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### IN THE SUPREME COURT OF THE STATE OF HAWAI # I ---o0o---

SAMUEL L. KEALOHA, JR., VIRGIL E. DAY, JOSIAH L. HOOHULI, and PATRICK L. KAHAWAIOLAA, Petitioners/Plaintiffs-Appellants,

vs. 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.

SCAP-11-0001103
APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (CAAP-11-0001103; CIV. NO. 11-1-0575-03)

DECEMBER 3, 2013 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), Electronically Filed Supreme Court SCAP-11-0001103 03-DEC-2013 08:31 AM***FO R PUB LICAT ION I N WES T’S HAWAI # I REP ORTS AND PACIFI C REP ORTER***



### brought this suit against Office of Hawaiian Affairs (OHA) trustees, alleging that the OHA trustees improperly expended

1 

### trust funds on Hawaiians, as opposed to native Hawaiians as defined by the Hawaiian Homes Commission Act (HHCA). Plaintiffs 2 

### 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 O HA de fenda nts a re: Colet te Y. Pi # ipi # i Mac hado, indi vidua lly 1 and i n heroffi cial capac ity a s Cha irper son a nd Tr ustee of O HA; S . Hau nani Apoli ona, Rowen a Aka na, O swaldSten der, PeterApo, Robe rt K. Lind sey, Jr., and John D. Wa ihe # e IV, indi vidua lly a nd inthei r off icial capa citie s as Trust ees of OHA; Do nald Catal una, indiv idual ly; a nd Ca rmen Linds ey an d DanAhun a, in theiroffi cial capac ities as T ruste es (c ollec tivel y, OHA tru stees ). Plain tiffs ’ complain t nam ed as defe ndant s Mac hado, indi vidua lly a nd inher offic ial c apaci ty as Chai rpers on an d Tru stee of OHA; Ap olion a, Ak ana, Catal una, Boyd P. Mo ssman , Ste nder, Apo, Robe rt K. Lind sey, Jr., and W aihe # e, indiv idual ly an d in theiroffi cial capac ities as T ruste es ofOHA; and Dante Carpe nter and W alterHeen , ind ividu ally. The reco rd in dicat es th at Pl ainti ffs have since dism issedall claim s aga inst Carpe nter and H een. Also , the OHA trust ees s tatedthat Moss man r esign ed fr om hi s pos itionas O HA tr ustee duri ng the p enden cy ofthe insta nt ac tion, and was r eplac ed byCarmen Li ndsey
. Accor dingl y, Ca rmen Linds ey wa s sub stitu ted f or Mo ssmanas t o cla ims a gains t Mossm an inhis offic ial c apaci ty. See H awai # i Rul es ofAppe llate Proc edure (HRAP ) Rul e 43( c)(1) . It also appe ars t hat P laint iffs are n ot al legin g cla ims again st Mo ssmanin h is in dividual c apaci ty. Dan Ahuna also repla ced C atalu na as tr ustee in 2 012. See State of H awaii , Off ice o f Ele ction s, Ha waii Gener al 2012 Final Summ ary R eport 2 (N ov. 6 , 201 2), http: //haw aii.g ov/el ectio ns/ resul ts/20 12/ gener al/el ectio ns/re sults /2012 /gene ral/f iles/ hista tewid e.pdf
. Thus, it w ould also appea r tha t Ahu na is subs titut ed fo r Cat alunaas t o cla ims again st Ca talun a in his o ffici al ca pacit y. S ee HRAP Ru le 43 (c)(1 ).

As us ed inthis opin ion, “Hawa iian” incl udes indiv idual s wit h some 2 Hawai ian a ncest ry, b ut le ss th an th e 50% requ ired to be a na tive Hawai ian underthe HHCA. Sec tion 201(a ) of the H HCA d efine s “na tive Hawai ian” as “a ny desce ndant of n ot le ss th an on e-hal f par t of the b lood of th e rac es in habit ing the H awaii an Is lands prev ious to 17 78.” Hawa iian Homes Comm ’n Ac t, 19 20, A ct of Ju ly 9, 1921 (HHC A), P ub. L . 67- 34, 4 2 Sta t. 10 8, re print ed in1 HR S 261 (2009 ). F or pu rpose s of clari ty, t his o pinio n wil l use the term “nati ve Hawai ian” as de finedin t he HH CA. This opini on wi ll al so us e the term “Hawa iian” as d efine d in HRS §10-2 (200 9): “ any d escen dant of th e abo rigin al peopl es in habit ing t he Ha waiia n Isl ands whichexer cisedsove reign ty an d subsi sted in th e Haw aiianIsla nds i n 177 8, an d whi ch pe oples ther eafte r hav e conti nued to re side in Ha wai # i.” 

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### 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) Whethe r the [cir cuit court ] err ed indism issin g the c ompla int f or fa ilure to s tate a cla im?

The H onora ble K arl K . Sak amoto pres ided. 3 

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(2) Whethe r dis missa l is appro priat e on groun ds ofres judic ata o r col later al es toppe l? 

### 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. We also hold that the circuit court did 4 

### 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,

In li ght o f thi s hol ding, we d o not reac h the issu e of wheth er re s 4 judic ata o r col later al es toppe l barPlai ntiff s’ cl aims. 

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### 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

Secti on 5( f) pr ovide s: 5
The l ands grant ed to the State of H awai # i by subse ction(b) of th is se ctionand publi c lan ds retai ned b y the Unit ed St ates undersubs ectio ns (c ) and ( d) an d lat er co nveye d to the S tate under subse ction(e), toge ther with the p rocee ds fr om th e sale or ot her d ispos itionof a ny su ch la nds a nd th e incom e the refro m, sh all b e hel d by said State as a publi c tru st fo r the supp ort o f the publ ic sc hools and otherpubl ic educati onal insti tutio ns, f or th e bette rment of t he co nditi ons o f nat ive H awaii ans, as defin ed inthe [HHCA ], as amen ded, for t he de velopment of fa rm an d hom e own ershi p on as wi despr ead abasi s as possi ble f or th e mak ing o f pub lic i mprov ement s, an d for t he pr ovisi on ofland s forpubl ic us e. S uch lands , pro ceeds , andinco me sh all b e man aged and dispo sed o f forone or mo re ofthe foreg oing purpo ses in su ch ma nner as th e con stitu tion and l aws o f sai d State may provi de, a nd th eir u se fo r anyothe r obj ect shall cons titut e a b reachof t rust for which suit may be br ought by t he Un ited State s.



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### 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. Id. Article XII, 6 

### section 4 specified that the public land trust, except for

Secti ons 4 , 5 a nd 6 of Ar ticle XII of th e Haw ai # i Con stitu tion 6 provi de: Secti on 4. The land s gra nted to th e Sta te ofHawa i # i

by Se ction5(b) of t he Admissi on Ac t andpurs uant to Artic le XV I, Se ction7, o f the Stat e Con stitu tion, exclu ding there from lands defi ned a s “av ailab le la nds” by Se ction203 of th e [HH CA], as amended , sha ll be held by th e Sta te as a pu blic trust for nativ e Hawai ians and t he ge neral publ ic. Secti on 5. The re is here by es tabli shed an Of fice of Hawai ian A ffair s. T he Of fice of Ha waiia n Aff airs shall holdtitl e to all t he re al an d per sonal prop erty now o r her eafte r set asid e or conve yed t o it which shall be h eld i n tru st fo r nat ive H awaii ans a nd Hawai ians. The re sh all b e a b oard of tr ustee s forthe Offic e of Hawai ian A ffair s ele cted by qu alifi ed vo ters who a re Ha waiia ns, a s pro videdby l aw. The b oard membe rs sh all b e Haw aiian s. T here shall be n ot le ss than nine membe rs ofthe boardof t ruste es; p rovid ed that each of th e fol lowin g Isl ands have one repre senta tive: Oah u, Ka uai, Maui, Molo kai a nd Hawai # i. T he bo ard s hall selec t a c hairp ersonfrom its m ember s. Secti on 6. The boar d of trust ees o f the Offi ce of Hawai ian A ffair s sha ll ex ercis e pow er as prov ided by law: to ma nage and a dmini ster the p rocee ds fr om th e sale or ot her d ispos itionof t he la nds, natur al resou rces, mine rals and i ncome deri ved f rom whatev er sourc es fo r nat ive H awaii ans a nd Ha waiia ns, i nclud ing all i ncome and proce eds f rom t hat p ro ra ta po rtionof the t rust refer red t o in secti on 4 of th is ar ticle for nativ e Haw aiian s; to formulate poli cy re latin g to affai rs ofnati ve Ha waiia ns an d Haw aiian s; an d to exerc ise c ontro l ove r rea l andpers onal prope rty s et aside by s tate, fede ral o r pri vate sourc es an d trans ferre d to the b oard for n ative Hawa iians and Hawai ians. The boar d sha ll ha ve th e pow er to exer cise contr ol ov er th e Off ice o f Haw aiianAffa irs t hroug h its e xecut ive o ffice r, th e adm inist ratorof t he Of fice of Ha waiia n Aff airs, who shall be a ppoin ted b y the board
. 

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### 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

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### native Hawaiians.’” Stand. Comm. Rep. No. 59, in 1978 7 

### 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- 3 sets forth OHA’s purposes, including: 8

The f orego ing quote by th e Committe e on Hawai ian A ffair s use d the

7 term “nati ve Ha waiia ns” r atherthan“Haw aiian s.” Stand . Comm. Re p. No . 59, in 1978 Proce eding s, at 645. How ever, the commi ttee chose to u se th e term “nati ve Ha waiia ns” t o ref er to all Hawai ians. See id. at 64 3 (“I n the secti ons t hat f ollow , you r Committe e ref ers t o all desc endan ts, r egard less of bloodquan tum, as be ing n ative Hawa iians .”).

HRS §10-3 (200 9) pr ovide s, inrele vant part: 8 The p urpos es ofthe offic e of Hawai ian a ffair s inclu de: (1) T he be tterm ent o f con ditio ns ofnati ve Ha waiia ns. A pro rataport ion o f all fund s der ived from the publi c lan d tru st sh all b e fun ded i n an amoun t to be determinedby t he le gisla ture for t his p urpos e, an d shall be h eld a nd us ed so lely as a publi c tru st fo r the b etterment of th e con ditio ns ofnati ve Ha waiia ns. For t he pu rpose of t his c hapte r, th e pub lic l and t rust shall be a ll pr oceed s andinco me fr om th e sal e, le ase, or ot her d ispos itionof l ands cededto t he Un ited State s by the R epubl ic ofHawa i # i und er th e joi nt resol utionof a nnexa tion, appr oved July 7, 18 98 (3 0 Stat. 750) , or acqui red i n exc hange for lands so ceded , andconv eyed to th e Sta te ofHawa i # i by virtu e of se ction5(b) of t he Ac t of March18, 1959 (73 S tat. 4, th e Adm issio ns Ac t), ( exclu ding there from lands and all p rocee ds an d inc ome f rom t he sa le, l ease, or dispo sitio n of lands defi ned a s “av ailab le la nds” by secti on 20 3 of the [ HHCA] , as amend ed), and a ll (cont inued ...) 

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(1) The b etterment of co nditi ons o f nat ive Hawai ians. [ ] A pro r ata p ortio n of all f unds deriv ed

9 from the p ubliclandtrus t sha ll be fund ed inan amoun t to be de termi ned b y the legi slatu re fo r thi s purpo se, a nd sh all b e hel d andusedsole ly as a pu blic trust for the b etterment of th e con ditio ns ofnati ve Hawai ians.

. . . (2) The b etterment of co nditi ons o f Haw aiian s;[ ] 1 0 (3) Servi ng as the princ ipal publi c age ncy i n thi s State resp onsib le fo r the perf orman ce, d evelo pment , and c oordi natio n of progr ams a nd ac tivit ies r elati ng to na tive Hawai ians and H awaii ans[. ] 

### 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

(...c ontin ued) 8 proce eds a nd in come from the s ale, lease , or other dispo sitio n of lands reta ined by th e Uni ted S tates undersect ions 5(c) and 5 (d) o f the Act of Ma rch 1 8, 1959, late r con veyedto t he St ate u nder secti on 5( e); (2) The b etterment of co nditi ons o f Haw aiian s[.] (Emph asis added ).

HRS §10-2 (200 9) de fines “[n] ative Hawa iian” as: 9 any d escen dant of no t les s tha n one -halfpart of t he races inha bitin g the Hawa iian Islan ds pr eviou s to 1778, as d efine d by the [ HHCA] , as amend ed; p rovid ed that the t erm i denti callyrefe rs to the desce ndant s of such bloodquan tum o f suc h abo rigin al pe oples whic h exerc ised sover eignt y andsubs istedin t he Ha waiia n Islan ds in1778 and whichpeop les t herea fter conti nued to re side in Ha wai # i. HRS §10-2 defi nes “ Hawai ian” as: 10 any d escen dant of th e abo rigin al pe oples inha bitin g the H awaii an Is lands whic h exe rcise d sov ereig nty a nd subsi sted in th e Haw aiianIsla nds i n 177 8, an d whi ch peopl es th ereaf ter h ave c ontin ued t o res ide i n Hawai # i.



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### 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[.]” 1980 Haw. 1 1 

### Sess. Laws Act 273, § 1 at 525, codified at HRS § 10-13.5 (2009).
B. Federal court action

On March 10, 2006, Plaintiffs, identifying themselves 1 2 

### 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

HRS §10-1 3.5 ( 2009) prov ides that “[t]w enty per c ent o f all fund s 11 deriv ed fr om th e pub lic l and t rust, desc ribedin s ectio n 10- 3, sh all b e expen ded b y [OHA] fo r the purp oses of th is ch apter .”

The p laint iffs in th e fed eral court acti on in clude d the Plai ntiff s 12 in th e ins tant state acti on an d Mel Hoom anawa nui. Day v. Ap olion a (Da y I), 451 F . Sup p. 2d1133 , 113 4 (D. Haw. 2006 ). 

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### spending those trust funds to lobby for the Akaka Bill, and to 1 3 

### support the Native Hawaiian Legal Corporation (NHLC), Na Pua 1 4



### No # eau Education Program (Na Pua No # eau), and Alu Like. 1 5 1 6 

### 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). On August 10, 2006, the U.S. District Court 1 7 

### dismissed the action, holding that the Plaintiffs may not enforce

The p ropos ed Na tive Hawai ian G overnment Reorg aniza tion Act o f 13 2007, know n as the A kaka Bill, “wou ld cr eate a pro cess throu gh wh ich t he Unite d Sta tes c ould recog nize a gov ernin g ent ity f or Ha waii’ s ind igeno us peopl e.” Day I I, 61 6 F.3 d at 922 ( citat ion o mitte d).

NHLC recei ved m oney from OHA t o pro vide legal repr esent ationto 14 Hawai ians with regar d to, inte r ali a, th e “[p ]rese rvati on an d per petua tion of tradi tiona l andcust omaryprac tices [and ] [p] rotec tion of cu ltura lly signi fican t pla ces, inclu ding buria l sit es an d mat erial cult ure.” DayII, 616 F.3d at 92 7-28 (brac kets in or igina l).

Na Pu a No # eau i s an educa tiona l cen ter t hat r eceiv ed fu nds f rom 15 OHA t o pro vide educa tiona l ser vices to H awaii an ch ildre n in grade s K t hroug h 12. Day I I, 61 6 F.3 d at 928; Day I I, 20 08 WL2511 198, at *1 2.

Alu L ike i s a “ nonpr ofit organ izati on th at st rives to h elp 16 Hawai ians and n ative Hawa iians achi eve s ocial and econo mic s elf-s uffic iency throu gh th e pro visio n of earlychil dhoodeduc ationand childcare , eld erly servi ces, emplo yment prep arati on an d tra ining , lib rary and g eneal ogy s ervic es, speci alize d ser vices for at-ri sk yo uth, and i nform ationand refer ral servi ces.” DayII, 2008 WL 25 11198 , at *12.

Altho ugh P laint iffs alleg ed a viola tion of HR S § 1 0-16( c), i t 17 appea rs th at th e sta tute estab lishe s a b asis for s uit r atherthana requi remen t tha t canbe v iolat ed. HRS §10-1 6(c) (2009 ) pro vides :

(c) I n mat ters of mi sappl icati on offund s and resou rces in br each of fi ducia ry du ty, b oard membe rs shall be s ubjec t to suit broug ht byany benef iciar y of the p ublictrus t ent ruste d upo n the offi ce, e ither throu gh th e off ice o f the atto rney gener al orthro ugh priva te co unsel
. 

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### 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 Circuit Court of Appeals, contesting only the dismissal of the § 1983 claim for violation of the Admission Act. Day v. Apoliona, 496 F.3d 1027, 1030 (9th Cir. 2007). The Ninth Circuit reversed the U.S. District Court’s dismissal of the case and remanded, holding that “each Native Hawaiian plaintiff, as a beneficiary of the trust created by § 5(f), has an individual right to have the trust terms complied with, and therefore can sue under § 1983 for violation of that right.” Id. at 1039. The Ninth Circuit left “to the district court to interpret those § 5(f) purposes to determine in the first instance not only whether [Plaintiffs’] allegations are true, but also whether the described expenditures in fact violate § 5(f).” Id. The Ninth Circuit emphasized that it was expressing no view concerning the merits of Plaintiffs’ expenditure challenges. Id. at 1040 n.14.

On remand, the U.S. District Court granted the OHA trustees summary judgment, concluding that OHA’s expenditures of the trust funds to support the Akaka Bill, NHLC, Na Pua No # eau,

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### and Alu Like are consistent with the Admission Act. Day II, 2008 WL 2511198, at *1, *14. Specifically, the U.S. District Court stated that the Plaintiffs conceded that the OHA trustees had broad discretion in determining whether a particular expenditure betters the conditions of native Hawaiians. Id. at *7. The court then viewed each of the challenged expenditures under trust principles. Id. at *8-13. The court first rejected the Plaintiffs’ contention that the OHA trustees abused their discretion in supporting the Akaka Bill, and found that “[e]ven if the Akaka Bill is intended to benefit Hawaiians in general, the OHA trustees would not be unreasonable or arbitrary in viewing the Akaka Bill as also benefitting native Hawaiians.” Id. at *7-8. Specifically, the court noted that “[n]umerous” legal challenges had been brought against Hawaiian-only and native Hawaiian-only programs, alleging Equal Protection violations. Id. at *8. The court further noted that “[a]lthough most race-based preferences are subject to ‘strict scrutiny,’ preferences given to American Indian tribes are reviewed under the ‘rational basis’ standard.” Id. (citing Morton v. Mancari, 417 U.S. 535 (1974)). Given the foregoing legal framework, “passage of the Akaka Bill might ultimately affect whether programs benefitting only Hawaiians and native Hawaiians are reviewed under the ‘strict scrutiny’ standard as involving racial

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### preferences, or under a ‘rational basis’ standard as involving a political preference.” Id. Thus, the court reasoned, the trustees’ expenditures in support of the Akaka Bill were proper:

It ca nnot be sa id th at th e OHAtrus tees are a busin g theirdisc retio n in suppo rtinglegi slati on th at co uld affec t cha lleng es to prog rams favor ing H awaii ans a nd nativ e Haw aiian s. T he OHA tru stees are reaso nably exerc isingthei r fiduciar y jud gment whentheyexpe nd trust fund s in suppo rt ofthe AkakaBill . Th at ac tion is co nsist ent w ith t he pu blic trust requ ireme nt th at trust fund s be used for t he be tterment o f the condi tions of n ative Hawa iians , eve n if the f unds simul taneo usly bette r the cond ition s of Hawai ians. 

### Id. The court next examined OHA’s contract with the NHLC, and noted that under the contract, NHLC was to

rende r leg al se rvice s andprov ide l egal repre senta tion to cl ients in s ubsta ntive area s whi ch sh all i nclud e but s hall not b e lim ited to: (a) Asser tion and d efens e of quiet titl e actio ns; (b) Prote ction , def ense and a ssert ion o f ahupu a # a andkule ana t enant righ ts, i nclud ing r ights of ac cess and r ights to w ater; (c) Land title assi stanc e, in cludi ng re view of title and genea logy; (d) Prese rvati on an d per petua tion of tradi tiona l andcust omaryprac tices ; (e) Prote ctionof c ultur ally signi fican t place s, in cludi ng bu rial sites and mater ial c ultur e; and (f) Prese rvati on ofNati ve Ha waiia n Lan d Tru st entit lemen ts. 

### Id. at *10-11.

The court found that OHA’s contract with the NHLC “arguably betters the conditions of native Hawaiians because it helps to preserve and perpetuate their traditional and customary practices, protect culturally significant areas, and help them

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### assert their legal rights regarding land and water in court.” Id. at 11. The court also found that OHA’s contract with the NHLC “also can be said” to support other public trust purposes, such as aiding farm and home ownership, making public improvements, and providing for lands for public use. Id.

The court next determined that OHA’s use of trust funds to support Na Pua No # eau constituted a proper exercise of the OHA trustees’ fiduciary judgment. Id. at *12. The court noted that according to its contract with OHA, the University of Hawai # i at Hilo, through its Na Pua No # eau program, was to “provide for educational enrichment programs” that were “designed to optimize learning for Hawaiian students” and “develop a stronger interest in learning, connect learning and education to one’s Hawaiian identity, and explore possible educational, career and academic goals.” Id. (quotation marks omitted). In light of these purposes, the court found that OHA’s support of Na Pua No # eau “arguably betters the conditions of native Hawaiians in ensuring that learning is connected to students’ Hawaiian identity.” Id. The court also found that the support of Na Pua No # eau was consistent with the § 5(f) trust purpose of supporting public schools and other public educational institutions. Id.

Finally, the court held that the OHA trustees “exercised their reasonable discretion and fiduciary judgment” in

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### supporting Alu Like. Id. at *13. The court described Alu Like as “a nonprofit organization that strives to help Hawaiians and native Hawaiians achieve social and economic self-sufficiency through the provision of early childhood education and child care, elderly services, employment preparation and training, library and genealogy services, specialized services for at-risk youth, and information and referral services.” Id. at *12. The court concluded that “Alu Like’s programs better the conditions of native Hawaiians and support public education,” and that the OHA trustees “did not abuse their considerable discretion in determining that one of the ways they were going to better the conditions of native Hawaiians was by providing support to a service organization with the mission of helping Hawaiians and native Hawaiians achieve social and economic self-sufficiency.” Id. at *13.

The U.S. District Court noted that it did not examine whether the OHA trustees’ expenditures violated state law:

[F]orpurp oses of th e § 1 983 c laim asser ted i n Cou nt I, th is co urt e xamin es on ly wh etherthe OHA t ruste es viola ted afede ral r ight or st atute , in this case, the Admis sion Act. Whet her t he OHA tru stees are viola ting state law by us ing p ublictrus t fun ds to supp ort t he AkakaBill , the Nati ve Ha waiia n Leg al Co rpora tion, the Na Pu a No # eau E ducat ion P rogram, an d AluLike is n ot befor e thi s cou rt. 

### Id. at *5.

The Plaintiffs appealed the U.S. District Court’s grant of summary judgment. Day II, 616 F.3d at 921. The Ninth Circuit
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### affirmed the district court’s order. Id. First, the Ninth Circuit rejected Plaintiffs’ argument that federal law requires the OHA trustees to spend OHA’s twenty percent share of the § 5(f) trust only “for the betterment of the conditions of native Hawaiians.” Id. at 921, 924. The Ninth Circuit stated that the OHA trustees have not breached their federal trust obligations so long as the expenditures meet any of the five purposes enumerated in § 5(f). Id. at 925. Second, the Ninth Circuit rejected Plaintiffs’ alternative argument that, “even if OHA trustees may spend for any of the § 5(f) trust purposes, they breached the trust under federal law because each of the challenged projects was not restricted to one or more of the enumerated purposes.” Id. Relying on the common law of trusts, the Ninth Circuit noted that “a trustee’s ‘power is discretionary except to the extent its exercise is directed by the terms of the trust or compelled by the trustee’s fiduciary duties.’” Id. at 926 (quoting Restatement (Third) of Trusts § 87 cmt. a). The Ninth Circuit found that because § 5(f) set forth broad purposes and “does not direct specific expenditures,” the OHA trustees “have discretion (i.e., are to use fiduciary judgment) to determine whether a particular use of trust funds serves one or more of the trust purposes.” Id. (citation, quotation marks, and brackets omitted). The Ninth Circuit also articulated the following trust

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### principles:

“Whena tr ustee has discr etionwithresp ect t o the exerc ise o f a p ower, its exerc ise i s sub ject to super visio n by a cou rt on ly to prev ent a buse of discr etion .” I n the cont ext o f the narr ow fe deral inqui ry in to wh etheran e xpend iture is ause for a trust purp ose, an ab use o f dis creti on oc curs when a trust ee “h as ac ted u nreas onabl y – t hat i s, be yond the bound s of reaso nable judgment. ” 

### Id. (quoting Restatement (Third) of Trusts § 87, § 87 cmt. c) (internal citation omitted).

Accordingly, the Ninth Circuit evaluated the challenged expenditures to determine whether they were “beyond the bounds of a trustee’s reasonable judgment that the project in question would serve § 5(f) trust purposes.” Id. at 926-27. In doing so, the Ninth Circuit determined that each of the challenged expenditures was proper and met the § 5(f) purpose of betterment of the conditions of native Hawaiians. Specifically, the Ninth Circuit found that: (1) “[a]lthough it is possible that the processes the Akaka Bill envisions could dilute some benefits that native Hawaiians currently enjoy to the exclusion of other Hawaiians, a trustee could reasonably conclude that the bill’s benefits to the conditions of native Hawaiians outweigh any drawback”; (2) it was within the trustees’ broad discretion to determine that using trust funds for the NHLC will better the conditions of native Hawaiians; (3) a reasonable trustee could view supporting Na Pua No # eau as serving at least two of the enumerated § 5(f) purposes, including the betterment of the -18-***FO R PUB LICAT ION I N WES T’S HAWAI # I REP ORTS AND PACIFI C REP ORTER***



### conditions of native Hawaiians, as “[n]ative Hawaiians stand to benefit if Hawaiian identity in general is preserved and pride in Hawaiian identity fostered[]”; and (4) trustees could reasonably determine that the conditions of native Hawaiians would benefit from Alu Like’s efforts to “help[] Hawaiians and native Hawaiians achieve social and economic self-sufficiency.” Id. at 927-28 (brackets in original).

The Ninth Circuit emphasized that its ruling was based on federal, rather than state law. For example, the Ninth Circuit stated that “[a]lleged violations of state laws regarding the management and disposition of § 5(f) funds are not necessarily breaches, under federal law, of the § 5(f) trust itself.” Id. at 924 (emphasis in original). The Ninth Circuit also noted that the Plaintiffs’ claims may be actionable under
state law:

We ho ld th at, a lthou gh § 5(f) permi ts Ha wai # i to

impos e fur ther rules and restr ictio ns onmana gemen t of the §5(f) trus t, it does not requi re th e sta te an d its a gents to a bide by th ose r ules and r estri ction s as a mat ter o f fed eral law. Thos e all eged viola tions are actio nable unde r sta te la w, ifat a ll. 

### Id. at 929 (emphasis in original).
C. State circuit court proceedings

On March 23, 2011, Plaintiffs filed a complaint in circuit court. Plaintiffs alleged that the OHA trustees owed them a duty to spend trust funds “in the sole interest of the

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### [native Hawaiian] beneficiaries, except for collateral benefits to nonbeneficiaries, so long as the primary benefits of any action is [sic] enjoyed by beneficiaries, and the collateral benefits do not detract from nor reduce the benefits enjoyed by the beneficiaries.” Plaintiffs further alleged that the OHA trustees violated “clearly established law” and breached this duty by “expend[ing] trust funds without regard to the blood quantum contained in the definition of native Hawaiians” as set forth in the HHCA. Specifically, Plaintiffs alleged that the OHA trustees expended trust funds without regard to blood quantum on lobbying efforts in support of the Akaka Bill, and on the NHLC,
Na Pua No # eau, and Alu Like. Plaintiffs asserted that they suffered injury as a result because the “unlawful expenditures of trust funds . . . have diminished the funds available to be expended for betterment of the conditions of the ‘native Hawaiian’ beneficiaries pursuant to H.R.S. § 10-3(1), Article XII, §§ 4, 5, and 6 [of the Hawai # i Constitution], and §§ 4 and 5(f) of the Hawai # i Admission Act[.]” Plaintiffs sought an accounting and restoration of the funds, injunctive relief, damages pursuant to state common law and HRS § 10-16(c), and attorney’s fees and costs.

On August 26, 2011, the OHA trustees filed a Motion to Dismiss the complaint. In their memorandum in support of the

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### motion, the OHA trustees argued that to the extent Plaintiffs asserted a claim for breach of trust under § 5(f), it was barred by res judicata based upon the U.S. District Court’s 2008 judgment in Day II and the analysis in the U.S. District Court’s and Ninth Circuit’s opinions in the case. The OHA trustees also argued that Plaintiffs’ breach of trust claim pursuant to HRS § 10-3(1) and article XII, sections 4, 5, and 6 of the Hawai # i Constitution was barred by collateral estoppel. The OHA trustees further argued that even if res judicata and collateral estoppel did not bar Plaintiffs’ claims, they failed on the merits for the reasons set forth in Day II. Finally, the OHA trustees contended that to the extent the Plaintiffs were seeking damages against the OHA trustees in their individual capacities, the claims fail because there is no state law counterpart to § 1983, and, even if there was, any claim based upon it would be defeated by the doctrine of qualified immunity.

In their memorandum in opposition, Plaintiffs argued that their state law claims were not precluded by the doctrines of res judicata or collateral estoppel. Plaintiffs stated that they were not asserting claims under federal law, and that the federal courts did not consider the state law claims. Plaintiffs also appeared to draw further distinctions between state and

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### federal law by arguing that unlike federal law, HRS Chapter 673 1 8 

### waives the State’s immunity to suits for breach of the § 5(f) trust. Plaintiffs further argued that “[t]here are significant state law provisions that impose a greater fiduciary duty upon OHA trustees than federal law, specifically HRS § 673- 1(b)(1),[ ] as incorporated into HRS § 10-16(c).”

1 9

### In their reply brief, the OHA trustees argued that Plaintiffs’ breach of trust claim was barred by collateral estoppel because although the U.S. District Court in Day declined to exercise pendent jurisdiction over the state law claim, the district court, in considering the claims under federal law,

HRS §673- 1 (19 93) w aives Stat e immunity“forany breac h of trust 18 or fi ducia ry du ty re sulti ng fr om th e act s or omiss ions of it s age nts, offic ers and e mploy ees i n the mana gemen t anddisp ositi on oftrus t fun ds an d res ource s of” t he Ha waiia n hom e lan ds tr ust, and t he na tive Hawai ian p ublictrus t.

HRS §673- 1(b) provi des t hat t he wa iver does not a pply to th e 19 follo wing: (1) T he ac ts oromis sions of t he St ate’s offi cers and

emplo yees, eventhou gh su ch ac ts oromis sions may not reali ze ma ximumreve nues to th e Haw aiianhome land s trust and nativ e Haw aiianpubl ic tr ust, so lo ng as each trust is a dmini stere d in the s ole i ntere st ofthe benef iciar ies; provi ded t hat n othin g her ein s hall preve nt th e Sta te fr om ta king actio n whi ch wo uld provi de a colla teral bene fit t o non benef iciar ies, but only so lo ng as the prima ry be nefit s are enjo yed b y benef iciar ies, and t he co llate ral b enefi ts do not detra ct fr om no r reduce t he be nefit s enj oyed by th e benef iciar ies; (2) Any cl aim f or wh ich areme dy is prov ided elsewhere in th e law s of the S tate; and (3) Any cl aim a risin g out of t he ac ts oromis sions of the m ember s of the b oard of tr ustee s, of ficer s and emplo yees of th e off ice o f Haw aiianaffa irs, excep t as provi ded i n sec tion 10-16
. 

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### analyzed each challenged expenditure and held the OHA trustees could reasonably have exercised their considerable judgment and discretion to determine that each expenditure betters the conditions of native Hawaiians. The OHA trustees also argued that Plaintiffs’ reliance on HRS § 673-1(b)(1) was misplaced because the statute is a waiver of sovereign immunity that, by its express terms, is not applicable to claims against OHA
trustees. The circuit court dismissed the complaint, finding that, even assuming that all allegations in the complaint were true, the complaint failed to state a claim upon which relief could be granted pursuant to HRCP Rule 12(b)(6):
[P]la intif fs ha ve br ought this suit unde r [HR S § 10- 16(c) ] whi ch pr ovide s tha t in matte r of misap plica tion for f unds and r esour ces i n bre ach o f fiduc iary duty the O HA bo ard member s sha ll be subj ect to su it. Howev er, i n the ir co mplai nt th e onl y sup port plain tiffs prov ide f or th eir c laims are their alleg ation s tha t OHA ’s us e of funds for the A kaka Bill, NHLC , Na Pua N o # eau, and A lu Li ke ar e exp ended for t he be nefit of H awaii ans w ithou t reg ard t o the bloodquan tum. Those alle gatio ns fa il to esta blisha cl aim o f breac h of fiduc iary duty under[HRS § 10 -16(c )] wh ere plain tiffs ’ all egati ons t hat t he fu nds a re be ing expen ded w ithou t reg ard t o blo od qu antumdoes not repre sent a perse v iolat ion o f def endan ts’ f iduci ary duty. Nowhere does it al lege that defen dants are usingpubl ic tr ust f unds speci fical ly to bett er th ose of no n-Nat ive H awaii an an cestr y. F urthe rmore noth ing in th e all egati ons s tate that defen dants are requi red to us e the fund s exc lusiv ely f or th e bet terme nt of only Nativ e Haw aiian s. Plain tiffs alle ge th at de fenda nts a re re quire d to expend funds in away whichprim arilybene fits benef iciar ies which are N ative Hawa iians and that non-b enefi ciari es ar e onl y ent itledto c ollat eral



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benef its. The court dism isses this argument as th is stand ard a rises fromlang uage foundin [ HRS § 673 -1(b) (1)], a sp ecifi c sta tute underthe Nativ e Hawai ian T rust Judic ial ReliefAct whichclai m has not been broug ht orpledin t he co mplai nt it self. Addit ional ly ev en ifappl icabl e, HR S 673 -3 re quire s that plain tiffs firs t exh aust theiradmi nistr ative remed ies b efore brin ging suit in Ci rcuit Cour t, a step that undis puted ly ha s not beenshow n in the c ompla int thus the c ourt wouldlacksubj ect m atterjuri sdict ion.
Even if pl ainti ffs w ere t o hav e sta ndingunde r 673-1 , the lang uage foundin [ HRS §673- 1(b)( 1)] i s inapp licab le he re. That secti on re fers to a waive r of immun ity b y sta te of ficer s andempl oyees in H awaii an Home Land trust s andNati ve Ha waiia n pub lic t rusts
. Howev er, t here is a subse quent prov ision , [HR S 673-1 (b)(3 )], which speci fical ly ad dress es th e iss ue of wa iver of immunit y forOHA membe rs wh ich i s or [sic] argu ably the c ase h ere. Under[HRS § 67 3-1(b )(3)] ther e is no su ch langu age r elati ng to prim ary b enefi ts go ing t o benef iciar ies. Fina lly e ven i f it were appli cable , 673-1 is m erelya wa iver of immunit y andthat stat ute addre ssingimmu nity. Permitti ng su its t o be broug ht again st st ate o ffici als s uch a s OHAboar d members howev er. Howev er, i n thi s cas e thi s wai ver o f immun ity i s alr eady somewhat c onced ed un der [ HRS § ] 10-16 whic h une quivo callyperm its s uits in th e cas e of a bre ach o f fiduciar y dut y. And, as pr eviou sly d iscus sed, no cl aim h as be en factu ally asser ted s uffic ient enoug h to bringa cl aim here. Thu s und er 67 3-1 i s at most a sta ndingstat ute and d oes n ot pr ovide a st andar d by whichplai ntiffcan legal ly us e aga inst defen dant to es tabli sh li abili ty. In ot her w ords, the statu te it self does not c reate a priva te ca use o f act ion.
In co nclus ion, the c ourt has r eview ed plain tiffs ’ complain t andfoun d no alleg ation s tha t wouldsupp ort t heir claimfor breac h of fiduc iary duty as br ought in t heir claimunde r [HR S § 1 0-16( c)]. There fore the d efend ants’ moti on is gran ted. 

### On October 12, 2011, the court entered its order granting the motion to dismiss. On November 8, 2011, Plaintiffs and Hoomanawanui filed a motion for leave to file an amended complaint pursuant to HRCP Rule 15(a) “to correct the

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### deficiencies identified by the court[.]” The proposed amendments included, inter alia, adding Hoomanawanui as a plaintiff, and stating that the alleged misapplication of funds was “in violation of HRS §§ 10-16(c) and 708-874.” Plaintiffs also 2 0 

### changed the following allegation in their original complaint:

11. In vi olati on ofclea rly e stabl ishedlaw, Defen dants have expe nded trust fund s wit hout regar d to the b lood quant um co ntain ed inthe defin itionof nativ e Haw aiian s in the [ HHCA] and HRS §10-2 , in parti cularas f ollow s: [ The c ompla int t hen d iscus sed expen ditur es fo r the Akak a Bil l, NH LC, N a PuaNo # eau, and A lu Li ke.] 

### The amended complaint replaced that language with the following:

10. In vi olati on ofH.R. S. §§10-1 6(c) and 7 08-87 4

and s aid f iduci ary [ sic], Defe ndant s hav e mis appli ed

HRS §708- 874 ( 1993) esta blish es an d def ines the o ffens e of 20 misap plica tion of en trust ed pr opert y:

(1) Apers on co mmits the offen se ofmisa pplic ationof entru sted prope rty i f, wi th kn owled ge th at he is misap plyin g pro pertyand that the m isapp licat ion invol ves s ubsta ntial riskof l oss o r det rimen t to the ownerof t he pr opert y or to a perso n forwhos e ben efit the p roper ty wa s ent ruste d, he misa pplie s or dispo ses of pr opert y tha t has beenentr ustedto h im as a fiduc iary or th at is prop erty of th e gov ernme nt ora finan cial insti tutio n. (2) “ Fiduc iary” incl udes a tru stee, guar dian, pers onal repre senta tive, rece iver, or a ny ot her p ersonacti ng in a fiduc iary capac ity, or an y per son c arryi ng on fiduc iary funct ions on be half of a corpo ratio n or otherorga nizat ion which is a fiduc iary. (3) T o “mi sappl y pro perty ” mea ns to deal withthe prope rty c ontra ry to law or go vernmental regu latio n relat ing t o the cust ody o r dis posit ion o f tha t prope rty; “gove rnmen tal r egula tion” incl udes admin istra tive and j udici al ru les a nd or ders as we ll as st atute s andordi nance s. (4) M isapp licat ion o f pro pertyis amisd emean or. 

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said trust fund s in the f ollow ing m anner : 11. First , wit hout restr ictin g the use of sa id tr ust funds to t he tr ust p urpos e of the b etterment of th e condi tion of na tive Hawai ians of no t les s tha n one half part of th e blo od, D efend ants have contr ibute d a porti on ofsaidtrus t fun ds to orga nizat ions whose purpo se is the bette rment of t he co nditi ons o f Hawai ians witho ut re gard to bl ood quantum or statu s as benef iciar ies o f the trus t, sp ecifi cally , but not limit ed to the follo wing: [] De fenda nts h ave e xpend ed tr ust f unds for t he suppo rt ofthe [NHLC , Na Pua N o # eau, and A lu Li ke] whichfund s are perm ittedto b e andhave beenexpe nded for t he be nefit of n on-be nefic iary Hawai ians.

. . . . 12. Secon d: D efend ants have misap pliedtrus t fun ds by us ing aport ion o f sai d tru st fu nds f or th e pur pose of el imina ting or di lutin g the bene ficia ry bl ood quant um es tabli shed by th e [HH CA] a nd H. R.S. § 10- 2, speci fical ly, b ut no t lim ited to th e fol lowin g: a. D efend ants have expen ded t rust funds lobby ing f or, a nd insupp ort o f, pa ssage of f edera l and s tate legis latio n pur porti ng to crea te a nativ e Hawai ian g overn ing e ntityto b e est ablis hed b y per sons of ab origi nal H awaii an an cestr y wit hout regar d to the bloodquan tum r equir ement s[.] 

### The OHA trustees opposed the motion, arguing that the amended complaint was virtually identical to the original complaint. The circuit court held a hearing on November 28, 2011 and agreed with the OHA trustees that the proposed amendments “would be futile, that essentially, the amendments do not establish or state a claim, and secondly, the Court believes procedurally the amendment is to a matter that’s already been dismissed, otherwise, we have eternal filings of motions to amend at this point on a matter that’s already been dismissed.” On December 2, 2011, the circuit court entered a written order denying Plaintiffs’ motion to file the amended complaint. On
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### December 6, 2011, the circuit court entered a final judgment against Plaintiffs and in favor of all the OHA trustee
defendants.
D. Appeal

Plaintiffs timely filed a notice of appeal on 2 1 

### December 29, 2011. On September 24, 2012, we granted Plaintiffs’ application for a mandatory and discretionary transfer of their appeal from the ICA to this court.

As stated supra, Plaintiffs raise two points of error in their appeal:

(1) Whethe r the Cour t bel ow er red i n dis missi ng th e compl aint for f ailur e to state a cl aim? (2) Whethe r dis missa l is appro priat e on groun ds ofres judic ata o r col later al es toppe l? 

### In response, the OHA trustees argue that the circuit court’s dismissal was proper because: (1) HRS chapter 673 is inapplicable to the claims, (2) the Plaintiffs failed to assert facts demonstrating that the OHA trustees abused their discretion

The n otice of a ppeal incl uded Hooma nawan ui as a “p ropos ed 21 addit ional plai ntiff ,” an d Hoo manaw anui is li sted in th e ope ning briefas a n appel lant. How ever, Hoom anawa nui w as no t named as a pl ainti ff inthe compl aint. Alt houghHoom anawa nui w as named a s a p laint iff i n the prop osed first amen ded c ompla int, the c ircui t cou rt de nied Plain tiffs ’ request to fi le that amend ed co mplai nt. Accor dingl y, Ho omana wanui is n ot a prope r par ty to the i nstan t app eal i nsofa r as he wa s nev er a partyto t he ac tion below . Se e Keaho le De fense Coal ., In c. v. Bd. of La nd an d Nat ural Res., 110 Hawai # i 419 , 428, 134 P .3d 5 85, 5 94 (2 006) (“Gen erall y, th e requirements of st andin g to appea l are : (1) the perso n mus t fir st ha ve be en a partyto t he ac tion; (2) the perso n see king modif icati on ofthe orderor j udgme nt mu st ha ve ha d sta ndingto oppos e it in th e tri al co urt; and ( 3) su ch pe rson must be . . . o ne wh o is affec ted o r pre judic ed bythe appea lable orde r.” ( empha sis a dded) (cit ation , empha sis, and quotat ion m arks omitt ed)). 

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### by expending funds for the challenged programs, (3) thePlaintiffs have not explained how incidental benefits to nonnative Hawaiians render the expenditures to be outside the OHA trustees’ discretion, and (4) the Plaintiffs’ claim for breach of trust under state law is barred by collateral estoppel. II. Standards of Review
A. Motion to Dismiss

A circuit court’s ruling on a motion to dismiss is reviewed de novo. Sierra Club v. Dep’t of Transp., 115 Hawai # i 299, 312, 167 P.3d 292, 305 (2007). It is well-established that

[a] c ompla int s houldnot be di smiss ed fo r fai lure to state a cl aim u nless it a ppear s bey ond d oubt that the plain tiff can p rove no se t of facts in s uppor t of his or he r cla im th at wo uld e ntitl e himor h er to reli ef. [The appel late court ] mus t the refor e vie w a plain tiff’ s complain t in a lig ht mo st fa vorab le to him or he r in orderto d eterm ine whethe r the alle gatio ns conta ined there in co uld w arran t rel ief u nder any alter nativ e the ory. For this reaso n, inrevi ewing[a] circu it co urt’s orde r dis missi ng [a ] complain t . .
. [the appel late court ’s] c onsid erati on is stri ctly limit ed to the alleg ation s of the c ompla int, and [ the appel late court ] mus t dee m tho se al legat ions to be true. 

### Baptiste, 115 Hawai # i at 24, 165 P.3d at 925 (some brackets in original and some added) (quoting In re Estate of Rogers, 103 Hawai # i 275, 280-81, 81 P.3d 1190, 1195-96 (2003)). “However, in weighing the allegations of the complaint as against a motion to dismiss, the court is not required to accept conclusory allegations on the legal effect of the events alleged.” Pavsek v. Sandvold, 127 Hawai # i 390, 403, 279 P.3d 55, 68 (App. 2012)

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### (quoting Marsland v. Pang, 5 Haw. App. 463, 474, 701 P.2d 175, 186 (1985)).
B. Motion for Leave to Amend the Complaint

“Orders denying motions for leave to amend a complaint are reviewed for an abuse of discretion.” Jou v. Dai-Tokyo Royal State Ins. Co., 116 Hawai # i 159, 163, 172 P.3d 471, 475 (2007) (quoting Office of Hawaiian Affairs v. State, 110 Hawai # i 338, 351, 133 P.3d 767, 780 (2006)). III. Discussion
A. Plaintiffs’ complaint fails to state a claim

Plaintiffs and the OHA trustees agree that HRS § 10-3 requires that certain trust funds “be held and used solely . . . for the betterment of the conditions of native Hawaiians.” However, they disagree regarding the extent to which this provision limits the OHA trustees’ discretion over such funds. Specifically, the Plaintiffs argue that the trustees may not expend funds on programs that provide benefits to Hawaiians without regard to blood quantum. In contrast, the OHA trustees argue that they have broad discretion in determining which expenditures benefit native Hawaiians, even if those expenditures also benefit Hawaiians.

Because these arguments largely rely on the interpretation of the term “solely” in HRS § 10-3, a review of

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### the origins of that term is instructive.

The term “solely” does not appear in § 5(f)’s mandate that public trust lands be held in a trust for, inter alia, “the betterment of the conditions of native Hawaiians[.]” Rather, it appears only in HRS § 10-3. The legislative history of HRS § 10- 3, however, does not shed much light on the legislature’s intent with regard to that term. In the 1979 legislative session, all but the final draft of the legislation that established HRS chapter 10 – House Bill 890 – excluded the term “solely.” Early drafts required that the pro rata portion of the public land trust be “held as a public trust for native Hawaiians[,]” see H.B. 890, H.D. 1, S.D. 1, 10th Leg., Reg. Sess. (1979), or “held and used as a public trust for the betterment of the conditions of native Hawaiians[,]” see H.B. 890, H.D. 1, S.D. 2, 10th Leg., Reg. Sess. (1979); H.B. 890, H.D. 1, S.D. 3, 10th Leg., Reg. Sess. (1979).

A 1979 Senate Judiciary Committee report that accompanied Senate Draft 2 of House Bill 890 touched on the issue of the pro rata portion being used for native Hawaiians or the larger group, Hawaiians:

C. D iffer entia tion of th e Pub lic T rusts –- f or Nativ e Haw aiian s andfor Hawai ians. The re ap pears to be so me co ncernamon g some who prof ess t o qua lify by bloodquan tum a s “na tive Hawai ian” that the p ublic funds to b e ava iled “pro rata” fromthe “land s and incom e” un der t he Admissi on Ac t mus t be utili zed o nly to be nefit “nat ive H awaii ans,” and not t he mo re exten sive groupof “ Hawai ians. ” 

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Your Commi ttee notes that the Admis sion Act d oes expre ssly state that one of th e fiv e pub lic t rust purpo ses i s the “bet terme nt ofthe condi tions of nativ e Haw aiian s.” In th at re gard, a pr o rat a appor tionm ent o f suc h fun ds al locat ed fo r tha t pub lic trust purp ose must, by de finit ion, be us ed fo r the “bett ermen t of the c ondit ions of na tive Hawai ians. ” Conve rsely , suc h pro rataport ion o f the sect ion 5 (f) publi c tru st is not avail able for u se bythe Offic e of Hawai ian A ffair s forthe “bett ermen t of condi tions ” of the l argergrou p, “H awaii ans.”
Your Commi ttee obser ves, howev er, t hat s uch restr ictio n nee d not appl y to any o ther appro priat ion that the l egisl ature may make. Als o, as withany otherpubl ic orchar itabl e tru st, t he co urts in th e exerc ise o f cy pres may a pprop riate ly ut ilize trus t res f or a simil ar tr ust p urpos e sho uld t hat d ay co me when the t rust purpo se, “ bette rment of c ondit ions, ” is achie ved. 

### S. Stand. Comm. Rep. No. 784, in 1979 Senate Journal, at 1356 (some emphases added).

Thus, based on that committee report, the Senate Judiciary Committee intended for OHA’s expenditure of the pro rata portion of the public land trust to fulfill a specific purpose among those set forth in § 5(f); that is, that the pro rata portion be used for the “betterment of the conditions of native Hawaiians” as opposed to all Hawaiians. However, the Senate Judiciary Committee did not add the term “solely” in Senate Draft 2; rather, Senate Draft 2 stated that the pro rata portion of the public land trust “shall be held and used as a public trust for the betterment of the conditions of native Hawaiians.” See H.B. 890, H.D. 1, S.D. 2, 10th Leg., Reg. Sess. (1979). This language remained in Senate Draft 3. See H.B. 890,

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### H.D. 1, S.D. 3, 10th Leg., Reg. Sess. (1979).

The term “solely” appeared for the first time in the conference committee draft, which reflects the current § 10-3 language that the pro rata portion of the funds derived from the public land trust “shall be held and used solely as a public trust for the betterment of the conditions of native Hawaiians.” See H.B. 890, H.D. 1, S.D. 3, C.D. 1, 10th Leg., Reg. Sess. (1979) (emphasis added). The conference committee report that accompanied that draft, however, did not make any reference to the addition of the word “solely.” See Conf. Comm. Rep. No. 77, in 1979 Senate Journal, at 997-1001; Conf. Comm. Rep. No. 76, in 1979 House Journal, at 1131-35.

Moreover, the legislature’s subsequent amendments to chapter 10 indicate that lawmakers did not consider the term “solely” to be significant. In 1990, the legislature – via Act 304 – amended HRS § 10-3 in part by deleting the provision: “A pro rata portion of all funds derived from the public land trust . . . shall be held and used solely as a public trust for the betterment of the conditions of native Hawaiians.” 1990 Haw. Sess. Laws Act 304, § 4 at 949 (emphasis added). Act 304 also amended HRS § 10-13.5 to provide that “[t]wenty per cent of all revenue derived from the public land trust shall be expended by [OHA] for the betterment of the conditions of native Hawaiians.”

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### 1990 Haw. Sess. Laws Act 304, § 7 at 951. Thus, Act 304 removed the term “solely” from chapter 10, but committee reports do not mention or explain this particular change. See Conf. Comm. Rep. No. 91, in 1990 House Journal, at 800-01. In fact, the omission did not appear material to the legislation’s purpose, which included “clarify[ing] the revenues derived from the public land trust which shall be considered to establish the amount of funding to [OHA] for the purpose of the betterment of the conditions of native Hawaiians[.]” 1990 Haw. Sess. Laws Act 2 2 

### 304, § 1 at 947-48.

In 1997, the legislature further amended chapter 10 to add a new section that appropriated “[i]nterim” funds for the pro rata portion of the public land trust “for expenditure by [OHA] for the betterment of the conditions of native Hawaiians” for the 1997-98 and 1998-99 fiscal years. 1997 Haw. Sess. Laws Act 329,

The l egisl ature enac ted A ct 30 4 as a res ponse to t his c ourt’ s 22 decis ion i n Yam asaki , 69 Haw. 154, 737 P .2d 4 46. 1990 Haw. Sess. Laws Act 304, § 1 a t 947 . Yamasak i inv olveda la wsuit by O HA ag ainst seve ral s tate offic ials and apubl ic co rpora tion; OHA “felt the State was not a lloca ting twent y percent of a ll fu nds d erive d fro m the publ ic la nd tr ust t o OHAas requi red b y HRS § 10 -13.5 .” 6 9 Haw . at 157, 165, 737 P .2d a t 448 , 453 . Th e circu it co urt d eniedthe defen dants ’ mot ion t o dis miss, id. at 15 7, 73 7 P.2 d at 44 8, an d on inter locut ory a ppeal , thi s cou rt re verse d, co nclud ing t hat t he claim s inv olvednon- justi ciabl e pol itica l que stion s. I d. at 167- 75, 7 37 P. 2d at 45 4-58; see also Offic e of Hawai ian A ffair s, 96 Hawa i # i at 393 n .6, 3 1 P.3 d at 90 6 n.6 (not ing t hat, in Yamasak i, no ruli ng co uld b e mad e bec ause “the const ructi on ofthe term ‘fund s’ [a s use d in HRS §10–1 3.5]
. . . cons titut ed a non -just iciab le po litic al qu estio n bec ause the l egisl ature had not p rovid ed judic iallymana geabl e sta ndard s”). 

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### § 2 at 958 (emphasis added). In 2001, this court invalidated 2 3 

### and “effectively repealed” Act 304 as conflicting with federal law regarding airport revenue. Office of Hawaiian Affairs, 96 Hawai # i at 399, 401, 31 P.3d at 912, 914. The invalidity of Act 304 thus reinstated the “immediately preceding version” of chapter 10. Id. at 400, 31 P.3d at 913. Thus, HRS § 10-3 has since reflected its original language, which requires that the pro rata portion of the public land trust be “used solely as a public trust for the betterment of the conditions of native Hawaiians.” HRS § 10-3 (2009) (emphasis added). In sum, the 2 4 

### legislative history and treatment of chapter 10 indicate that lawmakers did not view the term “solely” to be significant in

The amendm ent, whichthe legis latur e app arent ly pa ssed in 23 antic ipati on ofAct 304 b eing inval idate d, di scuss ed in fra, provi ded:

Notwi thsta ndingthe defin itionof r evenu e con taine d in this chapt er an d the prov ision s of secti on 10 –13.5 , and n otwit hstan ding any c laime d inv alidi ty ofAct 304, Sessi on La ws ofHawa i # i 199 0, th e inc ome a nd pr oceed s from the p ro ra ta po rtionof t he pu blic land trust underarti cle X II, s ectio n 6 o f the stat e con stitu tion for e xpend iture by t he of fice of Ha waiia n aff airs for the b etterment of th e con ditio ns ofnati ve Ha waiia ns for e ach o f fis cal y ear 1 997–1 998 a nd fi scal year 1998– 1999 shall be $ 15,10 0,000
. 1997 Haw. Sess. Laws Act 329, § 2 a t 958 (emp hasis adde d). See O ffice of Hawai ian A ffair s, 11 0 Haw ai # i at 344, 133 P .3d a t 773 (sta ting that the legis latur e add ed th e afo remen tione d sec tion to HR S cha pter 10 vi a Act 329 “[b]e cause of t he co ncern s abo ut th e eff ect o f [a circu it co urt r ulingthat OHA w as en title d to reven ues f rom v ariou s sou rces] and [in r ecogn itionof] the poten tial inval idityof s ectio n 16 of Ac t 304 ”).

The 1 997 amendm ent t hat a pprop riate d int erim funds “for 24 expen ditur e by the o ffice of H awaii an af fairs for the b etterment of th e condi tions of n ative Hawa iians ,” co difie d at HRS §10-1 3.3, is st ill c ontai ned in th e HRS
. 

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### describing OHA’s expenditures of the pro rata portion of the public land trust.

In arguing that the trustees must expend trust funds exclusively for the benefit of native Hawaiians, Plaintiffs largely rely on common law trust principles. Under the common law of trusts, “[e]xcept as otherwise provided in the terms of the trust, a trustee has a duty to administer the trust solely in the interest of the beneficiaries, or solely in furtherance of its charitable purpose.” Restatement (Third) of Trusts § 78 (2007) (emphasis added). Known as the “duty of loyalty,” id., this standard appears consistent with the language in HRS § 10- 3(1) that the pro rata portion of the public trust fund be used “solely as a public trust for the betterment of the conditions of native Hawaiians.” HRS § 10-3(1) (emphasis added).

Under the duty of loyalty, a “trustee has a duty to the beneficiaries not to be influenced by the interest of any third person or by motives other than the accomplishment of the purposes of the trust.” Restatement (Third) of Trusts § 78 cmt. f. Thus, it is improper for the trustee to enter into transactions “either for the purpose of benefiting a third person (whether or not a party to the transaction) rather than the trust estate or for the purpose of advancing an objective other than the purposes of the trust.” Id. (emphases added). The duty of

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### loyalty has also been summarized as follows:

A tru stee is un der adutyto t he be nefic iary of the t rust to adminis ter t he tr ust s olelyin t he inter est o f the bene ficia ry. The t ruste e mus t exc lude all s elf-i ntere st, a s wel l as the i ntere st ofa th ird party , in his a dmini strat ion o f the trus t sol ely f or the b enefi t of the b enefi ciary . Th e tru stee must not place hims elf i n a p ositi on wh ere h is ow n int erest s or that of an otherente rs in to co nflic t, ormay possi bly confl ict, with the i ntere st ofthe trust or i ts benef iciar y. P ut an otherway, the trust ee ma y not enterinto a tr ansac tion or ta ke orcont inue in a posit ion i n whi ch hi s per sonal inte rest or th e inter est o f a t hird partyis o r bec omes adver se to the inter est o f the bene ficia ry. 

### George Gleason Bogert & George Taylor Bogert, The Law of Trusts and Trustees [hereinafter, Bogert] § 543, at 218 (2d ed. Revised 1993) (emphases added).

Generally, a trustee’s “power is discretionary except to the extent its exercise is directed by the terms of the trust or compelled by the trustee’s fiduciary duties.” Restatement (Third) of Trusts § 87 cmt. a; Day II, 616 F.3d at 926. “Even in cases of what are often called ‘mandatory’ powers or provisions, for which trustee compliance is required . . . , the trustee often has some discretionary authority and responsibility in important matters of detail and implementation.” Restatement (Third) of Trusts § 87 cmt. a. For example, a trust may require the sale of certain property. If the trust does not provide any further requirements as to how the property is to be sold, the trustee may “exercise fiduciary judgment with respect to the timing . . . , price, and other terms of the sale.” Id.

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### “When a trustee has discretion with respect to the exercise of a power, its exercise is subject to supervision by a court only to prevent abuse of discretion.” Restatement (Third) of Trusts § 87. Where discretionary power is given to the trustee, “the court will not interfere unless the trustee in exercising or failing to exercise the power acts dishonestly, or with an improper even though not a dishonest motive, or fails to use his judgment, or acts beyond the bounds of a reasonable judgment.” Dowsett v. Hawaiian Trust Co., 47 Haw. 577, 581, 393 P.2d 89, 93 (1964) (quoting Restatement (Second) of Trusts § 187 cmt. e (1959)); Restatement (Third) of Trusts § 87 cmt. b (“A court will not interfere with a trustee’s exercise of a discretionary power (or decision not to exercise the power) when that conduct is reasonable, not based on an improper interpretation of the terms of the trust, and not otherwise inconsistent with the trustee’s fiduciary duties[.]”).

Based on the foregoing, the following standards apply to the instant case. First, a breach of the OHA trustees’ duty to administer the public land trust solely in the interest of the beneficiaries occurs when the trustees’ decision conflicts with the purpose of bettering the conditions of native Hawaiians or is made for the purpose of benefiting a non-beneficiary rather than the trust. Restatement (Third) of Trusts § 78 cmt. f (stating

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### that a trustee may not enter into transactions “either for the purpose of benefiting a third person . . . rather than the trust estate or for the purpose of advancing an objective other than the purposes of the trust”); Bogert § 543 (“[T]he trustee may not enter into a transaction . . . in which his personal interest or the interest of a third party is or becomes adverse to the interest of the beneficiary.”). Under this view, an 2 5 

### expenditure that betters the conditions of native Hawaiians may also simultaneously benefit the conditions of others.

Second, because chapter 10 does not mandate how the OHA trustees should expend trust funds to better the conditions of native Hawaiians, the trustees have broad discretion in making that determination. Restatement (Third) of Trusts § 87 cmt. a

This view is co nsist ent w ith Ahuna v. De p’t o f Haw aiianHome 25 Lands , 64 Haw. 327, 340, 640 P .2d 1 161, 1169 (1982 ), wh ich P laint iffs rely on in pa rt fo r, in ter a lia, the p ropos itionthat “[o] ne sp ecifi c tru st du ty is the o bliga tion to adminis ter t he tr ust s olelyin t he in teres t of the benef iciar y.” In Ah una, the D epart ment of Ha waiia n Home Lan ds (t he depar tment ) awa rded a Haw aiianHome Land s tru st be nefic iary about 6.5 acres of a 10- acre lot, withh oldin g the rema inderbeca use t he pa rcel wouldbe a ffect ed by a propo sed h ighwa y. 6 4 Haw . at 329, 332, 640 P .2d a t 116 3, 11 65. The circu it co urt d irect ed th e dep artme nt to issu e a l ease for t he fu ll 10 acre s, and t he de partm ent a ppeal ed. 64 Ha w. at 328- 29, 6 40 P. 2d at 1163
.

This court conc ludedthat the depar tment “mus t adh ere t o hig h fiduc iary dutie s normallyowedby atrus tee t o its bene ficia ries[ ,]” 6 4 Haw
. at 33 8, 64 0 P.2 d at 1168, and that this oblig ationrequ ires that the t rust be admin ister ed “s olelyin t he in teres t of the b enefi ciary [,]” and w ith “reas onabl e ski ll an d car e to make trust prop erty produ ctive [.]” 64 H aw. a t 340, 640 P .2d a t 116 9. T his c ourt held that the d epart ment “impe rmiss ibly weigh ed th e int erest s of certa in th ird p artie s” – inclu ding the S tate, the Count y of Hawai # i, an d Haw ai # i taxpayer s in gener al – when it re fusedto l ease the e ntire ten acres . 64 Haw. at 3 40, 3 42, 6 40 P. 2d at 1169 , 117 1. T hus, the depar tment ’s ac tion – wit hhold ing p art o f the 10-a cre p arcel – wa s in consi derat ion o f the inte rests of t hird parti es an d con flict ed wi th th e inter est o f the Hawa iian Home Lands bene ficia ry. 

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### (stating that a trustee’s “power is discretionary except to the extent its exercise is directed by the terms of the trust or compelled by the trustee’s fiduciary duties”). Thus, the OHA trustees’ expenditures are to be reviewed for abuse of discretion, which occurs when a trustee “has acted unreasonably - that is, beyond the bounds of a reasonable judgment.” Id. § 87
cmt. c. Plaintiffs’ complaint did not allege that the OHA trustees violated any of these principles. The complaint asserted that the OHA trustees violated “clearly established law” by expending trust funds “without regard to the blood quantum” as defined in the HHCA and HRS § 10-2, as follows:

a. D efend ants expen ded t rust funds lobb ying for, and in su pport of, passa ge ofprop osed feder al le gisla tion knownas t he “A kaka Bill, ” in its v ariou s forms begin ning in 19 99 th roughand inclu ding 2010, purpo rtingto c reate a Na tive Hawai ian G overn ing Entit y to be es tabli shed by pe rsons of a borig inal Hawai ian a ncest ry wi thout rega rd to the bloodquan tum requi remen ts ofthe [HHCA ] andH.R. S. [§ ] 10- 2; b. D efend ants have expen ded t rust funds for the suppo rt ofthe Nativ e Haw aiianLega l Cor porat ion which funds are permi tted to be expe nded for t he be nefit of Hawai ians witho ut re gard to th e blo od qu antum
. c. D efend ants have expen ded t rust funds for the suppo rt ofNa P ua No # eau E ducat ion P rogram whi ch fu nds are p ermit ted t o be expen ded f or th e ben efit of Hawai ians witho ut re gard to th e blo od qu antum
. d. D efend ants have expen ded t rust funds for the suppo rt ofAlu Like whichfund s are perm ittedto b e expen ded f or th e ben efit of Ha waiia ns wi thout rega rd to th e blo od qu antum
. e. D efend ants have expen ded t rust funds for other uses and p urpos es inwhic h the prim ary b enefi ts we re not e njoye d by benef iciar ies, and t he be nefit s to


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nonbe nefic iarie s det racte d fro m and /or r educe d the benef its a vaila ble t o be enjoy ed bythe benef iciar ies[. ] 

### On appeal, Plaintiffs argue that the circuit court erred in ruling that the complaint failed to state a breach of fiduciary duty claim and erroneously determined that “expenditure of funds without regard to blood quantum is not a per se violation of the trust[.]” Plaintiffs argue that because the status as a beneficiary of the trust is defined with regard to blood quantum, expenditures “without regard to blood quantum are expenditures without regard to status as beneficiary, in violation of the duty to administer the trust in the sole interest of the native Hawaiian beneficiaries.”

However, viewed against the foregoing trust principles, Plaintiffs’ allegations fail to state a claim. Plaintiffs merely alleged that the OHA trustees expended trust monies for programs that are “permitted” to use such funds “for the benefit of Hawaiians without regard to the blood quantum” and that such “unlawful expenditures . . . have diminished the funds available to be expended for betterment of the conditions of the ‘native Hawaiian’ beneficiaries[.]” However, the complaint does not allege that the OHA trustees’ spending decisions were made for any purpose other than benefiting native Hawaiians. Neither does the complaint allege that the expenditures were in conflict with or adverse to the interests of native Hawaiians. Also missing

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### from the complaint are any factual allegations that the expenditures were in furtherance of programs that do not benefit native Hawaiians. Accordingly, Plaintiffs’ complaint failed to state a breach of fiduciary duty claim under HRS § 10-16(c). 2 6



### While Plaintiffs rely heavily on common law principles that trustees must administer the trust “solely in the interest of the beneficiaries,” Plaintiffs also urge this court to impose on OHA another standard, that is, to “administer said trust in the sole interest of the beneficiaries, except for collateral benefits to nonbeneficiaries, so long as the primary benefits of any action is [sic] enjoyed by beneficiaries, and the collateral benefits do not detract from nor reduce the benefits enjoyed by the beneficiaries.” As the circuit court noted, the above language is borrowed from HRS § 673-1, which governs the State’s waiver of immunity for breaches of trust or fiduciary duty

This is no t to say t hat t he OHA tru stees ’ exp endit ures are 26 shiel ded f rom l egal chall enges . In deed, whil e the OHA trust ees a re af forde d broaddisc retio n ove r tru st fu nds, such discr etionis n oneth eless subj ect t o revie w. S ee Do wsett , 47 Haw. at 58 1, 39 3 P.2 d at 93 (s tatin g tha t whe re a trust ee ha s dis creti onarypowe r, “t he co urt w ill n ot in terfe re un less the trust ee inexer cisin g or faili ng to exer cise the p ower acts disho nestl y, or with an imprope r eve n tho ugh n ot a disho nest motiv e, orfail s to use h is judgment, or ac ts be yond the b ounds of areas onabl e jud gment ”). Howev er, e ven underthe gener ous p rinci ples appli ed incons truin g a c ompla int s ubjec t to a motio n to dismi ss, s ee Ba ptist e, 11 5 Haw ai # i at 24, 1 65 P. 3d at 925, Plain tiffs ’ all egati ons i n the inst ant c ase a re br oad a nd co nclus ory. Accor dingl y, ab sent more speci fic f actua l all egati ons r egard ing t he tr ustee s’ expen ditur es, P laint iffs’ comp laint is i nsuff icien t to survi ve a motio n to dismi ss. Cf. P avsek , 127 Hawa i # i at 403; Clint on v. Ente r. Re nt-A- Car C o., 977 A .2d 8 92, 8 95 (D el. 2 009) (“We do no t . . . si mply accep t con cluso ry alleg ation s uns uppor ted b y spe cificfact s, no r do we dr aw un reaso nable infer ences in t he pl ainti ff’s favor .”).



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### regarding, inter alia, the native Hawaiian public trust.

This standard is inapplicable here. First, Plaintiffs’ claims are not brought under HRS chapter 673. Second, even if Plaintiffs asserted allegations pursuant to chapter 673, Plaintiffs neither allege nor appear to have met the chapter’s procedural requirements to exhaust all available administrative remedies and give at least sixty days written notice. See HRS § 673-3 (“Before an action may be filed in circuit court under this chapter, the party filing suit shall have exhausted all administrative remedies available, and shall have given not less than sixty days written notice prior to filing of the suit that unless appropriate remedial action is taken suit shall be filed.”); Office of Hawaiian Affairs, 110 Hawai # i at 359, 133 P.3d at 788 (“A plain reading of the statute [HRS § 673-3] indicates that administrative remedies must be exhausted and written notification of not less than sixty days must be given.” (emphasis in original)).

Third, HRS § 673-1 expressly provides that it is not applicable to OHA trustees. As referenced above, HRS § 673-1(a) provides that the State waives its immunity for claims against the State for breach of the native Hawaiian public trust under article XII, sections 4, 5, and 6 of the Hawai # i Constitution. The standard that Plaintiffs urge this court to adopt, however,

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### appears in subsection (b) of HRS § 673-1, which sets forth claims that are not covered under the State’s waiver, including certain claims against OHA:

This waive r sha ll no t app ly to the follo wing: (1) T he ac ts oromis sions of t he St ate’s offi cers and emplo yees, eventhou gh su ch ac ts oromis sions may not reali ze ma ximumreve nues to th e Haw aiianhome land s trust and nativ e Haw aiianpubl ic tr ust, so lo ng as each trust is a dmini stere d in the s ole i ntere st ofthe benef iciar ies; provi ded t hat n othin g her ein s hall preve nt th e Sta te fr om ta king actio n whi ch wo uld provi de a colla teral bene fit t o non benef iciar ies, but only so lo ng as the prima ry be nefit s are enjo yed b y benef iciar ies, and t he co llate ral b enefi ts do not detra ct fr om no r reduce t he be nefit s enj oyed by th e benef iciar ies; (2) Any cl aim f or wh ich areme dy is prov ided elsewhere in th e law s of the S tate; and (3) Any cl aim a risin g out of t he ac ts oromis sions of the m ember s of the b oard of tr ustee s, of ficer s and emplo yees of th e off ice o f Haw aiianaffa irs, excep t as provi ded i n sec tion 10-16 .[ ] 27 

### HRS § 673-1(b) (emphases added).

Plaintiffs concede that HRS § 673-1 does not apply to OHA trustees, but suggest that the aforementioned standard as outlined in HRS § 673-1(b) should apply as “a matter of reason and common sense.” However, Plaintiffs do not cite any authority requiring the OHA trustees to follow such a standard. Moreover, nothing in HRS chapter 10, the Hawai # i Constitution, or § 5(f) of the Admission Act requires the application of the HRS § 673-1

HRS §10-1 6(c) provi des, in re levan t par t, th at “[ i]n m atter s of 27 misap plica tion of fu nds a nd re sourc es inbrea ch offidu ciaryduty , boa rd membe rs sh all b e sub ject to su it br ought by a ny be nefic iary of th e pub lic trust entr usteduponthe offic e, ei ther throu gh th e off ice o f the atto rney gener al orthro ugh p rivat e cou nsel. ” 

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### test in this context. Accordingly, the standard articulated in HRS § 673-1 does not apply.
B. The circuit court did not abuse its discretion in denying the Plaintiffs’ motion to amend
Plaintiffs next contend that to the extent that the complaint was defective, the circuit court erred in denying their motion to amend the complaint. HRCP Rule 15(a) (2009), which governs Plaintiffs’ motion to amend their complaint, provides in relevant part:

A par ty ma y ame nd th e par ty’s plead ing o nce a s a matte r of cours e at any t ime b efore a re spons ive plead ing i s ser ved o r, ifthe plead ing i s one to which no re spons ive p leadi ng is perm ittedand the a ctionhas not b een p laceduponthe trial cale ndar, the partymay so am end i t at any t ime w ithin20 d ays a fter it is serve d. O therw ise apart y mayamen d the part y’s plead ing o nly b y lea ve ofcour t or by wr ittencons ent of th e adv erse party ; andleav e sha ll be free ly gi ven when justi ce so requ ires. 

### (Emphasis added).

This court has explained that,

in th e abs ence of an y app arent or d eclar ed re ason — such as un due d elay, bad faithor d ilato ry mo tive on the p art o f the mova nt, r epeat ed fa ilure to c ure defic ienci es byamen dment s pre vious ly al lowed , undue preju dice to th e opp osingpart y by virtu e of allow ance of th e ame ndmen t, fu tilit y of amendment, etc. — th e leave soug ht sh ould, as H RCP Rule 1 5(a) requi res, be “free ly gi ven.” 

### Kamaka v. Goodsill Anderson Quinn & Stifel, 117 Hawai # i 92, 112, 176 P.3d 91, 111 (2008) (citation and brackets omitted).

Insofar as HRCP Rule 15(a) is substantively similar to Federal Rules of Civil Procedure (FRCP) 15(a), “this court has

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### looked to the general standard applied by federal courts in interpreting this rule.” Office of Hawaiian Affairs, 110 Hawai # i at 365, 133 P.3d at 794 (citing Gonsalves v. Nissan Motor Corp. in Hawai # i, Ltd., 100 Hawai # i 149, 160, 58 P.3d 1196, 1207 (2002)). In doing so, this court has stated that:

[W]he re th e pro posedamen dment s to a complain t are , interalia , fut ile, a cou rt ma y den y a m otionfor leave to f ile t he amendedcomp laint . Fe deral cour ts have furth er explain ed th at anamen dment to aplea ding is fu tile if th e pro posedclai m cou ld no t wit hstan d a motio n to dismi ss fo r fai lure to st ate aclai m pursu ant t o FRC P Rul e 12( b)(6)
. 

### Id. (citations, quotation marks, and brackets omitted).

Plaintiffs’ proposed amended complaint replaced the reference in the original complaint to HRS § 673-1 and instead stated that the OHA trustees owed a fiduciary duty “to use said trust funds for the betterment of the conditions of native Hawaiians as defined in the [HHCA] and H.R.S. § 10-2[.]” The proposed amended complaint also changed the following allegation in their original complaint:

11. In vi olati on ofclea rly e stabl ishedlaw, Defen dants have expe nded trust fund s wit hout regar d to the b lood quant um co ntain ed inthe defin itionof nativ e Haw aiian s in the [ HHCA] and HRS §10-2 , in parti cularas f ollow s: [ The c ompla int t hen d iscus sed expen ditur es fo r the Akak a Bil l, NH LC, N a PuaNo # eau, and A lu Li ke.] 

### The amended complaint replaced that language with the following:

10. In vi olati on ofH.R. S. §§10-1 6(c) and 7 08-87 4

and s aid f iduci ary [ sic], Defe ndant s hav e mis appli ed said trust fund s in the f ollow ing m anner :



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11. First , wit hout restr ictin g the use of sa id tr ust funds to t he tr ust p urpos e of the b etterment of th e condi tion of na tive Hawai ians of no t les s tha n one half part of th e blo od, D efend ants have contr ibute d a porti on ofsaidtrus t fun ds to orga nizat ions whose purpo se is the bette rment of t he co nditi ons o f Hawai ians witho ut re gard to bl ood quantum or statu s as benef iciar ies o f the trus t, sp ecifi callybut not limit ed to the follo wing: [] De fenda nts h ave e xpend ed tr ust f unds for t he suppo rt ofthe [NHLC , Na Pua N o # eau, and A lu Li ke] whichfund s are perm ittedto b e andhave beenexpe nded for t he be nefit of n on-be nefic iary Hawai ians.

. . . . 12. Secon d: D efend ants have misap pliedtrus t fun ds by us ing aport ion o f sai d tru st fu nds f or th e pur pose of el imina ting or di lutin g the bene ficia ry bl ood quant um es tabli shed by th e [HH CA] a nd H. R.S. § 10- 2, speci fical ly, b ut no t lim ited to th e fol lowin g: a. D efend ants have expen ded t rust funds lobby ing f or, a nd insupp ort o f, pa ssage of f edera l and s tate legis latio n pur porti ng to crea te a nativ e Hawai ian g overn ing e ntityto b e est ablis hed b y per sons of ab origi nal H awaii an an cestr y wit hout regar d to the bloodquan tum r equir ement s of the [ HHCA] and H.R.S
. [§] 1 0-2 which entit y or entit ies a re in tende d to event uallyassume co ntrol overtrus t fun ds an d oth er asset s[.] 

### The amended complaint also fails to state a claim for breach of fiduciary duty insofar as it did not include any allegations that the OHA trustees were using the pro rata portion of the public trust funds for the purpose of benefiting those of non-native Hawaiian ancestry rather than native Hawaiians, nor did it allege that native Hawaiians did not benefit from the challenged expenditures. Again, in light of the broad discretion afforded to the trustees, the conclusory allegations in the amended complaint, without more, are insufficient to state a claim.

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### Moreover, to the extent that the amended complaint alleges a claim under HRS § 708-874, such an amendment is 2 8 

### futile because the statute does not create a private cause of action for Plaintiffs to enforce. HRS § 708-874, which establishes the criminal offense of “misapplication of entrusted property,” does not expressly authorize a private party to sue. In Reliable Collection Agency v. Cole, 59 Haw. 503, 584 P.2d 107 (1978), this court adopted the United States Supreme Court’s factors in Cort v. Ash, 422 U.S. 66 (1975), “[i]n determining whether a private remedy is implicit in a statute not expressly providing one[.]” Reliable, 59 Haw. at 507, 584 P.2d at 109

HRS §708- 874 p rovid es: 28 (1) Apers on co mmits the offen se ofmisa pplic ationof entru sted prope rty i f, wi th kn owled ge th at he is misap plyin g pro pertyand that the m isapp licat ion invol ves s ubsta ntial riskof l oss o r det rimen t to the ownerof t he pr opert y or to a perso n forwhos e ben efit the p roper ty wa s ent ruste d, he misa pplie s or dispo ses of pr opert y tha t has beenentr ustedto h im as a fiduc iary or th at is prop erty of th e gov ernme nt ora finan cial insti tutio n. (2) “ Fiduc iary” incl udes a tru stee, guar dian, pers onal repre senta tive, rece iver, or a ny ot her p ersonacti ng in a fiduc iary capac ity, or an y per son c arryi ng on fiduc iary funct ions on be half of a corpo ratio n or otherorga nizat ion which is a fiduc iary. (3) T o “mi sappl y pro perty ” mea ns to deal withthe prope rty c ontra ry to law or go vernmental regu latio n relat ing t o the cust ody o r dis posit ion o f tha t prope rty; “gove rnmen tal r egula tion” incl udes admin istra tive and j udici al ru les a nd or ders as we ll as st atute s andordi nance s. (4) M isapp licat ion o f pro pertyis amisd emean or. (Emph ases added ). 

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### (quoting Cort, 422 U.S. at 78). Specifically, this court discussed three factors in Cort:

First , is the p laint iff o ne ofthe class for whose [e]sp ecial bene fit t he st atute was enact ed; t hat i s, does the s tatut e cre ate arigh t in favorof t he plain tiff? Sec ond, is th ere a ny in dicat ion o f legis lativ e int ent, expli cit o r imp licit , eit her t o creat e suc h a r emedyor t o den y one ? Th ird, is it consi stent withthe under lyingpurp oses of th e legis lativ e sch eme t o imp ly su ch a remed y forthe plain tiff? 

### Id. (ellipses omitted) (quoting Cort, 422 U.S. at 78). In determining whether a statute provides a private right of action, this court applies the first three Cort factors, “understanding that legislative intent appears to be the determinative factor.” Rees v. Carlisle, 113 Hawai # i 446, 458, 153 P.3d 1131, 1143 (2007) (citation omitted).

Applying the foregoing factors, it is clear that HRS § 708-874 does not create a private right of action. Notably, the legislative history does not reflect an intent to create a private, independent right of action. HRS § 708-874 was established as part of Hawaii’s Penal Code, 1972 Haw. Sess. Laws Act 9, § 1 at 32, 106-07, and the legislature specifically provided criminal punishment for the offense of misapplication of entrusted property insofar as it explicitly stated that the offense is a misdemeanor. For those same reasons, implying a private remedy for Plaintiffs would be inconsistent with the underlying purposes of the legislative scheme. In sum, no

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### private right of action exists under HRS § 708-874, and therefore Plaintiffs cannot state a claim under the statute.

Accordingly, the circuit court did not abuse its discretion in denying Plaintiffs’ motion for leave to amend their complaint. IV. Conclusion

We hold that the circuit court did not err in granting the OHA trustees’ motion to dismiss. Thus, we affirm the circuit court’s December 6, 2011 final judgment.
Walter R. Schoettle for petitioners Robert G. Klein and Lisa W. Cataldo for respondents /s/ Mark E. Recktenwald /s/ Paula A. Nakayama /s/ Simeon R. Acoba, Jr. /s/ Sabrina S. McKenna /s/ Glenn J. Kim

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