Gabriel v. Island Pacific Academy. , 140 Haw. 325 ( 2017 )


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  •   ***   FOR PUBLICATION IN WEST’S HAWAII REPORTS AND PACIFIC REPORTER   ***
    Electronically Filed
    Supreme Court
    SCAP-15-0000912
    13-JUN-2017
    08:00 AM
    IN THE SUPREME COURT OF THE STATE OF HAWAII
    ---oOo---
    ________________________________________________________________
    LAURA GABRIEL, Plaintiff/Appellant-Cross-Appellee,
    vs.
    ISLAND PACIFIC ACADEMY, INC., a domestic nonprofit corporation;
    JOHN DOES 1-10; JANE DOES 1-10; DOE CORPORATIONS 1-10;
    DOE PARTNERSHIPS 1-10; DOE UNINCORPORATED ORGANIZATIONS 1-10;
    AND DOE GOVERNMENTAL AGENCIES 1-10,
    Defendants/Appellees-Cross-Appellants.
    ________________________________________________________________
    SCAP-15-0000912
    APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT
    (CAAP-15-0000912; CIV. NO. 15-5-0852-05)
    JUNE 13, 2017
    RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.
    OPINION OF THE COURT BY McKENNA, J.
    I. Introduction
    At issue in this case is whether it is unconscionable to
    require an employee to pay half the estimated arbitration costs
    up front in order to access the arbitral forum.            We hold that,
    under the circumstances of this case, such a requirement is
    unconscionable and unenforceable.       We further hold that, in this
    case, striking this requirement in the arbitration provision
    provides an insufficient remedy; rather, the entire arbitration
    provision must be invalidated.
    II.   Background
    A.   Facts
    Laura Gabriel (“Gabriel”) taught physical education at
    Island Pacific Academy (“IPA”) from 2006 through 2014.        Gabriel
    and IPA contracted for her employment annually.        In December
    2013, one of her 8th grade male students dropped his water
    bottle, and water hit Gabriel.     She remarked, “Why are you guys
    always getting me wet?” which prompted three of her male
    students to snicker that the boys in the class were always
    getting Gabriel wet.    Gabriel surmised that she was the butt of
    a sexual joke and reported the incident as sexual harassment to
    IPA administration.    The Secondary Principal, Kip Cummings, told
    Gabriel that she would no longer be teaching the class
    containing those male students.        Ms. Cummings also expressed her
    concern over parent complaints about Gabriel’s class.        Ms.
    Cummings said she could not trust Gabriel and would not support
    her when parents complain.
    Three months after this incident, in March 2014, IPA issued
    Gabriel an employment agreement for the 2014-2015 school year
    2
    and requested her signature on it by April 2014.            The employment
    agreement contained the following arbitration provision:
    L. Arbitration. The parties desire that any dispute
    concerning the Agreement be handled out of court.
    Accordingly, they agree that any such dispute shall, as the
    parties’ sole and exclusive remedy, be submitted to an
    arbitrator licensed to practice law in the State of Hawaii
    and selected in accordance with the standard procedures of
    Dispute Prevention Hawaii [sic]. The arbitrator will not
    be entitled to add to or subtract from its terms. Should
    either party start any legal action or administrative
    proceeding against the other with respect to any claim
    related to this Agreement, or pursue any method of
    resolution of a dispute other than mutual agreement of the
    parties or arbitration, then all damages, costs, expenses
    and attorneys’ fees incurred by the other party as a result
    shall be the responsibility of the one bringing the suit or
    starting the proceeding.[1]
    The employment agreement also provided that “[t]he parties agree
    that this contract shall be interpreted in accordance with the
    laws of the state of Hawaii. . . .”         Gabriel timely signed and
    submitted the employment contract.         Gabriel alleged that the
    Headmaster informed her that her employment contract was not
    going to be honored because Ms. Cummings did not want to work
    with her.    Gabriel’s last day with IPA was in June 2014.
    In October 2014, Gabriel filed her charge of discrimination
    with the Hawaii Civil Rights Commission (“HCRC”), to be filed
    with the United States Equal Employment Opportunity Commission,
    alleging retaliation.      The HCRC issued Gabriel a right to sue
    letter in February 2015.
    1
    The 2013-2014 employment agreement between Gabriel and IPA contained an
    identical agreement to arbitrate.
    3
    B.   Gabriel’s First Amended Complaint
    In May 2015, Gabriel filed her First Amended Complaint with
    the Circuit Court of the First Circuit.2          She alleged that IPA
    refused to hire her for the 2014-2015 school year in retaliation
    for her sexual harassment complaint, in violation of HRS § 378-
    2(2) (2015), and that IPA’s actions resulted in intentional
    infliction of emotional distress (“IIED”).          She sought back pay,
    front pay, and all employee benefits that she would have
    enjoyed, as well as general and punitive damages for IIED.
    C.   IPA’s Motion to Compel Arbitration
    IPA filed a Motion to Compel Arbitration.          IPA, through
    counsel, averred that Gabriel was terminated due to a reduction
    in force because of insufficient enrollment, not due to
    discriminatory retaliation.       IPA pointed out that subsection
    H(e)3 of the employment agreement provided for termination due to
    business conditions.      Should the employee be terminated for that
    reason, IPA noted that subsection H of the employment agreement
    provided for the continuation of the arbitration obligation.
    IPA asked the circuit court to stay the proceedings pending
    arbitration.    IPA also sought an award of its attorney’s fees
    2
    The Honorable Karen T. Nakasone presided.
    3
    Subsection H(e) of the employment agreement is titled “Termination Due
    to Business Conditions.” It states, “As necessary as determined by the
    school due to business conditions, including, but not limited to,
    insufficient enrollment, unsuitability of facilities, change in curriculum,
    or elimination of position, all is determined in the School’s sole
    discretion.”
    4
    and costs for bringing the motion to compel arbitration,
    pursuant to the employment agreement’s arbitration provision.
    IPA also contended that an award of attorney’s fees and costs
    could also be made pursuant to the circuit court’s inherent
    power, arguing that any opposition to IPA’s motion would be
    frivolous.
    Gabriel opposed IPA’s motion to compel arbitration.      She
    argued that she and IPA had not entered into the 2014-2015
    employment agreement (IPA had not signed the agreement) and no
    consideration was given under the agreement; therefore, IPA was
    foreclosed from attempting to enforce the agreement’s
    arbitration provision.   Assuming there was a valid agreement to
    arbitrate, Gabriel argued that her civil rights claim was beyond
    its scope.   Furthermore, she argued, the arbitration agreement
    was unenforceable because it was included in an employment
    agreement that constituted a contract of adhesion, offered to
    Gabriel on a “take-it-or-leave-it” basis.   Gabriel also argued
    that the arbitration provision was unconscionable because it
    required her to pay for the arbitration costs in a civil rights
    matter.   Lastly, Gabriel opposed IPA’s request for attorney’s
    fees and costs under the arbitration provision, arguing that the
    provision was unenforceable.   Gabriel also opposed an award of
    fees and costs under the circuit court’s inherent power, arguing
    5
    that    her opposition to the motion to compel arbitration was not
    frivolous.
    The circuit court held a hearing on IPA’s motion to compel
    arbitration.     Although the arbitration provision states that the
    parties shall submit disputes concerning the employment
    agreement “to an arbitrator licensed to practice law in the
    State of Hawaii and selected in accordance with the standard
    procedures of Dispute Prevention Hawaii [sic]” (emphasis added),
    the parties and the court assumed that Dispute Prevention and
    Resolution, Inc. (“DPR”) would be the arbitral body.             The
    circuit court directed the parties to enter DPR’s standard
    procedures into the record.        The circuit court also asked the
    parties to submit supplemental briefing addressing whether the
    arbitration provision was unconscionable because DPR’s standard
    procedures required the parties to split arbitration fees.
    D.   Supplemental Briefing
    DPR’s standard procedures were entered into the record.          In
    her supplemental brief, Gabriel quoted the following material
    from DPR’s rules to show that she would have to pay for half of
    the cost of arbitration, and would be required to pay and submit
    half of the deposit for the fees of the arbitrator prior to the
    arbitration:
    I. DPR FEES & COSTS
    . . . .
    Any out-of-pocket expenses incurred by the DPR appointed
    neutral (e.g., air fare, lodging, meals) in conjunction
    6
    with a DPR proceeding are to be borne equally by the
    parties and shall be paid to the appointed neutral from
    funds deposited by the parties with DPR for that purpose.
    . . . .
    II. ADVANCE DEPOSITS & REFUNDS
    DPR policy requires that each party submit advance
    deposits toward the anticipated fees and expenses of the
    DPR appointed neutral on an equal or pro rata basis. DPR
    may require the parties to submit additional deposits
    during the pendency of the arbitration proceeding based on
    the expected duration of the matter. DPR and the DPR
    appointed neutral reserve the right to suspend their
    services for non-payment by any party. In the event of
    inadequate or non-payment of requested deposits by a party,
    DPR may request that the other party(s) involved in the
    proceeding submit additional deposits to assure that an
    adequate sum is available to compensate the DPR neutral.
    . . . .
    Gabriel’s supplemental brief was accompanied by a declaration in
    which she averred that she was without a full-time job, having
    financial difficulty, and unable to pay for the costs of
    arbitration.4    Gabriel also cited out-of-jurisdiction cases for
    the proposition that courts have found arbitration agreements
    unconscionable where the putative grievant is made to pay for
    arbitration costs in a civil rights matter.
    In its supplemental brief, IPA first argued that the
    arbitration agreement did not require cost-splitting and was, in
    fact, silent on the issue of fees and costs; all the arbitration
    agreement required was selection of a neutral arbitrator “in
    accordance with the standard procedures of Dispute Prevention
    Hawaii [sic].”     IPA pointed out that the final payment of fees
    and costs is determined by the arbitrator according to HRS §
    4
    Elsewhere in the record, there is evidence that IPA paid Gabriel
    $35,000 the first year she taught (2006-2007); $36,400 the following year
    (2007-2008); and would have paid Gabriel $45,000 for the 2014-2015 school
    year.
    7
    658A-21(d) (2016).5     Consequently, IPA argued, Gabriel’s claim
    that she will incur costs in arbitration that will prevent her
    from vindicating her rights is “completely speculative” and an
    insufficient basis for refusing to compel arbitration under
    Green Tree Fin. Corp.-Alabama v. Randolph, 
    531 U.S. 79
    (2000).
    IPA then argued that, if the circuit court was persuaded
    that the cost of arbitration would be prohibitively expensive
    for Gabriel, it should sever any arguably unconscionable
    provision or interpret the parties’ agreement to require
    arbitration under conditions that the Court believes are
    necessary to allow Gabriel the ability to vindicate her rights.
    IPA considered the possibility that Gabriel might have to pay
    half of the arbitration deposit to be the only arguably
    unconscionable aspect of the agreement.          The 2014-2015
    employment agreement did contain a severability clause that
    states, “Should any provision of this contract be invalidated by
    a court of law with proper jurisdiction, the remaining
    provisions shall remain in full force and effect.”
    E.   The Parties’ Arbitration Cost Estimates
    The circuit court then ordered the parties to submit an
    estimate of arbitration costs from DPR for this case.             Gabriel’s
    counsel estimated that it would take three and one half days to
    put on Gabriel’s case, and IPA’s counsel estimated that it would
    5
    HRS § 658A-21(d) states, “An arbitrator’s expenses and fees, together
    with other expenses, shall be paid as provided in the award.”
    8
    take half a day to put on its case.     At Gabriel’s counsel’s
    request, DPR Case Manager Kelly Bryant estimated that it would
    cost $20,418.84 for a four-day arbitration.     Bryant informed
    Gabriel’s counsel that each party would need to remit a
    $10,200.00 deposit to DPR.     After previously telling Gabriel’s
    counsel that the defense portion of the arbitration would take
    half a day, IPA’s counsel estimated that the entire arbitration
    would take half a day.     At IPA’s counsel’s request, Bryant
    estimated that the total cost would be $2,748.69 and that she
    would ask each party for a deposit of $1,375.00.
    F.   The Circuit Court’s Order Granting IPA’s Motion to Compel
    Arbitration
    The circuit court granted IPA’s motion to compel
    arbitration, on the condition that IPA pay all of the
    arbitrator’s fees in connection with the resolution of Gabriel’s
    claims.   The circuit court first concluded that the parties
    entered into a valid employment contract when Gabriel returned
    the signed 2014-2015 employment Agreement.     The circuit court
    concluded that IPA terminated the 2014-2015 employment Agreement
    according to its terms, for business reasons.     The circuit court
    concluded that the arbitration agreement was broad enough to
    encompass Gabriel’s claim that IPA refused to renew her
    employment for the 2014-2015 academic year due to discriminatory
    retaliation against her.     The circuit court found that the
    9
    arbitration agreement was supported by consideration, as both
    parties mutually agreed to arbitrate and forgo the right to
    litigate in court.   Even though Gabriel was not hired for the
    2014-2015 school year, the circuit court found that she was
    bound by the 2014-2015 employment agreement’s terms, analogizing
    Gabriel’s case to failure-to-hire cases.    The circuit court also
    concluded that the absence of an IPA agent’s signature on the
    2014-2015 employment agreement was not a basis for avoiding
    arbitration, where the agreement manifests the employer’s intent
    to be bound by the arbitration provision.
    The circuit court, however, concluded that the arbitration
    agreement was unconscionable as applied, because it effectively
    requires Gabriel to pay for arbitration costs to adjudicate her
    statutory civil rights claim in an arbitral forum, and that she
    would not have to bear such costs by bringing her action in a
    judicial forum.   The circuit court concluded that the
    arbitration clause was procedurally unconscionable as a contract
    of adhesion because it was the result of coercive bargaining
    between parties of unequal bargaining strength.    The circuit
    court reasoned that the employment agreement was drafted and
    proffered by IPA, the stronger of the contracting parties; the
    employment agreement was offered to Gabriel on a take-it-or-
    leave-it basis; Gabriel was given only a few weeks to review and
    sign the 2014-2015 employment agreement, which contained the
    10
    arbitration provision; the employment agreement required Gabriel
    to certify that she sought employment only with IPA; and Gabriel
    was given no opportunity to modify the terms of the employment
    agreement.    The circuit court also concluded that the
    arbitration clause was substantively unconscionable because it
    unfairly limits the obligations of and unfairly advantages IPA,
    the stronger party, by compelling Gabriel, the weaker party, to
    split the arbitration costs.    The circuit court supported its
    conclusion with a citation to Cole v. Burns Int’l Sec. Servs.,
    
    105 F.3d 1465
    (D.C. Cir. 1997).
    Although the circuit court noted that the arbitration
    agreement did not contain an express provision regarding payment
    or sharing of arbitration fees and costs, it noted that the
    arbitration agreement required the parties to arbitrate through
    DPR.    The circuit court deemed Gabriel’s $20,418.84 arbitration
    estimate to be reasonable, and noted that Gabriel would have to
    pay roughly half of this amount as a deposit.    The circuit court
    found it unconscionable that Gabriel would have to pay a
    $10,200.00 deposit to even access the arbitral forum; it
    concluded that enforcing such a payment would preclude Gabriel
    from vindicating her statutory rights in the arbitral forum.
    The circuit court noted that Gabriel would have to pay a filing
    fee of only $515.00 to have her case heard in circuit court,
    11
    making the $10,200.00 arbitration cost prohibitive and
    exorbitant.
    Nevertheless, the circuit court concluded that the
    arbitration clause could still be enforced by requiring IPA to
    pay for all arbitration fees and costs to resolve Gabriel’s
    claims, as the Cole court had done.
    Lastly, the circuit court denied IPA’s request for an award
    of fees and costs in connection with its motion to compel
    arbitration.
    G.   Gabriel’s Appeal and IPA’s Cross-Appeal
    Gabriel timely appealed from the order granting IPA’s
    motion to compel arbitration.      Gabriel raises the following
    points of error on appeal:
    1. The Circuit Court, through its Order, erred in
    concluding that as a matter of law that Plaintiff’s claims
    against Defendant are subject to, and require, mandatory
    arbitration pursuant to the non-honored Employment
    Agreement and the applicable Hawaii law.
    . . . .
    2. The Circuit Court, through its Order, after finding the
    Arbitration Clause . . . was unconscionable, erred in
    ordering an erroneous modification of the Arbitration
    Clause of the Employment Agreement.
    IPA cross-appealed from the order.       IPA raises the following
    points of error on appeal:
    1. The Circuit Court erred in holding the arbitration
    agreement is substantively unconscionable, and therefore
    ordering IPA to pay for all fees and costs of arbitration,
    because “[t]he arbitration clause in the instant case would
    make Plaintiff pay for half the cost of the DPR
    arbitration. Arbitration would prohibitively and
    exorbitantly cost Plaintiff $10,200.00.”
    . . . .
    2. The Circuit Court erred in denying IPA fees and costs
    for the necessity of bringing its motion to compel.
    12
    This court accepted transfer of this appeal from the ICA.
    III.    Standard of Review
    “A petition to compel arbitration is reviewed de novo.”
    Siopes v. Kaiser Found. Health Plan, Inc., 130 Hawaii 437, 446,
    
    312 P.3d 869
    , 878 (2013).     “The standard is the same as that
    which would be applicable to a motion for summary judgment, and
    the trial court’s decision is reviewed ‘using the same standard
    employed by the trial court and based upon the same evidentiary
    materials as were before [it] in determination of the motion.’”
    Brown v. KFC Nat’l Mgmt. Co., 82 Hawaii 226, 231, 
    921 P.2d 146
    ,
    151 (1996) (brackets in original; citations omitted).
    IV.   Discussion
    A.   This court has jurisdiction over this appeal.
    Before this appeal was transferred to this court from the
    ICA, IPA moved to dismiss Gabriel’s appeal for lack of appellate
    jurisdiction.    IPA argued that federal substantive law of
    arbitrability precludes an appeal from an order compelling
    arbitration.    The ICA issued an order denying IPA’s motion, as
    well as an order denying IPA’s motion for reconsideration of
    that order.    In its Answering Brief to Gabriel’s Opening Brief,
    however, IPA persists in arguing that appellate jurisdiction is
    lacking because the Federal Arbitration Act, or “FAA,” applies
    to the parties’ agreement to arbitrate and preempts Hawaii’s
    13
    procedural rule permitting appeal of an order compelling
    arbitration and staying judicial proceedings.       We disagree.
    It is true that the FAA states that “an appeal may not be
    taken from an interlocutory order . . . compelling arbitration
    under section 206 of [the FAA].”       9 U.S.C. § 16(b)(3) (West,
    Westlaw through P.L. 114-327 (also including P.L. 114-329 and
    115-1 to 115-8.    Title 26 current through 115-18)).     According
    to the United States Court of Appeals for the Ninth Circuit, it
    is now “well established that § 16(b) bars appeals of
    interlocutory orders compelling arbitration and staying judicial
    proceedings.”     Johnson v. Consumerinfo.com, Inc., 
    745 F.3d 1019
    ,
    1021 (9th Cir. 2014).    In the case before us, the circuit court
    compelled arbitration and stayed the judicial proceedings
    pending arbitration.     Had this order been issued by a federal
    district court, it is clear that it would not be appealable.
    See, e.g., MediVas, LLC v. Marubeni Corp., 
    741 F.3d 4
    , 7 (9th
    Cir. 2014) (“[A]n order compelling arbitration may be appealed
    if the district court dismisses all the underlying claims, but
    may not be appealed if the court stays the action pending
    arbitration.”) (citations omitted).
    This order, however, was issued in our state circuit court.
    Under Hawaii law, a circuit court order compelling arbitration
    and staying proceedings is an appealable final order over which
    our appellate courts have jurisdiction.       See Association of
    14
    Owners of Kukui Plaza v. Swinerton & Walberg Co., 
    68 Haw. 98
    ,
    107, 
    705 P.2d 28
    , 35 (1985) (holding that “orders granting stays
    and compelling arbitration are appealable” under HRS § 641-
    1(a)); County of Hawaii v. UNIDEV, LLC, 129 Hawaii 378, 392, 
    301 P.3d 588
    , 602 (2013) (“[A]fter Hawaii’s adoption of HRS § 658A-
    28, orders compelling arbitration remain appealable under
    Hawaii’s final judgment statute, HRS § 641-1.”)) (citation
    omitted).
    IPA argues that the Hawaii rule allowing appeals of orders
    staying proceedings and compelling arbitration is preempted
    because it conflicts with the FAA rules regarding appeals.     IPA
    asserts that by delaying arbitration proceedings, the Hawaii
    rule contradicts and obstructs the overarching purpose of the
    FAA to ensure the enforcement of arbitration agreements
    according to their terms so as to facilitate streamlined
    proceedings.
    Alternatively, while IPA acknowledges that the parties’
    employment agreement contains a choice-of-law provision calling
    for the application of Hawaii law, IPA argues that the parties
    have not agreed to apply Hawaii’s procedural rule simply by
    having a choice of law provision that selects Hawaii law.    We
    disagree and conclude that the FAA does not preempt Hawaii’s
    procedural rule, and applying Hawaii’s procedural rule will be
    15
    consistent with the parties’ expectations under the arbitration
    agreement.
    The FAA does not automatically preempt “different rules
    than those set forth in the Act itself.”       Volt Info. Scis., Inc.
    v. Board of Trs. of the Leland Stanford Junior Univ., 
    489 U.S. 468
    , 479 (1989).    The FAA’s purpose is “simply [to] require[]
    courts to enforce privately negotiated agreements to arbitrate,
    like other contracts, in accordance with their 
    terms.” 489 U.S. at 478
    .   Under the FAA, parties may “agree[] to abide by state
    rules of arbitration, [and] enforcing those rules according to
    the terms of the agreement is fully consistent with the goals of
    the FAA. . . 
    .” 489 U.S. at 479
    .     The FAA does not preempt
    those state rules that may delay arbitration “where the Act
    would otherwise permit it to go forward.”       
    Id. The Volt
    court
    emphasized that no federal policy exists for “favoring
    arbitration under a certain set of procedural rules. . . 
    .” 489 U.S. at 476
    .   A state procedural rule governing arbitration,
    applied “in accordance with the terms of the arbitration
    agreement itself,” does not “undermine the goals and policies of
    the 
    FAA.” 489 U.S. at 477-78
    .   So long as the state procedural
    rule does not “stand as an obstacle to the accomplishment and
    execution of the full purposes and objectives of Congress” in
    enacting the FAA, it does not conflict with the FAA, and the FAA
    will not preempt 
    it. 489 U.S. at 477
    (citation omitted).
    16
    For those jurisdictions that have examined whether the
    FAA’s appeal provisions preempt state appeal provisions (where
    those state appeal provisions are based on the Uniform
    Arbitration Act, as Hawaii’s arbitration appeal provisions are),
    a majority rule has emerged:    the FAA’s appeal provisions do not
    preempt state appeal provisions because (1) state appeal
    provisions are procedural rather than substantive; (2)
    procedural provisions should not be preempted unless they stand
    as an obstacle to the full purposes and objectives of the FAA;
    and (3) the state procedural rules do not impede the FAA’s
    objective of ensuring the enforceability of arbitration
    agreements in private contracts.      Morgan Keegan & Co., Inc. v.
    Smythe, 
    401 S.W.3d 595
    , 606 (Tenn. 2013) (collecting cases
    following the majority rule).   More specifically, some of these
    jurisdictions have held that an order compelling arbitration is
    immediately appealable under state procedural rules.      See, e.g.,
    Kremer v. Rural Cmty. Ins. Co., 
    788 N.W.2d 538
    (Neb. 2010);
    Wells v. Chevy Chase Bank, F.S.B., 
    768 A.2d 620
    (Md. 2001);
    Simmons v. Deutsche Fin. Servs. Corp., 
    532 S.E.2d 436
    (Ga.
    2000).
    Therefore, this court will enforce the parties’ choice-of-
    law provision and apply Hawaii’s procedural rules to this
    matter.   This court has jurisdiction to entertain this appeal.
    17
    B.        The circuit court correctly concluded that the parties
    entered into a valid arbitration agreement, and that
    Gabriel’s retaliation claim was within the scope of
    the arbitration agreement.
    Under Brown, a court faced with a motion to compel
    arbitration must first address whether an arbitration agreement
    exists between the parties.    Brown, 82 Hawaii at 
    238, 921 P.2d at 158
    (citation omitted).    In order to be valid and
    enforceable, “an arbitration agreement must have the following
    three elements:   (1) it must be in writing; (2) it must be
    unambiguous as to the intent to submit disputes or controversies
    to arbitration; and (3) there must be bilateral consideration.”
    Douglass v. Pflueger Hawaii, Inc., 110 Hawaii 520, 531, 
    135 P.3d 129
    , 140 (2006) (citation omitted).
    On appeal, Gabriel argues that the parties did not enter
    into the 2014-2015 employment agreement, and, therefore, did not
    enter into the arbitration agreement found within it.      Gabriel
    argues that, as she was not hired for the 2014-2015 academic
    year, no consideration supported the 2014-2015 contract or the
    arbitration provision within it.      She again points out that IPA
    did not sign the 2014-2015 employment agreement.
    IPA’s position is that the parties entered into a valid
    arbitration agreement.   IPA argues that Gabriel accepted IPA’s
    offer of employment when she signed and returned the 2014-2015
    employment agreement, unmodified.     In so doing, she entered into
    18
    the arbitration agreement, which was contained in the employment
    agreement.   Concerning Gabriel’s argument that no consideration
    existed to support the 2014-2015 employment agreement and the
    arbitration agreement within it, IPA counter-argues that
    consideration supported the arbitration agreement because both
    Gabriel and IPA agreed to forgo their rights to litigate in
    court, citing Brown, 82 Hawaii at 
    239-40, 921 P.2d at 159-60
    ;
    and Douglass, 110 Hawaii at 
    534-35, 135 P.3d at 143-44
    .
    For the reasons stated by IPA, we conclude that Gabriel and
    IPA entered into an arbitration agreement.     The arbitration
    agreement (1) was in writing; (2) unambiguously bound the
    parties to “handle[] out of court” “any dispute concerning this
    Agreement” through submission of the dispute to an arbitrator;
    and was supported by bilateral consideration, as both parties
    “would forego [sic] their respective rights to a judicial forum”
    and accept the binding arbitration process.”    Brown, 82 Hawaii
    at 
    239-40, 921 P.2d at 159-60
    .   Additionally, it did not matter
    that an agent from IPA did not sign the employment agreement.
    This case is similar to Brown, where this court enforced an
    arbitration agreement found in an employment application signed
    by the prospective employee but not by the employer.     See Brown,
    82 Hawaii at 
    229, 921 P.2d at 149
    .   When Gabriel signed and
    returned the 2014-2015 employment agreement, she accepted IPA’s
    19
    offer for employment, and all of the terms that came with it,
    including an agreement to arbitrate.
    We note that the entire employment agreement is relatively
    short at four pages long.    It is written in plain English with
    no fine print or cross-references to other documents.       The
    arbitration agreement is located on the same page as Gabriel’s
    signature.    Thus, this case is unlike other cases in which
    questions arise as to an employee’s intent to be bound to an
    arbitration provision that is physically separate from an
    employment contract.    See, e.g., Brown, 82 Hawaii at 
    245, 921 P.2d at 165
    (holding that an arbitration agreement contained in
    an employment application applied to a discrimination claim
    arising out of a later executed oral contract for employment);
    Douglass, 110 Hawaii at 
    534, 135 P.3d at 143
    (holding that
    mutual assent to arbitrate was lacking, where the employment
    contract did not contain the arbitration agreement, and the
    employee merely signed an acknowledgement of having read a
    separate employee handbook, which did contain the arbitration
    agreement).    In this case, by contrast, the plain language of
    the arbitration agreement demonstrates the parties’ mutual
    assent to arbitrate.    In short, a valid and enforceable
    arbitration agreement exists between the parties.
    A court faced with a motion to compel arbitration must next
    decide whether “the subject matter of the dispute is arbitrable
    20
    under the agreement.”   Brown, 82 Hawaii at 
    238, 921 P.2d at 158
    (citation omitted).   Gabriel argues that the arbitration
    agreement governs matters covered in the employment agreement,
    but not civil rights claims under HRS § 378-2(2).   IPA counter-
    argues that Hawaii courts have long recognized the strong public
    policy supporting Hawaii’s arbitration statutes, and that any
    doubts concerning the scope of arbitrable issues should be
    resolved in favor of arbitration, citing Lee v. Heftel, 81
    Hawaii 1, 4, 
    911 P.2d 721
    , 724 (1996).
    We conclude that Gabriel’s discriminatory retaliation claim
    was within the scope of the arbitration agreement, because the
    arbitration agreement required her to “handle[] out of court”
    “any dispute concerning this Agreement” by submitting the
    dispute to an arbitrator.   At the federal and state level, there
    exists a strong policy in favor of arbitration, such that any
    doubt concerning whether a dispute is covered by an arbitration
    agreement should be resolved in favor of arbitrability.     See
    Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 
    460 U.S. 1
    ,
    24 (1983) (“The Arbitration Act establishes that, as a matter of
    federal law, any doubts concerning the scope of arbitrable
    issues should be resolved in favor of arbitration, whether the
    problem at hand is the construction of the contract language
    itself or an allegation of waiver, delay, or a like defense to
    21
    arbitrability.”) (footnote omitted); Lee, 81 Hawaii at 
    4, 911 P.2d at 724
    (“[T]he proclaimed public policy [supporting
    Hawaii’s arbitration statutes] is to encourage arbitration as a
    means of settling differences and thereby avoiding litigation.
    [A]ny doubts concerning the scope of arbitrable issues should be
    resolved in favor of arbitration[.]”) (citations omitted).
    IPA also correctly observes that arbitration agreements
    should be interpreted broadly in favor of finding arbitrability,
    where the arbitration agreement is worded similarly to the
    instant one regarding “any dispute concerning this Agreement.”
    Indeed, in UNIDEV, we examined an arbitration agreement that
    stated that “[a]ny dispute arising under the terms of this
    Agreement . . . shall[, if the matter cannot be resolved by
    other preliminary means] submit the matter to arbitration. . .
    .”   129 Hawaii at 
    381, 301 P.3d at 591
    (emphasis added).   We
    held that an arbitration agreement worded this way “constitutes
    a ‘general’ arbitration clause” whose scope should be
    interpreted broadly.   129 Hawaii at 
    395-96, 301 P.3d at 605-06
    .
    In short, Gabriel’s retaliation claim falls within the scope of
    the arbitration agreement.
    Lastly, Gabriel argues that a discriminatory retaliation
    claim is not expressly referenced in the employment agreement,
    and, therefore, falls beyond the scope of the arbitration
    22
    agreement.   We disagree and note that the arbitration agreement
    covered termination due to alleged retaliatory discrimination,
    because the employment agreement implicitly included within it
    Hawaii’s laws concerning discrimination in employment.           A
    contract is presumed to include all applicable statutes and
    settled law relating to its subject matter.         Section 363 of 17A
    Am.Jur.2d Contracts (2016) states
    Contracting parties are presumed to contract in reference
    to the existing law, and to have in mind all the existing
    laws relating to the contract, or to the subject matter
    thereof. All existing applicable or relevant statutes, and
    settled law of the land at the time a contract is made
    become a part of it and must be read into it just as if an
    express provision to that effect were inserted therein,
    except where the contract discloses a contrary intention.
    By virtue of this rule, the laws which exist at the time
    and place of making a contract and at the place where it is
    to be performed, affecting its validity, construction,
    operation, performance, enforcement, and discharge, enter
    into and form a part of it as if they were expressly
    referred to or incorporated into its terms.
    This court favorably cited to and applied this general rule in
    City and Cty. of Honolulu v. Kam, 
    48 Haw. 349
    , 
    402 P.2d 683
    (1965), and Quedding v. Arisumi Bros., 
    66 Haw. 335
    , 
    661 P.2d 706
    (1983) (per curiam).    In both Kam and Quedding, this court held
    that the “general rule [is] that the existing law is part of a
    contract where there is no stipulation to the contrary.” 
    Kam, 48 Haw. at 355
    , 402 P.2d at 687; 
    Quedding, 66 Haw. at 338
    , 661 P.2d
    at 709.   Therefore, the arbitration agreement’s scope included
    Gabriel’s retaliatory discrimination claim.
    23
    In short, the parties entered into a valid employment
    agreement containing an arbitration agreement, and the
    arbitration agreement covered Gabriel’s claims.
    C.   The arbitration agreement’s cost-splitting requirement is
    unconscionable and, therefore, unenforceable.
    On appeal, Gabriel argues that the arbitration agreement is
    unenforceable because it is procedurally and substantively
    unconscionable.   She contends the 2014-2015 employment agreement
    that contained the arbitration agreement was procedurally
    unconscionable because it was a contract of adhesion, offered to
    her on a take-it-or-leave-it basis, and she was only given a few
    weeks to review and sign it.     Gabriel maintains that she had no
    opportunity to negotiate the terms of the 2014-2015 employment
    agreement, that she was not told she was agreeing to arbitrate
    civil rights claims, and that the arbitration agreement was not
    made conspicuous within the employment agreement.     Gabriel
    argues that the arbitration agreement was also substantively
    unconscionable because it unfairly advantaged IPA by limiting
    her access to the courts and costing her a significant amount of
    money to arbitrate her claims.
    Under Hawaii law, an arbitration agreement is generally
    “valid, enforceable, and irrevocable except upon a ground that
    exists at law or in equity for the revocation of a contract.”
    HRS § 658A-6(a) (2016).   One of those grounds is
    24
    unconscionability.   See Lewis v. Lewis, 
    69 Haw. 497
    , 500, 
    748 P.2d 1362
    , 1366 (1988).   Unconscionability encompasses two
    principles:   one-sidedness (substantive unconscionability) and
    unfair surprise (procedural unconscionability).   Balogh v.
    Balogh, 134 Hawaii 29, 41, 
    332 P.3d 631
    , 643 (2014).   The Balogh
    court noted, “Generally, a determination of unconscionability
    requires a showing that the contract was both procedurally and
    substantively unconscionable when made,” but an impermissibly
    one-sided contract can be unconscionable and unenforceable
    without a showing of unfair surprise.   
    Id. (citing Adler
    v. Fred
    Lind Manor, 
    103 P.3d 773
    , 782 (Wash. 2004) (en banc) (brackets
    and ellipsis omitted).
    We have applied the doctrine of unconscionability in
    multiple contractual contexts, not just in the arbitration
    context.   See, e.g., Balogh, 134 Hawaii 29, 
    332 P.3d 631
    (memorandum of understanding regarding property division in
    divorce); Thompson v. AIG Hawaii Ins. Co., 111 Hawaii 413, 
    142 P.3d 277
    (2006) (personal injury settlement agreement); Lewis,
    
    69 Haw. 497
    , 
    748 P.2d 1362
    (premarital agreements); Earl M.
    Jorgensen Co., v. Mark Constr., 
    56 Haw. 466
    , 
    540 P.2d 978
    (1975)
    (contract for sale of goods).   Therefore, application of the
    unconscionability doctrine in this case places the arbitration
    agreement “on equal footing with all other contracts,” DIRECTV,
    25
    Inc. v. Imburgia, 
    136 S. Ct. 463
    , 465 (2015), and does not
    “single[]out arbitration agreements for disfavored treatment. .
    . .”   Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 
    137 S. Ct. 1421
    , 1425 (2017).
    Gabriel urges us to follow cases from the United States
    Court of Appeals for the Ninth Circuit that hold that an
    arbitration agreement’s cost-splitting requirement is, standing
    alone, so substantively unconscionable as to render the entire
    arbitration agreement unenforceable.    The Ninth Circuit has
    examined, under California law, a similar requirement that an
    employee split arbitration fees with her employer.    Circuit City
    Stores, Inc. v. Adams, 
    279 F.3d 889
    , 894 (9th Cir. 2002).     The
    Ninth Circuit held, “This fee allocation scheme alone would
    render an arbitration agreement unenforceable.”    
    Id. (footnote and
    citation omitted).   The Ninth Circuit ultimately invalidated
    the entire arbitration agreement because additional provisions
    provided further justification for finding the arbitration
    agreement unconscionable and, therefore, unenforceable.     
    Id. at 896.
    In Ferguson v. Countrywide Credit Industries, Inc., 
    298 F.3d 778
    , 785 n.7 (9th Cir. 2002), the Ninth Circuit favorably
    cited Adams’ holding, noting that a cost-splitting requirement
    between employer and employee posed a “significant deterrent
    effect . . . on employees who are required to arbitrate their
    26
    civil rights claims.”   The Ferguson court elaborated that “the
    significant up-front costs associated with bringing a claim in
    an arbitral forum may prevent individuals with meritorious
    claims from even pursuing these claims in the first place.”     
    Id. at n.8.
      Similarly, in Ingle v. Circuit City Stores, Inc., 
    328 F.3d 1165
    , 1178 (9th Cir. 2003), the Ninth Circuit again
    favorably cited Adams and added that an arbitration agreement
    calling for an employee to share arbitration costs with an
    employer was “harsh and unfair to employees seeking to arbitrate
    legal claims,” and is, therefore, substantively unconscionable.
    We do not go so far as to adopt a holding that a cost-
    splitting requirement in arbitration is per se unconscionable
    and, therefore, unenforceable.   Rather, whether cost-splitting
    in arbitration is unconscionable depends on the facts of each
    case.   Under the circumstances of this case, the cost-splitting
    provision is substantively unconscionable because it would be
    prohibitively expensive for Gabriel to pursue her claims in the
    arbitral forum.
    During the course of her employment with IPA, Gabriel’s
    salary ranged from $35,000 to $45,000.    As part of this
    litigation, she filed a declaration stating that she was without
    a full-time job, having financial difficulty, and unable to pay
    for the costs of arbitration.    Gabriel also submitted evidence
    from DPR that it would cost $20,418.84 for a four-day
    27
    arbitration, and that she would need to remit a $10,200.00
    deposit to DPR.     It is unconscionable to require a terminated
    school teacher to pay, up-front, a deposit amounting to one-
    quarter to one-third of her former annual salary in order to
    access the arbitral forum.6       Therefore, we hold that the cost-
    splitting requirement alone is unconscionable as impermissibly
    one-sided, in favor of IPA.       Balogh, 134 Hawaii at 
    41, 332 P.3d at 643
    .   This conclusion renders it unnecessary for this court
    to pass on the issue of procedural unconscionability.             We note,
    however, that IPA did not challenge the circuit court’s finding
    that the manner7 by which Gabriel agreed to the cost-splitting
    requirement was procedurally unconscionable.           Therefore, we
    accept that finding, which provides an additional basis for
    rendering the cost-splitting requirement unenforceable as
    unconscionable.
    Despite ample evidence in the record that Gabriel will not
    be financially able to arbitrate her claims, IPA argues that
    6
    We would similarly conclude that it would be unconscionable to require
    such cost-splitting in, for example, the mediation context. As such, our
    unconscionability analysis does not single out arbitration agreements for
    disfavored treatment. See Kindred Nursing Ctrs. Ltd. 
    P’ship, 137 S. Ct. at 1425
    .
    7
    As stated earlier, the circuit court concluded that the arbitration
    agreement was procedurally unconscionable as a contract of adhesion because
    it was the result of coercive bargaining between parties of unequal
    bargaining strength. The circuit court noted that the arbitration agreement
    was drafted and proffered by IPA, the stronger of the contracting parties;
    was offered to Gabriel on a take-it-or-leave-it basis; Gabriel was given only
    a few weeks to review and sign the 2014-2015 employment agreement, which
    contained the arbitration agreement; the employment agreement required
    Gabriel to certify that she sought employment only with IPA; and Gabriel was
    given no opportunity to modify the terms of the employment agreement.
    28
    Gabriel did not carry her burden of proving the likelihood that
    she would incur prohibitively expensive arbitration costs under
    Green Tree, 
    531 U.S. 79
    .   In Green Tree, an employee asserted
    that she would be unable to vindicate her statutory rights
    (there, her rights under the federal Truth in Lending Act and
    the federal Equal Credit Opportunity Act) if she were compelled
    to arbitrate her claims, because there was a risk she would have
    to pay potentially substantial costs in 
    arbitration. 531 U.S. at 83
    , 89.   The United States Supreme Court disagreed, noting
    that the employee had utterly failed to substantiate her
    
    assertion. 531 U.S. at 90
    n.6.
    The United States Supreme Court observed that the record
    “does not show that [the employee] will bear such [large
    arbitration] costs if she goes to arbitration.    Indeed, it
    contains hardly any information on the 
    matter.” 531 U.S. at 90
    (footnote omitted).   All the employee submitted to the district
    court, in a motion for reconsideration, was an “assert[ion] that
    ‘[a]rbitration costs are high’ and that she did not have the
    resources to 
    arbitrate.” 531 U.S. at 90
    n.6.    The employee
    provided no estimates of the cost of arbitration and, instead,
    “assumed” the American Arbitration Association, or AAA, would
    conduct the arbitration, noting (without evidentiary support)
    that the AAA charged a $500 filing fee for claims under $10,000.
    29
    
    Id. The employee
    also submitted an article stating that
    arbitration costs are, on average, $700 per day.     
    Id. The Court
    concluded that the employee “plainly failed to
    make any factual showing that the American Arbitration
    Association would conduct the arbitration, or that, if it did,
    she would be charged the filing fee or arbitrator’s fee that she
    identified.”   
    Id. The Court
    stated, “The ‘risk’ that [the
    employee] will be saddled with prohibitive costs is too
    speculative to justify the invalidation of an arbitration
    
    agreement.” 531 U.S. at 91
    .   The Court went on to hold that,
    “where . . . a party seeks to invalidate an arbitration
    agreement on the ground that arbitration would be prohibitively
    expensive, that party bears the burden of showing the likelihood
    of incurring such 
    costs.” 531 U.S. at 92
    .
    IPA argues that, like the employee in Green Tree, Gabriel
    failed to carry her burden of proving that arbitration would be
    so prohibitively expensive for her that it would prevent her
    from vindicating her statutory rights (in this case, statutory
    rights under HRS Chapter 378, which prohibits discrimination in
    employment).   Green Tree, however, involved the vindication of
    federal statutory rights in the arbitral 
    forum. 531 U.S. at 89
    -
    91.   It is an open question, however, as to whether Green Tree
    applies in cases where claimants challenge arbitration as a
    forum for vindicating state statutory rights.     See, e.g.,
    30
    Kaltwasser v. AT&T Mobility, 
    812 F. Supp. 2d 1042
    , 1048 (N.D.
    Cal. 2011) (“[I]t is not clear that Green Tree’s solicitude for
    the vindication of rights applies to rights arising under state
    law, which are the only rights that [the claimant] seeks to
    vindicate here.”); and James v. McDonald’s Corp., 
    417 F.3d 672
    ,
    679 (7th Cir. 2005) (“It remains unclear whether the rationale
    of Green Tree applies to situations that do not involve the
    assertion of federal statutory rights.”).
    Green Tree itself thrice referenced the vindication of
    “federal statutory claims” in reaching its holding.   Green 
    Tree, 531 U.S. at 89-90
    (emphasis added).   The majority of federal
    circuits ruling on the issue have concluded that Green Tree does
    not apply where a claimant seeks to vindicate only state
    statutory claims, as Gabriel seeks in this case.   See, e.g.,
    Stutler v. T.K. Constructors, Inc., 
    448 F.3d 343
    , 346 (6th Cir.
    2006) (“Green Tree . . . [is] limited by [its] plain language to
    the question of whether an arbitration clause is enforceable
    where federal statutorily protected rights are affected.    In
    this case, no federally protected interest is at stake.”)
    (emphasis added); Pro Tech Indus., Inc. v. URS Corp., 
    377 F.3d 868
    , 873 (8th Cir. 2004) (noting that Green Tree addresses
    arbitration of federal statutory claims, not unconscionability
    of an arbitration agreement under state law); Coneff v. AT&T
    Corp., 
    673 F.3d 1155
    , 1158 n.2 (9th Cir. 2012) (“Green Tree . .
    31
    . [is] limited to federal statutory rights.”) (emphasis added);
    but see Kristian v. Comcast Corp., 
    446 F.3d 25
    , 29 (1st Cir.
    2006) (finding “provisions of . . . arbitration agreements . . .
    invalid because they prevent the vindication of statutory rights
    under state and federal law”); and Booker v. Robert Half Int’l,
    Inc., 
    413 F.3d 77
    , 79-81 (D.C. Cir. 2005) (applying Green Tree
    to District of Columbia statutory rights without analysis into
    whether Green Tree applied only to federal statutory rights).
    Assuming arguendo that Green Tree does apply, Gabriel has
    sufficiently carried her burden of proof:   exhibits and
    declarations in the record show that arbitration was estimated
    to cost $20,418.84, that Gabriel would have to remit a
    $10,200.00 deposit to DPR to arbitrate her claim, that Gabriel
    made $45,000 annually during the last academic year she worked
    for IPA, and that Gabriel was without a full-time job, having
    financial difficulty, and unable to pay for the costs of
    arbitration.   Unlike the plaintiff in Green Tree, who could only
    speculate as to the high costs of arbitration, Gabriel has shown
    precisely what the costs were estimated to be and that such
    costs were prohibitively expensive for her.   Therefore, we
    disagree with IPA’s assertion that Gabriel presented “nothing
    but speculation she would incur any arbitration costs.”
    32
    D.   The circuit court erred in compelling arbitration and
    ordering IPA to pay for all arbitration costs.
    The circuit court found the cost-splitting requirement
    unconscionable but nonetheless compelled arbitration and ordered
    IPA to pay all of the arbitration costs.    On appeal, Gabriel
    argues that the circuit court should have denied IPA’s motion to
    compel or invalidated the entire arbitration provision.       On
    cross-appeal, IPA argues that the circuit court was correct in
    compelling arbitration, but it should have severed the cost-
    splitting requirement pursuant to the severability clause in the
    parties’ employment agreement instead of conditioning
    arbitration upon IPA’s payment of all arbitration costs.
    Gabriel points out, and IPA agrees, that the parties had no
    intention to allow for the rewriting of the arbitration clause
    to have IPA pay for the arbitration cost.
    We agree that the circuit court improperly modified the
    parties’ arbitration agreement when it attempted to reform the
    parties’ agreement by ordering IPA to pay all arbitration costs.
    We note that the parties’ employment agreement allows
    modification of the agreement only “in writing, signed by both
    the Educator and the Head of School and/or his designee, and
    entitled ‘Modification of Contract.’”    As Gabriel argues,
    neither party sought to modify the arbitration agreement to
    direct IPA to pay arbitration costs.    The court’s order
    33
    compelling arbitration and directing IPA to pay costs is a
    result neither party intended, and amounts to a reformation of
    the arbitration agreement without a firm basis in our precedent
    to do so.    Ordinarily, reformation of a contract is a remedy in
    the following circumstances:
    Reformation is appropriate, when an agreement has been
    made, or a transaction has been entered into or determined
    upon, as intended by all the parties interested, but in
    reducing such transaction to writing, either through the
    mistake of both parties, or through the mistake of the
    plaintiff accompanied by the fraudulent knowledge and
    procurement of the defendant, the written instrument fails
    to express the real agreement or transaction.
    Kuamu v. Iaukea, 
    9 Haw. 612
    , 614 (quoting Pomeroy’s Eq. Jur.
    vol. 2, Sec. 870, p. 344); see also State v. Kahua Ranch, Ltd.,
    
    47 Haw. 28
    , 33, 
    384 P.2d 581
    , 585 (1963) (holding that
    reformation is appropriate where the contract contains a “mutual
    mistake [that] does not reflect the true intention of the
    parties. . . .”); Lee v. Aiu, 85 Hawaii 19, 31, 
    936 P.2d 655
    ,
    667 (1997) (noting that reformation of a deed is appropriate to
    reflect the true intent of the parties, where such intent was
    incorrectly expressed through mutual mistake or the fraud of the
    defendant).    These circumstances are not present in this case;
    therefore, the circuit court improperly reformed the arbitration
    agreement by requiring IPA to pay all arbitration costs.
    Further, the circuit court justified its decision to order
    IPA to pay all arbitration costs by relying on Cole, 
    105 F.3d 1465
    , a case that is distinguishable from the instant case.              In
    34
    Cole, the United States Court of Appeals for the D.C. Circuit
    affirmed the district court’s order compelling arbitration of an
    employee’s Title VII 
    claim. 105 F.3d at 1488
    .      Like the instant
    arbitration agreement, the arbitration agreement at issue in
    Cole contained no express provision on the payment of fees;
    rather, it incorporated by reference the AAA’s 
    rules. 105 F.3d at 1485
    .   Unlike the instant case, where DPR’s rules require
    cost-splitting, the AAA’s rules were silent on the issue of
    payment of fees and made no provision for reduced or waived fees
    in case of financial 
    hardship. 105 F.3d at 1469
    , 1484, 1485.
    The D.C. Circuit upheld the arbitration agreement but construed
    the silences within it against the drafter (the employer) in
    requiring the employer to pay all of the costs of arbitration,
    as follows:
    In our view, an employee can never be required, as a
    condition of employment, to pay an arbitrator’s
    compensation in order to secure the resolution of statutory
    claims under Title VII (any more than an employee can be
    made to pay a judge’s salary). If there is any risk that
    an arbitration agreement can be construed to require this
    result, this would surely deter the bringing of arbitration
    and constitute a de facto forfeiture of the employee’s
    statutory rights. The only way that an arbitration
    agreement of the sort at issue here can be lawful is if the
    employer assumes responsibility for the payment of the
    arbitrator’s 
    compensation. 105 F.3d at 1468
    (footnote omitted).        Thus, Cole stands for the
    proposition that, where no provision is made for the payment of
    arbitration costs, and where arbitration of a Title VII claim is
    compelled in the employment context, an employer can be ordered
    35
    to bear all arbitration costs.8        Cole appears to be an outlier in
    judicially creating a condition that an employer pay for
    arbitration costs; other courts address unconscionable
    arbitration cost provisions by severing offending provisions or
    invalidating the arbitration agreement altogether.            See, e.g.,
    Adams, 
    279 F.3d 889
    ; Ingle, 
    328 F.3d 1165
    ; Ferguson, 
    298 F.3d 778
    (all applying California contract law).
    E.   The circuit court erred in declining to invalidate the
    entire arbitration provision.
    The appropriate course for the circuit court was to examine
    the arbitration agreement as a whole to determine whether parts
    of it could be severed, or whether the entire arbitration
    agreement should be invalidated.          Under our case law, in the
    context of illegal contracts, a partially invalidated agreement
    may nevertheless be upheld if the invalid provisions are
    severable from the valid provisions.          See, e.g., Beneficial
    Hawaii, Inc. v. Kida, 96 Hawaii 289, 311, 
    30 P.3d 895
    , 917
    (2001) (“Thus, the general rule is that severance of an illegal
    provision of a contract is warranted and the lawful portion of
    the agreement is enforceable when the illegal provision is not
    central to the parties’ agreement and the illegal provision does
    8
    Green Tree has called into question Cole’s continuing viability. In
    Shatteen v. Omni Hotels Mgmt. Corp., 
    113 F. Supp. 3d 176
    , 182 n.3 (D.C.D.C.
    2015), the D.C. District Court doubted whether Cole remained good law,
    noting, “Cole’s holding is, in any event, on shaky ground in light of the
    Supreme Court’s subsequent decision in Green Tree Financial, which eschews
    any per se ban on fee shifting in the arbitral context.”
    36
    not involve serious moral turpitude, unless such a result is
    prohibited by statute.”); Ai v. Frank Huff Agency, Ltd., 
    61 Haw. 607
    , 
    607 P.2d 1304
    (1980), overruled on other grounds by
    Robert’s Haw. Sch. Bus, Inc. v. Laupahoehoe Trans. Co., 91
    Hawaii 224, 
    982 P.2d 853
    (1999) (“It is well settled under
    ordinary contract law, however, that a partially illegal
    contract may be upheld if the illegal portion is severable from
    the part which is legal.”) (citations omitted).
    Similarly, in the context of unconscionable contracts, the
    Restatement (Second) of Contracts § 208 (1981) states, “If a
    contract or term thereof is unconscionable at the time the
    contract is made a court may refuse to enforce the contract, or
    may enforce the remainder of the contract without the
    unconscionable term, or may so limit the application of any
    unconscionable term as to avoid any unconscionable result.”
    Comment g to the Restatement elaborates, “Where a term rather
    than the whole contract is unconscionable, the appropriate
    remedy is ordinarily to deny effect to the unconscionable term.”
    Other jurisdictions following the Restatement, however,
    have articulated circumstances under which invalidation of an
    entire arbitration provision, not just severance of an
    unconscionable term, is necessary, where no part of the
    arbitration provision can be spared and given effect.     For
    example, in New Mexico, where an unconscionable provision in an
    37
    arbitration agreement is “central” to the means by which the
    parties would arbitrate their claims, severance of the
    unconscionable provision is not possible, and the entire
    arbitration agreement must be invalidated.        See Felts v. CLK
    Mgmt., Inc., 
    254 P.3d 124
    , 139 (N.M. 2011).        In Felts, the New
    Mexico Supreme Court invalidated an entire arbitration agreement
    due to a substantively unconscionable class action ban that was
    central to the parties’ agreement to 
    arbitrate. 254 P.3d at 140
    .
    Even more similar to this case, the Washington Supreme
    Court held, “Severance is the usual remedy for substantively
    unconscionable terms, but where such terms ‘pervade’ an
    arbitration agreement, [the Washington courts] refuse to sever
    those provisions and declare the entire agreement void.”            Gandee
    v. LDL Freedom Enters., Inc., 
    293 P.3d 1197
    , 1199-1200 (Wash.
    2013) (citation omitted).     In Gandee, the Washington Supreme
    Court invalidated an entire arbitration agreement due to
    pervasive substantively unconscionable terms, thereby affirming
    the denial of a motion to compel 
    arbitration. 293 P.3d at 1203
    .
    In this case, substantively unconscionable terms pervade
    the arbitration agreement.     Therefore, no part of the
    arbitration agreement can be spared and given effect.            Again,
    the entire provision states
    L. Arbitration. The parties desire that any dispute
    concerning the Agreement be handled out of court.
    38
    Accordingly, they agree that any such dispute shall, as the
    parties’ sole and exclusive remedy, be submitted to an
    arbitrator licensed to practice law in the State of Hawaii
    and selected in accordance with the standard procedures of
    Dispute Prevention Hawaii [sic]. The arbitrator will not
    be entitled to add to or subtract from its terms. Should
    either party start any legal action or administrative
    proceeding against the other with respect to any claim
    related to this Agreement, or pursue any method of
    resolution of a dispute other than mutual agreement of the
    parties or arbitration, then all damages, costs, expenses
    and attorneys’ fees incurred by the other party as a result
    shall be the responsibility of the one bringing the suit or
    starting the proceeding.
    The employment agreement contains a severability provision,
    which states, “Should any provision of this contract be
    invalidated by a court of law with proper jurisdiction, the
    remaining provisions shall remain in full force and effect.”
    Although the circuit court did not review each provision in the
    arbitration agreement for its enforceability, “this court may
    nonetheless [do so] because unconscionability is a question of
    law, reviewable de novo.”        Balogh, 134 Hawaii at 
    42-43, 332 P.3d at 644-45
    .
    We note that the second sentence in the arbitration
    provision incorporates, by reference, DPR’s cost-splitting
    rules.    The circuit court implicitly found this provision
    unconscionable, and we agree.         The third sentence states, “The
    arbitrator will not be entitled to add or subtract from its
    terms.”   With the second sentence invalidated, there remains no
    grammatical referent for the “its” in the third sentence, which
    39
    appears to refer back to the procedures mentioned in the second
    sentence.    Therefore, the third sentence must be stricken.
    We also note that the last sentence in the arbitration
    agreement (the fee-shifting provision) is obviously unfair.9              The
    fee-shifting provision requires the party challenging
    arbitration to pay the other party’s attorney’s fees and costs,
    solely for challenging the arbitration provision in court, and
    even if the challenge is meritorious and/or successful.             Under
    this provision, because Gabriel initiated these proceedings, she
    would have to pay for all of the “damages, costs, expenses, and
    attorney’s fees” incurred by IPA thus far, simply for
    challenging the arbitration provision in court, and even though
    9
    We note that, at oral argument, IPA’s counsel represented that the
    substance of the fee-shifting provision in the arbitration agreement “was not
    presented below. It was not presented in the briefing [before the Hawaii
    Supreme Court],” and that it was “presented for the first time at oral
    argument” by this court.
    http://www.courts.state.hi.us/supreme_court_oa_scap-15-912 at 34:14-27.
    IPA’s counsel went on to represent that he “ha[d]n’t even read the clause,”
    because “it wasn’t presented at the circuit court and it wasn’t presented in
    briefing before [the Hawaii Supreme Court].”
    http://www.courts.state.hi.us/supreme_court_oa_scap-15-912 at 52:17-28.
    IPA’s counsel misstates the record. The fee-shifting provision in the
    arbitration clause appeared in IPA’s briefing before the circuit court and
    before this court. In briefing before the circuit court, IPA argued, “The
    Court should award Defendant’s attorneys’ fees in bringing this motion
    because the parties agreed to that as part of the arbitration agreement,” and
    quoted the final sentence of the arbitration agreement. In briefing before
    this court, IPA referred specifically to the fee-shifting provision in the
    point of error regarding the circuit court’s denial of an award of fees, as
    follows: “Because of the parties’ agreement to the party opposing
    arbitration paying the fees of the party required to compel it, and because
    of the frivolousness of Gabriel’s arguments in opposition to complying with
    her agreement to arbitrate, the Court should order her to pay the reasonable
    attorneys’ fees incurred by IPA to enforce the parties’ agreement to
    arbitrate Gabriel’s claims.” Therefore, the substance of the fee-shifting
    provision in the arbitration agreement was not raised by this court for the
    first time at oral argument, and it has been raised throughout these
    proceedings by IPA itself.
    40
    she won this appeal.   This provision is plainly substantively
    unconscionable and must be stricken as well.   What remains in
    the arbitration agreement is just the first sentence, which
    states only, “The parties desire that any dispute concerning the
    Agreement be handled out of court.”    Arbitration is not
    mentioned in this sentence.   Therefore, the remaining sentence
    does not clearly evidence the parties’ desire to arbitrate their
    claims.   It cannot serve as a basis for compelling arbitration.
    In effect, no part of the arbitration agreement remains.
    Consequently, the circuit court erred in compelling arbitration
    in this case.
    F.   The circuit court did not abuse its discretion in denying
    IPA’s request for attorney’s fees and costs.
    This court invalidated the entire arbitration agreement;
    therefore, the fee-shifting provision within the arbitration
    agreement cannot serve as the basis for an award of attorney’s
    fees and costs to IPA.    Further, as Gabriel’s opposition to
    IPA’s motion to compel was not frivolous, as it legitimately
    challenged an unconscionable arbitration agreement, an award of
    attorney’s fees and costs was not warranted under the circuit
    court’s inherent power.    Therefore, the circuit court did not
    abuse its discretion in denying IPA’s request for attorney’s
    fees and costs.
    41
    V.   Conclusion
    We conclude that (1) this court has jurisdiction over this
    appeal; (2) the circuit court correctly concluded that the
    parties entered into a valid arbitration agreement; (3) the
    cost-splitting requirement in the arbitration agreement is
    unconscionable; (4) however, the circuit court improperly
    reformed the arbitration agreement to require IPA to pay all
    arbitration costs instead of invalidating the entire arbitration
    agreement; and (5) the circuit court did not abuse its
    discretion in denying IPA’s request for attorney’s fees and
    costs.   Consequently, we vacate the circuit court’s order
    compelling arbitration and remand this case to the circuit court
    for further proceedings.
    Joseph T. Rosenbaum                    /s/ Mark E. Recktenwald
    for plaintiff/appellant-
    cross-appellee                         /s/ Paula A. Nakayama
    Jeffrey S. Harris                      /s/ Sabrina S. McKenna
    for defendant/appellee-
    cross-appellant                        /s/ Richard W. Pollack
    /s/ Michael D. Wilson
    42
    

Document Info

Docket Number: SCAP-15-0000912

Citation Numbers: 140 Haw. 325, 400 P.3d 526

Filed Date: 6/13/2017

Precedential Status: Precedential

Modified Date: 1/12/2023

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