Ocean Resort Villas Vacation Owners Association v. County of Maui. Petition for Writ of Mandamus, filed 08/10/2018. ( 2020 )

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Electronically Filed
Supreme Court
SCAP-XX-XXXXXXX
19-JUN-2020
02:42 PM
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
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________________________________________________________________
OCEAN RESORT VILLAS VACATION OWNERS ASSOCIATION,
a domestic nonprofit corporation; OCEAN RESORT VILLAS NORTH
VACATION OWNERS ASSOCIATION, a domestic nonprofit corporation;
VIC H. HENRY; and PETER A. BAGATELOS, Plaintiffs-Appellees,
vs.
COUNTY OF MAUI and MAUI COUNTY COUNCIL,
Defendants-Appellants.
________________________________________________________________
SCAP-XX-XXXXXXX
APPEAL FROM THE CIRCUIT COURT OF THE SECOND CIRCUIT
(CAAP-XX-XXXXXXX; 2CC181000848)
JUNE 19, 2020
McKENNA, POLLACK, AND WILSON, JJ.,
WITH RECKTENWALD, C.J., CONCURRING AND DISSENTING,
WITH WHOM NAKAYAMA, J., JOINS
OPINION OF THE COURT BY McKENNA, J.
I. Introduction
This interlocutory appeal from the Circuit Court of the
Second Circuit (“circuit court”)1 involves a taxpayer challenge
1 The Honorable Peter T. Cahill presided.
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to the timeshare real property tax classification created by the
County of Maui and Maui County Council (collectively, the
“County”) in 2004. Plaintiffs-Appellees are timeshare owners of
Westin Kaʻanapali Ocean Resort Villas (“ORV”) and Ocean Resort
Villas North (“ORVN”) (collectively, “Taxpayers”). Taxpayers
initially filed a Complaint in 2013 and First Amended Complaint
(“FAC”) in 2014 seeking declaratory relief pursuant to Hawaiʻi
Revised Statutes (“HRS”) § 632-1 regarding the legality and
constitutionality of the County’s timeshare real property tax
classification and whether its method of promulgation violated
the Hawaiʻi Sunshine Law (Counts I through IV).
In preparing its defense to the initial Complaint, the
County discovered it had not assessed Taxpayers over $10 million
in timeshare real property taxes before 2009. The County then
issued “amended assessments” to the Taxpayers for tax years
2006, 2007, and 2008 for ORV, and 2008 for ORVN, who paid the
taxes under protest and appealed to the Maui County Board of
Review (“BOR”), then on to the Tax Appeal Court (“TAC”). The
Taxpayers then also filed a Second Amended Complaint (“SAC”)
alleging the County issued the “amended assessments” in
retaliation for the Taxpayers’ lawsuit. The SAC added Counts V
through VII again seeking declaratory relief pursuant to HRS
§ 632-1 alleging illegality and unconstitutionality as well as
seeking damages and attorneys’ fees pursuant to 42 U.S.C.
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§§ 1983 and 1988 in Count VIII for the alleged constitutional
violations.
On cross-motions for partial summary judgment, the circuit
court voided the timeshare real property tax classification as
illegal, and it ordered the County to refund the Taxpayers the
$10 million+ in “amended assessments” plus general excise tax
and interest, as well as approximately $83,000 in fees paid to
the County BOR, and $111,000 in appeal fees paid to the TAC.
The circuit court also awarded the Taxpayers over $455,000 in
attorneys’ fees and over $18,000 in costs in Count VIII. The
County timely appealed, and this court accepted transfer of the
appeal from the Intermediate Court of Appeals (“ICA”).
The County raises seven points of error: (1) the circuit
court improperly exercised subject matter jurisdiction over the
case, as exclusive subject matter jurisdiction lay with the TAC;
(2) the voiding of the timeshare real property tax
classification violated the separation of powers doctrine; (3)
the circuit court’s ruling that the timeshare real property tax
classification may only be established through “actual use” of
the property was contrary to the Maui County real property tax
code; (4) the circuit court’s ruling that the Taxpayers are
entitled to tax refunds threatens the County’s fiscal health;
(5) the circuit court was incorrect in ruling that the “amended
assessments” were illegal and retaliatory; (6) the circuit
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court’s order for a refund of the “amended assessments” and
related tax appeal fees was an abuse of discretion; and (7) the
circuit court’s award of attorney’s fees and costs was an abuse
of discretion. According to the parties, points of error 1
through 4 relate to the initial constitutional challenge to the
timeshare real property tax classification, and points of error
5 through 7 relate to the SAC’s additional challenges to the
“amended assessments.”
During the course of briefing before this court, the
parties participated in voluntary mediation and entered into a
partial settlement with respect to the “amended assessment”
points of error (i.e., Points of Error 5, 6, and 7). They then
stipulated to partially dismiss this appeal and remand the case
to the circuit court for vacatur of the final judgment and
various orders on the “amended assessment” Counts (Counts V, VI,
VII, and VIII of the SAC). The County also contemporaneously
filed a motion for partial dismissal of the appeal, again based
on the parties’ partial settlement, and asked this court to
directly order vacatur of the circuit court’s final judgment and
orders on the “amended assessments” counts. The Taxpayers filed
a notice of no opposition.
A majority of this court disapproved of the stipulation
and denied the motion to dismiss. As further explained below,
we noted, “This court has adopted the United States Supreme
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Court’s holding in U.S. Bancorp Mortg. Co. v. Bonner Mall
P’ship, 531 U.S. 18, 29 (1994), that, in general, ‘mootness by
reason of settlement does not justify vacatur of a judgment
under review.’ See Goo v. Arakawa, 132 Hawaiʻi 302, 314, 321
P.3d 655, 665 (2014).” We further observed that, as a practical
matter, the parties had stipulated to vacate one of the circuit
court’s orders that contained an issue still under review in the
present appeal.
In examining this appeal, we now note that the first point
of error, challenging the circuit court’s subject matter
jurisdiction, is dispositive in our review of the circuit court
decisions certified for interlocutory appeal, which involved
Counts I and V through VIII of the SAC. We hold that the
circuit court was without subject matter jurisdiction over
Counts I and V through VII of the Taxpayers’ SAC. Although
there is a right to jury trial for declaratory judgment actions
under HRS § 632-1, In re Marn Family Litig., 141 Hawaiʻi 1, 8,
403 P.3d 621, 628 (2016), Taxpayers sought declaratory relief in
those counts pursuant to HRS § 632-1, which explicitly provides
that “declaratory relief may not be obtained . . . in any
controversy with respect to taxes[.]” The partial ruling as to
Count I and the final judgment as to Counts V through VII
certified for interlocutory appeal were based on declaratory
rulings regarding such “controvers[ies] with respect to taxes.”
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With respect to those counts, the Taxpayers were instead
required to challenge the legality and constitutionality of Maui
County’s real property timeshare classification and rates
through the procedures set forth in HRS chapter 232 and Maui
County Code (“MCC”) chapter 3.48, which require an appeal to the
county BOR, then to the TAC.
In addition, with respect to the final judgment for Count
VIII (the 42 U.S.C § 1983 count requesting a jury trial and
damages due to alleged federal constitutional violations, for
which attorneys’ fees and costs were awarded by the circuit
court pursuant to 42 U.S.C § 1988), the circuit court’s judgment
was dependent on the federal constitutional violations declared
by the circuit court to have existed in counts over which it
lacked subject matter jurisdiction.2 Therefore, the final
judgment on Count VIII must also be set aside.
We therefore vacate the circuit court’s orders and judgment
giving rise to this interlocutory appeal and remand this case to
the circuit court for further proceedings consistent with this
opinion.
2 See also infra note 19.
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II. Procedural history
A. Complaint, FAC, and SAC
On August 19, 2013, the Taxpayers filed a Complaint
challenging the constitutionality of Maui County Ordinance No.
3227, which created the County’s timeshare real property tax
classification in 2004, and demanded a jury trial. With respect
to “jurisdiction,” Taxpayers specially alleged that
“[j]urisdiction in this Court is proper pursuant to
[HRS §] 632-1.”
According to the Taxpayers, immediately prior to the
establishment of a separate real property tax classification for
timeshares, timeshares had been included in the “hotel and
resort” real property tax classification and therefore taxed at
the hotel and resort rate. The Taxpayers alleged that the
County’s creation of a separate real property timeshare tax
classification, and its accompanying higher rate, was intended
to make up for losses in revenue from the transient
accommodations tax (“TAT”), which is a state tax shared with the
counties. They also alleged that Maui County Resolution
No. 13-60, which established the 2014 timeshare real property
tax rate, was adopted in violation of Hawaiʻi’s Sunshine Law.
The Taxpayers represented that they paid their real property
taxes for the 2014 fiscal year under protest.
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Count I of the Complaint alleged an equal protection
violation under the United States Constitution and the Hawaiʻi
State Constitution. The Taxpayers alleged that the timeshare
real property tax rate was the highest real property tax rate in
the county, although timeshare use does not differ from hotel
and resort use. They also alleged that the tax
disproportionately impacted nonresidents, who are the
overwhelming majority of timeshare owners in the county of Maui.
Count II alleged a Sunshine Law violation. The Taxpayers
alleged that some Maui County Councilmembers “sought to secure
other Councilmembers’ commitment to vote on the timeshare tax
rate” through communications that violated the Sunshine Law.
Thus, the Taxpayers requested relief in the form of a
declaration that (1) the timeshare classification and tax rate
violated the equal protection clauses of the United States
Constitution and Hawaiʻi State Constitution, and (2) Maui County
Resolution No. 13-60, establishing the fiscal year 2014 real
property timeshare tax rate, was void as violative of the
Sunshine Law.
On August 28, 2014, the Taxpayers filed their FAC.
Taxpayers again asserted jurisdiction pursuant to HRS § 632-1.
The FAC added another Sunshine Law violation count, alleging
that some Maui County Councilmembers communicated improperly
with other Councilmembers to secure their votes for Maui County
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Resolution No. 14-54, which established the fiscal year 2015
timeshare real property tax rate. The FAC also alleged that the
fiscal year 2014 and 2015 Sunshine Law violations deprived the
Taxpayers of due process under the United States Constitution
and Hawaiʻi State Constitution. As a result of the addition of
these two new counts, the four total counts were renumbered as
follows: Count I (equal protection), Count II (due process),
Count III (Sunshine Law violation for fiscal year 2014), and
Count IV (Sunshine Law violation for fiscal year 2015). The
Taxpayers again requested relief in the form of a declaration
that (1) the timeshare classification and tax rates violated the
equal protection clauses of the United States and Hawaiʻi
Constitutions, and that (2) Maui County Resolution Nos. 13-60
and 14-54, establishing the fiscal year 2014 and 2015 real
property timeshare tax rates, respectively, were void as
violative of the Sunshine Law, and, therefore, also violated the
Taxpayers’ procedural due process rights under the United States
Constitution and Hawaiʻi State Constitution.
Taxpayers were later granted leave to file the SAC.3 Once
again, Taxpayers alleged jurisdiction pursuant to HRS § 632-1.
In the SAC, filed August 12, 2016, they alleged that the County
3 The County unsuccessfully opposed the Taxpayers’ motion for leave to
file the SAC. The County argued that the circuit court lacked subject matter
jurisdiction over the tax disputes involving the “amended assessments,” as
exclusive subject matter jurisdiction lay with the TAC.
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had issued to them “amended assessments” in 2016 for tax years
2006, 2007, and 2008 for ORV, and for 2008 for ORVN, in
retaliation for the Taxpayers’ lawsuit. For those years, the
County had taxed the land and buildings in ORV and ORVN but had
not assessed the timeshare real property tax. The County’s
“amended assessments” totaled over $10 million and were due in
30 days. The Taxpayers stated they paid the taxes under protest
and appealed the “amended assessments” to the County BOR, paying
a $75 filing fee for each of the 1,115 appeals brought by
timeshare owners. In response to these “amended assessments,”
the Taxpayers added four more counts to their Complaint: Count
V (declaratory judgment as to the illegality of the “amended
assessments”), Count VI (violations of the right to free speech
and the right to petition the government for redress under the
United States Constitution and Hawaiʻi State Constitution), Count
VII (violation of procedural due process under the United States
Constitution and the Hawaiʻi State Constitution), and Count VIII
(42 U.S.C. § 1983 claim for damages based on the constitutional
violations).
The Taxpayers again requested a declaration that (1) the
real property timeshare classification and fiscal year 2014 and
2015 rates were unconstitutional, (2) the Maui County
resolutions establishing the fiscal year 2014 and 2015 real
property timeshare tax rates were void as violative of the
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Sunshine Law and, therefore, violated Taxpayer’s procedural due
process rights, and that (3) the “amended assessments” were
invalid and unenforceable because they violated the Maui County
Code; the rights to free speech, to petition the government for
redress, and to procedural and substantive due process under the
United States Constitution and the Hawaiʻi State Constitution;
therefore, the Taxpayers were entitled to refunds of real
property taxes and appeal fees paid.4
B. The County’s motion for summary judgment as to Counts I and
II of the FAC
On July 1, 2016, the County moved for summary judgment on
Counts I and II of the FAC, arguing that the circuit court
lacked subject matter jurisdiction over the case, as the TAC had
exclusive jurisdiction over tax disputes. They quoted HRS
4 On August 12, 2015, the Taxpayers’ filed a complaint against the County
in Civ. No. 15-1-0435 before Second Circuit Court Judge Rhonda I. L. Loo. In
it, they alleged that the County set the fiscal year 2016 timeshare real
property tax rate in County Resolution No. 15-52 in violation of the Sunshine
Law (Count I), which violated their due process rights under the United
States Constitution and the Hawaiʻi State Constitution (Count II). The
Taxpayers again sought a declaration to that effect from the circuit court.
A month later, the County filed its answer and a counterclaim for set-
off and/or damages against the Taxpayers. The County counterclaimed for set-
off, against any damages claimed by the Taxpayers, the amount of real
property timeshare taxes owed by the Taxpayers due to the County’s erroneous
underassessment of real property taxes before 2009.
In November 2015, the Taxpayers moved to dismiss the counterclaim.
They argued that the circuit court lacked subject matter jurisdiction because
the MCC “vests the [BOR] and [TAC] with exclusive jurisdiction over appeals
of contested tax liability. . . .” The Taxpayers then moved to consolidate
the matter before Judge Loo with the instant proceeding before Judge Cahill.
Judge Cahill denied the motion to consolidate. Judge Loo then agreed with
the Taxpayers, and granted their motion to dismiss the County’s counterclaim.
According to the County, the Taxpayers ultimately dismissed, with prejudice,
the lawsuit before Judge Loo.
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§ 232-12, which states that the TAC “shall determine all
questions of fact and all questions of law, including
constitutional questions. . . .” The circuit court denied the
motion.
C. Disposition of Counts V, VI, VII, and VIII of the SAC
On December 1, 2016, the Taxpayers filed four separate
motions for partial summary judgment as to Counts V, VI, VII,
and VIII of the SAC. On December 12, 2017, the County filed its
own motion for partial summary judgment as to Count V of the
SAC. The County also filed an opposition to the Taxpayers’
motion for partial summary judgment as to Count V, arguing that
the circuit court lacked subject matter jurisdiction over Count
V, as exclusive subject matter jurisdiction lay with the TAC
over this tax dispute.
On January 26, 2017, the circuit court filed the “Court’s
Sua Sponte Order.” In it, the circuit court stated as follows
with respect to subject matter jurisdiction:
On the issue of the Court’s jurisdiction to hear the
issues related to real property taxes, it is noted that the
Constitution of the State of Hawaiʻi preserves any party’s
right to a trial by jury. One or more party in this case
has requested jury trial. Once it has been demanded, the
jury demand applies to all unless a mutual waiver has been
agreed upon.
The statute creating a “TAX COURT” states that the
Tax Court shall decide all issues of fact and law. HRS
§ 232-13. The statute does not authorize the Tax Court to
empanel a jury for any purpose or to decide those issues
that a party would otherwise have a right to be determined
by a jury. Although the statutes creating the Tax Court
discuss a party’s ability to raise “constitutional issues,”
the statute appears to be devoid of a mechanism whereby a
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person’s right to trial by jury on those issues is
preserved. HRS § 232-15. In addition, the precise
question that the Tax Court has jurisdiction to decide is
set forth in HRS § 232-13.
The question of the circuit court’s subject matter jurisdiction
had come up because the Taxpayers had challenged the “amended
assessments” both in circuit court and by bringing appeals
before the County BOR and TAC. The circuit court therefore
invited the parties to submit further briefing addressing “(1)
whether the Court’s view of the statutes and law is accurate;
(2) if accurate discuss how does such a view comports [sic] with
each party’s rights; and (3) assuming this court exercises
jurisdictions [sic] what if any impact does that have on the
current status of any pending tax appeal, and how should this
Court handle those issues.”
The principal argument in the Taxpayers’ further briefing
was that the circuit court had jurisdiction over the case
because they challenged the legality of the “amended
assessments,” not just their amount. For this proposition,
Taxpayers cited Kingdom and Territory of Hawaiʻi cases, most of
which predated the tax appeal provisions in HRS chapter 232 and
MCC chapter 3.48. See infra note 13.
The County argued that the Taxpayers’ challenge to the
legality of the “amended assessments” was a challenge to the
“change in valuation of the same property,” or the amount of the
assessments. It contended that exclusive subject matter
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jurisdiction over the contested amount of taxes lay with the
TAC.
On August 9, 2017, the circuit court ruled in the
Taxpayers’ favor on the “amended assessment” counts in the SAC
(Counts V, VI, VII, and VIII).5 It ordered the County to refund
the Taxpayers the over $10 million in “amended assessments,” as
well as $83,325.00 in appeal fees to the BOR they had paid. By
further order, the circuit court directed the County to pay
$540,545.94 (representing $111,400.00 in appeal fees the
Taxpayers paid to the TAC, and $429,145.94 in general excise
taxes the Taxpayers paid to the State). The circuit court later
granted the Taxpayers’ request for $455,749.56 in attorneys’
fees and $18,177.43 in costs in Count VIII.
The circuit court concluded it could assert subject matter
jurisdiction over the “amended assessment” counts, Counts V
through VIII of the SAC, because HRS § 232-13 does not empower
the TAC to empanel a jury. It went on to conclude that “circuit
courts are courts of general jurisdiction, and their subject
matter jurisdiction extends to all matters properly brought
before them, unless precluded by constitution or statute.” The
5 The circuit court’s August 9, 2017 order is titled “Court’s Findings of
Fact, Conclusions of Law; Order Granting Plaintiffs’ Motions for Partial
Summary Judgment on Counts V, VI, VII and VIII of the Second Amended
Complaint Filed August 12, 2016, filed on December 1, 2016; and Denying
Defendants County of Maui and the Maui County Council’s Motion for Partial
Summary Judgment as to Count V of the Plaintiffs’ Second Amended Complaint
Filed 2016-08-12, Filed on December 12, 2016.”
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circuit court further stated that the “TAC does not have
exclusive jurisdiction over [the Taxpayers’ claims] in this
case, which specifically challenge the legality of the Amended
Assessments, not their amount.” The circuit court stated that
the TAC had no power to grant the Taxpayers’ requested relief,
which was a declaration that the taxes were unconstitutional.
Lastly, the circuit court concluded that it had asserted
jurisdiction over the “amended assessment” claims first;
therefore, it would retain jurisdiction through the conclusion
of the case.
D. Disposition of Count I of the SAC
The Taxpayers then turned to Count I of the SAC, which
alleged an equal protection violation under the United States
Constitution and the Hawaiʻi State Constitution. On September
29, 2017, the Taxpayers filed a “Motion for Partial Summary
Judgment, Based on Use, as to Count 1 (Equal Protection) of the
Second Amended Complaint Filed August 12, 2016.” They argued
there was no rational basis supporting different real property
taxation rates for timeshares versus hotels, where there was no
difference in actual use of the two types of properties.
On December 19, 2017, the Taxpayers filed a “Motion for
Partial Summary Judgment Re: Illegality of the Timeshare Real
Property Tax Classification,” also as to Count I. They argued
that the County had no authority to create a tax on timeshares
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to remedy disparities in state TAT revenues. They elaborated
that the MCC authorizes real property tax classifications based
on distinctions in use only. Further, they contended that the
Hawaiʻi State Constitution gives the state, not counties, power
over remedying any disparities in assessing or distributing the
TAT.
In its memorandum in opposition, the County countered that
the Taxpayers’ arguments that timeshare and hotel use are
identical, and that the timeshare real property tax is a de
facto TAT, are factually erroneous. The County asserted that
the rational bases behind the timeshare real property tax
classification included collecting a more equitable share of
taxes for County services used by timeshare owners, eliminating
the tax disparity between hotels and timeshares, and
disincentivizing hotel conversion to timeshares.
On March 23, 2018, the circuit court ruled in the
Taxpayers’ favor.6 The circuit court found that the County’s
purpose in establishing the timeshare real property tax
classification was to remedy a perceived disparity in TAT
assessments. The circuit court concluded that such purpose
6 The circuit court’s ruling was titled “Findings of Fact, Conclusions of
Law; Order Granting Plaintiffs’ Motion for Partial Summary Judgment Re:
Illegality of the Timeshare Real Property Tax Classification, Filed December
19, 2017, and Denying as Moot Plaintiffs’ Motion for Partial Summary
Judgment, Based on Use, as to Count I (Equal Protection) of the Second
Amended Complaint Filed August 12, 2016, Filed September 29, 2017.”
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violated the MCC, which requires that tax classifications of
real property be based on actual use. The circuit court
concluded that the timeshare real property tax classification
was “illegal and void.”
E. Appeal
On June 25, 2018, the circuit court entered orders allowing
interlocutory appeals of its rulings in Counts I and V through
VIII of the SAC.7
The County then timely filed its Notice of Appeal from the
June 25, 2018 orders certifying the interlocutory appeals. This
case was subsequently transferred from the ICA to this court.
The County raises the following points of error, the first of
which is dispositive of this appeal:
(1) The circuit court’s assertion of subject matter
jurisdiction over this case was wrong because special and
exclusive subject matter jurisdiction lay with the [TAC];
(2) the circuit court’s ruling voiding the Timeshare real
property taxation classification was contrary to the
constitutional doctrine of separation of powers;
(3) the circuit court’s ruling that the Timeshare real
property taxation classification may only be established
upon consideration of the “actual use” of property was
7 The circuit court’s orders are entitled (1) “Order Certifying for
Interlocutory Appeal the Findings of Fact, Conclusions of Law; (Illegality)
Order, Filed March 23, 2018, Pursuant to Hawaii Revised Statutes Section
641-1(b) and Staying Proceedings under Hawaii Rules of Civil Procedure
Rule[s] 62(d) and (e),” its partial ruling as to Count I, and (2) “Order
Certifying for Interlocutory Appeal Counts V, VI, VII, and VIII of the Second
Amended Complaint, Filed August 12, 2016, Pursuant to Hawaii Rules of Civil
Procedure Rule 54(b), and Staying Proceedings under Hawaii Rules of Civil
Procedure Rule[s] 62(d) and (e).” On July 2, 2018, the circuit court entered
final judgment on Counts V, VI, VII, and VIII of the Second Amended
Complaint.
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wrong and contrary to the Maui County real property tax
code;
(4) the circuit court’s ruling that the [Taxpayers] are
entitled to as much as $34,000,000 in tax refunds was
wrong, an abuse of discretion, and threatens the County’s
bond credit rating and the fiscal security of its
residents;
(5) the circuit court’s ruling (that the County’s decision
to assess back taxes upon the Taxpayers for Timeshare real
property taxes that were inadvertently not previously
taxed, was unconstitutional as “illegal” and “retaliatory”)
was wrong;
(6) the circuit court’s order for a refund for [Taxpayers]
of the paid back taxes and appeal fees, pending an Appeal
in [the TAC], was an abuse of discretion; and
(7) the circuit court’s award of attorneys’ fees and costs
to [Taxpayers] was an abuse of discretion.
F. Partial settlement on appeal
The parties then voluntarily submitted their appeal to the
Center for Alternative Dispute Resolution’s Appellate Mediation
Program (“CADR AMP”). Six months later, the CADR AMP filed a
report informing the court that “[t]he parties partially settled
or narrowed issues, but were unable to resolve the entire
appeal” and “case returned to appellate docket).” In a status
report, the parties represented that mediation had resolved
points of error 5, 6, and 7, and that only the first four points
of error remain to be resolved by this court. The parties
stated that they entered into a Settlement and Release Agreement
in which they agreed to seek vacatur of the circuit court’s
orders and judgments concerning the “amended assessments.”
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The parties contemporaneously filed a “Stipulation for
Partial Dismissal of Appeal with Prejudice and for Remand.” The
parties stipulated to dismiss with prejudice, pursuant to HRAP
Rule 42(b),8 that part of the appeal involving points of error 5,
6, and 7. To that end, they agreed to seek vacatur of those
circuit court orders and judgment giving rise to points of error
5, 6, and 7, including the circuit court’s August 9, 2017 order.9
To the extent that order contained rulings regarding the circuit
court’s subject matter jurisdiction, however, the parties asked
this court not to vacate the order. In other words, on the face
of the Stipulation and Order, the parties agree to dismiss an
order that they acknowledge may contain an issue still before
this court.
The parties further stipulated “that . . . this Court
remand the matter in part, only as to the dismissed Points of
Error, to the [circuit court] for further action as separately
agreed by the parties in their settlement agreement.” Under the
8 HRAP Rule 42(b) is titled “Dismissal in the appellate courts,’ and it
provides the following:
If the parties to a docketed appeal or other proceeding
sign and file a stipulation for dismissal, specifying the
terms as to payment of costs, and pay whatever fees are
due, the case shall be dismissed upon approval by the
appellate court, but no mandate or other process shall
issue without an order of the court. Upon motion and
notice, the appellate court may dismiss the appeal upon
terms fixed by the appellate court.
9 See supra note 5.
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parties’ Settlement and Release Agreement, the “further action”
referred to was an agreement to “jointly request that the Hawaiʻi
Supreme Court dismiss the Amended Assessment Appeal from SCAP
No. XX-XXXXXXX . . . [and] remand this matter in part to the
Second Circuit Court, for further action,” namely the joint
filing of a “Stipulation and Order Partially Lifting Stay” in
order to vacate the circuit court’s orders and final judgment on
the “amended assessment” counts.10
A week later, the County filed a “Motion for Partial
Dismissal of Appeal with Prejudice and Remand for Vacating of
Findings of Fact, Conclusions of Law, Orders and Partial Final
Judgment” (“Motion to Dismiss”). Although the Motion to Dismiss
and the Stipulation and Order both seek a dismissal of the part
of this appeal stemming from the orders and final judgment on
the “amended assessment” counts, the Motion to Dismiss went
further than the Stipulation and Order and directly asked this
court to “direct the circuit court on remand to vacate” the
orders and final judgment on the “amended assessment” counts,
“if this court deems it appropriate.”
10 Under the Settlement and Release Agreement, the County refunded to the
Taxpayers the over $10 million in amended assessments they paid, plus
interest, as well as the BOR fees totaling over $83,000.00. The Taxpayers
will keep this refunded amount. The County will also pay the Taxpayers
$585,326.99 (attorneys’ fees and costs and TAC appeal fees). The parties
will work out GET taxes owed after the 2020 tax season.
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A majority of this court disapproved of the Stipulation and
Order and denied the Motion to Dismiss. The majority noted,
“This court has adopted the United States Supreme Court’s
holding in U.S. Bancorp Mortg. Co. v. Bonner Mall P’ship, 531
U.S. 18, 29 (1994), that ‘mootness by reason of settlement does
not justify vacatur of a judgment under review.’ See Goo v.
Arakawa, 132 Hawaiʻi 302, 314, 321 P.3d 655, 665 (2014).” The
majority further observed that the parties had stipulated to
vacate one of the circuit court’s orders that may still be at
issue in the present appeal.
III. Standards of review
A. Jurisdiction
“The existence of jurisdiction is a question of law that we
review de novo under the right/wrong standard. Questions
regarding subject matter jurisdiction may be raised at any stage
of a cause of action. . . . A judgment rendered by a circuit
court without subject matter jurisdiction is void.” Amantiad v.
Odum, 90 Hawaiʻi 152, 159, 977 P.2d 160, 167 (1999) (citations
omitted).
B. Interpretation of statutes and ordinances
Statutory interpretation is a question of law
reviewable de novo. This court’s statutory construction is
guided by established rules:
First, the fundamental starting point for
statutory interpretation is the language of the
statute itself. Second, where the statutory
language is plain and unambiguous, our sole
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duty is to give effect to its plain and obvious
meaning. Third, implicit in the task of
statutory construction is our foremost
obligation to ascertain and give effect to the
intention of the legislature, which is to be
obtained primarily from the language contained
in the statute itself. Fourth, when there is
doubt, doubleness of meaning, or
indistinctiveness or uncertainty of an
expression used in a statute, an ambiguity
exists.
When interpreting a municipal ordinance, we apply the
same rules of construction that we apply to statutes.
Rees v. Carlisle, 113 Hawaiʻi 446, 452, 153 P.3d 1131, 1137
(2007) (citations omitted).
IV. Discussion
A. The circuit court lacked subject matter jurisdiction over
the Counts I and V through VIII of the Taxpayers’ SAC
1. The parties’ arguments11
11 We note that the Hawaiʻi Tax Foundation was given leave to file a brief
of amicus curiae in this appeal. The Tax Foundation states it is a “non-
partisan, non-political IRC § 501(c)(3) organization whose mission is to
educate taxpayers and lawmakers on taxation and public finance.”
The Tax Foundation acknowledges that “HRS § 632-1, the declaratory
judgment statute on which [the Taxpayers] premised circuit court jurisdiction
in their original and first amended complaints, forbids declaratory judgments
in tax controversies.” The Tax Foundation goes on, however, to argue that
circuit court jurisdiction “is allowed when the lawsuit is not attempting to
keep government from assessing and collecting taxes, so there is no bar when
the taxes in question have already been paid.” In the Tax Foundation’s view,
the Taxpayers are not attempting to keep the government from assessing or
collecting taxes because they paid their timeshare real property taxes under
protest. The Tax Foundation cites to Grace Bus. Dev. Corp. v. Kamikawa, 92
Hawaiʻi 608, 613 n.5, 994 P.2d 540, 545 n.5 (2000), for this proposition.
This case does not apply to the present appeal, as it held that there was no
“actual dispute” before over which the TAC could have had jurisdiction under
HRS § 40-35, the “Payment to state under protest” statute, and that a “formal
administrative decision, such as a notice of assessment, denial of refund, or
an adverse ruling” was required before such a suit could be brought. 92
Hawaiʻi at 612, 613, 994 P.2d at 544, 545. Thus, that case is clearly
distinguishable, as Taxpayers here are contesting “assessments.”
The Tax Foundation also acknowledges that “[s]tatutes and ordinances
relating to tax appeals have established specialized procedures for
contesting tax assessments and specialized bodies such as the Boards of
Review and the Tax Appeal Court,” citing HRS chapter 232 and MCC chapter
3.48. In other words, “tax controversies in court are usually handled by the
(continued. . .)
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The County’s first point of error is that the circuit court
lacked subject matter jurisdiction over this case because
special and exclusive subject matter jurisdiction lay with the
TAC. The County supports its position by citing to the tax
appeal provisions in HRS chapter 232 and MCC chapter 3.48, as
well as Kinkaid v. Bd. of Rev., 106 Hawaiʻi 318, 104 P.3d 905
(2004).12 The County argues that there is no “identifiable
constitutional provision, statute, or code provision pursuant to
which the [c]ircuit [c]ourt could have asserted general subject
matter jurisdiction over an area of law specifically carved out
by statute and recognized by this Court as the exclusive
jurisdiction of the [TAC]. . . .” The County therefore asks us
to void the circuit court’s final judgment; as well as its
orders on Counts I, V, VI, VII, and VIII; and to dismiss this
(continued . . .)
[TAC].” Although the Tax Foundation urges this court to uphold the circuit
court’s exercise of jurisdiction over this case, due to the five years’ worth
of work that went into litigating it, ultimately the Tax Foundation expresses
doubt that the circuit court could award the Taxpayers damages in the form of
tax refunds without “subvert[ing] the prescribed tax appeal processes. . . .”
12 The County relies heavily upon Kinkaid for the proposition that special
and exclusive subject matter jurisdiction over tax matters lay with the TAC.
Kinkaid’s holding was not that broad. In Kinkaid, taxpayers had already
appealed their real property assessments to the BOR and brought dueling
appeals from the BOR to both the TAC and the circuit court. Kinkaid, 106
Hawaiʻi at 320, 104 P.2d at 907. We held only that the TAC has exclusive
jurisdiction over appeals from the BOR, to the exclusion of the circuit
court. Kinkaid, 106 Hawaiʻi at 324, 104 P.2d at 911. Thus, Kinkaid does not
aid us in addressing the issue in this appeal, which is whether the circuit
court had original subject matter jurisdiction to entertain this tax
challenge, to the exclusion of the BOR and TAC.
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case, without prejudice, for lack of subject matter
jurisdiction.
The Taxpayers disagree, asserting that the circuit court
had jurisdiction over their case. They contend that their
challenge to the County’s real property timeshare tax
classification was to the constitutionality and legality, and
not the amount, of the assessment. Therefore, they argue, they
could not have brought their claims to the BOR, which cannot
decide questions of constitutionality or illegality.
Consequently, they argue, they could not have brought their
claims to the TAC, because an appeal to the TAC must come from
the BOR. The Taxpayers then assert that circuit courts exercise
general jurisdiction, and that their subject matter extends to
all matters properly brought before them unless precluded by
constitution or statute, citing State v. Kotis, 91 Hawaiʻi 319,
326 n.9, 984 P.2d 78, 85 n.9 (1999). By contrast, they state,
the TAC is a court of limited jurisdiction, hearing and
deciding, without a jury, direct appeals from tax assessors’
assessments or decisions made by a county BOR, citing Lewis v.
Kawafuchi, 108 Hawaiʻi 69, 73, 116 P.3d 711, 715 (App. 2005).
Lastly, the Taxpayers cite to cases primarily from the Kingdom
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and Territory of Hawaiʻi13 to support the proposition that there
is a distinction between “challenges to the legality of a tax,
13 The Taxpayers cite to McBryde v. Kala, 6 Haw. 529 (Haw. King. 1884);
Hilo Sugar Co. v. Tucker, 8 Haw. 148 (Haw. King. 1890); Shaw v. Booth, 14
Haw. 117 (Haw. Terr. 1902); Hill v. Yee Chan & Co., 31 Haw. 809 (Haw. Terr.
1931); In re Taxes Maui Agr. Co., 34 Haw. 515 (Haw. Terr. 1938); In re Smart,
54 Haw. 250, 505 P.2d 1179 (1973); and Grace Bus. Dev. Corp. v. Kamikawa, 92
Hawaiʻi 659, 994 P.2d 591 (App. 1999). None of these cases have retained
their vitality on the issue of the circuit court’s subject matter
jurisdiction. The first five cases (McBryde, Hilo Sugar Co., Shaw, Hill, and
In re Taxes Maui Agr. Co.) all involve the old distinction between the
regular courts, which could address the illegality of an assessment, and the
specialty tax boards and courts, which could not. See McBryde, 6 Haw. at 530
(holding tax court was without authority to decide whether double taxation
was illegal, because double taxation was not among the enumerated issues the
tax court was authorized by statute to address); Hilo Sugar Co., 8 Haw. at
150 (holding circuit court “may interfere where the assessment is illegal,”
but not “to review the judgment of the Assessor in estimating values); Shaw,
14 Haw. at 119 (“In general, questions of judgment and fact are for the
assessors and the specially constituted tax courts and questions of
constitutionality . . . are for the regular courts.”); Hill, 31 Haw. at 812
(holding that a taxpayer could collaterally attack, in circuit court, an
updated assessment as an “unauthorized and invalid” exercise of power by the
assessor); In re Taxes Maui Agr. Co., 34 Haw. at 551 (holding that the tax
courts lacked jurisdiction to determine the validity of an assessment). In
re Taxes of Maui Agr. Co. appears to have been overruled by In re Valley of
Temples Corp., 56 Haw. 229, 230-31, 533 P.2d 1218, 1219 (1975), which held,
“We hold that In re Taxes Maui Agr. Co., supra, decided in 1938, is no longer
applicable authority in the determination of the Tax Appeal Court’s
jurisdiction in real property tax appeals. Since 1939 the Legislature has
expressly provided that an appeal from a final decision of the Board to the
Tax Appeal Court ‘shall bring up for determination all questions of fact and
all questions of law, including constitutional questions involved in the
appeal.’ 1939 S.L.H. c. 208, § 7; HRS § 232-17 (Supp. 1974).” (Emphasis
added; footnote omitted). In re Valley of the Temples Corp. thus implicitly
overruled the pre-1938 cases, McBryde, Hilo Sugar Co., Shaw, and Hill, as
well. Similarly, In re Smart, 54 Haw. 250, 505 P.2d 1179, appears to have
been superseded by the statute cited in In re Valley of Temples, Corp., HRS
§ 232-17. In re Smart held that “where Taxpayer’s suit contests the
valuation placed upon the real property by the tax assessor rather than the
legality of the assessment, we are of the opinion that the language of HRS
§ 246-46 [requiring appeals of assessments to come before the BOR or TAC]
applies exclusively,” and remanding the case to the circuit court for
dismissal. 54 Haw. at 252, 505 P.2d at 1181. Lastly, it is true that the
Taxpayers’ last case, Grace Bus. Dev. Corp. v. Kamikawa, 92 Hawaiʻi at 669,
994 P.2d at 601 held that “[w]here . . . the dispute is not over the amount
of the taxes, but over their basic validity, HRS § 40-35 [which allowed suit
in the circuit court] is the avenue for taxpayer relief. Where the dispute
is over the amount of the value or tax assessed, chapter 232 [requiring
appeal to the BOR and TAC] appl[ies].” The case was reversed by this court
in Grace Bus. Dev. Corp., 92 Hawaiʻi 608, 994 P.2d 504, because there was no
(continued. . .)
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which may be raised initially in a court of original
jurisdiction, from challenges to the amount of a valuation or
tax, which may not.”14
(continued . . .)
“actual dispute,” since the taxpayers were not assessed any taxes before they
brought their challenge to the TAC.
14 The Taxpayers also argue that the County “conflates the jurisdictional
considerations underlying the Illegality Order and the [“Amended
Assessments”] Order; however, we note that the Taxpayers’ arguments
concerning subject matter jurisdiction as to both aspects of this case are
largely the same. Thus, we treat the issue of the circuit court’s subject
matter jurisdiction as pertaining to all of the orders and the judgment that
are the subjects of this interlocutory appeal.
We note that the only additional reasons the circuit court gave for
exercising jurisdiction over the “amended assessments” counts were that (1)
the Taxpayers had made a jury demand in their complaint, FAC, and SAC, and
the TAC is not empowered to empanel a jury under HRS § 232-13, and (2) that
the circuit court had exercised jurisdiction first. These reasons do not
support an exercise of the circuit court’s jurisdiction over this real
property tax appeal.
First, the right to a jury trial presupposes jurisdiction in the
circuit court to begin with. The right alone is not an independent basis for
jurisdiction in the circuit courts. Hawaiʻi State Constitution article I,
section 13 states, “In suits at common law where the value in controversy
shall exceed five thousand dollars, the right of trial by jury shall be
preserved.” In determining whether a suit is “at common law,” the test is
“whether the cause of action seeks legal or equitable relief.” In re Marn
Family Litig., 141 Hawaiʻi at 8, 403 P.3d at 628. Thus, courts look to “the
nature of the remedy to determine whether a jury trial is warranted.” Id.
Generally, where the remedy requested is legal, there is a right to jury
trial; by contrast, where the remedy requested is equitable, there is no
right to jury trial. Id. In this case, the Taxpayers requested declaratory
relief, for which there is generally a right to jury trial. Id. However,
HRS § 632-1 precludes declaratory relief in tax controversies. Therefore,
there is no relief requested by Taxpayers that would afford them the right to
a jury trial in Counts I and V through VII certified for interlocutory
appeal. And although there would also be a right to jury trial under Count
VIII, the 42 U.S.C. § 1983 count, liability under that count was based on the
circuit court’s declaration of federal constitutional violations in other
counts over which it lacked subject matter jurisdiction. Therefore, the
right to a jury trial does not provide a basis for subject matter
jurisdiction in the circuit court as to the counts before us.
Second, lack of subject matter jurisdiction can be raised at any point
in the proceedings, regardless of whether the circuit court “exercised
jurisdiction first.” Questions regarding subject matter jurisdiction “may be
raised at any stage of a cause of action. . . . A judgment rendered by a
circuit court without subject matter jurisdiction is void.” Amantiad, 90
Hawaiʻi at 159, 977 P.2d at 167.
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This first point of error concerning the circuit court’s
subject matter jurisdiction is dispositive of the entire
interlocutory appeal. As a preliminary matter, we note that the
Taxpayers consistently sought declaratory relief in their
Complaint, FAC, and SAC pursuant to HRS § 632-1.15 As further
discussed below, declaratory relief under HRS § 632-1 is not
available for “any controversy with respect to taxes” that seeks
to interfere with the County’s authority to assess and collect
real property timeshare taxes. Rather, the Taxpayers should
have proceeded through the tax appeal procedures set forth in
HRS chapter 232 and MCC chapter 3.48, which require an appeal of
assessments to the County BOR and TAC, even for questions
15 As noted, Taxpayers specifically referenced HRS § 632-1 in their
Complaint, FAC, and SAC. The Taxpayers’ initial Complaint requested relief
in the form of a declaration that (1) the timeshare classification and tax
rate violated the equal protection clauses of the United States Constitution
and Hawaiʻi State Constitution, and (2) Maui County Resolution No. 13-60,
establishing the fiscal year 2014 real property timeshare tax rate, was void
as violative of the Sunshine Law. The Taxpayers’ FAC again requested relief
in the form of a declaration that (1) the timeshare classification and tax
rates violated the equal protection clauses of the United States and Hawaiʻi
Constitutions, and that (2) Maui County Resolution Nos. 13-60 and 14-54,
establishing the fiscal year 2014 and 2015 real property timeshare tax rates,
respectively, were void as violative of the Sunshine Law, and, therefore,
also violated the Taxpayers’ procedural due process rights under the United
States Constitution and Hawaiʻi State Constitution. The Taxpayers’ SAC again
requested relief in the form of a declaration that (1) the real property
timeshare classification and fiscal year 2014 and 2015 rates were
unconstitutional, (2) the Maui County resolutions establishing the fiscal
year 2014 and 2015 real property timeshare tax rates were void as violative
of the Sunshine Law and, therefore, violated Taxpayer’s procedural due
process rights, and that (3) the “amended assessments” were invalid and
unenforceable because they violated the Maui County Code; the rights to free
speech, to petition the government for redress, and to procedural and
substantive due process under the United States Constitution and the Hawaiʻi
State Constitution; therefore, the Taxpayers were entitled to refunds of real
property taxes and appeal fees paid.
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involving the constitutionality or illegality of an assessment.16
As to Counts I and V through VII certified for interlocutory
appeal, we therefore agree with the County that the circuit
court lacked subject matter jurisdiction to address the
assessments challenged by the Taxpayers in this case. In
addition, as Count VIII, the 42 U.S.C. § 1983 count, is
dependent on alleged constitutional violations declared in other
counts certified for interlocutory appeal, that part of the
judgment must be set aside on that basis also.17
2. HRS § 632-1 precludes declaratory relief in
“any controversy with respect to taxes”
We address HRS § 632-1 first. As specially stated in the
Complaint, FAC, and SAC, this case was brought seeking
16 We note that equal protection challenges to County tax assessments have
come to this court through the County BORs and the TAC. See, e.g., Corboy v.
Louie, 128 Hawaiʻi 89, 283 P.3d 695 (2011) (county taxpayer suit alleging
denial of exemption from real property taxes equal to the exemption granted
to Hawaiian homestead lessees under the Hawaiian Homes Commission Act
violated their right to equal protection under the United States Constitution
and Hawaiʻi State Constitution, and seeking a refund of real property taxes
paid). Similarly, cases like the Taxpayers’, challenging County real
property tax classifications as illegal or violative of constitutional equal
protection, have also come to this court through the County BORs and the TAC.
See, e.g., Gardens at West Maui Vacation Club v. Cty. of Maui, 90 Hawaiʻi 334,
978 P.2d 772 (1999) (county taxpayer suit alleging that re-classification of
Maui timeshares from “apartment” to “hotel/resort” classification violated
equal protection under the United States Constitution and the Hawaiʻi State
Constitution); Kinkaid, 106 Hawaiʻi 318, 104 P.3d 905 (county taxpayer suit
alleging that re-classification of their residential units from “apartment”
to “hotel and resort” was “unlawful”). The legal challenges raised in the
Taxpayers’ case are of the kind that the TAC is authorized and able to
address.
17 See also infra note 19.
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declaratory relief under HRS § 632-1, which provides the
following:
In cases of actual controversy, courts of record, within
the scope of their respective jurisdictions, shall have
power to make binding adjudications of right, whether or
not consequential relief is, or at the time could be,
claimed, and no action or proceeding shall be open to
objection on the ground that a judgment or order merely
declaratory of right is prayed for; provided that
declaratory relief may not be obtained in any district
court, or in any controversy with respect to taxes, or in
any case where a divorce or annulment of marriage is
sought.
(Emphasis added.)
The instant case is a “controversy with respect to taxes.”
We recently interpreted that phrase in Tax Foundation v. Hawaiʻi,
144 Hawaiʻi 175, 439 P.3d 175 (2019). In that case, the Tax
Foundation brought a complaint for declaratory relief under HRS
§ 632-1. 144 Hawaiʻi at 181, 439 P.3d at 133. It brought claims
under the Hawaiʻi State Constitution challenging the Department
of Budget and Finance’s practice of retaining, for
administrative costs, a portion of the City and County of
Honolulu’s rail surcharge on general excise and use taxes. Id.
The circuit court granted the State’s motion to dismiss the
complaint, which asserted, inter alia, that the circuit court
lacked subject matter jurisdiction because HRS § 632-1 prohibits
declaratory relief in any controversy with respect to taxes.
144 Hawaiʻi at 182, 183, 439 P.3d at 134, 135.
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We concluded that the circuit court erred in dismissing the
Tax Foundation’s complaint for lack of subject matter
jurisdiction, because the Tax Foundation’s complaint was not a
“controversy with respect to taxes” under HRS § 632-1. 144
Hawaiʻi at 188, 439 P.3d at 140. We explained that the Tax
Foundation was not “disput[ing] its liability to pay general
excise and use tax, or the Honolulu County surcharge.” Id.
Rather, it contested “only the ‘administration and allocation’
of the Honolulu County surcharge after it is assessed and
collected.” Id. We therefore adopted the holding in Hawaiʻi
Ins. Council v. Lingle, 117 Hawaiʻi 454, 184 P.3d 769 (App.
2008), that declaratory relief “may be obtained in tax matters
under HRS § 632-1 where such relief does not interfere with the
assessment or collection of taxes.” Id. (emphasis added).
In this case, however, the Taxpayers’ Complaint, FAC, and
SAC all sought declaratory relief in the form of voiding the
County’s real property timeshare tax, a result which would
“interfere with the assessment or collection of taxes.”
Therefore, in this case, the Taxpayers’ suit is a “controversy
with respect to taxes,” for which declaratory relief under HRS
§ 632-1 is not allowed. For that reason, the circuit court
lacked jurisdiction over the Taxpayers’ suit.
This is not to say that Taxpayers were without recourse in
challenging the legality or constitutionality of the real
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property timeshare tax classification, rates, or assessments.
Their recourse was through the county procedures for appealing
tax assessments. We note that the Hawaiʻi State Constitution,
article VIII, section 3 sets forth the counties’ authority over
real property taxes as follows: “The taxing power shall be
reserved to the State, except so much thereof as may be
delegated by the legislature to the political subdivisions, and
except that all functions, powers and duties relating to the
taxation of real property shall be exercised exclusively by the
counties, with the exception of the county of Kalawao.”
(Emphasis added.) HRS chapter 232, titled “Tax Appeals,”
reinforces the primacy of the tax appeal procedures set forth in
County codes like MCC chapter 3.48, titled “Real Property Tax.”
HRS § 232-3 is titled “Grounds for appeal, real property taxes,”
and it states that a taxpayer aggrieved by an assessment must
show a “[l]ack of uniformity or inequality, brought about by
illegality of the methods used or error in the application of
the methods to the property involved,” HRS § 232-3(2), or
“[i]llegality, on any ground arising under the Constitution or
laws of the United States or the laws of the State (in addition
to the ground of illegality in the methods used, mentioned in
[HRS § 232-3(2)],” HRS § 232-3(4). Similarly, MCC § 3.48.605,
titled “Grounds -- Real property taxes,” provides that a
taxpayer aggrieved by an assessment must show:
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B. Lack of uniformity or inequality, brought about by
inability [sic] of the methods used or error in the
application of the methods to the property involved; or
. . . .
E. Illegality, on any ground arising under the
Constitution or laws of the United States or the laws of
the State or the ordinances of the County in addition to
the ground of illegality of the methods used, mentioned in
subsection B of this section.
In this case, portions of Count I as well as Counts V
through VII have been certified for interlocutory appeal. In
Count I, the Taxpayers alleged that the County’s real property
timeshare tax classification and rates violated the equal
protection clauses of the United States Constitution and the
Hawaiʻi State Constitution, because timeshares were taxed at a
much higher rate than hotels and resorts, even though the actual
use of both classifications of real property was similar.
Likewise, Count V sought a declaratory judgment as to the
illegality of the “amended assessment," Count VI alleged
violations of the right to free speech and the right to petition
the government for redress under the United States Constitution
and Hawaiʻi State Constitution, and Count VII alleged a violation
of procedural due process under the United States Constitution
and the Hawaiʻi State Constitution. Also, the attorneys’ fees
and costs awarded under Count VIII, the 42 U.S.C § 1983 count,
were dependent upon the constitutional violations found by the
circuit court in other counts; therefore Count VIII was
dependent on the rulings regarding unconstitutionality in other
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counts, so the award of attorneys’ fees and costs must be set
aside.18 Taxpayers alleged they were not liable for taxes, and
they requested and obtained an order from the circuit court
ruling the taxes illegal and unconstitutional and ordering a
refund of taxes already paid. Thus, as HRS § 632-1 precludes
declaratory judgments for “controvers[ies] with respect to
taxes” that “interfere[] with the assessment or collection of
taxes,” the circuit court lacked subject matter jurisdiction as
to Counts and V through VII and as to the liability portion of
Count VIII, which was dependent on the other counts.19
18 See also infra note 19.
19 With respect to Count VIII asserting a 42 U.S.C. § 1983 violation, we
note that in National Private Truck Council, Inc., v. Oklahoma Tax
Commission, 515 U.S. 582 (1995), the United States Supreme Court explicitly
held as follows:
In determining whether Congress has authorized state courts
to issue injunctive and declaratory relief in state tax
cases, we must interpret § 1983 in light of the strong
background principle against federal interference with
state taxation. Given this principle, we hold that §
1983 does not call for either federal or state courts to
award injunctive and declaratory relief in state tax cases
when an adequate legal remedy exists. Petitioners do not
dispute that Oklahoma has offered an adequate remedy in the
form of refunds. Under these circumstances, the Oklahoma
courts’ denial of relief under § 1983 was consistent with
the long line of precedent underscoring the federal
reluctance to interfere with state taxation.
This holding expanded on the Court’s previous holding in Fair
Assessment in Real Estate Ass’n, Inc. v. McNary, 454 U.S. 100 (1981), in
which the Court held that 42 U.S.C. § 1983 does not permit federal courts to
award damages in state tax cases when state law provides an adequate remedy.
454 U.S. at 116.
In National, the Court went on to state:
(continued. . .)
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We note that Taxpayers are not without remedies to obtain
the relief they request. A taxpayer aggrieved by an assessment
can appeal to the County BOR under HRS § 232-15 (titled “Appeal
to board of review”).20 The taxpayer can raise questions
(continued . . .)
Of course, nothing we say prevents a State from empowering
its own courts to issue injunctions and declaratory
judgments even when a legal remedy exists. Absent a valid
federal prohibition, state courts are free to issue
injunctions and declaratory judgments under state law.
When a litigant seeks declaratory or injunctive relief
against a state tax pursuant to § 1983, however, state
courts, like their federal counterparts, must refrain from
granting federal relief under § 1983 when there is an
adequate legal remedy.
515 U.S. at 592.
Based on National and Fair Assessment, some state courts of last resort
have held that state courts cannot entertain 42 U.S.C § 1983 claims brought
by taxpayers where state law provides an adequate remedy. See, e.g., Francis
v. City of Columbus, 676 N.W.2d 346 (Neb. 2004) (holding that where state law
provides an adequate legal remedy, state courts cannot entertain a § 1983
claims); Kowenhoven v. County of Allegheny, 901 A.2d 1003 (Penn. 2006)
(holding that taxpayers challenging county assessment practices had adequate
state law remedy that precluded claim for § 1983 money damages); Jade
Aircraft Sales, Inc. v. Crystal, 674 A.2d 834 (Conn. 1996) (holding that
because taxpayer challenging use tax in connection with taxpayer’s in-state
use of airplane purchased out-of-state had an opportunity to receive an
adequate legal remedy, trial court did not have jurisdiction to entertain the
§ 1983 action); General Motors Corp. v. City of Linden, 671 A.2d 560 (N.J.
1996) (holding in taxpayer case alleging due process violation for alleged
discrimination by city in assessing automobile assembly plant, adequacy of
state law remedies barred state courts from providing relief under § 1983 for
tax claim); and Camps Newfound/Owatonna Corp. v. Town of Harrison, 705 A.2d
1109 (Maine 1998) (requiring dismissal of § 1983 claim brought by taxpayer
challenging constitutionality of statute denying property tax exemption for
nonprofits operated principally for out-of-state residents because state law
provided adequate remedy).
Because this issue was not briefed by the parties, we do not further
address this issue at this time.
20 HRS § 232-16, titled “Appeal to tax appeal court,” allows direct
appeals to the TAC, but not where taxpayers are appealing a real property tax
assessment. In appeals from real property tax assessments, the taxpayer
“shall first obtain a decision from an administrative body established by
county ordinance, prior to appealing to the tax appeal court, if county
(continued. . .)
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involving the United States Constitution, which the BOR is not
authorized to entertain, but which preserves the issues for a
later appeal to the TAC:
The appeal shall be considered and treated for all purposes
as a general appeal and shall bring up for determination
all questions of fact and all questions of law, excepting
questions involving the Constitution or laws of the United
States, necessary to the determination of the objections
raised by the taxpayer in the notice of appeal. Any
objection involving the Constitution or laws of the United
States may be included by the taxpayer in the notice of
appeal and in such case the objections may be heard and
determined by the tax appeal court on appeal from a
decision of the board of review; but this provision shall
not be construed to confer upon the board of review the
power to hear or determine such objections.
HRS § 232-15 (emphasis added). See also MCC § 3.48.625 (“The
[BOR] shall have the power and authority to decide all questions
of fact and all questions of law, excepting questions involving
the Constitution or laws of the United States, necessary to the
determination of the objections raised by the taxpayer . . . in
the notice of appeal; provided, that the [BOR] shall not have
power to determine or declare an assessment illegal or
void. . . .”).
A taxpayer dissatisfied with the decision of the County BOR
may appeal to the TAC, at which time the constitutional
questions can be addressed:
(continued . . .)
ordinance requires a taxpayer to do so.” In this case, MCC § 3.48.595 is a
county ordinance requiring a taxpayer to “first appeal to the County board of
review, pursuant to section 232-16, Hawaii Revised Statutes.”
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An appeal shall lie to the tax appeal court from the
decision of a state board of review, or equivalent
administrative body established by county ordinance.
. . . . The appeal shall bring up for determination all
questions of fact and all questions of law, including
constitutional questions involved in the appeal.
HRS § 232-17 (Emphasis added.) The TAC “shall have the power
and authority. . . to decide all questions of fact and all
questions of law, including constitutional questions, involved
in any such matters, without the intervention of a jury.” HRS
§ 232-11; see also HRS § 232-13 (“[T]he [tax appeal] court shall
determine all questions of fact and all questions of law,
including constitutional questions, involved in the appeal.”).
See also MCC § 3.48.655 (“The appeal [to the TAC] shall be
considered and treated for all purposes as a general appeal and
shall bring up for determination all questions of fact and all
questions of law, excepting questions involving the Constitution
or laws of the United States, necessary for the determination of
the objections raised by the taxpayer in the notice of appeal.
Any objection involving the Constitution or laws of the United
States may be included by the taxpayer in the notice of appeal,
and in such case, the objections may be heard and determined by
the tax appeal court on appeal from a decision of the board of
review.”). Appeals of TAC decisions go to the ICA (HRS
§ 232-19), then on to this court (HRS § 602-59), for further
review of any constitutional rulings. Contrary to the
Taxpayers’ assertions, the circuit court was without authority
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to exercise general jurisdiction over this matter, where doing
so was precluded by HRS chapter 232 and MCC chapter 3.48.
In short, the circuit court lacked subject matter
jurisdiction over the Taxpayers’ challenges to their real
property tax assessments, because (1) they raised a “controversy
with respect to taxes” under HRS § 632-1, which the circuit
court was not authorized to entertain, and (2) HRS chapter 232
and MCC chapter 3.48 provided the process by which Taxpayers
could bring their challenges to the legality and
constitutionality of the real property timeshare tax
classification and rates.
B. The parties’ stipulation and order was properly
disapproved, and the County’s motion for partial dismissal
of this appeal was properly denied.
The parties asked this court to order the circuit court to
vacate certain of its orders and its judgment, related to the
“amended assessments” counts solely due to their partial
settlement of the “amended assessments” points of error. Had
this court so acted, the circuit court would have vacated the
very order containing its erroneous assertion of subject matter
jurisdiction, before this court would have had a chance to
review it.21
21 See text accompanying note 9 as well as supra note 5.
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Moreover, there are grave concerns posed by adopting a
process by which an appellate court, based solely on settlement
of the parties on appeal, approves a stipulation to dismiss an
appeal, where the parties’ end goal is vacating a trial court’s
orders or judgments. This process, known as a “stipulated
reversal” or “stipulated vacatur” was discussed in Neary v.
Regents of Univ. of California, 834 P.2d 119, 131 (Cal. 1992).
In that case, the California Supreme Court held that its
“appellate courts have the legal authority to reverse (or
otherwise vacate) a trial court’s judgment when the parties
stipulate to such action as a condition of a proposed settlement
pending appeal,” absent a showing of extraordinary
circumstances. Neary, 834 P.2d at 120, 125. The Neary court
supported its holding with the following policy pronouncements:
(1) settlement agreements are highly favored, and even a post-
judgment settlement will spare the parties, as well as the
judiciary, future expenditures of time and money; (2) denying a
stipulated reversal is unfair to the parties as it does not
carry out their interests in ending litigation; and (3) trial
court judgments can be reversed or vacated by stipulation, as
trial court judgments are not binding authority in any event.
834 P.2d at 121-25.
The dissent in Neary presented the following policy reasons
against adopting the stipulated reversal procedure: (1)
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stipulated reversals erode public confidence in the judiciary
due to the perception that a party with enough financial means
can “purchase the nullification of the adverse judgment”; (2)
stipulated reversals discourage pretrial settlements; (3) trial
court judgments should be preserved for their public value; (4)
parties should not be allowed to dictate an appellate courts’
actions. Neary, 834 P.2d at 127-33 (Kennard, J., dissenting).
The Neary decision has been roundly criticized by legal
scholars. See, e.g., Judith Resnik, Whose Judgment? Vacating
Judgments, Preferences for Settlement, and the Role of
Adjudication at the Close of the Twentieth Century, 41 UCLA L.
Rev. 1471 (1994); Steven R. Harmon, Unsettling Settlements:
Should Stipulated Reversals be Allowed to Trump Judgments’
Collateral Estoppel Effects Under Neary, 85 Cal. L. Rev. 479
(1997); Daniel Purcell, The Public Right to Precedent: A Theory
and Rejection of Vacatur, 85 Cal. L. Rev. 867 (1997); Michael W.
Loudenslager, Erasing the Law: The Implications of Settlements
Conditioned upon Vacatur or Reversal of Judgments, 50 Wash. &
Lee L. Rev. 1229 (1993). One scholar highlighted the “tangible
but frequently undetectable social costs” of allowing courts to
consider vacaturs based solely on the parties’ settlement during
the pendency of an appeal:
These costs include the public cost of forgoing the
collateral estoppel and res judicata effects of the prior
judgment. This cost is borne directly by third party
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litigants but shared by the public interest in preventing
duplicative and piecemeal litigation. The costs also
include the erasure of collateral consequences of an
adverse judgment, the loss of precedential value for
judicial decisions, and a diminished respect for the
judicial process. Moreover, rather than encouraging the
settlement process, a judicial rule encouraging routine
grants of vacatur disrupts the process. A procedure which
allows parties to obtain vacatur as a matter of right by
conditioning a postjudgment settlement on vacatur will
encourage parties to delay settlement until after trial
because the effects of an adverse judgment can be avoided
at little or no cost by postjudgment settlement. The
procedure will also permit the prevailing party to obtain
as a private windfall the public costs of vacatur, and will
place the defense of the integrity of judicial decisions in
the hands of litigants who are not in a position to
safeguard the public values inherent therein.
Accordingly, the settlement of a case pending appeal should
not entitle the litigants to vacatur as a matter of right.
Rather, the courts should review motions to vacate with the
presumption that vacatur is not an appropriate tool for
erasing an unfavorable trial court decision. The standard
motion to vacate after a postjudgment settlement, motivated
solely by the losing party’s desire to avoid the collateral
consequences of that judgment, should be routinely denied.
Though the litigants should retain the opportunity to
persuade the court that there is particular prejudice in an
individual case, such as the unfairness presented by the
Munsingwear[22] doctrine, the litigants should bear the
burden of convincing the court that this dilemma is not of
their own making. Absent such a showing, the judgment in a
case which has been resolved through settlement should
enjoy the same vitality as that in any other case in which
the losing litigant chooses not to appeal.
Jill E. Fisch, Rewriting History: The Propriety of Eradicating
Prior Decisional Law Through Settlement and Vacatur, 76 Cornell
L. Rev. 589, 641-42 (1991) (emphasis added).
The United States Supreme Court rejected the stipulated
reversal process for federal courts in U.S. Bancorp Mortg. Co.
v. Bonner Mall P’ship, 513 U.S. 18 (1994). One commentator
22 See United States v. Munsingwear, 340 U.S. 36, 39-40 (1950) (allowing
an appellate court to vacate or reverse a trial court judgment during the
pendency of an appeal when the case is mooted through “happenstance”).
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characterized Bancorp as “having dealt perhaps the most
significant blow to Neary” without even mentioning it by name.
Harmon, Unsettling Settlements, 85 Cal. L. Rev. at 481. In
Bancorp, the United States Supreme Court addressed “whether
appellate courts in the federal system should vacate civil
judgments of subordinate courts in cases that are settled after
appeal is filed or certiorari sought.” Bancorp, 513 U.S. at 19.
In other words, the issue was “whether courts should vacate
where mootness results from a settlement.” 513 U.S. at 23. The
Bancorp court answered in the negative:
We hold that mootness by reason of settlement does not
justify vacatur of a judgment under review. This is not to
say that vacatur can never be granted when mootness is
produced in that fashion. As we have described, the
determination is an equitable one, and exceptional
circumstances may conceivably counsel in favor of such a
course. It should be clear from our discussion, however,
that those exceptional circumstances do not include the
mere fact that the settlement agreement provides for
vacatur —- which neither diminishes the voluntariness of
the abandonment of review nor alters any of the policy
considerations we have discussed. Of course even in the
absence of, or before considering the existence of,
extraordinary circumstances, a court of appeals presented
with a request for vacatur of a district-court [sic]
judgment may remand the case with instructions that the
district court consider the request, which it may do
pursuant to Federal Rule of Civil Procedure 60(b).
Bancorp, 513 U.S. at 25 (emphasis added). In terms of policy
considerations against vacatur following settlement on appeal,
the Bancorp court noted, “Where mootness results from settlement
. . . the losing party has voluntarily forfeited his legal
remedy by the ordinary processes of appeal or certiorari,
thereby surrendering his claim to the equitable remedy of
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vacatur.” Bancorp, 513 U.S. at 25. The Court continued, “To
allow a party who steps off the statutory path to employ the
secondary remedy of vacatur as a refined form of collateral
attack on the judgment would -- quite apart from any
consideration of fairness to the parties -- disturb the orderly
operation of the federal judicial system.” Bancorp, 513 U.S. at
27.
Thus, Bancorp strongly discouraged stipulated vacaturs and
reversals based solely on settlement on appeal. The Bancorp
court, however, retained an exception to this rule, previously
articulated in dictum in Munsingwear, 340 U.S. 36, that
“mootness by happenstance provides sufficient reason to vacate.”
Bancorp, 513 U.S. at 25 n.3. Happenstance includes
circumstances unattributable to any of the parties, and it does
not include settlement, which the parties enter into
voluntarily. Bancorp, 513 U.S. at 23-27.
In Goo, this court generally adopted the United States
Supreme Court’s holding and policy reasons23 from Bancorp, 531
U.S. at 29, that “mootness by reason of settlement does not
23 Goo also noted a further undesirable unintended consequence of allowing
parties to stipulate to vacatur after settlement on appeal as follows: “This
practice had led to a situation where ‘repeat litigants,’ such as insurance
companies, were settling cases after losing at the trial level against ‘one-
time litigants,’ such as policy-holders, but only on the condition that
judgments adverse to the interests of the repeat litigant were vacated,” thus
enabling insurance companies to “eradicate or reduce the number of pro-policy
holder decisions and then argue that the weight of authority [was] in their
favor.” Id. (citation omitted, brackets in original).
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justify vacatur of a judgment under review.” See Goo, 132
Hawaiʻi at 314-15, 321 P.3d at 665-66. Goo characterized Bancorp
as holding “that appellate courts could no longer vacate lower
court judgments based solely on a settlement agreement, which
represents a voluntary abandonment of the right to appellate
review, absent ‘exceptional’ or ‘extraordinary’ circumstances.”
132 Hawaiʻi at 314, 321 P.3d at 665.24
Goo went on, however, to observe that where a fact-
intensive inquiry is required in order to determine, in the
first instance, whether mootness on appeal was the result of
happenstance or a party’s voluntary action, then it is
appropriate for the appellate court to remand the case to the
trial court for its evaluation. 132 Hawaiʻi at 317-18, 321 P.3d
at 667-68.25 Under those circumstances, Goo held, “[W]hen a case
24 Respectfully, the dissent therefore misapprehends the holding of Goo
when it states “this court . . . examined this issue . . . and . . .
concluded that, when parties to a case on appeal seek vacatur of the trial
court’s order pursuant to settlement, the appropriate course is to remand the
case so that the trial court may consider the equities of the motion for
vacatur.”
25 In Goo, real property developers had had their preliminary plat
approval rescinded after Maui County changed its height restriction
ordinance. 132 Hawaiʻi at 307, 321 P.3d at 659. The developers then met
privately with the Maui mayor and secured his permission to continue
developing the project. Id. Neighboring homeowners then successfully sued
the developers, the mayor, and the county planning director seeking
declaratory and injunctive relief requiring the county to enforce the new
height restriction ordinance. 132 Hawaiʻi at 308, 321 P.3d at 659. Upon the
denial of their motion for attorney’s fees, the homeowners appealed to the
ICA. 132 Hawaiʻi at 309, 321 P.3d at 660. On appeal, the case was mooted
when the Maui County Council passed an ordinance essentially grandfathering
in the development at its planned height, as part of a “global settlement” of
various lawsuits concerning the new height restriction ordinance. 132 Hawaiʻi
(continued. . .)
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becomes moot on appeal and the trial court has not had an
opportunity to evaluate a motion for vacatur, the appellate
court, in the absence of exceptional circumstances, should
remand the case to the trial court to give the court the first
opportunity to evaluate the cause of the mootness based on a
complete record” instead of the appellate court itself vacating
the judgment. 132 Hawaiʻi at 317, 321 P.3d at 668. Goo did not
in any way preclude an appellate court from declining a request
to vacate a trial court judgment. Goo’s further statement, that
“when a case is mooted while on appeal, the appellate court
should, absent exceptional circumstances, remand the case to the
trial court for a consideration of the vacatur issue,”26
(continued . . .)
at 310, 312, 321 P.3d at 661, 663. The developers persuaded the ICA to
vacate the circuit court’s judgment due to mootness. 132 Hawaiʻi at 311, 321
P.3d at 662. On certiorari, this court vacated the ICA’s judgment and
remanded the case to the circuit court to determine whether vacatur of its
order was appropriate, because it was unclear whether mootness occurred by
happenstance or through the voluntary action of a party (the County). 132
Hawaiʻi at 318, 321 P.3d at 669.
In this case, no fact-intensive inquiry is required, as this settlement
was the result of the parties’ voluntary action. The dissent would instead
presumptively allow remands for the trial court to consider the equities of
vacatur even without circumstances requiring a fact-intensive inquiry.
26 The context of this sentence in Goo differs from the dissent’s
characterization. Goo stated that where a fact-intensive inquiry is required
in order to determine whether mootness on appeal was the result of
happenstance or a party’s voluntary action, then it is appropriate for the
appellate court to remand the case to the trial court for its evaluation.
132 Hawaiʻi at 317-18, 321 P.3d at 667-68. The dissent would instead make
remand for trial court consideration of the equities of vacatur the
presumption rather than the exception. We disagree with the dissent’s
assertion that “the trial court is best equipped to make the equitable
determination of whether vacatur is appropriate.” Respectfully, this court’s
function and role differs from that of trial courts. This court’s
“jurisdiction and powers” include “mak[ing] . . . such . . . mandates and
(continued. . .)
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similarly applies only where the cause of mootness on appeal is
unclear and the inquiry into it fact-intensive and the appellate
court has concluded that vacatur may be an appropriate
disposition in the case. In short, Goo held that mootness
solely by reason of settlement does not justify vacatur of a
judgment under review, but, where the cause of mootness is
unclear (i.e., whether it is the result of happenstance or some
voluntary action of a party or parties), remand to the trial
court for its evaluation is appropriate. Goo, 132 Hawaiʻi at
314-15, 317, 321 P.3d at 665-66, 668. The instant case
represents a clear example of mootness on appeal solely by
reason of the voluntary settlement of the parties; therefore,
remand to the circuit court for its evaluation of vacatur was
not necessary or desirable. Rather, disapproval of the parties’
stipulation and order, and the County’s motion for partial
dismissal, were appropriate.
V. Conclusion
For the foregoing reasons, the circuit court lacked subject
matter jurisdiction over the Taxpayers’ challenges to their real
(continued . . .)
tak[ing] such other steps . . . for the promotion of justice . . . .” HRS
§ 602-5(a)(6). The Neary dissent cited above by former Justice Joyce Kennard
of the California Supreme Court, who served on that court for thirty-five
years, succinctly explains why the “promotion of justice” dictates against
procedures that facilitate stipulated reversals.
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property timeshare tax assessments. We therefore vacate the
orders and judgment giving rise to this interlocutory appeal and
remand this case to the circuit court for further proceedings
consistent with this opinion.
Brian A. Bilberry /s/ Sabrina S. McKenna
for appellants
/s/ Richard W. Pollack
Robert G. Klein
(Lisa W. Cataldo, /s/ Michael D. Wilson
Becky T. Chestnut,
Kurt W. Klein, and
David A. Robyak,
with him on the briefs)
for appellees
Thomas Yamachika
for amicus curiae
Tax Foundation of Hawaiʻi
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