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Matched Legal Cases: ['§ 5', '§ 10', '§ 1', '§ 10', '§ 5', '§ 5', '§ 5', '§ 87', '§ 5', '§ 5', '§ 5', '§ 5', '§ 5', '§ 5', '§ 5', '§ 5', '§ 10', '§ 4', '§ 4', '§ 10', '§ 5', '§ 10', '§ 1983', '§ 5', '§ 673', '§ 10', '§ 673', '§ 10', '§ 10', '§ 673', '§ 673', '§ 673', '§ 10', '§ 10', '§ 10', '§ 10', '§ 10', '§ 10', '§ 10', '§ 5', '§ 10', '§ 10', '§ 5', '§ 10', '§ 10', '§ 4', '§ 10', '§ 7', '§ 1', '§ 2', '§ 10', '§ 10', '§ 78', '§ 10', '§ 10', '§ 78', '§ 87', '§ 87', '§ 87', '§ 187', '§ 87', '§ 78', '§ 543', '§ 87', '§ 87', '§ 10', '§ 10', '§ 673', '§ 673', '§ 673', '§ 673', '§ 673', '§ 673', '§ 673', '§ 673', '§ 673', '§ 5', '§ 673', '§ 673', '§ 673', '§ 10', '§ 708', '§ 708', '§ 708', '§ 708', '§ 1', '§ 708']

| Kealoha v. Machado
SAMUEL L. KEALOHA, JR., VIRGIL E. DAY, JOSIAH L. HOOHULI, and PATRICK L. KAHAWAIOLAA, Petitioners/Plaintiffs-Appellants,v.COLETTE Y. PI'IPI'I MACHADO, individually and in her official capacity as Chairperson and Trustee of the Office of Hawaiian Affairs; S. HAUNANI APOLIONA, ROWENA AKANA; DONALD CATALUNA; BOYD P. MOSSMAN; OSWALD STENDER; PETER APO; ROBERT K. LINDSEY, JR.; and JOHN D. WAIHE'E IV, individually and in their official capacity as Trustees of the Office of Hawaiian Affairs; and DANTE CARPENTER and WALTER HEEN, individually, Respondents/Defendants-Appellees.
APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (CAAP-11-0001103; CIV. NO. 11-1-0575-03) DECEMBER 3, 2013
Walter R. Schoettle, for petitioners
Robert G. Klein, and Lisa W. Cataldo for respondents RECKTENWALD, C.J., NAKAYAMA, ACOBA, AND McKENNA, JJ., AND CIRCUIT JUDGE KIM, IN PLACE OF POLLACK, J., RECUSED
I. Background A. Public trust funds
Before 1978, the State directed the proceeds and income of the trust lands "by and large to the Department of Education[, ]" making public education the primary beneficiary of the trust. Office of Hawaiian Affairs v. Yamasaki, 69 Haw. 154, 161-62, 737 P.2d 446, 450-51 (1987) (quoting Office of the Legislative Auditor, Final Report on the Public Land Trust 14 (1986)). However, the 1978 Constitutional Convention proposed -and Hawai'i voters adopted - constitutional amendments that expressly and fundamentally changed the State's objectives with regard to the § 5(f) public land trust.[6] Id. Article XII, section 4 specified that the public land trust, except for Hawaiian Home Lands, is to be held "as a public trust for native Hawaiians and the general public." Article XII, section 5 established the Office of Hawaiian Affairs (OHA), and directed that it "hold title to all the real and personal property now or hereafter set aside or conveyed to it which shall be held in trust for native Hawaiians and Hawaiians." Article XII, section 6 described the power of the OHA board of trustees and noted that the "income and proceeds from that pro rata portion of the [public land trust] for native Hawaiians" was included among the property that OHA was to hold and manage in trust "for native Hawaiians and Hawaiians." In describing its vision for OHA to be independent from all other branches of government, the Constitutional Convention's Committee on Hawaiian Affairs expressed a desire to stop the "commingling of funds intended for native Hawaiians of one-half blood with other moneys in the state treasury." Stand. Comm. Rep. No. 59, in 1 Proceedings of the Constitutional Convention of Hawai'i of 1978, at 645. The framers also believed it important that Hawaiians have "the right to determine the priorities which will effectuate the betterment of their condition and welfare by granting to the board of trustees powers to 'formulate policy relating to affairs of native Hawaiians.'"[7] Stand. Comm. Rep. No. 59, in 1978 Proceedings, at 645.
Among the powers and duties the legislature granted to the OHA board of trustees is the power to "[m]anage, invest, and administer the proceeds from the sale or other disposition of lands, natural resources, minerals, and income derived from whatever sources for native Hawaiians and Hawaiians, including all income and proceeds from that pro rata portion of the trust referred to in section 10-3[.]" HRS § 10-5(1) (2009). In 1980, the legislature set the pro rata share at "[t]wenty per cent of all funds derived from the public land trust [.] "[11] 1980 Haw. Sess. Laws Act 273, § 1 at 525, codified at HRS § 10-13.5 (2009). B. Federal court action
The court next examined OHA's contract with the NHLC, and noted that under the contract, NHLC was to render legal services and provide legal representation to clients in substantive areas which shall include but shall not be limited to:
(f) Preservation of Native Hawaiian Land Trust entitlements. Id. at *10-11.
The Plaintiffs appealed the U.S. District Court's grant of summary judgment. Day II, 616 F.3d at 921. The Ninth Circuit 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 principles:
"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." In the context of the narrow federal inquiry into whether an expenditure is a use for a trust purpose, an abuse of discretion occurs when a trustee "has acted unreasonably - that is, beyond the bounds of reasonable judgment."
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 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 hold that, although § 5(f) permits Hawai'i to impose further rules and restrictions on management of the § 5(f) trust, it does not require the state and its agents to abide by those rules and restrictions as a matter of federal law. Those alleged violations are actionable under state law, if at all.
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 [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 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 federal law by arguing that unlike federal law, HRS Chapter 673[18]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), [19] as incorporated into HRS § 10-16 (c)."
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, 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]laintiffs have brought this suit under [HRS § 10-16(c)] which provides that in matter of misapplication for funds and resources in breach of fiduciary duty the OHA board members shall be subject to suit. However, in their complaint the only support plaintiffs provide for their claims are their allegations that OHA's use of funds for the Akaka Bill, NHLC, Na Pua No'eau, and Alu Like are expended for the benefit of Hawaiians without regard to the blood quantum.
Those allegations fail to establish a claim of breach of fiduciary duty under [HRS § 10-16(c)] where plaintiffs' allegations that the funds are being expended without regard to blood quantum does not represent a per se violation of defendants' fiduciary duty. Nowhere does it allege that defendants are using public trust funds specifically to better those of non-Native Hawaiian ancestry. Furthermore nothing in the allegations state that defendants are required to use the funds exclusively for the betterment of only Native Hawaiians.
Plaintiffs allege that defendants are required to expend funds in a way which primarily benefits beneficiaries which are Native Hawaiians and that non-beneficiaries are only entitled to collateral benefits. The court dismisses this argument as this standard arises from language found in [HRS § 673-1(b)(1)], a specific statute under the Native Hawaiian Trust Judicial Relief Act which claim has not been brought or pled in the complaint itself. Additionally even if applicable, HRS 673-3 requires that plaintiffs first exhaust their administrative remedies before bringing suit in Circuit Court, a step that undisputedly has not been shown in the complaint thus the court would lack subject matter jurisdiction.
Even if plaintiffs were to have standing under 673-1, the language found in [HRS § 673-1(b)(1)] is inapplicable here. That section refers to a waiver of immunity by state officers and employees in Hawaiian Home Land trusts and Native Hawaiian public trusts. However, there is a subsequent provision, [HRS 673-1(b)(3)], which specifically addresses the issue of waiver of immunity for OHA members which is or [sic] arguably the case here.
Under [HRS § 673-1(b)(3)] there is no such language relating to primary benefits going to beneficiaries. Finally even if it were applicable, 673-1 is merely a waiver of immunity and that statute addressing immunity. Permitting suits to be brought against state officials such as OHA board members however. However, in this case this waiver of immunity is already somewhat conceded under [HRS §] 10-16 which unequivocally permits suits in the case of a breach of fiduciary duty.
And, as previously discussed, no claim has been factually asserted sufficient enough to bring a claim here. Thus under 673-1 is at most a standing statute and does not provide a standard by which plaintiff can legally use against defendant to establish liability. In other words, the statute itself does not create a private cause of action.
In conclusion, the court has reviewed plaintiffs' complaint and found no allegations that would support their claim for breach of fiduciary duty as brought in their claim under [HRS § 10-16(c)]. Therefore the defendants' motion is granted.
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 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."[20] Plaintiffs also changed the following allegation in their original complaint:
11. In violation of clearly established law, Defendants have expended trust funds without regard to the blood quantum contained in the definition of native Hawaiians in the [HHCA] and HRS § 10-2, in particular as follows: [The complaint then discussed expenditures for the Akaka Bill, NHLC, Na Pua No'eau, and Alu Like.]
10. In violation of H.R.S. §§ 10-16(c) and 708-874 and said fiduciary [sic], Defendants have misapplied said trust funds in the following manner:
[] Defendants have expended trust funds for the support of the [NHLC, Na Pua No'eau, and Alu Like] which funds are permitted to be and have been expended for the benefit of non-beneficiary Hawaiians.
12. Second: Defendants have misapplied trust funds by using a portion of said trust funds for the purpose of eliminating or diluting the beneficiary blood quantum established by the [HHCA] and H.R.S. § 10-2, specifically, but not limited to the following:
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 December 6, 2011, the circuit court entered a final judgment against Plaintiffs and in favor of all the OHA trustee defendants. D. Appeal
Plaintiffs[21] timely filed a notice of appeal on 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.
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] complaint should not be dismissed for failure to state a claim unless 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. [The appellate court] must therefore view a plaintiff s complaint in a light most favorable to him or her in order to determine whether the allegations contained therein could warrant relief under any alternative theory. For this reason, in reviewing [a] circuit court's order dismissing [a] complaint . . .
[the appellate court's] consideration is strictly limited to the allegations of the complaint, and [the appellate court] must deem those allegations 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) (quoting Marsland v. Pang, 5 Haw.App. 463, 474, 701 P.2d 175, 186 (1985)) .
"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 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).
C. Differentiation of the Public Trusts -- for Native Hawaiians and for Hawaiians. There appears to be some concern among some who profess to qualify by blood quantum as "native Hawaiian" that the public funds to be availed "pro rata" from the "lands and income" under the Admission Act must be utilized only to benefit "native Hawaiians, " and not the more extensive group of "Hawaiians."
Your Committee notes that the Admission Act does expressly state that one of the five public trust purposes is the "betterment of the conditions of native Hawaiians." In that regard, a pro rata apportionment of such funds allocated for that public trust purpose must, by definition, be used for the "betterment of the conditions of native Hawaiians." Conversely, such pro rata portion of the section 5(f) public trust is not available for use by the Office of Hawaiian Affairs for the "betterment of conditions" of the larger group, "Hawaiians."
Your Committee observes, however, that such restriction need not apply to any other appropriation that the legislature may make. Also, as with any other public or charitable trust, the courts in the exercise of cy pres may appropriately utilize trust res for a similar trust purpose should that day come when the trust purpose, "betterment of conditions, " is achieved.
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, 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, CD. 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." 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[.]"[22] 1990 Haw. Sess. Laws Act 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, § 2 at 958 (emphasis added).[23] In 2001, this court invalidated 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) .[24] In sum, the legislative history and treatment of chapter 10 indicate that lawmakers did not view the term "solely" to be significant in 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 loyalty has also been summarized as follows:
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.
"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 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."), [25] Under this view, an 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 (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. Defendants expended trust funds lobbying for, and in support of, passage of proposed federal legislation known as the "Akaka Bill, " in its various forms beginning in 1999 through and including 2010, purporting to create a Native Hawaiian Governing Entity to be established by persons of aboriginal Hawaiian ancestry without regard to the blood quantum requirements of the [HHCA] and H.R.S. [§] 10-2;
c. Defendants have expended trust funds for the support of Na Pua No'eau Education Program which funds are permitted to be expended for the benefit of Hawaiians without regard to the blood quantum.
e. Defendants have expended trust funds for other uses and purposes in which the primary benefits were not enjoyed by beneficiaries, and the benefits to nonbeneficiaries detracted from and/or reduced the benefits available to be enjoyed by the beneficiaries [.]
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 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).[26]
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 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, 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:
(3) Any claim arising out of the acts or omissions of the members of the board of trustees, officers and employees of the office of Hawaiian affairs, except as provided in section 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 test in this context. Accordingly, the standard articulated in HRS § 673-1 does not apply.
A party may amend the party's pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, the party may so amend it at any time within 20 days after it is served. Otherwise a party may amend the party's pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires. (Emphasis added).
in the absence of any apparent or declared reason — such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc. — the leave sought should, as HRCP Rule 15(a) requires, be "freely given."
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 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]here the proposed amendments to a complaint are, inter alia, futile, a court may deny a motion for leave to file the amended complaint. Federal courts have further explained that an amendment to a pleading is futile if the proposed claim could not withstand a motion to dismiss for failure to state a claim pursuant to FRCP Rule 12(b) (6) .
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:
a. Defendants have expended trust funds lobbying for, and in support of, passage of federal and state legislation purporting to create a native Hawaiian governing entity to be established by persons of aboriginal Hawaiian ancestry without regard to the blood quantum requirements of the [HHCA] and H.R.S. [§] 10-2 which entity or entities are intended to eventually assume control over trust funds and other assets[.]
Moreover, to the extent that the amended complaint alleges a claim under HRS § 708-874, [28] such an amendment is 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 (quoting Cort, 422 U.S. at 78). Specifically, this court discussed three factors in Cort:
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 private right of action exists under HRS § 708-874, and therefore Plaintiffs cannot state a claim under the statute.
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. Our website includes the main text of the court's opinion but does not include the