In a second legal setback for the Office of Hawaiian Affairs in nine days, the Hawai'i Supreme Court yesterday affirmed the dismissal of a lawsuit that OHA had hoped would lead to recovering at least $150 million from the state related to revenues from lands once belonging to the Hawaiian kingdom.

The high court upheld a 2003 dismissal of OHA's lawsuit alleging the state should have done more to oppose a 1997 federal law that barred the state from giving OHA money from Ho-nolulu International Airport, a portion of which sits on those lands.

In addition, the court once again declared how much OHA should receive from the state rests with the state Legislature.

OHA attorney Robert Klein, a former associate Hawai'i Supreme Court justice, said on behalf of OHA beneficiaries, they are "very disappointed."

He said OHA should now work with the Legislature and the governor to reach a settlement on the ceded land payments. "The courts certainly aren't giving OHA any relief," he said.

State lawyers agreed the court made clear OHA should turn to lawmakers.

"We're happy with the outcome with the case and we very much appreciate the thoroughness of the decision," Deputy Attorney General Dorothy Sellers said. "OHA really has no option now, except to go to the Legislature."

Yesterday's 55-page decision follows the Aug. 31 ruling by the U.S. 9th Circuit Court of Appeals that reinstated part of a taxpayers' lawsuit challenging about $2.8 million a year in state tax money for OHA. The lawsuit alleged state payments to OHA violate the constitution because its programs benefit only residents of Hawaiian ancestry.

Although the appeals court reinstated only part of the lawsuit, OHA had wanted the appeals court to affirm the dismissal of the entire case.

Yesterday's ruling deals with the thorny issue involving the amount the state should pay OHA from the revenues from what's known as ceded lands, and also, who should make the ultimate decision — state lawmakers or the courts.

The state pays OHA about $9.5 million for ceded land revenues.

But the state and OHA have long disagreed over whether revenues related to — but not directly from — ceded lands should be part of the payments. These revenues, for example, include money from Honolulu International Airport's Duty Free Shoppers' auxiliary locations that are away from the airport and do not sit on ceded lands.

Former Circuit Judge Daniel Heely ruled the state was liable to OHA for a portion of those disputed revenues, but in 2001, the high court overturned Heely's decision and struck down a 1990 state law that established a formula that OHA should get 20 percent of the ceded land revenues.

The high court said the 1990 law conflicted with the 1997 federal law, the Forgiveness Act, which barred the state from giving airport money to OHA, but also "forgave" the state from recovering $28.2 million it had earlier paid to OHA.

OHA later filed a suit alleging the state breached its fiduciary duty to OHA by not opposing the Forgiveness Act. Circuit Judge Gary Chang threw out the lawsuit in 2003.

The high court yesterday affirmed Chang's dismissal.

OHA attorneys had argued that if the state had challenged the Federal Aviation Administration memo that led to the law, the Forgiveness Act would not have passed. In addition, they contended if the state had notified OHA that the state would not be challenging the memo, OHA could have opposed the memo and prevented the legislation's passage.

"We believe that such allegations are mere speculation, and, more importantly, it would be impossible for (OHA) to prove whether the state's actions or inactions led to Congress' passage of the Act," the court said in the opinion written by Chief Justice Ronald Moon.

Attorney General Mark Bennett earlier estimated that OHA might have received hundreds of millions of dollars if it ultimately prevailed. Klein yesterday estimated it would have been at least $150 million to $300 million.

Reach Ken Kobayashi at kkobayashi@honoluluadvertiser.com.