Update: Judge grants temporary order keeping status quo at Kahaluʻu Bay for surf schools
Editor’s note: This story was updated with judge’s ruling at Thursday hearing.
At a hearing Thursday in Kona 3rd Circuit Court, Judge Robert. D.S. Kim ruled in favor of three Kona-based surf schools that were asking for the Hawaiʻi Department of Land and Natural Resources to not issue four companies conditional-use permits for surf schools at Kahalu‘u Bay.
The four Limited Liability Companies, three owned by the same person, were selected during a public lottery of 17 companies on Nov. 17. According to the court document, the “flawed lottery permitting system” effectively created a monopoly for surf instruction.
The judge granted the plaintiff’s application for a temporary restraining order, and set a new hearing for Jan. 12.
The permits were slated to go into effect on Dec. 4, making it illegal for the surf companies that did not get chosen during the lottery to operate at the popular surf area for beginners. Now, as the busy tourism season starts, it will be business as usual until the new court hearing.
The surf companies argued that it was unfair that Wesley Moore, who owns Kauakea LLC, Hinaea Iliahi LLC and Kona Town Adventures LLC, received three of the coveted permits but only has one school.
Of the 17 companies in the lottery, Moore owned seven of them — with six of the companies first registered with the state in 2021 or later. Despite repeated requests, Moore declined to comment.
Kahulu‘u Bay Surf & Sea Inc. won the fourth permit.
According to the plaintiffs — Kona Mike’s Surf Adventures LLC, Surf Lessons Hawai’i LLC (doing business as Hawai’i Lifeguard Surf Instructors), Kona Adventure Division Inc. and Tifani Stegehuis — if the court didn’t intervene, it would result in loss of business, and livelihoods, and likely the shuttering of their schools.
“It’s the little guy going and fighting for their business,” said Eric Demarcus, owner of Kona Mike’s Surf Adventures. “We have to grab our pitchforks and storm the castle.”
Demarcus and Stegehuis, owner of Hawai‘i Lifeguard Surf Instructors, say they had never heard of Kauakea LLC or Hinaea Iliahi LLC until the lottery. And Stegehuis has been running her school in that location for more than 20 years.
“We knew upfront there was the possibility a single firm, with distinct individual companies established under state statutes, could be awarded all four permits,” said Meghan Statts, assistant administrator for the state Division of Boating and Ocean Recreation a couple days after the lottery was held in Kona. “Seventeen surf companies entered the lottery, and three permits did go to three distinct companies that happen to be owned by the same individual.
“Under the current rules and laws, as long as the companies were legally established there is nothing we can do to avoid what seems unfair, especially to surf schools that were not selected during the lottery.”
In the state’s filing in opposition to the temporary restraining order, it said: “This is not a scenario in which previously lawful commercial operators have had the proverbial rug pulled from beneath their feet. As discussed, the Plaintiffs have never been issued permits for commercial surf school instruction in Kahalu‘u Bay waters by the DLNR. Rather, the Plaintiffs have apparently engaged in unsanctioned commercial surf instruction in Kahalu‘u Bay, in violation of HAR § 13-256-152.”
However, the state boating division said before the ruling it plans to introduce legislation again in 2024 to try to address the issue of companies receiving permits that don’t have a school.
“We realize that we could not please everyone, but we also realized we had to do something,” Statts said. “We deemed the lottery as the fairest way to issue permits under the current rules and we did so after consultation with the Department of the Attorney General. These are one-year permits, so we encourage anyone who supports a rule change to contact their legislators.”
While these permits are conditional, the implementation of the permits comes at the start of a busy tourism month. Those caught operating their business without a permit could face fines.
“December is a crucial month for revenue,” Stegehuis said. “Not being allowed to operate our schools it’s detrimental for our survival. It’s not like we can hop to another bay.”
For more than five years, the state worked to address the overcrowding at Kahalu‘u with unpermitted commercial surf instruction companies, many of whom suit up their guests out of the back of a van or truck off the shoulder of busy Ali‘i Drive.
Kahalu‘u Bay has long been one of Hawai‘i Island’s premier surf spots due to its ease of access to the water, its favorable wind and swell conditions, and its natural beauty. It is these factors that have made it a central hub for surf schools as well as the community.
“There are practically no alternative beginner-friendly surf breaks on the Island of Hawai‘i to which Plaintiffs can take their students without risking their safety,” the court filing states.
Public testimony was held in 2021 regarding the best way to operate the surf schools in the area. At that time, the state Board of Land and Natural Resources created eight permits where companies would operate in shifts: four in the morning and four in the afternoon.
That rule was amended in 2022 to implement four surf instruction school permits without shifts. Ultimately, the state decided the fairest way to award those permits was through a lottery.
Stegehuis said with no appeals process within the Department of Land and Natural Resources, they had no choice but to seek legal action.
Demarcus said the fact that one person is attached to multiple LLCs is an unfair loophole. Kona Mike’s was founded in 2007. Demarcus was a surf instructor for the school and took over the business’ ownership in 2019.
If the injunction is not granted, Demarcus plans to continue to run his school until he is forced to stop on Dec. 4, which will ultimately force the closure of his business.
“I never knew such a loss other than death,” Demarcus said. “It sounds dramatic. I don’t think everyone understands what it feels like and how scared we are.”
If unable to operate, Demarcus said his three full-time employees who will have to find another way to pay rent.
For Demarcus, the school has been the primary source of income for himself and his family up until the past month when his wife picked up a new job.
Demarcus trusts that the system will fix itself, but not without a fight. While technically the lottery entries were legal, he said, he believes the state knows the outcome was unfair.
All companies that participated in the lottery had to meet the following requirements:
- General Excise Tax License
- Certificate of Compliance from Hawai‘i Department of Taxation
- Certificate of Good Standing from Hawai‘i Department of Commerce and Consumer Affairs
- Articles of Incorporation/Articles of Organization, if applicable
- Commercial general liability insurance policy from an insurance company licensed in Hawai‘i with sufficient coverage limits & “State of Hawai‘i” named as additional insured, per HAR Section 13-231-65; or confirmation of intent to obtain insurance from an insurance company licensed in Hawai‘i.
- Documentation proving at least five years of experience in providing surfing instruction.
According to the state, the staff checked all the required documents to ensure they met the qualifications, but no visits to the actual schools were made.
On the last requirement, Stegehuis said the language is vague as it appears the department allows an individual attached to the LLC, not the company itself, to have five years of experience.
Those schools that did not get a permit were put on a waitlist in the event one of the successful winners relinquishes their permit or fails to file additional permit paperwork before Dec. 4.
While the injunction temporarily stops the enforcement of the permits, Demarcus said the state has to go back and rewrite the law.
In 2022, the division sought to have the State Legislature amend the law. The division wanted to issue permits to companies with the longest standing and in order of seniority.
House Bill 1090 was adopted in 2023, but the measure was vetoed by Gov. Josh Green.