Jury rules in favor of South Kohala developer

KAILUA-KONA — A federal jury has sided with a South Kohala developer, agreeing that a state Land Use Commission’s decision to reclassify more than 1,000 acres at Aina Lea was a constitutional taking of the property without just compensation.

The jury’s verdict in favor of Bridge Aina Lea was rendered March 23 following an eight-day trial before U.S. District Court Judge Susan Oki Mollway in Honolulu. The decision came within two hours of the end of closing arguments and jury instructions, including a lunch break for jurors.

“The jury’s prompt verdict shows how strong the evidence was that the Land Use Commission committed a taking. This is one of the first verdicts in the country where a jury has found a taking under both takings analyses approved by the U.S. Supreme Court,” said Bruce Voss, attorney for Bridge Aina Lea.

The analyses referred to are Lucas and Penn Central; both deal with the deprivation of the use of property.

The jurors, however, did not address just compensation, which is the amount the state will be liable for the takings. That’s because prior to trial, Mollway ruled to exclude the property owner’s expert witnesses on the matter, finding they were irrelevant or inadmissible.

Mid-trial, Mollway granted part of a motion by the state to set just compensation at $1. Mollway’s judgment ordering nominal damages of $1 to Bridge Aina Lea was entered Thursday. It also noted that the developer can appeal the amount as well as request payment for court costs.

Dana Viola, special assistant to the Attorney General, said the state disagrees with the jury’s finding that a taking occurred, but is pleased with the judge’s determination regarding damages. If Bridge Aina Lea appeals the jury’s verdict, the state will likely cross appeal.

“The requirement to build affordable homes for the citizens of the County of Hawaii has been in effect since 1989, yet 29 years later, not one affordable home is available on the property. The development remains stalled. The LUC’s good faith attempt to enforce its conditions did not cause these problems. Therefore, the determination that no just compensation is owed is a fair and correct result,” Viola said.

Voss said Bridge Aina Lea plans to appeal the judge’s award to a higher court.

“We respectfully believe it was clear error for the court to preclude Bridge Aina Lea from introducing any evidence on just compensation, and will appeal to the 9th Circuit on that issue,” Voss said. “If the appeals court agrees with us, the case likely will be sent back for a new jury to determine how much the State Land Use Commission has to pay. We contend the just compensation owing is approximately $20 million.”

Bridge Aina Lea, one of the developers of 3,000-acre The Villages at Aina Lea, sued the commission in 2011 following a decision that year to revert zoning on a 1,060-acre tract to its original classification of agricultural from urban, arguing the move was a constitutional taking of Bridge’s property without just compensation because of the loss of the use of the land after it had already invested millions of dollars into the project.

The developer in its suit claimed damages incurred from the decision — which was ultimately overturned in the courts — were not less than $37.5 million.

The case went to trial after a settlement agreement in which the state agreed to pay $1 million to settle the case rather than go to trial fell through when legislators cut out the money in the final 2017 appropriations bill that was signed by Gov. David Ige.

“We previously reached a settlement, which the State Legislature refused to fund. Bridge Aina Lea remains interested in discussing a resolution with the Land Use Commission that would allow the Aina Lea project to move forward and succeed, to provide workforce housing and a shopping center for South Kohala,” said Voss.

Viola confirmed that settlement discussions are not precluded by an appeal.

Meanwhile, the dismissal of a separate, but similar, takings case filed by DW Aina Lea, now Aina Lea Inc., against the state in February 2017 remains on appeal in 9th Circuit Court. Mollway also heard the case, and determined in June 2017 that the suit had been brought too late.

Currently, the 3,000-acre site situated mauka of Queen Kaahumanu Highway north of Mauna Lani Resort is split between Aina Lea Inc. and Bridge Aina Lea. The grandiose residential community project was first proposed in 1989 and has been subject to numerous false starts and litigation since.

Bridge Aina Lea, based in Saipan, owns a 1,927-acre area classified agriculture and Aina Lea Inc., based in Waikoloa, owns 1,072 acres, including the 1,060 acres that are the subject of the current federal takings claim trial. Aina Lea Inc. acquired 1,011 acres of the urban-classified acreage from Bridge Aina Lea in 2015.

Bridge Aina Lea is currently foreclosing on the acreage acquired by Aina Lea Inc., which subsequently defaulted on loans. That foreclosure, and other foreclosure cases related to the project, remain on hold pending bankruptcy proceedings initiated when Aina Lea Inc. filed for Chapter 11 bankruptcy reorganization last June.

A status conference for a reorganization plan is set for April 9 in U.S. Bankruptcy Court in Honolulu.

No work has taken place at The Villages at Aina Lea since last May when Hawaii County Planning Director Michael Yee notified Aina Lea Inc. to cease operations there after determining the developer was in violation of a 2013 court order and conditions the county imposed in rezoning the land to allow for The Villages at Aina Lea.