Embattled retired auto dealer James Pflueger, who faces federal tax fraud and state manslaughter trials this year, was dealt a legal setback when the state appeals court recently upheld a $4 million penalty against him after runoff from his property damaged a beach and a pristine coral reef on Kauai’s north shore.

Pflueger, 86, is charged with manslaughter for the breach of his Ka Loko Dam, which released a wall of water that swept seven people to their deaths in March 2006.

Free on bond in his manslaughter and tax cases, Pflueger sought to set aside a state Board of Land and Natural Resources penalty for illegal grading and work that led to a massive 2001 mudslide.

In a 34-page unanimous decision last month by a three-member panel of the Intermediate Court of Appeals, the judges affirmed the state board’s decision.

"We’re disappointed with the ruling and looking at our options, including an application for review with the Hawaii Supreme Court," said Pflueger’s attorney, Wesley Ching.

First Deputy Attorney General Russell Suzuki said the state is pleased with the ruling, but noted Pflueger can challenge the decision.

Pflueger’s Pilaa 400 LLC owned the 383 acres of rural land that sloped downhill to Pilaa Bay. On Nov. 26, 2001, a rainstorm led to a portion of the land sliding across the white sand beach and covering the reef.

In 2005, the state land board assessed Pflueger’s company $3.9 million in damages and nearly $70,000 for administrative costs.

The board found that the company’s "massive and unauthorized" grading, filling and other work resulted in the mudflows.

The U.S. Environmental Protection Agency and the state Department of Health also sued Pflueger over the massive mudslide, alleging violations of the federal Clean Water Act and the state Water Pollution Act.

In 2006, Pflueger reached a federal court consent decree settlement in that case. He agreed to pay nearly $8 million in penalties, including $5.5 million in remediation and restoration work.

In his appeal of the state board’s penalties, Pflueger argued that the federal consent decree resolves the state’s claims and bars the board’s enforcement actions.

The appeals court rejected that argument, pointing out that the two cases involved separate state departments and different allegations.

The consent decree involved the Health Department and alleged violations of federal clean water laws and the state water pollution laws, the appeals court said.

The state case involved the Department of Land and Natural Resources and state laws protecting lands in conservation areas, which included Pilaa beach and the reef.

The appeals court also turned down Pflueger’s other arguments challenging the authority of the board to issue the ruling.

Meanwhile, Pflueger’s tax trial is scheduled to open Feb. 12. Pflueger and four others were indicted by a federal grand jury in 2010 on conspiracy tax fraud charges. The four others, including his son Charles Alan Pflueger, have pleaded guilty.

Pflueger was indicted for manslaughter by a Kauai grand jury in 2008, but the trial has been postponed a number of times, including a delay for Pflueger appealing a denial of his request to dismiss the charges.

The appeal was turned down by the state appeals court in 2011.

A conference is scheduled for March to set the trial date.