An offer by the city to settle a 2021 federal lawsuit alleging anti-gay discrimination by investigators working for the Honolulu Liquor Commission has been rejected.

James D. DiPasquale, the attorney representing Chinatown nightclub Scarlet Honolulu Inc. and Gay Island Guide LLC, says the city’s new “offer of judgment” did not go far enough in reforming underlying problems at the Liquor Commission.

“We, in our settlement demands, have repeatedly said, ‘Listen, we want to settle. Money is certainly a factor; you closed us down for a very long period of time. We have about $2 million in damages,’” DiPasquale told the Honolulu Star-Advertiser by phone. “But beyond that we want change at the Liquor Commission.”

The city’s offer was to pay a total of $300,000 directly to the plaintiffs. It would also pay a total of $200,000 to the Hawaii Legacy Foundation “or other LGBTQ+ organization mutually agreed by defendants and plaintiffs,” the offer states.

DiPasquale said his clients previously sought $2.5 million in damages, plus an additional $2.5 million in punitive damages.

He said his clients will accept a lower settlement — possibly $1.5 million in damages — but only under certain conditions.

Lex R. Smith, the lawyer representing the city, said rejection of the offer was received Monday.

“We really didn’t expect them to accept it, and they haven’t,” Smith told the Star-Advertiser by phone. “They flatly rejected it.”

He added, “The significance of the offer of judgment is that some of the claims that are being made against the city entitle a successful plaintiff to recover their attorney’s fees.”

“When you make an offer of judgment and it’s not accepted, then the right to attorney’s fees ends at the time the offer of judgment is made,” Smith said. “They didn’t accept it, and, as we anticipated, they didn’t even counter it.”

Scarlet’s 2021 civil complaint states that Liquor Commission investigators, administrators and others allegedly engaged in an “ongoing campaign of unlawful, unconstitutional, and highly discriminatory anti-gay har­assment of Scarlet, Gay Island Guide, and generally, the Honolulu LGBTQ+ community” that went on for more than six years, according to the complaint, Scarlet’s owner Robbie Baldwin and DiPasquale.

After the city in 2023 sought a motion to dismiss the Scarlet case, Chief U.S. District Judge Derrick K. Watson on Aug. 3 issued a 38-page order allowing the case to proceed to a bench trial, where Watson will preside. The case is scheduled to go to trial this fall.

On April 17 the City Council voted to authorize the city to settle the case, via the offer of judgment.

“If so accepted, the offer is in complete satisfaction of all claims set forth in plaintiffs amended complaint for violation of equal protections, denial of due process, unlawful discrimination, negligent hiring, training, supervision, and retention, and injunctive relief … and will result in the dismissal of the complaint with prejudice,” the city’s offer states.

The city’s offer notes its acceptance “precludes either of the plaintiffs from seeking any additional relief against the liquor commission, arising out of or related to the allegations of the complaint, whether monetary or otherwise, including but not limited to, any of the plaintiff’s attorneys’ fees and cost or other expenses of any nature.”

“The offer is not an admission of liability and is made to conserve the fees and other expenses that would otherwise be incurred in taking this matter to trial,” the city’s offer states.

DiPasquale said his clients want fundamental changes at the Liquor Commission.

He said those changes relate to the release of a June 29 report by Hui Chen, a strategic adviser to Hono­lulu’s managing director, which rendered scathing results of a months-long review of Liquor Commission policies and practices in enforcing liquor laws on Oahu.

The commission approved the review in February after “ongoing complaints” relating to its Enforcement Services Section. Understaffing was among the problems. As of Feb. 15, 2023, there were seven active liquor enforcement investigators, according to the review, which is one-third of the investigator positions available.

At the time, there were 1,463 businesses licensed with the commission, or 209 licensed businesses for every investigator.

For the plaintiffs in this case, stated changes to procedures include random and equal inspections among all Oahu liquor licensees; use of body-worn cameras for all enforcement investigators during the performance of their duties; use of GPS tracking apps and similar software to identify investigators’ locations on a given day; and payment of damages and legal fees and costs to the plaintiffs.

“We are willing to take a substantial discount of our settlement demand — which was $2.5 million — in exchange for these things, basically agreeing to the conditions suggested by Ms. Chen in her report,” DiPasquale said. “Basically, stop the corruption … or just pay us damages.”

But he asserts demands for change at HLC have gone unheeded. “They want to settle only on money grounds,” he said, adding, “What I draw from that is they don’t want corruption to change. … They’re basically choosing to take this to trial and low-ball it.”

However, according to Smith, recommendations in Chen’s 2023 report — to change the way HLC operates — are being acted upon. “The Liquor Commission is fine with going ahead and adopting those changes regardless of what happens with this lawsuit,” he said, noting the city “is in the process of adopting” those changes.

Meanwhile, a related civil rights lawsuit filed in federal court in August is still advancing, but slowly, according to DiPasquale.

That suit alleges that three Liquor Commission investigators subjected another investigator, Jhumar Ray Waite, to discrimination, harassment and a hostile work environment based on his sexual orientation and race after starting his job with the city in 2022.

Waite — who has worked as a Honolulu liquor investigator since August 2022 — is gay and Filipino, the complaint states.

“That’s still in its infancy,” said DiPasquale of the other case, adding that a likely trial date will not occur until 2025.