Hawaii Housing Authority v. Lyman

Citations: 704 P.2d 888; 68 Haw. 55Docket: NO. 9706; CIVIL NO. 63408

Court: Hawaii Supreme Court; July 29, 1985; Hawaii; State Supreme Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

An appeal was filed by the Trustees of the Bernice Pauahi Bishop Estate against the Hawaii Housing Authority's condemnation proceedings involving residential leasehold lands under the Hawaii Land Reform Act. The Trustees argue that the Act is unconstitutional as it permits the taking of property for private use and claims they were denied just compensation. Additionally, property developers Kaiser Hawaii-Kai Development Co., Kaiser Aetna, and Kacor Realty, Inc. also appealed regarding their contractual interests in the condemnation proceeds and a subsequent order denying their motion to amend the judgment. The Supreme Court of Hawaii upheld the lower court's rulings. The document outlines the historical context of land tenure in Hawaii, noting that the ancient system was feudal and lacked modern private property concepts. Despite attempts in the 1800s to reform land rights, a significant portion of land remains concentrated in the hands of a small number of estates and trusts, which the legislature found to distort the residential fee simple market, inflate land prices, and adversely affect public welfare.

In 1967, the Hawaii Land Reform Act (HRS Chapter 516) was enacted to address issues of land ownership and market power among large landowners, aiming to enhance the availability and affordability of single-family residential lots. The Act allows lessees of single-family houselots (up to two acres) within a development of at least five acres to apply to the Hawaii Housing Authority (HHA) for the condemnation and transfer of the underlying fee interest. Eligible lessees must have an equitable interest in the residential structure, be state residents or intend to reside on the lot, demonstrate financial capability to purchase the fee interest, and not own nearby residential land.

When at least 25 eligible lessees apply, the HHA may designate the lots for acquisition through eminent domain after public notice and hearing. The HHA can acquire the fee interest either by eminent domain proceedings or negotiation, with compensation equaling the fair market value of the owner’s leased fee interest. Following acquisition, the HHA may sell the land titles to qualified tenants, lending up to 90% of the purchase price with specific resale restrictions. Although the Act permits the issuance of general obligation bonds for land acquisition, this has not yet been realized.

The current appeal involves 257 leased lots in the Kamiloiki Valley Subdivision, where lessees applied to purchase the fee interest. After confirming the eligibility of 25 applicants, the HHA proposed the acquisition of 254 lots, which was approved after public hearings. Following failed negotiations regarding compensation, the HHA initiated condemnation proceedings against the property owner, the Trustees of the Bernice Pauahi Bishop Estate, and additionally named various homeowners and developers as defendants. A jury trial in 1982 determined the value of the Trustees' leased fee interest, yielding a lower amount than claimed. Subsequently, a bench trial assessed whether the taking constituted "public use," prompted by a prior ruling in Hawaii Housing Authority v. Castle, which required further hearings on the Act's constitutionality. In a related federal case, Midkiff v. Tom, the Ninth Circuit deemed the Act unconstitutional, but the trial court upheld its constitutionality in this ongoing case.

Findings of Fact and Conclusions of Law were filed on September 6, 1983, with a judgment entered on September 29, 1983, that did not address Kaiser’s rights. Motions to alter the judgment were denied on December 29, 1983, and both the Trustees and Kaiser filed separate appeals on January 27, 1984. The U.S. Supreme Court later reversed the Ninth Circuit, affirming the constitutionality of the Hawaii Land Reform Act against the Trustees' "public use" challenge under the U.S. Constitution. The Trustees argued that the Act aimed to unjustly take property from large landowners without significant public benefit, thus enabling unconstitutional state condemnation for private use. The court, however, disagreed, affirming that the Act met the public use clause of the Hawaii Constitution. While the state has the right of eminent domain for public use with just compensation, it cannot justify property expropriation solely for private purposes. The court emphasized its limited role in reviewing legislative determinations of public use due to the separation of powers. The Hawaii Legislature found that excessive concentrations of residential landholdings harm the public and that utilizing eminent domain to redistribute ownership served a public benefit. The Supreme Court’s decision in Hawaii Housing Authority v. Midkiff was pivotal, confirming that the use of eminent domain can align with legislative authority for public welfare. The Court held that as long as the legislature’s purpose is legitimate, courts should defer to its judgment on public use unless the determination lacks reasonable foundation. The standard of review established by the Supreme Court requires that if the use of eminent domain relates rationally to a conceivable public purpose, it does not violate the public use clause, with the legislature's belief in the Act’s effectiveness being the key consideration.

Legislative actions that utilize eminent domain are upheld if the purpose is legitimate and the means are rational, regardless of empirical debates regarding the wisdom of such takings. The Court affirmed that using eminent domain to redistribute private land interests addressed issues attributed to an oligopolistic land market, validating the legislature's public use determination under the federal public use clause. Article I, section 20 of the Hawaii Constitution mirrors the Fifth Amendment of the U.S. Constitution, and the U.S. Supreme Court's interpretation provides persuasive authority for Hawaii's constitutional review. However, Hawaii courts may interpret state provisions to offer greater protections than federal standards. 

The review of the constitutionality of the Land Reform Act is conducted under a minimum rationality standard, reflecting a policy of deference to legislative conclusions on public use. The legislature is primarily responsible for eminent domain decisions, and its designations of public use create a presumption in favor of such use. Legislative findings regarding public use carry significant weight and are presumed correct unless clearly proven otherwise. Courts will not challenge these determinations unless they are manifestly wrong or involve a clearly private taking. Thus, as long as the use of eminent domain is rationally connected to a legitimate objective, the legislature's declaration of public use is upheld. The Hawaii Legislature concluded that concentrated land ownership issues negatively impacted the residential land market and that condemning certain properties would address these socio-economic challenges.

The legislature's belief that the condemnation and resale of fee interests in leasehold land could enhance residential property availability, realign the residential market, lower land prices, and positively affect the state's economy and public welfare is deemed reasonable and serves legitimate public purposes. The use of eminent domain to redistribute fee simple titles aims to address socio-economic issues linked to a land oligopoly, representing a rational approach despite being a non-traditional exercise of eminent domain. The Hawaii Land Reform Act is framed as addressing a public issue and maintains a presumption of constitutionality unless proven otherwise. The Trustees' claim of being denied "just compensation" under both federal and state constitutions is rejected, as they argue the Act's valuation methods do not meet constitutional standards and that procedural rulings resulted in inadequate compensation. The Act defines "leased fee interests" and stipulates compensation based on the owner's basis, factoring in both lessor and lessee interests. The Trustees have not established that the statutory provisions prevent them from receiving just compensation, nor have they shown their interests exceed the defined "leased fee interest." Both parties used alternative valuation methods rather than the specified ones, and the Trustees did not contest the propriety of the opposing experts' methods or their ability to present their own valuation evidence.

The statutory framework does not indicate a failure to provide just compensation. The Trustees argue that the Lessees should not have participated in the valuation trial and claim the HHA improperly delegated control of this aspect to them. They assert that the HHA failed to present its own expert valuation evidence, relying instead on the Lessees' experts. However, a 1983 legislative amendment clarified that lessees must be parties in such proceedings and allowed to present valuation evidence. Since the trial occurred before this amendment, the central issue is whether the trial court acted appropriately in allowing the Lessees to participate.

According to HRS 101-21 (1976), individuals with a claim or interest in property can participate in condemnation proceedings, indicating the trial court had discretion to allow the Lessees' involvement. Although the HHA was obligated to present valuation evidence, it was not required to do so independently, and the Lessees’ appraiser's testimony was deemed competent and reasonable.

The Trustees also challenged the admission of testimony from Attorney Bernard Bays, who testified regarding the coercive nature of negotiated sales that the Trustees presented as comparables. The court found this testimony relevant and permissible. Additionally, the Trustees objected to the trial court's refusal to fully admit a 1978 appraisal report that suggested higher values than those presented by the Lessees. While portions of the report were admitted, the court noted that the report would become inadmissible under subsequent amendments to the Act. Furthermore, prior rulings indicated that parties in condemnation cases do not automatically gain the right to introduce appraisal evidence from opposing parties.

Condemnees sought expert testimony on fair market value by hiring their own appraisers, without demonstrating a need for the City’s experts. The trial court ruled that the report was partially inadmissible. The Trustees requested the court to determine the appropriate interest rate and compounding period for damages due to delayed payment of the condemnation award. Following a hearing, the court denied the motion, establishing an interest rate of five percent as mandated by HRS §§ 101-25 and 101-33, and referenced the case City, County of Honolulu v. Bonded Investment Co. The Trustees appealed, claiming the five percent interest limit violated their constitutional right to just compensation. The appellate court chose not to address this issue at the moment, preferring a complete record for future review. 

Defendants Kaiser Hawaii-Kai Development Co., Kaiser Aetna, and Kacor Realty, Inc. (collectively Kaiser) appealed a judgment from September 29, 1983, related to the eminent domain action. Kaiser, the developer of the Kamiloiki tract, cross-claimed for a share of the condemnation award based on its development agreement with the Trustees. Prior to trial, the court and parties agreed to separate Kaiser’s cross-claim from the public use and valuation proceedings. The judgment confirmed the condemnation was for public use and assigned values to the lots, stating there was no reason for delay and directing entry of judgment. Kaiser contended that the trial court's failure to address its cross-claim rendered the valuation judgment partial and non-appealable. However, the appellate review found no error in the trial court’s certification under HRCP Rule 54(b), which allows for final judgments on some claims or parties if there is no just reason for delay.

No ruling was made on the cross-claim, which is permissible under HRCP Rule 54(b), allowing judgment on fewer than all claims as long as those claims are fully adjudicated. Kaiser argues that the valuation judgment is partial because it does not clarify who is liable for the condemnation award or the details regarding payments. However, the HHA asserts that these issues are governed by statute, specifically HRS § 516-23, which designates the HHA as the plaintiff responsible for the payment and outlines the distribution of compensation among various parties. Compensation is to be shared based on legal and equitable interests, as further stipulated in the Land Reform Act. Kaiser's rights to any proceeds are contingent upon those of the Trustees, stemming from a development agreement, but Kaiser does not claim an equitable interest in the properties involved.

The judgment does not name the Trustees as liable to Kaiser; instead, it indicates that the obligations between the Trustees and Kaiser will be addressed later. Statute HRS § 101-25 mandates payment within two years of final judgment, which does not render the judgment partial, despite unresolved issues regarding apportionment between Kaiser and the Trustees. Kaiser's rights, if any, are derived from the development agreement, and the court retains the authority to interpret this agreement. The trial court's granting of the Rule 54(b) motion for the Trustee's condemnation award was within its discretion, balancing expedited appeal against judicial efficiency. The certification did not constitute non-final claims, as the Trustee/Kaiser matter is distinct from the valuation claim. The bifurcation of the cross-claim from the valuation proceeding suggests an intended piecemeal adjudication, with the cross-claim's resolution hinging on the development agreement's interpretation, separate from issues concerning valuation.

Kaiser's claim that the trial court failed to consider its interest in the litigation is rejected, as Kaiser, through its counsel, indicated no desire to engage in the valuation process. Additionally, Kaiser's objections to the certification procedure are deemed ineffective; the trial court has the discretion to certify claims under Rule 54(b) either upon a party's motion, by mutual agreement, or independently. The court affirms the constitutionality of the Hawaii Land Reform Act concerning public use and just compensation clauses in both the Hawaii Constitution and the U.S. Constitution. Kaiser's appeal regarding alleged errors in the lower court's condemnation award is dismissed as lacking merit, and the trial court's judgment is upheld. Notably, the Hawaii Land Reform Act, established in 1967 and amended multiple times, addresses issues of land ownership concentration and its effects on housing availability, particularly emphasizing the dominance of leasehold over fee simple ownership in residential development on Oahu. Legislative findings highlight the limited number of landowners and the resultant housing market challenges, including a significant shortage of affordable residential property.

The shortage of single-family residential fee simple properties, coupled with limited options for leasehold residential properties, has led to artificially inflated land prices for both types. This situation allows lessors to impose financially disadvantageous terms on lessees, restricting their enjoyment of leasehold estates and favoring landlords. The dispersion of fee simple ownership, fair acquisition opportunities for residential lots, and the full enjoyment of leaseholds are critical to the state's economy and public welfare. Legislative acts from 1967, 1976, and 1975 highlight these concerns. The Hawaiian Homes Commission has designated a total of 257 houselots. The interest of the Trustees stems from a trust established by Princess Bernice Pauahi Bishop for Native Hawaiian education, with trust lands making up 8% of the state's land and a significant portion of Oahu’s residential land. The Hawaiian Constitution states that private property cannot be taken or damaged for public use without just compensation, aligning with the fifth amendment of the U.S. Constitution, while also including specific language regarding property damage added in 1968. Procedural issues arising during a public use trial were deemed meritless by the court. The Order's express determinations align with HRCP Rule 54(b), although the rule itself was not explicitly referenced.