Sharma v. State, Dept. of Land and Natural Resources

• Decision Date: 30 November 1983
• Docket Number: A-,D,No. 8686,8686
• Citation: 66 Haw. 632,673 P.2d 1030
• Parties: Mahendra Rudra SHARMA, Plaintiff-Appellant, v. STATE of Hawaii, DEPARTMENT OF LAND AND NATURAL RESOURCES, Defendants-Appellees, and John Doesefendants.
• Court: Hawaii Supreme Court

Page 1030

673 P.2d 1030

66 Haw. 632

Mahendra Rudra SHARMA, Plaintiff-Appellant, v. STATE of Hawaii, DEPARTMENT OF LAND AND NATURAL RESOURCES Defendants-Appellees and John Does A-E, Defendants.

No. 8686.

Supreme Court of Hawai'i.

Nov. 30, 1983.

Syllabus by the Court

1. A State agency must conform to the requirements of the Hawaii Administrative Procedure Act when acting in either a rule-making (quasi-legislative) or adjudicatory (quasi-judicial) capacity.

2. The provisions of the Administrative Procedure Act related to rule making do not apply to decisions on matters dealing only with an agency's internal management that do not affect private rights of or procedures available to the public.

3. The internal management of an agency necessarily includes the custodial management of public property entrusted to the agency.

4. Notice and a trial-type hearing are essential in "any contested case" since HRS § 91-9 requires that reasonable notice be given and opportunities to present evidence and argument on all issues be afforded parties thereto.

5. HRS § 171-20 requires that the Board of Land and Natural Resources serve notice of default upon a lessee of public land before it acts to cancel his lease.

6. HRS § 171-39 authorizes the Board of Land and Natural Resources to terminate the lease or tenancy and take possession of the leased land, without demand or previous entry and without legal process, after notice of default has been served.

7. The Board of Land and Natural Resources acting as the lessor of public land does not perform an adjudicatory function.

8. The Board of Land and Natural Resources has the same right as any landlord to terminate a tenancy upon a tenant's failure to comply with the terms and conditions of a lease.

9. A summary termination of a lease by the Board of Land and Natural Resources for breach of the terms and conditions of the lease does not deprive the lessee of due process.

Paul A. Tomar, Honolulu, for plaintiff-appellant.

Edwin P. Watson, Deputy Atty. Gen., Honolulu, for defendants-appellees.

Before LUM, C.J., and NAKAMURA, PADGETT, HAYASHI and WAKATSUKI, JJ.

NAKAMURA, Justice.

Hawaii Revised Statutes (HRS) § 171-3 vests the management, administration, and control of the public lands of the State of Hawaii in the Department of Land and Natural Resources (the department). ¹ Must the department's executive board, the Board of Land and Natural Resources (the Board), acting on behalf of the State as the lessor of land, follow the directives of HRS Chapter 91, the Hawaii Administrative Procedure Act (HAPA), in cancelling a lease? Plaintiff-appellant Mahendra Rudra Sharma (Sharma or the plaintiff) contends the Board was obligated to do so in cancelling his lease of a tract of public land for agricultural purposes. But HAPA did not apply because the Board was not engaged in rule making or adjudication when it acted to cancel the lease; and since there was a clear breach of the lease by Sharma, the awards of summary judgment to the State by the Circuit Court of the First Circuit are affirmed.

I.

The State, through Board action, leased a tract of 743.65 acres of government land situated at Wakiu, Hana, Maui, to Sharma for a term of twenty-nine years commencing on May 11, 1973 and running to October 16, 2001. Under General Lease No. S-4378, Sharma was required inter alia to pay rent in semi-annual installments of seven thousand dollars each after an initial period of two years when rent was waived, ² to procure and maintain at his own expense a comprehensive public liability insurance policy when required by the Board, and to post an appropriate performance bond.

Sharma obtained an insurance policy insuring himself and the State against possible personal injury and property damage claims resulting from his occupancy of the leased land shortly after the execution of the lease. But he failed to post the performance bond requested by the Board, and it reminded him of the neglect on July 17, 1973. Though the deadline was extended to August 3, 1973, he failed to furnish the requested security. The Board, however, overlooked the matter until 1975 when Sharma sought approval of a plan to subdivide and sublease a portion of the land. ³

The Board denied Sharma's request, but a review of the lease alerted the department to the lessee's continuing failure to meet the bond requirement and to the lapse of the liability insurance policy. Sharma was then advised by letter that unless the bond was posted and the lapsed policy was replaced, the department would recommend that steps be taken by the Board to cancel the lease. The threat of adverse action did not result in a cure of the defaults, and the department informed Sharma that a recommendation to formally serve a notice of default upon him would be presented to the Board at its next meeting.

The departmental suggestion to initiate the cancellation process was adopted by the Board at the meeting conducted on November 7, 1975. It authorized a termination of the lease unless the omissions were remedied within sixty days of the service of notice of default, which was given on November 12, 1975. Subsequently, Sharma was also given notice of a further breach of the lease, non-payment of the rent installment due on November 11, 1975.

The Board voted to cancel General Lease No. S-4378 on February 13, 1976, since Sharma had not moved to cure any default. And by a letter dated February 26, 1976, it informed him that the lease had been cancelled as of the date of the Board action. Sharma, however, paid the delinquent rent on February 17, 1976, and thereafter sought to have the termination reconsidered. A plea for reconsideration was presented by his attorney at the meeting of March 25, 1976, but the Board chose not to review its earlier action in view of the continuing neglect to secure a performance bond and liability insurance. The land subject to the lease was repossessed by the State thereafter and the lease was resold at public auction.

Sharma filed suit against the State in the Circuit Court of the First Circuit on December 23, 1976, averring the cancellation constituted a breach of contract that resulted in a forfeiture. But the complaint was dismissed on February 10, 1978 for lack of prosecution. The plaintiff moved for reconsideration of the dismissal on December 12, 1978, which the circuit court initially denied. The court, however, later relented and vacated the order dismissing the complaint. It also gave plaintiff leave to file an amended complaint.

The amended pleading alleged inter alia that the State breached the lease, the plaintiff's breaches were of a non-material variety, the State had waived any right to cancel the lease, and the plaintiff had been denied due process in several ways. After the State's responsive pleading was submitted, the plaintiff moved for summary judgment primarily on grounds that he had been deprived of due process by the Board's failure to follow HAPA's dictates in effecting the lease cancellation. The State countered with its motion to dismiss or for summary judgment.

The circuit court awarded summary judgment to the State after finding the cancellation valid but reserved decision on whether the plaintiff was entitled to a refund of the rent installment paid on February 17, 1976. Subsequently, the State was also granted summary judgment with respect thereto, and the plaintiff perfected a timely appeal to this court.

II.

The primary issue before us is whether HAPA's mandates apply when the Board of Land and Natural Resources acts to cancel a lease agreement covering a tract of public land. Sharma argues the Board should have afforded him notice of the contemplated action and a full hearing prior to effectuating the cancellation. ⁴ Yet HAPA does not bind an agency in all of its actions or functions, and we conclude the cancellation of the lease in question was not subject to the panoply of procedures outlined in HRS Chapter 91.

A.

That a State agency like the Board of Land and Natural Resources "must conform to the requirements of HAPA when acting in either a rule making capacity (quasi-legislative), or in the adjudication of a contested case (quasi-judicial)" is unquestionable. Town v. Land Use Commission, 55 Haw. 538, 545, 524 P.2d 84, 89 (1974); see also Life of the Land v. West Beach Development Corp., 63 Haw. 529, 531, 631 P.2d 588, 590 (1981); Ah Ho v. Cobb, 62 Haw. 546, 550, 617 P.2d 1208, 1211 (1980); Ainoa v. Unemployment Compensation Appeals Division, 62 Haw. 286, 290, 614 P.2d 380, 383 (1980); Aguiar v. Hawaii Housing Authority, 55 Haw. 478, 482, 522 P.2d 1255, 1259 (1974). That an administrative agency is charged with duties other than rule making or adjudication also is not open to doubt. See generally Kailua Community Council v. City & County, 60 Haw. 428, 431, 591 P.2d 602, 604 (1979); J. Hart, An Introduction to Administrative Law 140 (1946).

For one, an agency must deal with matters related to its internal management. And where no "private rights of or procedures available to the public" are affected, decisions on these matters are not subject to HAPA's restraints on the agency's rulemaking power. HRS § 91-1(4); ⁵ Ah Ho v. Cobb, 62 Haw. at 552, 617 P.2d at 1212; Holdman v. Olim, 59 Haw. 346, 355, 581 P.2d 1164, 1170 (1978).

The appellant in Holdman v. Olim, a female visitor to a state correctional facility, challenged a directive governing the dress of visitors to the facility. One of her contentions was that the order issued by prison authorities was void for want of promulgation as a rule pursuant to HAPA's provisions. Since we found "no private right of or procedure available to the public ... [was] involved," the dispositive question in our view was "whether the directive concerned only the internal management of the prison." Id. at 355, 581 P.2d at 1170. What "constitute[d] matters of internal management," we observed, had not been "clearly spelled out." Id....