Hawaii Insurers Council v. Lingle

• Decision Date: 14 April 2008
• Docket Number: No. 27840.,27840.
• Citation: 184 P.3d 769,117 Haw. 454
• Court: Hawaii Court of Appeals
• Parties: HAWAII INSURERS COUNCIL, Plaintiff-Appellee, v. Linda LINGLE, Governor, State of Hawaii; Georgina K. Kawamura, Director of Finance, Department of Budget and Finance; Lawrence M. Reifurth, Director, Department of Commerce and Consumer Affairs<SMALL><SUP>1</SUP></SMALL>; J.P. Schmidt, Insurance Commissioner, Insurance Division, Department of Commerce and Consumer Affairs, Defendants-Appellants.

184 P.3d 769

117 Haw. 454

HAWAII INSURERS COUNCIL, Plaintiff-Appellee, v. Linda LINGLE, Governor, State of Hawaii; Georgina K. Kawamura, Director of Finance, Department of Budget and Finance; Lawrence M. Reifurth, Director, Department of Commerce and Consumer Affairs¹; J.P. Schmidt, Insurance Commissioner, Insurance Division, Department of Commerce and Consumer Affairs, Defendants-Appellants.

No. 27840.

Intermediate Court of Appeals of Hawai`i.

April 14, 2008.

As Amended April 15, 2008.

Kimberly Tsumoto Guidry, Deputy Solicitor General (James F. Nagle, Deputy Attorney General, with her on the briefs), for Defendants-Appellants.

Lisa Woods Munger (Gary M. Slovin and Donna H. Kalama with her on the brief)

(Goodsill Anderson Quinn & Stifel), Honolulu, for Plaintiff-Appellee.

FOLEY and FUJISE, JJ.; and WATANABE, Presiding Judge, concurring separately.

Opinion of the Court by FOLEY, J.

Defendants-Appellants Linda Lingle, Governor of the State of Hawai`i; Georgina K. Kawamura, Director of Finance, Department of Budget and Finance; Lawrence M. Reifurth, Director of the Department of Commerce and Consumer Affairs (DCCA); and J.P. Schmidt, Insurance Commissioner, Insurance Division of the DCCA (collectively referred to as "the State") appeal from the Final Judgment entered on February 27, 2006 in the Circuit Court of the First Circuit² (circuit court).

On appeal, the State argues that the circuit court erred

(1) in ruling that, under State v. Medeiros, 89 Hawai`i 361, 973 P.2d 736 (1999), the assessments were taxes rather than regulatory fees;

(2) in ruling that the assessments violated the Due Process Clauses of the United States and Hawai`i Constitutions;

(3) in ruling that the assessments violated separation of powers;

(4) in ruling that the assessments violated the Equal Protection Clauses of the United States and Hawai`i Constitutions;

(5) in ruling that the assessments violated Hawaii Revised Statutes (HRS) § 431:7-204 (2005 Repl.);

(6) in granting the request of Plaintiff-Appellant Hawaii Insurers Council (HIC) for injunctive relief;

(7) in granting HIC an accounting;

(8) in rejecting the State's defense that HIC failed to exhaust its administrative remedies; and

(9) in rejecting the State's defense that HIC cannot pursue a declaratory action involving a tax matter.

I.

On September 27, 2002, HIC filed a Complaint in the circuit court. The Complaint contained six counts: Count I, statutory scheme; Count II, illegal transfer; Count III, due process; Count IV, separation of powers; Count V, equal protection; and Count VI, accounting.

On October 25, 2002, HIC moved for a preliminary injunction to prevent the transfer of $2,000,000 from the cash balance in the Insurance Regulation Fund (IRF) to the State of Hawai`i General Fund. The circuit court heard the motion on November 19, 2002. On November 25, 2002, the circuit court entered its findings of fact, conclusions of law, and order denying HIC's motion for a preliminary injunction.

On November 27, 2002, HIC filed an Emergency Motion for Injunction Pending Appeal. The circuit court heard the motion on November 29, 2002, orally denied it at the hearing, and filed its written order on December 9, 2002.

After conducting discovery, HIC filed a First Amended Complaint on January 12, 2005, asserting nine counts: Count I, unconstitutional tax; Count II, statutory scheme; Count III, illegal transfer; Count IV, due process; Count V, separation of powers; Count VI, equal protection; Count VII, violation of HRS § 431:7-204; Count VIII, violation of trust doctrine; and Count IX, accounting. HIC alleged:

(1) In 1999, HRS § 431:2-215 established the IRF³; under HRS § 431:2-215(d), the Insurance Commissioner determined the amounts to be assessed against the insurers for payment into the IRF; and the assessed amounts were to be used "to support the operations of the Insurance Division and to enable the Insurance Commissioner to administer Title 24 of the Insurance Code." HRS § 431:7-203(a) (1993 & Supp.1999) provided that excess contributions to the IRF be returned to the paying insurers.⁴

(2) For the fiscal year 2001-02, the Insurance Commissioner decided to increase the assessments to create a substantial cash reserve known as a "reserve margin."

(3) The insurers have been assessed amounts to cover the overhead of the (a) Insurance Division, (b) DCCA, and (c) Department of Budget and Finance.

(4) On April 30, 2002, the legislature passed H.B. No. 2827 (Act 178), determining that there existed an excess of $4,000,000 in the IRF and authorizing the Director of Finance to transfer $2,000,000 from the IRF to the General Fund on July 1, 2002, and another $2,000,000 on December 1, 2002. On June 20, 2002, then-Governor Cayetano vetoed only the July 1, 2002 transfer.

(5) On April 23, 2002, Governor Cayetano signed into law S.B. 2723 (Act 39), which merged the IRF with the Compliance Resolution Fund. The legislature's intent in passing Act 39 was not to make substantive changes to the procedures or limitation of HRS § 431:2-215, but to merge the IRF into the Compliance Resolution Fund to provide "greater efficiency in the administration of departmental funds." Pursuant to Act 39, the unencumbered balances existing in the IRF as of June 30, 2002, were deposited into the insurance sub-account of the Compliance Resolution Fund.

(6) In 2003, the legislature authorized the transfer of up to $15,000,000 from the Compliance Resolution Fund to the General Fund. 2003 Haw. Sess. L. Act 178, § 28 at 407. The Director of Finance transferred $1,500,000 from the insurance regulation sub-account of the Compliance Resolution Fund to the General Fund.⁵

(7) Based on HRS § 431:2-215 and related sections, the assessment of a reserve margin, the assessment for multiple departments' overhead, and the transfer of assessments to the General Fund or any other fund violated the Hawai`i and United States Constitutions as the assessments were illegal and unconstitutional taxes.

The State filed an amended motion for summary judgment on January 31, 2005. On February 1, 2005, HIC filed its motion for summary judgment. The circuit court heard the motions on July 11, 2005 and ruled from the bench on July 26, 2005, but did not file its order until February 27, 2006. The circuit court granted the State's motion for summary judgment as to Counts II (statutory scheme), III (illegal transfer), and VIII (violation of trust doctrine). The circuit court stated that it had not considered the "actual transfer of funds from the insurance special fund to the general fund except [sic] counts 2 and 8." The circuit court denied the State's motion as to the State's defenses that HIC had failed to exhaust its administrative remedies and that HIC could not pursue a declaratory action involving a tax matter. The circuit court granted HIC's motion for summary judgment as to Counts I (unconstitutional tax), IV (due process), V (separation of powers), VI (equal protection), VII (violation of HRS § 431:7-204), and IX (accounting), and HIC's request for an accounting and injunctive relief.

The State filed a motion on October 17, 2005, asking the circuit court to reconsider its grant of HIC's request for injunctive relief or, in the alternative, to stay the injunction. On January 23, 2006, the circuit court filed an order, in which it denied the State's motion for reconsideration of the grant of injunctive relief, but granted the motion for stay, subject to certain conditions.

On February 27, 2006, the circuit court entered its Final Judgment. On March 28, 2006, the State timely filed its notice of appeal.

II.

A. Summary Judgment

"We review the circuit court's grant or denial of summary judgment de novo." Querubin v. Thronas, 107 Hawai`i 48, 56, 109 P.3d 689, 697 (2005) (quoting Durette v. Aloha Plastic Recycling, Inc., 105 Hawai`i 490, 501, 100 P.3d 60, 71 (2004)). The Hawai`i Supreme Court has often articulated that

summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. A fact is material if proof of that fact would have the effect of establishing or refuting one of the essential elements of a cause of action or defense asserted by the parties. The evidence must be viewed in the light most favorable to the non-moving party. In other words, we must view all of the evidence and the inferences drawn therefrom in the light most favorable to the party opposing the motion.

Querubin, 107 Hawai`i at 56, 109 P.3d at 697 (quoting Durette, 105 Hawai`i at 501, 100 P.3d at 71).

Hawai`i Rules of Civil Procedure (HRCP) Rule 56(e) provides in relevant part:

Rule 56. Summary judgment.

. . . .

(e) Form of affidavits; further testimony; defense required. ... When a motion for summary judgment is made ..., an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.

Thus, "[a] party opposing a motion for summary judgment cannot discharge his or her burden by alleging conclusions, `nor is [the party] entitled to a trial on the basis of a hope that [the party] can produce some evidence at that time.'" Henderson v. Prof'l Coatings Corp., 72 Haw. 387, 401, 819 P.2d 84, 92 (1991) (quoting 10A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure: Civil 2d § 2727 (1983)).

B. Constitutional Questions

The appellate court answers questions of constitutional law by exercising the court's own independent judgment based on the facts of the case; thus, it...