Kealoha v. Machado

• Decision Date: 03 December 2013
• Docket Number: No. SCAP–11–0001103.,SCAP–11–0001103.
• Citation: 131 Hawai'i 62,315 P.3d 213
• Parties: Samuel L. KEALOHA, Jr., Virgil E. Day, Josiah L. Hoohuli, and Patrick L. Kahawaiolaa, Petitioners/Plaintiffs–Appellants, v. Colette Y. Pi‘ipi‘i MACHADO, individually and in her official capacity as Chairperson and Trustee of the Office of Hawaiian Affairs; S. Haunani Apoliona, Rowena Akana; Donald Cataluna; Boyd P. Mossman; Oswald Stender; Peter Apo ; Robert K. Lindsey, Jr.; and John D. Waihe‘e IV, individually and in their official capacity as Trustees of the Office of Hawaiian Affairs; and Dante Carpenter and Walter Heen, individually, Respondents/Defendants–Appellees.
• Court: Hawaii Supreme Court

131 Hawai'i 62

315 P.3d 213

Samuel L. KEALOHA, Jr., Virgil E. Day, Josiah L. Hoohuli, and Patrick L. Kahawaiolaa, Petitioners/Plaintiffs–Appellants,

v.Colette Y. Pi‘ipi‘i MACHADO, individually and in her official capacity as Chairperson and Trustee of the Office of Hawaiian Affairs; S. Haunani Apoliona, Rowena Akana; Donald Cataluna; Boyd P. Mossman; Oswald Stender; Peter Apo ; Robert K. Lindsey, Jr.; and John D. Waihe‘e IV, individually and in their official capacity as Trustees of the Office of Hawaiian Affairs; and Dante Carpenter and Walter Heen, individually, Respondents/Defendants–Appellees.

No. SCAP–11–0001103.

Supreme Court of Hawai‘i.

Dec. 3, 2013.

Walter R. Schoettle, Honolulu, for petitioners.

Robert G. Klein, Honolulu, and Lisa W. Cataldo, for respondents.

RECKTENWALD, C.J., NAKAYAMA, ACOBA, and McKENNA, JJ., and Circuit Judge KIM, in place of POLLACK, J., Recused.

Opinion of the Court by RECKTENWALD, C.J.

Samuel L. Kealoha, Jr., Virgil E. Day, Josiah L. Hoohuli, and Patrick L. Kahawaiolaa (collectively, Plaintiffs), brought this suit against Office of Hawaiian Affairs (OHA) trustees,¹ alleging that the OHA trustees improperly expended trust funds on Hawaiians, as opposed to native Hawaiians as defined by the Hawaiian Homes Commission Act (HHCA).² Plaintiffs argued that these expenditures violated the OHA trustees' duty to expend trust funds "in the sole interest" of native Hawaiians, as required under Hawai‘i Revised Statutes (HRS) § 10–3(1), §§ 4 and 5(f) of the Hawai‘i Admission Act, and article XII, sections 4, 5, and 6 of the Hawai‘i Constitution.

The OHA trustees filed a Motion to Dismiss the complaint, arguing that the Plaintiffs' claims were barred under principles of res judicata and collateral estoppel by the U.S. District Court's decision and judgment in Day v. Apoliona (Day II ), No. 05–00649, 2008 WL 2511198, *7–14 (D.Haw. June 20, 2008) and the Ninth Circuit Court of Appeals' opinion and judgment in that case, 616 F.3d 918, 924–28 (9th Cir.2010), both of which held that the challenged expenditures were proper under federal law. The OHA trustees also argued that even if res judicata and collateral estoppel did not bar Plaintiffs' claims, they failed on the merits for the same reasons as the claims set forth in Day II.

The circuit court dismissed the complaint, finding that it failed to state a claim upon which relief could be granted pursuant to Hawai‘i Rules of Civil Procedure (HRCP) Rule 12(b)(6). The Plaintiffs then filed a motion for leave to file an amended complaint "to correct the deficiencies identified by the court[.]" The circuit court denied the motion. Plaintiffs appeal from the circuit court's December 6, 2011 final judgment in favor of the OHA trustees.³

On appeal to this court, Plaintiffs raise the following points of error:

(1) Whether the [circuit court] erred in dismissing the complaint for failure to state a claim?

(2) Whether dismissal is appropriate on grounds of res judicata or collateral estoppel?

In deciding a motion to dismiss for failure to state a claim, courts must interpret the complaint in the light most favorable to the plaintiff, and should dismiss only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his or her claim that would entitle him or her to relief." County of Kaua‘i v. Baptiste, 115 Hawai‘i 15, 24, 165 P.3d 916, 925 (2007) (citation omitted). Applying that test here, we hold that the circuit court did not err in dismissing Plaintiffs' complaint.⁴ We also hold that the circuit court did not abuse its discretion in denying Plaintiffs' motion for leave to file an amended complaint. Accordingly, we affirm the circuit court's December 6, 2011 judgment.

I. Background

A. Public trust funds

The Hawai‘i Admission Act (Admission Act), Pub.L. No. 86–3, 73 Stat. 4 (1959), reprinted in 1 HRS 135 (2009), made Hawai‘i a state of the Union. As a condition of admission, "the State of Hawai‘i agreed to hold certain lands granted to the State by the United States in a public land trust," subject to the trust provisions set forth in § 5(f) of the Admission Act. Corboy v. Louie, 128 Hawai‘i 89, 92, 283 P.3d 695, 698 (2011) (citing Office of Hawaiian Affairs v. State, 96 Hawai‘i 388, 390, 31 P.3d 901, 903 (2001) ; Admission Act § 5 ). Section 5 (f) requires the State to hold those lands and the profits from them for one of five enumerated purposes: (1) "the support of the public schools and other public educational institutions"; (2) "the betterment of the conditions of native Hawaiians, as defined in the [HHCA], as amended"; (3) "the development of farm and home ownership on as widespread a basis as possible"; (4) "the making of public improvements"; and (5) "the provision of lands for public use."⁵

Before 1978, the State directed the proceeds and income of the trust lands "by and large to the Department of Education[,]" making public education the primary beneficiary of the trust. Office of Hawaiian Affairs v. Yamasaki, 69 Haw. 154, 161–62, 737 P.2d 446, 450–51 (1987) (quoting Office of the Legislative Auditor, Final Report on the Public Land Trust 14 (1986)). However, the 1978 Constitutional Convention proposed—and Hawai‘i voters adopted—constitutional amendments that expressly and fundamentally changed the State's objectives with regard to the § 5 (f) public land trust.⁶ Id. Article XII, section 4 specified that the public land trust, except for Hawaiian Home Lands, is to be held "as a public trust for native Hawaiians and the general public." Article XII, section 5 established the Office of Hawaiian Affairs (OHA), and directed that it "hold title to all the real and personal property now or hereafter set aside or conveyed to it which shall be held in trust for native Hawaiians and Hawaiians." Article XII, section 6 described the power of the OHA board of trustees and noted that the " income and proceeds from that pro rata portion of the [public land trust] for native Hawaiians" was included among the property that OHA was to hold and manage in trust "for native Hawaiians and Hawaiians." In describing its vision for OHA to be independent from all other branches of government, the Constitutional Convention's Committee on Hawaiian Affairs expressed a desire to stop the "commingling of funds intended for native Hawaiians of one-half blood with other moneys in the state treasury." Stand. Comm. Rep. No. 59, in 1 Proceedings of the Constitutional Convention of Hawai‘i of 1978 , at 645. The framers also believed it important that Hawaiians have "the right to determine the priorities which will effectuate the betterment of their condition and welfare by granting to the board of trustees powers to ‘formulate policy relating to affairs of native Hawaiians.’ "⁷ Stand. Comm. Rep. No. 59, in 1978 Proceedings , at 645.

To execute these constitutional provisions, the 1979 legislature enacted Act 196, codified in HRS chapter 10. See 1979 Haw. Sess. Laws Act 196, at 398–408; HRS ch. 10. Act 196, inter alia, created "an office of Hawaiian affairs constituted as a body corporate which shall be a separate entity independent of the executive branch," and set forth the powers and duties of the OHA board. 1979 Haw. Sess. Laws Act 196, § 2, at 400. HRS § 10–3⁸ sets forth OHA's purposes, including:

(1) The betterment of conditions of native Hawaiians.^[9] A pro rata portion of all funds derived from the public land trust shall be funded in an amount to be determined by the legislature for this purpose, and shall be held and used solely as a public trust for the betterment of the conditions of native Hawaiians. ...

(2) The betterment of conditions of Hawaiians;^[10]

(3) Serving as the principal public agency in this State responsible for the performance, development, and coordination of programs and activities relating to native Hawaiians and Hawaiians[.]

HRS § 10–3 (emphasis added).

Among the powers and duties the legislature granted to the OHA board of trustees is the power to "[m]anage, invest, and administer the proceeds from the sale or other disposition of lands, natural resources, minerals, and income derived from whatever sources for native Hawaiians and Hawaiians, including all income and proceeds from that pro rata portion of the trust referred to in section 10–3 [.]" HRS § 10–5(1) (2009). In 1980, the legislature set the pro rata share at "[t]wenty per cent of all funds derived from the public land trust[.]"¹¹ 1980 Haw. Sess. Laws Act 273, § 1 at 525, codified at HRS § 10–13.5 (2009).

B. Federal court action

On March 10, 2006, Plaintiffs,¹² identifying themselves as native Hawaiians as defined in Section 201(a) of the HHCA, filed an amended complaint in the United States District Court for the District of Hawai‘i (U.S. District Court) against current and former OHA trustees, alleging that the OHA trustees misspent funds derived from the trust established by § 5(f) of the Admission Act by expending those funds without regard to blood quantum. Specifically, Plaintiffs contended that the OHA trustees breached their "legal duty" to expend trust funds solely for the betterment of the conditions of native Hawaiians by spending those trust funds to lobby for the Akaka Bill,¹³ and to support the Native Hawaiian Legal Corporation (NHLC),¹⁴ Na Pua No‘eau Education Program (Na Pua No‘eau),¹⁵ and Alu Like.¹⁶

Plaintiffs alleged that the OHA trustees' expenditures violated the Admission Act, enforceable in federal court by 42 U.S.C. § 1983, the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution, and Hawai‘i common law and HRS § 10–16(c).¹⁷ On August 10, 2006, the U.S. District Court dismissed the action, holding that the Plaintiffs may not enforce public trust duties in the Admission Act under § 1983. Day I, 451 F.Supp.2d at 1136. The U.S. District Court also dismissed the Plaintiffs' Equal Protection claim and declined to exercise supplemental jurisdiction over the remaining state law claims. Id.

Plaintiffs appealed to the Ninth...