Non-Hawaiians have no Standing to Challenge Tax Exemptions for Hawaiian Homes Lessees

Corboy v. Louie (HSC April 27, 2011)

Background. Real property owners and paid their taxes to the State and all the Counties under protest. The taxpayers brought a complaint in the tax court alleging that the tax exemption for Hawaiian Homeland lessees and the Hawaiian Homes Commission Act (HHCA) of 1921 were unlawful. Essentially, the taxpayers argued that the tax exemption violated the Equal Protection Clause. The governments brought a motion for summary judgment. The motion was granted. The taxpayers appealed and the ICA affirmed.

The Taxpayers' Claim: tax Exemptions for Hawaiian Homes Lessees Violate the Equal Protection Clause. The HSC zeroed in on the actual claims brought by the taxpayers: that the exemptions pursuant to the HHCA and the HHCA itself violate the equal protection clause. The HSC noted that a challenge to the HHCA tax exemption is really a challenge to the requirement that only Native Hawaiians are eligible for the homestead leases and thus the exemption. The taxpayers argued that because only Native Hawaiians are eligible to receive the exemption, the exemption violates the federal constitution. According to the HSC, however, the tax exemption applies only to "original lessees" not Native Hawaiians. The HSC construed the taxpayers' challenge as a challenge to the lease eligibility provisions. The issue then became whether the taxpayers had standing to bring that challenge.

Taxpayers have No Standing Because no Injury. Standing focuses on "the party seeking a forum rather than on the issues he [or she] wants adjudicated. And the crucial inquiry in its determination is whether the plaintiff has alleged such a personal stake in the outcome of the controversy as to warrant his [or her] invocation of the court's jurisdiction and to justify the exercise of the court's remedial powers on his [or her] behalf." County of Kauai ex rel. Nakazawa v. Baptiste, 115 Hawai'i 15, 26, 165 P.3d 916, 927 (2007). A party has a stake in the outcome based on the injury-in-fact test:

(1) has the plaintiff suffered an actual or threatened injury. . .; (2) is the injury fairly traceable to the defendant's actions; and (3) would a favorable decision likely provide relief for plaintiff's injury.

Sierra Club v. Dept. of Transp., 115 Hawai'i 299, 319, 167 P.3d 292, 312 (2007). The injury has to be "distinct and palpable to himself [or herself] as opposed to an alleged injury that is abstract or merely hypothetical." Mottl v. Miyahira, 95 Hawai'i 381, 389, 23 P.3d 716, 724 (2001). The injury also be related to "a recognized interest, as opposed to merely airing a political or intellectual grievance." Id. at 395, 23 P.3d at 730.

The HSC held that the first prong was not met and they lacked standing. None of the taxpayers had a recognizable interest. None of them applied for a homestead lease or showed any interest in applying. Furthermore, there is no indication that their interest would change if the challenged Native Hawaiian qualification was abolished.

Justice Acoba's Concurrence. Justice Acoba believed that the taxpayers had standing to challenge the tax exemptions in the HHCA. Taxpayer standing is different from the injury-in-fact test. It arises when (1) the challenged act is more than "mere irregularity" and "imperil[s] the public interest or work[s] public injury"; (2) the plaintiff must "allege loss in revenues resulting in an increase in plaintiff's tax burdens or to taxpayers in general[,]" and (3) absent a statute governing the suit, "demand upon the proper public officer to take appropriate action" is made "unless facts alleged sufficiently show that demand to bring suit would be useless." Iuli v. Fasi, 62 Haw. 180, 183-84, 613 P.2d 653, 656 (1980). According to Justice Acoba, all three prongs for taxpayer standing were met. First, the tax exemption is "inextricably tied to an ancestral requirement"--Native Hawaiian ancestry--and imperils the public interest or works public injury. Second, the taxpayers clearly showed a pecuniary loss in comparison to the tax burden on the homesteaders. Finally, the taxpayers paid under protest and demand was made to take appropriate action.

But Justice Acoba believed that because the HHCA is "subject to amendment or repeal only with the consent of the United States[,]" the United States must be made a party to the case. See Carroll v. Nakatani, 342 F.3d 934, 944 (9th Cir. 2003). The failure to name the United States warranted dismissal.