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Judge’s ruling shuts down vacation rental in Paia

Unpermitted Nalu Kai Lodge had $2.7M in fines, penalties

A wooden gate marks the entrance to Nalu Kai Lodge at 115 Hana Highway in Paia town. Second Circuit Judge Peter Cahill ruled Friday that the 12-room lodge must stop operating as a transient vacation rental without a permit.

WAILUKU — Saying it was unfair to allow a transient vacation rental to continue to operate without a permit, 2nd Circuit Judge Peter Cahill ordered that Nalu Kai Lodge stop its current operations in Paia town.

In issuing the ruling Friday in the case brought by Maui County against Rick Markham and North Shore Maui LLC, Cahill said an interim order would be filed no later than today and take effect when signed by the court.

The order would prohibit Markham and North Shore Maui from advertising and operating a transient vacation rental at the property, Cahill said.

“There are people in the Paia community who are operating legally,” Cahill said. “They have a right to compete against those people who have permits or are validly grandfathered in. In the absence, they’re competing against someone who is not playing by the rules. It is unfair.”

Cahill said the ruling wouldn’t prohibit Markham from using the property as a rental, as long as it wasn’t being used as a transient vacation rental, which the county defines as rentals for periods of less than 180 days.

This photo shows Nalu Kai Lodge operating in the early 1970s

“He can use his property to the full extent of the law,” Cahill said. “He’s being deprived of the use of his property the way he wants to use it, but not deprived of the use.”

Markham maintains he didn’t need a permit to operate the 12-room rental property at 115 Hana Highway because it had been used for short-term rentals since the 1960s and was “grandfathered in.”

“The proof is in black and white in the county’s own documents,” attorney Terry Revere, representing Markham and North Shore Maui, said Tuesday. “Nalu Kai Lodge has been operating in the business district of Paia for nearly 60 years without complaints, providing low-cost accommodations to both local visitors from Neighbor Islands and from all over the world.”

Referring to Markham’s donations to nonprofits, Revere said, “Many Maui charities and businesses have thrived due to the Lodge.

“Now the county has decided to put them out of business because the Lodge cannot afford to pay the county off to be left alone in peace,” he said. “This is another huge black eye for Maui’s anti-business reputation.”

He said Nalu Kai is reserving its right to appeal.

A declaration filed in court by Jay Arakawa, a supervising zoning inspector for the county Planning Department, said his research hadn’t found anything suggesting the Planning Department determined Nalu Kai Lodge was grandfathered in.

Cahill said he didn’t have authority to determine whether the Lodge was grandfathered in, in connection with the case. “This case was about fines for continuing violations and injunctive relief,” Cahill said.

The county previously was granted a judgment of more than $2.7 million in fines and penalties against Markham in the case.

Judge Cahill’s ruling granting the county’s request for an injunction prohibiting continued operation followed a nonjury trial that began Dec. 16.

County zoning inspector Gail Davis testified that in 2014, she investigated a complaint asking the Planning Department to review whether Nalu Kai Lodge was violating department rules and regulations.

After Markham was issued a warning in December 2014 that the business was in violation because it was operating without a permit, Davis allowed Markham to provide documentation so she could determine whether the operation was grandfathered based on its prior use as a boarding house or hotel going back to the 1960s, Cahill said.

He said the violation warning informed Markham that if he did not respond or apply for the proper permit, the county would proceed with other action.

In his written closing argument, Deputy Corporation Counsel Brian Bilberry said evidence showed the defendants “were given ample opportunity to correct the violations, or demonstrate zoning compliance in response to both the warning, and in response to two separate subsequent notices of violation.”

“The evidence at trial demonstrated that defendants were unable, largely unresponsive, and failed to prove compliance with zoning,” Bilberry said.

In addition to giving Markham the notices detailing violations and ordering that operations cease, Cahill said the county “provided an avenue for relief, an avenue for remedy” by appealing to the county Board of Variances and Appeals.

“Instead, he proceeded down a path where he gathered evidence that he believes supports his argument that his operation is grandfathered in,” Cahill said.

He said he didn’t find credible the testimony by defense witness Ronald Sandate, a former county planning inspector who met Markham in 1997 and now lives in Los Angeles.

“In part, his testimony was it was grandfathered in because he remembered it being used as a hotel,” Cahill said. “He concluded it was a preexisting nonconforming use and that no permit was required.”

Sandate said he was approached by Markham in the 2000s during the administration of Mayor Charmaine Tavares because Markham was concerned that the administration was targeting people operating transient vacation rentals without permits.

“Sandate said he spoke with his superior, who spoke with his superior, then-Planning Director Jeff Hunt, and they determined that this was grandfathered in and Mr. Markham went on his merry way,” Cahill said.

“I won’t say he made it up,” Cahill said, referring to Sandate’s testimony. But the judge said there wasn’t testimony from Hunt or written confirmation that the use was grandfathered in.

Cahill said the public interest supports granting the injunction requested by the county.

“Mr. Markham has exhibited a pattern which really goes to the issue of irreparable harm,” Cahill said. “The irreparable harm here is the people of the County of Maui having a right to have their laws enforced.

“There’s a disrespect for the law that is irreparable harm and damage to all of us, not only to the plaintiff County of Maui but those of us who live here. He chose not to go through the process that would have allowed him to have a definitive ruling. He decided to circumvent the rules. He decided to allow the county to bring this enforcement action.

“The county not only had a right, it had a duty to follow through. It cannot allow something it believes to be wrong to continue, and that’s what was happening.”

While Markham “portrayed himself as someone who is unsophisticated,” Cahill said he found Markham to be an entrepreneur and “a very shrewd and sophisticated businessman” who owns 10 properties on Maui.

Cahill denied Markham’s request to delay the order until the Board of Variances and Appeals rules on Markham’s appeal, which he filed at the end of the trial.

In court Friday, Revere asked if Markham would have to remove any guests staying at Nalu Kai Lodge today.

“They need to leave,” Cahill said. “You better go tell those folks, ‘You know what, I’ll pay for you to stay somewhere else.’ ”

Revere noted that Paia Inn and The Inn at Mama’s Fish House were nearby.

“There’s also Four Seasons, Grand Wailea and Kea Lani, too,” Cahill said. “They’re pretty nice places.”

* Lila Fujimoto can be reached at lfujimoto@mauinews.com.