Opinion ID: 4542941
Heading Depth: 2
Heading Rank: 1

Heading: Complaint, FAC, and SAC

Text: On August 19, 2013, the Taxpayers filed a Complaint challenging the constitutionality of Maui County Ordinance No. 3227, which created the County’s timeshare real property tax classification in 2004, and demanded a jury trial. With respect to “jurisdiction,” Taxpayers specially alleged that “[j]urisdiction in this Court is proper pursuant to [HRS §] 632-1.” According to the Taxpayers, immediately prior to the establishment of a separate real property tax classification for timeshares, timeshares had been included in the “hotel and resort” real property tax classification and therefore taxed at the hotel and resort rate. The Taxpayers alleged that the County’s creation of a separate real property timeshare tax classification, and its accompanying higher rate, was intended to make up for losses in revenue from the transient accommodations tax (“TAT”), which is a state tax shared with the counties. They also alleged that Maui County Resolution No. 13-60, which established the 2014 timeshare real property tax rate, was adopted in violation of Hawaiʻi’s Sunshine Law. The Taxpayers represented that they paid their real property taxes for the 2014 fiscal year under protest. 7  FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER  Count I of the Complaint alleged an equal protection violation under the United States Constitution and the Hawaiʻi State Constitution. The Taxpayers alleged that the timeshare real property tax rate was the highest real property tax rate in the county, although timeshare use does not differ from hotel and resort use. They also alleged that the tax disproportionately impacted nonresidents, who are the overwhelming majority of timeshare owners in the county of Maui. Count II alleged a Sunshine Law violation. The Taxpayers alleged that some Maui County Councilmembers “sought to secure other Councilmembers’ commitment to vote on the timeshare tax rate” through communications that violated the Sunshine Law. Thus, the Taxpayers requested relief in the form of a declaration that (1) the timeshare classification and tax rate violated the equal protection clauses of the United States Constitution and Hawaiʻi State Constitution, and (2) Maui County Resolution No. 13-60, establishing the fiscal year 2014 real property timeshare tax rate, was void as violative of the Sunshine Law. On August 28, 2014, the Taxpayers filed their FAC. Taxpayers again asserted jurisdiction pursuant to HRS § 632-1. The FAC added another Sunshine Law violation count, alleging that some Maui County Councilmembers communicated improperly with other Councilmembers to secure their votes for Maui County 8  FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER  Resolution No. 14-54, which established the fiscal year 2015 timeshare real property tax rate. The FAC also alleged that the fiscal year 2014 and 2015 Sunshine Law violations deprived the Taxpayers of due process under the United States Constitution and Hawaiʻi State Constitution. As a result of the addition of these two new counts, the four total counts were renumbered as follows: Count I (equal protection), Count II (due process), Count III (Sunshine Law violation for fiscal year 2014), and Count IV (Sunshine Law violation for fiscal year 2015). The Taxpayers again requested relief in the form of a declaration that (1) the timeshare classification and tax rates violated the equal protection clauses of the United States and Hawaiʻi Constitutions, and that (2) Maui County Resolution Nos. 13-60 and 14-54, establishing the fiscal year 2014 and 2015 real property timeshare tax rates, respectively, were void as violative of the Sunshine Law, and, therefore, also violated the Taxpayers’ procedural due process rights under the United States Constitution and Hawaiʻi State Constitution. Taxpayers were later granted leave to file the SAC.3 Once again, Taxpayers alleged jurisdiction pursuant to HRS § 632-1. In the SAC, filed August 12, 2016, they alleged that the County 3 The County unsuccessfully opposed the Taxpayers’ motion for leave to file the SAC. The County argued that the circuit court lacked subject matter jurisdiction over the tax disputes involving the “amended assessments,” as exclusive subject matter jurisdiction lay with the TAC. 9  FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER  had issued to them “amended assessments” in 2016 for tax years 2006, 2007, and 2008 for ORV, and for 2008 for ORVN, in retaliation for the Taxpayers’ lawsuit. For those years, the County had taxed the land and buildings in ORV and ORVN but had not assessed the timeshare real property tax. The County’s “amended assessments” totaled over $10 million and were due in 30 days. The Taxpayers stated they paid the taxes under protest and appealed the “amended assessments” to the County BOR, paying a $75 filing fee for each of the 1,115 appeals brought by timeshare owners. In response to these “amended assessments,” the Taxpayers added four more counts to their Complaint: Count V (declaratory judgment as to the illegality of the “amended assessments”), Count VI (violations of the right to free speech and the right to petition the government for redress under the United States Constitution and Hawaiʻi State Constitution), Count VII (violation of procedural due process under the United States Constitution and the Hawaiʻi State Constitution), and Count VIII (42 U.S.C. § 1983 claim for damages based on the constitutional violations). The Taxpayers again requested a declaration that (1) the real property timeshare classification and fiscal year 2014 and 2015 rates were unconstitutional, (2) the Maui County resolutions establishing the fiscal year 2014 and 2015 real property timeshare tax rates were void as violative of the 10  FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER  Sunshine Law and, therefore, violated Taxpayer’s procedural due process rights, and that (3) the “amended assessments” were invalid and unenforceable because they violated the Maui County Code; the rights to free speech, to petition the government for redress, and to procedural and substantive due process under the United States Constitution and the Hawaiʻi State Constitution; therefore, the Taxpayers were entitled to refunds of real property taxes and appeal fees paid.4 B. The County’s motion for summary judgment as to Counts I and II of the FAC On July 1, 2016, the County moved for summary judgment on Counts I and II of the FAC, arguing that the circuit court lacked subject matter jurisdiction over the case, as the TAC had exclusive jurisdiction over tax disputes. They quoted HRS 4 On August 12, 2015, the Taxpayers’ filed a complaint against the County in Civ. No. 15-1-0435 before Second Circuit Court Judge Rhonda I. L. Loo. In it, they alleged that the County set the fiscal year 2016 timeshare real property tax rate in County Resolution No. 15-52 in violation of the Sunshine Law (Count I), which violated their due process rights under the United States Constitution and the Hawaiʻi State Constitution (Count II). The Taxpayers again sought a declaration to that effect from the circuit court. A month later, the County filed its answer and a counterclaim for setoff and/or damages against the Taxpayers. The County counterclaimed for setoff, against any damages claimed by the Taxpayers, the amount of real property timeshare taxes owed by the Taxpayers due to the County’s erroneous underassessment of real property taxes before 2009. In November 2015, the Taxpayers moved to dismiss the counterclaim. They argued that the circuit court lacked subject matter jurisdiction because the MCC “vests the [BOR] and [TAC] with exclusive jurisdiction over appeals of contested tax liability. . . .” The Taxpayers then moved to consolidate the matter before Judge Loo with the instant proceeding before Judge Cahill. Judge Cahill denied the motion to consolidate. Judge Loo then agreed with the Taxpayers, and granted their motion to dismiss the County’s counterclaim. According to the County, the Taxpayers ultimately dismissed, with prejudice, the lawsuit before Judge Loo. 11  FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER  § 232-12, which states that the TAC “shall determine all questions of fact and all questions of law, including constitutional questions. . . .” The circuit court denied the motion. C. Disposition of Counts V, VI, VII, and VIII of the SAC On December 1, 2016, the Taxpayers filed four separate motions for partial summary judgment as to Counts V, VI, VII, and VIII of the SAC. On December 12, 2017, the County filed its own motion for partial summary judgment as to Count V of the SAC. The County also filed an opposition to the Taxpayers’ motion for partial summary judgment as to Count V, arguing that the circuit court lacked subject matter jurisdiction over Count V, as exclusive subject matter jurisdiction lay with the TAC over this tax dispute. On January 26, 2017, the circuit court filed the “Court’s Sua Sponte Order.” In it, the circuit court stated as follows with respect to subject matter jurisdiction: On the issue of the Court’s jurisdiction to hear the issues related to real property taxes, it is noted that the Constitution of the State of Hawaiʻi preserves any party’s right to a trial by jury. One or more party in this case has requested jury trial. Once it has been demanded, the jury demand applies to all unless a mutual waiver has been agreed upon. The statute creating a “TAX COURT” states that the Tax Court shall decide all issues of fact and law. HRS § 232-13. The statute does not authorize the Tax Court to empanel a jury for any purpose or to decide those issues that a party would otherwise have a right to be determined by a jury. Although the statutes creating the Tax Court discuss a party’s ability to raise “constitutional issues,” the statute appears to be devoid of a mechanism whereby a 12  FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER  person’s right to trial by jury on those issues is preserved. HRS § 232-15. In addition, the precise question that the Tax Court has jurisdiction to decide is set forth in HRS § 232-13. The question of the circuit court’s subject matter jurisdiction had come up because the Taxpayers had challenged the “amended assessments” both in circuit court and by bringing appeals before the County BOR and TAC. The circuit court therefore invited the parties to submit further briefing addressing “(1) whether the Court’s view of the statutes and law is accurate; (2) if accurate discuss how does such a view comports [sic] with each party’s rights; and (3) assuming this court exercises jurisdictions [sic] what if any impact does that have on the current status of any pending tax appeal, and how should this Court handle those issues.” The principal argument in the Taxpayers’ further briefing was that the circuit court had jurisdiction over the case because they challenged the legality of the “amended assessments,” not just their amount. For this proposition, Taxpayers cited Kingdom and Territory of Hawaiʻi cases, most of which predated the tax appeal provisions in HRS chapter 232 and MCC chapter 3.48. See infra note 13. The County argued that the Taxpayers’ challenge to the legality of the “amended assessments” was a challenge to the “change in valuation of the same property,” or the amount of the assessments. It contended that exclusive subject matter 13  FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER  jurisdiction over the contested amount of taxes lay with the TAC. On August 9, 2017, the circuit court ruled in the Taxpayers’ favor on the “amended assessment” counts in the SAC (Counts V, VI, VII, and VIII).5 It ordered the County to refund the Taxpayers the over $10 million in “amended assessments,” as well as $83,325.00 in appeal fees to the BOR they had paid. By further order, the circuit court directed the County to pay $540,545.94 (representing $111,400.00 in appeal fees the Taxpayers paid to the TAC, and $429,145.94 in general excise taxes the Taxpayers paid to the State). The circuit court later granted the Taxpayers’ request for $455,749.56 in attorneys’ fees and $18,177.43 in costs in Count VIII. The circuit court concluded it could assert subject matter jurisdiction over the “amended assessment” counts, Counts V through VIII of the SAC, because HRS § 232-13 does not empower the TAC to empanel a jury. It went on to conclude that “circuit courts are courts of general jurisdiction, and their subject matter jurisdiction extends to all matters properly brought before them, unless precluded by constitution or statute.” The 5 The circuit court’s August 9, 2017 order is titled “Court’s Findings of Fact, Conclusions of Law; Order Granting Plaintiffs’ Motions for Partial Summary Judgment on Counts V, VI, VII and VIII of the Second Amended Complaint Filed August 12, 2016, filed on December 1, 2016; and Denying Defendants County of Maui and the Maui County Council’s Motion for Partial Summary Judgment as to Count V of the Plaintiffs’ Second Amended Complaint Filed 2016-08-12, Filed on December 12, 2016.” 14  FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER  circuit court further stated that the “TAC does not have exclusive jurisdiction over [the Taxpayers’ claims] in this case, which specifically challenge the legality of the Amended Assessments, not their amount.” The circuit court stated that the TAC had no power to grant the Taxpayers’ requested relief, which was a declaration that the taxes were unconstitutional. Lastly, the circuit court concluded that it had asserted jurisdiction over the “amended assessment” claims first; therefore, it would retain jurisdiction through the conclusion of the case. D. Disposition of Count I of the SAC The Taxpayers then turned to Count I of the SAC, which alleged an equal protection violation under the United States Constitution and the Hawaiʻi State Constitution. On September 29, 2017, the Taxpayers filed a “Motion for Partial Summary Judgment, Based on Use, as to Count 1 (Equal Protection) of the Second Amended Complaint Filed August 12, 2016.” They argued there was no rational basis supporting different real property taxation rates for timeshares versus hotels, where there was no difference in actual use of the two types of properties. On December 19, 2017, the Taxpayers filed a “Motion for Partial Summary Judgment Re: Illegality of the Timeshare Real Property Tax Classification,” also as to Count I. They argued that the County had no authority to create a tax on timeshares 15  FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER  to remedy disparities in state TAT revenues. They elaborated that the MCC authorizes real property tax classifications based on distinctions in use only. Further, they contended that the Hawaiʻi State Constitution gives the state, not counties, power over remedying any disparities in assessing or distributing the TAT. In its memorandum in opposition, the County countered that the Taxpayers’ arguments that timeshare and hotel use are identical, and that the timeshare real property tax is a de facto TAT, are factually erroneous. The County asserted that the rational bases behind the timeshare real property tax classification included collecting a more equitable share of taxes for County services used by timeshare owners, eliminating the tax disparity between hotels and timeshares, and disincentivizing hotel conversion to timeshares. On March 23, 2018, the circuit court ruled in the Taxpayers’ favor.6 The circuit court found that the County’s purpose in establishing the timeshare real property tax classification was to remedy a perceived disparity in TAT assessments. The circuit court concluded that such purpose 6 The circuit court’s ruling was titled “Findings of Fact, Conclusions of Law; Order Granting Plaintiffs’ Motion for Partial Summary Judgment Re: Illegality of the Timeshare Real Property Tax Classification, Filed December 19, 2017, and Denying as Moot Plaintiffs’ Motion for Partial Summary Judgment, Based on Use, as to Count I (Equal Protection) of the Second Amended Complaint Filed August 12, 2016, Filed September 29, 2017.” 16  FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER  violated the MCC, which requires that tax classifications of real property be based on actual use. The circuit court concluded that the timeshare real property tax classification was “illegal and void.” E. Appeal On June 25, 2018, the circuit court entered orders allowing interlocutory appeals of its rulings in Counts I and V through VIII of the SAC.7 The County then timely filed its Notice of Appeal from the June 25, 2018 orders certifying the interlocutory appeals. This case was subsequently transferred from the ICA to this court. The County raises the following points of error, the first of which is dispositive of this appeal: (1) The circuit court’s assertion of subject matter jurisdiction over this case was wrong because special and exclusive subject matter jurisdiction lay with the [TAC]; (2) the circuit court’s ruling voiding the Timeshare real property taxation classification was contrary to the constitutional doctrine of separation of powers; (3) the circuit court’s ruling that the Timeshare real property taxation classification may only be established upon consideration of the “actual use” of property was 7 The circuit court’s orders are entitled (1) “Order Certifying for Interlocutory Appeal the Findings of Fact, Conclusions of Law; (Illegality) Order, Filed March 23, 2018, Pursuant to Hawaii Revised Statutes Section 641-1(b) and Staying Proceedings under Hawaii Rules of Civil Procedure Rule[s] 62(d) and (e),” its partial ruling as to Count I, and (2) “Order Certifying for Interlocutory Appeal Counts V, VI, VII, and VIII of the Second Amended Complaint, Filed August 12, 2016, Pursuant to Hawaii Rules of Civil Procedure Rule 54(b), and Staying Proceedings under Hawaii Rules of Civil Procedure Rule[s] 62(d) and (e).” On July 2, 2018, the circuit court entered final judgment on Counts V, VI, VII, and VIII of the Second Amended Complaint. 17  FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER  wrong and contrary to the Maui County real property tax code; (4) the circuit court’s ruling that the [Taxpayers] are entitled to as much as $34,000,000 in tax refunds was wrong, an abuse of discretion, and threatens the County’s bond credit rating and the fiscal security of its residents; (5) the circuit court’s ruling (that the County’s decision to assess back taxes upon the Taxpayers for Timeshare real property taxes that were inadvertently not previously taxed, was unconstitutional as “illegal” and “retaliatory”) was wrong; (6) the circuit court’s order for a refund for [Taxpayers] of the paid back taxes and appeal fees, pending an Appeal in [the TAC], was an abuse of discretion; and (7) the circuit court’s award of attorneys’ fees and costs to [Taxpayers] was an abuse of discretion. F. Partial settlement on appeal The parties then voluntarily submitted their appeal to the Center for Alternative Dispute Resolution’s Appellate Mediation Program (“CADR AMP”). Six months later, the CADR AMP filed a report informing the court that “[t]he parties partially settled or narrowed issues, but were unable to resolve the entire appeal” and “case returned to appellate docket).” In a status report, the parties represented that mediation had resolved points of error 5, 6, and 7, and that only the first four points of error remain to be resolved by this court. The parties stated that they entered into a Settlement and Release Agreement in which they agreed to seek vacatur of the circuit court’s orders and judgments concerning the “amended assessments.” 18  FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER  The parties contemporaneously filed a “Stipulation for Partial Dismissal of Appeal with Prejudice and for Remand.” The parties stipulated to dismiss with prejudice, pursuant to HRAP Rule 42(b),8 that part of the appeal involving points of error 5, 6, and 7. To that end, they agreed to seek vacatur of those circuit court orders and judgment giving rise to points of error 5, 6, and 7, including the circuit court’s August 9, 2017 order.9 To the extent that order contained rulings regarding the circuit court’s subject matter jurisdiction, however, the parties asked this court not to vacate the order. In other words, on the face of the Stipulation and Order, the parties agree to dismiss an order that they acknowledge may contain an issue still before this court. The parties further stipulated “that . . . this Court remand the matter in part, only as to the dismissed Points of Error, to the [circuit court] for further action as separately agreed by the parties in their settlement agreement.” Under the 8 HRAP Rule 42(b) is titled “Dismissal in the appellate courts,’ and it provides the following: If the parties to a docketed appeal or other proceeding sign and file a stipulation for dismissal, specifying the terms as to payment of costs, and pay whatever fees are due, the case shall be dismissed upon approval by the appellate court, but no mandate or other process shall issue without an order of the court. Upon motion and notice, the appellate court may dismiss the appeal upon terms fixed by the appellate court. 9 See supra note 5. 19  FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER  parties’ Settlement and Release Agreement, the “further action” referred to was an agreement to “jointly request that the Hawaiʻi Supreme Court dismiss the Amended Assessment Appeal from SCAP No. XX-XXXXXXX . . . [and] remand this matter in part to the Second Circuit Court, for further action,” namely the joint filing of a “Stipulation and Order Partially Lifting Stay” in order to vacate the circuit court’s orders and final judgment on the “amended assessment” counts.10 A week later, the County filed a “Motion for Partial Dismissal of Appeal with Prejudice and Remand for Vacating of Findings of Fact, Conclusions of Law, Orders and Partial Final Judgment” (“Motion to Dismiss”). Although the Motion to Dismiss and the Stipulation and Order both seek a dismissal of the part of this appeal stemming from the orders and final judgment on the “amended assessment” counts, the Motion to Dismiss went further than the Stipulation and Order and directly asked this court to “direct the circuit court on remand to vacate” the orders and final judgment on the “amended assessment” counts, “if this court deems it appropriate.” 10 Under the Settlement and Release Agreement, the County refunded to the Taxpayers the over $10 million in amended assessments they paid, plus interest, as well as the BOR fees totaling over $83,000.00. The Taxpayers will keep this refunded amount. The County will also pay the Taxpayers $585,326.99 (attorneys’ fees and costs and TAC appeal fees). The parties will work out GET taxes owed after the 2020 tax season. 20  FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER  A majority of this court disapproved of the Stipulation and Order and denied the Motion to Dismiss. The majority noted, “This court has adopted the United States Supreme Court’s holding in U.S. Bancorp Mortg. Co. v. Bonner Mall P’ship, 531 U.S. 18, 29 (1994), that ‘mootness by reason of settlement does not justify vacatur of a judgment under review.’ See Goo v. Arakawa, 132 Hawaiʻi 302, 314, 321 P.3d 655, 665 (2014).” The majority further observed that the parties had stipulated to vacate one of the circuit court’s orders that may still be at issue in the present appeal.