HAWSCT: Damage To Unique Property Subject To Unique Rules

by Robert Thomas, InverseCondemnation, February 17, 2014

There's not much doubt that the now-notorious large-scale unpermitted upland grading and grubbing by a Kauai property owner on its private land caused the runoff that catastrophically damaged the adjacent beach and the reef offshore. The damage was pretty bad, and resulted in the "largest storm water settlement [with the federal EPA] in the United States for violations at a single site by a single landowner." See also the photo above (much larger version here).

The state also pursued the owner, and after a contested case, the Board of Land and Natural Resources assessed approximately $4 million in damages, and $70k for administrative costs. To reach this assessment, It did not apply a preexisting damage formula, but used a method it crafted for the case:

The value of Pilaa beach, bay and reef includes use value, option value, commodity value, existence value, bequest value, cultural values, including value to indigenous people, and intrinsic value. Economic and use (market) values alone cannot and do not capture the full value of Pilaa. Economic valuation alone understates the true social loss from natural resource damage. The intrinsic value of Pilaa is recognized by the Hawaii constitution and state laws, including section 183C-1, HRS. The BLNR holds Pilaa and all state property in trust for the people of Hawaii and for future generations.

The circuit court and the court of appeals both accepted this theory and rejected the owner's argument that the agency must first have adopted rules for a standardized "reasonable and just methodology for assessing damages to natural resources."

In Pilaa 400, LLC v. Bd. of Land & Natural Resources, No. SCWC-28358 (Feb. 14. 2014), all five Supreme Court justices agreed that BLNR need not have adopted rules first in order to calculate the damages to the reef. The court acknowledged that in an earlier case, it held that some damage calculations required rulemaking, but that case involved a property tax assessment, a "routine" calculation in which "future use of the imparted value methodology was clearly foreseeable." Slip op. at 45. But, the court concluded, the damage to the reef was neither routine nor a situation where future use of the formula was anticipated.

The court rejected concerns that the damage formula was ad hoc, holding that the BLNR's methodology "was not the result of an unwritten methodology dependent on the discretion of a single individual" as in the earlier case, but the product of "expert testimony of scientists and economists." Id. We think the same methodology should apply when unique property (and what property isn't in some way "unique?) is taken by eminent domain. The Hawaii Constitution requires the payment of compensation for property "taken or damaged," so there's a textual basis for a court going beyond the usual fair market value formulation and awarding compensation that truly reflects the value of the property taken.

The court also was unanimous in rejecting the property owner's claim that the BLNR did not have jurisdiction because the bad acts occurred on private land over which the BLNR does not have jurisdiction. The court in effect adopted an "effects" test, holding that the agency has jurisdiction over "land use" on state-owned conservation land (the beach and the ocean), and the owner causing sedimentation on that land was a "land use." In other words, the illegal activity was not the grading and grubbing upland, but the dumping of dirt on the beach and in the ocean.

The one argument the justices disagreed on was the notice due to the property owner. The majority concluded that the "charges" need not be very specific, especially when during oral argument, the landowner's counsel agreed that "everyone knew" the enforcement action "was about mud going on the beach and into the nearshore reef." The owner argued that it did not know what issues would be presented at the contested case because it was not given  proper notice that the hearing would be about the beach and the ocean, only the upland grading and grubbing. It also pointed out that the agency's notice did not cite the particular statutes and regulations the BLNR claimed the owner violated.

The majority rejected these arguments, concluding that as a matter of fact, the property owner knew what the hearing was about, "the nature of damages to the reef at Pilaa Bay, the extent of those damages caused by mudflows resulting from Pilaa 400’s unauthorized work, and the amount of the damage assessment.' Slip op. at 42. See also the oral argument admission by counsel).

The majority also held that as a matter of law, the notice provided was sufficient, even though it did not cite the specific regulation that the BLNR concluded that the owner violated. (Remember, that in due process analysis, the focus is on the notice provided, not what the recipient actually knew or should have known.)  The Administrative Procedures Act only requires that the statutes or regulations "involved" be cited, and the notice provided by the BLNR was close enough because of the massive nature of the damages: the notice informed the property owner that a hearing would be held under "chapters" 183C and 13-5. Since 23 of the 45 individual regulations in the chapter the BLNR claimed was violated "may fairly be said to have been 'involved' in the contested case hearing," the notice was good enough. Id.at 54. The court held that in such a case, citation to the individual section claimed to be violated is not necessary.

Justice Nakayama dissented from this last conclusion, arguing that the property owner did not receive adequate notice of the alleged violation, and that as a result, it could not prepare to defend itself, and that having a list of alleged violations "too lengthy to enumerate" does not excuse spelling them out.

The dissent also addressed the underlying "vibe" of the case (you kind of knew going in that the owner's claims were long shots, because the owner and the events have become so infamous statewide), concluding that the temptation to hold someone liable is no shortcut to providing due process:

In cases of such egregious damage, the desire to hold responsible parties liable is understandable, but it must not overshadow the importance of affording all parties due process of law.

Dissent at 5.

LINK: Pilaa 400, LLC v. Bd of Land & Natural Resources, No. SCWC-28358 (Feb. 14, 2014)