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Electronically Filed Supreme Court SCWC-XX-XXXXXXX 08-JAN-2021 08:00 AM Dkt. 22 OP
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
---o0o---
LANCE M. WATANABE, Petitioner/Appellant-Appellant/Cross-Appellee,
vs.
ADMINISTRATIVE DIRECTOR OF THE COURTS, STATE OF HAWAIʻI, Respondent/Appellee-Appellee/Cross-Appellant.
SCWC-XX-XXXXXXX
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-XX-XXXXXXX; CIV. NO. 3CC151000052)
JANUARY 8, 2021
RECKTENWALD, C.J., NAKAYAMA, McKENNA, WILSON, AND EDDINS, JJ.
OPINION OF THE COURT BY NAKAYAMA, J.
Petitioner/Appellant-Appellant/Cross-Appellee Lance M.
Watanabe (Watanabe) was employed as a carpenter for the State of
Hawaiʻi (the State) and applied for service-connected disability ***FOR PUBLICATION IN WEST’S HAWAII REPORTS AND PACIFIC REPORTER***
retirement benefits after suffering a back injury. Following
various administrative proceedings, Respondent/Appellee-
Appellee/Cross-Appellant Employees’ Retirement System, State of
Hawaiʻi (ERS) issued a proposed decision on October 11, 2011
denying Watanabe’s application on the merits and notifying
Watanabe that the decision would become final unless Watanabe
filed exceptions within fifteen days. On October 26, 2011, ERS
received a document filed by Watanabe entitled “Petitioner’s
Proposed Decision,” which was a copy of ERS’s own proposed
decision with multiple underscored insertions and a single
“lined out” paragraph. This case centers on whether the
document filed by Watanabe — Petitioner’s Proposed Decision —
constituted exceptions.
Almost two years after Watanabe’s filing, ERS
contacted Watanabe to schedule an exceptions hearing, but
reserved the issue of whether Watanabe’s filing actually
constituted exceptions. Following the hearing, the ERS Board
issued a final decision concluding that Watanabe’s filing did
not constitute exceptions and confirming its denial of his
application.
Watanabe appealed to the Circuit Court of the Third
Circuit (circuit court), arguing both the merits of his
disability claim and that the ERS Board’s proposed decision did 2 ***FOR PUBLICATION IN WEST’S HAWAII REPORTS AND PACIFIC REPORTER***
not automatically become a final decision because Watanabe had
timely filed exceptions. The circuit court affirmed the ERS
Board’s decision without ruling on whether Watanabe’s filing
Watanabe appealed to the Intermediate Court of Appeals
(ICA). The ICA held that Petitioner’s Proposed Decision did not
constitute exceptions and affirmed the circuit court’s decision.
In his application for writ of certiorari, Watanabe
maintains that Petitioner’s Proposed Decision filing constituted
exceptions and that the ICA and ERS misinterpreted the
administrative rule to require a rigid format for exceptions,
thus denying Watanabe a meaningful opportunity to be heard.
To resolve this case, we must consider what level of
formality Hawaiʻi Administrative Rules (HAR) § 6-23-19 requires
for exceptions. Section 6-23-19 specifies that any party may
file exceptions to a proposed decision and request review within
fifteen days. In Hawaii Laborers’ Training Ctr. v. Agsalud, 65
Haw. 257, 259, 650 P.2d 574, 576 (1982), this court held that an
agency’s refusal to consider an appellant’s timely filed
exceptions based on the agency’s rigid interpretation of its own
rule violated Hawaiʻi’s Administrative Procedures Act (APA).
In this case, Watanabe met the minimum requirements
for exceptions because he: (1) filed within fifteen days of the 3 ***FOR PUBLICATION IN WEST’S HAWAII REPORTS AND PACIFIC REPORTER***
agency’s proposed decision; (2) specified his points of
exception by either striking through, or, inserting underscored
text in the agency’s proposed decision; and (3) for several of
the points, cited to exhibits in the record. Having timely
filed his exceptions, Watanabe was entitled to present argument
on his exceptions to the ERS Board and to have the Board
consider the merits of his exceptions.
Accordingly, we vacate the ICA’s August 20, 2019
Judgment on Appeal which affirmed the circuit court’s
April 5, 2016 (1) Decision and Order Affirming the Final
Decision of the ERS Board and Dismissing Appellant Watanabe’s
Appeal; and (2) Final Judgment. We remand this case to the ERS
Board for further proceedings consistent with this opinion.
I. BACKGROUND
On November 24, 2008, Watanabe applied for
service-connected disability retirement benefits for an injury
that occurred on January 25, 2005.
Prior to his application for disability retirement,
Watanabe worked as a Carpenter I for the State for more than ten
years.
A. Administrative Proceedings
By letter dated March 25, 2010, the ERS Board notified
Watanabe that it proposed to deny his application based on its
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determination that Watanabe’s injury was not service-connected.
Watanabe retained counsel and brought a contested case
proceeding to appeal the ERS Board’s preliminary determination.
Following the contested case hearing, an ERS hearing officer
issued a Recommended Decision recommending that the ERS Board
affirm its preliminary decision denying Watanabe’s application
because Watanabe failed to establish that his permanent
incapacity was work-related.
The ERS Board adopted the hearing officer’s
Recommended Decision as its Proposed Decision dated
October 11, 2011 (ERS Board’s Proposed Decision). The ERS Board
mailed a copy of its Proposed Decision to Watanabe’s counsel by
certified mail. Both the ERS Board’s Proposed Decision and
accompanying cover letter informed Watanabe that, under
HAR § 6-23-19,1 parties may file exceptions and request review
1 HAR § 6-23-19 (2009) states:
(a) Within fifteen days after receipt of a copy of the board’s proposed decision, any party may file with the board exceptions to any part thereof and request review by the board. Each exception shall specify the portion of the record and authorities relied on to sustain each point. Eight copies of the exceptions and request for review shall be filed with the board. In addition, a copy of the exceptions and request for review shall be served upon each of the parties who were served with a copy of the proposed decision.
(b) Any party may apply for an extension of time within which to file exceptions to the proposed (continued . . .) 5 ***FOR PUBLICATION IN WEST’S HAWAII REPORTS AND PACIFIC REPORTER***
within fifteen days of receipt. In addition, both documents
advised Watanabe that he could apply for an extension of time to
file exceptions, but that if no exceptions or extension was
received within fifteen days of receipt of the ERS Board’s
Proposed Decision, “the Proposed Decision shall become final.”
Watanabe’s counsel received the ERS Board’s Proposed Decision on
October 17, 2011.
On October 25, 2011, Watanabe’s counsel filed a letter
and document entitled “Petitioner’s Proposed Decision.” The
cover letter sent with Petitioner’s Proposed Decision stated
only:
Dear Sir/Madam:
This is Petitioner’s Proposed Decision. The changes are underlined or lined out.
Please do not hesitate to call should you have any questions.
The enclosed Petitioner’s Proposed Decision was a copy of the
ERS Board’s Proposed Decision, with multiple underscored
(continued . . .) decision by filing two copies of a written application setting forth the reasons for the request. The application shall be filed before the expiration of the period prescribed for the filing of exceptions. Upon good cause shown, the board, or any member of the board, may extend the time for filing exceptions for an additional period not to exceed fifteen days.
(c) If no exceptions and request for review are filed within the time specified, the proposed decision shall become final, unless the board on its own motion orders further proceedings to be held.
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insertions and a single “lined out” paragraph.
By letter dated July 10, 2013 — almost two years after
Watanabe filed Petitioner’s Proposed Decision — the ERS Board
notified Watanabe’s counsel that it would contact him to
schedule an exceptions hearing. The letter informed Watanabe
that the ERS Board still had “substantial questions as to
whether the documents [Watanabe] submitted to the ERS by letter
dated October 25, 2011, constituted ‘exceptions’ and/or complied
with the requirements of [HAR § 6-23-19]” and that the ERS Board
was reserving the issue.
By letter dated May 15, 2014, the ERS Board notified
Watanabe and the State that it had “substantial doubts as to
whether the October 25, 2011 letter and Petitioner’s Proposed
Decision qualify as exceptions to the Proposed Decision and a
request for review under HAR § 6-23-19[]” and that ERS was
reserving the issue. The letter advised the parties to prepare
to offer argument at the hearing on all issues, including inter
alia, whether Petitioner’s Proposed Decision qualified as
exceptions and a request for review under HAR § 6-23-19 and the
merits of Watanabe’s exceptions.
Following an exceptions hearing, the ERS Board issued
its Final Decision on January 14, 2015. In its Final Decision,
the ERS Board found that Petitioner’s Proposed Decision did not
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constitute exceptions under HAR § 6-23-19 and thus the ERS
Board’s Proposed Decision became a final decision. Accordingly,
the ERS Board “confirm[ed] its denial of [Watanabe’s]
application for service-connected disability retirement
benefits.”
B. Circuit Court Proceedings
On February 13, 2015, Watanabe filed a Notice of
Appeal to the circuit court.2 Before the circuit court, Watanabe
argued that the ERS Board’s conclusion that he was not entitled
to service-connected disability retirement benefits was clearly
erroneous.
ERS argued that the circuit court lacked jurisdiction
over the ERS Board’s Proposed Decision denying Watanabe’s
application because Watanabe failed to timely appeal. ERS
maintained that because Watanabe did not file exceptions in
conformance with HAR § 6-23-19,3 the ERS Board’s Proposed
Decision became final on November 1, 2011 — fifteen days after
it was served on Watanabe. Thus, ERS claimed that Watanabe’s
appeal was untimely because it was not filed within thirty days
after November 1, 2011. ERS contended that, even if the circuit
2 The Honorable Greg K. Nakamura presided.
3 ERS argued that Petitioner’s Proposed Decision did not satisfy the requirements of HAR § 6-23-19(a), because the filing failed to specify the portion of the record and authorities upon which it relied.
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court found that Petitioner’s Proposed Decision constituted
exceptions and his appeal was timely, Watanabe still failed to
prove that his permanent incapacity was work-related.
In response to ERS’s claim that the circuit court
lacked jurisdiction to review the ERS Board’s Proposed Decision,
Watanabe argued that his appeal was timely because he filed
Petitioner’s Proposed Decision, which met the published
requirements of HAR § 6-23-19(a) for exceptions. Watanabe
asserted that, pursuant to HAR § 6-23-21,4 once he filed
exceptions, the ERS Board’s Proposed Decision could not become a
final decision until the ERS Board held a hearing on his
exceptions and rendered a final, written decision.
Following a hearing, the circuit court entered its
Decision and Order Affirming the Final Decision of the ERS Board
(Circuit Court Decision). The circuit court made no explicit
finding as to whether Petitioner’s Proposed Decision satisfied
the requirements of HAR § 6-23-19(a) for exceptions.5
4 HAR § 6-23-21 provides in relevant part:
(a) Where exceptions have been filed to the board’s proposed decision, the board, within sixty days after the hearing on the exceptions, shall render its final decision.
(Emphasis added.)
5 Presumably, the circuit court concluded that the Petitioner’s Proposed Decision did not constitute exceptions within the meaning of HAR § 6-23-19(a) because it omitted any reference to this filing in the Circuit Court Decision.
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Nonetheless, the circuit court proceeded to address the merits
of Watanabe’s disability claim. The circuit court concluded
that the ERS Board’s determinations in its Final Decision6 were
supported by substantial evidence and not clearly erroneous.
Accordingly, the circuit court affirmed the ERS Board’s Final
Decision and entered Final Judgment in favor of ERS.
C. ICA Proceedings
Watanabe timely filed a notice of appeal and ERS filed
a notice of cross-appeal.
On appeal, Watanabe argued that the circuit court
erred by affirming the ERS Board’s Final Decision and that ERS’s
interpretation that Petitioner’s Proposed Decision did not
qualify as exceptions under HAR § 6-23-19 was not entitled to
deference.
In its cross-appeal, ERS claimed that (1) the circuit
court erred by reaching the merits of Watanabe’s claim without
first determining that it had appellate jurisdiction; and
(2) neither the ICA nor the circuit court had jurisdiction to
review the ERS Board’s Proposed Decision because Watanabe’s
6 The Circuit Court Decision affirmed the ERS Board’s Final Decision but treated the Final Decision as adopting the ERS Board’s findings of fact and conclusions of law from the ERS Board’s Proposed Decision. While the ERS Board’s Final Decision did not expressly state that it adopted the Proposed Decision, it did attach the Proposed Decision as an exhibit to its Final Decision. In addition, the ERS Board’s Final Decision “confirm[ed]” the ERS Board’s previous denial of Watanabe’s application.
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appeal to the circuit court was untimely.
The ICA filed a Summary Disposition Order on
July 26, 2019. First, the ICA addressed ERS’s cross-appeal
challenging the circuit court’s lack of jurisdiction over the
merits of Watanabe’s application for service-connected
disability benefits. As a threshold issue, the ICA concluded
that Petitioner’s Proposed Decision did not constitute
exceptions under HAR § 6-23-19, because it failed to state that
it was an appeal, identify any points of error or portion of the
record, contain any argument, or cite any authorities. Based on
its conclusion that Watanabe failed to file exceptions, the ICA
reasoned that the ERS Board’s Proposed Decision became final on
November 1, 2011. Thus, the ICA concluded that because Watanabe
did not appeal to the circuit court within thirty days of
November 1, 2011, the circuit court lacked jurisdiction to
review the merits of Watanabe’s claim.
Second, the ICA held that the circuit court had
jurisdiction only to review the procedural matters addressed by
the ERS Board in its January 14, 2015 Final Decision — namely,
whether Watanabe had timely filed exceptions. Accordingly, the
ICA held that the circuit court erred in addressing the merits
of Watanabe’s claim, but that the error was harmless because the
circuit court affirmed the ERS Board’s Final Decision.
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Therefore, the ICA affirmed the Circuit Court’s
Decision and Final Judgment.
II. STANDARDS OF REVIEW
A. Secondary Appeals
Review of a decision made by the circuit court upon its review of an administrative decision is a secondary appeal. Ahn v. Liberty Mut. Fire Ins. Co., 126 Hawaiʻi 1, 9, 265 P.3d 470, 478 (2011) (citation omitted). The circuit court’s decision is reviewed de novo. Id. The agency’s decision is reviewed under the standards set forth in HRS § 91-14(g). Id. HRS § 91–14(g) (1993) provides:
(g) Upon review of the record the court may affirm the decision of the agency or remand the case with instructions for further proceedings; or it may reverse or modify the decision and order if the substantial rights of the petitioners may have been prejudiced because the administrative findings, conclusions, decisions, or orders are:
(1) In violation of constitutional or statutory provisions; or (2) In excess of the statutory authority or jurisdiction of the agency; or (3) Made upon unlawful procedure; or (4) Affected by other error of law; or (5) Clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record; or (6) Arbitrary, or capricious, or characterized by abuse of discretion or clearly unwarranted exercise of discretion.
Under HRS § 91-14(g), conclusions of law are reviewable under subsections (1), (2), and (4); questions regarding procedural defects under subsection (3); findings of fact under subsection (5); and an agency's exercise of discretion under subsection (6). Sierra Club v. Office of Planning, 109 Hawaiʻi 411, 414, 126 P.3d 1098, 1101 (2006) (citation, internal quotation marks and brackets omitted).
Liberty Dialysis-Hawaii, LLC v. Rainbow Dialysis, LLC, 130
Hawaiʻi 95, 102–03, 306 P.3d 140, 147–48 (2013).
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B. Interpretation of Agency Rules
General principles of statutory construction apply in interpreting administrative rules. As in statutory construction, courts look first at an administrative rule’s language. If an administrative rule’s language is unambiguous, and its literal application is neither inconsistent with the policies of the statute the rule implements nor produces an absurd or unjust result, courts enforce the rule’s plain meaning. While an agency’s interpretation of its own rules is generally entitled to deference, this court does not defer to agency interpretations that are plainly erroneous or inconsistent with the underlying legislative purpose.
Id. at 103, 306 P.3d at 148 (internal quotation marks and
citations omitted).
III. DISCUSSION
Watanabe argues that the ERS Board misinterpreted the
standard for exceptions under HAR § 6-23-19 and erroneously
concluded that Petitioner’s Proposed Decision did not constitute
exceptions. Watanabe also contends that the ICA erred by
affirming the ERS’s misinterpretation of HAR § 6-23-19 and
holding that Watanabe failed to timely appeal the ERS Board’s
Proposed Decision. According to Watanabe, the ERS Board’s and
ICA’s interpretation of HAR § 6-23-19 imposes a higher standard
on petitioners seeking to begin the appeal process and amounts
to a denial of due process.
ERS contends that Petitioner’s Proposed Decision does
not meet the requirements of HAR § 6-23-19 because, inter alia,
it “merely propose[s] ‘changes’” to ERS’s Proposed Decision and
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does not clearly express that it sets forth Watanabe’s
exceptions. Similarly, the ICA concluded that Petitioner’s
Proposed Decision did not meet the standard for exceptions
because “[i]t did not express that it was an appeal from the
Proposed Decision; identified no points of error within the
Proposed Decision; and contained no argument, specification of
the portion of the record, or authorities to sustain any alleged
point of error in the Proposed Decision.” (Footnotes omitted.)
We agree with Watanabe that Petitioner’s Proposed
Decision constituted exceptions because it met the general
requirements for exceptions under the plain language of
HAR § 6-23-19. HAR § 6-23-19 does not require that exceptions
be labeled as exceptions or an appeal, or even contain points of
error or argument. Furthermore, imposing a higher standard for
formalities would undermine the purpose of filing exceptions,
which is to allow a claimant a meaningful opportunity to be
heard.
First, the plain language of HAR § 6-23-19(a) provides
the minimum requirements for the filing of exceptions:
Within fifteen days after receipt of a copy of the board’s proposed decision, any party may file with the board exceptions to any part thereof and request review by the board. Each exception shall specify the portion of the record and authorities relied on to sustain each point.
(Emphasis added.) Thus, HAR § 6-23-19(a) requires that
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exceptions: (1) be filed within fifteen days;7 and (2) specify
the portion of the record and authorities relied on to sustain
each point.
We hold that Petitioner’s Proposed Decision filing
satisfies the standard for exceptions set forth in
HAR § 6-23-19(a). In Petitioner’s Proposed Decision, Watanabe
struck through the portion of the ERS Board’s Proposed Decision
that he disagreed with and inserted underscored language to
indicate his amendments and additions. Several of the
underscored amendments in Petitioner’s Proposed Decision
specified the authorities relied on, which were exhibits in the
administrative record. Petitioner’s Proposed Decision disputed
numerous factual findings, an ERS Board member’s testimony
regarding the definition of “accident” for disability retirement
purposes, and the conclusions of law that Watanabe’s permanent
disability was not service-connected. In sum, Petitioner’s
Proposed Decision specified Watanabe’s points of exception by
either striking through or amending and/or inserting underscored
text and citing the pertinent exhibits in the record.
Consequently, Petitioner’s Proposed Decision meets the minimum
7 ERS does not dispute that Petitioner’s Proposed Decision was filed within fifteen days of receipt. Arguably, ERS might presume that filings by claimants within fifteen days after a proposed decision are likely exceptions, particularly when the filing proposes “changes” to the proposed decision.
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requirements for exceptions outlined in HAR § 6-23-19(a).
Second, the purpose of filing exceptions is to ensure
that a claimant has a meaningful opportunity to be heard, not to
impose a procedural barrier.
The Administrative Procedure Act is a remedial statute designed to give citizens a fair opportunity to be heard before the official of the agency who is charged with passing on [his] case.
Agsalud, 65 Haw. at 259, 650 P.2d at 576. The ERS Board’s
conclusion that Petitioner’s Proposed Decision did not
constitute exceptions under HAR § 6-23-19 effectively creates a
heightened pleading requirement that is neither present in the
administrative rule, nor supported by the rule’s authorizing
statute. See Hawaiʻi Revised Statutes (HRS) § 91-11 (2012).8 As
this court has previously stated, agency proceedings are by
8 HRS § 91-11 (2012) is the authorizing statute for HAR § 6-23-19. HRS § 91-11 states:
Examination of evidence by agency. Whenever in a contested case the officials of the agency who are to render the final decision have not heard and examined all of the evidence, the decision, if adverse to a party to the proceeding other than the agency itself, shall not be made until a proposal for decision containing a statement of reasons and including determination of each issue of fact or law necessary to the proposed decision has been served upon the parties, and an opportunity has been afforded to each party adversely affected to file exceptions and present argument to the officials who are to render the decision, who shall personally consider the whole record or such portions thereof as may be cited by the parties.
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their nature “simple and non-technical hearings” in which
“informal proceedings supersede rigid and formal pleadings and
processes.” Cariaga v. Del Monte Corp., 65 Haw. 404, 409, 652
P.2d 1143, 1147 (1982) (internal citation omitted). The ERS
Board’s refusal to consider Watanabe’s filing as exceptions
because it was not labeled as such ignores the purpose of the
APA, which is “to give citizens a fair opportunity to be heard
before the official of the agency” who is deciding his case.
See Agsalud, 65 Haw. at 259, 650 P.2d at 576.
Third, this court has previously rejected an agency’s
refusal to consider exceptions based on the agency’s rigid
interpretation of its own rule. Agsalud, 65 Haw. at 258, 650
P.2d at 575. In Agsalud, the appellant filed general exceptions
within fifteen days after receipt of the agency’s recommended
decision because he was unable to have the record transcribed
with the fifteen-day period. Id. The hearing officer refused
to consider the appellant’s timely exceptions “because they [did]
not conform to [the rule]” and approved the agency’s preliminary
decision as final. Id. at 258, 650 P.2d at 575. This court
held that the agency’s refusal to consider the appellant’s
exceptions violated the APA. Id. at 259, 650 P.2d at 576.
“Appellant, having timely filed exceptions, was entitled to the
opportunity to present argument in written or oral form in
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support of its exceptions and to have those exceptions
considered on their merits based on the record.” Id.
Thus, the plain language of HAR § 6-23-19, the purpose
behind the APA, and this court’s prior precedent all support our
conclusion that Petitioner’s Proposed Decision constituted
exceptions and that the ERS Board was required to consider
Watanabe’s exceptions before rendering its final decision.
Because the ERS Board’s Final Decision erroneously determined
that Petitioner’s Proposed Decision did not conform to the rule,
the ERS Board refused to consider the merits of Watanabe’s
exceptions. Consequently, the ERS Board has not complied with
HRS § 91-119 because it has not considered Watanabe’s exceptions
and afforded him an opportunity to present argument on his
exceptions.
Here, the ICA erred by affirming the Circuit Court’s
Decision and Final Judgment affirming the ERS Board’s denial of
Watanabe’s application. Accordingly, we remand to the ERS Board
for a hearing on the merits of Watanabe’s exceptions.
IV. CONCLUSION
We hold that Watanabe’s Petitioner’s Proposed Decision
filing satisfies the standard for exceptions set forth in
HAR § 6-23-19(a). We vacate the ICA’s August 20, 2019 Judgment
9 See supra note 8 for the relevant text of HRS § 91-11.
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on Appeal which affirmed the circuit court’s April 5, 2016
(1) Decision and Order Affirming the Final Decision of the ERS
Board and Dismissing Appellant Watanabe’s Appeal; and (2) Final
Judgment. We remand to the ERS Board for further proceedings
consistent with this opinion.
Ted H.S. Hong /s/ Mark E. Recktenwald for petitioner /s/ Paula A. Nakayama Patricia Ohara, Clayton K.F. Zane and /s/ Sabrina S. McKenna Elmira K.L. Tsang For respondent /s/ Michael D. Wilson
/s/ Todd W. Eddins