HAWAI‘I  SUPREME COURT RULES STATE MUST PAY CLAIMANTS DAMAGES FOR DELAYED HOMESTEAD AWARDS CAUSED BY DEPARTMENT OF HAWAIIAN HOME LAND’S BREACHES OF TRUST

On June 30, 2020, the Hawai‘i  Supreme Court ruled that the state can no longer avoid its obligation to pay damages to the Waiting List subclass members in this case.  In a unanimous opinion, the Court rejected arguments that the State has made for 2 decades in its attempt to avoid paying for delays in homestead awards.

The court ruled that:

• By mismanaging the trust, losing trust property or being unable to account for it, giving trust property away and failing to compensate for or recover it, failing to keep adequate records, and continuing to litigate this case for decades state breached its trust duties to beneficiaries.

• All claimants who filed claims with the Hawaiian Claims Office between 1991 and 1997 are members of the Waiting List subclass.  The burden is on the state to establish they do not have waiting list claims.

• The State, by mismanaging the trust, failing to keep adequate records, and continuing to litigate this case for decades is responsible for creating a situation in which it will be difficult to accurately assess damages

• Damages for delays in awarding homesteads will be measured by fair market rental value for all claimants.  Claimants will not be required to present proof of housing expenses individually because the state is responsible for creating a situation in which it will be difficult for claimants to prove out-of-pocket damages.

• Fair market rental value will be measured for each year based on the value of a developed lot in Ma`ili for that year.  Those values will be adjusted for each year to eliminate wide variations in the market using a model called the curve of Best Fit.

• Claimants can choose instead to seek to have their actual damages awarded.

• The Special Master, who is like an assistant to the trial judge, will calculate damages using this formula and make findings and recommendations that the court will review; there will not be individual trials.

• The court reversed the trial court’s ruling that no damages would be awarded for the first six years on the waiting list; damages begin when claimants are put on a waiting list.  

• The Ma`ili measure will be used for all waiting list claims on all islands, including agricultural and pastoral.

• Damages do not end in the case where a claimant was offered a lot but could not qualify for a loan; the state’s defense that a claimant failed to mitigate damages only applies if a claimant, who was able to obtain a mortgage, rejected a paper lease. 

• The court rejected our argument that all damages should be adjusted for inflation.

What happens next:

• The Hawai‘i  Supreme Court will enter judgment and send the case back to the trial court.

• We will meet with the trial judge, who is a new judge replacing Judge Crandall, to discuss a process for her to receive and review the Special Master’s recommendations.

• We will identify the Waiting List claimants whose application and, if any, award dates are not disputed and present those to the Special Master for his/her findings and recommendations on damages.

• Waiting List claimants whose application was lost or rejected for an illegal reason such as marriage or home ownership will have their application date decided by the Special Master

• Waiting List claimants whose Native Hawaiian Qualification (blood quantum) is unresolved will be referred to a genealogist who will make a recommendation to the Special Master.

• Class members’ other claims, such as lease, loan or construction issues, will be resolved after the Waiting List claims are decided.

• The findings and recommendations will be presented to the judge for approval.

• Claims with then be paid.

What we expect:

• The state will challenge as may claims as it can; these will be fewer thanks to the court’s ruling yesterday.

• The state will challenge the Special Master’s findings.

• The state may appeal the judge’s rulings on the Special Master’s findings to further delay the case.

What we hope:

• The State of Hawai‘i will realize that the longer they delay the more it costs the state and they start negotiations to settle the case.
  

Summary of the Opinion

At the outset of its opinion, the court notes that in 1990 Sen. Michael Crozier had observed  “both the length of the list and the length of the weight make the vast majority of native wine people despair of ever receiving an award of land.”  The court noted “in the 30 years since Sen. Crozier’s statement, the State of Hawaii has done little to address the ever-lengthening weight list for lease awards of Hawaiian homelands.” 

In construing the statute, said the court, “the interests of justice and the extent of the state’s wrongful conduct support a liberal interpretation… and a generous construe rule of the circuit courts damages model.”

The Court rejected the State’s argument that each claimants’ damages had to be proved by individual cases.  Instead the court upheld a measure of damages using fair market rental value of a developed residential lot in Ma`ili as an appropriate measure of the value of a homestead for all claimants, using the Fair Market Rental Value for such a lot for each year the beneficiaries were on the waiting list.  With claims going back to the 1960s, the court recognized “the State’s decision to continue to litigate this case for decades has compounded the challenges resulted from its own failure to keep adequate records….”  

It would be “unjust,” said the court, to allow the state to demand individual proof when DHHL’s own failure to keep and maintain adequate records regarding beneficiaries’ applications and trust land inventory made it difficult if not impossible for them to produce such proof.

“It is clear to us that the State, by mismanaging the trust, failing to keep adequate records, and continuing to litigate this case for decades is responsible for creating a situation in which it will be difficult to accurately assess damages,” concluded the court in adopting a class-wide measure based on Fair Market Rental Value.

Additionally, the court rejected the argument made by the State that beneficiaries who did not accept awards because of poverty and inability to qualify for a mortgage were not disqualified from receiving damage awards under the ruling.

By arguing for 20 years that poor beneficiaries who are “deferred” from receiving awards because they are unable to obtain mortgages aren’t entitled to received damages, the Department has undermined and perverted the very purpose of the Home Lands Trust-- to rehabilitate Native Hawaiians.  The court ruled Poverty is not a disqualification to receive homesteads.  DHHL has statutory authority to lend and to develop property.  The court rejected the idea that Native Hawaiian poverty is a defense for DHHL to avoid its ongoing breaches of trust since statehood.

The court also rejected the trial court’s ruling that damages would not begin to run until a beneficiary had been on the waiting list for 6 years.  The court found there was no logical reason why the State should be allotted a six-year grace period between an applicant was placed on the waitlist and when damages begin to accrue.

DHHL’s duties as a trustee are the highest duties recognized in law. DHHL’s principal duty was not to create waiting lists; DHHL’s principal duty is to rehabilitate native Hawaiians by creating homesteads that they can inhabit, farm or ranch.  The Hawaii Supreme Court understood this and applied the statute in a manner that supports its remedial purposes to achieve a just result.

Using the Hawaiian Claims Office list of claimants, who filed claims in the period from 1991 through 1997, established the class of those beneficiaries who could pursue compensation for being placed on the waiting list.  The State has the burden of proving that these 2,721 beneficiaries did not suffer losses or were not qualified to receive homestead awards.

In addition to mismanaging the trust assets and failing to maintain adequate records, the court ruled that the state, as these successor trustee to the Federal Government at the time of statehood, was obligated to restore the trust by replenishing property or providing compensation for trust properties that had been wrongfully taken from the trust by the federal state and local governments.

The Hawaii court recognized that the state use litigation as a tool to complicate and delay the relief the statute was intended to provide to the 2,721 claimants who submitted claims in the administrative process between 1991 and 1997.  Because they received no compensation, those claimants filed suit in 1999 in state circuit court. Every administration after Governor Waihee’s has vigorously opposed any compensation and even the right of the beneficiaries to sue in court. Today’s case is the second appeal; the first one was filed in 2000 and resolved by the first decision of the Hawaii Supreme Court in 2006 which ruled that the claimants had a right to sue. 

In Kalima v. State (Kalima I), 111 Hawaiʻi 84, 137 P.3d 990 (2006), the Court had held that the Beneficiaries were permitted to file a complaint seeking individual damages under Hawaiʻi Revised Statutes Chapter 674.  After the Court affirmed the Beneficiaries' right to sue it sent the case back to the Circuit Court.  The Circuit Court first found the State liable for various breaches of the trust.  It later adopted a fair market value based damages model to calculate the damages to be awarded to each waiting list beneficiary.  Another trial was held to resolve methodological issues regarding the circuit court’s fair market value model.  In 2008, the circuit court entered a final judgment.

On appeal, the State contends that the circuit court erred in (1) establishing an overbroad subclass list; (2) finding that the State breached its trust duties by not recovering lands that were “withdrawn from the Trust prior to Statehood[;]” (3) adopting a damages model that is not connected to the breaches of trust that were found by the circuit court; (4) adopting a damages model that fails to limit recovery to “actual damages” as required by statute; (5) applying the Oʻahu fair market rental value model for residential leases to the entire State; (6) incorrectly determining that subclass members had no duty to mitigate damages until 1995; (7) incorrectly providing for temporary suspension of damages when claimants “deferred” from participation in a homestead offering; and (8) shifting the burden of proof to the State on essential elements of Beneficiaries' case.

On cross-appeal, the Home Lands Beneficiaries argued that the circuit court erred in (1) ruling that beneficiaries must prove out-of-pocket expenditures to recover individual damages; (2) ruling that a waiting list subclass member’s “deferred” status suspends their individual damages; (3) imposing a six-year delay before individual damages accrue; (4) not bringing damages to present value; and (5) adopting the “best fit” curve and reducing individual subclass damages.

Carl Varady and Thomas Grande argued for the Beneficiaries. The Court was very well informed and the parties arguments and Court's questions lasted for 2 hours. The Court originally had scheduled the argument for only 30 minutes.

You can click on the link to the argument to the Court here: https://www.courts.state.hi.us/oral-argument-before-the-hawaii-supreme-court-scap-18-0000068

We are hopeful for a decision by the end of the year.  Please keep checking this site for updates.

A photo of the hui and lawyers after argument is shown.

Mahalo nui!