Court Opinion

ID: 4650173
Source: CourtListenerOpinion
Date Created: 2021-01-08 19:02:41.007229+00
Date Added: 2024-06-11T08:01:31.202537
License: Public Domain

***FOR PUBLICATION IN WEST’S HAWAII REPORTS AND PACIFIC REPORTER***

                                                              Electronically Filed
                                                              Supreme Court
                                                              SCWC-XX-XXXXXXX
                                                              08-JAN-2021
                                                              08:00 AM
                                                              Dkt. 22 OP

           IN THE SUPREME COURT OF THE STATE OF HAWAIʻI

                                ---o0o---

                        LANCE M. WATANABE,
          Petitioner/Appellant-Appellant/Cross-Appellee,

                                    vs.

    ADMINISTRATIVE DIRECTOR OF THE COURTS, STATE OF HAWAIʻI,
         Respondent/Appellee-Appellee/Cross-Appellant.

                            SCWC-XX-XXXXXXX

         CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
            (CAAP-XX-XXXXXXX; CIV. NO. 3CC151000052)

                            JANUARY 8, 2021

  RECKTENWALD, C.J., NAKAYAMA, McKENNA, WILSON, AND EDDINS, JJ.

                OPINION OF THE COURT BY NAKAYAMA, J.

          Petitioner/Appellant-Appellant/Cross-Appellee Lance M.

Watanabe (Watanabe) was employed as a carpenter for the State of

Hawaiʻi (the State) and applied for service-connected disability
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retirement benefits after suffering a back injury.           Following

various administrative proceedings, Respondent/Appellee-

Appellee/Cross-Appellant Employees’ Retirement System, State of

Hawaiʻi (ERS) issued a proposed decision on October 11, 2011

denying Watanabe’s application on the merits and notifying

Watanabe that the decision would become final unless Watanabe

filed exceptions within fifteen days.        On October 26, 2011, ERS

received a document filed by Watanabe entitled “Petitioner’s

Proposed Decision,” which was a copy of ERS’s own proposed

decision with multiple underscored insertions and a single

“lined out” paragraph.     This case centers on whether the

document filed by Watanabe — Petitioner’s Proposed Decision —

constituted exceptions.

          Almost two years after Watanabe’s filing, ERS

contacted Watanabe to schedule an exceptions hearing, but

reserved the issue of whether Watanabe’s filing actually

constituted exceptions.     Following the hearing, the ERS Board

issued a final decision concluding that Watanabe’s filing did

not constitute exceptions and confirming its denial of his

application.

          Watanabe appealed to the Circuit Court of the Third

Circuit (circuit court), arguing both the merits of his

disability claim and that the ERS Board’s proposed decision did
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not automatically become a final decision because Watanabe had

timely filed exceptions.      The circuit court affirmed the ERS

Board’s decision without ruling on whether Watanabe’s filing

constituted exceptions.

          Watanabe appealed to the Intermediate Court of Appeals

(ICA).   The ICA held that Petitioner’s Proposed Decision did not

constitute exceptions and affirmed the circuit court’s decision.

          In his application for writ of certiorari, Watanabe

maintains that Petitioner’s Proposed Decision filing constituted

exceptions and that the ICA and ERS misinterpreted the

administrative rule to require a rigid format for exceptions,

thus denying Watanabe a meaningful opportunity to be heard.

          To resolve this case, we must consider what level of

formality Hawaiʻi Administrative Rules (HAR) § 6-23-19 requires

for exceptions.     Section 6-23-19 specifies that any party may

file exceptions to a proposed decision and request review within

fifteen days.     In Hawaii Laborers’ Training Ctr. v. Agsalud, 65

Haw. 257, 259, 650 P.2d 574, 576 (1982), this court held that an

agency’s refusal to consider an appellant’s timely filed

exceptions based on the agency’s rigid interpretation of its own

rule violated Hawaiʻi’s Administrative Procedures Act (APA).

          In this case, Watanabe met the minimum requirements

for exceptions because he: (1) filed within fifteen days of the
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agency’s proposed decision; (2) specified his points of

exception by either striking through, or, inserting underscored

text in the agency’s proposed decision; and (3) for several of

the points, cited to exhibits in the record.           Having timely

filed his exceptions, Watanabe was entitled to present argument

on his exceptions to the ERS Board and to have the Board

consider the merits of his exceptions.

           Accordingly, we vacate the ICA’s August 20, 2019

Judgment on Appeal which affirmed the circuit court’s

April 5, 2016 (1) Decision and Order Affirming the Final

Decision of the ERS Board and Dismissing Appellant Watanabe’s

Appeal; and (2) Final Judgment.           We remand this case to the ERS

Board for further proceedings consistent with this opinion.

                              I.   BACKGROUND

           On November 24, 2008, Watanabe applied for

service-connected disability retirement benefits for an injury

that occurred on January 25, 2005.

           Prior to his application for disability retirement,

Watanabe worked as a Carpenter I for the State for more than ten

years.

A.   Administrative Proceedings

           By letter dated March 25, 2010, the ERS Board notified

Watanabe that it proposed to deny his application based on its

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determination that Watanabe’s injury was not service-connected.

Watanabe retained counsel and brought a contested case

proceeding to appeal the ERS Board’s preliminary determination.

Following the contested case hearing, an ERS hearing officer

issued a Recommended Decision recommending that the ERS Board

affirm its preliminary decision denying Watanabe’s application

because Watanabe failed to establish that his permanent

incapacity was work-related.

          The ERS Board adopted the hearing officer’s

Recommended Decision as its Proposed Decision dated

October 11, 2011 (ERS Board’s Proposed Decision).            The ERS Board

mailed a copy of its Proposed Decision to Watanabe’s counsel by

certified mail.    Both the ERS Board’s Proposed Decision and

accompanying cover letter informed Watanabe that, under

HAR § 6-23-19,1 parties may file exceptions and request review

1    HAR § 6-23-19 (2009) states:

          (a) Within fifteen days after receipt of a copy of
          the board’s proposed decision, any party may file
          with the board exceptions to any part thereof and
          request review by the board. Each exception shall
          specify the portion of the record and authorities
          relied on to sustain each point. Eight copies of the
          exceptions and request for review shall be filed with
          the board. In addition, a copy of the exceptions and
          request for review shall be served upon each of the
          parties who were served with a copy of the proposed
          decision.

          (b) Any party may apply for an extension of time
          within which to file exceptions to the proposed
                                                             (continued . . .)
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within fifteen days of receipt.          In addition, both documents

advised Watanabe that he could apply for an extension of time to

file exceptions, but that if no exceptions or extension was

received within fifteen days of receipt of the ERS Board’s

Proposed Decision, “the Proposed Decision shall become final.”

Watanabe’s counsel received the ERS Board’s Proposed Decision on

October 17, 2011.

          On October 25, 2011, Watanabe’s counsel filed a letter

and document entitled “Petitioner’s Proposed Decision.”             The

cover letter sent with Petitioner’s Proposed Decision stated

only:

          Dear Sir/Madam:

          This is Petitioner’s Proposed Decision.   The changes
          are underlined or lined out.

          Please do not hesitate to call should you have any
          questions.

The enclosed Petitioner’s Proposed Decision was a copy of the

ERS Board’s Proposed Decision, with multiple underscored

(continued . . .)
           decision by filing two copies of a written
           application setting forth the reasons for the request.
           The application shall be filed before the expiration
           of the period prescribed for the filing of exceptions.
           Upon good cause shown, the board, or any member of
           the board, may extend the time for filing exceptions
           for an additional period not to exceed fifteen days.

          (c) If no exceptions and request for review are filed
          within the time specified, the proposed decision
          shall become final, unless the board on its own
          motion orders further proceedings to be held.

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insertions and a single “lined out” paragraph.

          By letter dated July 10, 2013 — almost two years after

Watanabe filed Petitioner’s Proposed Decision — the ERS Board

notified Watanabe’s counsel that it would contact him to

schedule an exceptions hearing.       The letter informed Watanabe

that the ERS Board still had “substantial questions as to

whether the documents [Watanabe] submitted to the ERS by letter

dated October 25, 2011, constituted ‘exceptions’ and/or complied

with the requirements of [HAR § 6-23-19]” and that the ERS Board

was reserving the issue.

          By letter dated May 15, 2014, the ERS Board notified

Watanabe and the State that it had “substantial doubts as to

whether the October 25, 2011 letter and Petitioner’s Proposed

Decision qualify as exceptions to the Proposed Decision and a

request for review under HAR § 6-23-19[]” and that ERS was

reserving the issue.     The letter advised the parties to prepare

to offer argument at the hearing on all issues, including inter

alia, whether Petitioner’s Proposed Decision qualified as

exceptions and a request for review under HAR § 6-23-19 and the

merits of Watanabe’s exceptions.

          Following an exceptions hearing, the ERS Board issued

its Final Decision on January 14, 2015.         In its Final Decision,

the ERS Board found that Petitioner’s Proposed Decision did not

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constitute exceptions under HAR § 6-23-19 and thus the ERS

Board’s Proposed Decision became a final decision.            Accordingly,

the ERS Board “confirm[ed] its denial of [Watanabe’s]

application for service-connected disability retirement

benefits.”

B.   Circuit Court Proceedings

           On February 13, 2015, Watanabe filed a Notice of

Appeal to the circuit court.2       Before the circuit court, Watanabe

argued that the ERS Board’s conclusion that he was not entitled

to service-connected disability retirement benefits was clearly

erroneous.

           ERS argued that the circuit court lacked jurisdiction

over the ERS Board’s Proposed Decision denying Watanabe’s

application because Watanabe failed to timely appeal.             ERS

maintained that because Watanabe did not file exceptions in

conformance with HAR § 6-23-19,3 the ERS Board’s Proposed

Decision became final on November 1, 2011 — fifteen days after

it was served on Watanabe.       Thus, ERS claimed that Watanabe’s

appeal was untimely because it was not filed within thirty days

after November 1, 2011.       ERS contended that, even if the circuit

2    The Honorable Greg K. Nakamura presided.

3     ERS argued that Petitioner’s Proposed Decision did not satisfy the
requirements of HAR § 6-23-19(a), because the filing failed to specify the
portion of the record and authorities upon which it relied.

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court found that Petitioner’s Proposed Decision constituted

exceptions and his appeal was timely, Watanabe still failed to

prove that his permanent incapacity was work-related.

            In response to ERS’s claim that the circuit court

lacked jurisdiction to review the ERS Board’s Proposed Decision,

Watanabe argued that his appeal was timely because he filed

Petitioner’s Proposed Decision, which met the published

requirements of HAR § 6-23-19(a) for exceptions.            Watanabe

asserted that, pursuant to HAR § 6-23-21,4 once he filed

exceptions, the ERS Board’s Proposed Decision could not become a

final decision until the ERS Board held a hearing on his

exceptions and rendered a final, written decision.

            Following a hearing, the circuit court entered its

Decision and Order Affirming the Final Decision of the ERS Board

(Circuit Court Decision).       The circuit court made no explicit

finding as to whether Petitioner’s Proposed Decision satisfied

the requirements of HAR § 6-23-19(a) for exceptions.5

4     HAR § 6-23-21 provides in relevant part:

            (a) Where exceptions have been filed to the board’s
            proposed decision, the board, within sixty days after the
            hearing on the exceptions, shall render its final decision.

(Emphasis added.)

5     Presumably, the circuit court concluded that the Petitioner’s Proposed
Decision did not constitute exceptions within the meaning of HAR § 6-23-19(a)
because it omitted any reference to this filing in the Circuit Court Decision.

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Nonetheless, the circuit court proceeded to address the merits

of Watanabe’s disability claim.        The circuit court concluded

that the ERS Board’s determinations in its Final Decision6 were

supported by substantial evidence and not clearly erroneous.

Accordingly, the circuit court affirmed the ERS Board’s Final

Decision and entered Final Judgment in favor of ERS.

C.   ICA Proceedings

           Watanabe timely filed a notice of appeal and ERS filed

a notice of cross-appeal.

           On appeal, Watanabe argued that the circuit court

erred by affirming the ERS Board’s Final Decision and that ERS’s

interpretation that Petitioner’s Proposed Decision did not

qualify as exceptions under HAR § 6-23-19 was not entitled to

deference.

           In its cross-appeal, ERS claimed that (1) the circuit

court erred by reaching the merits of Watanabe’s claim without

first determining that it had appellate jurisdiction; and

(2) neither the ICA nor the circuit court had jurisdiction to

review the ERS Board’s Proposed Decision because Watanabe’s

6     The Circuit Court Decision affirmed the ERS Board’s Final Decision but
treated the Final Decision as adopting the ERS Board’s findings of fact and
conclusions of law from the ERS Board’s Proposed Decision. While the ERS
Board’s Final Decision did not expressly state that it adopted the Proposed
Decision, it did attach the Proposed Decision as an exhibit to its Final
Decision. In addition, the ERS Board’s Final Decision “confirm[ed]” the ERS
Board’s previous denial of Watanabe’s application.

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appeal to the circuit court was untimely.

          The ICA filed a Summary Disposition Order on

July 26, 2019.    First, the ICA addressed ERS’s cross-appeal

challenging the circuit court’s lack of jurisdiction over the

merits of Watanabe’s application for service-connected

disability benefits.     As a threshold issue, the ICA concluded

that Petitioner’s Proposed Decision did not constitute

exceptions under HAR § 6-23-19, because it failed to state that

it was an appeal, identify any points of error or portion of the

record, contain any argument, or cite any authorities.            Based on

its conclusion that Watanabe failed to file exceptions, the ICA

reasoned that the ERS Board’s Proposed Decision became final on

November 1, 2011.    Thus, the ICA concluded that because Watanabe

did not appeal to the circuit court within thirty days of

November 1, 2011, the circuit court lacked jurisdiction to

review the merits of Watanabe’s claim.

          Second, the ICA held that the circuit court had

jurisdiction only to review the procedural matters addressed by

the ERS Board in its January 14, 2015 Final Decision — namely,

whether Watanabe had timely filed exceptions.          Accordingly, the

ICA held that the circuit court erred in addressing the merits

of Watanabe’s claim, but that the error was harmless because the

circuit court affirmed the ERS Board’s Final Decision.

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           Therefore, the ICA affirmed the Circuit Court’s

Decision and Final Judgment.

                        II.    STANDARDS OF REVIEW

A.   Secondary Appeals

                 Review of a decision made by the circuit court upon
           its review of an administrative decision is a secondary
           appeal. Ahn v. Liberty Mut. Fire Ins. Co., 126 Hawaiʻi 1, 9,
           265 P.3d 470, 478 (2011) (citation omitted). The circuit
           court’s decision is reviewed de novo. Id. The agency’s
           decision is reviewed under the standards set forth in HRS
           § 91-14(g). Id. HRS § 91–14(g) (1993) provides:

                       (g)   Upon review of the record the court may
                 affirm the decision of the agency or remand the case
                 with instructions for further proceedings; or it may
                 reverse or modify the decision and order if the
                 substantial rights of the petitioners may have been
                 prejudiced because the administrative findings,
                 conclusions, decisions, or orders are:

                       (1)     In violation of constitutional or
                               statutory provisions; or
                       (2)     In excess of the statutory authority or
                               jurisdiction of the agency; or
                       (3)     Made upon unlawful procedure; or
                       (4)     Affected by other error of law; or
                       (5)    Clearly erroneous in view of the reliable,
                               probative, and substantial evidence on
                               the whole record; or
                       (6)     Arbitrary, or capricious, or
                               characterized by abuse of discretion or
                               clearly unwarranted exercise of
                               discretion.

           Under HRS § 91-14(g), conclusions of law are reviewable
           under subsections (1), (2), and (4); questions regarding
           procedural defects under subsection (3); findings of fact
           under subsection (5); and an agency's exercise of
           discretion under subsection (6). Sierra Club v. Office of
           Planning, 109 Hawaiʻi 411, 414, 126 P.3d 1098, 1101 (2006)
           (citation, internal quotation marks and brackets omitted).

Liberty Dialysis-Hawaii, LLC v. Rainbow Dialysis, LLC, 130

Hawaiʻi 95, 102–03, 306 P.3d 140, 147–48 (2013).

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B.   Interpretation of Agency Rules

                 General principles of statutory construction apply in
           interpreting administrative rules. As in statutory
           construction, courts look first at an administrative rule’s
           language. If an administrative rule’s language is
           unambiguous, and its literal application is neither
           inconsistent with the policies of the statute the rule
           implements nor produces an absurd or unjust result, courts
           enforce the rule’s plain meaning. While an agency’s
           interpretation of its own rules is generally entitled to
           deference, this court does not defer to agency
           interpretations that are plainly erroneous or inconsistent
           with the underlying legislative purpose.

Id. at 103, 306 P.3d at 148 (internal quotation marks and

citations omitted).

                             III.   DISCUSSION

           Watanabe argues that the ERS Board misinterpreted the

standard for exceptions under HAR § 6-23-19 and erroneously

concluded that Petitioner’s Proposed Decision did not constitute

exceptions.    Watanabe also contends that the ICA erred by

affirming the ERS’s misinterpretation of HAR § 6-23-19 and

holding that Watanabe failed to timely appeal the ERS Board’s

Proposed Decision.     According to Watanabe, the ERS Board’s and

ICA’s interpretation of HAR § 6-23-19 imposes a higher standard

on petitioners seeking to begin the appeal process and amounts

to a denial of due process.

           ERS contends that Petitioner’s Proposed Decision does

not meet the requirements of HAR § 6-23-19 because, inter alia,

it “merely propose[s] ‘changes’” to ERS’s Proposed Decision and

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does not clearly express that it sets forth Watanabe’s

exceptions.   Similarly, the ICA concluded that Petitioner’s

Proposed Decision did not meet the standard for exceptions

because “[i]t did not express that it was an appeal from the

Proposed Decision; identified no points of error within the

Proposed Decision; and contained no argument, specification of

the portion of the record, or authorities to sustain any alleged

point of error in the Proposed Decision.”         (Footnotes omitted.)

          We agree with Watanabe that Petitioner’s Proposed

Decision constituted exceptions because it met the general

requirements for exceptions under the plain language of

HAR § 6-23-19.    HAR § 6-23-19 does not require that exceptions

be labeled as exceptions or an appeal, or even contain points of

error or argument.    Furthermore, imposing a higher standard for

formalities would undermine the purpose of filing exceptions,

which is to allow a claimant a meaningful opportunity to be

heard.

          First, the plain language of HAR § 6-23-19(a) provides

the minimum requirements for the filing of exceptions:

          Within fifteen days after receipt of a copy of the
          board’s proposed decision, any party may file with
          the board exceptions to any part thereof and request
          review by the board. Each exception shall specify the
          portion of the record and authorities relied on to
          sustain each point.

(Emphasis added.)    Thus, HAR § 6-23-19(a) requires that

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exceptions: (1) be filed within fifteen days;7 and (2) specify

the portion of the record and authorities relied on to sustain

each point.

           We hold that Petitioner’s Proposed Decision filing

satisfies the standard for exceptions set forth in

HAR § 6-23-19(a).     In Petitioner’s Proposed Decision, Watanabe

struck through the portion of the ERS Board’s Proposed Decision

that he disagreed with and inserted underscored language to

indicate his amendments and additions.          Several of the

underscored amendments in Petitioner’s Proposed Decision

specified the authorities relied on, which were exhibits in the

administrative record.      Petitioner’s Proposed Decision disputed

numerous factual findings, an ERS Board member’s testimony

regarding the definition of “accident” for disability retirement

purposes, and the conclusions of law that Watanabe’s permanent

disability was not service-connected.         In sum, Petitioner’s

Proposed Decision specified Watanabe’s points of exception by

either striking through or amending and/or inserting underscored

text and citing the pertinent exhibits in the record.

Consequently, Petitioner’s Proposed Decision meets the minimum

7     ERS does not dispute that Petitioner’s Proposed Decision was filed
within fifteen days of receipt. Arguably, ERS might presume that filings by
claimants within fifteen days after a proposed decision are likely exceptions,
particularly when the filing proposes “changes” to the proposed decision.

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requirements for exceptions outlined in HAR § 6-23-19(a).

            Second, the purpose of filing exceptions is to ensure

that a claimant has a meaningful opportunity to be heard, not to

impose a procedural barrier.

                  The Administrative Procedure Act is a remedial
            statute designed to give citizens a fair opportunity
            to be heard before the official of the agency who is
            charged with passing on [his] case.

Agsalud, 65 Haw. at 259, 650 P.2d at 576.          The ERS Board’s

conclusion that Petitioner’s Proposed Decision did not

constitute exceptions under HAR § 6-23-19 effectively creates a

heightened pleading requirement that is neither present in the

administrative rule, nor supported by the rule’s authorizing

statute.    See Hawaiʻi Revised Statutes (HRS) § 91-11 (2012).8             As

this court has previously stated, agency proceedings are by

8     HRS § 91-11 (2012) is the authorizing statute for HAR § 6-23-19.   HRS
§ 91-11 states:

                  Examination of evidence by agency. Whenever in
            a contested case the officials of the agency who are
            to render the final decision have not heard and
            examined all of the evidence, the decision, if
            adverse to a party to the proceeding other than the
            agency itself, shall not be made until a proposal for
            decision containing a statement of reasons and
            including determination of each issue of fact or law
            necessary to the proposed decision has been served
            upon the parties, and an opportunity has been
            afforded to each party adversely affected to file
            exceptions and present argument to the officials who
            are to render the decision, who shall personally
            consider the whole record or such portions thereof as
            may be cited by the parties.

(Emphasis added.)

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their nature “simple and non-technical hearings” in which

“informal proceedings supersede rigid and formal pleadings and

processes.”    Cariaga v. Del Monte Corp., 65 Haw. 404, 409, 652

P.2d 1143, 1147 (1982) (internal citation omitted).           The ERS

Board’s refusal to consider Watanabe’s filing as exceptions

because it was not labeled as such ignores the purpose of the

APA, which is “to give citizens a fair opportunity to be heard

before the official of the agency” who is deciding his case.

See Agsalud, 65 Haw. at 259, 650 P.2d at 576.

          Third, this court has previously rejected an agency’s

refusal to consider exceptions based on the agency’s rigid

interpretation of its own rule.       Agsalud, 65 Haw. at 258, 650

P.2d at 575.    In Agsalud, the appellant filed general exceptions

within fifteen days after receipt of the agency’s recommended

decision because he was unable to have the record transcribed

with the fifteen-day period.      Id.    The hearing officer refused

to consider the appellant’s timely exceptions “because they [did]

not conform to [the rule]” and approved the agency’s preliminary

decision as final.    Id. at 258, 650 P.2d at 575.         This court

held that the agency’s refusal to consider the appellant’s

exceptions violated the APA.      Id. at 259, 650 P.2d at 576.

“Appellant, having timely filed exceptions, was entitled to the

opportunity to present argument in written or oral form in

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support of its exceptions and to have those exceptions

considered on their merits based on the record.”              Id.

          Thus, the plain language of HAR § 6-23-19, the purpose

behind the APA, and this court’s prior precedent all support our

conclusion that Petitioner’s Proposed Decision constituted

exceptions and that the ERS Board was required to consider

Watanabe’s exceptions before rendering its final decision.

Because the ERS Board’s Final Decision erroneously determined

that Petitioner’s Proposed Decision did not conform to the rule,

the ERS Board refused to consider the merits of Watanabe’s

exceptions.   Consequently, the ERS Board has not complied with

HRS § 91-119 because it has not considered Watanabe’s exceptions

and afforded him an opportunity to present argument on his

exceptions.

          Here, the ICA erred by affirming the Circuit Court’s

Decision and Final Judgment affirming the ERS Board’s denial of

Watanabe’s application.     Accordingly, we remand to the ERS Board

for a hearing on the merits of Watanabe’s exceptions.

                             IV.   CONCLUSION

          We hold that Watanabe’s Petitioner’s Proposed Decision

filing satisfies the standard for exceptions set forth in

HAR § 6-23-19(a).    We vacate the ICA’s August 20, 2019 Judgment

9    See supra note 8 for the relevant text of HRS § 91-11.

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on Appeal which affirmed the circuit court’s April 5, 2016

(1) Decision and Order Affirming the Final Decision of the ERS

Board and Dismissing Appellant Watanabe’s Appeal; and (2) Final

Judgment.   We remand to the ERS Board for further proceedings

consistent with this opinion.

Ted H.S. Hong                            /s/ Mark E. Recktenwald
for petitioner
                                         /s/ Paula A. Nakayama
Patricia Ohara,
Clayton K.F. Zane and                    /s/ Sabrina S. McKenna
Elmira K.L. Tsang
For respondent                           /s/ Michael D. Wilson

                                         /s/ Todd W. Eddins

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