Opinion ID: 2632470
Heading Depth: 2
Heading Rank: 1

Heading: Background to the Federal Lawsuit[9]

Text: CASI is a Hawai`i corporation which is, as pertains to the instant appeal, engaged in the commercial operation of the [49-]passenger carrying catamaran, Hula Kai, from the commercial pier at Port Allen, Island of Kauai, State of Hawai`i. CASI began operating the Hula Kai on or about December 1999, and at least part of its operation areas included the navigable ocean waters off Kauai's Na Pali Coast. Captain Andy's Sailing, Inc. v. Johns, 195 F.Supp.2d 1157, 1161-63 (D.Haw.2001). Sometime in 1988, the State of Hawaii designated certain ocean waters off Kauai's Na Pali Coast as an ocean recreation management area (hereinafter ORMA). Id. at 1162. The Hawai`i Administrative Rules (HAR) promulgated by DLNR provided, inter alia, that commercial motorboats operating within an ORMA were required to have a commercial operating use permit and be assessed a use fee of $75 per month or 2% of monthly gross receipts, whichever is greater. See HAR § 11-256-11(a)(3) (1994). [10] Hula Kai was to operate within the Na Pali Coast ORMA, and so CASI applied for and was issued a commercial operating use permit (ORMA permit) for the craft in July 2000. Captain Andy's, 195 F.Supp.2d at 1163. CASI was reissued an ORMA permit for the Hula Kai on July 20, 2001, effective for one year from its issue date. Id. at 1164. CASI took umbrage with the 2% ORMA permit use fee, ostensibly because CASI was already paying the State of Hawai`i a different commercial use fee (1.85% of the Hula Kai's gross revenues), to the Hawai`i Department of Transportation. For this and other reasons, CASI filed a complaint against DLNR in federal district court on January 20, 2000, seeking to, inter alia, have the ORMA permit fees assessed against the Hula Kai declared an impermissible duty of tonnage in violation of article I, section 10, clause 3 of the United States Constitution, which provides that [n]o State shall, without the Consent of Congress, lay any Duty of Tonnage . . . in time of Peace[.] See Captain Andy's, 195 F.Supp.2d at 1172. CASI continued to pay the required ORMA permit fees during the pendency of the federal litigation, because failure to pay would result in automatic revocation of the permit. See HAR § 13-256-11(b) (1994) (Delinquency in the payment of any fees owed to the department will result in automatic revocation of the [ORMA permit][ ]). The language of the Hula Kai ORMA permit issued on July 21, 2000 reads in pertinent part: I agree to the following terms, conditions and charges: 1. The permitee agrees to abide by all Hawai`i Administrative Rules for Small Boat Harbors and the waters of the State promulgated by [DLNR], for [in the event of] any violations of the provisions of the aforementioned rules, in addition to any fines or penalties a court of law may impose, this permit to operate a vessel commercially on the NA PALI COAST OCEAN WATERS may be revoked. . . . . 5. The charge for this commercial permit will be the ORMA fee of $ 75.00 per month, or 2 % of the vessel's gross receipts, whichever is the greater. 6. The ORMA use charge of $ 75.00 is due and payable in advance on the first day of the month in the [DLNR's] Division of Boating and Ocean Recreation office. Not later than 30 days following the end of the month, the permitee shall submit to the Division of Boating and Ocean Recreation a report of gross receipts for the month. . . . Unless paid on time, this permit WILL AUTOMATICALLY EXPIRE. 7. This commercial permit may be terminated by [DLNR] by written order of its representative for proper cause and the said vessel will cease commercial operations on the NA PALI COAST OCEAN WATERS. . . . . 11. The permit charges are for the [DLNR's] cost of regulating the privilege of operating this commercial vessel on the NA PALI COAST OCEAN WATERS in the manner stated above. Any other use of harbor property and services must be requested and approved separately. 12. The permit shall not exceed one (1) year from JULY 20, 2000 . . . . . . . . 15. The permitee understand[s] that the captain(s) of said vessel shall be a representative of said company and that they shall have the knowledge of all ORMA rules and regulations. (Emphases and underlining in original.) (Some emphases formatting altered.) When CASI renewed its permit for the Hula Kai for the following year, it was issued a permit with identical language, except that the words NA PALI COAST OCEAN WATERS were replaced with THE [ORMA] OF KAUAI. The federal district court case eventually proceeded to a trial on the merits. In connection with the ORMA permit fee issue, the federal district court found that (1) the ORMA permit fee had no relationship to any supposed service offered for the readily perceptible benefit of commercial vessels in the Na Pali Coast ORMA, (2) [t]he record is bereft of any evidence corroborating the existence of any regulatory scheme specific to the Na Pali Coast [ORMA], and (3) there is a complete absence of accounting for any costs specifically allocable to the Na Pali Coast [ORMA], including those alleged to relate specifically to regulating and/or preserving those waters[.] Captain Andy's, 195 F.Supp.2d at 1173-74 (citations omitted). The federal district court concluded that (1) [t]he ORMA [permit] [f]ee appears . . . to be a revenue measure that is used to recoup the costs of a statewide boating program whose many components are not limited to commercial navigation within the Na Pali Coast ocean waters[,] such that (2) [b]ased on the overwhelming evidence, the [c]ourt finds [DLNR's] assessment of a [2% ORMA permit fee] against the `Hula Kai' to be an impermissible tax in violation of the prohibition against tonnage duties. Id. at 1174 (footnote omitted). The State of Hawai`i did not appeal the federal district court's December 28, 2001 ruling, and did not thereafter assess the ORMA permit fee against the Hula Kai. However, the State of Hawai`i refused to refund any of the $40,882.52 in ORMA permit fees that it had collected until the time of ruling, despite demand from CASI. The instant state court proceedings ensued. C. State Circuit Court Proceedings
On April 17, 2002, CASI brought a complaint for declaratory and monetary relief against the DLNR Defendants in circuit court. (Capitalization omitted.) Specific jurisdiction was claimed under HRS § 662-3 (1993). [11] CASI sought recovery of, or, in the alternative, future setoff of, DLNR usage fees in the amount of the $40,882.52 in Hula Kai ORMA permit fees paid to DLNR. CASI additionally made the following allegations: 29. At all times relevant hereto, [the DLNR] Defendants and their predecessors in office were unwilling to allow CASI to pay under protest or segregate the disputed use payments, or allow the payments to be deposited with the clerk of the court in [federal district court action] pending a final determination of the constitutionality of the [ORMA permit fee]. 30. [The DLNR] Defendants and their predecessors intentionally and knowingly took this position despite asserting the position in the [federal district court action] that the Eleventh Amendment to the United States [Constitution] barred the federal court from ordering the state to refund to CASI the amount of the wrongful assessment, citing Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974). 37. When [DLNR] refused to reconsider its assessment of the ORMA [permit] [f]ees, CASI requested a contested case hearing pursuant to H.R.S. Chapter 91, which request [the DLNR] Defendants denied. As to paragraph 30 of CASI's complaint, the DLNR Defendants admitted that the eleventh amendment to the United States Constitution precluded an award of money damages against the State of Hawai`i in federal court. CASI asserted a total of seven claims in its complaint: (1) lack of authority for the DLNR Defendants to assess the ORMA permit fees under HRS § 200-10(c)(4) (1993), [12] (2) unlawful withholding of the ORMA permit fees by the individual DLNR Defendants despite demand for their return, (3) wrongful conversion of the ORMA permit fees such that defendant Mason Young, acting administrator of the DLNR subdivision that assessed the fees, was personally liable, (4) unjust enrichment and equitable restitution, (5) bad faith and unfair dealing such that Mason Young (on this alternative basis) was personally liable to repay the ORMA permit fees to CASI, (6) malicious misconduct by Mason Young and co-defendant David Parsons (a DLNR ocean subdivision administrator) rendering both jointly and severally liable to CASI, and (7) in the alternative, future DLNR fee setoff for CASI in the amount of the Hula Kai ORMA permit fees. (Some capitalization omitted.)
The DLNR Defendants filed their answer to CASI's complaint on May 20, 2002. On June 19, 2002, approximately one month later, the DLNR Defendants filed a motion for judgment on the pleadings, or, in the alternative, for summary judgment against CASI on all claims (hereinafter motion for summary judgment). As relates to the instant appeal, the DLNR Defendants argued that (1) as per Figueroa v. State, 61 Haw. 369, 383-84, 604 P.2d 1198, 1206-07 (1979), the State of Hawai`i was immune from all tort claims asserted under HRS § 662-3 for recovery of money damages due to constitutional violations, and (2) in any event, CASI's claims were specifically barred under HRS § 662-15(1) and (2), [14] because (a) the DLNR Defendants were merely following existing administrative rules, and (b) the federal court found the ORMA permit fee to be a tax. On July 5, 2002, CASI filed a cross-motion for summary judgment, asserting, in relevant part, that (1) the ORMA permit for the Hula Kai was, or in the alternative was tantamount to, an express contract between the DLNR Defendants and CASI, with an implied promise of refund in the event the contract was illegal and void, [15] arising from a contracting party's duty of good faith and fair dealing; and (2) the DLNR defendants owed CASI a duty of restitution arising from their tortious conver[sion] of the ORMA permit fees. (Emphases omitted.) CASI argued that the State of Hawaii's sovereign immunity to suit was waived on account of both HRS § 662-2 (1993) [16] as to tort claims, and HRS § 661-1 (1993) as to contract claims. [17] This was the first time that CASI had raised the specter of a contract claim and invoked HRS chapter 661 as a basis for jurisdiction. On July 17, 2002, CASI filed its opposition to the DLNR Defendants' motion for summary judgment. CASI, inter alia, reiterated its July 5, 2002 position on cross-motion for summary judgment, albeit more explicitly this time, that CASI's claims sound in tort and contract. (Emphasis added.) The DLNR Defendants also filed their opposition to CASI's cross-motion for summary judgment on July 17, 2002, in which they pertinently argued as follows: (1) applying [HRS § 40-35] to [CASI's] situation, the [ORMA permit fees] refund issue is moot because the thirty-day [statute of limitations] passed long ago and the circuit court lacks jurisdiction over the matter (the tax appeal court has jurisdiction)[ ] (while noting in a following footnote that HRS § 662-15(3) bars [CASI's] tort claims on account of this alternate remedy at law); (2) there was absolutely no hint in any ORMA permit of an implied promise that [CASI] would be given a refund if the [ORMA permit fee] assessment was subsequently determined to be unconstitutional[;] (3) the ORMA permit was a valid contract; and (4) CASI's conversion claim must fail because the ORMA permit fees paid by CASI were never segregated or kept as an intact fund for [CASI] and the fees were never intended to be returned to [CASI][.] This was the first time that the DLNR Defendants had raised HRS § 662-15(3) and the HRS § 40-35 claim and statute of limitations as a bar to circuit court jurisdiction and CASI's claims in general, but no objection was made by CASI. CASI and the DLNR Defendants filed their replies to the oppositions to the cross-motions on July 22, 2002. CASI noted in its reply that (1) the ORMA permit fees were not taxes and DLNR had no constitutional authority to impose any form of taxes, (2) contrary to the DLNR Defendants' assertions, the ORMA permit was an express contract, (3) CASI was actually in compliance with HRS § 40-35 insofar as it effectively paid under protest and properly and timely initiated suit in a court of competent jurisdiction, namely federal district court, on January 2000, or roughly six months prior to the initial issuance of the ORMA permit on July 2000, [18] (4) in any event, the ORMA permit fees are not recoverable under HRS § 40-35 because they do not constitute taxes, and (5) principles of equity require the DLNR Defendants to refund the ORMA permit fees on account of the DLNR Defendants' failure to comply with HRS § 40-35 and deposit the disputed fees into a litigated claims fund pending the outcome of the federal litigation. The DLNR Defendants asserted in their reply, inter alia, that: (1) the circuit court should disregard CASI's contract claims and assertion of HRS § 661-1 as a basis for jurisdiction inasmuch as neither was raised within CASI's complaint, and (2) in any event, CASI has not pled that any express contract requires [the State of Hawai`i] to provide a refund if the fee assessment was subsequently deemed unconstitutional[.] Hearing on the cross-motions was held on July 25, 2002, and the circuit court granted summary judgment in favor of the DLNR Defendants. It orally ruled as follows: I am persuaded that the State has the better argument that when the theory that you use that was ultimately successful is, that this was an impermissible tax or a fee or whatever you want to call it that was prohibited because of the constitutional prohibition against tonnage duties; then you are required to use the concomitant remedy for obtaining relief against taxes, be they higher than they're suppose[d] to be or unconstitutional, and that would be the statute, HRS Section 40-35. . . . . there was nothing, so far as I can tell, to prevent [CASI from] having filed under [HRS § ] 40-35 and having the matter go to Tax Court and having litigated it there, although on [an] additional second track [(sic)] and, perhaps, having stayed it until the [federal district court] decided whatever they did. So my best judgment is, it's not that there's no remedy, but the remedy that is available had to have been timely invoked. Apparently, the requirements of HRS Section 40-35 were not met; and therefore the Court grants [the DLNR Defendants'] motion . . . . The circuit court's August 28, 2002 order granting summary judgment in favor of the DLNR Defendants read in pertinent part: With respect to [CASI's] claims against [the DLNR Defendants]. . . . such claims are barred by [HRS] § 662-15(3). . . . because [CASI] has a remedy provided by state law, specifically [HRS] § 40-35[.] [CASI] is not foreclosed from bringing an action under [HRS] § 40-35. . . . but the [c]ourt does not address whether the time has passed to bring such an action. The circuit court's final judgment was entered on September 13, 2002, and CASI timely appealed on October 7, 2002.