Kealoha v. Machado.
315 P.3d 213, 131 Haw. 62, 2013 WL 6243395 (2013)
Rule of Law:
Trustees of the Office of Hawaiian Affairs possess broad discretion to expend public trust funds, and expenditures that benefit 'Hawaiians' generally do not constitute a per se breach of the fiduciary duty to administer the trust for 'native Hawaiians' so long as the trustees do not act maliciously or beyond the bounds of reasonable judgment.
Facts:
- The Office of Hawaiian Affairs (OHA) manages a portion of the public land trust dedicated to the betterment of conditions for 'native Hawaiians' (defined as having at least 50% Hawaiian blood) and 'Hawaiians' (any aboriginal ancestry).
- OHA Trustees authorized expenditures of trust funds to support lobbying efforts for the Akaka Bill (federal recognition of a Hawaiian governing entity).
- The Trustees also funded the Native Hawaiian Legal Corporation, the Na Pua No'eau Education Program, and Alu Like.
- These funded programs provided services and benefits to 'Hawaiians' generally, without requiring proof of the 50% blood quantum specific to 'native Hawaiians.'
- The Plaintiffs, who qualify as 'native Hawaiians' with 50% blood quantum, believed these expenditures diminished the pool of funds available specifically for their demographic.
- Plaintiffs alleged that by not restricting benefits based on blood quantum, the Trustees failed to act in the 'sole interest' of the 'native Hawaiian' beneficiaries.
Procedural Posture:
- Plaintiffs filed a complaint in the Circuit Court of the First Circuit alleging breach of fiduciary duty.
- The OHA Trustees filed a Motion to Dismiss the complaint.
- The Circuit Court granted the Motion to Dismiss for failure to state a claim.
- Plaintiffs filed a motion for leave to file an amended complaint.
- The Circuit Court denied the motion to amend, deeming it futile.
- The Circuit Court entered final judgment in favor of the OHA Trustees.
- Plaintiffs appealed the judgment.
- The Supreme Court of Hawai'i granted Plaintiffs' application for transfer of the appeal.
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Issue:
Does the Office of Hawaiian Affairs breach its fiduciary duty under state law to administer trust funds 'solely' for the betterment of 'native Hawaiians' (those with 50% blood quantum) when it expends funds on programs that benefit the broader class of 'Hawaiians' regardless of blood quantum?
Opinions:
Majority - Chief Justice Recktenwald
No, the Office of Hawaiian Affairs trustees do not breach their fiduciary duty merely by funding programs that benefit the broader Hawaiian community. The Court reasoned that while trustees have a duty of loyalty to administer the trust solely in the interest of beneficiaries, this duty does not strip them of discretionary power unless specifically restricted by the trust's terms. The Court found that the statutory requirement to use funds 'solely' for native Hawaiians does not mean that incidental benefits to others (in this case, Hawaiians with less than 50% blood quantum) constitute a breach. A breach would only occur if the trustees acted with an improper motive, for the primary benefit of a third party adverse to the beneficiaries, or beyond the bounds of reasonable judgment. Since 'native Hawaiians' are included within the broader group of 'Hawaiians,' programs helping the larger group also benefit the specific beneficiaries. The Court concluded that the Plaintiffs failed to allege any facts showing the trustees acted dishonestly or that the programs failed to better the conditions of native Hawaiians.
Analysis:
This decision reinforces the broad discretionary power of the Office of Hawaiian Affairs (OHA) trustees in managing public trust funds. It clarifies that the strict fiduciary duty of loyalty does not paralyze trustees from funding broad-based programs that may benefit non-beneficiaries (in this case, Hawaiians with less than 50% blood quantum) alongside the primary beneficiaries. The Court explicitly rejected a 'per se' violation theory based strictly on blood quantum, aligning state trust law interpretation with previous federal rulings. This ruling protects OHA's ability to support cultural, educational, and political initiatives that serve the Hawaiian community at large without requiring strict segregation of funds or services based on blood quantum, provided the trustees act within the bounds of reasonable judgment.
