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Electronically Filed Supreme Court SCWC-XX-XXXXXXX 04-MAY-2026 10:15 AM Dkt. 27 OP
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
---o0o---
LINDA S. MARTELL, Petitioner/Plaintiff-Appellee,
vs.
EMPLOYEE RETIREMENT SYSTEM, STATE OF HAWAIʻI and BOARD OF TRUSTEES OF THE EMPLOYEE RETIREMENT SYSTEM, STATE OF HAWAIʻI, Respondents/Defendants-Appellants.
SCWC-XX-XXXXXXX
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-XX-XXXXXXX AND CAAP-XX-XXXXXXX; CASE NO. 1CCV-XX-XXXXXXX)
MAY 4, 2026
EDDINS, ACTING C.J., GINOZA, AND DEVENS, JJ., CIRCUIT JUDGE DeWEESE, IN PLACE OF McKENNA, ACTING C.J., RECUSED, AND CIRCUIT JUDGE COPELAND, ASSIGNED BY REASON OF VACANCY
OPINION OF THE COURT BY EDDINS, J.
I.
An agency can change its rules. What it cannot do is
change them without following the procedures the legislature
requires. Much less enforce the change against someone who
timely objects. *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
That’s what happened here.
For nearly a decade, the Employee Retirement System (ERS)
credited Judge Linda Martell with retirement service for her
work as a per diem judge. A 1990 Memorandum defined the
eligibility criteria. In October 2017, ERS unilaterally
rescinded that memorandum. It stripped years of Martell’s
retirement credits.
ERS held no hearing. It gave no notice. It followed no
rulemaking procedure required by Hawaiʻi Revised Statutes (HRS)
chapter 91.
Martell challenged the ERS’ decision. The circuit court
sided with her. The ICA reversed the circuit court.
The circuit court got it right. We vacate the ICA’s
decision.
II.
Statutes and a rule govern ERS membership. In this case,
so did memoranda that operated as rules. Hawaiʻi’s
Administrative Procedure Act, HRS chapter 91, imposes procedural
constraints on how agencies adopt, amend, or repeal rules.
This case turns on four questions.
First, who are ERS members? All state employees, including
per diem workers, are members unless specifically excluded. HRS
§ 88-42 (2012). The statute reflects a legislative presumption
of inclusion.
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HRS § 88-43 (2012) qualifies that presumption. The ERS
Board may “deny membership to any class of part-time employees
or persons engaged in temporary employment of three months or
less[.]” Vail held that the statute gives ERS the power to deny
per diem employees membership as a class of part-time workers.
Vail v. Emps’ Ret. Sys. of State, 75 Haw. 42, 66, 856 P.2d 1227,
1240 (1993).
Second, how does the ERS Board exercise its exclusion
authority? Through a rule. Hawaiʻi Administrative Rules (HAR)
§ 6-21-14(5) excludes “[p]ersons in any position requiring less
than one-half o[f] full-time employment.”
But this rule says nothing about how to apply that
threshold to per diem judges. That gap gave rise to the
memoranda at the center of this dispute.
Third, what is a rule and what happens when an agency
adopts one? HRS § 91-1 defines a “rule” as “each agency
statement of general or particular applicability and future
effect that implements, interprets, or prescribes law or
policy[.]” Two exceptions apply: (1) “regulations concerning
only the internal management of an agency and not affecting
private rights of or procedures available to the public,” and
(2) “intra-agency memoranda.” HRS § 91-1 (Supp. 2017). To
“adopt, amend or repeal” a rule, the agency “must follow the
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rulemaking procedures under HRS § 91-3.” Kawashima v. State,
140 Hawaiʻi 139, 149, 398 P.3d 728, 738 (2017).
Rules not made under HRS § 91-3 (Supp. 2018) “are invalid
and unenforceable.” Foytik v. Chandler, 88 Hawaiʻi 307, 315, 966
P.2d 619, 627 (1998). Rules are forward-looking. See HRS § 91-
1. Where agencies aim to determine past or present rights or
liabilities, they may opt to proceed through adjudication
instead – avoiding HRS § 91-3’s procedural requirements. See
Flores-Case ʻOhana v. Univ. of Haw., 153 Hawaiʻi 76, 92, 526 P.3d
601, 617 (2023).
Fourth, may rules be challenged? Yes, but there’s an
expiration date. HRS § 91-3(f) imposes a three-year limitation
period on procedural challenges to rules. If timely, HRS § 91-
14(g)(3) (2012 & Supp. 2016) authorizes courts to reverse agency
decisions “[m]ade upon unlawful procedure” where the
petitioner’s substantial rights have been prejudiced.
III.
We turn to the ERS memoranda.
On March 6, 1990, ERS sent the Judiciary a memorandum
establishing the criteria for per diem judges to qualify for ERS
membership. The 1990 Memorandum required three things: (1) work
more than three consecutive months; (2) work more than twenty
hours per week – fifty percent of full-time equivalence (50%
FTE); and (3) have the Judiciary designate the position at 50%
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FTE on an SF-5 personnel form. An SF-5 is a personnel form that
records employment classification, including FTE designation.
For twenty-seven years, the Judiciary enrolled per diem
judges as ERS members under the 1990 Memorandum. It deducted
retirement contributions from their paychecks and provided ERS
with payroll records. But it never changed the SF-5 forms from
20% FTE to 50% FTE. Judges who worked at least ten days per
month were classified the same as those who did not.
Judge Martell was appointed to a per diem judge position in
January 2005. Her Judiciary SF-5 form designated her position
at 20% FTE. Yet from September 2008 through September 2017, ERS
credited her service for every month she worked at least ten
days. No one questioned the arrangement.
In 2017, ERS discovered that the Judiciary had not changed
its SF-5 forms from 20% FTE to 50% FTE. On October 20, 2017,
ERS issued a new memorandum rescinding the 1990 memorandum. ERS
declared that effective October 1, 2017 it would no longer
credit per diem judge service because the positions were
designated at 20% FTE.
On November 16, 2017, ERS informed Judge Martell by letter
that she would lose credited service retroactive to October 1,
2017. The letter stated, “The ERS revisited the Hawaii
Administrative Rules . . . . Prior to September 30, 2017, the
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ERS credited your per diem judge service which you have accrued
provided you worked at least 10 days per month[.]”
ERS did not follow any rulemaking procedure under HRS § 91-
3 in issuing either the 2017 Memorandum or the November 16, 2017
letter.
Judge Martell protested. She filed a petition for
contested case hearing on January 16, 2018, alleging unlawful
rulemaking. She continued to serve as a per diem judge. Judge
Martell worked more than ten days per month in most months,
until retiring in December 2021.
An ERS hearing officer sustained part of Martell’s claim.
The Board of Trustees of the ERS overruled the hearing officer,
and dismissed Martell’s claims entirely. (Per HAR § 6-23-18,
the ERS hearing officer submits a recommended decision for the
Board of Trustees to accept, remand for clarification, or modify
and replace with its own decision.)
Martell appealed to the Circuit Court of the First Circuit.
Judge James Ashford reversed the ERS Board. He decided that
both the 1990 and 2017 memoranda were rules under HRS § 91-1 –
and neither had been lawfully promulgated per HRS § 91-3.
ERS appealed. The ICA agreed the memoranda were improper
rule-making. But it still reversed the circuit court. In the
ICA’s view, the circuit court’s own reasoning did not support
the relief it ordered.
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Martell applied for cert, and we accepted.
IV.
ERS invokes two exceptions under HRS § 91-1: “internal
management” and “intra-agency memoranda.” Neither applies here.
Both the circuit court and the ICA correctly concluded the
1990 Memorandum and the 2017 Memorandum are rules.
A. The Memoranda Are Not Internal Management
First, the memos were not internal management. The
internal management exception is construed narrowly. Green
Party of Haw. v. Nago, 138 Hawaiʻi 228, 238, 378 P.3d 944, 954
(2016). Courts must “foreclose any tendencies that agencies
might exhibit to avoid the rule-making requirements by casting
regulations in terms of internal management.” Id.
The test is functional. Courts look “to whom the
regulations are directed” and whether they affect “private
rights of or procedures available to the public.” Kawashima,
140 Hawaiʻi at 150, 398 P.3d at 739.
HRS § 91-1’s legislative history confirms the exception is
narrow. The internal management exception covers “regulations
and policy prescribed and used by an agency principally directed
to its staff and its operations,” such as the operation of penal
institutions or custodial management of state property. H.
Stand. Comm. Rep. No. 8, in 1961 House Journal, at 656.
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ERS contends that both memoranda concerned only its
internal management of eligibility determinations, like the DOE
pay regulation in Kawashima.
The memoranda don’t come close.
In Kawashima, the Department of Education (DOE) amended an
internal regulation governing pay rates for its part-time
teachers. 140 Hawaiʻi at 143, 398 P.3d at 732. This court held
that the regulation did not “command members of the public to do
anything . . . nor . . . declare the rights of members of the
public[.]” Id. at 152, 398 P.2d at 741. The teachers were DOE
employees. The regulation was directed to DOE staff.
Here, the memoranda were directed to the Judiciary – not
ERS staff. They declared the rights of per diem judges to
receive retirement benefits. Per diem judges are not ERS
employees. They are members of the public the ERS serves.
We also observe that the memoranda did not merely set
internal pay rates. Both affected the private rights of per
diem judges. They declared who would receive retirement
benefits and who would not. That’s a determination of private
rights.
ERS maintains that per diem judges are not “the public”
because ERS membership is unavailable to the general population.
This argument fails. By that logic, no agency action affecting
state employees could ever be a rule. State employees are
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always a narrower class than the general population. Every
regulated class is.
Green Party rejected the type of narrowing ERS urges. 138
Hawaiʻi 228, 378 P.3d 944. The regulation there determined
ballot counting procedures. Id. We held it was a rule because
it could deprive voters of their right to vote. Id. at 243, 378
P.3d at 959. The question is whether the regulation affects
private rights — not whether the affected class is large.
Martell’s case more closely resembles Aguiar v. Hawaii
Housing Authority, 55 Haw. 478, 522 P.2d 1255 (1974). There, an
internal regulation setting income limits for public housing
eligibility was a rule because it determined tenants’ private
rights. Id. at 489, 522 P.2d at 1263.
ERS insists that Aguiar is different. The general public
can apply for public housing but not for ERS membership, ERS
says. But that distinction doesn’t matter. The housing
authority’s regulation and the memoranda in this case determined
whether a defined class of persons would receive a government
benefit. That’s a clear impact on private rights.
ERS also invokes Rose v. Oba, 68 Haw. 422, 717 P.2d 1029
(1986) (hospital bylaws), Holdman v. Olim, 59 Haw. 346, 581 P.2d
1164 (1978) (prison dress code), and Doe v. Chang, 58 Haw. 94,
564 P.2d 1271 (1977) (welfare fraud investigation procedures).
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It argues that the internal management exception applies even
where the affected person is not an agency employee.
True. But those cases involved regulations that did not
declare or alter substantive rights. A hospital’s credentialing
bylaws do not determine eligibility for a government benefit. A
prison dress code does not strip retirement credits. Welfare
fraud investigation procedures do not declare who receives
benefits.
The ERS’ memoranda declared and altered substantive rights.
B. The Memoranda Are Not Intra-Agency Communications
Next, the 1990 and 2017 memoranda were not intra-agency
communications.
The intra-agency communications exception is also construed
narrowly. Green Party, 138 Hawaiʻi at 238, 378 P.3d at 954.
ERS cites Crosby v. State Dep’t of Budget & Finance, 76
Hawaiʻi 332, 876 P.2d 1300 (1994), where this court held that a
Department of Accounting and General Services circular sent to
other state departments was not a rule. ERS ignores why the
circular wasn’t a rule. The circular did not “bind any member
of the public . . . with respect to any substantive right” nor
“declare the rights of the public in any respect.” Id. at 345-
46, 876 P.2d at 1313-14.
In contrast, the memoranda did. They determined when and
whether per diem judges would receive retirement benefits. The
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form of the communication is not dispositive. The substance is.
And this court disfavors form over substance. Rodriguez v.
Mauna Kea Resort LLC, 156 Hawaiʻi 289, 295, 574 P.3d 309, 315
(2025).
ERS warns that treating inter-agency memoranda as rules
would chill routine government correspondence.
The sky will not fall. Agencies remain free to correspond
as they wish. What they may not do is alter the public’s
substantive rights through informal memoranda. What they may
not do is evade the procedural safeguards the legislature has
required. HRS § 91-3 exists to quash those moves.
C. The 2017 Memorandum and November letter Are Void as to Martell
We turn to the 2017 Memorandum. It is void as to Judge
Martell.
The 2017 Memorandum is a rule. It was adopted without
following HRS § 91-3’s rulemaking procedures. So it is “invalid
and unenforceable.” Foytik, 88 Hawaiʻi at 315, 966 P.2d at 627.
Judge Martell challenged it within three years of its
adoption. HRS § 91-3(f). Thus, the 2017 Memorandum is void as
to her.
The November 16, 2017 letter to Judge Martell fares no
better. ERS argues the letter did not “rely on” either
memorandum and should stand independently. But the letter’s own
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text refutes this claim. It declared that ERS had “revisited”
its administrative rules and would “no longer credit membership
service” for per diem judges. The letter expressly acknowledged
a policy reversal. We treat the letter as notice implementing
the 2017 Memorandum.
But, even if the letter were treated as an independent
agency action, it would itself constitute either a rule (with
the same procedural defects) or an adjudication.
Since the letter is forward-looking, it is not an
adjudication. As explained in Flores-Case ʻOhana, “Adjudications
handle the past or current rights of specific people;
rulemakings make law for everyone, for the future.” 153 Hawaiʻi
at 92, 526 P.3d at 617.
And even if the letter were an adjudication, ERS still
invalidly exercised discretion. An agency adjudication is an
abuse of discretion when it reflects a “sudden change of
direction” that “leads to undue hardship for those who had
relied on past policy.” Application of Hawaiian Elec. Co.,
Inc., 81 Hawaiʻi 459, 468, 918 P.2d 561, 570 (1996). The letter
did exactly that. It reversed a twenty-seven-year policy
without notice, without hearing, and without any of the
procedural protections that adjudicatory policymaking requires.
Application of Hawaiian Elec. Co., Inc., 66 Haw. 538, 541, 669
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P.2d 148, 151 (1983) (parties must have the right to examine and
cross-examine witnesses).
Thus, both the 2017 Memorandum and the letter implementing
it are void as to Martell. But what about the 1990 Memorandum?
D. The 1990 Memorandum Remains Valid
The ICA correctly ruled that the 2017 Memorandum had no
effect. But it erred in treating the 1990 Memorandum as equally
infirm. It reasoned that “[b]ecause the 1990 and 2017 Memoranda
were improper, per diem judges were members by default under HRS
§ 88-42, unless they were excluded by the ERS under HRS § 88-
43.”
The ICA’s analysis overlooked HRS § 91-3(f). ERS
implemented the memorandum in 1990. No party challenged that
rule within three years. Under HRS § 91-3(f), the window to
challenge closed.
ERS argues that HRS § 91-3(f) does not apply because ERS
never formally “adopted” the 1990 Memorandum through any
rulemaking process.
This position produces untenable results. Under ERS’
reading, a rule that has been practiced and relied upon for
decades can be invalidated on procedural grounds at any time, so
long as it was adopted with no procedures at all. Rules with
less severe procedural defects would be protected by the three-
year bar. Yet rules with more severe defects would not.
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ERS’ reading would bury HRS § 91-3(f). That law was
enacted to prevent agencies from being forced to “readopt their
administrative rules at great expense to the taxpayers.” S.
Stand. Comm. Rep. No. 1277, in 1989 Senate Journal, at 1280. It
applies to all rules.
The 1990 Memorandum is a rule. It was “adopted” when ERS
began to practice it. The three-year window has long since
shut. Thus, it remains valid and operative.
Because the 2017 Memorandum is void as to Judge Martell,
the 1990 Memorandum, the only valid rule governing her
eligibility, controls for the full duration of her service.
V.
We now address the ICA’s central error.
Two distinct inquiries are important here: whether ERS’
interpretation was substantively permissible, and whether the
agency followed the procedures required to implement it.
These questions are independent. Under HRS § 91-7(b) (2012
& Supp 2015), a rule may be challenged four ways: it violates
the constitution, it violates a statute, it exceeds the agency’s
authority, or it was not lawfully promulgated. A rule can
satisfy the first three criteria and fail the fourth.
Substantive correctness does not mend procedural
invalidity. See HRS §§ 91-3, 91-7; Green Party, 138 Hawaiʻi at
239, 378 P.3d at 955 (rule is invalid for procedural errors if
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it was adopted without complying with HAPA’s statutory rule-
making requirements); Foytik, 88 Hawaiʻi at 315, 966 P.2d at 627.
Two questions were at issue here. Did ERS get the
substance right? Did it follow the right procedure?
The ICA read the circuit court as answering the first
question yes – that ERS’ interpretation of HAR § 6-21-14(5) was
within its statutory authority. And the circuit court got the
second question right. ERS could not enforce a rule adopted
without following HRS § 91-3 against a petitioner who timely
challenged it.
These are harmonious conclusions. The first addresses what
ERS may do. The second addresses what ERS has done.
The ICA called the reasoning irreconcilable. Not so.
In administrative law it can be true at the same time that
an agency’s substantive interpretation is permissible and its
implementation of that interpretation is unlawful. HRS § 91-
14(g)(3) authorizes reversal for decisions “[m]ade upon unlawful
procedure.” There is no exception for decisions that are
substantively correct.
To hold otherwise would permit agencies to sidestep chapter
91 whenever they think their interpretation is correct. That
would gut the framework. Rulemaking procedures serve purposes
beyond substantive accuracy. They improve the quality of agency
rules through public participation, enhance the legitimacy of
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those rules, and ensure accountability. If correctness alone
sufficed, the legislature would not have required the procedures
in the first place.
Next, the ICA overstated what the circuit court held.
The ICA characterized the circuit court as having
“determined that the ERS Board correctly interpreted ERS rules
for membership exclusion, specifically HAR § 6-21-14(5).” But
the court’s actual language was more limited.
The circuit court stated, “Appellant argues that the Board
incorrectly interpreted ERS rules for membership exclusion. The
Court disagrees with Appellant’s interpretation and argument
concerning the proper interpretation of HAR § 6-21-14.” It
added, “Once an employee is excepted pursuant to subsection 6-
21-14(5), that exception stands.”
Disagreement with Judge Martell’s interpretation is not the
same as endorsing the ERS Board’s take. The circuit court did
not say ERS was right. It said it disagreed with Judge
Martell’s particular characterization. And the court’s bottom
line — restoring her retirement benefits — is inconsistent with
any reading that it fully endorsed ERS’ position on eligibility.
ERS argues that Judge Martell’s failure to cross-appeal
from the circuit court’s ruling on HAR § 6-21-14(5) torpedoed
her claim. It did not. In the absence of a clear circuit court
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ruling on ERS’ eligibility determination, there was nothing for
Martell to cross-appeal.
VI.
We turn to remedy. Nakamine controls. “Where an
administrative agency, by the failure to follow its rules,
prejudices the substantial rights of a party before it, it may
be necessary for the court, under the power to modify the
decision and order of the agency, to fashion relief
appropriately remedying the prejudice caused.” Nakamine v. Bd.
of Trs. of Emps.’ Ret. Sys., 65 Haw. 251, 255, 649 P.2d 1162,
1165 (1982).
The 2017 Memorandum reversed ERS’ existing policy. ERS
said so. The memo’s stated purpose was to “rescind” the 1990
Memorandum and that “[e]ffective October 1, 2017, the ERS no
longer credits per diem judge service.”
The November 2017 letter confirmed that ERS had “revisited”
its rules and was reversing its prior policy of crediting
service for judges who worked at least ten days per month. In
ERS’ own words, the 2017 Memorandum was a reversal – not mistake
correction.
The reversal was unlawfully adopted. It prejudiced Judge
Martell’s substantial rights. She contributed to the retirement
system for years. She planned her workload for her final years
of service based on the existing policy. ERS credited her
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service toward retirement under the terms of the 1990
Memorandum. Then when retirement loomed, ERS yanked her
benefits by memorandum. The U-turn occurred with no notice, no
hearing, and without following any of the rulemaking procedures
required by HRS chapter 91.
Because ERS’ decision was “[m]ade upon unlawful procedure,”
HRS § 91-14(g)(3) authorizes reinstatement of Judge Martell’s
retirement benefits.
VII.
We vacate the ICA’s December 8, 2025 Judgment on Appeal and
affirm the circuit court’s September 9, 2022 Amended Final
Judgment.
The case is remanded to the ERS Board with instructions to
credit Judge Martell for service from October 1, 2017, to
December 31, 2021, for those months meeting the requirements of
the 1990 Memorandum as previously interpreted.
John L. Barkai, Lance D. /s/ Todd W. Eddins Collins, and Bianca K. Isaki (on the briefs) /s/ Lisa M. Ginoza for petitioner /s/ Vladimir P. Devens Randall S. Nishiyama and Diane W. Wong (on the briefs) /s/ Wendy M. DeWeese for respondents /s/ Rebecca A. Copeland