Robert Thomas
Robert Thomas

A Warning: A bit of warning before we start: this is going to be a long post. Not because the issues in City & County of Honolulu v. Sherman, No. 28945, being argued on Wednesday, December 14, 2011 at 9:00 a.m. in the Intermediate Court of Appeals are particularly interesting, but because this case has been hanging around for years (the briefing was completed in 2008 — yes, you read that right: over three years ago) and this is the second time this case has been to the Hawaii appellate courts. The first trip produced a published opinion by the Supreme Court, City & County of Honolulu v. Sherman, 110 Haw. 39, 129 P.3d 543 (2006) (we analyzed that opinion here).

Thus, there’s a lot of background to cover. Besides, eminent domain appeals don’t crop up all that often in the Hawaii courts so when they do, we’ve got to hit them hard.

Ironically, the one interesting issue in the appeal is likely going to turn out to be very easy for the ICA to resolve.

The first appeal involved the question of whether the city’s exercise of eminent domain power to condemn the fee simple interest owned by a church in a Honolulu condominium project was a “land use regulation” under the federal Religious Land Use and Institutionalized Persons Act (RLUIPA), and whether the city had improperly delegated its eminent domain power to private parties. The Supreme Court answered both of those questions in the negative.

The Backstory

The backstory to that case and the present appeal begins in the aftermath of Hawaii Hous. Auth. v. Midkiff, 467 U.S. 229 (1984), the case that upheld the Hawaii Land Reform Act as a constitutional exercise of the State’s eminent domain power. That statute, as you recall, allowed homeowner/lessees to petition the Hawaii Housing Authority to exercise eminent domain on the homeowner’s behalf and condemn the fee simple interest underneath their homes from the lessor, and transfer it to the lessee upon payment of just compensation.

After the Supreme Court upheld the statute against a Public Use Clause challenge, efforts were undertaken to pass similar legislation affording condominium owners the same ability to force condemnation of their leasehold interests. At the state level, those efforts were ultimately unsuccessful, but the City & County of Honolulu eventually enacted a local version, codified as Hon. Rev. Ord. ch. 38. That ordinance, like the Land Reform Act, was challenged under the public use clauses of the U.S. and Hawaii Constitutions, but as in Midkiff and Lyman, those challenges were rejected by both federal (Richardson v. City and County of Honolulu, 124 F.3d 1150 (9th Cir. 1997)) and state courts (Richardson v. City and County of Honolulu, 76 Haw. 46, 868 P.2d 1193 (1994)).

Under Chapter 38, the owners of many Honolulu condominium projects were permitted to condemn and take the leasehold interests from their lessors, if a sufficient number of apartment owners in a particular project agreed to do so, and more importantly, were qualified to do so. By 2005, however, public sentiment regarding eminent domain had turned, and the City Council surprisingly repealed the ordinance. The Sherman case represents was the hanging tail of the now-repealed process, and dealt with a condominium condemnation that was sufficiently in-progress when Chapter 38 was repealed, and thus was not affected by the law’s repeal.

The Remand

Or at least that is the issue: in the remand after the first Sherman opinion, the trial court ultimately ruled that there were not enough qualified condo owners and the city could not continue to condemn under the repealed ordinance. However, the court also declined to award damages incurred in the first appeal to the property owner under section section 101-27, the statute requiring that the condemnor to make the property owner whole when property is not “finally taken” in a condemnation action, asserting that as a trial court it had no ability to award damages incurred in an appellate court. Everyone appealed.

The Issues on Appeal

Here is the summary of the issues presented in this round from the Judiciary web site:

Defendants-Appellants/Cross-Appellees James Sherman et al. (Lessees) appeal, and Defendant-Appellee/Cross-Appellant First United Methodist Church (Church) cross-appeals, from the December 11, 2007 Final Judgment entered by the Circuit Court of the First Circuit (Circuit Court).This condemnation action was initiated by Plaintiff-Appellee/Cross-Appellee City and County of Honolulu under its eminent domain powers pursuant to Revised Ordinances of Honolulu (ROH) Chapter 38 (Chapter 38) seeking lease-to-fee conversion of certain units in the Admiral Thomas condominium. Lessees own leasehold interests in units at the Admiral Thomas and the Church owns the fee interest. This is the second appeal in this case.

Lessees argue that, on remand following the first appeal, the Circuit Court erred by: (1) not considering units designated in the Third Amendment to the Original Designation (Third Amendment) when determining the number of qualified units under ROH Chapter 38; (2) concluding that lessees Yamamoto, Lee and the Youngs did not qualify under ROH Chapter 38; and (3) failing to use its equitable powers to consider the Third Amendment and to consider Ernestine Young’s medical condition when deciding whether she was eligible under ROH Chapter 38.

On cross-appeal, the Church argues that the Circuit Court erred by: (1) ruling that lessees Reich and Hagin were qualified under ROH Chapter 38; and (2) denying the Church’s request for attorneys’ fees incurred in the first appeal, made pursuant to Hawaii Revised Statutes § 101-27.

As we hinted above, the issue of whether an apartment owner is or isn’t qualified doesn’t thrill us all that much. Chapter 38 is a dead letter, and this case is likely the last remnant of the condo conversion condemnation issue. Although the issues in the appeal are undoubtedly important to the parties, whichever way the court rules will not likely have a large impact beyond the case itself.

Damages Under Section 101-27

The one issue that does interest us is the question of damages under section section 101-27, the statute requiring that the condemnor to make the property owner whole when property is not “finally taken” in a condemnation action. The property owner is asserting it is entitled under the statute to recover the damages it sustained in objecting to the city’s unsuccessful attempt to condemn the condo fee interest, and that those damages include the attorneys fees and costs it incurred in the first appeal, even though the first appeal did not defeat the condemnation (the court remanded the issue to the trial court for further proceedings). The city argues first that because the property owner did not prevail completely in the appeal it is not entitled to section 101-27 damages, and second that any damages sustained on appeal must be sought from an appellate court, and the property owners failed to timely request a damage award from the Supreme Court.

The time this present appeal has been sitting in the court of appeals has had a real impact on the section 101-27 arguments, since the two most relevant cases interpreting that statute were issued by the Hawaii Supreme Court in late 2008 and mid-2009, after briefing was completed.

Coupe I and Coupe II

First, in County of Hawaii v. C&J Coupe Family Ltd. P’ship, 119 Haw. 352, 198 P.3d 615 (Dec. 24, 2008) (available here), the court held that property is not “finally taken” in a condemnation action when a single condemnation fails or is dismissed, even if the condemnor succeeds in a subsequent — or concurrent — attempt to take the property.

Second, in the follow-up opinion, County of Hawaii v. C&J Coupe Family Ltd. P’ship, 120 Haw. 400, 208 P.3d 713 (2009), the court held that a condemnee is also entitled to damages it sustains on appeal. In this order, the court amended the opinion to include damages sustained by the condemnee on interlocutory and intermediate actions on which it did not prevail, provided the property was not “finally taken.” In other words, what matters for the determination of governmental liability under section 101-27 is whether the property is “finally taken,” not whether the government may win intermediate steps along the way. If the taking fails, the government is liable for all of the property owner’s fees and costs, even those related to motions or appeals the government may have won in whole or in part.

We’re going to go out on a limb here and state that the second Coupe opinion will likely make short work of the city’s argument that the property owner is not entitled to section 101-27 damages at all, simply because the first appeal did not fully resolve the condemnation in favor of the property owner. Coupe II is clear that it doesn’t matter who is ahead at halftime and that it only matters who wins in the end, and if the condemnation is not carried through to completion the property owner is entitled to be made whole, and that includes all of the damages it sustained, including attorneys fees and costs incurred in intermediate or interlocutory proceedings.

Coupe II also seems to take care of the city’s other argument, that the property owner should have asked to recover the damages sustained in the first appeal from the Supreme Court. While it is correct that Haw. R. App. P. 39 is the vehicle by which a prevailing party on an appeal asks to recover fees and costs incurred in an appeal, and this includes section 101-27 damages, it is also quite clear that since the first appeal did not result in a dismissal of the condemnation, the property owner was not entitled to ask the Supreme Court for those damages. The issue simply wasn’t ripe, and did not become ripe until the trial court ruled on remand that the city could not condemn the condo fee. At that point, the trial court had the statutory power to award the property owner “all damages” it had sustained to that point, including fees and costs it incurred on the earlier appeal. If there’s been a request for supplemental briefing on the impact of the two Coupe opinions on the section 101-27 issue, we haven’t seen it.

Here’s our final prognostication: because of the lengthy time this case has been pending in the ICA, we’re guessing that the court is going to issue an opinion in fairly short order after the oral arguments. We don’t have a prediction how it might rule on the question of qualifications, and frankly we don’t much care, except as it guides the court on whether the trial court correctly concluded that the city could not condemn the property.  On the section 101-27 issue, we’re guessing that if the court concludes the trial court correctly dismissed the condemnation, the property owners will be entitled to recover all of their damages from Day 1 through today.

Here are the briefs in the case:

*These are the three briefs you want to read if you are interested in the section 101-27 issue.

We’ll be attending the oral arguments on Wednesday and will have a report if anything interesting occurs.

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Robert H. Thomas is one of the preeminent land use lawyers in Hawaii. He specializes in land use issues including regulatory takings, eminent domain, water rights, and voting rights cases. He has tried cases and appeals in Hawaii, California, and the federal courts. Robert received his LLM, with honors, from Columbia Law School where he was a Harlan Fiske Stone Scholar, and his JD from the University of Hawaii School of Law where he served as editor of the Law Review. Robert taught law at the University of Santa Clara School of Law, and was an exam grader and screener for the California Committee of Bar Examiners. He currently serves as the Chair of the Condemnation Law Committee of the American Bar Association’s Section on State & Local Government Law. He is the Hawaii member of Owners’ Counsel of America, a national network of the most experienced eminent domain and property rights lawyers. Membership in OCA is by invitation only, and is limited to a single attorney from each state. Robert is also the Managing Attorney for the Pacific Legal Foundation Hawaii Center, a non-profit legal foundation dedicated to protecting property rights and individual liberties. Reach him at rht@hawaiilawyer.com He is also a frequent speaker on land use and eminent domain issues in Hawaii and nationwide. For a list of upcoming events and speaking engagements.