LEGAL UPDATE: SUMMARY OF
IN RE WATER USE PERMIT APPLICATION (KUKUI MOLOKA‘I, INC.)

by
Kamaile Nichols, JD 2008


In its recent decision, In Re Water Use Permit Application (Kukui Moloka‘i, Inc.), 116 Hawai‘i 481, 174 P.3d 320 (2007), the Hawai‘i Supreme Court vacated the Commission on Water Resource Management’s (Commission’s) final decision and order granting Kukui (Moloka‘i), Inc.’s (KMI’s) Water Use Permits for proposed and existing uses, and remanded for further proceedings. At issue was KMI’s permit applications to pump ground water from the Kualapu‘u Aquifer on the island of Moloka‘i for private commercial use.

This summary first describes the facts of the case, and then focuses on three related issues addressed by the Court: Hawaiian Home Lands; Individual Water Issues and Rights; and Native Hawaiian Traditional and Customary Rights.

Facts

On July 15, 1992, the Commission designated the island of Moloka‘i a Ground Water Management Area. This “designation” triggered a process for Water Use Permits, which are the Commission’s primary tool to regulate water use and withdrawals in areas where water resources are or may be threatened. Pursuant to Hawai‘i Revised Statutes (HRS) § 174C-48(a), all ground water users had one-year, or until July 15, 1993, to file applications for permits to continue “existing” uses that were established by the date of designation. The Commission has some discretion in determining whether applications are complete, including whether they are timely filed. This is relevant to the case because KMI did not apply within the one-year period.

During the one-year period to file Water Use Permit Applications, the land was owned by Moloka‘i Ranch, which – together with Moloka‘i Irrigation System – used ground water from the Kualapu‘u Aquifer. On June 8, 1993, Moloka‘i Ranch timely filed an application to pump water from Well 17. KMI purchased Moloka`i Ranch on October 19, 1993 and submitted its own permit application on December 15, 1993 for 2 million gallons of water per day (mgd). This was one year and five months after the date of designation. Even though it was questionable whether it complied with the plain language of HRS § 174C-50(c), Commission staff recommended that the Commission “find good cause for the late filing” pursuant to HRS § 174C-50(c) because the land deed transfer had taken place within one-year from the date of designation.

On March 30, 1995, the Commission filed a “notice of action” to KMI to “authorize an interim use of 871,420 gallons per day" (gpd). That amount was based partially on estimates of use by KMI’s hotel and golf course. KMI filed a motion for reconsideration and also appealed the decision to the Second Circuit Court, but these were denied and dismissed, respectively. On May 21, 1996, the Commission reaffirmed the interim allocation.

On November 23, 1998, an administrative hearing or “contested case” commenced, and on May 15, 2000, the Commission filed “Proposed Findings of Fact, Conclusions of Law, And Decision And Order.” On July 31, 2000, Intervenor Department of Hawaiian Home Lands (DHHL), Intervenor Office of Hawaiian Affairs (OHA), KMI, and Intervenors Judy Caparida and Georgina Kuahuia “filed their respective exceptions.” On October 15, 2001, Caparida and Kuahuia filed a “Motion for Reopening of Record and Continuance of Argument.”

On December 19, 2001, the Commission filed final “Findings of Fact, Conclusions of Law, And Decision And Order,” and awarded KMI Water Use Permits for both existing and proposed future uses. The existing use portion authorized “the withdrawal and reasonable and beneficial use of 936,000 g[p]d,” pursuant to HRS section 174C-50. The portion for proposed uses authorized “the withdrawal and reasonable and beneficial use of 82,000 g[p]d,” pursuant to HRS § 174C-49. These amounts were based partially on estimates of usage by KMI’s hotel and golf course. The Commission rejected Caparida and Kuahuia’s motion for reopening and continuance.

Due to serious questions regarding whether the sustainable yield – or the maximum rate at which water can be pumped from the Kualapu‘u aquifer in order to protect ground water supplies for present and future generations – was accurate, both permits were subject to eight special conditions. The two conditions most relevant to this appeal were:
1. “If there are significant or unexpected increases in chlorides or drawdowns in the two DHHL wells, the [County of Water Supply] well, or KMI’s Well 17 . . . any party may petition the Commission . . . order a show cause hearing as to why the permitted amounts of withdrawal of water should not be reduced . . .”;
5. “Within twenty-four months of the date of issuance of the aforementioned permits, KMI will prepare a . . . feasibility study on the development of a new source of nonpotable water . . . .”
Appeals were filed by DHHL, OHA, Caparida and Kuahuia on January 17, and 18, 2002. While the appeal was pending, Kaluakoi Land, LLC acquired KMI and filed a “Motion for Substitution of Parties” on February 21, 2002.

Given DHHL’s unique status and purpose of redressing past harms to Native Hawaiians, it was allowed to reserve 2.905 mgd from the Kualapu‘u Aquifer for domestic and agricultural uses on Hawaiian Homelands. At the time, DHHL serviced “25,383 acres of land on Moloka`i reserved for Hawaiian homesteaders” with water drawn from two wells at a single site overlying the aquifer.

Case Synopsis

The Commission’s mandate to protect the public’s interest in Hawai‘i’s water resources was prominent in the court’s analysis. Appellants alleged “multiple violations of the Commission’s public trust duties under the Hawai‘i Constitution, the State Water Code ("Code”), and the public trust doctrine,” which provides that the State holds all of Hawai`i’s ground and surface water resources in trust for present and future generations.

The court began its analysis by reiterating the strong public trust language from In re Water Use Permit Applications (Waiāhole I), 94 Hawai‘i 97 (2000). The court reaffirmed that the “public trust doctrine is a ‘fundamental principle of constitutional law in Hawai‘i’ . . . and that its principles permeate the State Water Code.” Further, the court relied on In re Water Use Permit Applications (Waiāhole II), 105 Hawai‘i 1 (2004), to explain the “basic precepts of the state water resources trust.” Regarding private commercial uses, applicants bear “the burden of justifying their proposed uses in light of protected public rights in the resource.” The applicants must demonstrate their “actual needs.” The applicants must also “demonstrate the absence of practicable mitigating measures, including the use of alternative water sources.” When reviewing applications, the Commission must make decisions with a “level of openness, diligence, and foresight commensurate with the high priority these rights command under the laws of our state.”

A. Hawaiian Home Lands Synopsis

Appellants also contested the Commission’s Conclusion of Law (COL) #24, which held that DHHL’s water reservation was not an “existing use.” DHHL argued that “preservation of a sufficient and accessible water supply for the current and future development of Hawaiian Home Lands is a distinct public trust ‘use,’” and OHA argued that DHHL’s “constitutional water reservation” was an “existing use” that “limit[ed] the granting of other permit applications.” The Hawai‘i Supreme Court was not persuaded, and held instead that the reservation is a “public trust ‘purpose’ and not an ‘existing legal use.’”

The court relied on precedent set in In re Wai‘ola O Moloka‘i, Inc., 103 Hawai‘i 401 (2004), which was decided while this Commission’s final Decision and Order in Kukui was on appeal. Wai‘ola had “conclusively resolved” this issue based on the plain language of HRS § 174C-49(d) and HAR § 13-171-63. Although DHHL’s reservation does not rise to the level of an existing use, as a “public trust purpose” it is “entitled to the full panoply of constitutional protections afforded the other public trust purposes . . . from Waiāhole I.” Other public trust purposes include: (1) water resource protection; (2) domestic water uses (which are distinct from municipal water uses); and (3) the exercise of native Hawaiian and traditional and customary rights.

Status as a public trust purpose “render[s DHHL’s reservation] ‘superior to the prevailing private interests in the resources at any given time.’” However, the Commission may still approve private uses that might “compromise DHHL’s reservation,” so long as that decision is made with the aforementioned “openness, diligence, and foresight.”

DHHL also made numerous water rights arguments (discussed in Part B., below).

B. Water Rights Synopsis
1. Commission’s level of scrutiny of KMI’s application

The Hawai‘i Supreme Court ultimately vacated KMI’s permits because it found that “the Commission’s decision lacked the requisite degree of scrutiny.” In reaching that holding, the court rejected DHHL’s arguments concerning the sustainable yield, existing water uses, and Safe Drinking Water Act violations, but agreed with DHHL regarding KMI’s failure to satisfy its burden of demonstrating the absence of practicable alternatives to the water source at issue.

First, DHHL argued that the Commission erred when it “relied on the 5.0 mgd sustainable yield determination in spite of evidence that the Kualapu‘u Aquifer may be overdrawn and that the sustainable yield may actually be as low as 3.2 mgd.” The court did not agree, and ruled that even if 5.0 mgd was too high, the Commission could rely on the sustainable yield that was adopted prior to KMI’s application. Under the Code, sustainable yields may not be modified without notice and a public hearing, and “ad hoc revision” is precluded. Moreover, the court had “impliedly endorsed reference to sustainable yield determinations” in Waiāhole I, to preserve the integrity of planning and to prevent private interests and ad hoc decisions from driving the process. Despite established flaws in the methodology used to establish the sustainable yields for many aquifers statewide, including Kualapu‘u, the court ruled that “it would be inappropriate for the Commission to reevaluate the sustainable yield figure in a permit application proceeding.”

Second, DHHL argued that the Commission’s permit approval for existing and new uses, including KMI’s, could not be reconciled with the Commission’s earlier refusal to grant DHHL’s Water Use Permit Applications. DHHL’s request to increase its withdrawals from .367 mgd to 1.247 mgd had been denied based on “very real concerns” over “sustaining the ‘potable quality’ of the wells located in the Kualapu‘u Aquifer.” Chloride levels, or the salt content of pumped ground water, are often used as an indicator of an aquifer’s health and whether it can continue to produce drinkable or ‘potable’ water. Once chloride levels begin to rise, continued or increased pumping can exacerbate the problem. The court agreed with DHHL only in part, and distinguished between KMI’s application for existing uses versus new uses. The court reasoned that the Commission was concerned with “increased pumpage on the chloride content in the well field,” and “KMI’s application to continue an existing use did not threaten to increase pumpage.” The court also recognized the Code’s “preference for existing uses.” Because KMI’s application to withdraw 82,000 gpd for new uses might, however, result in the same “potable quality” concerns as DHHL’s application, the court remanded that issue for further clarification.

Third, the court vacated KMI’s permits based on the Commission’s failure to enter findings of fact or conclusions of law “as to the existence or feasibility of any alternative sources of water whatsoever. The Commission . . . failed to hold KMI to its burden of demonstrating the absence of feasible alternative sources of water.” As evidenced by special condition #5 on KMI’s permits, the Commission “appears to have reserved consideration . . . until after the permit had been granted,” which was “fundamentally at odds with the Commission’s public trust duties.”

Fourth, the court determined that KMI’s Safe Drinking Water Act violations were irrelevant to the Commission’s decision to allocate ground water to KMI. Although water quality impacts are considered when designating and allocating surface water, the court made short shrift of DHHL’s arguments regarding the ground water at issue in this case and stated that “this jurisdiction separately regulates water allocations, see HRS chapter 174C, and drinking water standards, see HRS chapter 340E.”
2. Burden of proof of harm to public trust resources
The court held that the Commission improperly “placed the burden of proof on DHHL to demonstrate that pumpage at KMI’s well would increase the chloride concentration at the DHHL well site.” The Commission’s COL #51 rejected DHHL’s allegation of harm after concluding that no “conclusive evidence” had been presented that KMI’s proposed pumping of Well 17 would increase the chloride levels in DHHL’s wells. COL #51 was “cause for concern” because it suggested that KMI was not required to “justify its existing and proposed uses.” However, the court observed that the public trust doctrine and “allegations [that] raise a specter of harm” do not “handcuff the Commission.” It is the applicant’s burden to demonstrate that its use satisfies all of the requirements of the law; so, on remand, the Commission could permit diversions of water if KMI carries its burden.
3. Precautionary principle
In Waiāhole I, the court adopted the precautionary principle, which mandates that where scientific uncertainty exists, trustees of public trust resources, such as the State Water Commission, must make decisions that mitigate in favor of protecting the resources. DHHL and OHA objected to special condition #1 on KMI’s permits, wherein the Commission granted the permits but reserved the right to amend the permit in case of chloride increases or drawdowns in the aquifer’s water levels. DHHL claimed that this violated the precautionary principle as set forth in Waiāhole I. The court, however, found that “the Commission’s methodology constitutes a faithful application of the sustainable yield figure and includes reasonable precautionary measures.”
4. Correlative rights

In non-designated water management areas, owners of land over an aquifer have correlative rights to use water from the aquifer on the overlying land. Once a water management areas like Kualapu‘u is designated, only existing correlative uses are preserved (as opposed to inchoate rights). The court agreed with OHA that the Commission “erred when it concluded that KMI had correlative rights to make reasonable use of the water.” Because the island of Moloka`i is designated a water management area, “the common law doctrine of correlative rights is inapplicable.” Instead, KMI must satisfy the statutory requirements of HRS section 174C-49(c) that the use is “consistent with the public interest and the general plans and land use policies of the State and counties.” Because the Commission determined that KMI complied with the requirements for a Water Use Permit, KMI was allowed to transport and use water from Well 17.

5. Proposed uses and unutilized hotel and golf course allocations of water

The Commission’s interim and final permits to KMI were based on estimates of water use by KMI’s hotel and golf course. Appellants argued that because the hotel and golf course closed, it was no longer reasonable to allocate water for those uses. The Commission argued that it properly ignored evidence of closure, because “the contested case hearing was held to determine KMI’s past water usage . . . rather than at the time of the hearing.” Based on the court’s interpretation in Wai‘ola that the applicable statute, HRS section 174C-58, was an enforcement (and not a planning) tool, the court concluded that the Commission “may suspend or revoke a water use permit upon knowledge that a permitted allocation of water, which the Commission has expected to be used within a four-year time frame, has not been utilized.”

Because the Commission did not consider the impact of the closure on KMI’s proposed uses, the court vacated the order granting KMI a permit for those uses. KMI had the burden of establishing that the proposed use was reasonable-beneficial, including the closure of the hotel and the golf course. And, the Commission must “not relegate itself to the role of a mere ‘umpire,’ . . . but instead must take the initiative in considering, protecting, and advancing public rights in the resource.”
Regarding KMI’s application for a permit for the hotel and golf course uses that were no longer in existence, resolution of that issue on remand was unnecessary because the court had already vacated KMI’s permit for existing uses.

C. Traditional & Customary Rights Synopsis

Many native Hawaiians on Moloka‘i rely on natural resources from the land and sea to put food on their tables and otherwise subsist in a traditional manner. “The gathering of crab, fish, limu, and octopus are traditional and customary practices that have persisted on Molokai for generations.” Traditional and customary native Hawaiian rights are protected by various constitutional and statutory provisions, including Article XII, section 7 of the Hawai‘i Constitution, HRS sections 174C-2 and -101, and by state case law. In Waiāhole I, the Hawai‘i Supreme Court upheld “‘the exercise of Native Hawaiian and traditional and customary rights as a public trust purpose.’” Private commercial use of water resources, on the other hand, is not a protected public trust purpose, despite the fact that “economic development may produce important public benefits.”

Appellants Caparida and Kuahuia were concerned that increases in the amount of water pumped from Well 17 would reduce the amount of fresh water discharged into the nearshore marine environment. This, in turn, would negatively impact the resources in that area, such as fish and limu (seaweed), which rely on fresh water to survive. Appellants contended that “a reduction of marine life, if severe enough, [would] diminish their ability to practice their traditional and customary native Hawaiian gathering rights even if access [was] not impaired by KMI’s proposed use.” In response, the Commission “merely observed that the ‘potential adverse impacts of the current level of ground water pumpage . . . should already be visible,’” and that the “‘evidence does not show that nearshore resources are in decline.’” Further, the Commission’s COL #40 concluded that “no evidence was presented that the use of water from Well 17 would adversely affect the exercise of traditional and customary native Hawaiian rights . . . or [that] proposed uses would adversely affect any access to the shoreline or the nearshore areas.”

Caparida and Kuahuia asserted, and the court agreed, that the “Commission impermissibly shifted the burden of proving harm to those claiming a right to exercise a traditional and customary native Hawaiian practice.” The statement that “no evidence was presented” to the Commission “erroneously shifted the burden of proof to Caparida and Kuahuia.” Recalling its decision in Wai‘ola, which involved this same issue of the surface and ground water interrelationship on Moloka‘i, the court emphasized that “‘an applicant for a water use permit bears the burden of establishing that the proposed use will not interfere with any public trust purposes . . . [and] the Commission is duty bound to hold an applicant to its burden during a contested-case hearing.’” Under Wai‘ola, an applicant is obligated “‘to demonstrate affirmatively that the proposed well would not affect native Hawaiian’s rights; in other words, the absence of evidence that the proposed use would affect native Hawaiian’s rights was insufficient to meet the burden.’” KMI submitted expert witness testimony and asserted that it satisfied its burden of proof. The court, however, determined that the Commission’s findings of fact were “insufficiently clear” to support the conclusions of law.