Judge rules for state in Aina Lea case

SOUTH KOHALA, Hawai‘i — After multiple lawsuits, property changing hands and land use disputes, the state of Hawaii prevailed on the latest litigation involving the Villages at Aina Lea, a long-planned development in South Kohala, mauka of the Mauna Lani Resort.

The multimillion-dollar federal regulatory taking lawsuit was brought by developer DW Aina Lea Development, LLC, who was seeking hundreds of millions of dollars from the state for damages after the State Land Use Commission (LUC) reverted the land from urban to its original agricultural district classification in 2011.

As a condition of having the land reclassified from agricultural to urban use to allow development of the land, the developers were required to build affordable housing. After decades of receiving unfulfilled promises from the developers that they would build affordable housing, the LUC decided to return the land to agricultural use, meaning the proposed development could not proceed.

The judgement detailed the history of the development going back more than 30 years.

In the late 1980s, a developer, Signal Puako Corporation, convinced the LUC to change the land classification for property on the Big Island from agricultural to urban in return for the developer’s promise to build a substantial amount of affordable housing on that land.

Signal Puako proposed to develop the 1,060 acres as the first phase of a 3,000-acre, master-planned community, with 600 low-rise apartments and townhouses, 2,160 single-family homes, commercial uses, a golf course and clubhouse, parks and other facilities.

Decades later, no habitable affordable housing or any development had been built. In the interim, the property had been sold to a myriad of new investors and developers, who successfully petitioned the LUC to reduce the number of affordable housing units required from 60 percent to 20 percent.

In February 2009, Bridge Aina Lea, the then-current landowner, entered into a contract to sell the property to DW Aina Lea. On April 30, 2009, the LUC orally voted to revert the property to agricultural use. DW’s funding was then held up, allegedly preventing DW from finishing the affordable housing.

Following another hearing, the LUC rescinded its oral vote and vacated the order, setting a new deadline for the construction of at least 16 units. By June, 2010, DW Aina Lea had built the shells for the 16 affordable housing units, but they were uninhabitable because they lacked water, sewage, electricity and paved road access.

Because the developer did not fulfill their obligation, on April 25, 2011, the LUC issued a written order reverting the property again from urban to agricultural use.

In 2012, the Third Circuit Court invalidated the LUC’s change of classification on procedural grounds. The LUC appealed that case to the state Supreme Court, which sided with the circuit court ruling, citing the developer had “substantially commenced” use of the land.

Other lawsuits and appeals commenced and in May 2022, Judge Susan Oki Mollway of the U.S. District Court for the District of Hawai‘i granted summary judgment in favor of the LUC, but the Ninth Circuit Court of Appeals remanded the case for further proceedings.

On Monday, Judge Mollway again granted summary judgment in favor of the LUC, holding that DW could not establish its regulatory taking claim as a matter of law, and final judgment was entered in favor of the LUC.

“The Department of the Attorney General will vigorously defend lawsuits brought by those who assert speculative claims seeking a financial windfall for themselves at the expense of Hawai‘i taxpayers,” said Special Assistant to the Attorney General Dave Day through a media release. Day first began litigating regulatory taking cases concerning the Villages at Aina Lea in 2015.

“Since the case was remanded from the Ninth Circuit last year, our litigation team led by Deputy Attorney General Ciara Kahahane and Special Deputy Attorney General Sharon Lovejoy presented an overwhelmingly strong defense, and Judge Mollway correctly ruled that the LUC was entitled to judgment as a matter of law.

“The court’s ruling is based in part on the finding that the plaintiff’s speculative investment in the planned development was not backed by reasonable expectations given its failure to comply with the affordable housing conditions imposed by the Land Use Commission,” continued Day.

“This decision supports the ability of government entities to impose and enforce reasonable affordable housing requirements on developers and property owners.”