they think they may be leaving early.
[Mr. Jayaram:] ... So just to be clear, your testimony is that you had a prior understanding that these folks -- Strasser, Heath and Crane - were staying for less than 30 days but you entered into a lease term of 30 days?
[Dao: ] .Yes.

         Upon follow-up questions from the ZBA, Dao further testified:

THE CHAIR:[10] And you said that you gained a lot of your tenants from a website.
[Dao:] Right.
THE CHAIR: What website is that?
[Dao:] We use and THE CHAIR: . . . V-R-B-0?
[Dao:] Yes.
THE CHAIR: Is that an abbreviation for something?
[Dao:] Vacation rental by owner.

         Dao also testified that he spent an average of four nights a week at the Property, and a caretaker and family member lived at the Property while Dao was away.

         Ishikawa testified that inspections are triggered primarily by complaints from the public. Upon cross-examination, Ishikawa further testified that with the type of violations at issue, the DPP will "accept a 30-day contract with proof of payment," but "during that 30-day period, nobody else can be in that house." Ishikawa also confirmed that rental situations involving no written rental agreement are "very common," elaborating:

We make an inspection of the people. I ask them if they're renting. We ask them if they have a 30-day contract. If they have a 30-day contract, we don't do anything. If they don't have a 30-day contract, they say they're renting for less than 30 days, we' 11 issue a notice of violation.

         Upon further questioning, Ishikawa confirmed that the basis of NOO #1 was the statement given to Labang by the unidentified man who said he rented the Property from October 11 through October 13, 2011. Ishikawa also confirmed that the primary basis of NOO #2 was the rental of the Property by the Strassers and the Lawsons. Upon recross-examination, Ishikawa confirmed that the DPP will issue a notice of violation even where the renter does not provide identification. On redirect, Ishikawa testified as follows:

[Mr. Jayaram:] What if somebody provided you with a lease for more than 30 days and also a sworn statement that they never intended to rent for that period of time?
[Ishikawa:] ... I think that'll be a violation if they provide us a written statement saying that they're not going to rent for 30 days. I think that'll be a violation.

         Labang also testified regarding the standard process for transient vacation rental inspections, which are unannounced. Labang testified that the "objective is to meet with somebody at the Property and to determine whether or not they are renting the Property and for how long." Further, "[o]ne of the first questions [he asks] is if the person is the owner of the Property. If they are not, [he asks] if the owner is present or staying at the Property." When asked whether inspectors have "any ability to ask for identification," Labang testified that he "can ask," but that he "can't get it out of them" if they do not wish to be identified. Regarding the unidentified man who was at the Property on October 12, 2011, Labang testified that this person said he was renting the Property and that he did not know the owner.

         Labang also testified that Dao's letter of October 20, 2011, which stated that there was no vacation rental, was not acceptable as a valid means of correcting the violation. Labang testified that he had explained to Dao that the DPP "would either need a 30-day contract with the occupant's - the renter's names on it as well as proof of payment for that time period or [Labang] would need to perform a site inspection to verify that the dwelling was vacant." Labang also testified that Dao's re-submission of the same letter with an e-mail and bank statement from Iseli attached was also not sufficient because "that was not a valid rental contract and ... it would need to be a valid rental contract for it to be corrected."

         Labang confirmed that the violation underlying NOO #1 was corrected based on the Strasser Lease, but testified that had he known the Strasser Lease was made with the understanding that Strasser would be staying less than 30 days, then he would not have accepted the lease.

         Regarding NOV #2, Labang testified that a "recurring violation" means "it was the second time [the DPP] issued for the same violation," therefore Dao "was given zero days to correct it and it was automatically referred for civil fines."[11] Further, Labang testified that he did not accept the Heath Lease as a correction of the violation because there was overlap with the Strasser Lease, which is a violation.

         The ZBA asked Labang a number of follow-up questions regarding why the overlap in the leases constituted a violation. Upon questioning, Labang confirmed that he enforces DPP policy such "that when the lease does not specify a particular part of the property, that that is construed to mean the entire property." Labang also confirmed that the DPP viewed Dao's Property as a single dwelling[12] "based upon what [the Property] was initially constructed as or permitted as." This view, coupled with the fact that the leases did not specify rented rooms, led to the conclusion that "when the Strassers rented the property, they rented the whole house." Labang confirmed that this meant that "even if [the Strassers] left early, the house should have been vacant until January 21st, 2012," but instead Labang re-inspected the Property on January 11, 2012, and found the Heath family at the Property and received a statement from Heath that they were renting for about three days.

         Farrell, who lived "directly next door," testified that Dao did not live at the Property and that the number of cars driving down their dead-end street had "increased decidedly," with twenty-three different cars staying at the Property overnight over an eight-week period.[13] Farrell estimated an average of three or four different cars per week would stay overnight. Upon further questioning, Farrell testified:

[Mr. Jayaram:] How do you know they weren't there for the day, to spend the day at the beach as guests of Dr. Dao?
[Ms. Farrell:] I'll see a car - it's a rent-a-car - come in and I see people open their trunk and I see them take luggage out and they walk into one of the places. And then three or four days later they come out and they put their luggage in their trunks and they drive out and then I don't see that car again. So - and then another car comes.
This is a commercial venture that's going on right next door.

         When asked whether she had ever spoken to any of these people or had any way of knowing whether they were actually renters, Farrell testified that she did not "make it a point to talk to the renters" but recalled two occasions where she had spoken to different groups of people staying at the Property who said they were renting "for three or four days" and staying "for a week or two" for a surf tournament.

         Sheil, another neighbor, testified that he and his wife began keeping track of the number of cars staying overnight at the Property after a conversation with Ishikawa on January 10, 2012. The Sheils sent their car logs to the DPP on a weekly basis beginning with the week of January t10, 2012. During the period from January 10 through January 21, 2012, the period covered by the Strasser Lease, Sheil counted four different cars staying overnight at the Property that were all new to the neighborhood, with each car staying less than three days. Between January 9 and February 7, 2012, which was the period covered by the Heath Lease, Sheil testified that thirteen different cars were observed to stay at the Property overnight, with none of them staying longer than seven days. For the period of the Crane Lease, which commenced on February 6, 2012, Sheil testified that he and his neighbors logged fourteen different cars staying overnight over the thirty-one days, with none staying longer than seven days. In addition, for that period there was never an absence of cars. When asked what kind of cars were observed, Sheil clarified that they were all rental cars and "recently-registered."

         Sheil confirmed that Dao visited the Property about four days a week, but Sheil also testified that Dao did not stay overnight very often, estimating "maybe half a dozen times in the last six months."

         At the conclusion of the contested case hearing, the ZBA orally denied both of Dao's appeals. A ZBA Board member moved for the denial of the first appeal as follows:

When the notice of violation was issued, it created a situation where the owners - the owner now has the burden to produce evidence that the inspection produced the wrong result. And we have not been presented with and we have not seen any evidence to rebut the inspection result which was that that was being used by a short-term renter.

         The same ZBA Board member moved for the denial of the second appeal as follows:

Under the same situation, upon issuance of the notice of violation, it became incumbent upon the owner to rebut the violation. That violation related specifically to the inspection which was conducted on January 11, 2012 where the inspector talked to Mr. Lawson Heath. . . .
And we have two situations, the testimony and the evidence with respect to the note . . . that the inspector spoke to Mr. Heath. Mr. Heath told him he was staying only for three days and was leaving on January 12 and was not renting for ...

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