Judge weighs arguments in short-term rental lawsuit

A federal court judge heard arguments Friday regarding a motion through which five community groups are seeking to intervene in a lawsuit filed by the nonprofit Hawaii Legal Short-Term Rental Alliance asking for an order to stop the city from enforcing a new law that increases the minimum allowable stay to 90 days from 30 days.

The groups support the enforcement of the new short-term rentals law, Ordinance 22-7 (Bill 41), and maintain that HILSTRA is trying to irreparably harm Oahu’s residential communities. The organizations filing for a place at the table include Hawaii’s Thousand Friends, Save Oahu’s Neighborhoods, HI Good Neighbor, Keep It Kailua and Save North Shore Neighborhoods.

U.S. District Judge Derrick K. Watson told all parties, following the hearing, that he will consider their briefs and oral arguments before issuing an order on the motion. If the request is granted, the groups could join the ongoing litigation as a possible means to protect their own rights and interests.

HILSTRA’s attorney Gregory W. Kugle contended that the common goal of the proposed intervenors and the city is the same: to uphold the ordinance.

“These proposed intervenors would simply like the city to have made different arguments or better arguments or other arguments. But that’s not sufficient basis to show that the city inadequately represents them,” said Kugle, speaking in court Friday.

In his memo opposing the motion, Kugle described it as a “procedurally defective attempt to expand this litigation by injecting irrelevant factual contentions into a purely legal dispute” about whether city and its Department of Planning and Permitting are required to recognize the vested rights of short-term rental owners, who, prior to enactment of the new law, legally rented and advertised their properties for 30 days or longer.

“This case … should remain a narrowly focused legal dispute concerning unlawful deprivation of legal rights in contravention of constitutional law,” Kugle wrote in a memo filed Nov. 4.

Sharon V. Lovejoy, an attorney representing the five groups seeking to intervene, told Watson’s court that the “interest of the city in protecting itself from potential damages claims” is one way in which Honolulu Hale’s aim “may diverge from my client’s interests.”

In response to Watson asking whether the groups would maintain that they could hold up any settlement between the parties, Lovejoy said, “I don’t know, your honor, whether it would go so far as to say that my clients should sign off on a settlement agreement, if they are allowed to intervene.” She added, “That’s certainly something I would like to reserve as a possibility, but I think it would deserve more research.”

She continued, “What I am highly concerned about is that there be a proposed settlement and only the countervailing views of a community group that is directly contrary to my client’s viewpoint be the only community voice that’s heard at that table.”

Watson countered, “Your clients had voice during the public comment period,” when Bill 41 was being weighed by the City Council. He then asked, “At the settlement table, is it your view that the proposed intervenors would … in fact be able to hold up any settlement that the city and the plaintiffs would otherwise be agreeable to?”

Lovejoy replied, “I think my clients should be at the settlement table.” As to whether they could block settlement, she said, “I would want to have the opportunity to brief the issue if that becomes an issue.”

Lovejoy asserted that the settlement matter and a public comment period are two different things, as a settlement is a nonpublic proceeding.

In the motion to intervene, filed in October, Lovejoy wrote that the while the city and the proposed intervenors have an “overlapping interest in the validity of Ordinance 22-7, their interests are ultimately not the same.” Further, the city “does not have the same interest in protecting the proposed intervenors’ members’ specific property interests as do the proposed intervenors.”

Speaking in court, Brad T. Saito, deputy corporation counsel, said he has two roles in the case: protecting the policy created by Ordinance 22-7 and protecting the city’s pocketbook.

HILSTRA’s lawsuit, filed in June, alleges that the new city ordinance, which was slated to take effect Oct. 23, is unconstitutional because it interferes with owners’ vested rights to own and rent property and violates state zoning law.

HILSTRA, made up of Oahu residents who rent out second homes on their properties or elsewhere and those who rent out their homes while traveling or working elsewhere, have argued that Ordinance 22-7, formerly Bill 41, caused “immediate and devastating” effects because it makes no provision for those property owners and operators who have purchased and legally rented their properties for periods of 30 to 89 days.

The request to intervene from the groups followed Watson’s Oct. 13 order granting HILSTRA’s request for a preliminary injunction. His order enjoined the city “from enforcing or implementing Ordinance 22-7, signed into law on April 26, 2022, insofar as it prohibits 30-89-day home rentals, or the advertisement of such rentals, in any district on Oahu,” pending further order from court.

Since the ordinance took effect, DPP has issued 100 notices of violation but not yet assessed any fines, according to Dawn Takeuchi Apuna, acting director, Department of Planning and Permitting.

Some 350 applications have been submitted to the city for registration of short-term rentals, which is required under the new law. So far, 236 have been processed — 190 receiving conditional approval and 46 awaiting corrections by the applicant.

“Generally speaking, for all types of violations … the previous policy was to automatically reduce the fines by 95 percent and the fines were used as an incentive, rather than a form of punishment, which made no sense,” said Apuna in a statement to the Honolulu Star- Advertiser. Scofflaws would refuse to pay, knowing there was little consequence, she said.

“Our current policy is to collect 100% of the fines and build our capacity to timely and fully collect outstanding fines to show we are serious about enforcement,” Apuna said. “For STRs (short-term rentals), we are both concerned with and focused on STR operator compliance … where occupancy standards requirements must be followed and enforcement through penalties to ensure that neighbors and communities are not adversely impacted by improperly run STRs.”