Westin Hotel Co. v. Universal Investment, Inc. , 72 Haw. 178 ( 1991 )

OPINION OF THE COURT BY

PADGETT, J.

This is an appeal from an order denying a motion to confirm an arbitration award. The appellee below raised two contentions. First, that there was no agreement to arbitrate, and that consequently the arbitrator had no jurisdiction to make the award. Second, appellee contended that the court below did not have personal jurisdiction over it because of a lack of sufficient nexus between its activities and the State of Hawaii. The judge below did not articulate whether the order below was entered because he upheld the first ground, or the second ground, or both.

Although the order below was not an order described in HRS § 658-15, we nevertheless hold that we have jurisdiction over this appeal. In Association of Owners of Kukui Plaza v. Swinerton & Walberg Co., 68 Haw. 98, 705 P.2d 28 (1985), we held that an order refusing a stay of proceedings pending arbitration requested under HRS § 658-5, and an order refusing to compel arbitration, which had been applied for under HRS § 658-3, were appealable orders, because they finally adjudicated the question of the right to arbitration.

In the present case the issue of whether or not there existed an agreement to arbitrate, and thus a right to arbitration, was urged in the court below, by the appellee, in response to the motion to confirm the award. Under HRS § 658-3 that issue could, and should, have been raised by the appellee when the demand for arbitration was first made. If it had been, then a proceeding as outlined in HRS § 658-3 could have been brought by the appellant, a court determination made, and the determination either way would have been appealable under the Swinerton decision, without the expense and delay of going all the way through the arbitration proceeding.

Appellee’s tactic of failing to respond to the demand for arbitration, and delaying raising the question of the existence of an agreement to arbitrate until a later stage of the proceedings, does not defeat our jurisdiction.

If the denial of confirmation was based on appellee’s contention that the arbitrator lacked personal jurisdiction over the appellee, that issue was also appealable.

The factual background of this case is that on July 29, 1988, one Mitzie Calder on behalf of Travel Selections, Inc., an alleged agent of appellee Universal Investment Company, entered into an agreement for certain hotel accommodations in July of 1989 with the Westin Kauai Hotel. That agreement contained a liquidated damages provision should the hotel reservations be cancelled, and an arbitration clause.¹

The agreement executed by Calder on July 29 was dated July 22, 1988. Appellant’s claim is that Calder was authorized to execute it by a letter agreement which she claimed to have made with appellee on July 27,1988. The dispute seems to be whether or not Paul M. Biko, the president of appellee (who had been the person who made the arrangements with Calder the previous year, and had signed the documents for that year) in fact signed the July 27,1988 letter.

Appellant was in possession of what purported to be a signed copy of the July 27, 1988 letter agreement, and of the agreement executed by Calder on July 29,1988. Therefore, when Calder notified appellant that the accommodations were to be cancelled, appellant invoked the liquidated damages clause in the agreement, and made a demand dated October 20,1989, for arbitration on the appropriate American Association of Arbitration form, which demand, appellee admits it received.

Pursuant to the demand on November 30,1989, the American Arbitration Association, by letter to Walter H. Ikeda, Esq., named him arbitrator, sending copies thereof to appellant’s attorney and to appellee. Appellee did not respond to the demand, or to the notification of the naming of the arbitrator, nor did it appear at the arbitration hearing.

After the arbitrator had heard the evidence submitted by the appellant, he directed the American Arbitration Association to inform appellee that it would have an additional opportunity to submit any evidence in writing that it wished the arbitrator to consider. This was done by a letter to appellant’s attorney and to the appellee dated February 16, 1990. In response thereto, on February. 22, 1990, an attorney named Steven A. Stepanian, II, on behalf of appellee, sent a letter to the American Arbitration Association contending that there was no written contract or agreement between appellee and appellant, and that, since appellee allegedly conducted no business in Hawaii, no Hawaii federal or state courts had jurisdiction over it. Attached to the letter was a copy of the July 27, 1988 letter from Travel Selections to appellee but this copy did not bear a purported signature of Paul Biko. Also attached was a copy of a letter from Travel Selections to appellee dated September 9,1988 which purported to embody the complete agreement of services and accommodations to be furnished by Travel Selections at the Westin Kauai for the 1989 trip, which again was not signed by Mr. Biko.

Counsel’s letter concluded:

Based on the foregoing, UIC hereby requests the American Arbitration Association to dismiss this proceeding against UIC with prejudice. By such request UIC does not waive any of its rights to proceed against Westin Hotel Company for actual and punitive damages as a result of the institution of this proceeding.

The arbitrator subsequently issued his decision and award. In so doing, he made findings of fact and conclusions of law, expressly holding against the appellee on its two claims (a) that there was not a contract to arbitrate or any contract at all for that matter with Westin Kauai and (b) that there was no personal jurisdiction over appellee because of a lack of contacts with Hawaii.

Appellant then moved the court below to confirm the award, and appellee opposed the same on the two “jurisdictional” grounds. The court below, without giving a reason for its ruling, denied the motion to confirm the award and this appeal followed.

Under HRS § 658-1, a provision in a written contract to settle by arbitration a controversy thereafter arising out of the contract, or the refusal to perform the whole, or any part thereof, is valid, enforceable, and irrevocable, save only upon such grounds as exist for the revocation of any contract.

HRS § 658-3 provides in part:

A party aggrieved by the failure, neglect, or refusal of another to perform under an agreement in writing providing for arbitration, may apply to the circuit court for an order directing that the arbitration proceed in the manner provided for in the agreement. Five days’ notice in writing of the application shall be served upon the party in default. Service thereof shall be made in the manner provided for service of a summons. The court shall hear the parties, and upon being satisfied that the making of the agreement or the failure to comply therewith is not in issue, the court hearing the application shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. If the making of the agreement or the default is in issue, the court shall proceed summarily to the trial thereof.

Appellee contends that it was under no obligation to bring to the attention of the appellant, the arbitrator, or the American Arbitration Association its contention that there was no agreement for arbitration, that it could let the proceedings go forward, and not raise that issue until there was a motion to confirm the award. As we have said before with respect to HRS Chapter 658:

[T]he proclaimed public policy ... is to encourage arbitration as a means of settling differences and thereby avoid litigation.

Gregg Kendall & Assoc., Inc. v. Kauhi, 53 Haw. 88, 93, 488 P.2d 136, 140 (1971). As we noted in Swinerton, on a motion to compel arbitration, a decision by the court either way is appealable. The question we are presented with is whether a party, faced with a properly made demand for arbitration, based on a purported written arbitration agreement, must, under HRS § 658-3, seasonably raise the claim of a lack of a contract for arbitration when the demand is made upon the party, or whether the party can stand mute, permit the arbitration proceedings to go forward and raise the issue when there is a motion to confirm the award.

We hold that the public policy of encouraging arbitration, and of simplifying proceedings, requires a party, properly notified of a demand, based on a written arbitration provision, for arbitration of an issue, which it does not believe to be arbitrable, to seasonably make its contention of non-arbitrability known to the other party, so that the party may have the opportunity of proceeding in accordance with HRS § 658-3, before incurring the expense and delay of the arbitration proceedings.

The claim of non-arbitrability along with the claim of lack of personal jurisdiction was first raised by appellee in attorney Stepanian’s letter responding to the request to submit evidence. Evidence on the issue of whether or not there was a contract for arbitration was submitted with that letter. The letter requested that the arbitrator dismiss the proceedings with prejudice. The arbitrator, obviously believing that the letter had submitted the issues of arbitrability and personal jurisdiction to him, proceeded to rule upon them, and appellant argues that the letter constituted a submission by appellee of those issues to the arbitrator.

Micheál C. Webb for appellant. Michael R. Marsh (Wesley W. Ichida and Lyle M. Ishida with him on the brief; Case & Lynch, of counsel) for appellee.

As we have pointed out, the letter asked for a dismissal of the arbitration proceedings with prejudice and provided that appellee was not waiving its rights to proceed against appellant for actual and punitive damages as a result of the institution of the proceedings. With respect to the issue of arbitrability, the letter was not, in the circumstances of this case, a seasonable raising of the issue. With respect to the issue of personal jurisdiction, had there been no request that the arbitrator dismiss the case with prejudice, it would not have been submitted and could have been raised on the motion to confirm.

We agree with the appellant, and the arbitrator, that the last paragraph of that letter did submit to the arbitrator, for decision, the two issues of arbitrability and personal jurisdiction because a dismissal of the proceedings with prejudice was sought.

We further agree with appellant that the two issues having been submitted to the arbitrator, the circuit court had no power to do anything other than confirm the arbitrator’s award, since no motion to vacate, modify or correct the award as provided in HRS §§ 658-9 and -10 was filed.

We therefore reverse the order denying the motion to confirm the award, and remand the case for an entry of a judgment in favor of the appellant in accordance with the terms of the arbitration award as provided in HRS § 658-8.

1 Mitzie Calder had contracted with Westin Kauai as agent for Universal Investment Company, for similar accommodations in the year 1988.