Thursday, November 11, 2010

Pretext Defense may Exist, but Tough to Prove

County of Hawai'i v. C & J Coupe Family Ltd. Partnership (HSC November 10, 2010)

Background. A development company wanted to build a large housing subdivision straddling North and South Kona on the Big Island. The company and the County entered into a Development Agreement requiring the company to build a bypass highway between Keauhou and Captain Cook. The County would exercise eminent domain to condemn the land of property owners who refused to sell. The company tried to buy out all of the landowners necessary to construct the highway, but the Coupe family refused to sell. Pursuant to the Development Agreement, the County Council authorized the condemnation of the 2.9 acres of Coupe land, and brought the appropriate lawsuit. The Coupes argued that the condemnation was not for public use. While that was pending, the County condemned another 3.348 acres of Coupe land on the grounds that the bypass would provide "a regional benefit for the public purpose and use which will benefit the" County. Both actions were consolidated into a single bench trial.

The circuit court concluded that the first condemnation based on the agreement was an invalid delegation of County powers and dismissed the suit. The second condemnation, however, was valid because was for a public use. The circuit court refused to recognize Coupe's defense that the public use was a mere pretext to private benefit. The circuit court also determined that the just compensation for the 3.348 acres came to $162,203.83. The Coupes appealed. The HSC, in Coupe I, 119 Hawai'i 352, 198 P.3d 615 (2008), held that "where there is evidence that the asserted [public] purpose is pretextual, courts should consider a landowner's defense of pretext." Id. at 372, 198 P.3d at 635. The HSC remanded the case for the circuit court to determine "whether the asserted public purpose was pretextual." Id. at 390, 198 P.3d at 653. The HSC also remanded the case for the circuit court to determine attorneys fees and various costs for the first condemnation suit.

On remand, the circuit court--based on numerous traffic studies and plans--determined that there was an important public need for traffic alleviation in light of the proposed development. The circuit court concluded that the public purpose was not "irrational" and was rationally related to the need for the bypass highway. The Coupes filed a motion to alter the final judgment on the grounds that the just compensation amount for the 2d condemnation was incorrect. The motion was denied on the grounds that it was not raised on appeal and there was no mathematical error. The Coupes appealed again.

No Per Se Rule for Condemnation Contracts. "Private property shall not be taken or damaged for public use without just compensation." Haw. Const. Art. I § 20. "Where the exercise of the eminent domain power is rationally related to a conceivable public purpose, a compensated taking is not proscribed by the public use clause." Haw. Housing Auth. v. Lyman, 68 Haw. 55, 68, 704 P.2d 888, 896 (1985). When the government asserts a public purpose, the trial court "may look behind the government's stated public purpose" to determine if it is a mere pretext and that the "actual purpose was to bestow a private benefit." Coupe I, at 375, 379, 198 P.3d at 638, 642. But "legislative findings and declarations of public use" are afforded "great weight" and constitute "prima facie acceptance of correctness." Id. at 374-75, 198 P.3d at 637-38. To overcome the prima facie acceptance, the landowner must show that the finding of public use is "manifestly wrong." Id. at 375, 198 P.3d at 638.

The HSC rejected Coupes' argument that Hawai'i should adopt a per se rule that condemnations initiated pursuant to a contract delegating eminent domain powers are invalid. The pretext defense is enough of a chance for the landowner to prove a constitutional violation.

No Evidence of Pretext here . . . The Coupes argued that the stated public use--building a traffic corridor for the people in Kona District--was a pretext for the enforcement of a contract between the developer and the County and that the sole beneficiary of the bypass would be the developer. The circuit court rejected these arguments and the HSC agreed.

First, there was no question that at the time of the 2d condemnation, there was a contract between the developer and the County. That fact alone, according to the HSC, "does not in and of itself require a finding of pretext." Other than the Coupes' assertions, the HSC held that there is no evidence that complying with the Development Agreement predominated over the public purpose.

There are Roads and then there are Public Roads. The HSC also examined whether the developer was the sole beneficiary of the condemnation. The Coupes presented evidence that the developer invested over $90 million in the area and it was required to build the bypass as a condition of the zoning change. The HSC examined whether condemnation for a road constitutes a "public use." In a footnote from Coupe I, the HSC noted that "the character of the proposed public use, i.e., a public road, is itself strong evidence mitigating in favor of the presumption of validity." Id. at 380 n. 32, 198 P.3d at 643 n. 32. "Indisputably, public roads have long been recognized as a public purpose for which private property may be condemned." Id. But--and here's the rub--that does not mean every project for a road is a public road. Id.

Surveying courts from other jurisdictions, the HSC noted that many factors determine whether a road is a public road. On one hand, a road open for the public--even when it is convenient for a few individuals--still cuts toward a road for public use. Road Dist. No. 4 v. Frailey, 146 N.E. 195, 197 (Ill. 1924); Sturgill v. Commonwealth, Dept. of Highways, 384 S.W. 2d 89, 91 (Ky. 1964); City of Novi v. Robert Adell Children's Funded Trust, 701 N.W.2d 144, 151 (Mich. 2005). On the other hand, when the road is not a public highway or when it's not open to the public, it is not for public use. Tolksdorf v. Griffiff, 626 N.W.2d 163, 169 (Mich. 2001); Thorton, 156 S.E.2d 248, 260 (N. C. 1967). Here, the HSC held that there was ample evidence showing that this bypass was going to be used by the public and that even though the developer would benefit from it, that alone did not detract from the finding of a public purpose or use.

Is Proving Pretext the same as Overcoming the Rational Basis test? Since adopting the defense in Coupe I, this is the first time the HSC examined the evidence needed in proving pretext. Given the "great weight" to the legislative purpose and the deference to the government here, it seems rather hard to prove. That might account for the Coupes' invitation to adopt a per se rule. So what is the pretext defense turning into? It's too early to be certain. But in this case, it seemed like the HSC approved of the circuit court's application of a rational-basis test, which ironically, was urged by Chief Justice Moon--a dissenter in Coupe I.

Valuation Issue Beyond the Scope of Remand . . . The HSC addressed the issue of remand. When the circuit court first concluded that the condemnation of the 3.348 acres, the 2d condemnation, was valid, it calculated the "just compensation" for it. After the case was remanded by the HSC, the Coupes argued that the just compensation was incorrect and needed to be adjusted. The HSC agreed with the circuit court that the issue was untimely raised. "Coupe had the opportunity to challenge the evidentiary valuation of the property in its first appeal to this court, but did not do so."

The case, according to the HSC, was remanded to determine the pretext issue and to rule on the motion for attorneys' fees/costs. It did not reopen the case for litigation the "just compensation" of the 3.348 acres. "[R]emand for a specific act does not reopen the entire case; the lower tribunal only has the authority to carry out the appellate court's mandate." Standard Mgmt. Inc. v. Kekona, 99 Hawai'i 125, 137, 53 P.3d 264, 276 (App. 2001).

. . . And not Plain Error Either. In a civil case, plain error is based on three factors: "whether consideration of the issue requires additional facts, whether the resolution of the question will affect the integrity of the findings of fact of the trial court[,] and whether the question is of great public import." Fujioka v. Kam, 55 Haw. 7, 9, 514 P.2d 568, 570 (1973). The HSC held that the valuation of 3.348 acres on the Big Island is not of "great public import" and declined review of whether the circuit court correctly calculated just compensation.

Other Issues. The HSC examined whether the circuit court correctly calculated the requested fees, costs, and interest pursuant to the specific language of the eminent domain statutes in HRS chapter 101.

Want more Takings Clause Commentary? Can't get enough condemnation commentary and analysis? Check out Robert H. Thomas' blog. Mr. Thomas has got to be the best authority in Hawai'i on takings and condemnation law. He was also an attorney for the Coupes here.

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