Kealoha v. Machado.

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Electronically Filed
Supreme Court
SCAP-11-0001103
03-DEC-2013
08:31 AM
IN THE SUPREME COURT OF THE STATE OF HAWAI#I
---o0o---
SAMUEL L. KEALOHA, JR., VIRGIL E. DAY, JOSIAH L. HOOHULI, and
PATRICK L. KAHAWAIOLAA, Petitioners/Plaintiffs-Appellants,
vs.
COLETTE Y. PI#IPI#I MACHADO, individually and in her official
capacity as Chairperson and Trustee of the Office of Hawaiian
Affairs; S. HAUNANI APOLIONA, ROWENA AKANA; DONALD CATALUNA;
BOYD P. MOSSMAN; OSWALD STENDER; PETER APO; ROBERT K. LINDSEY,
JR.; and JOHN D. WAIHE#E IV, individually and in their official
capacity as Trustees of the Office of Hawaiian Affairs;
and DANTE CARPENTER and WALTER HEEN, individually,
Respondents/Defendants-Appellees.
SCAP-11-0001103
APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT
(CAAP-11-0001103; CIV. NO. 11-1-0575-03)
DECEMBER 3, 2013
RECKTENWALD, C.J., NAKAYAMA, ACOBA, AND McKENNA, JJ.,
AND CIRCUIT JUDGE KIM, IN PLACE OF POLLACK, J., RECUSED
OPINION OF THE COURT BY RECKTENWALD, C.J.
Samuel L. Kealoha, Jr., Virgil E. Day, Josiah L.
Hoohuli, and Patrick L. Kahawaiolaa (collectively, Plaintiffs),
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brought this suit against Office of Hawaiian Affairs (OHA)
trustees,1 alleging that the OHA trustees improperly expended
trust funds on Hawaiians, as opposed to native Hawaiians as
defined by the Hawaiian Homes Commission Act (HHCA).2 Plaintiffs
argued that these expenditures violated the OHA trustees’ duty to
expend trust funds “in the sole interest” of native Hawaiians, as
required under Hawai#i Revised Statutes (HRS) § 10-3(1), §§ 4
and 5(f) of the Hawai#i Admission Act, and article XII, sections
4, 5, and 6 of the Hawai#i Constitution.
1
The OHA defendants are: Colette Y. Pi#ipi#i Machado, individually
and in her official capacity as Chairperson and Trustee of OHA; S. Haunani
Apoliona, Rowena Akana, Oswald Stender, Peter Apo, Robert K. Lindsey, Jr., and
John D. Waihe#e IV, individually and in their official capacities as Trustees
of OHA; Donald Cataluna, individually; and Carmen Lindsey and Dan Ahuna, in
their official capacities as Trustees (collectively, OHA trustees).
Plaintiffs’ complaint named as defendants Machado, individually and in her
official capacity as Chairperson and Trustee of OHA; Apoliona, Akana,
Cataluna, Boyd P. Mossman, Stender, Apo, Robert K. Lindsey, Jr., and Waihe#e,
individually and in their official capacities as Trustees of OHA; and Dante
Carpenter and Walter Heen, individually. The record indicates that Plaintiffs
have since dismissed all claims against Carpenter and Heen. Also, the OHA
trustees stated that Mossman resigned from his position as OHA trustee during
the pendency of the instant action, and was replaced by Carmen Lindsey.
Accordingly, Carmen Lindsey was substituted for Mossman as to claims against
Mossman in his official capacity. See Hawai#i Rules of Appellate Procedure
(HRAP) Rule 43(c)(1). It also appears that Plaintiffs are not alleging claims
against Mossman in his individual capacity. Dan Ahuna also replaced Cataluna
as trustee in 2012. See State of Hawaii, Office of Elections, Hawaii General
2012 Final Summary Report 2 (Nov. 6, 2012), http://hawaii.gov/elections/
results/2012/general/elections/results/2012/general/files/histatewide.pdf.
Thus, it would also appear that Ahuna is substituted for Cataluna as to claims
against Cataluna in his official capacity. See HRAP Rule 43(c)(1).
2
As used in this opinion, “Hawaiian” includes individuals with some
Hawaiian ancestry, but less than the 50% required to be a native Hawaiian
under the HHCA. Section 201(a) of the HHCA defines “native Hawaiian” as “any
descendant of not less than one-half part of the blood of the races inhabiting
the Hawaiian Islands previous to 1778.” Hawaiian Homes Comm’n Act, 1920, Act
of July 9, 1921 (HHCA), Pub. L. 67-34, 42 Stat. 108, reprinted in 1 HRS 261
(2009). For purposes of clarity, this opinion will use the term “native
Hawaiian” as defined in the HHCA. This opinion will also use the term
“Hawaiian” as defined in HRS § 10-2 (2009): “any descendant of the aboriginal
peoples inhabiting the Hawaiian Islands which exercised sovereignty and
subsisted in the Hawaiian Islands in 1778, and which peoples thereafter have
continued to reside in Hawai#i.”
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The OHA trustees filed a Motion to Dismiss the
complaint, arguing that the Plaintiffs’ claims were barred under
principles of res judicata and collateral estoppel by the U.S.
District Court’s decision and judgment in Day v. Apoliona (Day
II), No. 05-00649, 2008 WL 2511198, *7-14 (D. Haw. June 20, 2008)
and the Ninth Circuit Court of Appeals’ opinion and judgment in
that case, 616 F.3d 918, 924-28 (9th Cir. 2010), both of which
held that the challenged expenditures were proper under federal
law. The OHA trustees also argued that even if res judicata and
collateral estoppel did not bar Plaintiffs’ claims, they failed
on the merits for the same reasons as the claims set forth in Day
II.
The circuit court dismissed the complaint, finding that
it failed to state a claim upon which relief could be granted
pursuant to Hawai#i Rules of Civil Procedure (HRCP) Rule
12(b)(6). The Plaintiffs then filed a motion for leave to file
an amended complaint “to correct the deficiencies identified by
the court[.]” The circuit court denied the motion. Plaintiffs
appeal from the circuit court’s December 6, 2011 final judgment
in favor of the OHA trustees.3
On appeal to this court, Plaintiffs raise the following
points of error:
(1) Whether the [circuit court] erred in dismissing
the complaint for failure to state a claim?
3
The Honorable Karl K. Sakamoto presided.
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(2) Whether dismissal is appropriate on grounds of res
judicata or collateral estoppel?
In deciding a motion to dismiss for failure to state a
claim, courts must interpret the complaint in the light most
favorable to the plaintiff, and should dismiss only when “it
appears beyond doubt that the plaintiff can prove no set of facts
in support of his or her claim that would entitle him or her to
relief.” County of Kaua#i v. Baptiste, 115 Hawai#i 15, 24, 165
P.3d 916, 925 (2007) (citation omitted). Applying that test
here, we hold that the circuit court did not err in dismissing
Plaintiffs’ complaint.4 We also hold that the circuit court did
not abuse its discretion in denying Plaintiffs’ motion for leave
to file an amended complaint. Accordingly, we affirm the circuit
court’s December 6, 2011 judgment.
I. Background
A. Public trust funds
The Hawai#i Admission Act (Admission Act), Pub. L. No.
86–3, 73 Stat. 4 (1959), reprinted in 1 HRS 135 (2009), made
Hawai#i a state of the Union. As a condition of admission, “the
State of Hawai#i agreed to hold certain lands granted to the
State by the United States in a public land trust,” subject to
the trust provisions set forth in § 5(f) of the Admission Act.
Corboy v. Louie, 128 Hawai#i 89, 92, 283 P.3d 695, 698 (2011)
(citing Office of Hawaiian Affairs v. State, 96 Hawai#i 388, 390,
4
In light of this holding, we do not reach the issue of whether res
judicata or collateral estoppel bar Plaintiffs’ claims.
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31 P.3d 901, 903 (2001); Admission Act § 5). Section 5(f)
requires the State to hold those lands and the profits from them
for one of five enumerated purposes: (1) “the support of the
public schools and other public educational institutions”; (2)
“the betterment of the conditions of native Hawaiians, as defined
in the [HHCA], as amended”; (3) “the development of farm and home
ownership on as widespread a basis as possible”; (4) “the making
of public improvements”; and (5) “the provision of lands for
public use.”5
Before 1978, the State directed the proceeds and income
of the trust lands “by and large to the Department of
Education[,]” making public education the primary beneficiary of
the trust. Office of Hawaiian Affairs v. Yamasaki, 69 Haw. 154,
161-62, 737 P.2d 446, 450-51 (1987) (quoting Office of the
5
Section 5(f) provides:
The lands granted to the State of Hawai#i by
subsection (b) of this section and public lands
retained by the United States under subsections (c)
and (d) and later conveyed to the State under
subsection (e), together with the proceeds from the
sale or other disposition of any such lands and the
income therefrom, shall be held by said State as a
public trust for the support of the public schools and
other public educational institutions, for the
betterment of the conditions of native Hawaiians, as
defined in the [HHCA], as amended, for the development
of farm and home ownership on as widespread a basis as
possible for the making of public improvements, and
for the provision of lands for public use. Such
lands, proceeds, and income shall be managed and
disposed of for one or more of the foregoing purposes
in such manner as the constitution and laws of said
State may provide, and their use for any other object
shall constitute a breach of trust for which suit may
be brought by the United States.
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Legislative Auditor, Final Report on the Public Land Trust 14
(1986)). However, the 1978 Constitutional Convention proposed –
and Hawai#i voters adopted – constitutional amendments that
expressly and fundamentally changed the State’s objectives with
regard to the § 5(f) public land trust.6 Id. Article XII,
section 4 specified that the public land trust, except for
6
Sections 4, 5 and 6 of Article XII of the Hawai#i Constitution
provide:
Section 4. The lands granted to the State of Hawai#i
by Section 5(b) of the Admission Act and pursuant to
Article XVI, Section 7, of the State Constitution,
excluding therefrom lands defined as “available lands”
by Section 203 of the [HHCA], as amended, shall be
held by the State as a public trust for native
Hawaiians and the general public.
Section 5. There is hereby established an Office of
Hawaiian Affairs. The Office of Hawaiian Affairs
shall 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. There shall be a board of trustees for the
Office of Hawaiian Affairs elected by qualified voters
who are Hawaiians, as provided by law. The board
members shall be Hawaiians. There shall be not less
than nine members of the board of trustees; provided
that each of the following Islands have one
representative: Oahu, Kauai, Maui, Molokai and
Hawai#i. The board shall select a chairperson from
its members.
Section 6. The board of trustees of the Office of
Hawaiian Affairs shall exercise power as provided by
law: to manage and administer the proceeds from the
sale or other disposition of the 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 4 of this article for
native Hawaiians; to formulate policy relating to
affairs of native Hawaiians and Hawaiians; and to
exercise control over real and personal property set
aside by state, federal or private sources and
transferred to the board for native Hawaiians and
Hawaiians. The board shall have the power to exercise
control over the Office of Hawaiian Affairs through
its executive officer, the administrator of the Office
of Hawaiian Affairs, who shall be appointed by the
board.
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Hawaiian Home Lands, is to be held “as a public trust for native
Hawaiians and the general public.” Article XII, section 5
established the Office of Hawaiian Affairs (OHA), and directed
that it “hold title to all the real and personal property now or
hereafter set aside or conveyed to it which shall be held in
trust for native Hawaiians and Hawaiians.” Article XII, section
6 described the power of the OHA board of trustees and noted that
the “income and proceeds from that pro rata portion of the
[public land trust] for native Hawaiians” was included among the
property that OHA was to hold and manage in trust “for native
Hawaiians and Hawaiians.” In describing its vision for OHA to be
independent from all other branches of government, the
Constitutional Convention’s Committee on Hawaiian Affairs
expressed a desire to stop the “commingling of funds intended for
native Hawaiians of one-half blood with other moneys in the state
treasury.” Stand. Comm. Rep. No. 59, in 1 Proceedings of the
Constitutional Convention of Hawai#i of 1978, at 645. The
framers also believed it important that Hawaiians have “the right
to determine the priorities which will effectuate the betterment
of their condition and welfare by granting to the board of
trustees powers to ‘formulate policy relating to affairs of
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native Hawaiians.’”7 Stand. Comm. Rep. No. 59, in 1978
Proceedings, at 645.
To execute these constitutional provisions, the 1979
legislature enacted Act 196, codified in HRS chapter 10. See
1979 Haw. Sess. Laws Act 196, at 398-408; HRS ch. 10. Act 196,
inter alia, created “an office of Hawaiian affairs constituted as
a body corporate which shall be a separate entity independent of
the executive branch,” and set forth the powers and duties of the
OHA board. 1979 Haw. Sess. Laws Act 196, § 2, at 400. HRS § 10-
38 sets forth OHA’s purposes, including:
7
The foregoing quote by the Committee on Hawaiian Affairs used the
term “native Hawaiians” rather than “Hawaiians.” Stand. Comm. Rep. No. 59, in
1978 Proceedings, at 645. However, the committee chose to use the term
“native Hawaiians” to refer to all Hawaiians. See id. at 643 (“In the
sections that follow, your Committee refers to all descendants, regardless of
blood quantum, as being native Hawaiians.”).
8
HRS § 10-3 (2009) provides, in relevant part:
The purposes of the office of Hawaiian affairs
include:
(1) The betterment of conditions of native Hawaiians.
A pro rata portion of all funds derived from the
public land trust shall be funded in an amount to be
determined by the legislature for this purpose, and
shall be held and used solely as a public trust for
the betterment of the conditions of native Hawaiians.
For the purpose of this chapter, the public land trust
shall be all proceeds and income from the sale, lease,
or other disposition of lands ceded to the United
States by the Republic of Hawai#i under the joint
resolution of annexation, approved July 7, 1898 (30
Stat. 750), or acquired in exchange for lands so
ceded, and conveyed to the State of Hawai#i by virtue
of section 5(b) of the Act of March 18, 1959 (73 Stat.
4, the Admissions Act), (excluding therefrom lands and
all proceeds and income from the sale, lease, or
disposition of lands defined as “available lands” by
section 203 of the [HHCA], as amended), and all
(continued...)
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(1) The betterment of conditions of native
Hawaiians.[9] A pro rata portion of all funds derived
from the public land trust shall be funded in an
amount to be determined by the legislature for this
purpose, and shall be held and used solely as a public
trust for the betterment of the conditions of native
Hawaiians. . . .
(2) The betterment of conditions of Hawaiians;[10]
(3) Serving as the principal public agency in this
State responsible for the performance, development,
and coordination of programs and activities relating
to native Hawaiians and Hawaiians[.]
HRS § 10-3 (emphasis added).
Among the powers and duties the legislature granted to
the OHA board of trustees is the power to “[m]anage, invest, and
administer the proceeds from the sale or other disposition of
8
(...continued)
proceeds and income from the sale, lease, or other
disposition of lands retained by the United States
under sections 5(c) and 5(d) of the Act of March 18,
1959, later conveyed to the State under section 5(e);
(2) The betterment of conditions of Hawaiians[.]
(Emphasis added).
9
HRS § 10-2 (2009) defines “[n]ative Hawaiian” as:
any descendant of not less than one-half part of the
races inhabiting the Hawaiian Islands previous to
1778, as defined by the [HHCA], as amended; provided
that the term identically refers to the descendants of
such blood quantum of such aboriginal peoples which
exercised sovereignty and subsisted in the Hawaiian
Islands in 1778 and which peoples thereafter continued
to reside in Hawai#i.
10
HRS § 10-2 defines “Hawaiian” as:
any descendant of the aboriginal peoples inhabiting
the Hawaiian Islands which exercised sovereignty and
subsisted in the Hawaiian Islands in 1778, and which
peoples thereafter have continued to reside in
Hawai#i.
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lands, natural resources, minerals, and income derived from
whatever sources for native Hawaiians and Hawaiians, including
all income and proceeds from that pro rata portion of the trust
referred to in section 10-3[.]” HRS § 10-5(1) (2009). In 1980,
the legislature set the pro rata share at “[t]wenty per cent of
all funds derived from the public land trust[.]”11 1980 Haw.
Sess. Laws Act 273, § 1 at 525, codified at HRS § 10-13.5 (2009).
B. Federal court action
On March 10, 2006, Plaintiffs,12 identifying themselves
as native Hawaiians as defined in Section 201(a) of the HHCA,
filed an amended complaint in the United States District Court
for the District of Hawai#i (U.S. District Court) against current
and former OHA trustees, alleging that the OHA trustees misspent
funds derived from the trust established by § 5(f) of the
Admission Act by expending those funds without regard to blood
quantum. Specifically, Plaintiffs contended that the OHA
trustees breached their “legal duty” to expend trust funds solely
for the betterment of the conditions of native Hawaiians by
11
HRS § 10-13.5 (2009) provides that “[t]wenty per cent of all funds
derived from the public land trust, described in section 10-3, shall be
expended by [OHA] for the purposes of this chapter.”
12
The plaintiffs in the federal court action included the Plaintiffs
in the instant state action and Mel Hoomanawanui. Day v. Apoliona (Day I),
451 F. Supp. 2d 1133, 1134 (D. Haw. 2006).
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spending those trust funds to lobby for the Akaka Bill,13 and to
support the Native Hawaiian Legal Corporation (NHLC),14 Na Pua
No#eau Education Program (Na Pua No#eau),15 and Alu Like.16
Plaintiffs alleged that the OHA trustees’ expenditures violated
the Admission Act, enforceable in federal court by 42 U.S.C.
§ 1983, the Equal Protection Clause of the Fourteenth Amendment
to the United States Constitution, and Hawai#i common law and HRS
§ 10-16(c).17 On August 10, 2006, the U.S. District Court
dismissed the action, holding that the Plaintiffs may not enforce
13
The proposed Native Hawaiian Government Reorganization Act of
2007, known as the Akaka Bill, “would create a process through which the
United States could recognize a governing entity for Hawaii’s indigenous
people.” Day II, 616 F.3d at 922 (citation omitted).
14
NHLC received money from OHA to provide legal representation to
Hawaiians with regard to, inter alia, the “[p]reservation and perpetuation of
traditional and customary practices [and] [p]rotection of culturally
significant places, including burial sites and material culture.” Day II, 616
F.3d at 927-28 (brackets in original).
15
Na Pua No#eau is an educational center that received funds from
OHA to provide educational services to Hawaiian children in grades K through
12. Day II, 616 F.3d at 928; Day II, 2008 WL 2511198, at *12.
16
Alu Like is a “nonprofit organization that strives to help
Hawaiians and native Hawaiians achieve social and economic self-sufficiency
through the provision of early childhood education and child care, elderly
services, employment preparation and training, library and genealogy services,
specialized services for at-risk youth, and information and referral
services.” Day II, 2008 WL 2511198, at *12.
17
Although Plaintiffs alleged a violation of HRS § 10-16(c), it
appears that the statute establishes a basis for suit rather than a
requirement that can be violated. HRS § 10-16(c) (2009) provides:
(c) In matters of misapplication of funds and
resources in breach of fiduciary duty, board members
shall be subject to suit brought by any beneficiary of
the public trust entrusted upon the office, either
through the office of the attorney general or through
private counsel.
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public trust duties in the Admission Act under § 1983. Day I,
451 F. Supp. 2d at 1136. The U.S. District Court also dismissed
the Plaintiffs’ Equal Protection claim and declined to exercise
supplemental jurisdiction over the remaining state law claims.
Id.
Plaintiffs appealed to the Ninth Circuit Court of
Appeals, contesting only the dismissal of the § 1983 claim for
violation of the Admission Act. Day v. Apoliona, 496 F.3d 1027,
1030 (9th Cir. 2007). The Ninth Circuit reversed the U.S.
District Court’s dismissal of the case and remanded, holding that
“each Native Hawaiian plaintiff, as a beneficiary of the trust
created by § 5(f), has an individual right to have the trust
terms complied with, and therefore can sue under § 1983 for
violation of that right.” Id. at 1039. The Ninth Circuit left
“to the district court to interpret those § 5(f) purposes to
determine in the first instance not only whether [Plaintiffs’]
allegations are true, but also whether the described expenditures
in fact violate § 5(f).” Id. The Ninth Circuit emphasized that
it was expressing no view concerning the merits of Plaintiffs’
expenditure challenges. Id. at 1040 n.14.
On remand, the U.S. District Court granted the OHA
trustees summary judgment, concluding that OHA’s expenditures of
the trust funds to support the Akaka Bill, NHLC, Na Pua No#eau,
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and Alu Like are consistent with the Admission Act. Day II, 2008
WL 2511198, at *1, *14. Specifically, the U.S. District Court
stated that the Plaintiffs conceded that the OHA trustees had
broad discretion in determining whether a particular expenditure
betters the conditions of native Hawaiians. Id. at *7. The
court then viewed each of the challenged expenditures under trust
principles. Id. at *8-13. The court first rejected the
Plaintiffs’ contention that the OHA trustees abused their
discretion in supporting the Akaka Bill, and found that “[e]ven
if the Akaka Bill is intended to benefit Hawaiians in general,
the OHA trustees would not be unreasonable or arbitrary in
viewing the Akaka Bill as also benefitting native Hawaiians.”
Id. at *7-8. Specifically, the court noted that “[n]umerous”
legal challenges had been brought against Hawaiian-only and
native Hawaiian-only programs, alleging Equal Protection
violations. Id. at *8. The court further noted that “[a]lthough
most race-based preferences are subject to ‘strict scrutiny,’
preferences given to American Indian tribes are reviewed under
the ‘rational basis’ standard.” Id. (citing Morton v. Mancari,
417 U.S. 535 (1974)). Given the foregoing legal framework,
“passage of the Akaka Bill might ultimately affect whether
programs benefitting only Hawaiians and native Hawaiians are
reviewed under the ‘strict scrutiny’ standard as involving racial
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preferences, or under a ‘rational basis’ standard as involving a
political preference.” Id. Thus, the court reasoned, the
trustees’ expenditures in support of the Akaka Bill were proper:
It cannot be said that the OHA trustees are abusing
their discretion in supporting legislation that could
affect challenges to programs favoring Hawaiians and
native Hawaiians. The OHA trustees are reasonably
exercising their fiduciary judgment when they expend
trust funds in support of the Akaka Bill. That action
is consistent with the public trust requirement that
trust funds be used for the betterment of the
conditions of native Hawaiians, even if the funds
simultaneously better the conditions of Hawaiians.
Id.
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:
(a) Assertion and defense of quiet title
actions;
(b) Protection, defense and assertion of
ahupua#a and kuleana tenant rights, including rights
of access and rights to water;
(c) Land title assistance, including review of
title and genealogy;
(d) Preservation and perpetuation of
traditional and customary practices;
(e) Protection of culturally significant
places, including burial sites and material culture;
and
(f) Preservation of Native Hawaiian Land Trust
entitlements.
Id. at *10-11.
The court found that OHA’s contract with the NHLC
“arguably betters the conditions of native Hawaiians because it
helps to preserve and perpetuate their traditional and customary
practices, protect culturally significant areas, and help them
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assert their legal rights regarding land and water in court.”
Id. at 11. The court also found that OHA’s contract with the
NHLC “also can be said” to support other public trust purposes,
such as aiding farm and home ownership, making public
improvements, and providing for lands for public use. Id.
The court next determined that OHA’s use of trust funds
to support Na Pua No#eau constituted a proper exercise of the OHA
trustees’ fiduciary judgment. Id. at *12. The court noted that
according to its contract with OHA, the University of Hawai#i at
Hilo, through its Na Pua No#eau program, was to “provide for
educational enrichment programs” that were “designed to optimize
learning for Hawaiian students” and “develop a stronger interest
in learning, connect learning and education to one’s Hawaiian
identity, and explore possible educational, career and academic
goals.” Id. (quotation marks omitted). In light of these
purposes, the court found that OHA’s support of Na Pua No#eau
“arguably betters the conditions of native Hawaiians in ensuring
that learning is connected to students’ Hawaiian identity.” Id.
The court also found that the support of Na Pua No#eau was
consistent with the § 5(f) trust purpose of supporting public
schools and other public educational institutions. Id.
Finally, the court held that the OHA trustees
“exercised their reasonable discretion and fiduciary judgment” in
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supporting Alu Like. Id. at *13. The court described Alu Like
as “a nonprofit organization that strives to help Hawaiians and
native Hawaiians achieve social and economic self-sufficiency
through the provision of early childhood education and child
care, elderly services, employment preparation and training,
library and genealogy services, specialized services for at-risk
youth, and information and referral services.” Id. at *12. The
court concluded that “Alu Like’s programs better the conditions
of native Hawaiians and support public education,” and that the
OHA trustees “did not abuse their considerable discretion in
determining that one of the ways they were going to better the
conditions of native Hawaiians was by providing support to a
service organization with the mission of helping Hawaiians and
native Hawaiians achieve social and economic self-sufficiency.”
Id. at *13.
The U.S. District Court noted that it did not examine
whether the OHA trustees’ expenditures violated state law:
[F]or purposes of the § 1983 claim asserted in Count
I, this court examines only whether the OHA trustees
violated a federal right or statute, in this case, the
Admission Act. Whether the OHA trustees are violating
state law by using public trust funds to support the
Akaka Bill, the Native Hawaiian Legal Corporation, the
Na Pua No#eau Education Program, and Alu Like is not
before this court.
Id. at *5.
The Plaintiffs appealed the U.S. District Court’s grant
of summary judgment. Day II, 616 F.3d at 921. The Ninth Circuit
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affirmed the district court’s order. Id. First, the Ninth
Circuit rejected Plaintiffs’ argument that federal law requires
the OHA trustees to spend OHA’s twenty percent share of the
§ 5(f) trust only “for the betterment of the conditions of native
Hawaiians.” Id. at 921, 924. The Ninth Circuit stated that the
OHA trustees have not breached their federal trust obligations so
long as the expenditures meet any of the five purposes enumerated
in § 5(f). Id. at 925. Second, the Ninth Circuit rejected
Plaintiffs’ alternative argument that, “even if OHA trustees may
spend for any of the § 5(f) trust purposes, they breached the
trust under federal law because each of the challenged projects
was not restricted to one or more of the enumerated purposes.”
Id. Relying on the common law of trusts, the Ninth Circuit noted
that “a trustee’s ‘power is discretionary except to the extent
its exercise is directed by the terms of the trust or compelled
by the trustee’s fiduciary duties.’” Id. at 926 (quoting
Restatement (Third) of Trusts § 87 cmt. a). The Ninth Circuit
found that because § 5(f) set forth broad purposes and “does not
direct specific expenditures,” the OHA trustees “have discretion
(i.e., are to use fiduciary judgment) to determine whether a
particular use of trust funds serves one or more of the trust
purposes.” Id. (citation, quotation marks, and brackets
omitted). The Ninth Circuit also articulated the following trust
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principles:
“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.”
Id. (quoting Restatement (Third) of Trusts § 87, § 87 cmt. c)
(internal citation omitted).
Accordingly, the Ninth Circuit evaluated the challenged
expenditures to determine whether they were “beyond the bounds of
a trustee’s reasonable judgment that the project in question
would serve § 5(f) trust purposes.” Id. at 926-27. In doing so,
the Ninth Circuit determined that each of the challenged
expenditures was proper and met the § 5(f) purpose of betterment
of the conditions of native Hawaiians. Specifically, the Ninth
Circuit found that: (1) “[a]lthough it is possible that the
processes the Akaka Bill envisions could dilute some benefits
that native Hawaiians currently enjoy to the exclusion of other
Hawaiians, a trustee could reasonably conclude that the bill’s
benefits to the conditions of native Hawaiians outweigh any
drawback”; (2) it was within the trustees’ broad discretion to
determine that using trust funds for the NHLC will better the
conditions of native Hawaiians; (3) a reasonable trustee could
view supporting Na Pua No#eau as serving at least two of the
enumerated § 5(f) purposes, including the betterment of the
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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
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[native Hawaiian] beneficiaries, except for collateral benefits
to nonbeneficiaries, so long as the primary benefits of any
action is [sic] enjoyed by beneficiaries, and the collateral
benefits do not detract from nor reduce the benefits enjoyed by
the beneficiaries.” Plaintiffs further alleged that the OHA
trustees violated “clearly established law” and breached this
duty by “expend[ing] trust funds without regard to the blood
quantum contained in the definition of native Hawaiians” as set
forth in the HHCA. Specifically, Plaintiffs alleged that the OHA
trustees expended trust funds without regard to blood quantum on
lobbying efforts in support of the Akaka Bill, and on the NHLC,
Na Pua No#eau, and Alu Like. Plaintiffs asserted that they
suffered injury as a result because the “unlawful expenditures of
trust funds . . . have diminished the funds available to be
expended for betterment of the conditions of the ‘native
Hawaiian’ beneficiaries pursuant to H.R.S. § 10-3(1), Article
XII, §§ 4, 5, and 6 [of the Hawai#i Constitution], and §§ 4 and
5(f) of the Hawai#i Admission Act[.]” Plaintiffs sought an
accounting and restoration of the funds, injunctive relief,
damages pursuant to state common law and HRS § 10-16(c), and
attorney’s fees and costs.
On August 26, 2011, the OHA trustees filed a Motion to
Dismiss the complaint. In their memorandum in support of the
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motion, the OHA trustees argued that to the extent Plaintiffs
asserted a claim for breach of trust under § 5(f), it was barred
by res judicata based upon the U.S. District Court’s 2008
judgment in Day II and the analysis in the U.S. District Court’s
and Ninth Circuit’s opinions in the case. The OHA trustees also
argued that Plaintiffs’ breach of trust claim pursuant to HRS
§ 10-3(1) and article XII, sections 4, 5, and 6 of the Hawai#i
Constitution was barred by collateral estoppel. The OHA trustees
further argued that even if res judicata and collateral estoppel
did not bar Plaintiffs’ claims, they failed on the merits for the
reasons set forth in Day II. Finally, the OHA trustees contended
that to the extent the Plaintiffs were seeking damages against
the OHA trustees in their individual capacities, the claims fail
because there is no state law counterpart to § 1983, and, even if
there was, any claim based upon it would be defeated by the
doctrine of qualified immunity.
In their memorandum in opposition, Plaintiffs argued
that their state law claims were not precluded by the doctrines
of res judicata or collateral estoppel. Plaintiffs stated that
they were not asserting claims under federal law, and that the
federal courts did not consider the state law claims. Plaintiffs
also appeared to draw further distinctions between state and
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federal law by arguing that unlike federal law, HRS Chapter 67318
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,
18
HRS § 673-1 (1993) waives State immunity “for any breach of trust
or fiduciary duty resulting from the acts or omissions of its agents, officers
and employees in the management and disposition of trust funds and resources
of” the Hawaiian home lands trust, and the native Hawaiian public trust.
19
HRS § 673-1(b) provides that the waiver does not apply to the
following:
(1) The acts or omissions of the State’s officers and
employees, even though such acts or omissions may not
realize maximum revenues to the Hawaiian home lands
trust and native Hawaiian public trust, so long as
each trust is administered in the sole interest of the
beneficiaries; provided that nothing herein shall
prevent the State from taking action which would
provide a collateral benefit to nonbeneficiaries, but
only so long as the primary benefits are enjoyed by
beneficiaries, and the collateral benefits do not
detract from nor reduce the benefits enjoyed by the
beneficiaries;
(2) Any claim for which a remedy is provided elsewhere
in the laws of the State; and
(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.
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analyzed each challenged expenditure and held the OHA trustees
could reasonably have exercised their considerable judgment and
discretion to determine that each expenditure betters the
conditions of native Hawaiians. The OHA trustees also argued
that Plaintiffs’ reliance on HRS § 673-1(b)(1) was misplaced
because the statute is a waiver of sovereign immunity that, by
its express terms, is not applicable to claims against OHA
trustees.
The circuit court dismissed the complaint, finding
that, even assuming that all allegations in the complaint were
true, the complaint failed to state a claim upon which relief
could be granted pursuant to HRCP Rule 12(b)(6):
[P]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
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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
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deficiencies identified by the court[.]” The proposed amendments
included, inter alia, adding Hoomanawanui as a plaintiff, and
stating that the alleged misapplication of funds was “in
violation of HRS §§ 10-16(c) and 708-874.”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.]
The amended complaint replaced that language with the
following:
10. In violation of H.R.S. §§ 10-16(c) and 708-874
and said fiduciary [sic], Defendants have misapplied
20
HRS § 708-874 (1993) establishes and defines the offense of
misapplication of entrusted property:
(1) A person commits the offense of misapplication of
entrusted property if, with knowledge that he is
misapplying property and that the misapplication
involves substantial risk of loss or detriment to the
owner of the property or to a person for whose benefit
the property was entrusted, he misapplies or disposes
of property that has been entrusted to him as a
fiduciary or that is property of the government or a
financial institution.
(2) “Fiduciary” includes a trustee, guardian, personal
representative, receiver, or any other person acting
in a fiduciary capacity, or any person carrying on
fiduciary functions on behalf of a corporation or
other organization which is a fiduciary.
(3) To “misapply property” means to deal with the
property contrary to law or governmental regulation
relating to the custody or disposition of that
property; “governmental regulation” includes
administrative and judicial rules and orders as well
as statutes and ordinances.
(4) Misapplication of property is a misdemeanor.
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said trust funds in the following manner:
11. First, without restricting the use of said trust
funds to the trust purpose of the betterment of the
condition of native Hawaiians of not less than one-
half part of the blood, Defendants have contributed a
portion of said trust funds to organizations whose
purpose is the betterment of the conditions of
Hawaiians without regard to blood quantum or status as
beneficiaries of the trust, specifically, but not
limited to the following:
[] 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:
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[.]
The OHA trustees opposed the motion, arguing that the
amended complaint was virtually identical to the original
complaint. The circuit court held a hearing on November 28, 2011
and agreed with the OHA trustees that the proposed amendments
“would be futile, that essentially, the amendments do not
establish or state a claim, and secondly, the Court believes
procedurally the amendment is to a matter that’s already been
dismissed, otherwise, we have eternal filings of motions to amend
at this point on a matter that’s already been dismissed.” On
December 2, 2011, the circuit court entered a written order
denying Plaintiffs’ motion to file the amended complaint. On
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December 6, 2011, the circuit court entered a final judgment
against Plaintiffs and in favor of all the OHA trustee
defendants.
D. Appeal
Plaintiffs21 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.
As stated supra, Plaintiffs raise two points of error
in their appeal:
(1) Whether the Court below erred in dismissing the
complaint for failure to state a claim?
(2) Whether dismissal is appropriate on grounds of res
judicata or collateral estoppel?
In response, the OHA trustees argue that the circuit
court’s dismissal was proper because: (1) HRS chapter 673 is
inapplicable to the claims, (2) the Plaintiffs failed to assert
facts demonstrating that the OHA trustees abused their discretion
21
The notice of appeal included Hoomanawanui as a “proposed
additional plaintiff,” and Hoomanawanui is listed in the opening brief as an
appellant. However, Hoomanawanui was not named as a plaintiff in the
complaint. Although Hoomanawanui was named as a plaintiff in the proposed
first amended complaint, the circuit court denied Plaintiffs’ request to file
that amended complaint. Accordingly, Hoomanawanui is not a proper party to
the instant appeal insofar as he was never a party to the action below. See
Keahole Defense Coal., Inc. v. Bd. of Land and Natural Res., 110 Hawai#i 419,
428, 134 P.3d 585, 594 (2006) (“Generally, the requirements of standing to
appeal are: (1) the person must first have been a party to the action; (2) the
person seeking modification of the order or judgment must have had standing to
oppose it in the trial court; and (3) such person must be . . . one who is
affected or prejudiced by the appealable order.” (emphasis added) (citation,
emphasis, and quotation marks omitted)).
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by expending funds for the challenged programs, (3) the
Plaintiffs have not explained how incidental benefits to non-
native Hawaiians render the expenditures to be outside the OHA
trustees’ discretion, and (4) the Plaintiffs’ claim for breach of
trust under state law is barred by collateral estoppel.
II. Standards of Review
A. Motion to Dismiss
A circuit court’s ruling on a motion to dismiss is
reviewed de novo. Sierra Club v. Dep’t of Transp., 115 Hawai#i
299, 312, 167 P.3d 292, 305 (2007). It is well-established that
[a] 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)
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(quoting Marsland v. Pang, 5 Haw. App. 463, 474, 701 P.2d 175,
186 (1985)).
B. Motion for Leave to Amend the Complaint
“Orders denying motions for leave to amend a complaint
are reviewed for an abuse of discretion.” Jou v. Dai-Tokyo Royal
State Ins. Co., 116 Hawai#i 159, 163, 172 P.3d 471, 475 (2007)
(quoting Office of Hawaiian Affairs v. State, 110 Hawai#i 338,
351, 133 P.3d 767, 780 (2006)).
III. Discussion
A. Plaintiffs’ complaint fails to state a claim
Plaintiffs and the OHA trustees agree that HRS § 10-3
requires that certain trust funds “be held and used solely
. . . for the betterment of the conditions of native Hawaiians.”
However, they disagree regarding the extent to which this
provision limits the OHA trustees’ discretion over such funds.
Specifically, the Plaintiffs argue that the trustees may not
expend funds on programs that provide benefits to Hawaiians
without regard to blood quantum. In contrast, the OHA trustees
argue that they have broad discretion in determining which
expenditures benefit native Hawaiians, even if those expenditures
also benefit Hawaiians.
Because these arguments largely rely on the
interpretation of the term “solely” in HRS § 10-3, a review of
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the origins of that term is instructive.
The term “solely” does not appear in § 5(f)’s mandate
that public trust lands be held in a trust for, inter alia, “the
betterment of the conditions of native Hawaiians[.]” Rather, it
appears only in HRS § 10-3. The legislative history of HRS § 10-
3, however, does not shed much light on the legislature’s intent
with regard to that term. In the 1979 legislative session, all
but the final draft of the legislation that established HRS
chapter 10 – House Bill 890 – excluded the term “solely.” Early
drafts required that the pro rata portion of the public land
trust be “held as a public trust for native Hawaiians[,]” see
H.B. 890, H.D. 1, S.D. 1, 10th Leg., Reg. Sess. (1979), or “held
and used as a public trust for the betterment of the conditions
of native Hawaiians[,]” see H.B. 890, H.D. 1, S.D. 2, 10th Leg.,
Reg. Sess. (1979); H.B. 890, H.D. 1, S.D. 3, 10th Leg., Reg.
Sess. (1979).
A 1979 Senate Judiciary Committee report that
accompanied Senate Draft 2 of House Bill 890 touched on the issue
of the pro rata portion being used for native Hawaiians or the
larger group, Hawaiians:
C. 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.”
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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.
S. Stand. Comm. Rep. No. 784, in 1979 Senate Journal, at 1356
(some emphases added).
Thus, based on that committee report, the Senate
Judiciary Committee intended for OHA’s expenditure of the pro
rata portion of the public land trust to fulfill a specific
purpose among those set forth in § 5(f); that is, that the pro
rata portion be used for the “betterment of the conditions of
native Hawaiians” as opposed to all Hawaiians. However, the
Senate Judiciary Committee did not add the term “solely” in
Senate Draft 2; rather, Senate Draft 2 stated that the pro rata
portion of the public land trust “shall be held and used as a
public trust for the betterment of the conditions of native
Hawaiians.” See H.B. 890, H.D. 1, S.D. 2, 10th Leg., Reg. Sess.
(1979). This language remained in Senate Draft 3. See H.B. 890,
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H.D. 1, S.D. 3, 10th Leg., Reg. Sess. (1979).
The term “solely” appeared for the first time in the
conference committee draft, which reflects the current § 10-3
language that the pro rata portion of the funds derived from the
public land trust “shall be held and used solely as a public
trust for the betterment of the conditions of native Hawaiians.”
See H.B. 890, H.D. 1, S.D. 3, C.D. 1, 10th Leg., Reg. Sess.
(1979) (emphasis added). The conference committee report that
accompanied that draft, however, did not make any reference to
the addition of the word “solely.” See Conf. Comm. Rep. No. 77,
in 1979 Senate Journal, at 997-1001; Conf. Comm. Rep. No. 76, in
1979 House Journal, at 1131-35.
Moreover, the legislature’s subsequent amendments to
chapter 10 indicate that lawmakers did not consider the term
“solely” to be significant. In 1990, the legislature – via Act
304 – amended HRS § 10-3 in part by deleting the provision: “A
pro rata portion of all funds derived from the public land trust
. . . shall be held and used solely as a public trust for the
betterment of the conditions of native Hawaiians.” 1990 Haw.
Sess. Laws Act 304, § 4 at 949 (emphasis added). Act 304 also
amended HRS § 10-13.5 to provide that “[t]wenty per cent of all
revenue derived from the public land trust shall be expended by
[OHA] for the betterment of the conditions of native Hawaiians.”
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1990 Haw. Sess. Laws Act 304, § 7 at 951. Thus, Act 304 removed
the term “solely” from chapter 10, but committee reports do not
mention or explain this particular change. See Conf. Comm. Rep.
No. 91, in 1990 House Journal, at 800-01. In fact, the omission
did not appear material to the legislation’s purpose, which
included “clarify[ing] the revenues derived from the public land
trust which shall be considered to establish the amount of
funding to [OHA] for the purpose of the betterment of the
conditions of native Hawaiians[.]”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,
22
The legislature enacted Act 304 as a response to this court’s
decision in Yamasaki, 69 Haw. 154, 737 P.2d 446. 1990 Haw. Sess. Laws Act
304, § 1 at 947. Yamasaki involved a lawsuit by OHA against several state
officials and a public corporation; OHA “felt the State was not allocating
twenty per cent of all funds derived from the public land trust to OHA as
required by HRS § 10-13.5.” 69 Haw. at 157, 165, 737 P.2d at 448, 453. The
circuit court denied the defendants’ motion to dismiss, id. at 157, 737 P.2d
at 448, and on interlocutory appeal, this court reversed, concluding that the
claims involved non-justiciable political questions. Id. at 167-75, 737 P.2d
at 454-58; see also Office of Hawaiian Affairs, 96 Hawai#i at 393 n.6, 31 P.3d
at 906 n.6 (noting that, in Yamasaki, no ruling could be made because “the
construction of the term ‘funds’ [as used in HRS § 10–13.5] . . . constituted
a non-justiciable political question because the legislature had not provided
judicially manageable standards”).
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§ 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
23
The amendment, which the legislature apparently passed in
anticipation of Act 304 being invalidated, discussed infra, provided:
Notwithstanding the definition of revenue contained in
this chapter and the provisions of section 10–13.5,
and notwithstanding any claimed invalidity of Act 304,
Session Laws of Hawai#i 1990, the income and proceeds
from the pro rata portion of the public land trust
under article XII, section 6 of the state constitution
for expenditure by the office of Hawaiian affairs for
the betterment of the conditions of native Hawaiians
for each of fiscal year 1997–1998 and fiscal year
1998–1999 shall be $15,100,000.
1997 Haw. Sess. Laws Act 329, § 2 at 958 (emphasis added). See Office of
Hawaiian Affairs, 110 Hawai#i at 344, 133 P.3d at 773 (stating that the
legislature added the aforementioned section to HRS chapter 10 via Act 329
“[b]ecause of the concerns about the effect of [a circuit court ruling that
OHA was entitled to revenues from various sources] and [in recognition of] the
potential invalidity of section 16 of Act 304”).
24
The 1997 amendment that appropriated interim funds “for
expenditure by the office of Hawaiian affairs for the betterment of the
conditions of native Hawaiians,” codified at HRS § 10-13.3, is still contained
in the HRS.
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describing OHA’s expenditures of the pro rata portion of the
public land trust.
In arguing that the trustees must expend trust funds
exclusively for the benefit of native Hawaiians, Plaintiffs
largely rely on common law trust principles. Under the common
law of trusts, “[e]xcept as otherwise provided in the terms of
the trust, a trustee has a duty to administer the trust solely in
the interest of the beneficiaries, or solely in furtherance of
its charitable purpose.” Restatement (Third) of Trusts § 78
(2007) (emphasis added). Known as the “duty of loyalty,” id.,
this standard appears consistent with the language in HRS § 10-
3(1) that the pro rata portion of the public trust fund be used
“solely as a public trust for the betterment of the conditions of
native Hawaiians.” HRS § 10-3(1) (emphasis added).
Under the duty of loyalty, a “trustee has a duty to the
beneficiaries not to be influenced by the interest of any third
person or by motives other than the accomplishment of the
purposes of the trust.” Restatement (Third) of Trusts § 78 cmt.
f. Thus, it is improper for the trustee to enter into
transactions “either for the purpose of benefiting a third person
(whether or not a party to the transaction) rather than the trust
estate or for the purpose of advancing an objective other than
the purposes of the trust.” Id. (emphases added). The duty of
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loyalty has also been summarized as follows:
A trustee is under a duty to the beneficiary of
the trust to administer the trust solely in the
interest of the beneficiary. The trustee must exclude
all self-interest, as well as the interest of a third
party, in his administration of the trust solely for
the benefit of the beneficiary. The trustee must not
place himself in a position where his own interests or
that of another enters into conflict, or may possibly
conflict, with the interest of the trust or its
beneficiary. Put another way, the trustee may not
enter into a transaction or take or continue in a
position in which his personal interest or the
interest of a third party is or becomes adverse to the
interest of the beneficiary.
George Gleason Bogert & George Taylor Bogert, The Law of Trusts
and Trustees [hereinafter, Bogert] § 543, at 218 (2d ed. Revised
1993) (emphases added).
Generally, a trustee’s “power is discretionary except
to the extent its exercise is directed by the terms of the trust
or compelled by the trustee’s fiduciary duties.” Restatement
(Third) of Trusts § 87 cmt. a; Day II, 616 F.3d at 926. “Even in
cases of what are often called ‘mandatory’ powers or provisions,
for which trustee compliance is required . . . , the trustee
often has some discretionary authority and responsibility in
important matters of detail and implementation.” Restatement
(Third) of Trusts § 87 cmt. a. For example, a trust may require
the sale of certain property. If the trust does not provide any
further requirements as to how the property is to be sold, the
trustee may “exercise fiduciary judgment with respect to the
timing . . . , price, and other terms of the sale.” Id.
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“When a trustee has discretion with respect to the
exercise of a power, its exercise is subject to supervision by a
court only to prevent abuse of discretion.” Restatement (Third)
of Trusts § 87. Where discretionary power is given to the
trustee, “the court will not interfere unless the trustee in
exercising or failing to exercise the power acts dishonestly, or
with an improper even though not a dishonest motive, or fails to
use his judgment, or acts beyond the bounds of a reasonable
judgment.” Dowsett v. Hawaiian Trust Co., 47 Haw. 577, 581, 393
P.2d 89, 93 (1964) (quoting Restatement (Second) of Trusts § 187
cmt. e (1959)); Restatement (Third) of Trusts § 87 cmt. b (“A
court will not interfere with a trustee’s exercise of a
discretionary power (or decision not to exercise the power) when
that conduct is reasonable, not based on an improper
interpretation of the terms of the trust, and not otherwise
inconsistent with the trustee’s fiduciary duties[.]”).
Based on the foregoing, the following standards apply
to the instant case. First, a breach of the OHA trustees’ duty
to administer the public land trust solely in the interest of the
beneficiaries occurs when the trustees’ decision conflicts with
the purpose of bettering the conditions of native Hawaiians or is
made for the purpose of benefiting a non-beneficiary rather than
the trust. Restatement (Third) of Trusts § 78 cmt. f (stating
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that a trustee may not enter into transactions “either for the
purpose of benefiting a third person . . . rather than the trust
estate or for the purpose of advancing an objective other than
the purposes of the trust”); Bogert § 543 (“[T]he trustee may not
enter into a transaction . . . in which his personal interest or
the interest of a third party is or becomes adverse to the
interest of the beneficiary.”).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
25
This view is consistent with Ahuna v. Dep’t of Hawaiian Home
Lands, 64 Haw. 327, 340, 640 P.2d 1161, 1169 (1982), which Plaintiffs rely on
in part for, inter alia, the proposition that “[o]ne specific trust duty is
the obligation to administer the trust solely in the interest of the
beneficiary.” In Ahuna, the Department of Hawaiian Home Lands (the
department) awarded a Hawaiian Home Lands trust beneficiary about 6.5 acres of
a 10-acre lot, withholding the remainder because the parcel would be affected
by a proposed highway. 64 Haw. at 329, 332, 640 P.2d at 1163, 1165. The
circuit court directed the department to issue a lease for the full 10 acres,
and the department appealed. 64 Haw. at 328-29, 640 P.2d at 1163.
This court concluded that the department “must adhere to high
fiduciary duties normally owed by a trustee to its beneficiaries[,]” 64 Haw.
at 338, 640 P.2d at 1168, and that this obligation requires that the trust be
administered “solely in the interest of the beneficiary[,]” and with
“reasonable skill and care to make trust property productive[.]” 64 Haw. at
340, 640 P.2d at 1169. This court held that the department “impermissibly
weighed the interests of certain third parties” – including the State, the
County of Hawai#i, and Hawai#i taxpayers in general – when it refused to lease
the entire ten acres. 64 Haw. at 340, 342, 640 P.2d at 1169, 1171. Thus, the
department’s action – withholding part of the 10-acre parcel – was in
consideration of the interests of third parties and conflicted with the
interest of the Hawaiian Home Lands beneficiary.
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(stating that a trustee’s “power is discretionary except to the
extent its exercise is directed by the terms of the trust or
compelled by the trustee’s fiduciary duties”). Thus, the OHA
trustees’ expenditures are to be reviewed for abuse of
discretion, which occurs when a trustee “has acted unreasonably -
that is, beyond the bounds of a reasonable judgment.” Id. § 87
cmt. c.
Plaintiffs’ complaint did not allege that the OHA
trustees violated any of these principles. The complaint
asserted that the OHA trustees violated “clearly established law”
by expending trust funds “without regard to the blood quantum” as
defined in the HHCA and HRS § 10-2, as follows:
a. 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;
b. Defendants have expended trust funds for the
support of the Native Hawaiian Legal Corporation which
funds are permitted to be expended for the benefit of
Hawaiians without regard to the blood quantum.
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.
d. Defendants have expended trust funds for the
support of Alu Like 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
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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
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from the complaint are any factual allegations that the
expenditures were in furtherance of programs that do not benefit
native Hawaiians. Accordingly, Plaintiffs’ complaint failed to
state a breach of fiduciary duty claim under HRS § 10-16(c).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
26
This is not to say that the OHA trustees’ expenditures are
shielded from legal challenges. Indeed, while the OHA trustees are afforded
broad discretion over trust funds, such discretion is nonetheless subject to
review. See Dowsett, 47 Haw. at 581, 393 P.2d at 93 (stating that where a
trustee has discretionary power, “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”). However, even
under the generous principles applied in construing a complaint subject to a
motion to dismiss, see Baptiste, 115 Hawai#i at 24, 165 P.3d at 925,
Plaintiffs’ allegations in the instant case are broad and conclusory.
Accordingly, absent more specific factual allegations regarding the trustees’
expenditures, Plaintiffs’ complaint is insufficient to survive a motion to
dismiss. Cf. Pavsek, 127 Hawai#i at 403; Clinton v. Enter. Rent-A-Car Co.,
977 A.2d 892, 895 (Del. 2009) (“We do not . . . simply accept conclusory
allegations unsupported by specific facts, nor do we draw unreasonable
inferences in the plaintiff’s favor.”).
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regarding, inter alia, the native Hawaiian public trust.
This standard is inapplicable here. First, Plaintiffs’
claims are not brought under HRS chapter 673. Second, even if
Plaintiffs asserted allegations pursuant to chapter 673,
Plaintiffs neither allege nor appear to have met the chapter’s
procedural requirements to exhaust all available administrative
remedies and give at least sixty days written notice. See HRS
§ 673-3 (“Before an action may be filed in circuit court under
this chapter, the party filing suit shall have exhausted all
administrative remedies available, and shall have given not less
than sixty days written notice prior to filing of the suit that
unless appropriate remedial action is taken suit shall be
filed.”); Office of Hawaiian Affairs, 110 Hawai#i at 359, 133
P.3d at 788 (“A plain reading of the statute [HRS § 673-3]
indicates that administrative remedies must be exhausted and
written notification of not less than sixty days must be given.”
(emphasis in original)).
Third, HRS § 673-1 expressly provides that it is not
applicable to OHA trustees. As referenced above, HRS § 673-1(a)
provides that the State waives its immunity for claims against
the State for breach of the native Hawaiian public trust under
article XII, sections 4, 5, and 6 of the Hawai#i Constitution.
The standard that Plaintiffs urge this court to adopt, however,
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appears in subsection (b) of HRS § 673-1, which sets forth claims
that are not covered under the State’s waiver, including certain
claims against OHA:
This waiver shall not apply to the following:
(1) The acts or omissions of the State’s officers and
employees, even though such acts or omissions may not
realize maximum revenues to the Hawaiian home lands
trust and native Hawaiian public trust, so long as
each trust is administered in the sole interest of the
beneficiaries; provided that nothing herein shall
prevent the State from taking action which would
provide a collateral benefit to nonbeneficiaries, but
only so long as the primary benefits are enjoyed by
beneficiaries, and the collateral benefits do not
detract from nor reduce the benefits enjoyed by the
beneficiaries;
(2) Any claim for which a remedy is provided elsewhere
in the laws of the State; and
(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
27
HRS § 10-16(c) provides, in relevant part, that “[i]n matters of
misapplication of funds and resources in breach of fiduciary duty, board
members shall be subject to suit brought by any beneficiary of the public
trust entrusted upon the office, either through the office of the attorney
general or through private counsel.”
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test in this context. Accordingly, the standard articulated in
HRS § 673-1 does not apply.
B. The circuit court did not abuse its discretion in denying
the Plaintiffs’ motion to amend
Plaintiffs next contend that to the extent that the
complaint was defective, the circuit court erred in denying their
motion to amend the complaint. HRCP Rule 15(a) (2009), which
governs Plaintiffs’ motion to amend their complaint, provides in
relevant part:
A 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).
This court has explained that,
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
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looked to the general standard applied by federal courts in
interpreting this rule.” Office of Hawaiian Affairs, 110 Hawai#i
at 365, 133 P.3d at 794 (citing Gonsalves v. Nissan Motor Corp.
in Hawai#i, Ltd., 100 Hawai#i 149, 160, 58 P.3d 1196, 1207
(2002)). In doing so, this court has stated that:
[W]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).
Id. (citations, quotation marks, and brackets omitted).
Plaintiffs’ proposed amended complaint replaced the
reference in the original complaint to HRS § 673-1 and instead
stated that the OHA trustees owed a fiduciary duty “to use said
trust funds for the betterment of the conditions of native
Hawaiians as defined in the [HHCA] and H.R.S. § 10-2[.]” The
proposed amended complaint also changed the following allegation
in their original complaint:
11. In 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.]
The amended complaint replaced that language with the
following:
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:
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11. First, without restricting the use of said trust
funds to the trust purpose of the betterment of the
condition of native Hawaiians of not less than one-
half part of the blood, Defendants have contributed a
portion of said trust funds to organizations whose
purpose is the betterment of the conditions of
Hawaiians without regard to blood quantum or status as
beneficiaries of the trust, specifically but not
limited to the following:
[] 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:
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[.]
The amended complaint also fails to state a claim for
breach of fiduciary duty insofar as it did not include any
allegations that the OHA trustees were using the pro rata portion
of the public trust funds for the purpose of benefiting those of
non-native Hawaiian ancestry rather than native Hawaiians, nor
did it allege that native Hawaiians did not benefit from the
challenged expenditures. Again, in light of the broad discretion
afforded to the trustees, the conclusory allegations in the
amended complaint, without more, are insufficient to state a
claim.
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Moreover, to the extent that the amended complaint
alleges a claim under HRS § 708-874,28 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
28
HRS § 708-874 provides:
(1) A person commits the offense of misapplication of
entrusted property if, with knowledge that he is
misapplying property and that the misapplication
involves substantial risk of loss or detriment to the
owner of the property or to a person for whose benefit
the property was entrusted, he misapplies or disposes
of property that has been entrusted to him as a
fiduciary or that is property of the government or a
financial institution.
(2) “Fiduciary” includes a trustee, guardian, personal
representative, receiver, or any other person acting
in a fiduciary capacity, or any person carrying on
fiduciary functions on behalf of a corporation or
other organization which is a fiduciary.
(3) To “misapply property” means to deal with the
property contrary to law or governmental regulation
relating to the custody or disposition of that
property; “governmental regulation” includes
administrative and judicial rules and orders as well
as statutes and ordinances.
(4) Misapplication of property is a misdemeanor.
(Emphases added).
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(quoting Cort, 422 U.S. at 78). Specifically, this court
discussed three factors in Cort:
First, is the plaintiff one of the class for whose
[e]special benefit the statute was enacted; that is,
does the statute create a right in favor of the
plaintiff? Second, is there any indication of
legislative intent, explicit or implicit, either to
create such a remedy or to deny one? Third, is it
consistent with the underlying purposes of the
legislative scheme to imply such a remedy for the
plaintiff?
Id. (ellipses omitted) (quoting Cort, 422 U.S. at 78). In
determining whether a statute provides a private right of action,
this court applies the first three Cort factors, “understanding
that legislative intent appears to be the determinative factor.”
Rees v. Carlisle, 113 Hawai#i 446, 458, 153 P.3d 1131, 1143
(2007) (citation omitted).
Applying the foregoing factors, it is clear that HRS
§ 708-874 does not create a private right of action. Notably,
the legislative history does not reflect an intent to create a
private, independent right of action. HRS § 708-874 was
established as part of Hawaii’s Penal Code, 1972 Haw. Sess. Laws
Act 9, § 1 at 32, 106-07, and the legislature specifically
provided criminal punishment for the offense of misapplication of
entrusted property insofar as it explicitly stated that the
offense is a misdemeanor. For those same reasons, implying a
private remedy for Plaintiffs would be inconsistent with the
underlying purposes of the legislative scheme. In sum, no
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private right of action exists under HRS § 708-874, and therefore
Plaintiffs cannot state a claim under the statute.
Accordingly, the circuit court did not abuse its
discretion in denying Plaintiffs’ motion for leave to amend their
complaint.
IV. Conclusion
We hold that the circuit court did not err in granting
the OHA trustees’ motion to dismiss. Thus, we affirm the circuit
court’s December 6, 2011 final judgment.
Walter R. Schoettle /s/ Mark E. Recktenwald
for petitioners
/s/ Paula A. Nakayama
Robert G. Klein and
Lisa W. Cataldo /s/ Simeon R. Acoba, Jr.
for respondents
/s/ Sabrina S. McKenna
/s/ Glenn J. Kim
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