In re Arbitration of Nordic PCL Construction, Inc. v. LIPHGC, LLC. ( 2015 )

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Electronically Filed
Supreme Court
SCWC-11-0000350
23-JUL-2015
10:23 AM
IN THE SUPREME COURT OF THE STATE OF HAWAI#I
---oOo---
In the Matter of the Arbitration
of
NORDIC PCL CONSTRUCTION, INC., fka NORDIC CONSTRUCTION, LTD.,
Respondent/Claimant/Counterclaim Respondent-Appellant,
vs.
LPIHGC, LLC,
Petitioner/Respondent/Counterclaimant-Appellee.
SCWC-11-0000350
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-11-0000350; S.P. NO. 10-1-0346)
JULY 23, 2015
NAKAYAMA, ACTING C.J., McKENNA, AND POLLACK, JJ.,
CIRCUIT JUDGE ALM, IN PLACE OF RECKTENWALD, C.J., RECUSED, AND
CIRCUIT JUDGE SAKAMOTO, IN PLACE OF WILSON, J., RECUSED
OPINION OF THE COURT BY McKENNA, J.
I. Introduction
Petitioner/Counterclaimant-Appellee LPIHGC, LLC (“LPIHGC”)
seeks review of the April 4, 2014 Judgment on Appeal of the
Intermediate Court of Appeals (“ICA”), entered pursuant to its
February 14, 2014 Memorandum Opinion, which vacated and remanded
the March 24, 2011 Final Judgment (“judgment”) of the Circuit
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Court of the First Circuit (“circuit court”) in favor of LPIHGC
and against Respondent/Claimant-Appellee Nordic PCL Construction,
Inc. fka Nordic Construction Ltd. (“Nordic”).
The circuit court’s judgment was based on its grant of
LPIHGC’s motion to confirm, and denial of Nordic’s motion to
vacate, the Partial Final Award of Arbitrator dated October 15,
2010 (“the Partial Award”) and the Final Award of Arbitrator
dated December 15, 2010 (“the Final Award”) (the Partial Award
and the Final Award are sometimes collectively referred to as
“the Arbitration Award”). The Arbitration Award was issued by
the arbitrator selected by the parties, retired circuit court
judge Patrick K.S.L. Yim (“the Arbitrator”). On appeal, the ICA
ruled that the Arbitrator’s failure to disclose various
relationships with the law firms of LPIHGC’s attorneys
established a reasonable impression of partiality requiring
vacatur of the Arbitration Award.
The “evident partiality” bases for vacatur alleged by Nordic
present various questions of disputed material facts. The
circuit court denied Nordic’s motion without orally stating its
reasoning on the record or entering any findings of fact and
conclusions of law. As this court ruled in Clawson v. Habilitat,
Inc., 71 Haw. 76, 783 P.2d 1230 (1989), “whenever material facts
are in dispute in determining whether an arbitration award should
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be vacated, the circuit court should conduct an evidentiary
hearing and render findings of fact and conclusions of law in
support of granting or denying [a] motion to vacate [an]
arbitration award.” 71 Haw. at 79, 783 P.2d at 1232.
In this case, although neither party requested an
evidentiary hearing to address disputed issues of material fact,
because the circuit court did not explain the basis of its
rulings on the record or enter findings of fact or conclusions of
law, this court is unable determine whether the circuit court
erred in denying Nordic’s motion to vacate. Specifically, with
respect to the “evident partiality” bases of Nordic’s motion, it
is unclear whether the circuit court found no violation of the
Arbitrator’s duties of reasonable inquiry, disclosure, or
continuing duty to disclose; found that despite a violation, the
objection was not timely or had been waived; or found that
despite a showing of evident partiality and timely objection
without waiver, it exercised its discretion not to vacate the
award. Thus, the factual and/or legal bases upon which the
circuit court denied the motion to vacate are unascertainable.
Because we are unable to determine the grounds on which the
circuit court based its decision, we are unable to appropriately
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review its ruling.1
Accordingly, we vacate the ICA’s April 4, 2014 Judgment on
Appeal and remand this case to the circuit court for an
evidentiary hearing and entry of findings of fact and conclusions
of law on Nordic’s motion to vacate.2
II. Background
A. Facts
This case arises from a dispute over the adequacy of
concrete work Nordic performed on a Maui condominium construction
project3 as a subcontractor to LPIHGC. The owner of the project,
Maui Beach Resort Limited Partnership (“Owner”),4 incorporated
LPIHGC to be its general contractor and executed a prime contract
between them. Thereafter, LPIHGC and Nordic executed a written
subcontract, which provided for a contract price of $39,2689,396
(as amended) to perform the concrete work for the project. The
1 At oral argument, counsel for both parties encouraged this court
to rule without a remand. Even if it was appropriate for this court to render
findings of fact, which it is not, the record presents too many unaddressed
disputed material issues of fact, as discussed below.
2 Neither the circuit court nor the ICA addressed whether there are
disputed material issues of fact regarding the other bases on which Nordic
moved to vacate the Arbitration Award, which are briefly discussed in this
opinion. If there are, the circuit court must also address those issues.
3 The project is the Honua Kai South Enclave in Lâhainâ, Maui.
4 The Owner “consist[ed] of a consortium of different entities
including JP Morgan, Intrawest Placemaking and Ledcor Properties, Inc., a
Canadian real estate subsidiary of the Ledcor group of companies.” The Owner
also hired Ledcor Construction Inc. (“Ledcor”) to be the project construction
manager.
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parties subsequently disputed whether Nordic’s concrete work was
adequately flat and level, and LPIHGC made only partial payment
to Nordic under the subcontract.
The subcontract contained a binding arbitration clause,
which provided for the arbitration to be governed by Hawai#i
Revised Statutes (“HRS”) chapter 658A (Supp. 2010) and conducted
by Dispute Prevention & Resolution, Inc. (“DPR”). In addition,
it provided for the arbitration to be conducted “by a single
arbitrator, who shall either be a former judge with substantial
experience in residential real estate litigation matters or a
licensed attorney with at least ten (10) years experience in
residential real estate transactions and/or litigation involving
residential real estate.”
In the arbitration hearings, Nordic was represented by
attorneys Anna H. Oshiro (“Oshiro”), Mark M. Murakami, and Noelle
B. Catalan of Damon Key Leong Kupchak Hastert (“Damon Key”).
Although he did not appear at the hearings, the name of attorney
Kenneth R. Kupchak (“Kupchak”) of Damon Key also began appearing
on Damon Key’s correspondence and pleadings after the issuance of
the Arbitrator’s October 15, 2010 Partial Award. LPIHGC was
represented by Terence J. O’Toole “O’Toole”) and Judith Ann Pavey
(“Pavey”) of Starn O’Toole Marcus & Fisher (“Starn O’Toole”) and
John P. Manaut (“Manaut”) of Carlsmith Ball LLP (“Carlsmith
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Ball”).
B. Arbitration
1. Initial Disclosures and Arbitration Proceeding
After his selection by the parties, on March 17, 2009, the
Arbitrator, through DPR, provided the following disclosures by
email:
[The Arbitrator] is willing and able to serve as Arbitrator
in this matter and thanks the parties for his selection.
[The Arbitrator] provides the following disclosures for your
review:
1. While serving on the bench, counsel and members of
their law firms appeared before me;
2. Since retirement, I have served as a neutral for
counsel and members of their law firms;
3. To the best of my knowledge, I do not know anyone
involved with LPIHGC, LLC;
4. I served as a neutral in a matter where Nordic was a
party. That matter was concluded at least five years
ago;
5. I will provide additional disclosures as necessary
throughout this proceeding;
6. These disclosure will not prevent me from serving as a
neutral and unbiased Arbitrator.
Any comments regarding this disclosure should be filed in
writing with DPR by March 20, 2009.
On October 7, 2009, the Arbitrator, through DPR, provided an
additional disclosure pertaining to the inclusion of an
individual on the expert witness lists submitted by the parties
who had appeared before the Arbitrator on matters completed prior
to the arbitration proceeding.5 The parties did not respond to
5 The October 7, 2009 disclosure provided:
[The Arbitrator] has reviewed the Expert Witness Lists
submitted by the parties and provides the following
supplemental disclosure:
(continued...)
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the Arbitrator regarding either disclosure.
Arbitration hearings were held intermittently on thirty-one
days from January 25, 2010 to April 29, 2010. In general, the
parties contested which of two concrete flatness and levelness
standards6 applied to Nordic’s work and whether Nordic had proven
its satisfaction of the applicable standard by providing
quantitatively sufficient F-meter data to establish its
statistical validity.7
On October 15, 2010, the Arbitrator issued the Partial
Award, ruling in favor of LPIHGC for $9,804,108.27.
2. Post-Award Demand Letters and Supplemental
Disclosures
Two weeks after the Partial Award was issued, Damon Key sent
a letter to DPR dated October 29, 2010 requesting
updated disclosure details . . . including, but not limited
to, any and all arbitration or mediation matters involving
5(...continued)
1. Richard Kozuma has appeared before me in prior
matters. To the best of my knowledge, I do not have
any matters with him at this time.
2. This disclosure will not prevent me from serving as a
neutral and unbiased Arbitrator.
Any comments regarding this disclosure should be filed in
writing with DPR by October 12, 2009.
6 Nordic argued that the applicable standard was floor flatness (FF)
18 and floor levelness (FL) 15, while LPIHGC argued that it was FF 30 and FL
20.
7 The F-Meter is a floor profiling instrument that is manually
pulled across the floor to get an F-Number measurement on the finished floor
flatness and levelness. F-Meter: Rolling Floor Profiler, ALLEN FACE,
http://www.allenface.com/F-Meter.html (last visited April 27, 2015).
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attorneys from the law firms of either [Carlsmith Ball] or
[Starn O’Toole] . . . which [the Arbitrator] has presided
over since January 1, 2009 . . . as well as any matter for
which [the Arbitrator] is currently being considered or has
been contacted to serve as a potential arbitrator or
mediator.
Four days later, Oshiro and Kupchak of Damon Key sent another
letter to DPR, demanding the Arbitrator’s immediate
disqualification on the basis of Carlsmith Ball’s alleged
representation of the Arbitrator and his nondisclosure of that
representation. The letter asserted that:
It has just come to our attention that [the Arbitrator] has
had an undisclosed, long standing professional relationship
with opposing counsel . . . . We have reason to understand
that [the Arbitrator] was represented by Carlsmith Ball,
including an attorney working on this case, on at least
seven separate occasions over the last ten years. One of
these cases was a matter that was ongoing . . . during the
term of the parties’ recent arbitration proceedings.
This allegation related to Carlsmith Ball’s representation of the
QLT on unrelated real estate and lease matters on the island of
Hawai#i. The Arbitrator has served as one of three trustees of
the QLT since 2002, and along with the other two trustees, the
Arbitrator’s name appears as trustee on lawsuits involving the
QLT.
On November 4, 2010, Manaut of Carlsmith Ball sent a letter
to DPR that characterized Nordic’s request for updated disclosure
details as “an improper fishing expedition[,]” and asserted that
Nordic “never once raised an issue or questioned anything about
the sufficiency of any disclosures” prior to the issuance of the
Partial Award. Damon Key sent a responsive letter to DPR on the
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same day, stating neither the Arbitrator nor Manaut had disclosed
seven cases in which Carlsmith Ball allegedly represented the
Arbitrator, and demanding the Arbitrator’s immediate
disqualification.
On November 9, 2010, Pavey of Starn O’Toole sent a letter to
DPR challenging Nordic counsel’s demand for disqualification. On
the same day, Pavey also sent a letter to Oshiro requesting
information on the timing and circumstances surrounding discovery
of the facts underlying Nordic’s claim for disqualification.
On November 11, 2010, the Arbitrator provided a post-award
supplemental disclosure that detailed his professional and
volunteer activities:
As previously disclosed, I have served as a mediator and an
arbitrator in matters in which parties therein were
represented by the firms appearing in this arbitration.
Though I cannot recall any matter involving [Owner] or
LPIHGC, LLC, I do recall serving as an arbitrator in a
matter in which I determined that Nordic was the prevailing
party.
Further, at the time when I was informed that I was selected
as an arbitrator in this matter, I was serving as a neutral
in cases in which the Damon Key firm, Carlsmith Ball, and
the Starn O’Toole firm represented certain parties therein.
During the year and a half course of this arbitration, I
served in an additional matter in which Lane Hornfeck of the
Starn O’Toole firm represented a party. Sometime during this
period, Robert Triantos of Carlsmith Ball entered an
appearance on behalf of an additional party in an
arbitration which commenced in 2008. I also, during this
period, served as a mediator in a matter in which Carlsmith
Ball was a party.
As one of the three Trustees for the [QLT], I hereby
disclose that the following are lawyers and law firms
retained by the Trust since 2002, when I commenced to serve
as a Trustee. The list is as follows: Ashford & Wriston,
Cades Schutte Fleming & Wright, Case Bigelow & Lombardi,
Carlsmith Ball, Dean Nagamine, Glenn Kimura, John J. Baker,
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Lloyd Van De Car, Patricia Brady, Imanaka Kudo & Fujimoto,
Leighton Wong, Lori M. Ohinata, Suemori & Aipa, Pitluck Kido
Stone & Aipa, Watanabe Ing Kawashima & Komeiji, Wesley K.C.
Lau, Robert F. Miller, Susan Ichinose, Dwyer Schraff Meyer
et al., Jewell & Krueger, Matsubara Lee & Kotake, Rinesmith
& Sekeguchi [sic], Torkildson, Katz Fonseca, Godbey
Griffiths Reiss Chong, Moseley Biehl Tsugawa et al.,
Patricia Brady, Tsukazaki Yeh & Moore, O'Conner Playdon &
Guben, Paul Johnson Park & Niles, and Raymond Zeason. As a
Trustee, I have no personal role in the selection or
appointment of attorneys that perform legal services for the
[QLT].
As one of the three trustees for the [A] Trusts, I represent
that the [A] Trusts have retained legal services from the
firm of [B], and attorneys [D], and [E].
I also disclose that I believe Mr. Michael Walsh, Vice
President of the [QLT’s] Endowment Group, is []Kupchak’s
brother-in-law.
As a member of [F]’s Board of [G], I have been informed and
been permitted to disclose that our institution, at various
times in the past, has retained the legal services of [I],
[J], and [K].
As a member of the Board of [L] and [M], . . ., I have
recently been informed that [N] have been referred to the
following attorneys for services: [O], [P], [Q], [R], and
[S].
I have been informed by management of the [QLT] that in
recent matters, members of Carlsmith Ball and the Bays
Deaver firm have represented parties who have opposed the
interests of the [QLT].
. . . .
On November 15, 2010, Damon Key sent a letter to DPR to
request further clarification on the matters listed in the
supplemental disclosure.
On November 18, 2010, Pavey, O’Toole, and Manaut sent a
letter to DPR opposing Nordic’s disqualification demand and
objecting to a stay of the arbitration, alleging that the “demand
for disqualification is insufficient on its face because [Nordic]
failed to even allege, let alone prove, evident partiality on the
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part of [the Arbitrator]” and the Arbitrator had no conflict
based upon Carlsmith Ball’s representation of the QLT. Appended
to the letter were declarations of Manaut and Edmund W.K.
Haitsuka, the Carlsmith Ball attorney handling the Kona land
matters for the QLT.
Haitsuka declared that he had not had any ex parte
communications with the Arbitrator about any matter prior to,
during, or after the arbitration. He also stated that Carlsmith
Ball had not represented the Arbitrator in his individual
capacity, and that he had never communicated with the Arbitrator
on any trustee issues or anything related to the arbitration, and
that he had only spoken to the QLT’s executive officers and
managers. Manaut declared that he had never had any
communication with the Arbitrator concerning the QLT, ex parte or
otherwise, and that he was not aware that the Arbitrator was a
QLT trustee who Carlsmith Ball represented on land matters in
Kona in his representative capacity.
By email dated November 18, 2010, DPR further disclosed that
the Arbitrator:
served as a Mediator in a case where the Damon Key firm
represented a party. Counsel for Damon Key was Mark
Murakami, Esq. Counsel for the parties mutually selected
[the Arbitrator] in 2008, the mediation was held in
February, 2009. DPR charged its standard hourly rate of
$350/hour. This matter was included in the [initial]
disclosure since the final invoice was issued to counsel on
March 17,2009.
. . . served as an Arbitrator in a case where John Sopuch,
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Esq. of the Starn O’Toole firm represented a party. Counsel
for the parties mutually selected [the Arbitrator] in 2008.
The Award was issued in February, 2009, and the final
invoice was issued on March 13, 2009. DPR charged its
standard hourly rate of $350/hour.
. . . served as a Mediator in a matter where Lane Hornfeck
of the Starn O’Toole firm represented a party. Counsel for
the parties mutually selected [the Arbitrator] in June 2009,
and the matter closed in August 2009. DPR charged its
standard hourly rate of $350/hour.
. . . served as a Mediator in a matter where Carlsmith Ball
was a party. Counsel for the parties mutually selected [the
Arbitrator] as Mediator in January 2009. The initial
mediation session was held on March 6, 2009, and the matter
closed in October, 2009. DPR charged its standard hourly
rate of $350/hour.
. . . is serving as an Arbitrator in a case where Robert
Triantos, Esq. at Carlsmith [Ball] represented a party for a
portion of the arbitration proceeding. The case was opened
with DPR in 2008 and counsel participating at that time
mutually selected [the Arbitrator] as Arbitrator. In July
2009, Mr. Triantos’ client was brought into the case via
Court Order, Mr. Triantos’ client settled out of the case in
July, 2010 ([the Arbitrator] was not involved in the
settlement discussions), DPR is charging its standard hourly
rate of $350/hour.
On December 1, 2010, DPR declined to grant Nordic’s request
to disqualify the Arbitrator on the grounds it no longer had
jurisdiction once the substantive claims were resolved. On the
same day, the QLT sent a letter to DPR providing the following
information regarding Carlsmith Ball’s representation of the QLT
since March 2009:
1. That Carlsmith [Ball] has and continues to
represent the Trust from time to time on land management and
commercial leasehold collection and summary possession
matters, including commercial leaseholds in the Kona
Industrial Subdivision, Kuakini Center, and the Kona Commons
projects of the Trust;
2. That Carlsmith [Ball] does not represent any single
member of the Board;
3. That the selection and retention of law firms,
including Carlsmith[ Ball], is customarily done at the
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operation levels within the Trust and not by the Board; and
4. That day-to-day communications between law firms,
review of legal work, and review and payment of law firm
invoices are handled at the operational levels of the Trust
and not by the Board.
Thereafter, on December 15, 2010, the Arbitrator issued the
Final Award, which awarded LPIHGC attorneys’ fees of
$1,317,804.33 and costs of $121,997.94 for a total of
$1,439,802.27.
C. Circuit Court Proceedings
1. The Motions to Confirm and to Vacate the
Arbitration Award
a. LPIHGC’s Motion to Confirm Award
On November 22, 2010, LPIHGC filed a motion to confirm the
Partial Award (“motion to confirm”), which was supplemented on
December 16, 2010 to include the Final Award. In its motion to
confirm and reply to Nordic’s opposition to said motion, LPIHGC
argued that Nordic failed to allege an undisclosed relationship
because there was none, and failed to meet its burden of proving
evident partiality. In addition, LPIHGC alleged that Nordic
waived or is estopped from overturning the Arbitration Award
because it “knew or should have known of the potential partiality
of an arbitrator but failed to raise an objection . . . prior to
the arbitration decision”, to the extent that (1) Carlsmith
Ball’s representation of the QLT as well as the Arbitrator’s
status as trustee were public knowledge; and (2) Nordic’s counsel
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had actual knowledge of the Arbitrator’s trusteeship and chose
not to further inquire after the initial, general disclosure.
Lastly, LPIHGC contended that the undisputed evidence against
Nordic was overwhelming as the specifications for Nordic’s work
never changed, and various follow-on tradesmen, independent
inspectors, and the project structural engineer and architect
testified at the arbitration that Nordic’s work was substandard.
b. Nordic’s Motion to Vacate Award
On December 21, 2010 Nordic filed a motion to vacate award
of arbitrator (“motion to vacate”) on the grounds that (1) the
Arbitrator acted with evident partiality by failing to disclose
his relationship with Carlsmith Ball and of his receipt of
payment for neutral services provided to Carlsmith Ball and Starn
O’Toole during the pendency of the arbitration; (2) the award was
“procured by corruption, fraud and other undue means” and
violates “public policy against the destruction and suppression
of evidence”;8 and (3) the award exceeds the arbitrator’s
8 As to the claims of fraud and spoliation of evidence, Nordic
argued that the award warranted vacatur under HRS § 658A-23(a)(1) (Supp. 2010)
because it was “procured by lies about crucial evidence [LPIHGC] suppressed or
destroyed.” Nordic alleged that (1) the Arbitrator refused to hear Nordic’s
spoliation motion regarding LPIHGC’s loss of F-meter data and concealment of
an expert report procured early in the project that indicated that Nordic’s
data may be qualitatively deficient; (2) the Arbitrator refused to recognize
Nordic’s F-meter test results, which he said were based on insufficient data,
because he believed LPIHGC witnesses who testified that LPIHGC “lost all of
its F-data in a computer crash, so that the remedy prescribed . . . was no
longer possible[;]” and (3) the award omitted references to a taped recording
that allegedly contained a conversation recorded at an LPIHGC/Ownership
meeting of LPIHGC “representatives strategizing about how to keep sensitive
(continued...)
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authority.9
With regard to alleged nondisclosures that form the basis of
this appeal, Nordic argued the Arbitrator did not fulfill his
initial obligation under HRS § 658A-12 (Supp. 2010) to make a
reasonable inquiry and disclose to all parties any facts that a
reasonable person would consider likely to affect the
Arbitrator’s impartiality, including (1) the long-standing and
substantial attorney-client relationship between him, as a QLT
trustee, and Carlsmith Ball that “included representation in at
least seven, undisclosed lawsuits, two of which were actively
being litigated during the pendency of this case[,]” and (2)
three instances during the pendency of the arbitration in which
he provided neutral services to other attorneys in Carlsmith Ball
and Starn O’Toole, consisting of work (a) as a mediator for
(...continued)
documents out of Nordic’s hands by erasing tapes, shredding meeting minutes,
or copying counsel on every sensitive document” that it wanted withheld, and
found no spoliation of the data because “there could be no spoliation unless
[Nordic] proved the loss was intentional. Therefore, Nordic argued, the
Arbitrator “failed to apply Hawaii’s law against spoliation of documents[]” to
LPIHGC witnesses’ alleged perjury regarding the loss of computer data, which
was “critical to [prove] Nordic’s concrete compliance – the main issue in the
case.”
9 Nordic argued that the Arbitrator exceeded his powers by awarding
damages to a non-party to the arbitration to the extent that the award grants
damages to LPIHGC/Owner even though there were LPIHGC and Nordic were the only
two parties to the arbitration, and the Owner is not entitled to any damages
in the arbitration proceeding as it contracted only with LPIHGC, not Nordic.
The Arbitrator found that the subcontract incorporated the prime contract
between the Owner and LPIHGC as part of Nordic’s subcontract documents.
Nordic also argued that the Arbitrator erred in awarding expert fees and other
damages that a trial court could not award, thereby disregarding established
law on payment for expert testimony, and warranting vacatur under HRS § 658A-
23(a)(4).
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Carlsmith; (b) as a mediator in a case involving Starn O’Toole;
and (c) as an arbitrator in a matter in which Carlsmith Ball
entered an appearance and represented a party. Nordic further
argued that the “existence of this special relationship between
[the Arbitrator] and [LPIHGC’s] counsel creates an irrefutable
presumption of bias and partiality.”
The only declaration under oath submitted regarding the
alleged nondisclosure was that of Oshiro. Oshiro declared that
an attached “table of cases filed or defended by the Carlsmith
law firm on behalf of the Arbitrator in his capacity as trustee
of the [QLT]” “was discovered by [Nordic] in late October, 2010,
after which additional inquiry and requests for disqualification
were issued.” She also declared that “[t]he supplemental
information regarding the Arbitrator’s ongoing paid services as a
neutral for opposing counsel, was a complete surprise - as
[Nordic]’s firm had refrained from such solicitation with the
expectation that any such solicitation and service would and must
be disclosed in the arbitration proceeding, and as the
Arbitrator’s prior disclosure of neutral services for counsel was
plainly couched in the past tense.”
On January 14, 2011, LPIHGC filed its memorandum in
opposition to the motion to vacate. With regard to the evident
partiality claim, LPIHGC argued that “Nordic is asking this Court
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to make new law by creating a presumption of evident partiality
based solely on an alleged nondisclosure, without any specific
facts of improper motives or conduct.”10 LPIHGC also argued that
Nordic mischaracterizes the relationship between the Arbitrator
and Carlsmith Ball by alleging that “the Arbitrator (as trustee)
and Carlsmith (as outside counsel) each owe duties to the QLT,
therefore the Arbitrator and Carlsmith must owe duties to each
other.” (emphasis omitted). Moreover, LPIHGC argued that the
Arbitrator’s initial disclosure (“Since retirement, I have served
as a neutral . . . .”) is in present-perfect tense and “denotes
that [the Arbitrator’s] work as a neutral began in the past,
continued thereafter, and may still be continuing.” Thus, LPIHGC
argued that Nordic is the only party with whom the Arbitrator had
any prior relationship and highlighted that Nordic failed to
disclose that (1) the Arbitrator provided third-party neutral
services in a matter involving Damon Key at the time the
arbitration commenced, (2) Kupchak and the Arbitrator serve on
DPR’s arbitrators’ panel together, and (3) Kupchak’s brother-in-
10 LPIHGC and Nordic appear to disagree as to whether this is an
actual bias or evident partiality case and the burden of proof required.
Citing Kay v. Kaiser Foundation Health Plan, Inc., 119 Hawai#i 219, 194 P.3d
1181 (App. 2008), Nordic argued that the nondisclosure reasonably creates an
impression of bias warranting vacatur, while LPIHGC argues that Nordic “must
establish specific facts that indicate improper motives on the part of the
arbitrator.” (quoting Washburn v. McManus, 895 F. Supp. 392, 396 (D. Conn.
1994) (internal quotation marks omitted), cited in Daiichi Hawaii Real Estate
Corp. v. Lichter, 103 Hawai#i 325, 342, 82 P.3d 411, 428 (2003)). The
applicable standards are discussed below.
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law is a Vice President of the QLT and is one of two executives
in charge of the QLT’s real estate litigation in which Haitsuka
of Carlsmith Ball represented the QLT.
c. Hearing on the Motions to Confirm and Vacate
On January 25, 2011, the circuit court held a hearing on
LPIHGC’s motion to confirm and Nordic’s motion to vacate.11 In
addition to its written arguments, Nordic orally argued that
LPIHGC was attempting to confuse the issue of evident partiality
by arguing the standard applicable to cases where full disclosure
had been made, i.e., actual bias. Nordic further argued that
waiver cannot occur when disclosures are insufficient because (1)
neutral, as opposed to non-neutral, arbitrators have a higher
duty to disclose; and (2) the original disclosure did not provide
(a) notice of present and future relationships, and (b) “actual
information that would impart actual knowledge.”
In response, LPIHGC argued12 that Daiichi Hawaii Real Estate
Corp. v. Lichter, 103 Hawai#i 325, 82 P.3d 411 (2003), supplies
the guiding standard for evident partiality. See 103 Hawai#i at
11 The Honorable Patrick W. Border presided
12 As to the other bases Nordic raised in its motion to vacate,
LPIHGC argued that Nordic misrepresented to the court that none of the F-meter
data was produced during the arbitration because the data was attached as an
exhibit to LPIHGC’s reply brief in the arbitration proceeding. With regard to
the taped recording, LPIHGC admitted that the tape discussed shredding the
meeting minutes, however, “nothing was shredded [and] [a]ll the tapes and the
written minutes were actually turned over to Nordic and to [] [the
Arbitrator].”
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342, 82 P.3d at 428 (quoting Washburn, 895 F. Supp. at 399) (“The
relationship . . . must be so intimate--personally, socially,
professionally, or financially--as to cast serious doubt on the
arbitrator’s impartiality.”). LPIHGC also argued for a
presumption that Nordic knew about Carlsmith Ball’s
representation of the QLT because it and its counsel “have
refused to go on record as to when and how they supposedly
discovered that fact . . . .”
In addition, LPIHGC argued that Nordic and its counsel had
more “socially, personally intimate” relationships with the
Arbitrator than LPIHGC’s counsel to the extent that the
Arbitrator did not have (1) ex parte communications with LPIHGC
counsel, (2) contact with Carlsmith Ball on the QLT matters, or
(3) any previous connection or contact with Manaut on this
matter.
Neither party, in its briefs or at the hearing, requested an
evidentiary hearing so that the circuit court could address
disputed issues of fact. At the close of the hearing, the
circuit court took the matters under advisement. On March 24,
2011, the circuit court granted LPIHGC’s motion to confirm and
denied Nordic’s motion to vacate without providing its reasoning
or entering findings of fact and conclusions of law, then entered
judgment accordingly.
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D. Appeal to the Intermediate Court of Appeals
On appeal, Nordic relied heavily on Kay v. Kaiser Foundation
Health Plan, Inc., 119 Hawai#i 219, 194 P.3d 1181 (App. 2008), to
argue that “if an arbitrator disclosed his relationships, the
party may seek to disqualify him, but cannot complain if they did
not; conversely, if the arbitrator did not make the required
disclosure, and the undisclosed relationship is not trivial, the
award is presumed to be tainted and must be vacated.” Nordic
also argued that “it should have had the opportunity to consider
whether [QLT’s] dual status as the arbitrator’s employer and
fiduciary, and Carlsmith Ball’s client was a conflict” because
the Arbitrator also failed to disclose that Carlsmith provided
representation on three of the QLT’s “major assets” and
represented the QLT in four mechanics lien actions, one of which
was still ongoing post-award. Moreover, citing Hawai#i Probate
Rule 42(a) (1995),13 Nordic argued that Carlsmith Ball’s
representation of the Arbitrator in his trustee capacity does not
“excuse his nondisclosure, because in addition to his personal
financial interest in the [QLT’s] continued success, trustees are
13 Rule 42(a) of the Hawai#i Probate Rules provides:
An attorney employed by a fiduciary for an estate,
guardianship, or trust represents the fiduciary as client as
defined in Rule 503(a) of the Hawai#i Rules of Evidence and
shall have all the rights, privileges, and obligations of
the attorney-client relationship with the fiduciary insofar
as the fiduciary is acting in a fiduciary role for the
benefit of one or more beneficiaries or a ward.
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the legal owners of the trust, and as such they are the named
parties to every legal action, and every claim against the QLT is
by law a personal action against the trustee.” Lastly, Nordic
argued that the Arbitrator’s initial statement that “I have
served” does not “sufficiently disclose that he was presently
serving and may serve in the future” in order to put Nordic on
notice that it must object.
In its answering brief, LPIHGC argued that Nordic failed to
meet its burden to prove specific facts of improper motives, and
instead asked for a presumption of evident partiality in
contravention of the Hawai#i Supreme Court’s requirements in
Daiichi: that the “contacts be ‘intimate’ rather than tenuous or
remote, that they cast ‘serious doubt’ on the arbitrator’s
impartiality, and that the movant prove ‘specific facts’ of
improper motives or conduct.”
In reply, Nordic argued that it did not have a duty to
investigate potential conflicts when neither it nor LPIHGC knew
of the Arbitrator’s ties to Carlsmith Ball, and thus, could not
have waived the claim.
Applying a de novo standard of review, the ICA concluded
that the circuit court erred in granting LPIHGC’s motion to
confirm and denying Nordic’s motion to vacate because “[the
Arbitrator’s] nondisclosures constitute ‘evident partiality’
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requiring vacatur of the Award under HRS § 658A-23(a)(2).”
Nordic, mem. op. at 8 (quoting Kay, 119 Hawai#i at 224, 194 P.3d
at 1186). The ICA relied heavily upon Kay, and Valrose Maui,
Inc. v. Maclyn Morris, Inc., 105 F. Supp. 2d 1118 (D. Haw. 2000)
(“VMI”). Repeating its conclusion in Kay, the ICA stated that
“an arbitrator cannot, as part of a long-standing and on-going
activity, ask for and receive money from a party during the
arbitration, without disclosing that fact to the other party.”
Id. (quoting 119 Hawai#i at 230, 194 P.3d at 1192) (internal
quotation marks omitted). The ICA also applied the holding in
VMI to conclude that “arbitrators must take special care to
disclose business or similar dealings with parties, or their
counsel, that occur during the pendency of arbitration
proceedings.” Nordic, mem. op. at 13.
The ICA rejected LPIHGC’s waiver argument and concluded that
“[t]o the extent that there is no showing that Nordic was aware
of [the Arbitrator’s] contemporaneous work as a neutral with
Carlsmith Ball and Starn O’Toole prior to issuance of the Award,
Nordic has not waived its right to claim evident partiality.”
Nordic, mem. op. at 17. According to the ICA, although the
initial disclosure provided some notice of the Arbitrator’s role
as neutral, it failed to raise the issue of the Arbitrator’s role
as QLT trustee and Carlsmith’s representation of the QLT. Id.
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Therefore, the ICA held that the Arbitrator’s cumulative
failure to “disclose his contemporaneous work as neutral in three
separate matters for [LPIHGC’s] law firms[]” and “that, in the
course of his service as a QLT trustee, the QLT was represented
by Carlsmith Ball in several litigation matters, including some
that were contemporaneous with the arbitration proceeding”
sufficiently established a reasonable impression of partiality,
warranting vacatur of the award. Nordic, mem. op. at 14, 15;
accord id. at 18. Accordingly, the ICA vacated the circuit
court’s confirmation of the award and judgment, and remanded for
further proceedings consistent with its Memorandum Opinion.
Nordic, mem. op. at 18.
Because the award was vacated solely on the issue of
nondisclosure, the ICA did not address Nordic’s claims that the
Arbitration Award was procured by fraud or undue means, or that
the Arbitrator exceeded his powers. Id.
E. Certiorari Proceedings
1. LPIHGC’s Application
LPIHGC presents the following questions in its application
for writ of certiorari:
A. Did the ICA err by creating and retroactively applying
a new standard for finding evident partiality under HRS §
658A-23 where:
1. The only statutory presumption for finding
evident partiality involves undisclosed relationships
between an arbitrator and a party, see HRS § 658A-
12(e); no statutory presumption exists for a
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relationship between an arbitrator and counsel for a
party;
2. Evident partiality could only have been presumed
from the relationship with counsel, which is contrary
to the governing statute and highly prejudicial to
[LPIHGC];
3. [The Arbitrator] disclosed that he had
relationships with counsel for all parties and invited
counsel to seek more information if they were
concerned, but Nordic’s counsel chose not to request
further details until only after the Award was entered
a year and a half later;
4. Neither [The Arbitrator] nor the GC’s counsel
even knew about one of the relationships with counsel
and absent such knowledge this could not have impacted
[The Arbitrator]’s impartiality;
5. There was no factual evidence in the record to
support partiality, and no Hawai#i state case law
supports the retroactive application of the ICA’s new
presumptive standard;
6. The ICA’s creation of a new presumptive standard
for evident partiality not only unfairly vacated the
well-considered and well-supported Award in the
present case, but will also undermine and cast doubt
upon countless other pending or completed arbitration
awards?
B. Did the ICA err in finding that Nordic had not waived
its ability to vacate the Award for alleged evident
partiality involving counsel where, before the issuance of
the Award:
1. Nordic chose not to request any additional
information after receiving [The Arbitrator]’s general
disclosures about his relationships with all counsel,
despite Nordic being invited to do so; and
2. Nordic’s counsel failed to demonstrate or state
under oath that it did not know or could not have
known about the relationship with one of the counsel
at the outset of the arbitration, since this
information was a matter of public record on Ho#ohiki,
and otherwise was available through Nordic’s lead
counsel’s own familial connection with the subject
trust entity?
We do not address all of the issues in detail, but provide
guidance on remand in the Discussion section below.
LPIHGC first argues that the ICA gravely erred in finding
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evident partiality based on the mere existence and nondisclosure
of specific details about unrelated, allegedly contemporaneous
cases and “because it felt that ‘it was incumbent upon [the
Arbitrator]’ to disclose a ‘relationship’ with Carlsmith due to
his role as a QLT trustee.” Specifically, LPIHGC argues that the
ICA mischaracterized the Arbitrator’s relationships with LPIHGC
counsel, and ignored (1) the broad, general disclosure that
invited further inquiry, (2) Nordic’s similar, undisclosed
relationships with the Arbitrator, and (3) the Arbitrator’s lack
of actual knowledge of the QLT’s relationship with Carlsmith
Ball.
Second, LPIHGC argues that the ICA created a per se rule or
presumption of evident partiality that is contrary to legislative
intent, which presumes evident partiality only when based on an
arbitrator’s known, undisclosed relationship with parties.
(citing HRS § 658A-12(a)(2)).
Finally, LPIHGC argues that the ICA gravely erred in holding
that Nordic did not waive its claim because LPIHGC failed to make
a showing that Nordic knew or should have known about the
undisclosed circumstances before the Arbitration Award was
issued. LPIHGC argues that “[g]iven the policies favoring
finality in arbitrations, the party seeking to vacate an Award
should be required to prove why it did not know or could not have
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known before the Award was entered, or else be deemed to have
waived the ability to seek vacatur.”
2. Nordic’s Response
In response, Nordic argues that the ICA correctly vacated
the award because the Arbitrator failed to disclose multiple,
ongoing relationships with LPIHGC’s law firms.14 Nordic argues
that the ICA did not apply a per se rule, but rather, applied the
standard in HRS § 658A-12(a) and the test for evident partiality
to conclude that the “undisclosed relationships were (1) not
trivial; (2) ongoing throughout the parties’ arbitration; (3)
numerous; and (4) the nature of which was the cause for vacatur
in another decision” this court cited in Daiichi. In addition,
Nordic contends that the initial disclosure did not sufficiently
disclose the relationships to put Nordic on notice of the facts
and trigger waiver of the claim. Nordic therefore argues that it
is hardly reasonable to charge it with knowledge of the
14 Although Nordic did not apply for certiorari, it presents
questions in its response, as follows:
1. Arbitrator’s Failure To Disclose Relationships. Are an
arbitrator [sic] ongoing fiduciary and financial relationships
with the lawyers for one party to an arbitration—including the
fact that one of the party’s law firms was also the arbitrator’s
lawyers—“facts that a reasonable person would consider likely to
affect the impartiality of the arbitrator” under Haw. Rev. Stat. §
658A-12?
2. Inquiry Notice. Does a neutral arbitrator satisfy the
statutory duty to disclose by making general statements that omit
specific facts regarding ongoing ties, and must the parties assume
incomplete disclosure and investigate further, or be deemed to
have waived the right to an unbiased decisionmaker?
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relationships when LPIHGC lawyers and the Arbitrator claim that
they were not aware, and the information was not available until
October 2010.
3. LPIHGC’s Reply
In reply, LPIHGC argued that (1) the Arbitrator provided the
statutorily required disclosures and “no evidence exists that
[the Arbitrator] did not disclose what he knew about the
relationships with the parties or counsel[;]” (2) a reasonable
person would not consider the Arbitrator’s role as neutral in
other proceedings and as trustee of the QLT to be likely to
affect “a well-respected, career Judge and arbitrator[’s]”
obligation of neutrality; (3) Nordic must “prove evident
partiality as a result of the relationship with counsel”; and (4)
Nordic’s argument that it did not waive its claim is not
supported by the facts or law.
III. Discussion
This court has yet to address a motion to vacate based on
evident partiality governed by the Uniform Arbitration Act
enacted by the Hawai#i legislature in 2001, see 2001 Haw. Sess.
Laws Act 265, §1 at 810-19, and codified under HRS chapter 658A.
In this section, we therefore provide a general framework of
legal principles under HRS chapter 658A relevant to Nordic’s
motion to vacate. We also address some common law principles
that remain relevant to this case. After general discussion of
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various legal principles, we analyze them in the context of this
case.
A. Standard of Review
1. In General
Daiichi’s “Standards of Review” section provides as follows:
A. Review Of An Arbitration Award
Where a party challenges an arbitration award, the
following precepts are applicable. First, because of the
legislative policy to encourage arbitration and thereby
discourage litigation, arbitrators have broad discretion in
resolving the dispute. Upon submission of an issue, the
arbitrator has authority to determine the entire question,
including the legal construction of terms of a contract or
lease, as well as the disputed facts. In fact, where the
parties agree to arbitrate, they thereby assume all the
hazards of the arbitration process, including the risk that
the arbitrators may make mistakes in the application of law
and in their findings of fact.
Second, correlatively, judicial review of an
arbitration award is confined to the strictest possible
limits. An arbitration award may be vacated only on the
four grounds specified in HRS § 658–9 and modified and
corrected only on the three grounds specified in HRS §
658–10. Moreover, the courts have no business weighing the
merits of the award.
Third, HRS §§ 658–9 and –10 also restrict the
authority of appellate courts to review judgments entered by
circuit courts confirming or vacating the arbitration
awards.
B. Findings Of Fact And Conclusions Of Law
We review a trial court’s findings of fact under the
clearly erroneous standard.
A finding of fact is clearly erroneous when, despite
evidence to support the finding, the appellate court is left
with the definite and firm conviction in reviewing the
entire evidence that a mistake has been committed. A
finding of fact is also clearly erroneous when the record
lacks substantial evidence to support the finding. We have
defined ‘substantial evidence’ as credible evidence which is
of sufficient quality and probative value to enable a person
of reasonable caution to support a conclusion.
Hawai#i appellate courts review conclusions of law de
novo, under the right/wrong standard. Under the right/wrong
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standard, this court examines the facts and answers the
question without being required to give any weight to the
trial court’s answer to it.
103 Hawai#i at 336-37, 22 at 422-23 (internal citations,
ellipses, brackets, and quotation marks omitted).
The promulgation of HRS chapter 658A has not materially
changed this standard of review. Judicial review of arbitration
awards remains limited to the statutory grounds for confirmation,
vacatur, modification, and correction. See HRS § 658A-28(a)(3)-
(5) (Supp. 2010) (permitting appeal from an order confirming or
denying confirmation of an award, an order modifying or
correcting an award, or an order vacating an award).
As indicated supra, in reviewing an arbitration award,
circuit courts are powerless to correct an arbitrator’s findings
of fact even if clearly erroneous, or an arbitrator’s rulings on
the law, even if wrong. See, e.g., Tatibouet v. Ellsworth, 99
Hawai#i 226, 236, 54 P.3d 397, 407 (2002) (“It is well settled
that arbitration awards may not be vacated . . . if the
arbitrators commit a legal or factual error in reaching its final
decision.”); Gadd v. Kelley, 66 Haw. 431, 443, 667 P.2d 251, 259
(1983) (“[E]ven if the arbitrators had erred . . . , the court is
powerless to vacate the award as long as the arbitrators’ actions
did not rise to the level of the grounds specified in HRS § 658-
9(4)[.]”); Mars Constructors, Inc. v. Tropical Enters., Ltd., 51
Haw. 332, 336, 460 P.2d 317, 319 (1969) (“[A]ssuming that the
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arbitrators [] erred in construing the construction contract, a
mistake in the application of law and in their findings of fact,
this mistake is not one of the three grounds specified in HRS [§]
658-10, and the circuit court correctly ruled that it was
powerless to modify or correct the award.”); see also Thomas v.
Trustees of Lunalilo Estate, 5 Haw. 39, 40 (Terr. 1883) (“[I]t is
well settled that the award, if made in good faith, is conclusive
upon the parties, and that [they] can[not] be permitted to prove
that the arbitrators decided wrong either as to the law or the
facts of the case.”) (internal quotation marks and citations
omitted); Richards v. Ontai, 20 Haw. 198, 201 (Terr. 1910)
(“[N]either the circuit court . . . nor this court on appeal can
review the findings of fact or the rulings of law made by the
arbitrator any further than may be necessary to determine the
questions specifically mentioned in the statute[.]”).
Appellate review of a motion to vacate, however, does not
involve review of an arbitrator’s findings of fact or conclusions
of law. Rather, it involves review of a circuit court’s factual
findings and conclusions of law as to whether the statutorily
outlined grounds for vacatur exist.
In addressing a motion to vacate based on an arbitrator’s
alleged violation of duties of inquiry and disclosure, the issue
of whether a duty exists is a question of law. See Doe Parents
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No. 1 v. Dep’t of Educ., 100 Hawai#i 34, 57, 58 P.3d 545, 568
(2002) (“The existence of a duty . . . is entirely a question of
law.” (quoting Ruf v. Honolulu Police Dep’t, 89 Hawai#i 315, 320,
972 P.2d 1081, 1086 (1999)). The issue of whether a duty has
been violated or breached is, however, a question of fact. See
100 Hawai#i at 57-58, 58 P.3d at 568-69 (“Whether there was a
breach of duty or not . . . is a question for the trier of
fact.”); see also Bidar v. Amfac, Inc., 66 Haw. 547, 552, 669
P.2d 154, 159 (1983). In addition, where material facts are in
dispute as to whether a valid waiver exists, the issue of waiver
is generally an issue of fact. Daiichi, 103 Hawai#i at 346 n.
17, 82 p.3d at 432 n.17 (“[T]he question [of] whether a valid
waiver exists is generally a question of fact[.]”).
Thus, in reviewing a circuit court’s rulings on a motion to
vacate for evident partiality, an appellate court is not
reviewing an arbitrator’s factual findings and application of
law, which it is powerless to address, but the findings of fact
and conclusions of law of the circuit court as to whether a duty
of disclosure exists, which is a question of law; whether it has
been breached, which is a question of fact; and whether any
breach has been waived, which is also a question of fact. As
indicated in Daiichi, issues of law are reviewed de novo but
factual issues, if any, are addressed under a “clearly erroneous”
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standard.
2. Application to This Case15
In its Memorandum Opinion, the ICA cited the following as
the applicable standard of review:
We review the circuit court’s ruling on an arbitration
award de novo,” but are also are mindful that the circuit
court’s review of arbitral awards must be extremely narrow
and exceedingly deferential.
Judicial review of an arbitration award is
limited by the following precepts:
First, because of the legislative policy
to encourage arbitration and thereby
discourage litigation, arbitrators have
broad discretion in resolving the dispute.
Upon submission of an issue, the
arbitrator has authority to determine the
entire question, including the legal
construction of terms of a contract or
lease, as well as the disputed facts. In
fact, where the parties agree to
arbitrate, they thereby assume all the
hazards of the arbitration process,
including the risk that the arbitrators
may make mistakes in the application of
law and in their findings of fact.
Second, correlatively, judicial review of
an arbitration award is confined to the
strictest possible limits. An arbitration
award may be vacated only on the four
grounds specified in [HRS] § 658-9 and
modified and corrected only on the three
grounds specified in HRS § 658-10.
Moreover, the courts have no business
weighing the merits of the award.
Third, HRS §§ 658-9 and -10 also restrict the
authority of appellate courts to review
judgments entered by circuit courts confirming
or vacating arbitration awards.
Kay v.Kaiser Found. Health Plan, Inc., 119 Hawai#i 219, 224,
15 LPIHGC did not specifically allege an incorrect standard of review
in its application for certiorari. It did, however, raise the issue of
whether “the ICA err[ed] by creating and retroactively applying a new standard
for finding evident partiality . . . where . . . [t]here was no factual
evidence in the record to support partiality . . . .” See supra, Part II.E.1.
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194 P.3d 1181, 1186 (App.2008) (internal quotation marks and
citations omitted) (quoting Schmidt v. Pac. Benefit Servs.,
Inc., 113 Hawai#i 161, 165-66, 150 P.3d 810, 814-15 (2006)).
Nordic, mem. op. at 8.
The ICA cites to Kay for the standard of review. With
respect to the first sentence of the ICA’s standard of review
section, Kay quotes this court’s decision in Tatibouet, 99
Hawai#i 226, 54 P.3d 397. The referenced citation in Tatibouet
repeats the established precept that “[t]he interpretation of a
statute is a question of law reviewable de novo.” 99 Hawai#i at
233, 54 P.3d at 404.
In the instant case, the circuit court denied the motion to
vacate without explaining its reasoning or entering findings of
fact and conclusions of law. On appeal, the ICA ruled that the
Arbitrator’s cumulative failure to “disclose his contemporaneous
work as neutral in three separate matters for [LPIHGC’s] law
firms[]” and “that, in the course of his service as a QLT
trustee, the QLT was represented by Carlsmith in several
litigation matters, including some that were contemporaneous with
the arbitration proceeding” sufficiently established a reasonable
impression of partiality warranting vacatur of the award.
Nordic, mem. op. at 14, 15; accord id. at 18. In so ruling, it
is unclear whether the ICA applied the de novo standard
referenced in its Memorandum Opinion or whether it concluded
that, assuming the circuit court made findings in denying the
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motion, such findings were clearly erroneous. If the ICA’s
ruling was based on the applicable clearly erroneous standard,
the circuit court did not state the basis of its ruling on the
record or enter findings of fact, and therefore there were no
factual findings upon which an appellate court could conduct a
clearly erroneous review. Material facts were in dispute as to
whether the duties of inquiry and disclosure were breached, as
well as whether any breach, assuming breach had been established,
had been waived.
B. Requirement of Evidentiary Hearing on Motion to Vacate
When Material Facts are in Dispute
1. In General
HRS § 658A-5 (Supp. 2010) provides in pertinent part that
“an application for judicial relief under this chapter shall be
made by motion to the court and heard in the manner provided by
law . . . .” With respect to the law, our appellate courts have
held that “whenever material facts are in dispute in determining
whether an arbitration award should be vacated, the circuit court
should conduct an evidentiary hearing and render findings of fact
and conclusions of law in support of granting or denying [a]
motion to vacate [an] arbitration award.” See Clawson, 71 Haw.
at 79, 783 P.2d at 1232. In Daiichi, this court reviewed the
circuit court’s findings of fact and conclusions of law on a
motion to vacate. See 103 Hawai#i at 349 n.20, 82 P.3d at 435
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n.20 (noting that the circuit court’s findings of fact were not
clearly erroneous, but that its conclusion regarding waiver “was
wrong as a matter of law[.]”). In addition to Daiichi, Kay, 119
Hawai#i at 222, 194 P.3d at 1184 (holding that “an arbitrator’s
failure to disclose her direct, personal involvement in ongoing
fund-raising solicitations to one of the parties, while the
arbitration is pending, creates an impression of partiality or
possible bias”), Gadd v. Kelley, 66 Haw. 431, 442, 667 P.2d 251,
259 (1983) (holding that evidence sustained the circuit court’s
written findings and conclusions in support of confirmation of an
arbitration award that “at all times during the proceedings, the
members of the arbitration panel acted in a fair and impartial
manner[]”), and Brennan v. Stewarts’ Pharmacies, Ltd., 59 Haw.
207, 579 P.2d 673 (1978) (affirming the circuit court’s
conclusions in support of vacating an arbitration award on the
bases of evident partiality and exceeding authority), all
involved appellate court review of a circuit court’s findings of
fact and conclusions of law regarding motions to vacate
arbitration awards.
More recently, in Low v. Minichino, 126 Hawai#i 99, 267 P.3d
683 (App. 2011), the ICA held that a prospective home purchaser
made a prima facie showing that an arbitration award was procured
by fraud, warranting an evidentiary hearing on her motion to
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vacate, and appropriately and remanded the case for an
evidentiary hearing. 126 Hawai#i at 108, 267 P.3d at 692.
2. Application to This Case
In this case, neither party requested an evidentiary
hearing. The circuit court then denied the motion to vacate
without explaining the reasons for its ruling on the record and
without entering findings of fact or conclusions of law.
Material facts are in dispute, as discussed below; therefore,
although not requested by the parties, the circuit court should
have conducted an evidentiary hearing and rendered findings of
fact and conclusions of law. In addition to issues of fact
regarding evident partiality that have been the focus of this
appeal, the circuit court did not address whether there are
disputes of material fact regarding fraud and exceeding
authority, additional bases on which Nordic moved to vacate the
Arbitration Award. If there are, the circuit court must also
determine those issues on remand.
We now turn to issues that may arise during the evidentiary
hearing on remand.
C. Disclosure Requirements Under HRS § 658A-12(a) and (b)
1. In General
As noted in Daiichi at footnote 5, 103 Hawai#i at 330 n.5,
22 P.3d at 416 n.5, “[t]he former HRS chapter 658 contained no
express provision relating to an arbitrator’s duty to
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disclose.”16 HRS § 658A-12 now specifically provides, in
pertinent part:
§658A-12 Disclosure by arbitrator. (a) Before accepting
appointment, an individual who is requested to serve as an
arbitrator, after making a reasonable inquiry, shall
disclose to all parties to the agreement to arbitrate and
arbitration proceeding and to any other arbitrators any
known facts that a reasonable person would consider likely
to affect the impartiality of the arbitrator in the
arbitration proceeding, including:
(1) A financial or personal interest in the outcome
of the arbitration proceeding; and
(2) An existing or past relationship with any of the
parties to the agreement to arbitrate or the
arbitration proceeding, their counsel or
representatives, a witness, or another arbitrator.
(b) An arbitrator has a continuing obligation to disclose
to all parties to the agreement to arbitrate and arbitration
proceeding and to any other arbitrators any facts that the
arbitrator learns after accepting appointment which a
reasonable person would consider likely to affect the
impartiality of the arbitrator.
. . . .
HRS § 658A-12(a)-(b) (emphasis added).
Therefore, under HRS § 658A-12(a), an arbitrator must make a
reasonable inquiry before accepting appointment. The Commentary
to the Uniform Arbitration Act (UAA) (2001) (hereinafter
“Commentary”), drafted by National Conference of Commissioners on
Uniform State Laws, states as follows:
Section 12(a) requires an arbitrator to make a “reasonable
inquiry” prior to accepting an appointment as to any
potential conflict of interests. The extent of this inquiry
may depend upon the circumstances of the situation and the
custom in a particular industry. For instance, an attorney
in a law firm may be required to check with other attorneys
16 In Daiichi, a non-neutral arbitrator acted in a manner that did
not portray his close personal, professional, and financial relationships with
a party and its counsel. See generally 103 Hawai#i at 329-31, 82 P.3d at
415-17.
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in the firm to determine if acceptance of an appointment as
an arbitrator would result in a conflict of interest on the
part of that attorney because of representation by an
attorney in the same law firm of one of the parties in
another matter.
Nat’l Conference of Comm’rs on Unif. State Laws, Uniform
Arbitration Act (Last Revisions Completed Year 2000), 48 (Dec.
13, 2000),
http://www.uniformlaws.org/shared/docs/arbitration/arbitration_fi
nal_00.pdf (emphasis added).
According to the Commentary, what constitutes a reasonable
inquiry varies depending on the circumstances, and whether the
duty of reasonable inquiry has been violated is a question of
fact. After making a reasonable inquiry, the arbitrator must
then disclose information that a reasonable person would consider
likely to affect impartiality. The Commentary further provides:
Once an arbitrator has made a “reasonable inquiry” as
required by Section 12(a), the arbitrator will be required
to disclose only “known facts” that might affect
impartiality. The term “knowledge” (which is intended to
include “known”) is defined in Section 1(4) to mean “actual
knowledge.”[17]
Commentary, supra, at 48. The arbitrator also has a continuing
obligation to disclose such facts a reasonable person would
consider likely to affect impartiality after appointment under
HRS § 658A-12(b).18
17 It is possible that an arbitrator would not discover facts a
reasonable person would find likely to affect impartiality despite making a
“reasonable inquiry.”
18 We note that the diminished standard of disclosure allowed by this
(continued...)
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HRS § 658A-12 is a culmination of case law developed from
the seminal United States Supreme Court case of Commonwealth
Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968),
which we cited in Daiichi. See 103 Hawai#i at 340-41, 82 P.3d at
426-27. In Commonwealth, the United States Supreme Court
addressed the circumstances under which the United States
Arbitration Act § 10, 9 U.S.C. § 10(b),19 authorizes vacatur of
an arbitration award for failure to disclose the existence of a
close financial relationship between a neutral arbitrator and a
party to the arbitration. 393 U.S. at 146–48. The neutral
member of a three-arbitrator panel failed to disclose his
engagement in periodic and significant business relations with
one of the parties to the arbitration for approximately six years
before the arbitration. 393 U.S. at 146. The United States
(...continued)
court in Daiichi for non-neutral arbitrators no longer applies due to the
affirmative duty of disclosure in HRS § 658A-12. See 103 Hawai#i at 349-50,
82 P.3d at 435-36 (Acoba, J., dissenting) (disagreeing with the majority that
non-neutral arbitrators are subject to a different standard of disclosure that
permits them to provide a broad, general disclosure, and opining that an award
should be set aside when the disclosure is misleading and inadequate).
19 At the relevant time, 9 U.S.C. § 10(b) provided, in pertinent
part:
In either of the following cases the United States court in
and for the district wherein the award was made may make an
order vacating the award upon the application of any party
to the arbitration--
. . .
(b) Where there was evident partiality or corruption in the
arbitrators, or either of them. . . .
See Commonwealth, 393 U.S. at 147 n.1 (internal quotation marks omitted).
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Supreme Court reversed the decision of the United States Court of
Appeals for the First Circuit, which had affirmed the district
court’s refusal to set aside the arbitration award. 393 U.S. at
150.
The Commentary discusses Commonwealth as follows:
Members of the Court differed, however, on the standards for
disclosure. Justice Black, writing for a four-judge
plurality, concluded that disclosure of “any dealings that
might create an impression of possible bias” or creating
“even an appearance of bias” would amount to evident
partiality. Id. at 149. Justice White, in a concurrence
joined by Justice Marshall, supported a more limited test
which would require disclosure of “a substantial interest in
a firm which has done more than trivial business with a
party.” Id. at 150. Three dissenting justices favored an
approach under which an arbitrator’s failure to disclose
certain relationships established a rebuttable presumption
of partiality.
The split of opinion in Commonwealth Coatings is reflected
in many subsequent decisions addressing motions to vacate
awards on grounds of “evident partiality” under federal and
state law. A number of decisions have applied tests akin to
Justice Black’s “appearance of bias” test. See, e.g., S.S.
Co. v. Cook Indus., Inc., 495 F.2d 1260, 1263 (2d Cir. 1973)
(applying FAA; failure to disclose relationships that “might
create an impression of possible bias”). Some courts have
introduced an objective element into the standard – that is,
viewing the facts from the standpoint of a reasonable person
apprised of all the circumstances. See, e.g., Ceriale v.
AMCO Ins. Co., 48 Cal. App. 4th 500, 55 Cal. Rptr. 2d 685
(1996)(finding that question is whether record reveals facts
which might create an impression of possible bias in eyes of
hypothetical, reasonable person).
A greater number of other courts, mindful of the tradeoff
between impartiality and expertise inherent in arbitration,
have placed a higher burden on those seeking to vacate
awards on grounds of arbitrator interests or relationships.
See, e.g., Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d
673, 681 (7th Cir. 1983), cert. denied, 464 U.S. 1009, 104
S. Ct. 529, 78 L. Ed. 2d 711, modified, 728 F.2d 943 (7th
Cir. 1984) (applying FAA; circumstances must be “powerfully
suggestive of bias”); Artists & Craftsmen Builders, Ltd. v.
Schapiro, 232 A.D.2d 265, 648 N.Y.S.2d 550 (1996) (stating
that though award may be overturned on proof of appearance
of bias or partiality, party seeking to vacate has heavy
burden and must show prejudice).
Commentary, supra, at 46-47.
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As noted by the Commentary, there was no majority in
Commonwealth regarding standards for disclosure, and subsequent
case law has varied on disclosure requirements. The former HRS
chapter 658 also contained no disclosure requirement, and the
common law tension noted in the Commentary is similarly reflected
in Hawai#i cases on disclosure standards, as evidenced by the
conflicting disclosure standards argued by Nordic and LPIHGC
throughout this litigation.
Regardless of any confusion that may have existed, the
Hawai#i legislature adopted Section 12 of the UAA in its
entirety. Compare HRS § 658A-12 with Commentary, supra, at 44-45
(UAA section 12 is identical to HRS § 658A-12). Thus,
arbitrators in arbitrations governed by HRS chapter 658A are now
required to follow the disclosure requirements of HRS § 658A-
12(a). In this regard, according to the Commentary to UAA
Section 12(a):
2. In view of the critical importance of arbitrator
disclosure to party choice and perceptions of fairness and
the need for more consistent standards to ensure
expectations in this vital area, Section 12 sets forth
affirmative requirements to assure that parties should
[have] access to all information that might reasonably
affect the potential arbitrator’s neutrality. Section 12 is
the AAA/ABA Code of Ethics for Arbitrators in Commercial
Disputes (1977), which embodies the principle that
“arbitrators should disclose the existence of any interests
or relationships which are likely to affect their
impartiality or which might reasonably create the appearance
of partiality or bias.” . . .
The Drafting Committee decided to delete the
requirement of disclosing “any” financial or personal
interest in the outcome or “any” existing or past
relationship and substituted the terms “a” financial or
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personal interest in the outcome or “an” existing or past
relationship. The intent was not to include de minimis
interests or relationships. For example, if an arbitrator
owned a mutual fund which as part of a large portfolio of
investments held some shares of stock in a corporation
involved as a party in an arbitration, it might not be
reasonable to expect the arbitrator to know of such
investment and in any event the investment might be of such
an insubstantial nature so as not to reasonably affect the
impartiality of the arbitrator.
3. The fundamental standard of Section 12(a) is an
objective one: disclosure is required of facts that a
reasonable person would consider likely to affect the
arbitrator’s impartiality in the arbitration proceeding.
Commentary, supra, at 47-48.
Thus, pursuant to HRS § 658A-12(a), although disclosure of
de mininis interests or relationships is not required,
arbitrators must at the outset disclose, then continually
disclose throughout the course of an arbitration proceeding, any
known facts that a reasonable person would consider likely to
affect the arbitrator’s impartiality.
With respect to the duty of disclosure, we also address
several subissues of law.
a. “Counsel” Under HRS § 658A-12(a)(2) Does Not
Include All Attorneys in a Law Firm
The ICA’s ruling vacating the Arbitration Award cited to HRS
§ 658A-12(a)(2), which requires disclosure of relationships with
a party’s “counsel.” Nordic, mem. op. at 9. The ICA construed
“counsel” under HRS § 658A-12(a)(2) to include all attorneys
within the law firms of attorneys representing parties to the
arbitration.
In doing so, the ICA relied heavily on VMI, 105 F. Supp. 2d
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1118. Nordic, mem. op. at 11-13. VMI held that an arbitrator
demonstrated a “reasonable impression of partiality” where he
engaged in undisclosed ex parte discussions with VMI’s attorney
that led to his role as a mediator in an unrelated matter
involving that attorney during the pendency of the arbitration.
105 F. Supp. 2d at 1120. Although the federal district court
stated that it was “convinced that . . . both VMI’s counsel and
the Arbitrator were acting in good faith[,] . . . the
nondisclosure of the discussion and appointment . . . was clearly
a serious failing that warrants vacating the Arbitration Award.”
105 F. Supp. 2d at 1123-24. Although VMI was decided under HRS
chapter 658, which contained no specific disclosure requirements,
if decided now, the arbitrator’s nondisclosure of ex parte
communications with a party’s attorney regarding his retention as
a mediator in another case would clearly trigger HRS § 658A-
12(a)(2), which requires disclosure of “relationship[s] with any
of the parties to the agreement . . . [and] their counsel . . .
[,]” as well as the continuing obligation of disclosure under HRS
§ 658A-12(b).
The issue of law in this case, however, is whether “counsel”
under HRS § 658A-12(a)(2) includes all attorneys in a law firm
representing a party to the arbitration. For the reasons below,
we hold it does not.
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No definition of “counsel” is provided in HRS chapter 658A.
Black’s Law Dictionary, however, defines “counsel,” inter alia,
as “[o]ne or more lawyers who represent a client[.]” See Black’s
Law Dictionary 401 (9th ed. 2009). Thus, “counsel” under HRS §
658A-12(a)(2) means the attorney representing the party. In
addition, the Commentary to UAA Section 12 distinguishes its use
of the terms, “attorney,” “law firm,” and “counsel, and includes
the phrase “[i]f the parties are represented by counsel or other
authorized persons, the arbitrators can make such representations
to those individuals.” Commentary, supra, at 49 (emphasis
added). Thus, “counsel” in this context does not mean all
attorneys in a law firm.
Moreover, construing “counsel” to include all attorneys
within a law firm would contravene “the effectiveness of
arbitration as a vehicle for the resolution of disputes[,]” which
“depends in part upon the predictability of its efficiency.”
Daiichi, 103 Hawai#i at 339, 82 P.3d at 425. Many law firms now
have multiple offices throughout the United States and also
worldwide, with over 1000 attorneys. Defining “counsel” to
include all attorneys in a law firm would require arbitrators to
ascertain and review the names of all attorneys of a law firm,
and would most likely result in excessive preemptive disclosures
of relationships with attorneys in the firm. The continuing duty
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of disclosure would also require an arbitrator to keep up with
attorneys entering or leaving such law firms in order to satisfy
the continuing duty of disclosure.
Thus, as a matter of law, “counsel” under HRS § 658A-12 does
not include all attorneys in the law firm of an attorney
representing a party to an arbitration.
b. Pursuant to HRS § 658A-12(a), an Arbitrator
Must Still Disclose Any Relationships that a
Reasonable Person Would Consider Likely to
Affect the Arbitrator’s Impartiality
Although “counsel” refers only to the attorneys representing
parties to an arbitration and not all attorneys in their firms,
HRS § 658A-12(a) requires that an arbitrator disclose facts that
a reasonable person would consider likely to affect the
arbitrator’s impartiality. Depending on the circumstances, such
facts could include an arbitrator’s relationships with other
attorneys within a law firm of counsel representing a party to
the arbitration. As the ICA stated in Kay, an “arbitrator’s
failure to disclose to the parties any dealings that might create
‘an impression of possible bias’ is sufficient to support
vacatur.” 119 Hawai#i at 226, 194 P.3d at 1188 (emphasis added)
(citations omitted).
In this regard, the Texas Supreme Court held “that a neutral
arbitrator selected by the parties or their representatives
exhibits evident partiality . . . if the arbitrator does not
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disclose facts which might, to an objective observer, create a
reasonable impression of the arbitrator’s partiality.”
Burlington Northern R. Co. v. TUCO Inc., 960 S.W.2d 629, 630
(Tex. 1997). In that case, a neutral arbitrator sitting on a
panel of three failed to disclose his acceptance, during the
course of the arbitration, of a substantial referral from the law
firm of a non-neutral co-arbitrator appointed by one of the
parties to the arbitration. 960 S.W.2d at 630. The neutral
arbitrator had disclosed that the co-arbitrator’s law firm had
twice retained him as an expert witness in relatively small
matters that had concluded, but continued serving on the panel
without disclosing the subsequent substantial referral. 960
S.W.2d at 630-31.20
Even though the co-arbitrator whose firm referred the matter
to the arbitrator did not know about the referral and had no
involvement in procuring it, and despite the argument that the
relationship was “too indirect” because the law firm was neither
a party to the arbitration nor counsel for a party, the Texas
Supreme Court held “that a party who could have vetoed the
arbitrator at the time of selection may disqualify the arbitrator
20 The trial court had denied the motion to vacate. 960 S.W.2d at
632. The court of appeals concluded that a factual issue regarding evident
partiality existed, and remanded for a trial on that issue. Id. The Texas
Supreme Court found evident partiality, effectively acting as factfinder, a
procedure we decline to adopt. 960 S.W.2d at 639. In addition, although
Burlington is factually distinguishable, we refer to it to outline possible
facts to consider.
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during the course of the proceedings based on a new conflict
which might reasonably affect the arbitrator’s impartiality.”
960 S.W.2d at 637. In reaching this holding, the court explained
that “[a]n objective observer could still reasonably believe that
a person in [the arbitrator’s] position, grateful for the
referral, may have been inclined to favor [the law firm] as an
entity (and thus [the party it represented] indirectly) in the
arbitration proceedings by siding with [the co-arbitrator whose
firm referred him].” Id. (noting that the arbitrator was moved
to thank the co-arbitrator for the referral in the midst of the
arbitration proceeding). The majority in Burlington further
opined that “the fact that a reasonable person could conclude
that the referral might affect [the arbitrator’s] impartiality
triggers the duty of disclosure[]” such that his failure to
disclose the referral constitutes evident partiality. 960 S.W.2d
at 639 (The court also “fully recognize[d] that reasonable people
could debate whether the referral was likely to affect [the
arbitrator’s] impartiality.”).
2. Application to This Case
a. The Arbitrator’s Retention as a Neutral By
Attorneys of Law Firms Representing LPIHGC
The Arbitrator knew of his retention as a neutral by
attorneys of law firms representing LPIHGC. Applying the law
outlined above, on remand, the circuit court must address whether
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a reasonable person would view the three referrals for
contemporaneous work as neutral by members of LPIHGC’s law firms
likely to affect the Arbitrator’s impartiality. If so, the
Arbitrator had a duty to disclose this information.
b. Carlsmith Ball’s Representation of the
Arbitrator as Trustee of QLT
LPIHGC asserts that the Arbitrator did not know of Carlsmith
Ball’s representation of him in his capacity as trustee of the
QLT. In order to satisfy the duty of disclosure, however, HRS §
658A-12(a) requires that an arbitrator “mak[e] a reasonable
inquiry.” Thus, if the circuit court finds that this
relationship is of the nature that a reasonable person would
consider likely to affect the Arbitrator’s impartiality, the
Arbitrator had a duty of reasonable inquiry to ascertain and
disclose the information. In this case, there is no question
that such information would have become “known” had an inquiry
been made, as evidenced by the Arbitrator’s subsequent
disclosure.
With respect to whether there was a duty of disclosure, the
ICA stated that “it was incumbent upon [the Arbitrator] to
disclose this relationship with Carlsmith” because “[o]nly then
could Nordic have evaluated whether Carlsmith’s representation of
the QLT would affect Nordic’s decision on whether to select [the
Arbitrator] . . . or sought further information . . . .” Nordic,
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mem. op. at 15 (citing Schmitz v. Zilveti, 20 F.3d 1043, 1047
(9th Cir. 1994) (“The parties can choose their arbitrators
intelligently only when facts showing potential partiality are
disclosed.”)). Haitsuka, the Carlsmith Ball attorney who
directly handled the QLT matters, declared that he never
communicated with the Arbitrator on any trustee issues or
anything related to the arbitration, and had only spoken to the
QLT’s executive officers and managers. He also stated that
Carlsmith Ball has not represented the Arbitrator in his
individual capacity. In addition, since 2002, the QLT
apparently retained at least thirty-one law firms or attorneys,
including Carlsmith Ball, and Carlsmith Ball apparently also
represented parties with interests adverse to the QLT.
Nordic raises questions, however, regarding the extent of
the Arbitrator’s role and involvement in the QLT-Carlsmith
litigation matters.21 In general, a trustee does not have any
personal financial gain from trust litigation and has no personal
21 For example, Nordic cites to Hawai#i Probate Rule 42(a) as the
type of information it might have considered in its evaluation, which
provides:
An attorney employed by a fiduciary for an estate,
guardianship, or trust represents the fiduciary as client as
defined in Rule 503(a) of the Hawai#i Rules of Evidence and
shall have all the rights, privileges, and obligations of
the attorney-client relationship with the fiduciary insofar
as the fiduciary is acting in a fiduciary role for the
benefit of one or more beneficiaries or a ward.
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liability when sued as a trustee.22 Nordic asserts, however,
that in determining whether an impression of partiality exists, a
reasonable person might also consider the impact of a law firm’s
representation of the trust in assuring continuation of the
Arbitrator’s compensation as trustee. See Beebe Med. Ctr., Inc.
v. InSight Health Servs. Corp., 751 A.2d 426, 432-33 (Del. Ch.
1999) (holding that an arbitrator’s failure to disclose that the
same attorneys who were representing the arbitrator in unrelated
litigation, which “he had over $100,000 riding on,” were also
representing a party to the arbitration “is, in itself,
sufficient to constitute evident partiality”).23
The Arbitrator had a duty to disclose Carlsmith Ball’s
representation of him as a QLT trustee if a reasonable person
22 Restatement (Third) of Trusts § 106 (2012) provides:
A trustee is personally liable:
(1) on a contract entered into in the course of trust
administration only if:
(a) in so doing, the trustee committed a breach
of trust; or
(b) the trustee’s representative capacity was
undisclosed and unknown to the third party; or
(c) the contract so provides;
(2) for a tort committed in the course of trust
administration, or for an obligation arising from the
trustee’s ownership or control of trust property, only
if the trustee is personally at fault.
23 There is no admissible evidence to substantiate Nordic’s
allegation that the Arbitrator receives a six figure annual compensation as
trustee of the QLT trust.
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would consider the actual relationship between the Arbitrator and
Carlsmith Ball likely to affect his impartiality. In other
words, it is possible that facts discovered after an inquiry
would not trigger the duty of disclosure, if a reasonable person
would not consider such facts likely to affect an arbitrator’s
impartiality. Thus, upon remand, the circuit court must
determine whether the Arbitrator’s duty of reasonable inquiry
included a duty to ascertain the identities of attorneys and/or
law firms representing the QLT. If so, the circuit court must
also determine whether a reasonable person would consider the
actual relationship between the Arbitrator and Carlsmith Ball
likely to affect his impartiality such that the Arbitrator
violated his duty of disclosure by not disclosing Carlsmith
Ball’s representation of him as trustee.
D. Effect of an Arbitrator’s Failure to Disclose
1. In General
If an arbitrator fails to disclose facts that a reasonable
person would consider likely to affect his impartiality, pursuant
to HRS § 658A-12(d), “upon timely objection by a party, the court
under section 658A-23(a)(2) may vacate an award.”24
HRS § 658A-23 provides in relevant part as follows:
(a) Upon motion to the court by a party to an arbitration
24 The issue of whether “may” actually gives the circuit court
discretion to deny vacatur after finding evident partiality is addressed in
Part III.F, below.
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proceeding, the court shall vacate an award made in the
arbitration proceeding if:
(1) The award was procured by corruption, fraud, or
other undue means;
(2) There was:
(A) Evident partiality by an arbitrator
appointed as a neutral arbitrator;
(B) Corruption by an arbitrator; or
(C) Misconduct by an arbitrator prejudicing the
rights of a party to the arbitration proceeding
. . .
(4) An arbitrator exceeded the arbitrator's powers;
. . . .
As noted in Daiichi, HRS § 658A-23(a)(2)(A) now limits the
ground for vacating an award on the basis of “evident partiality”
to the “arbitrator appointed as a neutral arbitrator.” 103
Hawai#i at 339, 82 P.3d at 425.
At first glance, it may seem that after a determination that
an arbitrator failed to disclose a fact a reasonable person would
consider likely to affect his impartiality, there must also be a
separate finding that the arbitrator acted with “evident
partiality” or bias before an award can be vacated. As explained
below, however, a failure to meet disclosure requirements under
HRS § 658A-12(a) or (b) is equivalent to, or constitutes,
“evident partiality” as a matter of law.
The Commentary to UAA Section 23 merely states that “Section
23(a)(2) is based on UAA Section 12(a)(2). The reason ‘evident
partiality’ is a grounds for vacatur only for a neutral
arbitrator is because non-neutral arbitrators, unless otherwise
agreed, serve as representatives of the parties appointing them.”
Commentary, supra, at 79. The Commentary’s discussion of what
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constitutes “evident partiality” occurs entirely in the comments
regarding disclosure requirements under Section 12(a). As
reflected in the Commentary, quoted above in Part III.C.1, the
differing views on the standards of disclosure parallel the
differing views on what constitutes “evident partiality.
This correlation between the standards of disclosure and
“evident partiality” is also reflected in our case law. As this
court stated in Daiichi:
Insofar as section 10(b) of the Federal Arbitration Act (9
U.S.C. § 1 et seq.) is the federal counterpart of HRS §
658–9(2), this jurisdiction’s appellate courts have
consistently relied on federal case law in ascertaining what
constitutes “evident partiality” under HRS § 658–9(2).
What constitutes “evident partiality” sufficient to
vacate an arbitration award is a difficult question.
Under Hawai#i law, “evident partiality” sufficient to
vacate an arbitration award may be demonstrated when a
conflict of interest exists with the arbitrator. That
is, when an arbitrator has a personal, professional,
or business relationship with a party, its counsel,
principal, or agent, a conflict of interest may arise
sufficient to justify vacating that arbitration award.
Hawai#i courts have explained that evident partiality
not only exists when there is actual bias on the part
of the arbitrator, but also when undisclosed facts
demonstrate a “reasonable impression of partiality.”
103 Hawai#i at 339-40, 82 P.3d at 425-26 (quoting VMI, 105 F.
Supp. 2d at 1124) (emphasis added) (internal citations omitted).
HRS § 658A-12 has explicitly adopted a requirement to
disclose facts a reasonable person would find likely to affect an
arbitrator’s impartiality. Pursuant to Daiichi, “evident
partiality” exists not only when there is actual bias on the part
of an arbitrator, “but also when undisclosed facts demonstrate a
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reasonable impression of partiality.” 103 Hawai#i at 340, 82
P.3d at 426 (internal quotation marks and citations omitted).
Therefore, a failure to disclose facts a reasonable person would
consider likely to affect the arbitrator’s impartiality
constitutes “evident partiality” under HRS § 658A-23(a)(2).
We also point out a few additional sections within HRS
chapter 658A that may become relevant in the circuit court’s
evidentiary hearing on remand. First, “[t]he burden of proving
facts which would establish a reasonable impression of partiality
rests squarely on the party challenging the award.” 103 Hawai#i
at 339, 82 P.3d at 425 (quoting Sheet Metal Workers Int’l Ass’n
Local Union 420 v. Kinney Air Conditioning Co., 756 F.2d 742, 745
(9th Cir. 1985)). Also, HRS § 658A-12(e) provides, in relevant
part:
An arbitrator appointed as a neutral arbitrator who does not
disclose a known, direct, and material interest in the
outcome of the arbitration proceeding or a known, existing,
and substantial relationship with a party is presumed to act
with evident partiality under section 658A-23(a)(2).
Finally, HRS § 658A-14(d)(2) (Supp. 2010) provides, in pertinent
part:
In a judicial, administrative, or similar proceeding, an
arbitrator or representative of an arbitration organization
is not competent to testify, and shall not be required to
produce records as to any statement, conduct, decision, or
ruling occurring during the arbitration proceeding, to the
same extent as a judge of a court of this State acting in a
judicial capacity. This subsection does not apply:
. . .
(2) To a hearing on a motion to vacate an award under
section 658A-23(a)(1) or (2) if the movant establishes
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prima facie that a ground for vacating the award
exists.
Thus, an arbitrator can be called to testify at an evidentiary
hearing only if a party establishes prima facie that a ground for
vacatur exists.
2. Application to This Case
LPIHGC repeatedly cites to the following excerpt from
Daiichi:
[t]he mere fact of a prior relationship is not in and of
itself sufficient to disqualify arbitrators. The
relationship between the arbitrator and the party’s
principal must be so intimate–personally, socially,
professionally, or financially—as to cast serious doubt on
the arbitrator’s impartiality. If all arbitrators’
relationships came into question, finding qualified
arbitrators would be a difficult, sometimes impossible,
task.
(quoting 103 Hawai#i at 342, 82 P.3d at 428 (alteration in
original) (quoting Washburn, 895 F. Supp. at 399)).
This principle is, however, inapplicable to this case as
Daiichi addressed non-neutral arbitrators under a statutory
scheme that contained no explicit disclosure requirements.
Although non-neutral arbitrators are now held to the same
standard of disclosure as neutral arbitrators, vacatur for
evident partiality under HRS § 658A-23(a)(2)(C) applies only when
a neutral arbitrator fails to make the required disclosures.25
25 According to the Commentary to UAA Section 12, “[a] party-
appointed, non-neutral arbitrator’s failure to disclose would be covered under
the corruption and misconduct provisions of Section 23(a)(2) because in most
cases it is presumed that a party arbitrator is intended to be partial to the
side which appointed that person.” Commentary, supra, at 49.
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Thus, upon remand, Nordic bears the burden of proving
evident partiality, i.e., the failure to disclose facts that a
reasonable person would consider likely to have affected the
Arbitrator’s impartiality.
We note that LPIHGC’s assertion that the ICA improperly
applied the presumption under HRS § 658A-12(e) in vacating the
award lacks merit. Contrary to LIPHGC’s assertion, the ICA’s
Memorandum Opinion expressly states that “[t]his presumption . .
. does not apply where the failure to make required disclosures
concerns the arbitrator’s relationship to a party’s counsel.”
Nordic, mem. op. at 10 n.4 (citing HRS §§ 658A-12(d),
658A23(a)(2)(A)).
E. Timeliness and Waiver of Objections
1. In General
As noted earlier, HRS § 658A-12(d) provides “[i]f the
arbitrator did not disclose a fact as required by subsection (a)
or (b), upon timely objection by a party, the court under section
658A-23(a)(2) may vacate an award.” In addition, a party who has
actual or constructive knowledge of a relationship of the
arbitrator requiring disclosure but “fails to raise a claim of
partiality . . . prior to or during the arbitration proceeding is
deemed to have waived the right to challenge the decision based
on ‘evident partiality.’” Daiichi, 103 Hawai#i at 345-46, 82
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P.3d at 431-32 (“In the arbitration context, waiver has been
defined as consisting of knowledge, actual or constructive, in
the complaining party of the tainted relationship or interest of
the arbitrator and the failure to act on that knowledge.”)
(internal quotations and citations omitted).
As noted in Daiichi at footnote 17, “the question [of]
whether a valid waiver exists is generally a question of fact,
[however] ‘when the facts are undisputed it may become a question
of law.’” 103 Hawai#i at 346 n.17, 82 P.3d at 432 n.17 (quoting
Hawaiian Homes Comm’n v. Bush, 43 Haw. 281, 286 (Terr. 1959)).
2. Application to This Case
To determine whether the initial disclosure put the parties
on notice of the relationships, the ICA analyzed the Arbitrator’s
use of the present perfect tense in his disclosure, in which he
stated, “[s]ince retirement, I have served as a neutral for
counsel and members of their law firms[,]” and found that it
referred only to “engagements completed in the past.” Nordic,
mem. op. at 17. The ICA also found the following:
[W]hile [the Arbitrator’s] initial disclosure provided some
notice of his role as a neutral arbitrator in cases
involving the parties’ counsel, it failed to make any
reference, or provide any notice, of his role as a trustee
of the QLT and Carlsmith Ball’s representation of the QLT.
Thus, unlike the issue of [the Arbitrator’s] work as an
arbitrator in unrelated arbitrations involving the Carlsmith
Ball and Starn O’Toole firms, the issue of [the
Arbitrator’s] role as a trustee of the QLT and Carlsmith
Ball’s representation of the QLT was not raised at all in
[the Arbitrator’s] initial disclosure.
LPIHGC argued, however, that the Arbitrator’s initial
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disclosure (“Since retirement, I have served as a neutral . . .
.”) “is in present-perfect tense[]” and “denotes that the
Arbitrator’s work as a neutral began in the past, continued
thereafter, and may still be continuing.” (emphasis omitted).
The ICA concluded that “[t]o the extent that there is no showing
that Nordic was aware of [the Arbitrator’s] contemporaneous work
as a neutral with Carlsmith Ball and Starn O’Toole prior to
issuance of the Award, Nordic has not waived its right to claim
evident partiality.” Nordic, mem. op. at 17. The meaning of the
initial disclosure is a disputed question of fact that can be
addressed by the circuit court on remand if appropriate.
In addition, this court has recognized that “[a] respectable
number of federal jurisdictions have invoked the waiver principle
under circumstances in which the complaining party knew or should
have known of the potential partiality of an arbitrator but
failed to raise an objection to the arbitrator’s appointment
prior to the arbitration decision.” 103 Hawai#i at 346, 82 P.3d
at 432 (citing cases from the 1st, 2nd, 3rd, and 8th circuits).
In addition, courts do not endorse the “wait and see approach.”
103 Hawai#i at 348, 82 P.3d at 434 (citing Hobet Mining, Inc. v.
Int’l Union, United Mine Workers of Am., 877 F. Supp. 1011, 1019
(S.D.W.Va. 1994) (“[W]here information about an arbitrator is not
known in advance, but could have been ascertained by more
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thorough inquiry or investigation, a post-award challenge
suggests that nondisclosure is being raised merely as a ‘tactical
response to having lost the arbitration’ or an inappropriate
attempt to seek a ‘second bite at the apple’ because of
dissatisfaction with the outcome.”) (citations omitted)).
Nordic never responded to LPIHGC’s questions regarding when
its representatives or its attorneys discovered Carlsmith Ball’s
representation of the Arbitrator as trustee of the QLT. Notably,
only Oshiro’s declaration asserting lack of knowledge was
submitted with Nordic’s motion to vacate; declarations were not
submitted by Nordic’s other counsel in the arbitration hearings.
Due to the lack of an evidentiary hearing, there are no
findings regarding the actual or constructive knowledge of
Nordic’s representatives or counsel, including when Nordic’s
representatives or other counsel actually discovered the
Arbitrator’s position as a trustee of the QLT, and Carlsmith
Ball’s representation of him in that capacity, assuming the
Arbitrator’s duty of reasonable inquiry required disclosure of
such facts, as discussed previously. There are also no findings
as to when Nordic or its other attorneys learned of the
Arbitrator’s additional retention as a neutral by other attorneys
in LPIHGC’s counsel’s law firms. Therefore, on remand, if
necessary, the circuit court can determine the sufficiency of the
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initial disclosure, Nordic’s actual or constructive knowledge,
and the timeliness of Nordic’s objection to determine whether
Nordic waived its right to claim evident partiality.
F. Circuit Court Discretion Under HRS § 658A-12(d)
1. In General
Finally, HRS § 658A-12(d) provides that “(i)f the arbitrator
did not disclose a fact as required by subsection (a) or (b),
upon timely objection by a party, the court under section
658A-23(a)(2) may vacate an award.” As noted by the Commentary
to UAA Section 12(d), “[c]ourts also are given wider latitude in
deciding whether to vacate an award under Section 12(c)[26] and
(d) that is permissive in nature (an award “may” be vacated)
rather than Section 23(a) which is mandatory (a court “shall”
vacate an award).” Commentary, supra, at 50.
2. Application to This Case
Nordic brought its motion to vacate under HRS § 658A-23(a),
citing its mandatory “shall vacate an award” language. If the
circuit court reaches this point of the analysis on remand, it
has discretion under HRS § 658A-12(d) to decide whether or not to
grant the motion to vacate. Any such ruling of the circuit court
26 HRS § 658A-12(c) provides:
If an arbitrator discloses a fact required by subsection (a)
or (b) to be disclosed and a party timely objects to the
appointment or continued service of the arbitrator based
upon the fact disclosed, the objection may be a ground under
section 658A-23(a)(2) for vacating an award made by the
arbitrator.
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under HRS 658A-12(d) will be reviewed under an abuse of
discretion standard.
IV. Conclusion
This court stated in Daiichi:
It is generally considered that parties resort to
arbitration to settle disputes more expeditiously and
inexpensively than by a court action; and also that the
objective is to have disputes considered by arbitrators, who
are familiar with the problem, in a less formal and
combative environment. Thus, it must be deemed that the
primary purpose of arbitration is to avoid litigation.
103 Hawai#i at 339, 82 P.3d at 425 (quoting Mars Constructors,
Inc., 51 Haw. at 334, 460 P.2d at 318-19).
As further noted in Daiichi,
The arbitration process functions best when an amicable and
trusting atmosphere is preserved and there is voluntary
compliance with the decree, without need for judicial
enforcement. This end is best served by establishing an
atmosphere of frankness at the outset, through disclosure by
the arbitrator of any financial transactions which he has
had or is negotiating with either of the parties. In many
cases the arbitrator might believe the business relationship
to be so insubstantial that to make a point of revealing it
would suggest he is indeed easily swayed, and perhaps a
partisan of that party. But if the law requires the
disclosure, no such imputation can arise. And it is far
better that the relationship be disclosed at the outset,
when the parties are free to reject the arbitrator or accept
him with knowledge of the relationship and continuing faith
in his objectivity, than to have the relationship come to
light after the arbitration, when a suspicious or
disgruntled party can seize on it as a pretext for
invalidating the award.
103 Hawai#i at 341, 82 P.3d at 427 (quoting Commonwealth
Coatings, 393 U.S. at 150-52 (White, J., concurring)).
HRS chapter 658A now imposes clear standards for disclosure.
Prompt and continuous disclosures, whether or not required, will
better serve the efficiency goals of arbitration by helping to
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avoid motions to vacate and lengthy judicial review, as in this
case.
In the instant case, however, it is for the circuit court as
factfinder, not an appellate court, to determine whether
reasonable inquiry and disclosure standards were met, and if not,
whether the Arbitration Award should be vacated for this or any
other reason alleged. Although entry of findings of fact and
conclusions of law are not required on all motions to vacate as
long as the circuit court’s reasoning is clearly stated on the
record, due to the numerous issues in this case, to allow
appropriate appellate review, the circuit court is to conduct an
evidentiary hearing and render findings of fact and conclusions
of law.
Accordingly, we vacate the ICA’s Judgment on Appeal and
remand to the circuit court for further proceedings consistent
with this opinion.
Terence J. O’Toole, /s/ Paula A. Nakayama
Judith Ann Pavey, and
John P. Manaut /s/ Sabrina S. McKenna
for petitioner
/s/ Richard W. Pollack
Kenneth R. Kupchak,
Anna H. Oshiro, /s/ Steven S. Alm
Robert H. Thomas,
and Mark M. Murakami /s/ Karl K. Sakamoto
for respondent
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