HILO, Hawai'i — The state Supreme Court yesterday sent the lawsuit over the stalled Hokuli'a luxury home development back to the Kona judge who stopped the project, setting the stage for a possible settlement of the case.

In an order filed yesterday afternoon, the Supreme Court ordered the developer and the opponents of the project to file a request with Judge Ronald Ibarra within one month that he vacate or modify his judgment as part of a proposed settlement.

Ibarra, the judge who halted the controversial project 30 months ago, already has signaled that he is "inclined" to modify his original ruling to allow a settlement that would restart the project and allow work to resume on the Mamalahoa Highway bypass road.

Public frustration at clogged Kona roads spurred state lawmakers this year to advance a bill essentially to reverse Ibarra's 2003 ruling that stopped construction on both the Hokuli'a subdivision and the bypass road.

The bill, which would declare the Hokuli'a project and others like it to be legal, was approved by House lawmakers yesterday. The measure now goes to the state Senate for consideration.

Participants in the Hokuli'a lawsuit acknowledge the bill advanced by state lawmakers helped speed settlement negotiations.

Critics of Hokuli'a, including the Protect Keopuka 'Ohana, sued in 2000 to stop the project, alleging among other things that developer 1250 Oceanside Partners violated state law governing the use of agricultural lands.

Ibarra ordered construction halted on the 1,550-acre project in 2003 after ruling that Hokuli'a actually was an urban-type development being illegally built on agricultural lands.

He ruled that the developer should have asked the state Land Use Commission to reclassify the land for urban development before work began, and ordered that all work stop until the Land Use Commission either reclassifies the land or declares Hokuli'a a legal use of agricultural lands.

A motion was filed with the state Supreme Court last week asking the justices to send the Hokuli'a case back to Ibarra to allow the judge an opportunity to vacate most of his 2003 judgement as part of a settlement.

Ibarra indicated in a filing at the Supreme Court on Friday that he is inclined to grant a motion to partially vacate his judgment with the exception of a pending appeal over county and state handling of runoff from the project that Ibarra ruled affected coastal water quality.

People close to the settlement talks declined to discuss them for fear of undermining the negotiations, but have said the tentative agreement is similar to an offer made last year by the developer that included a pledge to build up to 168 affordable homes.

The developer also offered to contribute $2 million over five years to a nonprofit community benefit foundation.

The 2005 settlement offer by 1250 Oceanside Partners also included a proposal to build a connector road that would allow Kona commuters to use a nearly completed portion of the Mamalahoa Bypass highway to ease some of the area's traffic congestion.

The developer was required to build the two-lane, 5.5-mile bypass highway between Napo'opo'o and Keauhou as a condition of rezoning for Hokuli'a. A portion of that roadway from Keauhou to Haleki'i Street is almost finished, but never opened for public use.

With a settlement in the Hokuli'a case apparently close, some residents hope work will quickly resume on the bypass road to ease traffic congestion in the area. However, there may be further delays because of a six-year legal dispute over county efforts to condemn property.

However, observers warned that the tentative settlement would not translate into immediate relief for motorists stuck in Kona's traffic because the bypass highway cannot be finished until an unrelated lawsuit is resolved.

County officials on the Big Island have been trying for years to condemn 2.9 acres needed for the road, first filing to condemn the property in 2000, and then filing a second suit in 2005 after the first suit failed.

Reach Kevin Dayton at kdayton@honoluluadvertiser.com.