Ocean Resort Villas Vacation Owners Ass'n v. Cnty. of Maui & Maui Cnty. Council
| Decision Date | 19 June 2020 |
| Docket Number | SCAP-18-0000578 |
| Citation | 465 P.3d 991 |
| Parties | OCEAN RESORT VILLAS VACATION OWNERS ASSOCIATION, a domestic nonprofit corporation; Ocean Resort Villas North Vacation Owners Association, a domestic nonprofit corporation; Vic H. Henry; and Peter A. Bagatelos, Plaintiffs-Appellees, v. COUNTY OF MAUI and Maui County Council, Defendants-Appellants. |
| Court | Hawaii Supreme Court |
This interlocutory appeal from the Circuit Court of the Second Circuit ("circuit court")1 involves a taxpayer challenge to the timeshare real property tax classification created by the County of Maui and Maui County Council (collectively, the "County") in 2004. Plaintiffs-Appellees are timeshare owners of Westin Ka‘anapali Ocean Resort Villas ("ORV") and Ocean Resort Villas North ("ORVN") (collectively, "Taxpayers"). Taxpayers initially filed a Complaint in 2013 and First Amended Complaint ("FAC") in 2014 seeking declaratory relief pursuant to Hawai‘i Revised Statutes ("HRS") § 632-1 regarding the legality and constitutionality of the County's timeshare real property tax classification and whether its method of promulgation violated the Hawai‘i Sunshine Law (Counts I through IV).
In preparing its defense to the initial Complaint, the County discovered it had not assessed Taxpayers over $10 million in timeshare real property taxes before 2009. The County then issued "amended assessments" to the Taxpayers for tax years 2006, 2007, and 2008 for ORV, and 2008 for ORVN, who paid the taxes under protest and appealed to the Maui County Board of Review ("BOR"), then on to the Tax Appeal Court ("TAC"). The Taxpayers then also filed a Second Amended Complaint ("SAC") alleging the County issued the "amended assessments" in retaliation for the Taxpayers’ lawsuit. The SAC added Counts V through VII again seeking declaratory relief pursuant to HRS § 632-1 alleging illegality and unconstitutionality as well as seeking damages and attorneys’ fees pursuant to 42 U.S.C. §§ 1983 and 1988 in Count VIII for the alleged constitutional violations.
On cross-motions for partial summary judgment, the circuit court voided the timeshare real property tax classification as illegal, and it ordered the County to refund the Taxpayers the $10 million+ in "amended assessments" plus general excise tax and interest, as well as approximately $83,000 in fees paid to the County BOR, and $111,000 in appeal fees paid to the TAC. The circuit court also awarded the Taxpayers over $455,000 in attorneys’ fees and over $18,000 in costs in Count VIII. The County timely appealed, and this court accepted transfer of the appeal from the Intermediate Court of Appeals ("ICA").
The County raises seven points of error: (1) the circuit court improperly exercised subject matter jurisdiction over the case, as exclusive subject matter jurisdiction lay with the TAC; (2) the voiding of the timeshare real property tax classification violated the separation of powers doctrine; (3) the circuit court's ruling that the timeshare real property tax classification may only be established through "actual use" of the property was contrary to the Maui County real property tax code; (4) the circuit court's ruling that the Taxpayers are entitled to tax refunds threatens the County's fiscal health; (5) the circuit court was incorrect in ruling that the "amended assessments" were illegal and retaliatory; (6) the circuit court's order for a refund of the "amended assessments" and related tax appeal fees was an abuse of discretion; and (7) the circuit court's award of attorney's fees and costs was an abuse of discretion. According to the parties, points of error 1 through 4 relate to the initial constitutional challenge to the timeshare real property tax classification, and points of error 5 through 7 relate to the SAC's additional challenges to the "amended assessments."
During the course of briefing before this court, the parties participated in voluntary mediation and entered into a partial settlement with respect to the "amended assessment" points of error (i.e., Points of Error 5, 6, and 7). They then stipulated to partially dismiss this appeal and remand the case to the circuit court for vacatur of the final judgment and various orders on the "amended assessment" Counts (Counts V, VI, VII, and VIII of the SAC). The County also contemporaneously filed a motion for partial dismissal of the appeal, again based on the parties’ partial settlement, and asked this court to directly order vacatur of the circuit court's final judgment and orders on the "amended assessments" counts. The Taxpayers filed a notice of no opposition.
A majority of this court disapproved of the stipulation and denied the motion to dismiss. As further explained below, we noted, We further observed that, as a practical matter, the parties had stipulated to vacate one of the circuit court's orders that contained an issue still under review in the present appeal.
In examining this appeal, we now note that the first point of error, challenging the circuit court's subject matter jurisdiction, is dispositive in our review of the circuit court decisions certified for interlocutory appeal, which involved Counts I and V through VIII of the SAC. We hold that the circuit court was without subject matter jurisdiction over Counts I and V through VII of the Taxpayers’ SAC. Although there is a right to jury trial for declaratory judgment actions under HRS § 632-1, In re Marn Family Litig., 141 Hawai‘i 1, 8, 403 P.3d 621, 628 (2016), Taxpayers sought declaratory relief in those counts pursuant to HRS § 632-1, which explicitly provides that "declaratory relief may not be obtained ... in any controversy with respect to taxes[.]" The partial ruling as to Count I and the final judgment as to Counts V through VII certified for interlocutory appeal were based on declaratory rulings regarding such "controvers[ies] with respect to taxes."
With respect to those counts, the Taxpayers were instead required to challenge the legality and constitutionality of Maui County's real property timeshare classification and rates through the procedures set forth in HRS chapter 232 and Maui County Code ("MCC") chapter 3.48, which require an appeal to the county BOR, then to the TAC.
In addition, with respect to the final judgment for Count VIII (the 42 U.S.C § 1983 count requesting a jury trial and damages due to alleged federal constitutional violations, for which attorneys’ fees and costs were awarded by the circuit court pursuant to 42 U.S.C § 1988 ), the circuit court's judgment was dependent on the federal constitutional violations declared by the circuit court to have existed in counts over which it lacked subject matter jurisdiction.2 Therefore, the final judgment on Count VIII must also be set aside.
We therefore vacate the circuit court's orders and judgment giving rise to this interlocutory appeal and remand this case to the circuit court for further proceedings consistent with this opinion.
On August 19, 2013, the Taxpayers filed a Complaint challenging the constitutionality of Maui County Ordinance No. 3227, which created the County's timeshare real property tax classification in 2004, and demanded a jury trial. With respect to "jurisdiction," Taxpayers specially alleged that "[j]urisdiction in this Court is proper pursuant to [ HRS §] 632-1."
According to the Taxpayers, immediately prior to the establishment of a separate real property tax classification for timeshares, timeshares had been included in the "hotel and resort" real property tax classification and therefore taxed at the hotel and resort rate. The Taxpayers alleged that the County's creation of a separate real property timeshare tax classification, and its accompanying higher rate, was intended to make up for losses in revenue from the transient accommodations tax ("TAT"), which is a state tax shared with the counties. They also alleged that Maui County Resolution No. 13-60, which established the 2014 timeshare real property tax rate, was adopted in violation of Hawai‘i's Sunshine Law. The Taxpayers represented that they paid their real property taxes for the 2014 fiscal year under protest.
Count I of the Complaint alleged an equal protection violation under the United States Constitution and the Hawai‘i State Constitution. The Taxpayers alleged that the timeshare real property tax rate was the highest real property tax rate in the county, although timeshare use does not differ from hotel and resort use. They also alleged that the tax disproportionately impacted nonresidents, who are the overwhelming majority of timeshare owners in the county of Maui. Count II alleged a Sunshine Law violation. The Taxpayers alleged that some Maui County Councilmembers "sought to secure other Councilmembers’ commitment to vote on the timeshare tax rate" through communications that violated the Sunshine Law. Thus, the Taxpayers requested relief in the form of a declaration that (1) the timeshare classification and tax rate violated the equal protection clauses of the United States Constitution and Hawai‘i State Constitution, and (2) Maui County Resolution No. 13-60, establishing the fiscal year 2014 real property timeshare tax rate, was void as violative of the Sunshine Law.
On August 28, 2014, the Taxpayers filed their FAC. Taxpayers again asserted jurisdiction pursuant to HRS § 632-1. The FAC added another Sunshine Law violation count, alleging that some Maui County Councilmembers communicated improperly with other Councilmembers to secure their votes for Maui County Resolution No. 14-54, which established the fiscal year 2015...
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