Matsuda v. City and County of Honolulu

• Decision Date: 14 January 2008
• Docket Number: No. 06-15337.,06-15337.
• Parties: Sally A. MATSUDA, Trustee of the Sally A. Matsuda Self-Trusteed Trust dated October 15, 1993; Ralph James Mitchell; Lucy Mitchell; Noosha Fesharaki; Earl Kidder; Jeenie Marie Kidder; James Rapisarda; Jonathan Von Brana; Thomas Preston; Loren Hohman; Herbert Caplan; Elena Pecile, Co-Trustee of the Herbert Caplan and Elena V. Pecile Trust dated March 27, 2003; Wilma Parker, Trustee of the Wilma. I. Parker Trust dated March 16, 1989 as amended; Troy Williams; Larry Weisner; Delores Weisner; Marianne Marion Jaeger; Richard Johnson; William Garrett Fuson; Kang Yuk Lee; Suk Ja Lee; Claude Rothe, Trustee of the Claude R. Rothe Living Trust dated March 26, 1998; Alvin Olson, Trustee under Alvin R. Olson Revocable Trust Agreement dated July 20, 1998; Natalia Indrasari; Warren Sweet, Trustee of the Sweet John Revocable Trust dated June 21, 1991; Rheba Alice Sweet; Robert Mehring; Ayumi Watanabe Mehring; Arnold Flemmings; Mariana Flemmings, Co-Trustee of the Arnold Theodore. Flemmings and Mariana Flemmings Revocable Living Trust dated December 6, 1999; Melvin Takeo Matsuoka; Delwin Schneider; Katherine Schneider, Trustee under the Delwin Byron Schneider and Katherine Louise Schneider Family Trust dated October 14, 1996; Ronald Silverman; Farhad Simyar; Frank Winston Kern, Plaintiffs-Appellants, v. CITY AND COUNTY OF HONOLULU, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

512 F.3d 1148

Sally A. MATSUDA, Trustee of the Sally A. Matsuda Self-Trusteed Trust dated October 15, 1993; Ralph James Mitchell; Lucy Mitchell; Noosha Fesharaki; Earl Kidder; Jeenie Marie Kidder; James Rapisarda; Jonathan Von Brana; Thomas Preston; Loren Hohman; Herbert Caplan; Elena Pecile, Co-Trustee of the Herbert Caplan and Elena V. Pecile Trust dated March 27, 2003; Wilma Parker, Trustee of the Wilma. I. Parker Trust dated March 16, 1989 as amended; Troy Williams; Larry Weisner; Delores Weisner; Marianne Marion Jaeger; Richard Johnson; William Garrett Fuson; Kang Yuk Lee; Suk Ja Lee; Claude Rothe, Trustee of the Claude R. Rothe Living Trust dated March 26, 1998; Alvin Olson, Trustee under Alvin R. Olson Revocable Trust Agreement dated July 20, 1998; Natalia Indrasari; Warren Sweet, Trustee of the Sweet John Revocable Trust dated June 21, 1991; Rheba Alice Sweet; Robert Mehring; Ayumi Watanabe Mehring; Arnold Flemmings; Mariana Flemmings, Co-Trustee of the Arnold Theodore. Flemmings and Mariana Flemmings Revocable Living Trust dated December 6, 1999; Melvin Takeo Matsuoka; Delwin Schneider; Katherine Schneider, Trustee under the Delwin Byron Schneider and Katherine Louise Schneider Family Trust dated October 14, 1996; Ronald Silverman; Farhad Simyar; Frank Winston Kern, Plaintiffs-Appellants, v. CITY AND COUNTY OF HONOLULU, Defendant-Appellee.

No. 06-15337.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 2, 2007.

Filed January 14, 2008.

David A. Nakashima, Alston Hunt Floyd & Ing, Honolulu, Hawaii, argued the cause for the plaintiffs-appellants, and filed briefs; Lerisa L. Herold and Clyde J. Wadsworth, Alston Hunt Floyd & Ing, Honolulu, Hawaii, were on the briefs.

Don S. Kitaoka, Deputy Corporation Counsel, City and County of Honolulu, Hawaii, argued the cause for the defendant-appellee and filed a brief; Carrie K.S. Okinaga, Corporation Counsel, Paul M. Iguchi and Derek T. Mayeshiro, Deputy Corporation Counsels, City and County of Honolulu, Hawaii, were on the briefs.

Appeal from the United States District Court for the District of Hawaii; David A. Ezra, District Judge, Presiding. D.C. No. CV-05-00125-DAE.

Before: DIARMUID F. O'SCANNLAIN, A. WALLACE TASHIMA, and MILAN D. SMITH, JR., Circuit Judges.

O'SCANNLAIN, Circuit Judge.

We are called upon to determine whether the United States Constitution imposes any limit on the City of Honolulu's power to repudiate a contract to convey property to a private citizen in connection with its leasehold conversion program.

I

A

In 1991, the City and County of Honolulu (the "City") enacted an ordinance, later codified at Chapter 38 of the Revised Ordinances of Honolulu ("Chapter 38"), which created a mechanism allowing owners of leasehold interests in condominium units to, convert their leasehold interests into fee interests by using the City's power of eminent domain.¹ We upheld the constitutionality of Chapter 38 in Richardson v. City and County of Honolulu, 124 F.3d 1150 (9th Cir.1995). As we explained in that case, Chapter 38 was a response to Hawaii's long history of feudal land ownership, which survived well after American acquisition. Id. at 1153. At the time of Chapter 38's enactment, a small handful of landowners owned the vast majority of land in the State. Despite the efforts of Hawaii's leaders to divide these large Hawaiian land estates, the system persisted, driving the price of land in Hawaii to exorbitant heights. Taking advantage of this status quo, Hawaiian landowners rarely sold their estates. Instead, they frequently leased their land for long terms, often to developers who would construct condominiums on the property and then sell the units subject to the ground lease. Id. at 1153-54.

To break up this pattern and to increase the opportunity for land ownership, the City enacted Chapter 38. Chapter 38 provided that when a sufficient number of condominium unit owners within a condominium complex applied, the City would take steps to acquire the property on which their condominium complex was built from the landowner by power of eminent domain. The City would then convey each condominium unit and the appurtenant land to the lessee-applicants in fee simple.

Specifically, Chapter 38 required an application from a minimum of either 25 condominium owners within a development or the owners of at least 50% of the condominium units within the development to trigger its condemnation mechanism. Revised Ordinances of Honolulu § 38-2.2(a)(1). Upon such application, the City's Department of Housing and Community Development (the "Department") would hold a duly-noticed public hearing to determine whether the acquisition of the property though eminent domain would "effectuate public purposes" as defined in Chapter 38. Id. § 38-2.2(a)(2). If the Department issued a finding answering that question in the affirmative, the Department would initiate condemnation proceedings unless the landowner agreed to convey the fee interests to the lessee-applicants directly. Id. Finally, before condemnation could begin, the City Council was required to adopt a resolution approving the exercise of eminent domain and appropriating the necessary funds to pay just compensation. Id.; City & County of Honolulu Rules for Residential Condominium, Cooperative and Planned Development Leasehold Conversion § 2-12.

B

Sally Matsuda and the other appellants in this suit (the "Lessees") hold leasehold interests in condominium units at the Discovery Bay condominium complex in Honolulu, Hawaii, The Lessees applied to the City under Chapter 38 to convert their leasehold interests into fee simple interests in their units and the appurtenant land. Upon receipt of the Lessees' applications, the City entered into individual written contracts with each Lessee in which the Lessee promised to pay the City $1,000 in exchange for the City's promise that, upon its successful acquisition of the property at Discovery Bay, the City would convey a fee interest to each Lessee in her unit and the appurtenant land. Each contract was expressly conditioned on the City's successful acquisition of the property pursuant to Chapter 38, and each party agreed to use its best efforts to effectuate the acquisition.

On July 3, 2004, after a duly-noticed public hearing, the Department announced its finding that condemnation of the property at Discovery Bay would serve the public purpose required by Chapter 38. A few months later, in late October, or early November, the Lessees received written notice of their final approval to proceed with Chapter, 38's leasehold conversion procedure. Finally, on November 24, the Department designated the Lessees' leasehold interests in the real property and other common elements at Discovery Bay for acquisition through the City's exercise of eminent domain, finding that the Lessees had satisfied Chapter 38's numerosity requirement, that the condemnation would effectuate the public purpose of Chapter 38, and that no agreement for a voluntary sale by the landowner had been made.

As the Lessees' application was progressing, however, the Honolulu City Council began considering a proposed bill that would repeal Chapter 38. As the proposed bill's statement Of purpose explained, some members of the Council had determined that Chapter 38's goal of "provid[ing] affordable housing" and "strengthen[ing] the economy through fee ownership" had largely been satisfied, rendering the provision unnecessary.

On November 10, 2004, a councilmember introduced a measure seeking a City Council resolution to approve the initiation of condemnation proceedings at Discovery Bay. Even though the Lessees' applications had met all the requirements of Chapter 38, the Council deferred consideration of the resolution pending the possible repeal of Chapter 38.

On January 26, 2005, the Council enacted Ordinance 05-001, repealing Chapter 38. The ordinance permitted any condemnation proceeding approved by City Council resolution before the effective date of the repeal to continue, but because the City Council never took such a step to approve the condemnation of the property at Discovery Bay, the project failed.

The Lessees filed suit against the City in the district court, arguing that Ordinance 05-001 violated the Contracts Clause, the Fourteenth Amendment's Due Process Clause, and 42 U.S.C. § 1983, and seeking declaratory and injunctive relief.² Shortly thereafter, the Lessees moved for a preliminary injunction to enjoin the implementation of the ordinance, which the district court denied. The Lessees then filed a motion for summary judgment, which the district court denied as well, granting summary judgment in favor of the City instead. Matsuda v. City and County of Honolulu, 378 F.Supp.2d 1249 (D.Haw.2005). The district court concluded that the Lessees could not challenge Ordinance 05-001 under the Contracts Clause because the Lessees' contracts with the City were unenforceable. It reasoned that the "reserved powers" doctrine precluded the City from entering into the contracts because they purported to limit the City's discretion over the use of its eminent domain power, a power which has been labeled an "essential attribute of sovereignty," Id. at 1255 (quoting United States v. Winstar Corp., 518 U.S. 839, 888, 116 S.Ct. 2432, 135 L.Ed.2d 964 (1996)).

The Lessees timely appeal.

II

We begin with the Lessees' claim that Ordinance 05-001 impaired their contracts with the City in violation of the Contracts Clause of the United States Constitution. The Contracts Clause provides that "[n]o State shall ... pass any ... Law impairing the Obligation of Contracts." U.S. Const. art. I, § 10. Despite the sweeping terms of its literal text, the Supreme Court has construed this prohibition narrowly in order to ensure that local governments retain the flexibility to exercise their police powers effectively. See Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 240, 98 S.Ct, 2716, ...