LELAND H. DAO, Respondent-Appellant/Appellant,
ZONING BOARD OF APPEALS, CITY AND COUNTY OF HONOLULU, STATE OF HAWAI'I, Agency-Appellee/Appellee, and DIRECTOR OF THE DEPARTMENT OF PLANNING AND PERMITTING, CITY AND COUNTY OF HONOLULU, STATE OF HAWAI'I, Petitioner-Appellee/Appellee
FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (CIVIL NO.
Knapman, for Respondent-Appellant/Appellant.
Krishna F. Jayaram, Deputy Corporation Counsel, City and
County of Honolulu, for Petitioner-Appellee/Appellee.
GINOZA, CHIEF JUDGE, LEONARD AND REIFURTH, JJ.
case concerns alleged unlawful transient vacation
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). Dao appeals from
the Final Judgment (Judgment) entered on July 29, 2015, by
the Circuit Court of the First Circuit (Circuit
Court). 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.
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.
The Alleged Violations
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.
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). 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.
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
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."
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
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.
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,
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.
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."
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,  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."
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
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,
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.
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.
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 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."
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." The letter noted that the DPP would accept
$16, 500 in settlement of the outstanding fines because the
violation was corrected.
The Contested Case Hearing
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
March 8, 2012, the ZBA consolidated Dao's two appeals. On
April 23, 2012, the contested case hearing was rescheduled to
July 12, 2012.
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.
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
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
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.
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 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.
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: 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
[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.
follow-up questions from the ZBA, Dao further testified:
THE CHAIR: And you said that you gained a lot of
your tenants from a website.
THE CHAIR: What website is that?
[Dao:] We use homeaway.com and VRB0.com. THE CHAIR: . . .
THE CHAIR: Is that an abbreviation for something?
[Dao:] Vacation rental by owner.
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.
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.
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
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.
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
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.
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." 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.
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 "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
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. 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
This is a commercial venture that's going on right next
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
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
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."
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.
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 ...