Hawaii Federal Court: Get Ready For Trial On Lucas And Penn Central Takings Claims

by Robert Thomas, InverseCondemnation, March 3, 2016

As we noted here ("Latest On The Latest Hawaii Takings Case: Unconstitutional Conditions, Statutes Of Limitations, And Vested Rights") the U.S. District Court for the District of Hawaii is considering a regulatory takings case (removed by the defendant State of Hawaii from Hawaii courts) involving a stalled development on the Big Island.

At the hearing last month, District Judge Mollway stated she was inclined to grant a part of the State's motion for summary judgment and deny the rest, and that she would issue a formal ruling by the end of the month. In this order, filed on the last day of an extended February, the court as promised issued its decision.

Bottom line: the plaintiff's takings claims (Lucas and Penn Central) are going to trial, the balance of the remaining claims (vested rights, etc.) are gone.

This case came about after a property owner -- the developer of the Aina Lea project on the Big Island -- challenged the State Land Use Commission's reclassification of Aina Lea's land, just north of the Waikoloa beach area, from urban to agriculture. The owner also challenged the imposition of an affordable housing requirement. In the words of an order by the court last year, "Plaintiff Bridge Aina Lea, LLC ('Bridge'), the owner of the parcel, claims that, in reclassifying the land, the Commission and certain commissioners violated Bridge's rights under the United States Constitution, the Hawaii Constitution, and various Hawaii laws." Order at 1-2. For more detail on the claims, see this post, "Guest Post: Federal Courts Flashback - Takings And Vested Rights Challenge To Land Use Commission."

The litigation began as two lawsuits originally filed in state court in the Third Circuit. The first was an original jurisdiction civil rights lawsuit against the State Land Use Commission which originally sought, among other things, just compensation for the taking of the right to develop its property. The other case was an administrative appeal under the Administrative Procedures Act from the LUC's decision.

The State removed the civil rights lawsuit to U.S. District Court in Honolulu and promptly moved to dismiss, and this portion of the case nearly caused us to flash back to our Federal Courts class in law school, since it raised a host of procedural questions such as the effect of removal, whether certain defendants are "persons" under 42 U.S.C. § 1983, whether the federal court must have abstained from addressing the federal takings claim, whether there is a state damage remedy for deprivation of constitutional rights, and zoning estoppel under Hawaii law, among others. The federal courts (District and Ninth Circuit) delayed making any decisions pending the outcome of the administrative appeal as it wound it way up through the state court appeals process.

Eventually, the Hawaii Supreme Court held the Commission was wrong when it reverted the land to its previous agricultural classification, but only because it did not comply with the requirements of state law (the Commission did not make specific findings of fact as required by statute). The court also rejected owner's state constitutional claims, and in a footnote, it arguably decided the federal constitutional claims, which had been reserved for the federal lawsuit, when it held the conditions were "valid."

The federal case, which by then was in the Ninth Circuit -- which had held off its decision pending the ruling by the Hawaii Supreme Court -- was sent back to the District Court, which in late 2015 in this order, got rid of most of the federal case. The only claims left unresolved were the property owners claim for just compensation and damages for the temporary taking of its right to develop the property, and a claim for damages for the owner's vested rights claim.

There's a lot going on in the District Court's order granting in part the State's motion for summary judgment:

• The owner's Nollan/Dolan/Koontz unconstitutional condition claim is barred because the Hawaii Supreme Court already ruled on that issue in Footnote 17, when it noted that given the "broad authority [provided to the LUC under Hawaii statutes] and Bridge's representations to the LUC, the affordable housing conditions and its included deadline were valid. Bridge cites no authority that would prevent the LUC from imposing benchmarks or deadlines on development schedules." The court didn't address Nollan or Dolan in the footnote, but the owner's briefs had addressed the cases, which means "[t]he Hawaii Supreme Court, therefore, had occasion to consider Bridge's arguments regarding Nollan and Dolan, was ultimately unpersuaded, and, in characterizing the affordable housing condition as "valid," found it constitutional." Slip op. at 12. 
• But that leaves out the rest of the sentence, in our view: it is pretty clear to us from our reading of Footnote 17 that the Hawaii Supreme Court ruled that the LUC's imposition of the affordable housing condition was "valid" under the 'broad authority" in Haw. Rev. Stat. § 205-4(g), which "gives the LUC broad authority to impose conditions, including those necessary 'to assure substantial compliance with representations made by the petitioner.'" 
• To us, it's a real stretch to say that the Hawaii Supreme Court decided the constitutionality of the affordable housing condition with this language, and was only deciding the "validity" of the condition in relation to the LUC's statutory authority. Of course, even if the LUC has the authority to do something, it is another matter entirely whether it is constitutional for it to do so. Especially where the issues were raised in a separate lawsuit, and could not have been raised in an administrative appeal, since the LUC does not have the authority to determine whether its enabling statutes are constitutional. So count us as unconvinced.
• The District Court also clarified that the unconstitutional conditions doctrine isn't really a takings theory, but one where the government cannot require someone to give up a constitutional right in exchange for a discretionary benefit. In the land use context, these claims look a lot like takings claims because the right that the owner is being asked to surrender is the right to just compensation. But the property owner here made actual takings claims, "based on the LUC's decision to reclassify the property in issue as agricultural," and not on the imposition of an affordable housing condition. Slip op. at 14.
• Thus, the owner's claims are truly takings claims -- either a Lucas wipeout, or a Penn Central regulatory taking -- and not unconstitutional conditions claims. And since the State didn't really address these claims in its motion for summary judgment, they're going to trial. 
• The court also rejected the State's statute of limitations argument, which asserted that the takings claims accrued when the conditions were imposed or the land was classified. The court, however, concluded that the federal taking only ripened (under Williamson County) when the State denied compensation. And that didn't happen until the owner filed its lawsuit. So the claim ripened at the same time.  
• The court also held that the State of Hawaii's environmental study law, Haw. Rev. Stat. chapter 343 (our EA/EIS requirement) isn't a "background principle" of law that would preclude the owner from having a property interest in a parcel regarding which an EA/EIS has not been conducted. The State had argued that there was no taking for not allowing development because, hey, the owners failed to get an EIS, and that's the reason they couldn't build, not us. 
• The court concluded that the State did "not carry [its] burden, as they offer no support for their argument that '[t]he requirement of obtaining a valid EIS was a background principle of Hawaii property law.'" Slip op. at 23. The requirement to secure an EIS in not "the type of proscriptive regulation that qualifies as a background principle of state nuisance or property law under Lucas. Notable, Haw. Rev. Stat. § 343-5 is not a prohibition on land use based on principles of nuisance or property law. The statute instead merely requires that an owner seek an assessment of the proposed use's potential environmental impact. Lucas does not automatically preclude a landowner from recovering under a takings claim just because other regulations or requirements must be satisfied." Id.  
• Finally, the court granted summary judgment to the State on the owner's vested rights claims, which sought damages as a remedy. The court relied on a Hawaii Supreme Court decision, Allen v. City and Cnty of Honolulu, 58 Haw. 432, 571 P.2d 328 (1977), which held that the "builder's remedy" (an injunction) is the only remedy available to a landowner for a vested rights claim. As we've written before (see Arrow of Time: Vested Rights, Zoning Estoppel, and Development Agreements in Hawaii, 27 U. Haw. L. Rev. 17 (2004)), after First English, a state court cannot deny a compensation remedy if it precludes a landowner from making all beneficial use of its property, even if the prohibition is temporary. The District Court concluded that that requirement was satisfied here by the owner's viable federal constitutional takings claims. "[V]ested rights," on the other hand, "support a separate theory under state common law." Slip op.a t 26. Therefore no separate damage remedy for such claims.  

So absent a settlement, there's going to be a federal court trial on Lucas and Penn Central takings claims regarding whether the State must pay compensation and damages for the temporary prohibition on the owner's use of the land.

Will we follow along? Great advocates, cutting-edge issues, and a court familiar with the law? You bet we will.

PDF: Order Granting in Part and Denying in Part Motion for Summary Judgment, Bridge Aina Lea, LLC v. State of Ha...