Case Title: Jacks Tours, Inc. v. Kilauea Military Camp.

Citation: 112 Haw. 150

Docket Number: 

State: hawaii

Court: Hawaii Supreme Court

Date: 2006-09-29T00:00:00Z

Document:
LAW LIBRARY
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IN THE SUPREME COURT OF THE STATE OF HAWAT'T

‘000--~

 

 

JACK’S TOURS, INC., Complainant-Appellant

9002

   

3

  
 
  

KILAUEA MILITARY CAMP, Respondent -Appell

gawd

SULHY 624.

No. 27442

APPEAL FROM THE PUBLIC UTILITIES COMMISSION
(PUC DOCKET No, 01-1-0141)

SEPTEMBER 29, 2006

MOON, C.J., LEVINSON, NAKAYAMA, AND DUFFY, J.; CIRCUIT
SUDGE NISHIMURA, "IN PLACE OF ACOBA, J”, RECUSED
OPINION OF THE COURT BY MOON, C.J.

Complainant -appellant Jack's Tours, Ine. (Jack's Tours)
appeals from the June 17, 2005 decieion and order of the state of
Hawai'i Public Utilities Commission (PUC) in favor of respondent-
appellee Kilauea Military Camp (HC). The PUC dismissed Jack's

Tours’ complaint for lack of subject matter jurisdiction,

 

concluding, inter alia, that the Supremacy Clause of the United
States Constitution, quoted infra, preempts any etate regulation

over HMC.

 
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On appeal, Jack’s Tours claims that the PUC erred in

Gismissing ite complaint for lack of subject matter jurisdiction.

 

For the reasons discussed below, we affirm the PUC’s June 17,

2005 decision and order.

A. Factual Backsround

WMC is a *Joint Services Recreation Center* located in
Hawai'i Volcanoes National Park on the island of Hawai'i, state of
Hawai'i (the Big Island) and ie owned and operated ’by the federal
government. MC offera acconmodations, anenities, and tour
packages over the public highways on the Big Island.
Specifically, it advertises on its website that it ‘is a resort
with a surprising array of amenities and activities" and that its
tours “cover the many wonders of the Big Island.* HMC “is open
to all active and retired military, Reserve and National Guard
members, current and retired Department of Defense civilian
employees, dependents, and sponsored guests."

Jack's Tours is a privately owned and operated tour
company that operates tours for the general public over the
public highways on the Big Island. According to Jack's Tours,
because it is @ “common carrier by motor vehicle** (hereinafter,

common carrier], it is required to, and does, have a “Certificate

2 Hawai's Revieed Statutes (HRS) § 271-4(21) (Supp. 2005) defines
sconnon carrier by motor vehicle" as "any pereon which holds iteel! out to the
genera: public to engage in the transportation by motor vehicle of passengers
Or property of any class or Classes thereof for compensation."

 

 

 
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of Public Convenience and Necessity" (CPCN) issued by the PuC,
pureuant to HRS § 271-6 (1993).7 In addition, Jack's Tours
claina that several of its tours “closely resemble" tours offered
by KMC, Jack's Toure alleges that KNC’s website not only states
that KC offers tours to ‘all active and retired military,

Reserve and National Guard members, current and retired

 

Department of Defense civilian employees, dependents, and
sponsored questa,” but that XC also offers tours to “others.”
vack’s Toure further alleges that information pertaining to the
tours offered by KMC is available on its website and that KMC
‘will provide such information by mail to menbers of the general
public.*

Jack's Toure claims that, on January 29, 2004, “HMC
buses were sighted transporting a group of ‘Kina Haina School
students and their chaperones.” In its view, such “cour
appear[s] to involve the traneportation of menbers of the general
public and their property for compensation/hire over the public

highways on the (Big Island] by KMC[.]" According to Jack's

 

+ HRS § 271-8 provides that, *[e)xcept as provided in section 271-5, a0
person shall engage in the transportation of persons or property, for
Compensation or hire, by motor vehicle, over any public highway of this state
unless there ie in force with respect to the person a certificate or permit
Gteued by the {PUC] authorising the transportation.” (Emphasis added.)
Section 271-5 (Supp. 2005) sete forth numerous exewptions from complying with
chapter 271, which are not at issue in the instant case. HRS § 271-4 (4)
(Supp. 2005) defines “certificate” as a CPCN.

 

 

we also note that HRS § 271-22 (1993) specifically provides in relevant
part that “no person shall engage in the business of a cotmon carrier by motor
Vekicle on any public highway in this state, unless there is in foree with
Yespect to such carrier a (CPCH) issued by the (PUC] authorizing sucn
operation,

 
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Tours, the students and their chaperones had earlier spent two
nights at KMC and were transported throughout the day by xc
buses to several destinations on the Big Ieland. Consequently,
Jack's Tours clains that, because KMC allegedly “holds itself out

an entity engaged in the

 

to the general public*

 

transportation by motor vehicle of passengers and property for
compensation[,]* KMC is a common carrier and, therefore, subject
to regulation by the PUC. The record does not indicate whether

a cPCN,

 

1010 posses!
B. Procedural History

fon Sune 4, 2008, Jack’s Tours filed a complaint against
WoC with che PUC, alleging that KMC is a common carrier and,

thus, subject to the PUC’s regulation. Jack's Toure alleged that

 

HMC was transporting members of the general public over the
State's highways in exchange for compensation without a CPCN, as

required by HRS § 271-8. Moreover, Jack's Tours claimed that the

 

Supremacy Clause,’ the preemption doctrine,‘ and the “federal

> Article Vz, 61. 2 of the United States Constitution provides:

This Constitution, and the Laws of the United states which
shall be nade in Pursuance thereof; and all Treaties nade,
or which shall be nade, under the Authority of the United
States, shall be the suprene Law of the Land; and the Judges
in every State shall be bound thereby, any Thing in the
Constitution or Laws of any State co the Contrary,
notwithstanding.

+ According to the preemption doctrine,

(tlhe Supremacy Clause invalidates atate laws that
interfere with, or are contrary to, federal law. congress
nay preempt state law in several different ways. Congress

preemption). iven in the
(continued, .

 

tay do so expressly (expre:

 
 

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enclave exception"? do not provide KMC with inmunity from the
State moter carrier law, as codified in HRS chapter 271.
Specifically, Jack's Tours alleged that “{nlon-military tours
that transport members of the general public over the public
highways on the (Big Island] do not constitute an essential

governmental function.*

According to Jack’ KMC's violation of HRS

 

§ 271-8 “injure(e] PUC regulated motor carriers, such as Jack's
Tours, by promoting unfair or destructive competition and
providing HMC with an undue preference and advantage."
Specifically, Jack’s Toure asserted that, although it ‘and all
other motor carriers{] mist abide by rates regulated by the
Imlotor [clarrier DJawl, i.e, HRS chapter 272] and the [PUC),

KC is able to provide attractive and substantially discounted

 

“Cs contsnues)
‘abeence of express preemptive text, Congress’ intent to

preempt sn entire field of state law may De inferred where
the schene Of federal regulation is sufficiently
Comprehensive to make reasonable the inference that Congress
Tete no room for supplesentary state regulacion (field
Preemption). State law alo is preempted when compliance
With both stave and federal law ia imposaible, or if the
operation of state law stands as an obstacle to the
‘secomplishment and execution of the full purposes and
Objectives of Congress (conflict preemption)

Ite Cybernetic Serve., Ine., 252 7.34 1039, 1085-46 (9th cir. 2003)

(Snternal quotation narks and’ citations omitted) «

 

   

 

 

+ gack's Tours descrined a federal enclave as “an area of land owed by
the United States, ownership of which had been (2) consented to by the state
In'wnicn the land’ is locates». - snd (2) sf after 1940, formally accepted by
the United states." (Citations omitted.) "Under the federal enclave
Goctrine, a state loses the right to leglelate with respect to activities
occurring in the enclave unless it reserved ite right to do so when it
Consented to the purchase of the property by the United st, ‘Sundaram v.

Brookhaven Nat"l Labs., 424 7. Supp. 24545, 569 (B.D.N.Y. 2006) (esting Paul
Youuited dcates, 371 U.8, 245, 268 (2963)

 

 

 

 
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rates to menbers of the general public who would otherwise be
customers of PUC regulated motor carriers.” Thus, Jack's Tours
requested the PUC to find KNC in violation of HRS § 273-8 and
issue Yan order to show cause as to why KMC should not

and desist from transporting members of the

 

inmediately ce:
general public on tours that travel over the public highways on
the (Big Ieland], unless KNC applies for and obtains a CPCw.*
on June 8, 2004, the Division of Consumer Advocacy of
the Department of Commerce and Consumer Affaire (consumer
advocate) advised the PUC that it would not participate in the
instant proceeding, pursuant to Hawai'i Administrative Rules
(HAR) § 6-61-62." On July 30, 2004, KMC filed its answer to the
complaint. NC asserted that, as a “non-appropriated fund
instrumentality" (NAFT),” it is entitled to immunity from

regulation by the PUC unless Congress expressly consented to such

«wR § 6-63-62 provides in relevant part

(a) The consumer advocate 1a, ex officio, a party to
any proceeding before the [2UC). The consumer advocate
Shall, except as noted herein, subait a statement of
position to the [Pic], with sérvice to the parties of
Fecord, stating:

ia} "Whether it intends co participate in the

proceeding[.]

 

* AUMAFI "is one which does not receive its sonies by congressional
appropriation." Unites States v. Hopking, 427 U.8. 123, 125 n.2 (1976),
(eltations omitted); se@ alse ates, 365 F.3d 1353, 1957
(Fed. cir. 200¢) ("The sine qua poh of all WAPIs is apparent in their names
they do not receive appropriated funds. Ae a result, all NAFIe are government
“ingtromentalities’ that are at least essentially eelf-supporting.*); The
United Staten Suprene Court vhas repeatedly recognised that WAPIs are ‘arm of
the governsent’ decnad “essential for the performance of governments:
functions." Lion Raising, inc, v, United states, «16.3 1386, 1363 (Ped.
Cir. 2005) (quoting standard Oil co. v. Johnson, 336 U.s. 462, 425 (1942))

(other citations omitted)

  

 

 

 

 
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regulation. According to KMC, because “Congress has not enacted
any statute granting the . . . PUC jurisdiction to regulate any
aspect of KC bus tour operations{,]" ERS chapter 271 does not

apply to NAFIs such as KMC. Moreover, KMC claimed that it “does

 

not hold iteelf out to the general public as a conmon carrier
rather, it ‘offers ite services only to the authorized patronage
group provided for in federal regulations.” MC further alleged
that the "PUC lacke juriediction and is not the correct tribunal
to make a finding that actions of a federal (NAPI]. ie [sic] not
engaged in a federal governmental function.” Thus, KNC requested
that the PUC dismies the complaint.

on September 10, 2004, the PUC entered an order

 

stating that, “[ulpon review of the pleadings, the (PUC]
concludes that {,] prior to scheduling an evidentiary hearing in
this docket, it must determine whether it has subject matter
jurisdiction to hear and decide upon the {clomplaint.
Consequently, the PUC ordered the parties to file supplemental

briefing solely on the issue ‘whether the [PUC] has subject

 

matter jurisdiction to hear and decide upon this complaint
on September 27, 2004, KMC filed its supplemental brief
with the PUC. EMC contended that, “[albsent specific
Iclongressional waiver of immunity[,] State regulations would not
apply to federal governmental (morale, welfare, and recreation
(wR)] operations, such as KC." Generally, the MWR program is a

quality-of-life program that is intended to support readiness “by

 
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providing a variety of community, soldier, and family eupport
activities and services.” Army Regulation (AR) 215-1 § 1-7(a);

Latchum v, United States, 183 F. Supp. 24 1220, 1223 (D.

2001). The MAR program is designed to meet the needs of those

 

involved with a military installation, including not only the
soldiers, but also retirees and civilian employees, aa well as
their families. AR 215-1 § 1.8(a); Latchum, 163 P. supp. 2d at
ciated with military

 

1223. According to KMC, “all NAFI [8]
and naval operations are (part of the MUR program] governed by
Department of Defense (DOD) Directive 1015.2." See, e.g.,
Lakchum, 163 F. Supp. 24 at 2223-24 (stating that the Waianae
Army Recreational Center (WARC) “ie an Army [NAPI] of the United
States" and that “NAFIs like WARC are considered integral and
essential to the conduct of the military mission") (citations and
internal quotation marks omitted). “The (DOD) recognizes that

MWR programs are vital to mission accomplishnent and form an

 

integral part of the non-pay compensation system." id. at 1224
(internal quotation marke and citation omitted). Jack's Tours
does not appear to dispute that WIC is operated as part of the
Aray's MR program.

In its supplenental brief, KMC specifically claimed
that “Congress has made morale and welfare of the nenbers of the

armed services a governmental function and [the] responsibility
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of the Secretary of the Arny[.]" (Citing 10 United states Code

(V.8.C.) § 3013(b) (3).*) Moreover, KMC argued that

 

Af{,] mypothetically|,) MHC were found offering services to
the’ *generai public,” that would be an infraction of the
Eeceral regulation governing KMC. Such an infraction of
feceral regulations would be a matter for the eppropria
federal authorities to resolve, got the (RUC). That factor
pppears £0 go to the heart of the issue of subject matter
juviediction in this proceeding

 

 

 

 

(Emphases in original.) In response to Jack’s Tours’ allegation
that WC was offering tours to the general public by transporting
‘Aina Haina students and their chaperones, HMC asserted that
“{e]he [clomplaint does not plead facts that would assure the
[Puc] that passengers outside the eligible patronage group. were
involved in the tours in question." KNC maintained that,
*{u)ndex applicable federal regulations, KMC bus tours may
include the students and/or chaperones of ‘Sina Haina School if
they are dependents and/or sponsored guests, i.e., persons within
the KNC federally authorized patronage group." Thus, KMC urged
the PUC to dismiss the complaint for lack of subject matter

jurisdiction.

 

+ 20 v.8.c. § 3013(b) (9) provides:

() Subject to the authority, direction, and control of the
Secratary of Defense and subject to the provisions of
chapter 6 of this title, the Secretary of the Aray is
Fesponsible for, and hag the authority necessary to conduct,
allvatfaize of the Deparenent of the Army, including the
following functions:

 

 

   

is) Administering (including the morale and welfare of
personnel)

 
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On September 30, 2004, Jack's Tours filed ite
supplemental brief with the PUC. Jack’s Tours contended that
TKMC ie not exempt from [the PUC]’e jurisdiction as a NAFI for
services that it offers to the general public." (Capitalization
altered.) specifically, KMC argued that, “just because KNC is a

NAFI establishment does not ipso facto cloak KNC with
." In addition, Jack’ s

 

governmental inmunity for all ite busin

Tours claimed, “assuming arguendo that XNC is a NAFI, Jack's

 

regulation of KMCis activities

 

Tours is not seeking thle Puc)’
provided to authorized patrons, such as active duty military
personnel, menbers of the reserves or national guard, retired or
civilian (DOD] employees, their families, and their authorized
guests.” Instead, Jack’s Tours asserted that it sought the PUC's
‘regulation only of Wic’s activities that are directed at and
provided for menbers of the general public, which would be in
direct competition with Jack’s Tours and other PUC regulated
motor carriers on the (Big Island].* (Emphasis in original.)
Moreover, in response to KMC’s allegation that Jack’s Tours did
not plead facts that would assure the PUC that the ‘Aina Haina
students and their chaperones were outside the “federally
authorized patronage group,” Jack's Tours argued that

only investigation by che FuC or discovery in this cage will
yield the requisite information and evidence relating to
foic's claim it does not offer tour services to sembere of
the general public over the public highways of the state or
that'ail of its customers are within the *eligible patronage
group" or “sponsored queste" and therefore not subject to
Poe jurisaietion, (The Puc], at the very least, has
jurisdiction to determine whether iC is offering and

 

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providing toure to the general public over the highways of
Riis State and to regulate those activities

Purthernore, FMC appear® to be alleging that al]
nenbers of the general public may be “sponsored queste” of
nc, ag long as they can find someone who will sponsor chem,
Fegardiese of relation. Thia fs an extremely broad
[sterpretation. This surely ig not the intent of (AR)
ais 1, which specifically contemplates use of IC faciliti
prinatily by active duty personnel, with "incidental" guest

 

 

 

(Emphases omitted.)

Jack's Tours also contended that the PUC “is not
preempted from exercising jurisdiction over KNC for services
provided to the general public under the Supremacy Clause.”
(capitalization altered.) specifically, Jack’s Tours argued that
the PUC's regulation of KC would not constitute impermissible
direct or indirect regulation of the federal government.
Finally, Jack’s Toure submitted that *KMC is not exempt from [the
PUC]'s jurisdiction under the federal enclave exception.”
(capital letters altered.) Thus, Jack's Tours urged that the PUC
has jurisdiction to hear and decide the allegations asserted in
ite complaint.

on dune 17, 2005, the PUC entered its decision and

order, dismissing Jack's Tours’ complaint for lack of subject

 

matter jurisdiction. Specifically, the PUC stated:
WC 1 under the control of the Secretary of the Arey,

he auth scm

‘Eecrotary of Defense. 10 (U.8.C.1 $0215) (3). “mere the
federal aovernsent bas not aranted a state authority to
Kequlata «federal aovernnent function, the supremacy Clause
Thus cunvent in jenacy Clause. the (PUL

rat

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Neither can the [pUC] assune jurisdiction over « NAPZ,
such a8 WHC, az Jack's [Toure] argues the [PUC) should do
ie are not duthorized to sake a determination on Jeck's
(fours’] allegation that JIC 1a not a WAPI because it
provides ite transportation eervices to renbers of the
General public beyond ite authorized patronage group. iret
of all, Jack's (Tours’) aeseztion thst the group from Aine
Raina Bleventary is not authorized by #HC'e rules and
Fegulations is speculative. Even assuming!) arguendot) thet
this assertion is true, the [PUC] is unable to determine
that WMC in in violation of ita rules and Fegulations, and
therefore not a NAPI ag alleged by Jack's [Tours], because
Ae would require « consideration and analysis of the
relevant DOD directives and Aray regulations, which ie not
within our jurisdiction onder HRS (elhapter 271,

‘the same can be sald for Jack's {foura’] assertion
that the federal enclave exception does not provide HNC with
‘exemption fron (pUC) jurisdiction. Againi,) assuming]
arauendo() that Jack's (Tours) is correct in ita assereion

That the State has reserved Jurisdiction over violations
committed on public highways, outside of tre federal
enclave, ‘the {PUC} would stiil have to establien that a
breach Of either the DOD directives or Army regulations by
HNC has occurred, which ales is not within’ (POC!
Jurisdiction purouant to Keo (elhapter 271.

 

 

  

 

 

 

 

 

(Emphasis added.) Consequently, the PUC concluded that it was
the allegation in the

 

vnot the appropriate forum to addres!
(ours! complaint

 

(clomplaint” and that, *to the extent Jack’
pertains to the allegation that (KMC] is in violation of any

federal regulation, under the facts and circumstances of this
ease, the appropriate forum for such a dispute is with federal

authorities. Accordingly, the PUC dismissed the complaint

without prejudice.
On dune 29, 2005, Jack's Tours filed a motion for

reconsideration of the PUC's decision and order, pursuant to HAR

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§ 661-137," Jack’s Tours requested the PUC to reconsider and

reverse the June 17, 2005 decision and order, contending that:

Nothing in the plain language of ERS {cJhapter 271
Linite [the PUC]'# jurisdiction to privately omed motor
carriers. The plain language of Hrs. [cJhapter 271 simply
Fequires an allegation that an entity has been holding
itself out to the general public as a sctor carrier. .

‘Jack's Tours did not allege or ask (the PUC), ab a
threshold natter, to review any federal rules and
Fegulations in determining that KMC was acting as a ‘motor
carrier.” Tal1i Jack's Tours requested (ehe PUC) Co
do ae a threshold water wae to review State statutory
Provisions and PUC Tules to determine a violation of HRS
Fave... Thle Puc) has been specifically directed by
the Stace iegisiature to administer HRS [clhapter 271, a8
ums} 6271-3 (3983) (], and accordingly to determine
hether an entity has been holding itself out to the general
Public. “If not the [PUC], who has authority to determine
Sihether an entity is acting as = "motor carrier" pursuant to
HRS. (elnapter 274? re surely cannot be the federal
judiciary, a this threshold question is purely a matter of
Seate lew

 

 

 

 

  

 

 

 

* YAR § 6-62-137 provides in relevant part that the motion for
reconsideration "shall Be filed within ten daye after the decision or order i
Served upon the party, setting forth specifically the grounds on which the
movant considers the deciaion oF order unreasonable, unlawful, or erroneous."

 

 

RS § 272-1, entitied “Declaration of policy,” provide

the legislature of thie State recognizes and declares
that the transportation of persons and of property, for
comercial purposes, over the public highways of this state
Constitutes a business affected with the public interest.
Te is intended by this chapter to provide for fair and
impartial regulation of such trangportation in the interest
of preserving for the public the full benefit and use of the
highways consistent with the public safety and the needs of
Comerce; to promote safe, adequate, economical, and
efficient service and foster sound economic conditions in
Exansportation and among the several carriers, co encourage
the establishment and maintenance of reasonable rates ara
Charges for transportation and related accessorial servic
Without unjust discrimination, undue preference or
Advantage, oF unfair or destructive competitive practices
‘This chapter shall be adzinistered and enforced with a view
fo carrying out the above declaration oF policy.

 

 

    

HRS § 271-2 (2993) provides that *[:)his chapter(, ive., chapter 273,] shall
be administered by the [7UC.]"

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once thle PUC) determines that MHC ie indeed holding
itweit out to the general public as a vmotor carrier chat
would ordinarily be subject to PUC regulation, the {PUC]
Must then determine whether WHC is nonetheless protected
fron PUC reguiation by virtue of ite statue as a MAPT. or
1¢ Supremacy Clause or Federal Enciave xcept ion.

 

 

on duly 12, 2008, the PUC entered an order denying
Jack’s Tours’ motion for reconsideration. Jack's Tours tinely
appealed on August 10, 2005.

31, STANDARD OF REVIEW

“The existence of subject matter jurisdiction is a
question of law that is reviewable de nove under the right/wrong
standard.” ames Funding Corp, v, Mores, 107 Hawai'i 95, 98, 110
P.3d 1042, 1045 (2005) (internal quotation marke, brackets, and
citations omitted).

TIT. piscussion

Jack’s Tours contends that the PUC “ie not preempted
from exercising jurisdiction over KMC for services provided to
the general public under the Supremacy Clause.” (Capital letters
altered.) Specifically, Jack's Tours argues that, although "it
is true that KMC, as a NAPI, may be an ‘instrumentality’ of the
federal government for some purposes, that status as a NAFI does
not automatically exempt KMC from atate regulation in certain

situations." Jack's Tours relies on Armed Forces Cooperative
Insuring Ass’n v. Department of Ineurance, 622 P.2d 1318 (Wyo.

wns § 271-33 (1993) provided in relevant part that, *{f]rom the
order sade on an application for reconsideration or rehearing by the [POC]
Under this chapter: shall Tie & ‘eaurt subject to
chapter 602 in the sanner and within the tine proviced by chapter €02, and by
the rules of court, provided the order is final{.)*  (Bmphaeis sided.)

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1980), overruled on other arounds by Torres v. State ex rel.

wyoming Workers’ Safety & Com, Div., 95 P.3d 794 (Wyo. 2004),
and Paul v. United States, 371 U.S. 245 (1963), in support of ite

foregoing contention. In addition, Jack’s Tours asserts that,

yuming arquendo that KMC is able to prove that it is #0

 

“felven
to render it

 

closely connected with the federal government
indistinguishable from the federal government itself, this would
not entitle WC to immunity for services it provides to the

ie omitted.)

 

general public.” (Bmph

KNC, however, contends that ‘it is unquestionable that
[it] {9 @ federal instrumentality entitled to immunity from state
vegulation under the Supremacy Clause.” Specifically, HMC argues

that:

im conformity with (AR] 215-1, KC has been established as a
[APT]. HC exists to promote governnent purposes —~
including military morale, recruitment, and retention ~~ and
is ‘legally const itueed a an ‘instrumentality of the United
States." NC's funds are considered government funds; its
Property Je governnent property, and it operates under’ the
Authority of the United states and subject to
Telongreseional review. I's finances and property are
algo subject to oversight, inventory, control, and audle by
Officials in the Defense Department, and ite Operations are
overseen by a council that includes active auty wilseary
Personnel appointed by the local garrison comnander or hi
delegates

WHC ie thus a creature of federal statute and
regulation, whose operations are overseen (and, in some
Sizcunscances, strictly controlled) by federal officials,
and whose profits and services exist for the benefit of
federal military personnel. Indeed, Because of the close
Link between NAFI® such ag KMC and the United Sates, and
the attendant responsibilities and duties that accompany
that link, the Secretary of the Aray has explicitly stated
Chat ic *- ‘and all similar MAPIs ~~ are “entitied vo the
Sane sovereign privileges and ismuniti
Iglovernnenc." “The operations of THC are thus fede
functions which "mist be left free of regulation’ absent “a
clear congressional mandate to the contrary.

 

 

 

 

  

 

 

     

   

   

 

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(Citations omitted.) Accordingly, KMC concludes -- and we agree

- that *[cllaims that a federal instrumentality hae failed to

 

comply with its own regulations do not alter the analyeie, such

jertions raise issues of federal law to be resolved by an

   

F such clains.”

 

agency or court with jurisdiction to hi
Generally, ‘where Congress does not affirmatively
declare its instrunentalities or property subject to regulation,
the federal function mist be left free of regulation." Hancock
vs Train, 426 U.S. 167, 179 (1976) (internal quotation marks and
footnote omitted), gubstantive holding superseded by statute as
stated in United States v. Penn. Envtl. Hearing Bd., Sea F.2d

1273, 1280 n.22 (34 Cir. 1978). In other words, *[blecause of
the fundamental importance of the principles shielding federal
installations and activities from regulation by the States, an
authorization of state regulation is found only when and to the
extent there is a ‘clear congressional mandate(]’ [or] ‘specific
congressional action’ that makes th[e] authorization of state
regulation ‘clear and unambiguous.’" Id. (footnotes omitted) ;
see Goodvear Atomic Corp. v. Miller, 486 U.S. 174, 180 (1988)
(stating “[i]t is well-settled that the activities of federal
installations are shielded by the Supremacy Clause from direct
state regulation unless Congress provides ‘clear and unarbiguous’
authorization for such regulation") (citations omitted); Albrecht
¥. Comm, on Employee Benefits of the Fed, Reserve Gmplovee
Benefits Svs., 357 F.3d 62, 67 (D.C. Cir. 2004) (concluding that

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*{f]ederal agencies or instrunentalities performing federal
functions always fall on the ‘sovereign’ side of [the] fault
Line; that is why they possess immunity that requires waiver*)
(internal quotation marks and citation omitted) (emphasis and
brackets in original).

In the seminal case of Standard Oil Co, of Cal. v

Supreme Court

 

dohngon, 316 U.S. 481 (1942), the United stat;
determined that Army post exchanges" are “arms of the government

deemed by it essential for the performance of governmental

 

functions. They are integral parte of the War Department, ["]
share in fulfilling the duties entrusted to it, and partake of
whatever immunities it may have under the constitution and
federal statutes.” Id, at 485. The Supreme Court relied on
several factors in reaching its conclusion that post exchanges
operate as “arms of the government”: (1) "post exchanges operate

under regulations (promulgated by] the Secretary of War [*]

4 sme object of (post) exchanges is to provide convenient and
reliable sources where eoldiere can obtain thelr ordinary needs at the lowest
possible pric their families, and civilians esployed on military
posts here and abroad can buy at exchanges.” Standard Oil, 316 U.S. at 484-
as

      

1) wme Kar Departnent was the predecessor agency to the Department of
the Aray.* Boman vs United States, 846 P. Supp. 979, 983 (M.D. Fla. 1994)
In turn, the "DoD comprises Gunefous components including the various military
agencies, such as the Army, Navy, and Air Force.” Mat] Res, Def, Council v_
United states Dep't of Def., 368 F. Supp. 2 1086, 1093.7 (C.D. Cal. 2005)

 

the Secretary of War is now known as the Secretary of the Army.
mnvtL. Defense Bund v. Marah, 651°F-24 963, 1002 0,24 (Sth Cir, 198i)

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pursuant to federal authority”; (2) Congress had recognized these
activities as "governnental,” with the profits “used to improve

creation, and

 

the soldiers’ mess, to provide various types of
in general to add to the pleasure and comfort of the troops”; and
(3) “the conmanding officer[,] subject to the regulations and the
commands of his own superior officers, has complete authority to
establish and maintain an exchange." Id, at 483-85.

Likewise, in Department of Employment v. United states,

385 U.S. 355 (1966), the Supreme Court concluded that the

 

American National Red Cross (Red Cross) is an instrunentality of
the federal governnent “for purposes of immunity from state
taxation levied on its operations{.]* Id. at 358. Although the
Supreme Court stated that “there is no simple test for
ascertaining whether an institution is 0 closely r[e) lated to
governmental activity as to becone a tax-inmune instrumentality,”
Ad. at 358-59, the Court relied on the following factors in
determining that the Red cross is "clearly* an instrunentality of
the United States: (1) the Red Cross was chartered by Congress;
(2) it is subject to supervision and audit by the federal
government; (3) its principal officers and several of its
governors are appointed by the President of the United states;
(4) it performs a variety of important federal functions

“indispensable to the workings of our Armed Forces around the

 

globe"; and (5) it “receives substantial material assistance from
the [fJederal [glovernment." Id, at 359-60. Cf, Fla. Dep't of

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Revenue v. Naval Aviation Museum Found., Inc, 907 So. 24 586,
589-90 (Fla. Dist. Ct. App. 2005) (determining that a nonprofit
aviation foundation that operated a gift shop within the federal
government's naval museum was not an instrumentality entitled to
immunity on the bases that it was a charitable corporation
establiehed under the laws of Florida for “the specific purpose
of being ‘unfettered’ by government control,” it was not operated
by federal employees, the federal government does not regulate,
superviee, or appoint members of the governing board of the

not fulfill an essential

 

foundation, and the foundation “do
function of governnent*) .

Here, Jack's Tours does not provide any authority to
the contrary that EMC is an instrumentality of the federal
government or that KMC is operated as part of the Aray’s MMR
program. Jack's Tours stated in ite complaint, and KMC agreed in
its answer, that KMC is “owned and operated by the federal
government." As previously stated, 10 U.S.C. § 3013(b) (3)
provides that, *[s]ubject to the authority, direction, and
control of the Secretary of Defense . . . , the Secretary of the
Army is responsible for, and has the authority necessary to
conduct, all affairs of the Department of the Army, including(,
inter alia, aJdministering” “the morale and welfare of
personnel []." See supra note 8, In addition, 10 U.8.c.

§ 3023(g) (2) provides that the Secretary of the Army may
‘prescribe regulations to carry out his functions, powers, and

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duties under this titlel, ise, Title 10, relating to the Armed
Forces]." The Secretary of the Army has promulgated AR 215-1,
which “implements [DoD] and congressional policies{)* and
‘contains administration, operation, and management policies

[Mme] activities [] and [NAFIs).“ as

 

governing the Army’

previously mentioned, Jack’s Tours does not dispute that KMC

 

“exists to promote government purposes -- including military

morale, recruitment, and retention[.]" AR 215-1 § 1-9, entitled

*(mR] program objectives," provides that the MWR program:

‘A. Supports conbat readiness and effectivenes

3. Supports reeruitnent and retention of quslity
personne!

fo "Provides leisure time activities which support
quality of Life comensurate with senerally accepted
Keerican values

2. “Promotes and maintains the mental and physical well-
being of authorized personne?

fe. Fosters community pride, soldier sorale, and family
welinesa; promotes unit eeprit de compe.

£. Eages the impact of unique aspects of military lite,
such as frequent relocations and deployment.

 

    

% on appeal, Jack's Tours appears to attack MIC's reliance on AR 215-1
by merely stating that it i¢ "questionable" whether AR 215": ie sthe type of
Fegulation{) contemplated @ {a} *federal regulationj.'# However,
Sesthorised War Deparesent(, Ale", Separtment of tie Army, 20 supea note 23,)
regulations have the force of iav.r  Rtandard Ol, 316 018."s8 484 (footnote
Guitted). See also Levy v. Dillon, 286 F.Supp. $93, 596 (D. Han. 1568)
(eating that Aimy cegclations, unless inconslavent with exieting sratuto
gnactnents, have the force of law) (citations omitted); Brame v. Garner, 102
S:B.24 252, 293 (5.C. 1957) (stating that “(a)uly authorized and promulgated
Aimy Reguit one have the foree of faye) cleatlon/enitted ut Ras Hamed &
Child, Inc.-v. shearer, 290 S-¥.24 790, 794, a8 modifi oth

(hy. ©. App. 7956) (atating that a Nay Depavenant regulation tis, ef coor
not binding on ehie court, But ts entitled to be given weight")
Nevertheless, vack's Tours Staeif feller on the valsaity of AR 215-1. For
Sxanple, Jack's Toure contends that *Kic’s brosd interpretation” of “spessored
Guests" does not conport with "the intent of (aR) 715-1, which specifically
Gontenpiaces use of KMC facilities prinarity by active duty personnel, with
SGneigestal’ guest use." Jack's Tours algo alleges that (ak) 225-1 Confirms
that NAFIa are limited to serving certain patrons."

 

 

 

   

 

 

 

 

 

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AR 215-1 § 6-2 further provides in relevant part that "MWR
prograns are established primarily for active duty (AD) military
personnel (and such] personnel receive first priority for
participation or use if space is limited.” As previously stated,
KNC's website provides that HNC, as a joint services recreation

center, offers accommodations, amenities[,] and tour packages”

 

and “is open to all active and retired military, Reserve and
National Guard members, current and retired [DoD] civilian

employees, dependenta[,] and sponsored guests." As such, it

 

 

jonably can be said that the services provided by KMC are
“integral and essential to the conduct of the military mii sion.”
See, 2.92, Latchum, 163 P. Supp. 2d at 2223-26 (recognizing that
the Waianae Army Recreational Center, which is operated aa part
of the Army's MWR program and provides vacation cabine for rent
for an authorized patronage group, primarily, menbers of the
military and their families, are “considered integral and
essential to the conduct of the silitary mission") (internal
quotation marke and citations omitted). Furthermore, as KNC
points out, “garrison conmanders* “plan, manage, fund, and
operate MiR/Lodging prograns and services[.]* AR 215-1 § 2-sb.
Specifically, KIC stated that *[e]he relevant chain of command
from the [KMC] tour bus operations to [sic] begins with Me. Bruce
P, Taylor, Base Operations and Services Manager for HNC, who
reports to Mr. Randy Hart, Director of HMC, who reporta to Mr

‘Ted Otaguro, Director of Commander Activities, U.S. Army

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Garrison-Hawai"i, who reports to Colonel Howard J. Killian,
Commander, U.8. Army Garrison-Hawai‘i, located at Schofield
Barracks, HI."

Thus, in light of the foregoing, it can be said that
KMC is an ‘arm[] of the [federal] government dened by it
essential for the performance of governmental functions” and
‘ohare [o] in fulfilling [the] duties entrusted to it,” thereby
*partak[ing] of whatever immunities it may have under the
[federal cJonstitution and federal statutes.” Staridard O11, 316
U.S. at 485 (citations omitted). See, e.a., Maynard & child, 290
S.W.2d at 794 (concluding that an officer's club organized under
Army regulations, providing van officers’ mess and various other
recreational services for the members” and “subject to the
control of the commanding officer of an Army post and managed by
Army officers’ was an inetrunentality of the United states,
vunless{, inter alia.) the proof shows that the [officer's club]
was not in fact an officer’s club under the War Department

regulations”); Brame, 101 $.£.2d at 293-94 (determining that an

 

amy officers’ sess organized under provisions of ary
regulations was innune from suit under federal law by which the
State of South Carolina and its courts are bound). stated
Gitterently, HNC is an “instrunentalit y] of the United states
and@[,] thus[,] enjoy[s] governmental immunity." United States v.
New Mexico, 455 U.S. 720, 736-37 (1982) (stating that the Suprene
court's “other cases describing the nature of = federal

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instrumentality have used [such] language [as]: ‘virtually an

arm of the Government,’ Dep't of Employmes

‘integral parte of a governmental department,’ and ‘arms of the

385 U.S. at 259-60,

 

Government deemed by it essential for the performance of
governmental functions,’ Standard Oil, 316 U.S. at 485")
(ellipsie and brackets in original omitted) .

Moreover, Jack's Tours’ reliance on Armed Forces
Cooperative Insuring Asa’n v, Department of Insurance

(hereinafter, AFCIA] is misplaced. In that case, the appellant,

 

AFCIA, wi

 

fan unincorporated "Non-Profit Military Association*
Stganised in 2877, vith its headquarters continously
Yoeated on the United states Military Reservation at Fort
Leavenworth, Haneas, where, it contends, it has its only
Offices, agente(,] and employees. [AFCIA] comprises some
36.000 active and retired members of the arsed services. On
the many military reservations around the world, APCIA is
Organised, authorized and deaignated by both the Departeent
ofthe Arty ang Departrent of ene Navy (including the Marine
Gorpe) as an official "Non-Profit Military Association. It
{e'aleo recognized by the (DOD] as a "Non-Profit Military
Association.”

 

 

 

 

   

 

 

 

622 P.2d at 1323 (footnotes omitted). AFCIA contended, inter

‘a federal instrumentality and as such is

 

alia, that it ws

immune from state taxation and regulation.

 

Id. at 1335. In
support, AFCIA asserted that “its mission is to provide low-cost
insurance to military personnel and thereby contribute in a small
way toward making military service financially attractive[.]" Id.

tn addition, AFCIA “argue[d] that it is a federal instrumentality

 

because it receivee an effective subsidy from the military base

at Fort Leavenworth in the form of token rent for its

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headquarters." Id, The yoning Suprene Court, however,
concluded that AFCIA was not a federal inetrunentality inasmuch
ae it “point [ed] to no regulations or statutes authorizing ite
activity[.]* Id, at 1337. Here, on the other hand, KNC points
to AR 215-1 as authorizing its activity and Jack's Tours does not
seriously dispute such authorization. See supra note 15.
Consequently, AECIA is distinguishable from the instant case.”

Nonetheless, Jack's Tours further claima on appeal that

 

“etate regulation is permitted for NAFI activities that are not
exclusive to authorized and limited patronage groupe, and the
purposes ordinarily served by providing NAFIs with government

immunity are not present when NAPIe begin competing with

 

:* None of the cases relied on by Jack's

 

‘outeide’ business:

 

% vack’s Tours’ reliance on Paul v. United States is likewise
nisplaced. In Baul, the "main question facing the supreme Court was “whether
California (could) enforce her minimum wholesale price regulations a2 respects
milk sold co the United states at three military installations ocates
Within california and used for strictly military consumption, for’ resale at
federal comissaries and for consumption or resale at various military clube
and post exchanges." "371 U.8. at 247 {footnote omitted). However, the
Supreme Court noted at the cuteet that

 

 

 

(t]he United states ha[é] abandoned 2... claim that
California cannot constitutionally enforce her price
regulations against producers with respect to milk sold to
distributors for processing and ultimately resold to the

 

 

 

United States. The abandonment of this claim is not a
confession of error but only

Immunity fren that price control as 2 mitter of precurenent
policy,

1d. at 248 2.2 (emphasis added). inasmuch as WNC ig asserting iomunity from
the inetant state regulation, Baul is not germane to this case.

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eee
Tours, however, support what appears to be its unstated central

contention, is¢., that NAFIe are stripped of their inmunity if
they are determined to be violating their governing regulations.
See Champaisn-Urbana News Agency, Inc, v. d.l. Cummins News Co.,
632 F.2d 680, 692 (7th Cir. 1980) (concluding that the Army and
Air Force Exchange Services (AAFES) is a governmental
Anetrunentality entitled to immunity from the Robinson-Patman
Amendmente to the Clayton Act); United States v, forfari, 268
F.2d 29, 35 (Sth Cir, 1959) (holding that a civilian employee of
a NAFI was barred from bringing an action under the Federal Tort
Claime Act (FICA)); Latchum, 193 F. Supp. 24 at 1223, 1225
(merely noting that *[t]he general public cannot rent cabins at
[the Waianae Army Recreational Center)"; resolution of case

turned on application of the Eeres doctrine, wherein the federal

 

government is not liable under the FTCA “for injuries to
servicemen where the injuries arise out of or are in the course
of activity incident to service”) (internal quotation marke and
citation omitted); Falls City Brewing Co, v. Reeves, 40 F. Supp.
35, 40 (wD. Ky. 1941) (concluding that a post exchange is a
federal instrumentality within the purview of the Buck Act, which
preserves immunity from state taxation for instrunentalities of
the federal government; the exchange was not required to purchase
a License from the Commonwealth of Kentucky authorizing it to

Coca.

 

engage in the business of selling malt beverages!

Sola Bottling Co. v. Revenue Cabinet, 80 $.W.3d 787, 794 (Ky. Ct.

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App. 2001) (determining that a post exchange was an
instrumentality of the United States within the purview of the
Buck Act, and, thus, beverage sales to it by a bottling company
pursuant to the company's contract with the post exchange were
exempt from state sales tax).

Jack's Tours also reli

 

on Maynard & Child in support
of its foregoing proposition that NAFIs are atripped of their
immunity if they are determined to be violating their governing
regulations. Such reliance, however, is again misplaced. As
previously stated, the court in Maynard & Child concluded that an

officer’s club organized under Army regulations, providing “an

 

vices for the

 

officers’ mess and various other recreational
menbers,* and "subject to the control of the conmanding officer
of an Army post and managed by Army officers” was an
instrumentality of the United states “unlesa(, inter alia] the
proof shows that the [officer's club] was not in fact an
officer's club under the Mar Department regulations." 290 $.W.2d
at 794 (emphasis added). In other words, if the officer's club
was proven not to have been organized under the War Department
regulations, then it would not be an instrumentality of the
United States. In this case, Jack's Tours is not arguing that
KMC was not organized under relevant federal regulations; rather,
Jack's Tours essentially asserts that, because KNC violated its
own regulations by allegedly conducting tours for those cuteide
of ite authorized patronage group as prescribed by AR 215-1, it

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—_— eee
ie operating as a common carrier that should be subject to the

PUC’s regulation. However, in order for KNC to be subject to the
PuC’s regulation, it mist be established that: (2) KMC is not an
instrumentality of the United States and, therefore, not entitled

to invoke immunity; or (2) KMC ig an instrumentality of the

 

united states, but there is a “clear and unambiguous!
congressional authorization waiving KMC’s immunity from direct
state regulation. Other than its conclusory assertion that KMC
should be oubject to regulation by the PUC because it allegedly
conducted tours for those outside the patronage group, Jack's
Tours does not provide any argument as to how KMC ‘would

|. cease to be a federal instrumentality and become subject to
state law requirements" by violating its governing regulation.

Moreover, Jack's Tours does not point to any “clear and

 

unanbiguous" congressional authorization waiving KNC's inmunity
from direct state regulation. Consequently, Jack's Tours’
contention is without merit. We, therefore, conclude that the
puC correctly determined that it could not “assume jurisdiction
over ¥MC in the instant [clomplaint.*!” Accordingly, we hold
that the PUC did not err in dismissing Jack's Tours’ complaint

for lack of subject matter jurisdiction.

 

 

© tn light of this court's holding, this court need not the

remainder of Jack's Tours’ contentions,

 

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CONCLUSION

Based on the foregoing, we affirm the PUC's June 17,

2005 decision and order.

on the beiets: gr
s hw

Wray #. Kondo, ni L.
Kaimuloa, Chriatopher

Bennett. (of watansbe Ing

& Koneiji), for complainant- Deets 1 aay anen
appellant Jack's Tours

 

nt
R. Michael Burke, & “tte

Aasistant U.S. Attorney, .
for respondent appellee Pine

Kilauea Military Camp

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