Richardson v. City and County of Honolulu

• Decision Date: 08 September 1997
• Docket Number: 94-16142,Nos. 94-16041,94-16143 and 94-16327,s. 94-16041
• Parties: 97 Cal. Daily Op. Serv. 7283, 97 Daily Journal D.A.R. 11,674 William S. RICHARDSON; Henry H. Peters, Jr.; Oswald K. Stender, Myron B. Thompson, and Matsuo Takabuki, in their capacities as Trustees of the Kamehameha Schools/Bernice Pauahi Bishop Estate, Plaintiffs-Appellants, v. CITY AND COUNTY OF HONOLULU, a Hawaii Municipal Corporation, Defendant-Appellee, and Hale Coalition, Intervenor. William S. RICHARDSON; Henry H. Peters, Jr.; Oswald K. Stender, Myron B. Thompson, and Matsuo Takabuki, in their capacities as Trustees of the Kamehameha Schools/Bernice Pauahi Bishop Estate, Plaintiffs-Appellees, and Hale Coalition, Intervenor, v. CITY AND COUNTY OF HONOLULU, a Hawaii Municipal Corporation, Defendant-Appellant. William S. RICHARDSON; Henry H. Peters, Jr.; Oswald K. Stender, Myron B. Thompson, and Matsuo Takabuki, in their capacities as Trustees of the Kamehameha Schools/Bernice Pauahi Bishop Estate, Plaintiffs-Appellees, v. HAWAII LEASEHOLDERS EQUITY COALITION, Intervenor-Appellant, and City and County of Honolulu, a Hawaii Municipal Corporation, Defendant. SMALL LANDOWNERS OF OAHU, Plaintiff-Appellant, v. CITY AND COUNTY of HONOLULU, Defendant-Appellee
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1150

124 F.3d 1150

97 Cal. Daily Op. Serv. 7283, 97 Daily Journal

D.A.R. 11,674

William S. RICHARDSON; Henry H. Peters, Jr.; Oswald K.

Stender, Myron B. Thompson, and Matsuo Takabuki, in their

capacities as Trustees of the Kamehameha Schools/Bernice

Pauahi Bishop Estate, Plaintiffs-Appellants, v. CITY AND COUNTY OF HONOLULU, a Hawaii Municipal Corporation,

Defendant-Appellee,

and

Hale Coalition, Intervenor.

William S. RICHARDSON; Henry H. Peters, Jr.; Oswald K.

Stender, Myron B. Thompson, and Matsuo Takabuki, in their

capacities as Trustees of the Kamehameha Schools/Bernice

Pauahi Bishop Estate, Plaintiffs-Appellees, and Hale Coalition, Intervenor, v. CITY AND COUNTY OF HONOLULU, a Hawaii Municipal Corporation,

Defendant-Appellant.

William S. RICHARDSON; Henry H. Peters, Jr.; Oswald K.

Stender, Myron B. Thompson, and Matsuo Takabuki, in their

capacities as Trustees of the Kamehameha Schools/Bernice

Pauahi Bishop Estate, Plaintiffs-Appellees, v. HAWAII LEASEHOLDERS EQUITY COALITION, Intervenor-Appellant, and City and County of Honolulu, a Hawaii Municipal Corporation,

Defendant.

SMALL LANDOWNERS OF OAHU, Plaintiff-Appellant, v. CITY AND COUNTY of HONOLULU, Defendant-Appellee.

Nos. 94-16041, 94-16142, 94-16143 and 94-16327.

United States Court of Appeals, Ninth Circuit

Argued and Submitted Nov. 2, 1995.

Decided Sept. 8, 1997.

C. Michael Hare, Cades Schutte Fleming & Wright, Honolulu, Hawaii; James K. Mee, Ashford & Wriston, Honolulu, Hawaii for plaintiffs-appellants.

Thomas P. Rack, Deputy City Counsel, City and County of Honolulu, Honolulu, Hawaii; Lex R. Smith, Kobayashi, Sugita & Goda, Honolulu, Hawaii for defendant-appellee.

Dennis E.W. O'Connor and Jerrold K. Guben, Reinwald, O'Connor, Marrack, Hoskins & Playdon, Honolulu, Hawaii for intervenor-appellee-cross-appellant.

H.K. Bruss Keppeler, Honolulu, Hawaii for amicus curiae.

Appeals from the United States District Court for the District of Hawaii; David A. Ezra, District Judge, Presiding. D.C. No. CV-91-00725-DAE.

Appeal from the United States District Court for the District of Hawaii; Harold M. Fong, District Judge, Presiding. D.C. No. CV-92-00372-HMF.

Before: HUG, Chief Judge, THOMPSON and O'SCANNLAIN, Circuit Judges.

HUG, Chief Judge:

OPINION

In these consolidated cases we are asked to determine the constitutionality of two land reform ordinances passed by the City Council for the City and County of Honolulu (the "City"). Ordinance 91-95 provides a mechanism for converting leasehold interests in condominium units to fee interests, through the use of the City's condemnation power. Ordinance 91-96 is a rent control measure that limits increases in ground rent due the owner of the land under the condominium units. The trustees of the Bishop Estate ("Bishop Estate") brought an action before District Judge Ezra contesting the constitutionality of both ordinances. The Small Landowners of Oahu ("Small Landowners") brought a separate action before District Judge Fong. Judges Ezra and Fong each entered summary judgments upholding Ordinance 91-95. Judge Ezra also entered a summary judgment holding Ordinance 91-96 (the rent control ordinance) unconstitutional. We have jurisdiction under 28 U.S.C. § 1291 and we affirm.

I. BACKGROUND

Prior to American acquisition, Hawaii developed an extensive feudal land ownership system that has proved remarkably resistant to change. Although Hawaiian leaders and American settlers have repeatedly attempted to divide the large Hawaiian land estates, the results have generally been unsuccessful. As of the late 1980's, the largest eighteen landowners in the state owned 40% of the available land. L.A. Powe, Jr., Economic Make-Believe in the Supreme Court, 3 Const. Comm. 385, 389 (1986). The seventy-two largest landowners owned 47%. Id. With the federal and state government owning 49% of the land in the state, id., little is left for the rest of the population. As might be expected in an area of desirable real estate with little land for sale, the price of owning land in Hawaii has grown exponentially over the past several decades.

The large private landowners have adopted a pattern of leasing their land for long terms rather than selling it. Often the land is leased to a developer who builds condominiums ¹ on the property. The condominiums are then sold subject to the ground lease. Sometimes the landowners themselves build and sell the condominiums, subject to a ground lease. The leases, commonly for 55 years or longer, require a substantial initial payment and lease payments for 25 to 30 years at a fixed rate. At the end of the initial term, the rent is renegotiated pursuant to the terms of the lease. The new rent usually is based on the market value of the unimproved land as described in the lease. Stated another way, the renegotiated rent is fixed at a percentage of the market value of the parcel underneath the condominium exclusive of improvements (i.e., the condominium). ² In almost all cases, the renegotiated rent substantially exceeds the initial fixed rate.

To break up this pattern of land ownership and control the escalating prices of housing, the City passed Ordinances 91-95 and 91-96 on December 18, 1991.

That day the appellants in Richardson filed suit in federal court before Judge Ezra seeking declaratory and injunctive relief. The Richardson appellants are trustees of the Bishop Estate, a charitable trust established in 1884 under the will of Ke Ali'i Bernice Pauahi Bishop, the great-granddaughter of King Kamehameha I, to erect and maintain schools for indigents and orphans who are native Hawaiians. The Bishop Estate owns the fee simple title to the land underneath condominiums in Honolulu that are affected by the Ordinances. ³ A group of condominium owners calling themselves the Hawaii Leaseholders Equity Coalition (the "HALE coalition") was granted permission to intervene in the action as an interested party.

On February 14, 1992, the Bishop Estate filed a partial motion for summary judgment. On June 8, 1992, the HALE Coalition also moved for partial summary judgment. On June 9, 1992, the City filed a cross-motion for summary judgment on all counts.

Meanwhile, on June 12, 1992, the Small Landowners, a nonprofit membership corporation representing landowners who own smaller plots of land underneath condominium projects, filed a separate complaint in federal court before Judge Fong seeking a declaration that Ordinances 91-95 and 91-96 were constitutionally invalid. The Small Landowners moved to consolidate their action with (or alternatively, to intervene in) the action instituted by the Bishop Estate. The motion was denied and the Small Landowners' suit proceeded separately.

On September 16, 1992, Judge Ezra (1) declared Ordinance 91-96 unconstitutional on its face under the Takings Clause; (2) held that Ordinance 91-95 was facially constitutional under the Public Use, Just Compensation, Due Process, and Equal Protection Clauses of the federal and Hawaii constitutions; and (3) certified to the Hawaii Supreme Court the question whether Ordinance 91-95 was preempted by state law. See Richardson v. City & County of Honolulu, 802 F.Supp. 326 (D.Haw.1992).

The Small Landowners and the City subsequently stipulated to dismiss the Small Landowners' claim regarding Ordinance 91-96. The parties also agreed to dismiss the Small Landowners' claims regarding state law preemption, because those questions would be decided by the Hawaii Supreme court in the Richardson case. On September 16, 1993, Judge Fong issued his order holding that Ordinance 91-95 was facially constitutional under the Takings, Due Process, and Equal Protection Clauses of the federal and Hawaii constitutions, and that the Small Landowners' claims that Ordinance 91-95 failed to provide just compensation or comply with the City's Charter were unripe. See Small Landowners of Oahu v. City & County of Honolulu, 832 F.Supp. 1404 (D.Haw.1993).

On February 22, 1994, the Hawaii Supreme Court answered the certified question from Richardson in the negative, Richardson v. City & County of Honolulu, 76 Hawai'i 46, 868 P.2d 1193 (1994), and on April 12, 1994, Judge Ezra adopted the Hawaii Supreme Court's answer. On April 18, 1994, Judge Ezra entered final judgment. Judge Fong entered final judgment in Small Landowners on June 20, 1994. All parties filed timely notices of appeal. Because of the similar issues presented, the two actions were consolidated before this court after oral argument.

II. ORDINANCE 91-95

A. The Statue

Ordinance 91-95, which closely parallels Hawaii's Land Reform Act of 1967, creates a mechanism through which condominium owners can convert their leasehold interests into fee simple interests. When at least 25 owners in a condominium complex or the owners of 50% of the units, whichever is less, apply to purchase their leased fee interest, the Ordinance's condemnation procedure is triggered. The Department of Housing and Community Development (the "Department") then determines if the property is proper for condemnation. The Department will begin condemnation proceedings within twelve months unless the owner agrees to voluntarily sell the leased fee interest to the lessees. If the Department condemns the land, the lessee must purchase the land from the City within 60 days.

In conjunction with enacting the Ordinance, the City made several findings regarding the concentration of land in Honolulu and the effects on such concentration on the local economy. First, the City found that landowners have refused to sell proportionate shares in their fee simple titles and that the few sales that occurred involved exorbitant prices. Honolulu City & County, Haw. Ordinance 91-95, § 1(a). This refusal to sell fee simple titles, along with other factors, has caused a dramatic increase in the price of housing in Honolulu. Id. The City further found that persons wishing to reside on Oahu were forced to sign long-term leases that provide for...