united states court of appeals for the ninth … · l. kahawaiolaa; and samuel l. kealoha...

C.A. No. 08-16704

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

_______

VIRGIL E. DAY; MEL HOOMANAWANUI; JOSIAH L. HOOHULI; PATRICKL. KAHAWAIOLAA; and SAMUEL L. KEALOHA

Plaintiffs-Appellants,

v.

HAUNANI APOLIONA, individually and in her official capacity as Chairpersonand Trustee of the Office of Hawaiian Affairs; ROWENA AKANA; DANTE

CARPENTER; DONALD CATALUNA; LINDA KEAWE‘EHU DELA CRUZ;COLETTE Y. PI‘IPI‘I MACHADO; BOYD P. MOSSMAN; OSWALD K.

STENDER; JOHN D. WAIHEE, IV, Trustees of the Office of Hawaiian Affairs ofthe State of Hawaii, sued in their official capacities for declaratory and prospective

injunctive relief and in their individual capacities for damages; and CLAYTONHEE and CHARLES OTA, Former Trustees of the Office of Hawaiian Affairs of

the State of Hawaii, sued in their individual capacities for damages,

Defendants-Appellees

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF HAWAII

CIVIL NO. CV-05-00649-SOMHON. SUSAN OKI MOLLWAY, PRESIDING

_______

APPELLANTS’ OPENING BRIEF

_______

WALTER R. SCHOETTLE 1559P. O. Box 596Honolulu, Hawaii 96809Telephone: (808) 537-3514

Attorney for Appellants

Case: 08-16704 11/19/2008 Page: 1 of 50 DktEntry: 6713049

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TABLE OF CONTENTS

TABLE OF AUTHORITIES

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

I. Jurisdictional Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. Statement of Issues Presented for Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

A. Whether an expenditure of trust funds for the support of legislation toestablish a governing entity for Hawaiians without regard to bloodquantum is a breach of the trust established by § 5(f) of the HawaiiAdmission Act? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

B. Whether a contribution of trust funds to a legal services agency forthe benefit of Hawaiians without restriction as to blood quantum is abreach of the trust established by § 5(f) of the Hawaii Admission Act?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

C. Whether a contribution of trust funds to an educational program forthe benefit of Hawaiians without restriction as to blood quantum is abreach of the trust established by § 5(f) of the Hawaii Admission Act?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

D. Whether a contribution of trust funds to a social services agency forthe benefit of Hawaiians without restriction as to blood quantum is abreach of the trust established by § 5(f) of the Hawaii Admission Act?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

E. Whether the law is sufficiently clearly established to preclude adefense of qualified immunity for misappropriations of trust funds asset forth above? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

F. Whether Plaintiffs are entitled to declaratory and/or injunctive reliefwith respect to the circumstances under which § 5(f) trust funds maybe used by Defendants for the benefit of the conditions of Hawaiiansof less than one-half part blood quantum? . . . . . . . . . . . . . . . . . . . . . 2

III. Statement of the Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2


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IV. Statement of Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

V. Standard of Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

VI. Summary of Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

VII. ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

A. The use of § 5(f) trust funds by OHA Defendants is limited to thebetterment of the condition of native Hawaiians as defined in theHawaiian Homes Commission Act. . . . . . . . . . . . . . . . . . . . . . . . . . 10

B. The record does not show that the Akaka Bill will better the conditionof native Hawaiians as defined in the Hawaiian Homes CommissionAct. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

C. The District Court erred in concluding that the OHA Defendants haddiscretion to contribute trust funds to Native Hawaiian LegalCorporation without restricting its use to the benefit of nativeHawaiians (or at least, one or more of the § 5(f) purposes. . . . . . . . 31

D. The District Court erred in concluding that the OHA Defendants haddiscretion to contribute trust funds to the Na Pua No‘eau EducationProgram without restricting its use to the benefit of native Hawaiians(or at least, one or more of the § 5(f) purposes. . . . . . . . . . . . . . . . . 33

E. The District Court erred in concluding that the OHA Defendants haddiscretion to contribute trust funds to Alu Like without restricting itsuse to the benefit of native Hawaiians (or at least, one or more of the§ 5(f) purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

F. Defendants are not entitled to qualified immunity. . . . . . . . . . . . . . 35

G. Plaintiffs are entitled to declaratory and/or prospective injunctiverelief. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

VIII. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39


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TABLE OF AUTHORITIES

Cases cited:

Arakaki v. Cayetano, 324 F.3d 1078 (9th Cir. 2003) . . . . . . . . . . . . . . . . . . . . 13, 14

Chevron USA, Inc. v. Cayetano, 224 F.3d 1030 (9th Cir. 2000) . . . . . . . . . . . . . 10

Day v. Apoliona, 496 F.3d 1027 (9th Cir. 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Levine v. City of Alameda, 525 F.3d 903 (9th Cir. 2008) . . . . . . . . . . . . . . . . . . . . 9

OHA v. Yamasaki, 69 Haw. 154, 737 P.2d 446 (1987) . . . . . . . . . . . . . . . . . . 14, 15

Price v. Akaka, 928 F.2d 824 (9th Cir. 1990) . . . . . . . . . . . . . . . . . . . . . . . . . 12, 13

Price v. Akaka, 3 F.3d 1220 (9th Cir. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Rice v. Cayetano, 528 U.S 495 (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-27

Price v. Akaka, 3 F.3d 1220 (9th Cir. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Rice v. Cayetano, 528 U.S 495 (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-27

Statutes cited:

28 U.S.C. § 1343 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

42 U.S.C. § 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

H.R.S. § 10-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 22

H.R.S. § 10-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

H.R.S. § 10-5(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 12

H.R.S. § 673-1(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21


iv

H.R.S. § 708-830(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35, 36

Hawaii Admission Act, Pub. L. 86-3, 73 Stat. 4 (1959) . . . . . . . . . . . . . . . . . . . . . 2

Hawaii Admission Act, § 5(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

Hawaiian Homes Commission Act, 1920, Pub.L.No. 67-34, 42 Stat. 108 (1920). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 3, 6

Hawaii State Constitutional provisions cited:

Article XII, Section 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Article XII, Section 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 7

Article XII, Section 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Article XII, Section 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 10-12

Rules cited:

F.R.A.P., Rule 26(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

F.R.A.P., Rules 4(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Other Authorities cited:

Attorney General Opinion, Op. No. 83-2, (1983) . . . . . . . . . . . . . . . . . . . . . . 22, 23

Bogert, George Gleason, The Law of Trusts & Trustees, Rev. 2nd Ed. (1993), §543. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 20

RESTATEMENT (THIRD) OF TRUSTS (2005), § 78(1) . . . . . . . . . . . . . . . . . . . . 38, 39

RESTATEMENT, SECOND, TRUSTS, § 170(1). . . . . . . . . . . . . . . . . . . . . . 18, 19

RESTATEMENT, SECOND, TRUSTS, § 205(a) . . . . . . . . . . . . . . . . . . . . . . . . 35


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RESTATEMENT, SECOND, TRUSTS, § 206 . . . . . . . . . . . . . . . . . . . . . . . . . . 35


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I. JURISDICTIONAL STATEMENT

This is a civil rights claim, pursuant to 42 U.S.C. § 1983. The district court had

original subject matter jurisdiction, pursuant to 28 U.S.C. § 1343. Final judgment

disposing of all of the claims of all of the parties was entered herein on June 20, 2008.

Excerpts of Record (“ER”), p. 29, item 157. Notice of appeal therefrom, was filed on

July 21, 2008. ER, pp. 1-2. The notice of appeal was timely within 30 days as

provided by F.R.A.P., Rules 4(a)(1)(A) as extended by F.R.A.P., Rule 26(a)(3) as the

thirtieth day was Sunday July 20, 2008.

II. STATEMENT OF ISSUES PRESENTED FOR REVIEW

A. Whether an expenditure of trust funds for the support of legislation to

establish a governing entity for Hawaiians without regard to blood quantum

is a breach of the trust established by § 5(f) of the Hawaii Admission Act?

B. Whether a contribution of trust funds to a legal services agency for the

benefit of Hawaiians without restriction as to blood quantum is a breach of

the trust established by § 5(f) of the Hawaii Admission Act?

C. Whether a contribution of trust funds to an educational program for the



D. Whether a contribution of trust funds to a social services agency for the



E. Whether the law is sufficiently clearly established to preclude a defense of

qualified immunity for misappropriations of trust funds as set forth above?

F. Whether Plaintiffs are entitled to declaratory and/or injunctive relief with


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respect to the circumstances under which § 5(f) trust funds may be used by

Defendants for the benefit of the conditions of Hawaiians of less than one-

half part blood quantum?

III. STATEMENT OF THE CASE

Plaintiffs herein are “native Hawaiians” as that term is defined by Section 201

of the Hawaiian Homes Commission Act, 1920, Pub.L.No. 67-34, 42 Stat. 108

(1920), (“HHCA”). As such, Plaintiffs are special beneficiaries of the trust

established by the United States Congress in Section 5(f) of the Hawaii Admission

Act, Pub. L. 86-3, 73 Stat. 4 (1959) (“Admission Act”).

The original complaint was filed on October 13, 2005. ER, p. 9, item 1. On

December 12, 2005, Defendants HEE and OTA filed a motion for summary judgment.

ER, p. 10, item 15. On February 22, 2006, the District Court granted the motion for

summary judgment in favor of HEE and OTA with leave to amend. ER, p. 12, item 40.

The First Amended Complaint was filed on March 10, 2006, setting forth a

civil rights claim, pursuant to 42 U.S.C. § 1983, against Defendants APOLIONA,

AKANA, CARPENTER, CATALUNA, DELA CRUZ, MACHADO, MOSSMAN, STENDER and

WAIHE’E (OHA Trustees), in their individual capacities for damages and in their

official capacities as trustees of the Office of Hawaiian Affairs of the State of Hawaii

for prospective injunctive and declaratory relief. ER, pp. 66-76. A claim for damages

was also made against Defendants HEE and OTA, former trustees, in their individual


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capacities for damages solely for the purposes of preserving the issue on appeal. ER,

pp. 70-71.

Count I of the amended complaint alleges that, as trustees, defendants have

received funds derived from the income from lands placed in trust by Section 5(f) of

the Admission Act (“§ 5(f) trust”); that they owe Plaintiffs a clearly established duty

to expend said funds for the uses and purposes set forth in § 5(f); and that they have

breached that trust by expending trust funds for purposes other than those set forth

in § 5(f), specifically: 1) lobbying for a bill to establish a Native Hawaiian Governing

Entity, commonly known as the “Akaka Bill”, 2) supporting the Native Hawaiian

Legal Corporation, 3) supporting Na Pua No’eau Education Program, 3) supporting

Alu Like. The relief sought in Count I is an accounting for these misappropriations

of trust funds and a judgment against defendants jointly and severally for said

amount. ER, pp. 68-71.

Count II of the amended complaint alleges that the “Akaka Bill” is actually

detrimental to the interests of the native Hawaiian beneficiaries of the § 5(f) trust, and

seeks injunctive relief precluding the trustees in their official capacities from

supporting said bill even with funds other than trust funds, so long as it does not

contain a blood quantum as set forth in the HHCA. ER, pp. 71-72.

Count III sets forth claims under state law, ER, pp. 72-73, which were


4

subsequently dismissed without prejudice and that dismissal was not appealed.

To the extent that the law is not already clearly established, Count IV requests

declaratory and injunctive relief resolving the issue as to whether and, if so to what

extent, trust funds can be expended for the betterment of the condition of Hawaiians

who do not meet the “one-half part” blood quantum. ER, pp. 73-75.

On June 14, 2006, Defendants HEE and OTA (“Former Trustees”) filed a second

motion for summary judgment. ER, p. 14, item 61. This time, Plaintiffs did not

oppose the motion. ER. p. 18, item 86. On August 10, 2006, the district court

dismissed the action in its entirety for lack of jurisdiction. ER, p. 21, item 103.

Plaintiffs appealed the dismissal of the claims against the OHA Defendants, but did

not appeal the dismissal of the claims against the Former Trustees. On appeal, this

court affirmed the dismissal of claims against the Former Trustees and reversed the

dismissal of claims against the OHA defendants. Day v. Apoliona, 496 F.3d 1027 (9th

Cir. 2007).

After remand, OHA Defendants filed a motion for summary judgment, on

March 27, 2008, essentially claiming that their expenditure of trust funds for the

betterment of the conditions of Hawaiians, without regard to the “not less than one-

half part” blood quantum set forth in § 5(f) was not prohibited by the terms of the

trust. ER. p. 24, item 123.

On June 20, 2008, the District Court issued its written decision granting OHA


5

Defendants’ motion for summary judgment. The court held that:

• The OHA trustees are reasonably exercising their fiduciaryjudgment when they expend trust funds in support of the AkakaBill. That action is consistent with the public trust requirementthat trust funds be used for the betterment of the conditions ofnative Hawaiians, even if the funds simultaneously better theconditions of Hawaiians.

ER, p. 49.

• Nothing in the record establishes that the OHA trustees failed touse reasonable judgment in interpreting the Admission Act asallowing OHA to support [Native Hawaiian Legal Corp.] tobenefit native Hawaiians, while simultaneously benefittingHawaiians in general.

Id., p. 57.

• The use of trust funds to support [N~ Pua No‘eau EducationProgram] is consistent with the Admission Act, which allows thetrust to be used for the support of public schools and other publiceducational institutions.

Id., p. 58.

• The OHA trustees did not abuse their considerable discretion indetermining that one of the ways they were going to better theconditions of native Hawaiians was by providing support to aservice organization with the mission of helping Hawaiians andnative Hawaiians achieve social and economic self-sufficiency.

Id., p. 60.

The court also ruled that Plaintiffs were not entitled to declaratory or

injunctive relief. Id., pp. 61-63.

Plaintiffs timely filed their notice of appeal, on Monday, July 21, 2008. ER,

pp. 1-2.


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IV. STATEMENT OF FACTS

In the Hawaii Admission Act, Congress transferred most of the public land in

the State of Hawaii to the State, subject to a trust established in § 5(f) which provides

as follows:

(f) The lands granted to the State of Hawaii by subsection (b) ofthis section and public lands retained by the United States undersubsections (c) and (d) and later conveyed to the State under subsection(e), together with the proceeds from the sale or other disposition of anysuch lands and the income therefrom, shall be held by said State as apublic trust for the support of the public schools and other publiceducational institutions, for the betterment of the conditions of nativeHawaiians, as defined in the Hawaiian Homes Commission Act, 1920,as amended, for the development of farm and home ownership on aswidespread a basis as possible for the making of public improvements,and for the provision of lands for public use. Such lands, proceeds, and

income shall be managed and disposed of for one or more of the

foregoing purposes in such manner as the constitution and laws of

said State may provide, and their use for any other object shall

constitute a breach of trust for which suit may be brought by theUnited States. The schools and other educational institutions supported,in whole or in part out of such public trust shall forever remain underthe exclusive control of said State; and no part of the proceeds orincome from the lands granted under this Act shall be used for thesupport of any sectarian or denominational school, college, oruniversity.

Admission Act, § 5(f) [Emphasis added].

Article XII, Section 4 of the Hawaii State Constitution states that the lands

subject to the § 5(f) trust with the exception of the “available lands” set aside under

the HHCA, shall be held in trust for native Hawaiians and the general public. Article

XII, Section 5 established the Office of Hawaiian Affairs of the State of Hawaii


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(“OHA”). Article XII, Section 6 established a board of trustees of OHA charged with

the duty of managing any and all assets set aside for Hawaiians and native Hawaiians

including a pro rata portion of the income and proceeds from the trust established by

Art. XII, § 4 for native Hawaiians.

OHA Defendants have used proceeds from the § 5(f) trust to support a bill

commonly known as the “Akaka bill” (110th Congress, S. 310), ER, p. 92, ll 3-5. The

Akaka Bill sets forth a complicated procedure for the establishment of a “Native

Hawaiian Governing Entity” by Hawaiians without regard to blood quantum. ER,

103-4. Once established, this entity would be authorized and empowered to negotiate

with the State of Hawaii and the United States for the “transfer of lands, natural

resources, and other assets, and the protection of existing rights related to such lands

or resources.” ER, p. 105-6. When asked whether the OHA defendants made any

determination whether and, if so, how this Akaka Bill would benefit the native

Hawaiian beneficiaries of the § 5(f) trust, Mr. Clyde Namuo, Administrator of OHA,

testified that such discussions by OHA have been held in executive session, the

minutes of which are not available to the public. ER, p. 93, ll. 18-20; ER, p. 94, 9.

OHA Defendants have used proceeds of the § 5(f) trust to support the Native

Hawaiian Legal Corp (“NHLC”). ER, p. 97, ll. 21-23; Act 170,S.L. 2007 § 7. OHA’s

contract with NHLC requires that all funding by OHA be used to provide legal

services for Hawaiians without regard to the “not less than one-half part” blood


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quantum. ER, p. 97, l 24-25; ER, p. 98, ll. 1-3.

OHA Defendants have used proceeds of the § 5(f) trust to support Na Pua

No‘eau (“Na Pua”), an educational program for the benefit of Hawaiians and native

Hawaiians. Act 170, S.L. 2007, § 6. The trust funds contributed to Na Pua are not

restricted to the benefit of native Hawaiian beneficiaries of the § 5(f) trust.

OHA Defendants have used proceeds of the § 5(f) trust to support Alu Like.

ER, p. 96, ll. 23-25; Act 170, S.L. 2007, § 5. OHA’s contract with Alu Like requires

that said funding be used to provide social services to Hawaiians without regard to

the “not less than one-half part” blood quantum. ER, p. 97, ll. 7-10.

As of August 8, 2007, OHA did not have any programs designed to

exclusively benefit native Hawaiian beneficiaries of the § 5(f) trust. ER, pp. 89-90,

ll, 24-7; ER, p. 91, ll. 14-25. Yet at the same time, OHA had accumulated in excess

of $400 million in § 5(f) trust funds which funds have been invested and reinvested.

ER, pp. 85-86. Mr. Namuo admitted that all non-encumbered appropriations received

by OHA were spent currently, but he did not know how much of the investment

portfolio was subject to the § 5(f) trust or whether or not income from the portfolio

was subject to the trust. ER, p. 88, ll. 6-7

Mr. Namuo testified as follows:

A [By Mr. Namuo] My understanding is that OHA can spendmoney pursuant to their statutory mandate that is included inChapter 10. That OHA can spend money pursuant to its


9

Constitutional mandate, that is in Article 6 of the StateConstitution.

Q [By Mr. Schoettle] Does that include spending money for, using5 F ceded land revenue to better the condition of Hawaiians?

A I believe that the State Constitution says that the purpose of theOffice of Hawaiian Affairs is to work for the betterment ofHawaiians and native Hawaiians

Q Right.

A And funds may be used for that purpose.

Q Including ceded land revenue, 5 F funds?

A That’s correct.ER, p. 91a.

Mr. Namuo also testified that OHA has contributed the sum of one million

dollars of § 5(f) trust funds to a church to provide social welfare programs to

Hawaiians without regard to the “not less than one half part” blood quantum. ER,

pp. 100a-100b.

V. STANDARD OF REVIEW

This is an appeal from the granting of a motion for summary judgment. The

standard of review for the appellate court is the same as for the district court below.

Levine v. City of Alameda, 525 F.3d 903, 905 (9th Cir. 2008). “We view the evidence

in the light most favorable to the non-moving party and determine whether there are

any genuine issues of material fact and whether the district court correctly applied


10

the substantive law.” Id. (citing Chevron USA, Inc. v. Cayetano, 224 F.3d 1030,

1037 (9th Cir. 2000)).

VI. SUMMARY OF ARGUMENT

Section 5(f) of the Hawaii Admission Act creates a trust for five enumerated

purposes. The Office of Hawaiian Affairs was created by the Hawaii State

Constitution as the trustee of a pro rata portion of the 5(f) trust funds. Under state

law, the OHA defendants are obligated to expend funds only for the betterment of

the condition of Hawaiians (without regard to blood quantum) or native Hawaiians

(of not less than one-half part blood quantum).

Support of public schools, provision of farm and home ownership on as

widespread a basis as possible, providing public improvements, and providing land

for public purposes are not purposes for which OHA is permitted to expend funds

under state law. The only one of the § 5(f) purposes for which OHA may lawfully

expend funds is for the betterment of the condition of native Hawaiians, which was

the intent, under state law, of providing them with a pro rata portion of the trust

funds.

Section 5(f) of the Admission Act incorporates state law within its

proscription as it provides that, “Such lands, proceeds, and income shall be managed

and disposed of for one or more of the foregoing purposes in such manner as the

constitution and laws of said State may provide, and their use for any other object


11

shall constitute a breach of trust . . . .”

Since the constitution and laws of the State of Hawaii require that OHA

expend its pro rata portion of the § 5(f) trust corpus for the betterment of the

condition of native Hawaiians any expenditure of trust funds for the benefit of

Hawaiians who do not meet the blood quantum is a breach of trust for which

defendants are liable in damages.

Even without regard to state law, under the common law of trusts which can

be applied to Defendants in this case under federal law, the OHA trustees violated

their common law duty of loyalty to the native Hawaiian beneficiaries. The Hawaii

Supreme Court has pointed out that OHA is the trustee of two trusts, one for the

benefit of native Hawaiians funded by a pro rata portion of the § 5(f) trust income

and proceeds and another for the benefit of Hawaiians which is not statutorily

funded. By expending § 5(f) trust funds for the beneficiaries of another trust

established under state law for the benefit of Hawaiians and native Hawaiians, OHA

defendants violated their common law duty of loyalty to the native Hawaiian

beneficiaries.

Alternatively, even if the court should hold that state law or the common law

does not restrict the expenditure of funds by OHA under § 5(f), the district court

erroneously granted summary judgment in favor of OHA Defendants, by concluding

that unrestricted funding provided to various subcontractors might have been used


10

for proper § 5(f) purposes. There is no evidence on the record as to how said funding

was actually used and while it might well have been used for proper § 5(f) purposes,

it just as well may not have been.

In addition, to the extent that the law is unclear as to how OHA may use § 5(f)

trust funds under federal law, declaratory and/or prospective injunctive relief should

be granted.

VII. ARGUMENT

A. The use of § 5(f) trust funds by OHA Defendants is limited to the

betterment of the condition of native Hawaiians as defined in the

Hawaiian Homes Commission Act.

OHA Defendants do not deny that they have used § 5(f) trust funds for the

betterment of the conditions of “Hawaiians” without regard to the blood quantum

established by the Hawaiian Homes Commission Act. Rather they argue that Article

XII, Sections 5 and 6 of the Hawaii Constitution and H.R.S. § 10-5(1) allow them

to use § 5(f) trust funds for the betterment of the conditions of native Hawaiians and

Hawaiians. They claim that Plaintiffs’ argument that § 5(f) funds can be used solely

for the betterment of the conditions of native Hawaiians is the result of a distorted

and selective reading of the constitutional and statutory provisions establishing

OHA.

OHA Defendants quote Article XII, Section 6 of the Hawaii Constitution and

claim it supports their argument that they may use § 5(f) trust funds for the


11

betterment of the conditions of Hawaiians. This is hard to understand, when Article

XII, Section 6 clearly states that the income and proceeds from the § 5(f) trust must

be used solely for native Hawaiians not native Hawaiians and Hawaiians. Article

XII, Section 6 reads, in full, as follows:

The board of trustees of the Office of Hawaiian Affairs shall exercisepower as provided by law: to manage and administer the proceeds fromthe sale or other disposition of the lands, natural resources, mineralsand income derived from whatever sources for native Hawaiians andHawaiians, including all income and proceeds from that pro rata

portion of the trust referred to in Section 4 of this article for native

Hawaiians to formulate policy relating to affairs of native Hawaiiansand Hawaiians; and to exercise control over real and personal propertyset aside by state, federal or private sources and transferred to the boardfor native Hawaiians and Hawaiians. The board shall have the powerto exercise control over the Office of Hawaiian Affairs through itsexecutive officer, the administrator of the Office of Hawaiian Affairs,who shall be appointed by the board.

Haw. State Const., Art. XII, § 6 (emphasis added.)

OHA defendants stress the introductory and concluding provisions of this

section which refer to “native Hawaiians and Hawaiians” but ignore the clearly

stated portion in the middle that deals specifically with the § 5(f) trust income and

proceeds and limits the use thereof to “native Hawaiians.” The fact that the

concluding portion of the provision gives OHA power to exercise control over

property given to it for native Hawaiians and Hawaiians does not in any way give

OHA power to use property given to it for native Hawaiians for the benefit of

“Hawaiians.”


12

Similarly, the fact that the introductory portion of the provision gives OHA

general authority to manage property “for native Hawaiians and Hawaiians.” These

general provisions at the beginning and ending of the section do not override the

specific restriction in between them that the income and proceeds of the § 5(f) trust

be used solely for “native Hawaiians.”

Likewise, the general provisions about the use and management of property

for “native Hawaiians and Hawaiians” contained in Article XII, Section 5 and H.R.S.

§10-5(1) do not override the specific restriction on the use of § 5(f) trust funds

contained in Article XII, Section 6.

Moreover, even without the restriction for native Hawaiians in Article XII,

Section 6, federal law precludes OHA from using § 5(f) funds for the betterment of

the condition of “native Hawaiians and Hawaiians.” Section 5(f) allows the use of

the income and proceeds from trust lands for five purposes only, as follows:

for the support of the public schools and other public educationalinstitutions, for the betterment of the conditions of native Hawaiians,as defined in the Hawaiian Homes Commission Act, 1920, as amended,for the development of farm and home ownership on as widespread abasis as possible for the making of public improvements, and for theprovision of lands for public use.

Pub.L. 86-3, 73 Stat 4 (1959), § 5(f).

In Price v. Akaka, 928 F.2d 824 (9th Cir. 1990) (“Akaka I”), this Court clearly

held that the § 5(f) restrictions apply to the trust funds even after transfer to OHA,

as follows:


13

Section 5(f) of the Admission Act directed unequivocally that the landsconveyed to Hawaii in § 5(b), and the income produced by them, “shallbe managed and disposed of for one or more” of five stated purposes.Admission Act, § 5(f). Because the OHA share of “public trust” incomeat issue in this case derives directly from the § 5(b) lands, § 5(f)’slimitation on uses applies to that income.

Akaka I, supra, 928 F.2d at 826.

Betterment of the conditions of Hawaiians is not one of the permitted uses of

§ 5(f) trust funds. Since federal law supercedes state law under the supremacy clause

of the United States Constitution, Article IV, Section 2, any state law purporting to

authorize OHA to expend § 5(f) trust funds for the betterment of the conditions of

Hawaiians without regard to blood quantum would be null and void. OHA

Defendants would be ill advised to rely upon any provision of state law as

authorizing them to ignore the restrictions § 5(f) on the use of trust funds in their

possession and control.

Defendants claim that the decision of this Court in Arakaki v. Cayetano, 324

F.3d 1078 (9th Cir. 2003) supports their claim that they may legally expend § 5(f)

trust funds for "Hawaiians" without regard to blood quantum, but they fail to explain

how this is so. Arakaki v. Cayetano, was the case where Plaintiffs herein

unsuccessfully attempted to intervene in a suit challenging the constitutionality of

OHA’s expenditure of funds for Hawaiians and native Hawaiians on the grounds of

equal protection. Plaintiffs sought to intervene, claiming, in part, that the expenditure

of funds should be limited to native Hawaiians. This court ruled, simply, that that


14

claim was beyond the scope of the issues raised by the plaintiffs in that case and,

therefore, would not support intervention to litigate an issue not raised by the parties

to that case. This Court held as follows:

We also agree that Hoohuli does not have a significantlyprotectable interest in its dilution claim to limit benefits to nativeHawaiians. This claim is unrelated to Plaintiffs’ equal protectionchallenge seeking to invalidate all benefits to Hawaiians and nativeHawaiians. Hoohuli is not permitted to inject new, unrelated issues intothe pending litigation. Sierra Club, 995 F.2d at 1484.

Arakaki v. Cayetano, supra, 324 F.3d at 1086.

There is absolutely nothing in that decision that addresses the merits of the

dilution claim or that would support Defendant’s claim that they are free to exercise

their discretion by expending § 5(f) trust funds for the betterment of the condition

of “Hawaiians” without regard to blood quantum. Defendants do not have discretion

to use trust funds for purposes other than those enumerated in § 5(f). Section 5(f)

states that a use for any other purpose is a breach of trust, period.

Defendants cited OHA v. Yamasaki, 69 Haw. 154, 737 P.2d 446 (1987) in

support of their claim. That was a case in which OHA was suing state officials to

recover certain disputed amounts of § 5(f) ceded lands revenues. The Hawaii

Supreme Court held that the question was an non-justiciable political question and

ruled that the case should be dismissed for lack of jurisdiction. Again there is

nothing in that decision that would support OHA’s claim of discretion to use § 5(f)

funds for “Hawaiians.” Indeed, there is language that suggests quite the opposite, as


15

follows:

They expressed a concern that “in the past . . . commingling of fundsintended for native Hawaiians of one-half blood with other moneys inthe state treasury” had occurred Id. OHA, they thought, would be theanswer to such problems, . . . .

OHA v. Yamasaki, supra, 69 Haw. at 163.

And:

Foremost among the goals to be pursued by OHA was “[t]hebetterment of the conditions of native Hawaiians.” HRS § 10-3. [fn 12]This purpose was singled out for special treatment, the legislatureproviding that a “pro rata portion of all the funds derived from thepublic land trust shall be funded in an amount to be determined by thelegislature for this purpose, and shall be held and used solely as a

public trust for the betterment of the conditions of native Hawaiians.”[fn 13] See supra note 2. And the powers given OHA included thoseof managing, investing and administering “all income and proceedsfrom that pro rata portion of the trust[.]” HRS § 10-5(1).

Id. at 164. [Emphasis added.]

Footnote 2 quotes the language of H.R.S. § 10-3. Footnote 12 quotes the

statutory definition of “native Hawaiian” including a “not less than one-half” blood

quantum in H.R.S. § 10-2. Footnote 13 states:

Although the “betterment of conditions of Hawaiians” is another OHAgoal, the legislature provided no special funding for this purpose as ithad for native Hawaiians.

OHA v. Yamasaki clearly does not support the conclusion that Defendants

have the discretion to use § 5(f) ceded land funds for the betterment of the conditions

of Hawaiians without regard to blood quantum.

On page 17 of their memorandum in support of their motion below,


16

Defendants stated:

The Current OHA Trustees must abide by the terms of the§ 5(f)trust, which include the “provision of lands for public use.” OHA islimited insofar as its purpose is to benefit native Hawaiians andHawaiians, all of whom are members of the public. The Ninth Circuit,in its decision on the appeal of this matter in Day II, declared that“neither our prior case law nor our discussion today suggests that as amatter of federal law § 5(f) funds must be used for the benefit of NativeHawaiians or Hawaiians at the expense of other beneficiaries.” 596F.3d at 1033 n.9. Hence, the only recognized limitation placed on OHAas to whom its services may benefit is determined by OHA’sconstitutionally and statutorily mandated purpose—to use income fromvarious sources to service and benefit both native Hawaiians and

Hawaiians.ER, p. 107.

Plaintiffs agree that, with respect to income and proceeds from the § 5(f) trust,

Defendants must abide by the terms of the trust by using it for the uses and purposes

stated therein. Plaintiffs agree that one of the purposes of the trust is “the provision

of lands for public use.” Plaintiffs agree that native Hawaiians and Hawaiians are

members of the public. Plaintiffs admit that the above quotation from the Ninth

Circuit is accurately stated. However, the conclusion that Defendants draw from

these premises simply does not follow.

As a state agency, § 5(f) funds in OHA’s hands are limited to the uses stated

in § 5(f). Those uses include the betterment of the conditions of native Hawaiians.

The betterment of the conditions of Hawaiians is not one of the permitted purposes

under § 5(f). While the provision of lands for a public use is one of the purposes


17

under 5(f), OHA is not authorized to expend funds for the provision of lands for a

public use. The only purposes for which OHA is permitted to expend funds is for the

betterment of the conditions of Hawaiians or native Hawaiians. Providing lands for

public use would not be for the betterment of the condition of Hawaiians or native

Hawaiians it would be for the betterment of the condition of the general public.

Furthermore, even if OHA were permitted to do so, none of the expenditures

specifically mentioned in the complaint involve the expenditure of funds for the

provision of lands for a public use. Providing funding for the betterment of the

condition of Hawaiians is a completely different thing than providing lands for

public use.

It is true that this Court has held that § 5(f) does not require that funds be

expended for native Hawaiians because § 5(f) states that the income and proceeds

must be used for “one or more” of the purposes stated therein. However, § 5(f) does

not require that anything be spent for the betterment of the conditions of Hawaiians,

because it does not even permit such an expenditure. The only permitted use under

§ 5(f) for which OHA is authorized to expend funds is “for the betterment of the

conditions of native Hawaiians.” Expenditure of § 5(f) funds for the betterment of

the conditions of Hawaiians without regard to blood quantum is a breach of the §

5(f) trust as a matter of law.

The defendants argued in their memorandum in support of the motion below


18

as follows:

Further, the Ninth Circuit “strongly suggested, if not explicitly held,that trust law principles guide the merits of any § 5(f) claims.” Day II,496 F.3d at 1033-34. The court noted that in examining the substantiveclaims of this action the common law of trusts offers guidance as to twoissues: “(1) how a court should determine whether activities funded bythe trust funds are ‘for the betterment’ of Native Hawaiians, and (2)whether trust funds can be spent in a way that serves Native Hawaiians,but also, incidentally, benefits other individuals.” Day II, 496 F.3d at1034 n.10. The Court thereafter cited a treatise, which suggests:

To the extent to which the trustee has discretion, the court willnot control his exercise of it as long as he does not exceed thelimites of the discretion conferred upon him . . . . Even where thetrustee has discretion, however, the court will not permit him toabuse the discretion. This ordinarily means that so long as heacts not only in good faith and from proper motives, but alsowithin the bounds of a reasonable judgment, the court will notinterfere; but the court will interfere when he acts outside thebounds of a reasonable judgment.

Day II, 496 F.3d at 1034 n.10 (quoting Austin W. Scott & William F.Fratcher, The Law of Trusts § 187 (4th Ed. 2001)) (emphasis added).

ER, 108. (emphasis in original.)

The common law of trusts is clearly established that a trustee does not have

discretion to expend trust funds for the benefit of non-beneficiaries. A trustee’s

primary duty is loyalty to the beneficiaries and expenditure of trust funds for a non

beneficiary is a clear breach of trust. The common law of trusts establishes this duty

of loyalty as follows:

§ 170. Duty of Loyalty

(1) The trustee is under a duty to the beneficiary to administer the trust


19

solely in the interest of the beneficiary.1 RESTATEMENT, SECOND, TRUSTS, § 170(1).

and:

§ 543. Trustees Duty of Loyalty to the Beneficiaries

Perhaps the most fundamental duty of a trustee is that he mustdisplay throughout the administration of the trust complete loyalty tothe interests of the beneficiary and must exclude all selfish interest andall consideration of the interests of third persons.

Bogert, George Gleason, The Law of Trusts & Trustees, Rev. 2nd Ed. (1993), § 543.[Emphasis added].

One of the many examples of disloyalty cited by Bogert is the case where a

trustee of two different trusts sells property owned by one trust to the other trust.

This is said to be a violation of the duty of loyalty even where the sale was at a fair

price and the transaction was a clear benefit to each of the two trusts. See Bogert,

supra § 543(H), pp. 335-338. Bogert observes that some courts will allow this kind

of transaction if the trustee can prove it was fair to both trusts, but states that this is

a variation from the normal attitude prohibiting such transactions. Bogert notes that

the Uniform Trusts Act, forbids the sale from one trust to another while some

statutes allow it upon proof of fairness.

In the instant case, the OHA Defendants are trustees of two trusts— first: the

ceded lands trust; and second: the public funding and other sources trust. The

beneficiaries of the ceded lands trust are native Hawaiians. The beneficiaries of the

public funding and other sources trust are Hawaiians and native Hawaiians.


20

Defendants admit that they have used, not sold, assets of the ceded lands trust for the

Hawaiian beneficiaries of their other trust. If a sale of property from one trust to

another is suspect, it is impossible to justify the outright gift of funds from one trust

to another.

Indeed, the common law of trusts is so strict that a trustee is prohibited from

engaging in transactions that provide only incidental benefits to himself.

Sometimes, when a trustee is entering into a business transaction onbehalf of the trust, an opportunity arises for him to make a profit insome way for himself personally and still carry through the transactionon behalf of the trust. It is disloyal for him to accept such anopportunity in order to obtain an incidental personal benefit, since itmay affect his decisions on behalf of the trust and, consciously orunconsciously, he may tend to slight the interests of the beneficiariesin his desire to obtain for himself the benefit contemplated, but in somecases the courts have not found disloyalty. Other cases show a varietyof similar problems. In a few cases an incidental benefit to the fiduciaryhas been authorized by statute.

Bogert, supra, § 543(Q), pp. 383-396.

This common law rule prohibiting a trustee from receiving even an incidental

benefit to himself, would equally apply to the case where a beneficiary of the one

trust is receiving an incidental benefit from an expenditure of another beneficiary’s

trust. The same concerns of conflict of interest and compromised judgment apply.

Under the common law, therefore, OHA Trustees should be very careful of

any transaction in which they expend § 5(f) trust funds that provides benefits,

incidental or otherwise, to Hawaiians as being a violation of their fiduciary duty of


21

loyalty to the “native Hawaiian” beneficiaries.

Under these circumstances, Plaintiffs suggest that the statutory provision set

forth in H.R.S. § 673-1(b)(1), might be applied to relieve OHA Defendants from the

strict requirements of the fiduciary duty of loyalty under the common law. H.R.S. §

673-1(b)(1), provides as follows:

(b) This waiver shall not apply to the following:

(1) The acts or omissions of the State's officers and employees, eventhough such acts or omissions may not realize maximum revenues tothe Hawaiian home lands trust and native Hawaiian public trust, so

long as each trust is administered in the sole interest of the

beneficiaries; provided that nothing herein shall prevent the State fromtaking action which would provide a collateral benefit tononbeneficiaries, but only so long as the primary benefits are enjoyedby beneficiaries, and the collateral benefits do not detract from norreduce the benefits enjoyed by the beneficiaries;

H.R.S. § 673-1(b)(1) (emphasis added.)

Plaintiffs are fully aware that this statutory provision is not intended to apply

specifically to OHA Defendants. But this statutory provision provides a partial

defense for other state officials against a claim of breach of trust by “native

Hawaiian” beneficiaries based upon incidental benefits being received by non-

beneficiaries. Plaintiffs are willing to allow OHA Defendants the benefit of this

provision as a defense to a claim of breach of the duty of loyalty based on an

expenditure of § 5(f) funds providing an incidental benefit to “Hawaiians.” In such

case, OHA could expend § 5(f) funds in a manner that would provide incidental


22

benefits to Hawaiians, but they would be required to show that such expenditure

primarily was of benefit to “native Hawaiians” and that the incidental benefit did not

detract from or otherwise diminish benefits to “native Hawaiians.”

In Price v. Akaka, 3 F.3d 1220, 1226 (9th Cir. 1993), (Akaka II), the Ninth

Circuit held the OHA Trustees had qualified immunity for spending § 5(f) trust funds

on a single definition referendum challenging the not-less-than-one-half-part blood

quantum in the Hawaiian Homes Commission Act and H.R.S. § 10-2 definitions of

“native Hawaiian.” The court so held because it found that the Trustees reasonably

believed that such referendum was in the best interests of the native Hawaiian

beneficiaries as presently defined. Akaka II, at 1226. Nevertheless, the Court

attempted to give the Trustees guidance for their future conduct with the following

warning:

While actually changing the definition of native Hawaiiancontained in the HHCA, or the administration of OHA programs in

conformance with a revised definition, would violate clearly

established federal law, the Referendum did not do so.Id. (Emphasis added.)

This conclusion was based in part upon Attorney General Opinion, Op. No.

83-2, dated April 15, 1983, which states as follows:

By letter dated March 15, 1983, you requested our opinion on thefollowing question:

May the legislature, consistent with Section 5(f) of theAdmission Act and Article XII of the State Constitution,


23

authorize OHA to use funds derived from the Public Land Trust(Section 5(f) of the Admission Act) to better the condistions ofHawaiians as defined in Hawaii Revised Statutes, Section 10-2(5)?

We answer in the negative.Attorney General Opinion, Op. No. 83-2 (April 15, 1983).

Thus, OHA Trustees were advised by the Attorney General of the State of

Hawaii that their use of § 5(f) trust funds for the betterment of the conditions of

“Hawaiians” without regard to blood quantum would be a breach of federal law as

early as 1983. Yet they have ignored this and twisted and distorted case law, statutes

and constitutional provisions to justify their blatant diversion of public trust funds

for improper purposes.

Ten years later, this Court bent over backward to give them the benefit of the

doubt in a case involving the expenditure of trust funds for the single definition

referendum, but reminded them that, as of that date, under clearly established federal

law, it would be a breach of trust or OHA to administer their programs without

regard to the blood quantum. Yet, this is exactly what they have done and are doing.

If the law was clearly established in 1993, it remains so today.

Based on the foregoing argument and authorities, Plaintiffs respectfully

request that this court hold that, as a matter of clearly established law:

Section 5(f) trust funds received by OHA must be expended in the sole

interest of native Hawaiian beneficiaries; provided that such expenditures may


24

provide a collateral benefit to non-beneficiaries, but only so long as the primary

benefits are enjoyed by native Hawaiian beneficiaries, and the collateral benefits

do not detract from nor reduce the benefits enjoyed by the native Hawaiian

beneficiaries.

B. The record does not show that the Akaka Bill will better the condition of

native Hawaiians as defined in the Hawaiian Homes Commission Act.

On its face, the Akaka Bill does nothing to better the condition of native

Hawaiians. It is a bill to establish a governing entity for Hawaiians. Since the

qualifications for membership in the governing entity established by the Akaka Bill

will be determined by Hawaiians it is only to be expected that membership in the

governing entity will not be restricted by any blood quantum.

Defendants did not even attempt to suggest in their concise statement of

material facts or in the memorandum in support of their motion below that the Akaka

Bill will in any way better the condition of native Hawaiians. They simply argued

that it will do them no harm. Well that is insufficient justification for expending

ceded lands trust funds on the Akaka Bill. Any expenditure of ceded lands trust

funds must better the condition of the native Hawaiian benefiaries. Lacking any

benefit the expenditures are wrongful misappropriations of trust funds.

In their earlier motion Defendants argued that native Hawaiians would benefit

from the Akaka Bill because federal recognition is needed to defend against lawsuits


25

attacking "the constitutionality of exclusive benefits given to native Hawaiians and

Hawaiians by OHA and DHHL." ER, p. 109. Those cases have been dismissed and

are no longer a threat to native Hawaiian rights under the § 5(f) trust and Hawaiian

Homes Commission Act.

Nevertheless, the Akaka Bill will provide no assistance to native Hawaiians

in defending the constitutionality of their rights under § 5(f). First of all, it is quite

likely that the Akaka Bill, itself, would be declared unconstitutional if ever enacted.

In Rice v. Cayetano, 528 U.S 495 (2000), the U.S. Supreme Court held that the

classification of “Hawaiian” was an unconstitutional racial classification for the

purposes of voting rights under the 15th Amendment. In his concurring opinion,

Justice Breyer, joined by Justice Souter stated:

As importantly, the statute defines the electorate in a way that is notanalogous to membership in an Indian tribe. Native Hawaiians,considered as a group, may be analogous to tribes of other NativeAmericans. But the statute does not limit the electorate to nativeHawaiians. Rather it adds to approximately 80,000 native Hawaiiansabout 130,000 additional “Hawaiians,” defined as including anyonewith one ancestor who lived in Hawaii prior to 1778, thereby includingindividuals who are less than one five-hundredth original Hawaiian(assuming nine generations between 1778 and the present). See NativeHawaiian Data Book 39 (1998). Approximately 10% to 15% of OHA’sfunds are spent specifically to benefit this latter group, see AnnualReport 38, which now constitutes about 60% of the OHA electorate.

I have been unable to find any Native American tribal definition thatis so broad. The Alaska Native Claims Settlement Act, for example,defines a “Native” as “a person of one-fourth degree or more AlaskaIndian” or one “who is regarded as an Alaska Native by the Native


26

village or Native group of which he claims to be a member and whosefather or mother is . . . regarded as Native by any village or group” (aclassification perhaps more likely to reflect real group membership thanany blood quantum requirement). 43 U.S.C. § 1602(b). Many tribalconstitutions define membership in terms of having had an ancestorwhose name appeared on a tribal roll — but in the far less distant past.See, e.g., Constitution of the Choctaw Nation of Oklahoma, Art. II(membership consists of persons on final rolls approved in 1906 andtheir lineal descendants); Constitution of the Sac and Fox Tribe ofIndians of Oklahoma, Art. II (membership consists of persons onofficial roll of 1937, children since born to two members of the Tribe,and children born to one member and a nonmember if admitted by thecouncil); Revised Constitution of the Jicarilla Apache Tribe, Art. III(membership consists of persons on official roll of 1968 and childrenof one member of the Tribe who are at least three-eighths JicarillaApache Indian blood); Revised Constitution Mescalero Apache Tribe,Art. IV (membership consists of persons on the official roll of 1936 andchildren born to at least one enrolled member who are at leastone-fourth degree Mescalero Apache blood).

Of course, a Native American tribe has broad authority to define itsmembership. See Santa Clara Pueblo v. Martinez, 436 U.S. 49, 72, n.32 (1978). There must, however, be some limit on what is reasonable,at the least when a State (which is not itself a tribe) creates thedefinition. And to define that membership in terms of 1 possibleancestor out of 500, thereby creating a vast and unknowable body ofpotential members — leaving some combination of luck and interest todetermine which potential members become actual voters — goes wellbeyond any reasonable limit. It was not a tribe, but rather the State ofHawaii, that created this definition; and, as I have pointed out, it is notlike any actual membership classification created by any actual tribe.

Rice v. Cayetano, supra, 528 U.S. at 526-7 [Breyer, J., concurring].

After holding in Rice v. Cayetano that the state’s definition of “Hawaiian”

without a blood quantum was a racial classification and not analogous to an Indian

tribe, it is highly unlikely that the U.S. Supreme Court then accept a “Native


27

Hawaiian governing entity” not restricted by a blood quantum as being anything but

a racial classification and not analogous to an Indian tribe. The Akaka Bill, without

a blood quantum, simply accomplishes nothing to overcome the holding in Rice v.

Cayetano.

Assuming that the Native Hawaiian governing entity to be established by the

Akaka Bill survives an attack on Equal Protection grounds in the U.S. Supreme

Court, the Akaka Bill will do absolutely nothing to help protect “native Hawaiian”

beneficiary interests in OHA and DHHL benefits, unless the land and trust funds

now held by OHA and DHHL are transferred to this entity. Turning assets set aside

for the betterment of the condition of native Hawaiians over to an entity composed

of Hawaiians would, in itself, be a breach of the § 5(f) trust.

Moreover, while providing no benefit to “native Hawiians” the Akaka Bill

provides an immense benefit to the State of Hawaii in this regard. It establishes an

entity potentially composed of more than 400,000 individuals, only a small fraction

of which are actually “native Hawaiian” beneficiaries of the § 5(f) trust. Such an

entity would be very happy to accept land and other benefits in exchange for

termination of the “native Hawaiian” beneficiary interest in the § 5(f) trust. Who will

represent the interests of the “native Hawaiians” in such negotiations? Passage of

this bill, without a blood quantum, deprives the current “native Hawaiian”

beneficiaries of any right to participate in the negotiations that will inevitably ensue


28

if this plan to protect OHA and DHHL benefits envisioned by OHA Defendants is

pursued.

Lastly, the Akaka Bill is not necessary to protect native Hawaiian rights from

an equal protection attack. First of all, any potential challenger has standing

problems as has been established by decisions of this court and the Ninth Circuit.

Secondly, the holding in Rice applies only to the state’s definition of Hawaiians and

not the federal-state definitions of native Hawaiian. Third, as noted in the Akaka

Bill, the federal government has already recognized native Hawaiians as defined in

the HHCA as an indigenous aboriginal tribal group. Fourth, the setting aside of a

trust composed of ceded lands for native Hawaiians is not a racial classification in

any event. It is simply compensation to the descendants of those people who were

wrongfully and unfairly deprived of their lands during the Great Mahele. The “not

less than one half part” blood quantum is simply a legitimate means of awarding

compensation to the closest living relatives of those who were deprived of land

which is now owned by the State of Hawaii.

So, all in all, the Akaka Bill provides absolutely no benefit to native

Hawaiians, and the expenditure of trust funds in support thereof is, as a matter of

clearly established law, a breach of the § 5(f) trust.

But more than providing no benefit to native Hawaiian beneficiaries, the

Akaka Bill is actually detrimental to their interests. The Akaka Bill falsely states in


29

Section 2 (5) that the Hawaiian Homes Commission Act, set aside approximately

203,500 acres of land to address the conditions of Hawaiians without regard to blood

quantum (designated therein as “Native Hawaiians” to further confuse the issue).

The Akaka Bill falsely states in Section 2(8) that the Hawaii Admission act created

a public trust (commonly known as the “ceded lands trust”) for the betterment of the

conditions of Hawaiians without regard to blood quantum. The Akaka Bill truthfully

states in Section 2(9) that Hawaiians without regard to blood quantum are seeking

access to ceded lands that have been set aside by Congress and the State of Hawaii

for the betterment of the conditions of native Hawaiians of not less than one-half part

blood quantum. The Akaka Bill falsely states that the Hawaiian home lands provide

an important foundation for the ability of Hawaiian community without regard to

blood quantum to maintain their practice of Hawaiian culture, language, and

traditions, and for the survival and economic self-sufficiency of the Hawaiian people

without regard to blood quantum. The Akaka Bill falsely states in Section 2(21) that

the United States has recognized and reaffirmed a special political and legal

relationship with the Hawaiian people without regard to blood quantum by creating

the § 5(f) ceded lands trust and transferring the Hawaiian home lands to the State of

Hawaii while maintaining federal oversight with respect thereto.

The Akaka Bill in Section 3(10)(A) includes a definition of the term “Native

Hawaiian” that does not include any blood quantum whatsoever.


30

Once established the Hawaiian Governing Entity envisioned by the Akaka Bill

would be authorized to enter into negotiations with the United States and State of

Hawaii for

(A) the transfer of lands, natural resources, and other assets, and theprotection of existing rights related to such lands or resources;

(B) the exercise of governmental authority over any transferred lands,natural resources, and other assets, including land use;

ER, p. 106.

It should be clear on its face that the Akaka Bill is not intended to render

benefits to the native Hawaiian beneficiaries of the § 5(f) ceded lands trust that are

in any way different from the benefits that will accrue to the Hawaiian beneficiaries

of OHA. It should be clear on its face that the intent of the Akaka Bill is to

eventually acquire title to assets that rightfully are dedicated to the use of the

betterment of the conditions of native Hawaiians, such as Hawaiian home lands and

accumulated OHA assets that derive from the § 5(f) ceded lands trust and, thereby,

detract from or reduce the benefits enjoyed by the native Hawaiian beneficiaries.

If it is not obvious from the face of the Bill, then the additional facts from the

deposition of Clyde Namuo and the minutes of the Trustees of OHA make it clear

that the plan is for the State (including OHA) to eventually transfer § 5(f) assets to

this entity created by Hawaiians without regard to blood quantum. OHA has acquired

land using § 5(f) funds. ER, p. 94-5, ll. 21-14. The steps in nation building envision


31

the transfer of OHA assets to the newly established Hawaiian Governing Entity. ER,

pp. 99-100, ll. 19-2. Minutes of the January 19, 2005 meeting of OHA Trustees state:

“language to be included in the conveyance [of land acquired with § 5(f) funds] that

would transfer this asset to the Hawaiian Nation once it is formed. (similar to the

language that is included with Wao Kele O Puna and Kaho‘olawe).” ER, p. 101.

Based on the record as it stands at the present time, the court cannot conclude

that there is no genuine issue of material fact that the Akaka Bill is a measure that

will result in the betterment of the conditions of native Hawaiians as defined in the

Hawaiian Homes Commission Act. Therefore, the District Court erred in granting

summary judgment in favor of the OHA defendants with regard to expenditures in

support of the Akaka Bill.

C. The District Court erred in concluding that the OHA Defendants had

discretion to contribute trust funds to Native Hawaiian Legal Corporation

without restricting its use to the benefit of native Hawaiians (or at least, one

or more of the § 5(f) purposes.

The District Court held that the OHA trustees had discretion to contribute §

5(f) trust funds to the Native Hawaiian Legal Corp. because the contract provides

that NHLC will use the funding in part to “render legal services and provide legal

representation to clients in substantive areas which shall include but shall not be

limited to:” 1) to assert and defend quiet title actions; 2) land title assistance. The

District court reasoned that because some of the purposes for which funding was to


32

be used could be justified under some of the § 5(f) purposes, that the OHA

defendants had discretion to authorize the funding.

Specifically the District court suggested that the legal work provided by

NHLC could better the condition of native Hawaiians by preserving and perpetuating

traditional and customary practices, protecting culturally significant areas, and

helping them assert their legal rights regarding land and water in court. The Court

further argued that defense of land and water rights might be said to aid farm and

home ownership on as widespread a basis as possible. The court also claimed that

providing legal services might also somehow result in public improvements and the

provision of lands for a public purpose.

Plaintiffs have a very difficult time in conceiving how the provision of legal

services to Hawaiians and native Hawaiians could result in public improvements or

the provision of lands for a public purpose. But assuming that it might possibly

happen, it is not sufficient to conclude that the funding provided by OHA to NHLC

might have been used in a manner consistent with one or more the § 5(f) purposes.

Surely, it is possible that all of it was used directly to provide legal services to native

Hawaiians and was, therefore, appropriately expended.

The problem is that at this state of the record, we do not know how NHLC

used the money. While it might have been properly expended for proper § 5(f)

purposes, we have no way of knowing because OHA did not require that it be so


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spent and did not oversee or audit the expenditures to assure that it was expended for

proper § 5(f) purposes. OHA gave the trust money to NHLC essentially with no

strings attached. The contract specifically says the money may be used for certain

stated purposes but was not limited to lawful § 5(f) purposes. In so doing, OHA

Defendants were in breach of the trust and Plaintiff should be entitled to an

accounting to determine exactly how the money was actually spent and what portion,

if any, was used for proper § 5(f) purposes.

D. The District Court erred in concluding that the OHA Defendants had

discretion to contribute trust funds to the Na Pua No‘eau Education

Program without restricting its use to the benefit of native Hawaiians (or at

least, one or more of the § 5(f) purposes.

The District Court held that OHA Defendants had discretion to contribute

§5(f) trust funds to the University of Hawaii at Hilo to provide educational programs

for Hawaiian and native Hawaiian students. This might have been permitted under

the “support of the public schools and other public educational institutions” purpose

of § 5(f), if the use had not been limited to the benefit of Hawaiian and native

Hawaiian students. However, giving money to a public school for the benefit of a

small (racially defined) segment of the community should not be considered to be

“support of the public schools and other public educational institutions.”

E. The District Court erred in concluding that the OHA Defendants had

discretion to contribute trust funds to Alu Like without restricting its use to

the benefit of native Hawaiians (or at least, one or more of the § 5(f)


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purposes.

The District Court found:

Alu Like is a nonprofit organization that strives to help Hawaiians andnative Hawaiians achieve social and economic self-sufficiency throughthe provision of early childhood education and child care, elderlyservices, employment preparation and training, library and genealogyservices, specialized services for at-risk youth, and information andreferral services.

ER, p. 60.

From this finding the District Court concluded that “Alu Like’s programs

better the conditions of native Hawaiians and support public education.” This is a

conclusion that is not justified by the record. If Alu Like is providing child care to

Hawaiians it is not supporting public schools or public educational institutions. If

Alu Like is using § 5(f) trust funds to provide elderly services, employment

preparation and training, library and genealogy services, specialized services for at-

risk youth or information and referral services to Hawaiians with less than one-half

part blood quantum they are not fulfilling one or more of the purposes listed in § 5(f)

of the Admission Act. Such expenditures are “breach of trust” as defined by § 5(f).

By funding Alu Like with trust funds under a contract that would allow Alu Like to

use the money for such purposes, OHA Defendants were in breach of the § 5(f) trust.

Just as in the case of NHLC, it is quite possible that Alu Like did, in fact,

expend the trust funds to provide social services to native Hawaiian beneficiaries,

but we cannot determine that from the present state of the record. Plaintiffs are


35

entitled to an accounting to determine how much, if any, of the trust funds

contributed to Alu Like were expended for purposes other than those listed in §5(f).

Plaintiffs are entitled to a judgment against Defendants, individually, for any such

misappropriations.

F. Defendants are not entitled to qualified immunity.

Common law of trusts makes a trustee personally liable for losses to the trust

as the result of his breach of his duty of loyalty to the beneficiary.

§ 205. Liability in Case of Breach of Trust

If the trustee commits a breach of trust, he is chargeable with (a) any loss or depreciation in value of the trust estate resultingfrom the breach of trust;

RESTATEMENT, SECOND, TRUSTS, § 205(a).

§ 206. Liability for Breach of Duty of Loyalty

The rule stated in § 205 is applicable where the trustee in breach oftrust sells trust property to himself individually, or sells his individualproperty to himself as trustee, or otherwise violates his duty of loyalty.

Id., § 206.

This is a clear violation of trust law, for which OHA Defendants should be

held liable in damages. This is a simple case of misappropriation of funds. There

should not be any discussion about it. Indeed, it is outright theft under Hawaii law.

H.R.S. § 708-830(6) provides:

A person commits theft if the person does any of the following:* * *

(6) Failure to make required disposition of funds.


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(a) A person intentionally obtains property from anyone upon anagreement, or subject to a known legal obligation, to make specified

payment or other disposition, whether from the property or its proceedsor from the person’s own property reserved in equivalent amount, anddeals with the property as the person’s own and fails to make the

required payment or disposition. It does not matter that it is impossibleto identify particular property as belonging to the victim at the time ofthe defendant’s failure to make the required payment or disposition. Aperson's status as an officer or employee of the government or afinancial institution is prima facie evidence that the person knows theperson’s legal obligations with respect to making payments and otherdispositions. If the officer or employee fails to pay or account uponlawful demand, or if an audit reveals a falsification of accounts, it shallbe prima facie evidence that the officer or employee has intentionallydealt with the property as the officer’s or employee’s own.

H.R.S. § 708-830(6) (emphasis added.)

Looking only at the emphasized portion of the statute it reads as follows:

A person commits theft if a person intentionally obtains propertysubject to a known legal obligation, to make specified disposition andfails to make the required disposition.

OHA trustees have received millions of dollars subject to a legal obligation

to dispose of that property for the betterment of the conditions of native Hawaiians

of not less than one-half part blood quantum and they have failed to make the require

disposition. To the extent that they have done so they are guilty of theft. This court

must not allow this. It is high time that this trust for the betterment of the conditions

of native Hawaiians as defined in the Hawaiian Homes Commission Act, be enforced

by the courts.

The law is clear. Section 5(f) of the Admission Act states: “Such lands,


37

proceeds, and income shall be managed and disposed of for one or more of the

foregoing purposes in such manner as the constitution and laws of said State may

provide, and their use for any other object shall constitute a breach of trust . . .”

This is not in any way ambiguous. Betterment of the condition of Hawaiians is not

one of the purposes of § 5(f). To the extent that it is proven, upon an accounting, that

OHA Defendants authorized expenditures of § 5(f) trust funds for purposes other

than those enumerated in § 5(f) of the Admission Act, they are in breach of trust and

must be held liable for damages. The law is clearly established. Defendants are not

entitled to qualified immunity.

G. Plaintiffs are entitled to declaratory and/or prospective injunctive relief.

Even though Plaintiffs believe that the law is clearly established already, it is

apparent that it is not established well enough to compel OHA trustees to comply

with the law. Even the decision of the trial court concluding that OHA trustees have

discretion to do all the things that the court below approved, does not establish the

boundaries within which the trustees must operate. The court might as well have held

that the trustees may indeed use § 5(f) trust funds for the betterment of the condition

of Hawaiians as anything that betters the condition of Hawaiians also betters the

condition of native Hawaiians.

This, of course, would have been an absurd conclusion. If grandpa set up a

trust for the use and benefit of his grandson Girard, no trustee would be heard to


38

argue that expending trust funds for his grandson Millard would be for the benefit

of Girard. A trustee cannot expend trust funds for the benefit of non-beneficiaries.

That should be obvious. But that is what OHA Defendants claim they have the right

to do.

Certainly, it is much more complicated when an expenditure for the benefit of

a named beneficiary also provides collateral benefits to others who are not

beneficiaries. So, for example, in that trust for Girard, would a trustee be justified in

paying Girard’s rent if he were sharing the accommodation with other people?

Perhaps if the others were Girard’s children, who Girard, himself, had a legal

obligation to support. But what if Girard was a student sharing an apartment with

two other students? Clearly, under those circumstances, it would be a breach of trust

for the trustee to pay any more than one-third of the rent so as to avoid expending

trust benefits for someone other than the designated beneficiary.

Going forward, RESTATEMENT (THIRD) OF TRUSTS (2005), § 78(1) states:

Except as otherwise provided in the terms of the trust, a trustee has aduty to administer the trust solely in the interest of the beneficiaries, orsolely in furtherance of its charitable purpose.

Comment f states:

f. Actions serving the interests of third persons or non-trust

objectives. In administering a trust the trustee has a duty to thebeneficiaries not to be influenced by the interest of any third person orby motives other than the accomplishment of the purposes of the trust.Thus, it is improper for the trustee to sell property of the trust or


39

purchase property for the trust, or to engage an agent or advisor for thetrust, either for the purpose of benefitting a third person (whether or nota party to the transaction) rather than the trust estate or for the purposeof advancing an objective other than the proposes of the trust.

Thus, even if the court approves these particular challenged transactions or

holds that the Defendants have qualified immunity, the court should grant

declaratory and/or injunctive relief, to clarify the circumstances, if any, under which

OHA trustees may expend § 5(f) trust funds for the benefit of Hawaiians who do not

meet the “not less than one-half part” blood quantum. The Court should grant

declaratory and/or injunctive relief, to clarify the circumstances, if any, under which

OHA trustees may expend § 5(f) trust funds which benefit native Hawaiians but also

benefit Hawaiians collaterally.

VIII. CONCLUSION

Based on the foregoing argument and authorities, Plaintiffs-Appellants

respectfully request this court to vacate the judgment and order granting summary

judgment below and remand the case for further proceedings.

Dated: Honolulu, Hawaii, November 19, 2008.

/s/ Walter R. Schoettle Attorney for Plaintiffs-Appellants


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CERTIFICATE OF COMPLIANCE PURSUANT TO FED.R.APP. 32(A)(7)(C)

AND CIRCUIT RULE 32-1 FOR CASE NUMBER 08-16704

I certify that (check appropriate options(s))

__x_ 1. Pursuant to Fed.R.App.P. 32(a)(7)(C) and Ninth CircuitRule 32-1, the attached opening/answering/reply/cross-appeal brief is

• Proportionately spaced, has a typeface of 14 points or more and contains 11178 words (opening, answering, and the second and third briefs filed in cross-appeals must not exceed 14,000 words; reply briefs must not exceed 7,000 words),


/s/ Walter R. Schoettle


41

STATEMENT OF RELATED CASES

I certify that the following case is related to this case in that it arises out of the

same case in the district court:

Day v. Apoliona, CA NO. 08-16668.




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CERTIFICATE OF SERVICE

I hereby certify that on November 19, 2008, I electronically filed the foregoing

with the Clerk of the Court for the United States Court of Appeals for the Ninth

Circuit by using the appellate CM/ECF system.

The following participants in the case who are registered CM/ECF users will

be served by the appellate CM/ECF system:

H. WILLIAM BURGESS, ESQ.

LISA WILLIAMS CATALDO, ESQ.

WILLIAM JOSEPH WYNHOFF, ESQ.

I further certify that some of the participants in the case are not registered

CM/ECF users. I have mailed the foregoing document by First-Class Mail, postage

prepaid, for delivery within 3 calendar days, to the following non-CM/ECF

participants:

CHARLEEN M. AINADeputy Attorney GeneralState of Hawai`i425 Queen StreetHonolulu, Hawai`i 96813




united states court of appeals for the ninth … · l. kahawaiolaa; and samuel l. kealoha...

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