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Electronically Filed
Supreme Court
SCAP-XX-XXXXXXX
30-JUN-2020
10:12 AM
IN THE SUPREME COURT OF THE STATE OF HAWAII
---o0o---
LEONA KALIMA; DIANE BONER; RAYNETTE NALANI AH CHONG,
special administrator of the estate of JOSEPH CHING, deceased;
CAROLINE BRIGHT; DONNA KUEHU; IRENE CORDEIRO-VIERRA;
and JAMES AKIONA, on behalf of themselves and all others
similarly situated,
Plaintiffs-Appellees-Cross-Appellants,
vs.
STATE OF HAWAII; STATE OF HAWAII DEPARTMENT OF HAWAIIAN HOME
LANDS; STATE OF HAWAII HAWAIIAN HOME LANDS TRUST INDIVIDUAL CLAIMS
REVIEW PANEL; DAVID Y. IGE, in his official capacity
as Governor of the State of Hawaii,
Defendants-Appellants-Cross-Appellees.
SCAP-XX-XXXXXXX
APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT
(CAAP-XX-XXXXXXX; CIV. NO. 99-4771-12)
JUNE 30, 2020
RECKTENWALD, C.J., NAKAYAMA, POLLACK, AND WILSON, JJ.,
AND CIRCUIT JUDGE VIOLA, IN PLACE OF McKENNA, J., RECUSED
OPINION OF THE COURT BY NAKAYAMA, J.
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I. INTRODUCTION
In 1990, Senator Michael Crozier observed, “[b]oth the
length of the list and the length of the wait make the vast
majority of Native Hawaiian people despair of ever receiving an
award of land.” Senator Michael Crozier, Testimony Before the
Hawaii Advisory Committee, United States Commission on Civil
Rights (Aug. 2, 1990). In the thirty years since Senator
Crozier’s statement, the State of Hawaii has done little to
address the ever-lengthening waitlist for lease awards of
Hawaiian home lands.
In light of the Circuit Court of the First Circuit’s
(circuit court) 2009 ruling that the State breached its duties
as trustee of the Hawaiian Home Lands Trust (the Trust), we are
now tasked with reviewing the circuit court’s decision granting
and apportioning monetary damages to those Native Hawaiian
beneficiaries who, as a result of the State’s mismanagement of
the Trust, have languished on the waitlist – some for decades.
Constrained by the provisions of Hawaii Revised
Statutes (HRS) Chapter 674 (Supp. 1991), entitled “Individual
Claims Resolution Under the Hawaiian Home Lands Trust,” the
circuit court adopted a Fair Market Rental Value model (FMRV
model) by which the circuit court can estimate the actual loss
each individual beneficiary incurred. The interests of justice
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and the extent of the State’s wrongful conduct support a liberal
interpretation of HRS Chapter 674 and a generous construal of
the circuit court’s damages model. We hold that the FMRV model
is an adequate method for approximating actual damages.
For the reasons discussed below, we affirm in part and
vacate in part the circuit court’s January 9, 2018 final
judgment and remand for further proceedings consistent with this
opinion.
II. BACKGROUND
Plaintiffs-Appellees Cross-Appellants Leona Kalima,
Diane Boner, Raynette Nalani Ah Chong, special administrator of
the Estate of Joseph Ching, deceased, Caroline Bright, Donna
Kuehu, Irene Cordeiro-Vierra, and James Akiona, on behalf of
themselves and all similarly situated (collectively
“Plaintiffs”) are a group of Native Hawaiian Trust beneficiaries
who claim that they incurred damages while on the waitlist to
receive homestead land as a result of breaches of trust duties
by Defendants-Appellants Cross-Appellees the State of Hawaii,
the State of Hawaii Department of Hawaiian Home Lands (DHHL),
the State of Hawaii Home Lands Trust Individual Claims Review
Panel (the Panel), and Governor David Y. Ige (collectively “the
State”). Both Plaintiffs and the State appealed the circuit
court’s January 9, 2018 final judgment.
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A. Trust History
In 1920, Congress enacted the Hawaiian Homes
Commission Act (HHCA), which created a land trust intended to
rehabilitate displaced Native Hawaiian people by enabling them
to lease residential, agricultural, or pastoral homestead land
from the Trust for one dollar per year. Kalima v. State (Kalima
I), 111 Hawaii 84, 87, 137 P.3d 990, 993 (2006); Hawaiian Homes
Commission Act, ch. 42, sec. 207, 42 Stat. 108, 48-49 (1920).
When the Territory of Hawaii became a state in 1959, the State
took over the management and disposition of the Trust. Kalima
I, 111 Hawaii at 87, 137 P.3d at 993. In the years that
followed, the State struggled to carry out its duties and
obligations as trustee. The State began efforts in 1983 to
resolve issues relating to the HHCA and to the Trust. Id. at
87-88, 137 P.3d at 993-94.
In 1988, the Hawaii State Legislature (the
Legislature) passed “The Native Hawaiian Judicial Trusts Relief
Act,” which provided for limited waiver of the State’s sovereign
immunity to enable beneficiaries of the Trust to bring suits for
past breaches of the Trust and prospective suits for damages
related to breaches of the Trust after 1988. Id. at 88, 137
P.3d at 994; 1988 Haw. Sess. L. Act 395, § 3 at 945.
In 1991, the Legislature passed the “Individual Claims
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Resolution Under the Hawaiian Home Lands Trust Act.” 1991 Haw.
Sess. L. Act 323, § 1 at 990 (Act 323). Act 323 was codified as
HRS Chapter 674. HRS Chapter 674 established a process for
resolving claims for damages by individual beneficiaries of the
Trust caused by the State’s breaches of the Trust which occurred
between August 21, 1959, and June 30, 1988. HRS § 674-1 (1993).
We described the process for resolving claims under HRS Chapter
674 as follows:
Chapter 674 authorizes the Panel to review and evaluate
the merits of claims brought by individual beneficiaries,
render findings, and recommend monetary damages and other
relief. HRS § 674-1. After reviewing an individual’s
claims, the Panel is then required to render an advisory
opinion to the legislature regarding the merits of each
claim, including an “estimate of the probable compensation or
any recommended corrective action for legislative action[.]”
HRS § 674-1(c).
Kalima I, 111 Hawaii at 90, 137 P.3d at 996.
Part III of Chapter 674, entitled “Judicial Relief for
Retroactive Claims by Individual Native Hawaiians,” provides,
[t]he State waives its immunity from liability for actual
damages suffered by an individual beneficiary arising out of
or resulting from a breach of trust or fiduciary duty, which
occurred between August 21, 1959, to June 30, 1988, and was
caused by an act or omission of an employee of the State in
the management and disposition of trust resources.
HRS § 674-16 (1993) (emphasis added). Chapter 674 defines
“actual damages” as
direct, monetary out-of-pocket loss, excluding noneconomic
damages as defined in section 663-8.5 and consequential
damages, sustained by the claimant individually rather than
the beneficiary class generally, arising out of or resulting
from a breach of trust, which occurred between August 21,
1959, and June 30, 1988, and was caused by an act or omission
by an employee of the State with respect to an individual
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beneficiary in the management and disposition of trust
resources.
HRS § 674-2 (1993).
Meanwhile, the State was taking steps to better
perform its duties as trustee by recovering alienated land and
compensating the Trust for non-beneficiary use of that land. In
1994, with the passage of Act 352, the State transferred 16,518
acres of trust lands from the Department of Land and Natural
Resources (DLNR) to DHHL and paid DHHL $12 million for
uncompensated use of those lands.
B. 1999 Litigation
On December 29, 1999, representative plaintiffs Leona
Kalima, Diane Boner, and Joseph Ching filed a class action
complaint against the State alleging breaches of the HHCA’s
trust obligations between 1959 and 1988 and claiming that the
plaintiffs were entitled to damages under HRS Chapter 674.
On August 29, 2000, following Plaintiffs’ motion for
class certification as to Count I of the Plaintiffs’ complaint,
the circuit court1 entered an order granting the motion and
defining the class in Count I:
All Hawaiian home land trust beneficiaries who timely filed a
claim with the Hawaiian Home Lands Trust Individual Claims
Review Panel, gave notice of intent to sue by October 1, 1999
and filed suit by December 31, 1999, excluding any
beneficiaries whose claims were either approved by the
Legislature or settled.
1 The Honorable Victoria S. Marks presided.
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The circuit court also granted Plaintiffs’ motion for partial
summary judgment as to Count 1.
The State brought an interlocutory appeal of the circuit
court’s order granting partial summary judgment before this
court. Kalima I, 111 Hawaii 84, 137 P.3d 990 (2006). In Kalima
I, this court held that sovereign immunity did not bar
Plaintiffs’ right to sue under HRS Chapter 674. Id. at 112-13,
137 P.3d at 1018-19. This court affirmed in part and vacated in
part the circuit court’s 2001 judgment, and held:
(1) [we] affirm the circuit court’s determination that the
plaintiffs are entitled to pursue their claims under HRS
chapter 674; (2) [we] reverse the circuit court’s
determination that Act 14 is a settlement agreement and that
the plaintiffs have a right to sue under HRS chapter 661; and
(3) [we] remand this case to the circuit court for further
proceedings consistent with this opinion.
Id.
In addition, this court held that Chapter 674 should
be “liberally construed to suppress the perceived evil and
advance the enacted remedy” and should not be narrowly
interpreted to “impede rather than advance the remedies”
provided by the statute. Id. at 100, 137 P.3d at 1006 (quoting
Flores v. United Air Lines, Inc., 70 Haw. 1, 12, 757 P.2d 641,
647 (1988)).
C. Post-Kalima I Litigation
The subject of this appeal is the litigation that
followed this court’s holding in Kalima I that Plaintiffs were
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permitted to sue for damages under HRS Chapter 674.
1. Class Certification on Liability
Following Kalima I, Plaintiffs moved for certification
of various subclasses on the issue of liability (Motion for
Class Certification on Liability). The circuit court granted
the Motion for Class Certification on Liability on June 6, 2007
and certified the following subclasses for purposes of liability
– Subclass 1: Waiting List Subclass, Subclass 2: Ultra Vires
Qualifications Subclass, Subclass 3: Uninhabitable Awards
Subclass, Subclass 4: Lost Application Subclass2, Subclass 6:
Successor Rights Subclass. The circuit court defined the
waitlist subclass as “[a]ll Chapter 674 plaintiffs who were on
the [DHHL] waiting list for a homestead and who submitted a
claim to [the Panel] because they were not awarded a homestead
in a prompt and efficient manner.” The waitlist subclass
comprised 65.9% of the total class members.
2. Liability Trial
The circuit court conducted a five-week trial on
liability3 from August 4, 2009 to September 11, 2009, during
which, as the circuit court stated in its ensuing liability
2 The circuit court did not certify a “Subclass 5.”
3 On October 2, 2007, the circuit court granted in part and denied in
part Plaintiffs’ Motion to Bifurcate and ordered that it would try the waitlist
subclass’s liability case only.
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order, “the parties litigated whether any of the trust breaches
found by the court were a legal cause (a substantial factor) in
waitlist applicants experiencing compensable harm (out-of-pocket
expenses) through the failure or inordinate delay in receiving
homestead awards of any kind.”
At the liability trial, former DHHL deputy director
Benjamin Henderson (Henderson) testified about the process for
awarding homesteads. Henderson testified that in order to
qualify to apply for a homestead, a person must show only that
the person is over 18 years of age and meets the Native Hawaiian
Qualification, i.e., that he or she is at least fifty percent
Native Hawaiian. According to Henderson, a person need not show
any financial information to qualify to apply for a homestead.
Henderson stated that when homestead lands are
developed, DHHL sends an “orientation notice” to many applicants
on the waitlist. Henderson testified that the orientation
notice invites recipients to an orientation meeting and may
indicate that at some point the applicant might need to meet
other requirements to receive a homestead. If the applicant
does not respond or responds indicating that the applicant is
not interested, the applicant is “deferred” from receiving a
homestead in that round of offerings, but does not lose their
place on the waitlist.
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At the orientation meeting, the applicant is given
more information about the particular homesteads available and
may be informed that the applicant will need to financially
qualify to be “invited to participate in the offering,” i.e., to
lease the homestead. Often, lenders attend orientation meetings
to enable applicants to determine if they will be able to meet
the financial qualification requirements.
If an applicant expresses interest in obtaining a
homestead, attends the orientation meeting, and is able to show
that they meet the financial qualification requirements, the
applicant will be “invited to participate in the offering,”
select an available lot, and begin to lease it.
Henderson also gave a deposition, the following
testimony from which was read into the record at trial on August
14, 2009:
Question:
. . . .
What is DHHL’s position on [what constitutes placement
on the land in a prompt and efficient manner, specifically,
the number of years between an application and an award]?
Answer: DHHL’s position is that certainly, again, assuming
you had the resources available to them, the normal
development process is probably five to six years. I mean,
that’s not, you know – I mean, yeah, you talk to any
developer in the private market, in the private sector, they
would probably tell you the same thing.
I mean, planning, permitting, engineering plans, offsite,
onsite construction, et cetera, home reconstruction, we are
looking at a period of five to six years.
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3. Liability Order
On November 3, 2009, the circuit court issued a
decision regarding liability and causation (Liability Order).
In the Liability Order, the circuit court found that the State
breached the following four duties as trustee during the claims
period: (1) the duty to keep and render accounts; (2) the duty
to exercise reasonable care and skill; (3) the duty to
administer the trust; and (4) the duty to make the trust
property productive. The circuit court specifically found that
the State breached the Trust as follows:
Defendant State’s failure for 25 years (1959-1984) to correct
its own and the predecessor trustees’ illegal “set asides” by
cancellation or withdrawal of those executive orders or
proclamations together with Defendant State’s failure
throughout the claims period to restore lands to the trust
and to compensate the trust for fair rent during the period
of non-beneficiary State use of trust lands were breaches of
trust and trust duties as set forth in Sections 170, 174,
175, 176, 177, 179, 181, 223 [of the Restatement (Second) of
Trusts].
The circuit court also found that “[t]he State’s witness Mr. Ben
Henderson, former deputy of DHHL, credibly testified that the
normal site development time is 5 to 6 years and that would be
the logical, optimal waiting list time for eligible applicants.”
The circuit court concluded:
Plaintiffs have proven by clear and convincing evidence
breaches of trust by Defendants State and DHHL during the
claims period and that the individual and/or cumulative
effects of such breaches caused by acts or omissions by
employees of the State in the management and disposition of
trust resources were a legal cause of harm to the Plaintiffs
herein which are compensable as defined by Sections 674-1, -
17 of Hawaii Revised Statutes, thus necessitating further
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proceedings to determine the amount of damages, if any, each
subclass member proves s/he sustained as a result of the
breaches during the claim period.
In other words, the Liability Order determined liability,
causation, and the fact of damages, but specifically identified
the need for further proceedings to determine the amount of
damages.
4. Motions on Methods for Calculating Damages
In March 2011, the parties filed simultaneous motions
proposing distinct methods for calculating damages.
The circuit court4 rejected both models and ordered
Plaintiffs and the State to submit new damages model proposals.
The parties filed new motions on July 22, 2011. The
Plaintiffs proposed calculating the FMRV of an improved
residential homestead, adjusted for inflation. This proposal
conformed each class member’s loss to the lost value of a
developed residential lot. As a secondary option, Plaintiffs
proposed that claimants whose individual damages extended beyond
the base amount could show out-of-pocket expenses (the cost of
replacement leases obtained in the area in which they resided).
The State proposed a four-step model which was
substantially the same as the model the circuit court had
previously rejected.
4 The Honorable Virginia L. Crandall presided over all damages model
litigation from this point forward.
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5. January 24, 2012 Order Re Parties’ Damages Models
On January 24, 2012, the circuit court entered an
order granting in part and denying in part Plaintiffs’ and the
State’s motions to adopt damages calculation models (Order Re
Parties’ Damages Models). Based upon the November 3, 2009
Liability Order’s finding that “normal site development time is
5 to 6 years,” the circuit court found that damages did not
begin to accrue until six years after a plaintiff was placed on
the waitlist.
The circuit court also ordered the parties to present
new motions on the “individualized circumstances” that the
parties wished to raise, which could be determined on a class-
wide basis. These “individualized circumstances” included “a
subclass member’s deferring or rejecting lease offerings or
opportunities, a subclass member’s financial ability or
qualifications, date of application, or DHHL policies and rules
including any applicable priorities.”
Finally, the circuit court ordered that “after
resolution of the [individualized circumstances] motions . . .
the Court will determine the model to be used to calculate
damages and whether referral to a Special Master to make such
calculations is appropriate.”
On February 10, 2012, Plaintiffs filed a Motion for
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Partial Summary Judgment arguing that “‘deferred status’ imposed
by DHHL is not a bar to damages in this case, or alternatively
that DHHL must prove it strictly followed its regulations before
it can invoke ‘deferred status’ as a defense to damages.”
That same day, the State filed two motions “for
adoption of specific rules to govern computation of damages.”
The State proposed twenty-four “rules”5 which limited or barred
certain claimants’ damages.
The circuit court resolved those motions, in pertinent
part, as follows.
6. February 4, 2013 Order Re Financial Qualification
Requirements
On February 4, 2013, the circuit court denied
Plaintiffs’ 2012 Motion for Partial Summary Judgment on
Financial Qualification Requirements Imposed on Beneficiaries
Seeking Homestead Awards (Order Re Financial Qualification
Requirements) and ordered that if a claimant was deferred due to
financial disqualification, the State could present evidence of
that deferral to limit the claimant’s damages period.
In the same order, the circuit court ruled:
Defendant’s motion to adopt proposal number 4, “A
claimant is barred from obtaining any damages for any period
of time during which he or she would have turned down a
homestead offer for any reason at all,” is GRANTED IN PART
AND DENIED IN PART, AS FOLLOWS: If an offering of a homestead
5 The circuit court later referred to the State’s proposed rules as
both “rules” and “proposals.”
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lease was made to a member of the Waiting List Damages
Subclass and the member declined that offering, then the
member is barred from recovering damages from that time
forward.
The circuit court also ordered that “Waiting List Damages
Subclass members bear the burden of proving the amount of their
damages, utilizing the damages model ultimately adopted for the
Waiting List Damages Subclass by the Court.”
7. February 14, 2013 Order Re FMRV Damages Model
On February 14, 2013, the circuit court entered an
Order Granting in Part Plaintiffs’ Second Motion to Determine
What Model Should Be Used to Establish the Amount of Damage
Class Members Suffered as a Result of the Breaches Committed by
Defendants (Order Re FMRV Damages Model). The Order Re FMRV
Damages Model detailed, in four parts, the FMRV-based damages
model that would be used to calculate damages.
The circuit court ordered that (1) the model should
measure annual FMRV for comparable land; (2) damages would begin
to accrue six years after the date the claimant’s application
was accepted by DHHL and end on the date of award or date of
trial, whichever is earliest; (3) damages would be discounted by
the one dollar annual rental payment; and (4) class members were
provided with an alternative option “to prove his/her actual
direct monetary out of pocket expenses exceeded fair market
rental value,” in lieu of accepting damages produced by the
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following formula:
a. Based upon available data sources and other evidence,
including, but not limited to (a) evidence of actual sales of
homesteads; (b) evidence of valuation of homestead lots
determined by the Department of Hawaiian Home Lands, if any;
(c) sales data of comparable fee lots (residential,
agricultural, and pastoral)[;] and (d) actual rental values
of comparable lots, which could be used to determine the fair
market rental value of the three types of DHHL leasehold
lots, a model or models will be developed to help determine
damages based upon fair market rental value of such lots from
1960 to the present (the “Damages Period”). The Court,
however, need not consider each factor listed above if it
finds them to be irrelevant or unnecessary.
b. Fair market rental values will be calculated on a class-
wide basis using the following procedure:
i. First, calculate the market value of comparable
lots (residential, agricultural and pastoral), exclusive of
residences or other structures, in specified locations as of
1960 based upon the above available data sources and
evidence, and based upon that evidence, estimate fee simple
values for each type of homestead lot.
ii[.] Second, based upon relevant real estate
data, compute the estimated fee simple value of the lots for
each year of the Damages Period, including, without
limitation, referring to empirical data (including market
sales) at various points in time, including regression
analysis to fill in missing data points.
iii. Third, calculate annual fair market rental
values from the fee simple values based upon a methodology
the Court determines is most accurate, after reviewing the
evidence and the testimony or declarations of the parties’
experts.
OR
in lieu of first calculating fee simple values and converting
them as prescribed in paragraphs (i)-(iii), calculate the
annual fair market rental values for each year directly from
rental values of comparable lots, and other relevant
evidence, including regression analysis to fill in missing
data points.
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iv. Fourth, subject to applicable defenses, compute
the potential loss to each claimant based upon the time
period running from six years after a beneficiary’s
application was accepted by DHHL until a homestead award was
made, or date of trial. Specifically: (1) the annual fair
market rental value for each year would be computed,
beginning six years from the date the application was
received; (2) then $1 for each year of homestead rent a
homesteader would have paid would be subtracted; and (3) the
losses for each year then would be summed.
Any applicable defenses may limit the years to be
summed.
c. For Oahu residential lease applicants, fair market
rental values will be calculated on a class-wide basis using
the following procedure:
i. Fee simple values, or annual fair market rental
values (depending upon methodology chosen), for sales or
leases of a 5,000 square foot lot (or other appropriate size)
in Maili (or other appropriate homestead area), will be used
to establish the annual fair market rental value of an
improved residential homestead lot on Oahu during each year
of the Damages Period . . . .
d. A plaintiff may choose to prove his/her actual direct
monetary out of pocket expenses exceeded fair market rental
value, and may submit additional individual proof of actual
direct monetary out of pocket expenses for the period of
loss, and add that additional increment to fair market rental
value (minus $1), subject to Defendants establishing defenses
or mitigation.
(Some emphases added; some formatting altered.)
In the Order Re FMRV Damages Model, the circuit court
also granted or denied several of the rules that the State
proposed in its “individualized circumstances” motions.
First, the circuit court ruled,
Defendants’ proposed rule 5: “A claimant is barred from
obtaining any damages for any period of time during which he
or she did not spend any money directly out of pocket on
alternative land,” is GRANTED. HRS §§ 674-2 & -16 require
proof of direct monetary out of pocket loss by Plaintiffs.
Second, the circuit court ruled,
Defendants’ proposed rule 6: “A claimant is barred from
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obtaining any damages for any portion of out of pocket
rental or other payments attributable to houses or other
structures on alternative land. Damages must be restricted
to only the portion of out of pocket rental payments
attributable to the land alone,” is GRANTED, based on the
court’s understanding that Plaintiffs’ model is based on
rental value of the land only, exclusive of value or
expenses incurred for residences or other structures.
Third, the circuit court ruled,
Defendants’ proposed rule 7: “A claimant buying rather than
renting alternative land, shall not be awarded damages for
her mortgage payments (or down or cash payments), but only
what it would cost to rent that land. In addition, any
increase in the value of the purchased land must be
subtracted from a claimant’s damages,” is DENIED, WITHOUT
PREJUDICE, and may be raised on an individual basis by
Defendants as a defense or as failure to mitigate damages for
plaintiffs who seek to recover damages in excess of the fair
market rental value. In addition, Defendants may seek to
prove as an offset to damages any increase in value of
purchased (as opposed to rented) alternative land.
(Emphases in original.)
Finally, the circuit court ruled,
Defendants’ proposed rule 8: “If a claimant rents or
purchases alternative land of a higher quality or value as
compared with the quality or value of typical or average
homestead land, her damages must be limited to the rental
payments on typical or average homestead land,” is DENIED,
WITHOUT PREJUDICE, and may be raised on an individual basis
by Defendants as a defense or as a failure to mitigate
damages for plaintiffs who seek to recover an increment of
damages in excess of the fair market value of a typical or
average homestead lot.
In sum, the circuit court largely adopted Plaintiffs’ proposed
FMRV model, but included certain qualifications proposed by the
State which were designed to limit damages to actual damages.
8. Trial on Methodological Issues Regarding FMRV Model
Between October 1, 2013, and October 3, 2013, a three-
day trial took place on methodological issues to determine how
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to calculate the FMRV. Essentially, the circuit court sought a
statistical model that would derive the rental value of the
Maʿili lot from the fee simple value of the lot over time.
Plaintiffs’ expert Andrew Rothstein (Rothstein) and
the State’s expert James Hallstrom, Jr. (Hallstrom) testified
that different methodologies could be used to derive the rental
values of a given lot. Based on the circuit court’s February
14, 2013 Order Re FMRV Damages Model, which stated,
[f]ee simple values, or annual fair market rental values
(depending upon methodology chosen), for sales or leases of a
5,000 square foot lot (or other appropriate size) in Maili
(or other appropriate homestead area), will be used to
establish the annual fair market rental value of an improved
residential homestead lot on Oʿahu during each year of the
Damages Period[,]
the experts demonstrated how their proposed methodologies
derived rental values from the 5,000-square-foot Maʿili lot.
The experts proposed three methodologies that could be
used to calculate annual fair market rental values: (1) the
market value curve; (2) the compound curve; and (3) the best fit
curve.6 At trial, Hallstrom described the best fit curve as
follows:
The best fit curve is a mathematical equation we used
in Excel, a computer program, in which we entered all of the
122 sales. We entered the dates in which they occurred. And
we determined the exponential curve that best fit all of the
data.
[T]here’s a – there’s a test or an indication called a
6 These methodologies are referred to interchangeably in the record as
“curves” and “models.” The selected curve or model provides the basis for
calculating fair market rental value and is only one part of the circuit court’s
overall damages model.
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coefficient, a confidence coefficient, and it tells you how
accurate that is. And in this case, it was .8, meaning that
it has a reasonably high level of confidence and pretty well
explains the variance throughout the period and is – we would
consider it very reliable if you were looking for the point
of central tendency trend through the study period.
. . . .
As there are changes in the market, the best fit curve
– once you have all of the transactions plotted, the best fit
curve basically goes between all of those data points to best
explain them. It doesn’t necessarily start off at the very
first point, and it doesn’t necessarily end at the very last
point, but it best explains what’s happening during the
period.
Hallstrom opined that the market value model is the most
accurate model, followed by the best fit model. Hallstrom
stated, however, that a disadvantage of the market value model
is that it creates the potential for wide disparity in
individual damages based on market fluctuation. Hallstrom
testified that, unlike the market value model,
[the best fit model] gives you the overall central tendency
of exactly where the market is, but without the spikes in the
market that are the natural phenomena of the real estate
market. So at least it measures the growth and gives you a
consistent application of what actually happened when you
look at all of the transactions.
9. Adoption of the Best Fit Curve
On October 7, 2014, the circuit court issued a Trial
Order (October 7, 2014 Trial Order) in which, in its discretion
as finder of fact, it adopted the best fit model.
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that for purposes
of calculating damages for claimants who applied for Oahu
residential leases under the February 14, 2013, Order, the
“Best Fit” model as set forth in Exhibit D-40 shall be used
to determine the fee simple values to calculate annual fair
market rental values. This model comprises (i) annual rental
values based on four percent (4%) of the fee simple value of
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the land area of a 5,000 square foot lot in Maili for any
given year; (ii) rents adjusted annually; and (iii) a “best
fit” model derived from actual fee simple Maili valuations
from 1959 through July 8, 2013 (as shown on Exhibit D-2);
(iv) with no increases for the consumer price index (“CPI”)
or present value adjustments.
Also in the October 7, 2014 Trial Order, the circuit court ruled
that the damages model does not provide for “increases for the
consumer price index (“CPI”) or present value adjustments.”
At a September 18, 2015 hearing, the circuit court
orally ruled that the Oahu residential best fit model would be
applied to the residential homesteads across the entire state.
The circuit court entered an order pursuant thereto on September
22, 2016, which stated, “the Best Fit model adopted in this
Court’s October 7, 2014 Trial Order [] shall be used to
calculate annual fair market rental values used to calculate
damages for all claimants who applied for residential leases on
Hawaii, Kauai, Lanai, Maui, and Molokai.”
In other words, the circuit court ruled that the best
fit model, which is based on a 5,000-square-foot lot in Maili7
on Oahu, would be used as the basis for residential homestead
claimants’ damages statewide.
7 Plaintiffs assert that “the 5,000 square foot lot in Maili was
selected because it was the most conservative value of an Oahu residential
lot[.] [C]ompared . . . to other locations like Waimanalo and Papakolea this was
the most conservative value to determine what the fair market value will
ultimately be.”
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10. Order Re Damages Computation
On July 26, 2017, the circuit court issued an Order
Granting in Part and Denying in Part Plaintiffs’ Motion for
Summary Judgment to Compute the Amount of Damage for Waiting
List Subclass Oahu Residential Group A (Order Re Damages
Computation). In that order, the circuit court found that a
subclass member’s duty to mitigate damages did not arise until
1995, the deadline for a beneficiary to file a claim with the
Panel under HRS § 674-7. The circuit court also found that
damages are suspended from the date that the applicant was
“deferred” from the homestead offering to the date of the first
lease awarded for the offering from which the applicant was
deferred. However, subclass members may “prove by rebuttal
evidence that mitigation was excused because the claimants self-
selected out for financial reasons or did not participate for
other reasons that would excuse their duty to mitigate.” Put
differently, the circuit court ruled that if a claimant was
forced to self-select out of the offering because the claimant
was not financially qualified to accept an offering, the
claimant’s failure to mitigate was excused.
11. Order Re Native Hawaiian Blood Quantum
On June 19, 2017, the circuit court issued an Order
Granting in Part and Denying in Part the State’s Cross-Motion to
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Establish Procedures and Legal Evidence for Confirming Native
Hawaiian Blood Quantum for Waiting List Damages Subclass Members
(Order Re Native Hawaiian Blood Quantum). The circuit court
ordered, “[t]o receive an award for damages, Waiting List
Damages Subclass members must meet the [Native Hawaiian
Qualification8] requirement and must demonstrate through evidence
in this case that they applied for a homestead lease and were on
the waiting list.”
12. Order Re Claims Administration Process
On July 26, 2017, the circuit court issued an Order
Granting Plaintiffs’ Motion to Establish Claims Administration
Process to Resolve All Claims (Order Re Claims Administration
Process). The Order Re Claims Administration Process
established a claims administration process to calculate
specific damages awards and ordered that a Special Master
supervise the claims administrative process. The circuit court
explained,
[t]he Special Master shall supervise the Claims
Administration Process and have authority to appoint a Claims
Administrator to perform the ministerial work of processing
all Waiting List Damages Subclass members’ damages claims.
The Special Master shall resolve any disputed legal or
factual issues, which then may be appealed to the Court.
The circuit court ordered that the Special Master’s duties would
8 The Native Hawaiian Qualification provides that an applicant is
“native Hawaiian” if the applicant is “any descendant of not less than one-half
part of the blood of the races inhabiting the Hawaiian Islands previous to
1778.”
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include, among other things,
2. Receiv[ing] all proofs of claim from members of the
Waiting List Damages Subclass;
3. Determin[ing] whether claimants meet the criteria to
qualify as a member of the Waiting List Damages
Subclass;
4. Rul[ing] on discovery requests and disputes between the
parties;
5. Conduct[ing] evidentiary hearings on claims, if
necessary; [and]
6. Calculat[ing] damages, if any, for any individual
member of the [subclass] according to the rules,
valuation methods and applying any defenses established
by the Court.
The circuit court ordered that each Waitlist Subclass member
must submit a “Claim Form” demonstrating their prima facie right
to damages. The Claim Form requires disclosure of the date each
claimant submitted a homestead application, evidence of each
claimant’s Native Hawaiian Qualification, confirmation of prior
homestead awards, the time period during which each claimant
paid to rent alternative land, and each claimant’s marital
status.
The circuit court ruled that after each claimant
submitted their Claim Form, the State was required to disclose
its affirmative defenses, if any, and identify and produce all
evidence in support of its defenses to each claimant’s prima
facie case.
13. HRCP Rule 54(b) Final Judgment
On January 9, 2018, the circuit court entered an HRCP
Rule 54(b) final judgment as to the waitlist subclass’s claims.
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The circuit court ordered:
1. All claims of the Waiting List Subclass have been decided
by the Court in favor of the Waiting List Subclass
Plaintiffs . . . ; and
2. All claims in the Supplemental Complaint For Waiting List
Damages [Filed December 19, 2013] regarding the amount of
damages, if any, each Waiting List Subclass plaintiff
representative or member is entitled to recover under the
orders establishing the model, rules, and claims
administration process previously entered for that purpose,
have been decided by the Court.
In accordance with HRCP Rules 54(b) and 58, the Court
EXPRESSLY FINDS that there is no just reason for delay and
EXPRESSLY DIRECTS entry of judgment in favor of the Waiting
List Damages Subclass. All claims of the Waiting List
Damages Subclass have been resolved and only ministerial
functions are necessary to administer those claims.
D. ICA Proceedings and Subsequent Transfer
The State filed a notice of appeal on February 6,
2018. Plaintiffs filed a notice of cross-appeal on February 19,
2018. Plaintiffs filed an application for transfer to this
court on December 31, 2018, to which the State filed a response
of no opposition. This court granted Plaintiffs’ application
for transfer on February 5, 2019.
IV. DISCUSSION
In resolving this case, we bear foremost in mind our
admonition in Kalima I that HRS Chapter 674, a remedial statute,
should be “liberally construed to suppress the perceived evil
and advance the enacted remedy” and should not be narrowly
interpreted to “impede rather than advance the remedies”
provided by the statute. 111 Hawaiʿi at 100, 137 P.3d at 1006
(quoting Flores, 70 Haw. at 12, 757 P.2d at 647). That is to
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say – it is in the interests of justice to construe HRS Chapter
674 in a manner that permits the advancement of this case to the
final stages of its resolution and to thereby afford a fair
remedy to the beneficiaries who have for decades been deprived
of the opportunity to lease their native land from the State.
A. The circuit court did not err by adopting the FMRV model.
The central issue in this case is whether the circuit
court’s FMRV damages model calculates individual damages in a
method permitted by HRS Chapter 674. Plaintiffs, who proposed a
similar FMRV model in their initial damages model proposal,
assert that the FMRV model does not contravene Chapter 674
because, they argue, “out-of-pocket loss,” as contemplated by
HRS § 674-2, means the value of the lost benefit, i.e., the
value of a homestead. The State maintains that the FMRV model
contravenes Chapter 674’s “actual damages” requirement, which,
the State argues, limits damages to the amount that subclass
members actually spent to rent alternative land during the
breach-caused delay period.
Courts often face challenges when attempting to
calculate damages in complicated class action cases. This
difficulty should not, however, bar recovery for those entitled
to damages, particularly when the difficulty of calculating
damages is compounded by the failures of the wrongdoer.
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This principle is widely reflected in the common law.
The United States Supreme Court explained that “[w]here the tort
itself is of such a nature as to preclude the ascertainment of
the amount of damages with certainty, it would be a perversion
of fundamental principles of justice to deny all relief to the
injured person, and thereby relieve the wrongdoer from making
any amend for his acts.” Story Parchment Co. v. Paterson
Parchment Paper Co., 282 U.S. 555, 563 (1931). The Court
resolved this predicament by holding that, when damages cannot
be measured with exactness due to the nature of the wrongdoer’s
tort, damages may be approximated through “just and reasonable
inference[.]” Id.; see also Anderson v. Mt. Clemens Potter Co.,
328 U.S. 680, 687 (1946) (where employees could not establish
the time spent doing uncompensated work due to violations by
employers with respect to keeping proper records, the “remedial
nature of [the Fair Labor Standards Act] and the great public
policy which it embodies . . . militate against making” the
burden of proving uncompensated work “an impossible hurdle for
the employee.”).
This court has long-echoed this concept. In Coney v.
Lihue Plantation Co., 39 Haw. 129, 136 (Haw. Terr. 1951), this
court explained,
[t]he damages to be awarded should be such as adequately to
compensate the actual loss or injury sustained. This is an
obvious principle of justice from which we see no reason to
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depart. But in the application of the principle,
difficulties often arise in ascertaining, with anything like
accuracy, the actual damages which the plaintiff has suffered
from the injury; or what sum will produce adequate
compensation.
We concluded that “[t]he law never insists upon a higher degree
of certainty as to the amount of damages than the nature of the
case admits, and [] where, as here, the fact of damages is
established, a more liberal rule is allowed in determining the
amount.” Id. at 139. This is true “particularly where the
uncertainty was caused by the defendant’s own wrongful acts.”
Exotics Hawaii-Kona, Inc. v. E.I. Du Pont De Nemours & Co., 116
Hawaii 277, 292, 172 P.3d 1021, 1036 (2007) (emphasis added).
We apply the foregoing principle here. It is
undisputed that the State breached its duties to keep and render
accounts, to exercise reasonable care and skill, to administer
the trust, and to make the trust property productive, to the
significant detriment of the Native Hawaiian people for whom the
Trust was created. The State’s decision to continue to litigate
this case for decades has compounded the challenges resultant
from its own failure to keep adequate records – many of the
beneficiaries have been unable to keep their own records over
the years, particularly with respect to the amount that they
paid to rent alternative land.
This court has not previously reviewed a trial court’s
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adoption of a damages calculation methodology. Both parties
acknowledge, and we agree, that the question of which
methodology best calculates damages is either a question of fact
or a mixed question of fact and law. In either case, the
circuit court’s adoption of the FMRV model is reviewed under the
“clearly erroneous” standard. See Bremer v. Weeks, 104 Hawaii
43, 51, 85 P.3d 150, 158 and Amfac, Inc. v. Waikiki Beachcomber
Inv. Co., 74 Haw. 85, 119, 839 P.2d 10, 29 (1992). A finding of
fact or a finding of fact that presents mixed questions of fact
and law is clearly erroneous when, “despite evidence to support
the finding, the appellate court is left with the definite and
firm conviction in reviewing the entire evidence that a mistake
has been committed.” 104 Hawaii at 51, 85 P.3d at 158.
The Fair Market Rental Value model does not provide a
perfectly accurate measure of actual damages. However, the
State has failed to supply a more accurate model. Moreover, the
State’s own wrongful acts, most notably the State’s failure to
keep adequate records, have brought about the uncertainty of the
actual damages caused by its breaches. Here, the circuit court,
in its discretion as factfinder, crafted a damages model which
measures actual damages as accurately as is practicable. We
hold that the circuit court did not clearly err in creating the
FMRV model as the controlling method for calculating damages.
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We affirm in part the circuit court’s Order Re FMRV Damages
Model and hold that the FMRV Model is an adequate method for
estimating actual damages under HRS Chapter 674.
HRS Chapter 674 clearly limits recovery to actual
damages. The express purpose of HRS Chapter 674 is to
“provid[e] an individual beneficiary claimant the right to bring
an action to recover actual damages for a breach of trust[.]”
HRS § 674-1(2). HRS § 674-2 defines actual damages as
direct, monetary out-of-pocket loss, excluding noneconomic
damages as defined in section 663-8.5 and consequential
damages, sustained by the claimant individually rather than
the beneficiary class generally, arising out of or resulting
from a breach of trust, which occurred between August 21,
1959, and June 30, 1988, and was caused by an act or omission
by an employee of the State with respect to an individual
beneficiary in the management and disposition of trust
resources.
HRS § 674-16(a) states that “[t]he State waives its immunity
from liability for actual damages[.]” HRS § 674-16(a).
Here, we must reconcile HRS Chapter 674 with the
general rules of class action damages. The United States
Supreme Court has held that, for purposes of Federal Rules of
Civil Procedure (FRCP) Rule 23(b)(3),9 the common question
9 FRCP Rule 23(b) provides,
(b) Types of Class Actions. A class action may be maintained
if Rule 23(a) is satisfied and if:
. . . .
(3) the court finds that the questions of law or fact
common to class members predominate over any questions
(continued. . .)
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requirement, class action damages must be capable of being
measured across the entire class or subclass. Comcast v.
Behrend, 569 U.S. 27, 35 (2013). If no common method can be
established for determining damages, damages assessments may
impermissibly predominate over questions common to the class.
See Id. FRCP 23(b)(3)’s analogue in the Hawaii Rules of Civil
Procedure (HRCP) is HRCP Rule 23(b)(3).10 Implicit in the Hawaii
affecting only individual members, and that a class
action is superior to other available methods for
fairly and efficiently adjudicating the controversy.
The matters pertinent to these findings include:
(A) the class members’ interests in individually
controlling the prosecution or defense of
separate actions;
(B) the extent and nature of any litigation
concerning the controversy already begun by
or against class members;
(C) the desirability or undesirability of
concentrating the litigation of the claims
in the particular forum; and
(D) the likely difficulties in managing a class
action.
10 HRCP Rule 23(b) provides,
(b) Class Actions Maintainable. An action may be maintained
as a class action if the prerequisites of subdivision (a) are
satisfied, and in addition:
. . . .
(3) the court finds that the questions of law or fact
common to the members of the class predominate over any
questions affecting only individual members, and that a
class action is superior to other available methods for
the fair and efficient adjudication of the controversy.
The matters pertinent to the findings include: (A) the
interest of members of the class in individually
controlling the prosecution or defense of separate
actions; (B) the extent and nature of any litigation
concerning the controversy already commenced by or
against members of the class; (C) the desirability or
undesirability of concentrating the litigation of the
(continued. . .)
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statute, therefore, is the same requirement that class action
damages must be capable of measurement across the entire class.
See Comcast, 569 U.S. at 35.
The class action damages requirement appears to be at
odds with the definition of actual damages set forth in
HRS § 674-2. However, as it would be unjust to decline to
apportion damages to injured parties because the wrongdoer’s
tortious action renders actual damages difficult to measure, a
model must be created to reconcile the actual damages definition
with the class action damages requirement. See Tyson Foods,
Inc. v. Bouaphakeo, 136 S. Ct. 1036, 1046 (2016) (“In a case
where representative evidence is relevant in proving a
plaintiff’s individual claim, that evidence cannot be deemed
improper merely because the claim is brought on behalf of a
class.”). Put differently, the appropriate damages model must
be designed to calculate actual damages, as required by HRS
Chapter 674, and must enable damages calculation class-wide, as
required by HRCP Rule 23(b).
This model need not be exact. “The wrongdoer is not
entitled to complain that [damages] cannot be measured with the
exactness and precision that would be possible if the case,
claims in the particular forum; (D) the difficulties
likely to be encountered in the management of a class
action.
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which he alone is responsible for making, were otherwise . . .
the risk of the uncertainty should be thrown upon the wrongdoer
instead of upon the injured party.” Story Parchment Co., 282
U.S. at 563. Indeed, “[t]he law never insists upon a higher
degree of certainty as to the amount of damages than the nature
of the case admits, and where, as here, the fact of damages is
established, a more liberal rule is allowed in determining the
amount.” Coney, 39 Haw. at 139-40.
The circuit court’s FMRV model envisions calculating
the fair market rental value on a class-wide basis using a four-
part procedure. First, the court will calculate the market
value of comparable residential, agricultural, and pastoral lots
and estimate fee simple values for each type of lot. Second,
the court will compute the estimated fee simple value of each
type of lot for each year of the damages period. Third, the
court will either calculate annual fair market rental values
from the best fit curve or calculate annual fair market rental
values for each year directly from the rental values of
comparable lots. Fourth, the court will sum the potential loss
to each claimant for the time period beginning six years after
the claimant’s application was accepted by DHHL11 until either a
11 We vacate the circuit court’s Order Re FMRV Damages Model to the
extent that the FMRV model adopts the “six-year rule.” See infra at section
III(C).
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homestead award is made or until the date of trial. Each
claimant’s FMRV damages calculation will be subject to
applicable defenses by the State.
While the FMRV model may not measure actual damages
with exactitude, exactitude is not required under the
circumstances. The circuit court as factfinder found that the
FMRV model was a reasonable method to determine actual damages
as defined under HRS § 674-2, and we find no basis to interfere
with that determination. We therefore find no error with the
general method adopted by the circuit court. As discussed
infra, we hold that the circuit court erred with respect to
specific findings within the Order Re FMRV Damages Model. We
therefore affirm in part the circuit court’s Order Re FMRV
Damages Model.
1. The circuit court did not err in adopting the best fit
curve.
The circuit court did not abuse its discretion when it
determined that the best fit curve represents the best way to
calculate the FMRV of the Maili lot.
Plaintiffs argue that the circuit court improperly
adopted the State’s expert’s best fit damages model because the
model arbitrarily reduces damages for the waitlist subclass.
Plaintiffs allege that both sides’ experts initially agreed that
the market value model will most accurately measure damages.
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According to Plaintiffs, the best fit model proposed by the
State and adopted by the circuit court “is a device used to
eliminate variations in data; it is not an actual measure of
data.” The best fit model, Plaintiffs assert, reduces damages
for individual class members and aggregate damages for the
subclass as a whole.
At the 2013 bench trial on damages, Plaintiffs’ expert
Rothstein and the State’s expert Hallstrom stated that different
methodologies can be used to derive the Maili lot FMRV. The
experts proposed three different methodologies: the market value
curve, the compound curve, and the best fit curve. Both experts
testified at length about the strengths and limitations of each
methodology. After the trial, the circuit court, in its
discretion as finder of fact, adopted the best fit curve.
The issue of which curve best derives the Maili lot
FMRV falls within the question of which methodology best
calculates overall damages. Therefore, we review the circuit
court’s determination that the best fit model will be used to
calculate damages under the “clearly erroneous” standard. See
supra p. 29 (citing Bremer, 104 Hawaii at 51, 85 P.3d at 158;
Amfac, 74 Haw. at 119, 839 P.2d at 29).
The circuit court’s determination that the best fit
curve will be used to calculate damages was not clearly
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erroneous. According to both parties’ expert testimony, the
market value model is the most accurate model. However, the
circuit court did not err in selecting the best fit model
because the experts also agreed that there are disadvantages to
using the market value model. The testimony of both experts
indicated that the market value model creates the potential for
wide disparity in individual damages awards based on
appreciating land values and housing market fluctuations. As
such, it appears that the best fit model is the second most
accurate of the three models, but that it also best provides for
the calculation of class-wide damages.
In light of the evidence presented by both parties’
experts on the various potential damages curves, the circuit
court did not clearly err in selecting the best fit curve, which
appears to be less exact but more fair than Plaintiffs’ proposed
market value model.
2. The circuit court correctly applied the Oahu FMRV model
for residential leases to the entire state.
The circuit court did not err in applying a statewide
measure of residential damages based on a homestead lot in Maili
on the island of Oahu.
The State argues that the Maili lot is not a fair lot
on which to base class-wide damages because Oahu land values are
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higher than those of neighbor islands.
Plaintiffs contend that “[t]he court properly
recognized that a statewide damages class requires a statewide
measure of damages” and that, in any case, the State provides no
evidence that Oahu land values are higher than neighbor island
land values.
Class action damages must be measurable across the
entire class or subclass. See supra pp. 31-32. If no common
method can be established for determining damages, damages
assessments may impermissibly predominate over questions common
to the class. See Comcast, 569 U.S. at 35.
In order to establish a common method for determining
damages here, the circuit court selected a 5,000-square-foot lot
in Maili as the basis for determining the rental value, of which
claimants were deprived, for each year during the claims period.
The record reflects that the circuit court chose the
5,000-square-foot Maili lot because Plaintiffs’ expert Rothstein
selected that lot as a conservative example of an Oahu
residential homestead for purposes of calculating Oahu
residential homestead applicant damages using the methods
proposed by the Plaintiffs in their first and second proposed
damages models. Rothstein referenced the 5,000-square-foot
Maili lot in his Declaration attached to Plaintiffs’ first
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motion proposing a damages model. Rothstein again referenced
the Maili lot in his Declaration attached to Plaintiffs’ second
motion proposing a damages model, stating,
[f]or the purpose of this valuation, I have assumed a 5,000
square foot lot in Maili. I have used this assumption based
upon the most conservative estimates, i.e., the smallest lot
size noted by Judge Hifo in her opinion and in the area where
the market values are lowest. These data are additionally
conservative, as Maili lots were less expensive than lots in
urban Honolulu.
In his Declaration, Rothstein referred to Judge Hifo’s
2009 Liability Order, which stated, citing DHHL witness Darrell
Yagodich’s testimony, “[t]he residential homesteads likewise
have been trimmed from 7,500 square feet on Oahu in 1983 to a
smaller 5,000 square feet[.]”
The circuit court’s overall damages model uses FMRV as
the basis for calculating each residential claimant’s overall
damages.12 The circuit court did not err in using the FMRV of
the Maili lot as the basis for calculating the entire subclass’s
12 In the October 7, 2014 Trial Order, the circuit court ordered,
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that for purposes
of calculating damages for claimants who applied for Oahu
residential leases under the February 14, 2013, Order, the
“Best Fit” model as set forth in Exhibit D-40 shall be used
to determine the fee simple values to calculate annual fair
market rental values. This model comprises (i) annual rental
values based on four percent (4%) of the fee simple value of
the land area of a 5,000 square foot lot in Maili for any
given year; (ii) rents adjusted annually; and (iii) a “best
fit” model derived from actual fee simple Maili valuations
from 1959 through July 8, 2013 (as shown on Exhibit D-2);
(iv) with no increases for the consumer price index (“CPI”)
or present value adjustments.
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damages. The circuit court chose a representative lot on which
to base damages to satisfy the HRCP Rule 23(b) requirement that
class action damages be capable of being measured class-wide.
Nothing in the record indicates that a 5,000-square-foot lot in
Maili is inappropriate for purposes of calculating class-wide
damages. The State presented no evidence that compares land
values in Maili to land values in other homestead locations on
Oahu or the neighbor islands.13
Based on the record before this court, we hold that
the circuit court did not err in selecting the Maili lot as the
sample residential lot on which class-wide damages will be
based.
3. All waitlisted beneficiaries are entitled to damages
pursuant to the FMRV Model, subject to the State’s
rebuttal.
The HHCA envisioned the creation of a public land
trust that would return Native Hawaiians to the land and prevent
further displacement of the Hawaiian people. Hawaiian Homes
Commission Act, ch. 42, sec. 101, 42 Stat. 108, 8-9 (1920).
However, the federal government, and later the state government,
which took over the role of trustee in 1959, mismanaged the
13 In addition, the State has not appealed the circuit court’s rulings
that applied a statewide measure of agricultural and pastoral damages based on
lots on the islands of Maui and Hawaii, respectively.
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Trust by misappropriating home lands for non-beneficiary use,
failing to restore the lands or compensate the trust, and
failing to keep adequate records. Rather than placing
beneficiaries on homestead lots, the State placed beneficiaries
on a long waitlist. The waitlist for leasing home lands grew
and continued to grow.
In 2009, the circuit court found that the State
breached its trust duties to keep and render accounts, exercise
reasonable care and skill, administer the trust, and make the
trust property productive. The circuit court also found that
these breaches caused eligible Native Hawaiians to remain on the
waitlist and suffer damages as a result. The circuit court
specifically identified the need for further proceedings to
determine the amount of damages, however, and the State now
contests the method for determining damages that the circuit
court established.
It is clear to us that the State, by mismanaging the
Trust, failing to keep adequate records, and continuing to
litigate this case for decades, is responsible for creating a
situation in which it will be difficult to accurately assess
damages.
Classic principles of trust law shift the burden to
the trustee, once a beneficiary has proven that breach of trust
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duties occurred and that loss resulted, to prove that the amount
of damages should be limited as a result of the beneficiary’s
action or circumstance. See George Gleason Bogert et al.,
Bogert’s The Law of Trusts and Trustees § 871 (2020) (“If the
beneficiary makes a prima facie case, the burden of
contradicting it or showing a defense will shift to the
trustee.”); see also Restatement (Second) of Trusts § 172 cmt. b
(Am. Law Inst. 1959) (“The burden of proof is upon the trustee
to show that he is entitled to the credits he claims, and his
failure to keep proper accounts and vouchers may result in his
failure to establish the credit he claims.”). Indeed, Hawaii
has recognized that the nature of the case may warrant a lesser
degree of certainty with respect to the amount of damages and
that, if the fact of damages is established, “a more liberal
rule is allowed in determining the amount.” Coney, 39 Haw. at
139.
In addition to the traditional principles of burden-
shifting in the context of damages on which we base our holding,
we are mindful of our previous holding in Kalima I that Chapter
674 should be “liberally construed to suppress the perceived
evil and advance the enacted remedy” and should not be narrowly
interpreted to “impede rather than advance the remedies”
provided by the statute. 111 Hawaiʿi at 100, 137 P.3d at 1006
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(quoting Flores, 70 Haw. at 12, 757 P.2d at 647).
We adopt the FMRV Model and hold that every trust
beneficiary is entitled to damages, pursuant to that model, for
the years during which the beneficiary was on the waitlist. We
hold that the State bears the burden of proving that individual
beneficiaries are entitled to reduced damages for any reason.
The State has argued that individual beneficiaries
must show, for example, that the beneficiary spent money out of
pocket renting alternative land, that the beneficiary did not
refuse a homestead offer, that the beneficiary mitigated their
damages, and that the beneficiary is part of the defined
subclass.
Establishing this proof will be prohibitively
difficult for beneficiaries, who are not at fault for the time
that has passed or the State’s failure to administer the Trust.
Instead, the State must shoulder this burden by proving to the
Special Master that individual beneficiaries’ damage awards
should be reduced after damages are calculated by the FMRV
damages model.14
14 The parties raise numerous issues surrounding mitigation, including
what it means for a beneficiary to have deferred from participation in a
homestead offering and to what extent beneficiaries mitigated their damages.
Each beneficiary’s factual scenario surrounding these issues will be different
based on the beneficiary’s individual experience attempting to secure a
homestead from the State. “In contract or in tort, the plaintiff has a duty to
make every reasonable effort to mitigate his damages. The burden, however, is
(continued. . .)
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B. The circuit court correctly ruled that adjusting damages to
present value constitutes an award of prejudgment interest in
violation of HRS § 661-8.
The circuit court adhered to the HRS Chapter 674
actual damages requirement by ruling that damages will not be
adjusted to present value. The circuit court correctly ruled
that the damages model does not provide for “increases for the
consumer price index (‘CPI’) or present value adjustments.”
The adjustment of damages to present value to account
for inflation would impermissibly award Plaintiffs prejudgment
interests in violation of HRS § 661-8 (2016). HRS § 661-8,
which precludes prejudgment interest against the State,
provides, “[n]o interest shall be allowed on any claim up to the
time of the rendition of judgment thereon by the court, unless
upon a contract expressly stipulating for the payment of
interest, or upon a refund of a payment into the ‘litigated
claims fund’ as provided by law.”
upon the defendant to prove that mitigation is possible, and that the injured
party has failed to take reasonable steps to mitigate his damages.” Malani v.
Clapp, 56 Haw. 507, 517, 542 P.2d 1265, 1271 (1975) (internal citations
omitted). As such, the State bears the burden of proving a that a beneficiary
failed to mitigate damages and that the beneficiary’s damages should therefore
be reduced. The Special Master shall make the final damages calculation.
Plaintiffs concede that “[t]he only event that would legally limit a class
member’s claim to damages for ‘failure to mitigate’ consistent with the rules
would be the Beneficiary’s refusal to select a lot after being offered an award
and a lease.” Accordingly, we hold that, in order to carry its burden of
proving that a beneficiary failed to mitigate damages, the State must prove that
it specifically offered a homestead award and lease to that beneficiary and that
the beneficiary thereafter refused to select a lot.
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This court has defined prejudgment interest as
“compensation for the delay in payment of money damages which is
measured from accrual of the claim for relief until final
judgment[.]” Rodrigues v. State, 52 Haw. 156, 169, 472 P.2d
509, 518 (1970). Adjusting for inflation, or bringing damages
up to present value, would compensate Plaintiffs for the passage
of time between the moment they suffered loss to the time of
final judgment. As such, adjusting for inflation constitutes
prejudgment interest.
In Library of Congress v. Shaw, 478 U.S. 310 (1986)
(superseded by statute), the United States Supreme Court
confirmed that inflation adjustment is not a separate damages
principle, but is part of calculating prejudgment interest.
There, evaluating damages against the government where a pre-
judgment interest prohibition similar to HRS § 661-8 existed,
the Court held that “whether the loss to be compensated . . .
stems from an opportunity cost or from the effects of inflation,
the increase is prohibited by the no-interest rule. In essence,
the inflation factor adjustment is a disguised interest award.”
Id. at 322 (emphasis added) (internal quotations and citations
omitted).
This court’s definition of prejudgment interest,
viewed together with the United States Supreme Court’s
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observation about the relatedness of inflation and prejudgment
interests, indicate that the adjustment of Plaintiffs’ damages
to account for inflation in this case would impermissibly
constitute prejudgment interest. See Rodrigues, 52 Haw. at 169,
472 P.2d at 518 and Library of Congress, 478 U.S. at 322.
Moreover, prejudgment interest does not constitute
actual damages and is therefore precluded by HRS Chapter 674.
Actual damages do not include the amount that a beneficiary
would have paid toward renting alternative land had they rented
that land now. Plainly, awarding beneficiaries more than what
they actually paid toward alternative lands would result in
awards that exceed beneficiaries’ actual damages. Therefore,
adjusting beneficiaries’ damages for inflation would also run
afoul of HRS Chapter 674.
The circuit court correctly ruled that damages may not
be adjusted to present value, as doing so would constitute the
award of prejudgment interest in violation of HRS § 661-8 and
would contravene the express actual damages limitation of HRS
Chapter 674.
C. The circuit court erred in ruling that damages will not begin
to accrue until six years after DHHL received a beneficiary’s
homestead application.
Both parties argue that the circuit court incorrectly
ruled that a beneficiary’s damages did not begin to accrue until
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six years after DHHL received that beneficiary’s homestead
application.
On January 24, 2012, the circuit court entered an
Order Re Parties’ Damages Model. In the Order, the circuit
court found, inter alia, “for purposes of the computation of
damages[,] the time to run would start at the earliest six years
from the date a beneficiary’s application is accepted for
placement on the list to receive homesteads.” The circuit court
based its ruling on the following testimony of Henderson,
“assuming [they] had the resources available to them, the normal
development process [] probably [takes] five to six years.”
Henderson also testified:
DHHL’s position [on what constitutes placement on the land in
a prompt and efficient manner, specifically, the number of
years between an application and an award] is that certainly,
again, assuming you had the resources available to them, the
normal development process is probably five to six years. I
mean, that’s not, you know – I mean, yeah, you talk to any
developer in the private market, in the private sector, they
probably would tell you the same thing.
I mean, planning, permitting, engineering plans,
offsite, onsite construction, et cetera, home reconstruction,
we are looking at a period of five to six years.”
While the court may be liberal in its determination of
the amount of damages after liability is established, especially
where the uncertainty was caused by defendant’s wrongdoing, see
Exotics Hawaii-Kona, 116 Hawaii at 292, 172 P.3d at 1036, “[t]he
extent of plaintiff’s loss must be shown with reasonable
certainty and that excludes any showing or conclusion founded
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upon mere speculation or guess.” Ferreira v. Honolulu Star-
Bulletin, Ltd., 44 Haw. 567, 576, 356 P.2d 651, 656 (1960).
Here, there is not a sufficient basis in the record to
support the circuit court’s ruling, as it appears that
Henderson’s testimony amounts to “mere speculation or guess.”
See id. First, Henderson’s testimony assumes that DHHL had
access to all necessary resources. In fact, the circuit court
specifically found that “the major drawback to awarding
homesteads was insufficient DHHL funds to complete site
development, compounded by the poor quality or relatively remote
locations of land thus requiring greater development expenses.”
(Emphasis added). Henderson’s testimony does not, therefore,
reflect the conditions under which DHHL actually operated.
Second, while Henderson testified on behalf of DHHL at trial, he
is not an expert on land development and did not proffer
concrete reasons to support his estimate. Henderson simply
asserted that a private market developer would agree with his
estimate and cited various factors that could delay the
development process. Henderson’s assertions are based on
speculation and false assumption.
In addition, nothing in the record indicates that the
development process timeline is in any way connected to the
timing of when an applicant was placed on the waitlist. In
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other words, the State did not begin to develop a homestead plot
each time a new beneficiary applied for a homestead. Even if
six years is an accurate development delay estimate, that delay
did not commence each time a claimant was placed on the
waitlist. Therefore, there is no logical reason why the State
should be allotted a six-year grace period between when the
applicant was placed on the waitlist and when damages began to
accrue.
The circuit court adopted the six-year rule based on
Henderson’s “mere speculation or guess.” See Ferreira, 44 Haw.
at 576, 356 P.2d at 656. In addition, the homestead development
process timeline appears to be unrelated to the timing of when
claimants filed their applications. In light of the foregoing,
the circuit court erred in adopting the six-year rule. We
vacate the Order Re FMRV Model to the extent that it adopted the
six-year rule.
D. The circuit court did not err in finding that the State
breached its trust duties by failing to recover lands that
were withdrawn from the Trust before statehood.
The circuit court correctly found that the State
breached its trust duties by failing to recover lands that were
withdrawn from the Trust prior to statehood.
The State argues that the circuit court erred in
finding that the State breached its trust duties by not
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recovering lands that were withdrawn from the Trust by the
federal government prior to Statehood. The State asserts that
it would have been “a legal impossibility for the State to
recover those lands from the federal government” because the
federal government did not waive its sovereign immunity against
suits to resolve title issues to land until the passage of the
Quiet Title Act (QTA) in 1972 and because “[p]ost-1972, claims
to recover the trust lands would have faced the QTA’s 12-year
statute of limitations.” (citing 28 U.S.C. 2409a(i) (as amended
by Pub. L. 99-598, November 4, 1986)). As such, the State
argues that it “had no duty to pursue a futile action against
the federal government.”
Plaintiffs counter that the State “wrongfully assumes
that the only means of remedying its trust breaches was
litigation against the federal government.” Plaintiffs further
contend that, in light of undisputed facts in the record, the
circuit court correctly found that the State “breached its
duties to compensate the trust for wrongfully taken lands or
return the lands to the trust at the assumption of its trust
duties.”
Between 1922 and 1969, the federal government and
later the State alienated or “set aside” trust lands – that is,
the State used Hawaiian home lands for purposes not permitted by
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the Trust. When the Territory of Hawaii became a state in 1959,
the State of Hawaii took over the management and disposition of
the Hawaiian home lands, including those that had been set aside
by the federal government. Kalima I at 87, 137 P.3d at 993.
The State thereafter breached its trust duty either to restore
those lands to the Trust or compensate the Trust.
The circuit court found that the State breached the
Trust as follows:
Defendant State’s failure for 25 years (1959-1984) to correct
its own and the predecessor trustees’ illegal “set asides” by
cancellation or withdrawal of those executive orders or
proclamations together with Defendant State’s failure
throughout the claims period to restore lands to the trust
and to compensate the trust for fair rent during the period
of non-beneficiary State use of trust lands were breaches of
trust and trust duties set forth in Sections 170, 174, 175,
176, 177, 179, 181, 223 [of the Restatement [Second] of
Trusts].
In other words, the State breached the Trust by failing to
correct the ongoing dispossession of trust lands, which it could
have done by cancelling and withdrawing executive orders.
Accord Ching v. Case, 145 Hawaii 148, 170, 449 P.3d 1146, 1168
(2019) (“The most basic aspect of the State’s trust duties is
the obligation ‘to protect and maintain the trust property and
regulate its use.’”) (quoting State ex rel. Kobayashi v.
Zimring, 58 Haw. 106, 121, 566 P.2d 725, 735 (1977)). The State
also breached its trust duties by failing to restore those lands
to the Trust and by failing to compensate the Trust for the
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lands’ rental value while in use by non-beneficiaries.
Contrary to the implication of the State’s position,
the circuit court did not rule that the State was required to
sue the federal government to recover those trust lands in order
to avoid breaching the Trust. Accord Ching, 145 Hawaii at 171,
449 P.3d at 1169 (holding that the State had a trust duty to
monitor the federal government’s noncompliance with its lease of
public lands but did not have a trust duty to initiate an
enforcement action). In fact, the State has previously restored
alienated trust lands and compensated the Trust for non-
beneficiary use without suing the federal government. In 1994,
with the passage of Act 352, the State transferred 16,518 acres
of trust lands from DLNR to DHHL and paid DHHL $12 million for
uncompensated use of those lands. Essentially, the circuit
court found that the State breached its trust obligation by
failing to restore lands or compensate the Trust sooner.
Under the basic principles of trust law, a successor
trustee is liable to a beneficiary for breach of trust if the
trustee (a) knows or should know of a situation constituting a
breach of trust committed by the trustee’s predecessor and
improperly permits it to continue; (b) neglects to take proper
steps to compel the predecessor to deliver the trust property to
the trustee; or (c) neglects to take proper steps to redress a
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breach of trust committed by the predecessor. Restatement
(Second) of Trusts § 223 (Am. Law Inst. 1959). The State knew
of the federal government’s misuse of trust lands and improperly
permitted it to continue. In addition, the State neglected to
take proper steps to redress the breach committed by the federal
government as original trustee. The State is clearly, then,
liable to the beneficiaries for breach of trust. See Rest. of
Trusts § 223.
As a result, the circuit court correctly found that
the State breached its trust duties by failing to take action to
restore recovered land to the Trust upon Statehood in 1959.
E. The circuit court did not err in establishing the subclass
list.
The State argues that the circuit court erred in
establishing an overbroad subclass list. The State alleges that
the circuit court found it liable to “numerous individuals who
never had a viable claim against the State” because the circuit
court “adopted Plaintiffs’ list of subclass members in its
entirety, despite the fact that it contains a large number of
people who are categorically not entitled to relief, and despite
the fact that it conflicts with the court’s own class and
subclass definitions.” These individuals include claimants who
settled with the Panel, claimants who failed to submit written
notice of intent to sue by October 1, 1999, claimants who were
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not on the homestead waitlist or who did not submit a waitlist
claim, and claimants who do not satisfy the Native Hawaiian
blood quantum requirement.
Plaintiffs argue that including these individuals was
proper because “[e]xclusion of these individuals from the class
adjudication process means that they would be free to pursue
their own claims against [the State] and that there would be no
res judicata effect on these claims[.]” In addition, Plaintiffs
note that until each claimant presents the claimant’s evidence
to the Special Master, there is no way for the circuit court to
make factual determinations as to which claimants lack viable
claims.
The June 6, 2007 subclass certification for purposes
of liability defined the waitlist subclass as “[a]ll Chapter 674
plaintiffs who were on the [DHHL] waiting list for a homestead
and who submitted a claim to [the Panel] because they were not
awarded a homestead in a prompt and efficient manner.”
On July 26, 2017, the circuit court granted
Plaintiffs’ Motion to Establish Claims Administration Process
and appointed a Special Master to perform the ministerial work
of processing all subclass members’ damages claims. The order
also stated, “[a]n amended 54(b) judgment shall be entered on
each claim after the completion of the periods set by the Court
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for review of the returned claim by the Claims Administrator and
Special Master, if any.”
The circuit court adopted Plaintiffs’ proposed
waitlist subclass list, which was compiled “from a print out of
an Excel spreadsheet prepared by the Hawaiian Claims Office
(HCO) listing every individual who filed a claim with the HCO
Panel.”
The circuit court correctly adopted the list in order
to bind all persons who could pursue a claim as a waitlist
member to the judgment in this case. Importantly, the class
list includes all persons who filed a claim with the Panel. Now
that the class has been established, each person on the class
list will go through the claims administration process, where
the Special Master will determine whether that person does or
does not have a viable claim. The claim of any persons who fail
to meet the subclass definition, for example, because they
already settled their claim, or are excluded by statute, for
example, because they do not meet the Native Hawaiian blood
quantum requirement, will be excluded. At that time, individual
judgment will be entered against disqualified claimants and they
will be precluded from relitigating their non-viable claims.
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HRCP Rule 23(c)(3) (2011)15 provides that a judgment
can only bind and preclude persons who are members of a class.
As Plaintiffs note, “exclusion of these individuals from the
class adjudication process means that they would be free to
pursue their own claims against Defendants and that there would
be no res judicata effect on these claims because they were not
litigated and reduced to judgment.” Therefore, although some of
these class members may not have viable claims, it is
appropriate to include them in the class in order to preclude
them from attempting to relitigate their non-viable claims.
Moreover, inclusion in the subclass list does not mean
that a claimant is entitled to damages. Claimants bear the
burden of proving that they are qualified to receive damages.
The court appointed a Special Master to make factual
determinations, based on evidence, as to which claimants are
15 HRCP Rule 23(c)(3) provides,
(c) Determination by Order Whether Class Action to be
Maintained; Notice; Judgment; Actions Conducted Partially as
Class Actions.
. . . .
(3) The judgment in an action maintained as a class
action under subdivision (b)(1) or (b)(2), whether or
not favorable to the class, shall include and describe
those whom the court finds to be members of the class.
The judgment in an action maintained as a class action
under subdivision (b)(3), whether or not favorable to
the class, shall include and specify or describe those
to whom the notice provided in subdivision (c)(2) was
directed, and who have not requested exclusion, and
whom the court finds to be members of the class.
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entitled to damages. Any subclass member whose claim is
excluded because it is not viable will not be entitled to
damages.
The circuit court did not err in establishing the
subclass list. The class has been certified, and the class list
is established. Each class member’s individual entitlement to
damages will be determined, and no subclass member who is
“categorically not entitled to relief” will obtain damages or a
favorable judgment.
IV. CONCLUSION
We resolve the foregoing issues as follows. We
(1) affirm the February 14, 2013 Order Re FMRV Damages Model in
accordance with the preceding analysis; (2) affirm the October
7, 2014 Trial Order adopting the best fit curve and denying
increases for CPI or present value adjustments; (3) affirm the
September 22, 2016 order selecting the Maili lot as the sample
residential lot to be used statewide; (4) vacate the January 24,
2012 order establishing the “six-year rule;” (5) affirm the
November 3, 2009 liability order finding that the State breached
its trust duties by failing to correct ongoing dispossession of
trust lands; and (6) affirm the June 6, 2007 order certifying
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the waitlist subclass. We further hold that the State bears the
burden of proving that a beneficiary failed to mitigate damages.
Clyde J. Wadsworth, /s/ Mark E. Recktenwald
Kimberly T. Guidry,
Robert T. Nakatsuji, and /s/ Paula A. Nakayama
Kalikoonalani D. Fernandes
for Defendants-Appellants/ /s/ Richard W. Pollack
Cross-Appellees
/s/ Michael D. Wilson
Carl M. Varady and
Thomas R. Grande for /s/ Matthew J. Viola
Plaintiffs-Appellees/
Cross-Appellants
57