Hawaii Supreme Court - Major Eminent Domain Opinion: Larger Parcel, Deposit

by Robert Thomas, InverseCondemnation, May 17, 2017

Yesterday, the Hawaii Supreme Court issued a unanimous opinion authored by Justice Nakayama in an eminent domain case we've been following. We filed an amicus brief in the case supporting the property owner on one of the three issues presented, too. More on that below.

The case involves three parcels on Kauai -- one of which is owned by a fellow who has been a thorn in the County's side -- which were condemned by the County for the expansion of a public beach park. The County was taking Parcels 49, 33, and 34. Sheehan owned 49, and HRH, an entity incorporated in the Cook Islands, owned 33 and 34. Sheehan asserted his use of Parcel 49 stretched across 33, 34, and Area 51 -- a portion of another Parcel but not a separate record lot. He claimed to use Area 51 pursuant to an easement.

The owner sought damage for the severance of Parcel 49 from Area 51. He also challenged the "blight of summons" damages (also known inaccurately as "interest") on the final just compensation award. There was also a dispute after the County revised its appraisal downward, and then withdrew a portion of the deposit which it had made to secure immediate possession.

Parcel 49 (green)
Parcel 33 (pink)
Parcel 34 (yellow)
Area 51 (blue)

The court of appeals held that Hawaii law requires that two parcels physically abut before a jury can consider them part of a larger parcel. The property owned by the condemnee was separated from the other parcel he claimed to use, and not physically connected. The condemnee claimed he used the two parcels together as a boat yard, and therefore the taking of his property damaged his use of the other.

Applying the "three unities" test, the ICA held that the owner "cannot satisfy the physical unity requirement” because the two parcels Petitioners claim to use together are separated by two others. County of Kauai v. Hanalei River Holdings, Ltd., No. CAAP-14-0000828, slip op. at 31; 2016 Haw. App. LEXIS 224, at *10 (2016). The ICA asserted the "must touch" test was established by the Hawaii Supreme Court in City and County of Honolulu v. Bonded Investment Co., Ltd., 54 Haw. 523, 511 P.2d 163 (1973), which, in the ICA's view, required "that all of the pertinent lots abut one another." Slip op. at 20.

The property owner applied for cert (we don't call them "petitions" in Hawaii, but rather "applications for certiorari"), and asked three Questions Presented:

• "Must two parcels physically abut in order for the jury to consider whether they are part of a larger parcel?"
• The second question challenged how the courts below calculated blight of summons damages, and whether the County had conditioned its okay of the owner's withdrawal of the deposit which the County had made to secure immediate possession.
• The final question was whether the County could reduce the deposit after it updated its appraisal of the property, and it lowered its valuation. 

The County opposed the application.

The Supreme Court heard arguments earlier this year, and yesterday issued a very readable 50-page opinion. The short story is that it corrected the Court of Appeals' larger parcel analysis, holding that parcels didn't need to physically abut in order to be part of the severance damage claim. This was the argument we advanced in our amicus brief, so we're glad the Supreme Court agreed. But the court didn't disturb the judgment, and held that even under the correct analysis, the owner didn't prove any of the three unities.

To us, this is the most interesting part of the opinion (pages 19-28), and there's a good run down of the three unities test and larger parcel analysis in severance damage claims. The court correctly focused on unified use as being "the most important factor to this analysis," and held that three unity analysis isn't an "elements" test where all three are required, but are "factors" --

Accordingly, we hold that when determining whether a claimant is entitled to severance damages under the three unities test as articulated in Bonded Inv. II, the three unities should be evaluated and weighed against one another as factors, and should not be viewed as essential elements. The unity of use should be accorded more weight compared to the unity of title and physical unity. Consequently, a lack of physical unity will not be dispositive of a condemnee's claim for severance damages. Therefore, the ICA gravely erred to the extent that it applied the three unities as elements and barred Sheehan from claiming severance damages as a matter of law because Parcels 49 and Area 51 are not physically contiguous.

Slip op. at 26. Check it out, the court has a good summary of the law nationwide in this part of the opinion.

As to the second and third issues, the court affirmed the court of appeals' rulings on conditional deposit, and the condemnor's ability to withdraw a portion of the deposit to reflect its lowered appraisal. The Supreme Court concluded that the condemnor was not placing a condition on the owner's withdrawal of the deposit when it required the owner show it was entitled to compensation. This seems like a reasonable demand, and one which comes from the language of the statute: the withdrawing party has to show that it is an owner "entitled to compensation" before it can withdraw.

However, the court held that the deposit became conditional (and blight of summons damages began again) when the condemnor demanded that the owner indemnify it because it was a Cook Island corporation. The County said that an offshore owner meant that if the eventual jury verdict exceeded the deposit, the County wanted assurances that it would get the difference between the verdict and the deposit returned. The court held that making such demands as a condition made the deposit conditional. You can't do that, and the statute doesn't discriminate based on where the residence of the owner. Lacking an unconditional deposit, the owner was entitled to blight of summons:

We therefore hold that a deposit made unconditionally at the outset may later become conditional if, after the initial unconditional deposit, the condemning authority opposes the withdrawal of the deposit to an entitled condemnee by imposing a subsequent condition upon the withdrawal of the funds.

Slip op. at 39.

Finally, the court concluded the County could withdraw a portion of the deposit to reflect its lowered valuation, because the condemnee would not be harmed by the withdrawal. If the property owner would be harmed, however -- if, for example, the owner had already withdrawn the deposit or compensation had already been paid -- or if the condemnor was acting in bad faith, that would be a different story:

Accordingly, we agree with the ICA and hold that the court in an eminent domain proceeding has the discretion to permit a governmental entity to withdraw a portion of a deposit of estimated just compensation when the deposit has not be disbursed to the landowner, the government acted in good faith in seeking to adjust the estimate to accurately reflect the value of the property on the date of summons, and the adjustment will not impair the substantial rights of any party in interest.

Slip op. at 46-47.

All in all, an interesting end to an interesting case.

PDF: County of Kauai v. Hanalei River Holdings Ltd., No. SCWC-14-0000828 (May 16, 2017)

PDF: Brief Amici Curiae of Owners' Counsel of America and Nat'l Federation of Independent Business Small Business...