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IN THE SUPREME COURT OF THE STATE OF HAWAII

---oOo---

________________________________________________________________

THOMAS NISHIMURA, COLETTE NISHIMURA, 

Individually and on Behalf of a Class of All Persons

Similarly Situated, Petitioners/Plaintiffs-Appellees,

vs.

GENTRY HOMES, LTD.,

a Hawaii Domestic Profit Corporation,

Respondent/Defendant-Appellant,

and

SIMPSON MANUFACTURING CO., INC., a Delaware Corporation;

SIMPSON STRONG-TIE COMPANY, INC., a California Corporation, 

Defendants.

_______________________________________________________________

SCWC-13-0000137

CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS

(CAAP-13-0000137; CIV. NO. 11-1-1522-07)

OCTOBER 31, 2014

RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.

Electronically Filed

Supreme Court

SCWC-13-0000137

31-OCT-2014

09:35 AM
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OPINION OF THE COURT BY McKENNA, J.

I. Introduction

This appeal raises an issue of first impression in Hawaii: 

what standard applies in reviewing the enforceability of an 

arbitrator-selection provision? We adopt the “fundamental 

fairness” standard set forth by the United States Court of 

Appeals for the Sixth Circuit in McMullen v. Meijer, Inc., 355 

F.3d 485 (6th Cir. 2004), and we hold that the arbitratorselection provision at issue in this appeal was fundamentally 

unfair, because it gave the defendant’s agent “sole discretion” 

to select an arbitration service to resolve a dispute between 

the plaintiffs and defendant. In the instant case, the Circuit 

Court of the First Circuit (“circuit court”)1 properly severed

and struck the arbitrator-selection provision and ordered the 

parties to meet and confer to select an arbitration service. 

The circuit court also properly reserved for itself the 

authority to appoint an arbitration service if the parties could 

not come to an agreement. Therefore, we vacate the ICA’s 

judgment on appeal, which vacated the circuit court’s “Order 

Granting in Part and Denying in Part Defendant Gentry Homes, 

Ltd.’s Motion to Compel Arbitration Filed August 29, 2012,” and 

its “Order Denying Gentry Homes’ Motion for Reconsideration of 

the Order Granting in Part and Denying in Part Gentry Homes, 

 

1 The Honorable Rhonda A. Nishimura presided.
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Ltd.’s Motion to Compel Arbitration [Filed August 29, 2012], 

Filed on November 13, 2012.” The circuit court’s orders are 

affirmed. 

II. Background

A. Circuit Court Proceedings

1. The First Amended Class Action Complaint

On October 12, 2011, Petitioners/Plaintiffs-Appellees 

Thomas Nishimura and Colette Nishimura, individually and on 

behalf of a class of all persons similarly situated 

(“Nishimuras”), filed their First Amended Class Action 

Complaint. The Nishimuras alleged that Gentry Homes, Ltd. 

(“Gentry”) constructed the Nishimuras’ home without adequate 

high wind protection. 

2. Motion to Compel Arbitration

On August 29, 2012, Gentry filed its Motion to Compel 

Arbitration, pursuant to the following provision in the Home 

Builder’s Limited Warranty (“HBLW”) between Gentry and the 

Nishimuras (with emphasized portions relevant to this appeal):

VIII. Binding Arbitration Procedure

Any disputes between YOU and US, or parties acting on OUR 

behalf, including PWC,[

2] related to or arising from this 

LIMITED WARRANTY, the design or construction of the HOME or 

the COMMON ELEMENTS or the sale of the HOME or transfer of 

title to the COMMON ELEMENTS will be resolved by binding 

arbitration. Binding arbitration shall be the sole remedy 

for resolving any and all disputes between YOU and US, or 

OUR representatives. 

. . . .

 

2 “PWC” stands for “Professional Warranty Service Corporation,” the 

company administering the HBLW pursuant to a contract with Gentry. 
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The arbitration shall be conducted by Construction 

Arbitration Services, Inc., or such other reputable 

arbitration service that PWC shall select, at its sole 

discretion, at the time the request for arbitration is 

submitted. The rules and procedures of the designated 

arbitration organization, that are in effect at the time 

the request for arbitration is submitted, will be followed. 

A copy of the applicable rules and procedures will be 

delivered to YOU upon request.

This arbitration agreement shall be governed by the United 

States Arbitration Act (9 U.S.C. §§ 1-16) to the exclusion 

of any inconsistent state law, regulation or judicial 

decision. The award of the arbitrator shall be final and 

binding and may be entered as a judgment in any court of 

competent jurisdiction. . . .

The Nishimuras’ Opposition to Gentry Homes’ Motion to 

Compel Arbitration drew the circuit court’s attention to a 

notice on Construction Arbitration Services, Inc.’s website, 

announcing that it had “permanently exit[ed] from the binding 

construction arbitration dispute case administration business 

effective July 1, 2009.” (Emphasis in original.) Thus, under 

the HBLW’s arbitrator-selection provision, PWC was authorized to 

“select, at its sole discretion” “such other reputable 

arbitration service” to conduct the arbitration. “Reputable” 

was not defined in the HBLW. The Nishimuras argued that the 

instant arbitrator-selection provision contained no safeguards 

against “potential bias,” and that PWC was empowered to choose 

any arbitrator, including one with a pro-defense view. 

The Nishimuras feared that PWC would select an arbitration 

service aligned with developers, because PWC marketed its “close 

relationship” with Zurich, the parent of the insurance company 

for Haseko Homes, Inc. and Haseko Construction, Inc., which at 
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that time was also being sued for the same construction defect 

as in the instant case. The Nishimuras alleged that PWC would 

have a “strong financial incentive in helping secure an outcome 

in favor of Gentry in the instant action. . . .” They noted 

that another circuit court judge had severed and stricken the 

arbitrator-selection provision in the Haseko case “on the ground 

of PWC’s conflict of interest. . . .” The Nishimuras argued, 

“Allowing a party so closely aligned with the defendants in a 

similar case involving similar claims before this Court to 

unilaterally select the arbitrator would deprive Plaintiffs of a 

fair and effective forum in which to vindicate their claims.” 

In support of their argument, the Nishimuras cited, inter alia, 

McMullen, 355 F.3d 485. 

In its Reply, Gentry argued that the Nishimuras set forth 

“no evidence of bias with the ultimate arbitrator,” because none 

had been selected. Gentry pointed out that the arbitrationselection provision authorized PWC to choose an arbitration 

service, not the ultimate arbitrator. Gentry also argued that a 

party who does not consent to the other party’s choice of 

arbitrator can petition the court to appoint an arbitrator. 

Gentry also argued that a party must await the conclusion of 

arbitration to raise a challenge of “evident partiality” in the 

arbitrator. 
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At a hearing on the Motion to Compel Arbitration, counsel 

for the Nishimuras asked the circuit court to sever and strike 

the arbitrator-selection provision, order the parties to agree 

to a local arbitrator, or appoint one itself, as another circuit 

court had done in the Haseko case. Counsel for Gentry countered 

that he did not believe the circuit court had the authority to 

order the parties to agree to an arbitrator. The circuit court, 

on the other hand, stated that “just on the face of” the HBLW 

arbitrator-selection provision, “there is a potential conflict 

. . . .” The circuit court stated to Gentry’s counsel, “[T]he 

less you have to reserve in the future as possible appealable 

issues, the better. . . .”

The circuit court therefore granted in part and denied in 

part Gentry’s Motion to Compel Arbitration. While it ordered 

the Nishimuras to arbitrate their claims against Gentry, the 

circuit court found the following:

The Motion is DENIED to the extent that this Court finds 

that there is a potential conflict of interest with 

Professional Warranty Services, Inc. (“PWC”) selecting the 

arbitration service as set forth under the Home Builder’s 

Limited Warranty. Accordingly, the method by which the 

arbitration service is to be selected under the Home 

Builders’ Limited Warranty is severed and stricken. 

Pursuant to Hawaii Rules of the Circuit Courts Rule 12.23, 

 

3 Hawaii Rules of the Circuit Courts (“RCCH”) Rule 12.2(a) (2012) 

provides the following, in relevant part:

Authority to order. The court, sua sponte or upon motion by 

a party, may, in exercise of its discretion, order the 

parties to participate in a non-binding Alternative Dispute 

Resolution process (ADR or ADR process) subject to terms 

and conditions imposed by the court. ADR includes 

mediation, summary jury trial, neutral evaluation, non-

(continued. . .)
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this Court orders that Plaintiffs and Gentry shall meet and 

confer on the selection of a local arbitration service 

within forty-five (45) days of entry of this Order. If 

Plaintiffs and Gentry are unable to agree, the Court shall 

select a local arbitration service for this matter.

3. Motion for Reconsideration

Gentry filed a Motion for Reconsideration of the circuit 

court’s order asking the court to set aside the provision 

severing and striking the arbitrator-selection provision. In 

addition to reiterating arguments that the time to challenge 

arbitrator bias is post-award and that the Nishimuras had 

presented no evidence of bias or potential bias, Gentry argued 

that RCCH Rule 12.2 did not authorize the circuit court to 

“modify the parties’ agreement for binding arbitration. . . .” 

Gentry argued that RCCH Rule 12.2 authorizes court-mandated nonbinding arbitration, not binding arbitration, which is what the 

parties had agreed to in the HBLW. 

In the Nishimuras’ Opposition to Gentry’s Motion for 

Reconsideration, they argued that the circuit court had “broad 

discretion to appoint an arbitration service (or here, order the 

parties to meet and confer to appoint one) when the specified 

arbitration service is no longer in business or the arbitrator 

 

3 (. . .continued)

binding arbitration, presentation to a focus group, or 

other such process the court determines may be helpful in 

encouraging an economic and fair resolution of all or any 

part of the disputes presented in the matter. 
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is partial to one of the parties.” The Nishimuras then cited to 

9 U.S.C. § 5 (2009),4 which states the following:

If in the agreement provision be made for a method of 

naming or appointing an arbitrator or arbitrators or an 

umpire, such method shall be followed; but if no method be 

provided therein, or if a method be provided and any party 

thereto shall fail to avail himself of such method, or if 

for any other reason there shall be a lapse in the naming 

of an arbitrator or arbitrators or umpire, or in filling a 

vacancy, then upon the application of either party to the 

controversy the court shall designate and appoint an 

arbitrator or arbitrators or umpire, as the case may 

require, who shall act under the said agreement with the 

same force and effect as if he or they had been 

specifically named therein; and unless otherwise provided 

in the agreement the arbitration shall be by a single 

arbitrator.

The circuit court denied Gentry’s Motion for 

Reconsideration. Gentry then timely appealed the circuit 

court’s order granting in part and denying in part its Motion to 

Compel Arbitration, as well as the circuit court’s order denying 

its Motion for Reconsideration. 

B. ICA Appeal

1. Opening Brief

In its Opening Brief, Gentry raised the following Points of 

Error:

1. Whether the trial court erred in denying, in part, 

Gentry’s Motion to Compel Arbitration and ordering Gentry 

and Plaintiffs to meet and confer on the selection of the 

arbitration service in contravention of the express terms 

of the parties’ arbitration agreement as set forth in the 

[HBLW] that Plaintiffs rely upon in bringing their claims 

against Gentry.

2. Whether the trial court erred in denying Gentry’s 

Motion for Reconsideration.

 

4 9 U.S.C. § 5 is a provision in the Federal Arbitration Act, 9 

U.S.C. §§ 1-16 (2009) (“FAA”). The parties do not dispute that the FAA 

governs their arbitration agreement. 
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3. Whether the trial court erred in finding that PWC had a 

potential conflict of interest in selecting the arbitration 

service pursuant to the terms of the parties’ arbitration 

agreement as set forth in the [HBLW].

4. Whether the trial court erred in finding that PWC’s 

potential conflict in selecting the arbitration service was 

a sufficient basis to strike that portion of the parties’ 

arbitration agreement requiring PWC to select the 

arbitration service in order to avoid a future appealable 

issue.

5. Whether the trial court erred in relying upon Hawaiʻi 

Rules of the Circuit Courts Rule 12.2 as the basis to order 

the parties to meet and confer on the selection of a local 

arbitration service in contravention of the express terms 

of the parties’ arbitration agreement as set forth in the 

[HBLW] requiring PWC to select the arbitration service.

Gentry first argued that RCCH Rule 12.2 governs non-binding 

arbitration and did not authorize the circuit court to order the 

parties into binding arbitration. 

Gentry next argued that the circuit court “lacked 

jurisdiction under the FAA to entertain the Nishimuras[’] prearbitration challenge to the partiality of the not yet selected 

arbitrator.” Gentry cited to 9 U.S.C. § 10 (2009)5 as authority 

for its position that the time to challenge the arbitrator’s 

partiality is after the issuance of the arbitration award, when 

the court is authorized to vacate an arbitration award “where 

there was evident partiality or corruption in the arbitrators, 

or either of them.” 

Gentry argued that, even if the circuit court had 

jurisdiction to entertain the Nishimura’s pre-arbitration 

 

5 9 U.S.C. § 10(a)(2) (2009) provides the following, in relevant 

part: “[T]he 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 -- . . . where there was evident partiality or 

corruption in the arbitrators, or either of them.”
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“challenge to the partiality of the not-yet-selected 

arbitrator,” the Nishimuras did not establish that any 

arbitration service selected by PWC pursuant to the HBLW would 

be biased toward Gentry. Gentry cited Phillips v. Assocs. Home 

Equity Servs., Inc., 179 F.Supp.2d 840, 845 (N.D. Ill. 2001),

for the following proposition: “In the absence of credible 

evidence of actual bias in favor of the lenders, we ‘decline to 

indulge the presumption that the parties and arbitral body 

conducting a proceeding will be unable or unwilling to retain 

competent, conscientious and impartial arbitrators.’” (Emphasis 

added.) Gentry also cited Doctor’s Assocs., Inc. v. Stuart, 85 

F.3d 975, 981 (2d Cir. 1996), for its rejection of the 

defendants’ argument that an arbitration agreement was 

unconscionable, because the defendants “failed to present any 

credible evidence indicating bias on the part of the 

[arbitration service or its arbitrators,] particularly because 

[d]efendants’ claims have not yet gone to arbitration.” 

2. Answering Brief

In their Answering Brief, the Nishimuras disagreed with 

Gentry’s argument that a challenge to the arbitrator-selection 

process must be raised after the arbitrator has issued an 

arbitration award. The Nishimuras cited McMullen, 355 F.3d 485, 

and Walker v. Ryan’s Family Steak Houses, Inc., 400 F.3d 370, 

385 (6th Cir. 2005), for the proposition that “the general rule 
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prohibiting pre-arbitration challenges to an allegedly biased 

arbitration panel does not extend to an allegation that the 

arbitrator-selection process itself is fundamentally unfair. In 

such a case, ‘the arbitral forum is not an effective substitute 

for a judicial forum,’ and, therefore, the party need not 

arbitrate first and then allege bias through post arbitration 

judicial review.” The Nishimuras argued that once a court 

determines that the arbitrator-selection process is 

fundamentally unfair, then 9 U.S.C. § 5 authorizes the court to 

“choose an alternative method for selecting the arbitrator.” 

Next, the Nishimuras argued that there was sufficient 

evidence to support the circuit court’s finding that PWC had a 

conflict of interest rendering the arbitration-selection 

provision fundamentally unfair, based upon PWC’s relationship 

with insurance companies and builders, as well as the language 

of the HBLW. The Nishimuras pointed out that “the arbitrator 

selection process contains no safeguards against potential 

bias,” and that PWC, acting on Gentry’s behalf, “can literally 

choose any arbitration service it unilaterally deems to be 

‘reputable. . . .’” 

As to Gentry’s argument that RCCH Rule 12.2 did not 

authorize the circuit court to order the parties to meet and 

confer to select a local arbitration service, the Nishimuras 

counter-argued that the circuit court relied on that rule only 
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for the limited purpose of ordering the parties to attempt to 

agree on an arbitration service; it did not order the parties 

into binding arbitration under the rule. 

3. The ICA’s Published Opinion

The ICA issued a published opinion. Nishimura v. Gentry 

Homes, Ltd., 133 Hawaii 222, 325 P.3d 634 (App. 2014). The ICA 

asserted that the HBLW provision stating that PWC “act[s] on 

[Gentry’s] behalf” merely served to “put a distance between 

Gentry’s interest and the arbitrator,” but did not authorize PWC 

to potentially “select an arbitration service that would resolve 

arbitration in favor of Gentry.” 133 Hawaii at 228, 325 P.3d at 

640. As such, the ICA concluded that the HBLW’s language “does 

not establish PWC’s improper motives or evident partiality.” 

Id. 

The ICA then distinguished Walker, 400 F.3d 370, and

McMullen, 355 F.3d 485, from the instant case. 133 Hawaii at 

228, 325 P.3d at 640. The ICA distinguished Walker, stating 

that the plaintiff employees in Walker entered into an 

arbitration agreement with the very entity that would arbitrate 

their disputes with their employer, unlike the instant case, 

where PWC “would not itself serve as an arbitrator and was 

required to select a reputable arbitration service.” Id. The 

ICA distinguished McMullen, stating that the arbitration clause 
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at issue in that case gave the defendant employer unilateral 

control over the pool of potential arbitrators, unlike the 

instant case, where PWC, not Gentry, selects an arbitration 

service. Id. The ICA then “decline[d] to conclude that PWC’s 

potential conflict of interest constitutes bias rendering the 

arbitrator-selection process under the [HBLW] so ‘fundamentally 

unfair’ as to be unenforceable.” Id. The ICA then concluded 

that the circuit court’s actions in invalidating the arbitratorselection provision before PWC selected the arbitration service 

were premature and improper. Id. According to the ICA, 

“Nishimura Plaintiffs are not precluded from challenging the 

arbitration service designated by PWC or the neutral arbitrator 

selected by that service for bias upon appropriate proof before 

the start of the arbitration proceedings.” Id. 

Although its discussion up to this point in the opinion 

focused on the fundamental fairness of the arbitrator-selection 

process, the ICA’s opinion then shifted to a discussion on 

unconscionability. Id. Specifically, the ICA held, “In order 

to avoid enforcement of an allegedly unconscionable arbitration 

clause, Nishimura Plaintiffs were required to present evidence 

of actual partiality or bias of the arbitration service 

designated by PWC or the neutral arbitrator selected.” Id. 

(citing Doctor’s Assocs. Inc., 85 F.3d at 981) (emphasis added). 

The ICA then cited Gilmer v. Interstate/Johnson Lane Corp., 500 
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U.S. 20, 30 (1991), to conclude that the Nishimuras’ 

contentions, “based on circumstances of PWC’s business 

relationships,” constituted merely a “‘generalized attack’ on 

PWC’s impartiality,” resting on a suspicion of arbitration out 

of step with the United States Supreme Court’s endorsement of 

this method of dispute resolution. 133 Hawaii at 229, 325 P.3d 

at 641. Without proof of “actual partiality or bias,” the ICA 

held, “the circuit court should have confined judicial review to 

the fairness of the completed arbitration award, at which time 9 

U.S.C. § 10 could provide for vacating the award upon a finding 

that the arbitrators acted with evident partiality.” Id. 

The ICA then concluded that the circuit court should have 

enforced the HBLW’s arbitrator-selection provision. Id. The 

ICA vacated the order granting in part and denying in part 

Gentry’s motion to compel arbitration, as well as the order 

denying Gentry’s motion for reconsideration. Id. The ICA then 

remanded the case to the circuit court for further proceedings. 

Id. 

III. Standard of Review

An appellate court reviews a trial court’s order granting 

or denying a motion to compel arbitration de novo, using the 

“same standard employed by the trial court and based upon the 

same evidentiary materials ‘as were before [it] in determination 
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of the motion.” Koolau Radiology, Inc. v. Queens Med. Ctr., 73 

Haw. 433, 440, 834 P.2d 1294, 1298 (1992) (citations omitted). 

IV. Discussion

A. The “Fundamental Fairness” Standard in Challenges 

to the Arbitrator-Selection Process

Preliminarily, we note that the parties agree that the HBLW 

is governed by the FAA. 9 U.S.C. § 2 (2009) provides the 

following:

A written provision in any maritime transaction or a 

contract evidencing a transaction involving commerce to 

settle by arbitration a controversy thereafter arising out 

of such contract or transaction, or the refusal to perform 

the whole or any part thereof, or an agreement in writing 

to submit to arbitration an existing controversy arising 

out of such a contract, transaction, or refusal, shall be 

valid, irrevocable, and enforceable, save upon such grounds 

as exist at law or in equity for the revocation of any 

contract. 

(Emphasis added). Thus, under the FAA, invalidation of an 

arbitration provision is authorized. In determining whether an 

arbitrator-selection provision is enforceable, we adopt the 

“fundamental fairness” standard set forth by the Sixth Circuit 

in McMullen, 355 F.3d 485. 

In McMullen, on the eve of arbitration, after an arbitrator 

had been selected, a plaintiff employee (“McMullen”) brought an 

action challenging the fairness of the arbitrator-selection 

process. 355 F.3d at 488. The arbitration agreement granted 

her employer “exclusive control over the pool of potential 

arbitrators from which the arbitrator is selected.” 355 F.3d at 

487. From that pool of potential arbitrators, the employer and 
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employee each struck an arbitrator until only one remained. 355 

F.3d at 488. 

McMullen’s employer counter-argued that the bias McMullen 

“fears will manifest itself during her arbitration hearing is, 

at this point, merely potential bias.” 355 F.3d at 494 

(emphasis in original). Quoting Gilmer, the Sixth Circuit 

acknowledged that the United States Supreme Court, “when 

presented with an allegation of hypothetical bias, ‘decline[d] 

to indulge the presumption that the parties and arbitral body 

conducting a proceeding will be unable or unwilling to retain 

competent, conscientious and impartial arbitrators.’” Id. 

(citing Gilmer, 500 U.S. at 30). The Sixth Circuit recognized, 

however, that McMullen’s claim went “beyond an allegation of a 

potentially biased arbitrator because McMullen cites a lack of 

fairness inherent in the arbitrator-selection process.” Id. 

The Sixth Circuit explained that the employer’s arbitration 

agreement “grants one party to the arbitration unilateral 

control over the pool of potential arbitrators. This procedure 

prevents [the employer’s arbitration program] from being an 

effective substitute for a judicial forum because it inherently 

lacks neutrality.” Id. (footnote omitted).

Like Gentry, McMullen’s employer also argued that “Gilmer

clearly establishes that the preferred method of challenging 

allegations of bias is to pursue the underlying claims through 
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the arbitration process and then seek review only ‘[w]here there 

was evident partiality or corruption in the arbitrators [under 9 

U.S.C. § 10].’” 355 F.3d at 494 n.7. The Sixth Circuit 

disagreed. The court stated, “While this is true for 

allegations of potential or hypothetical bias among the 

arbitrators, it does not apply to an allegation, as is present 

here, that the arbitrator-selection process is fundamentally 

unfair. . . . [P]rocedural unfairness inherent in an 

arbitration agreement may be challenged before the arbitration.” 

Id. As such, the Sixth Circuit recognized, “When the process 

used to select the arbitrator is fundamentally unfair, as in 

this case, the arbitral forum is not an effective substitute for 

a judicial forum, and there is no need to present separate 

evidence of bias or corruption in the particular arbitrator 

selected.” Id. 

Several cases since McMullen have also explored fundamental 

fairness in arbitrator-selection clauses. In Walker, 400 F.3d 

370, plaintiff employees filed a complaint for FLSA violations 

against the defendant employer, Ryan’s Family Steak Houses, Inc. 

(“Ryan’s”). 400 F.3d at 373. Ryan’s moved to compel 

arbitration and to dismiss the complaint. Id. The district 

court denied the motion, concluding, inter alia, that the 

arbitration forum outlined in the arbitration agreements between 

employer and employees did not provide for effective vindication 
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of statutory claims and was an inappropriate substitute for the 

judicial forum. Id. The Sixth Circuit affirmed. 400 F.3d at 

372. 

In the Walker case, the employees signed arbitration 

agreements with Employment Dispute Services Inc., (“EDSI”), not 

their employer, Ryan’s. 400 F.3d at 374. Ryan’s had entered 

into a contract with EDSI to have EDSI administer an employment 

dispute resolution program. Id. By entering into the 

arbitration agreements with EDSI, the employees agreed to submit 

all employment disputes with Ryan’s to binding arbitration with 

EDSI. 400 F.3d at 375. The arbitration rules provided that 

EDSI would select a panel of three potential arbitrators from 

the following separate pools: “(1) supervisors or managers of 

an employer signatory to an agreement with EDSI; (2) employees 

who are non-exempt from the wage and hour protections of the 

Fair Labor Standards Act; and (3) attorneys, retired judges, or 

other competent legal professional persons not associated with 

either party.” Id. From the pool of potential arbitrators 

selected by EDSI, the employee and employer would alternately 

strike names until only one name remained. 400 F.3d at 376. 

In Walker, the Sixth Circuit again acknowledged the general 

rule, set forth in Gilmer, that a party cannot avoid the 

arbitration process simply by alleging the arbitration panel 

will be biased, because 9 U.S.C. § 10 allows for the vacation of 
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an arbitration award, post-arbitration, for evident partiality 

in the arbitrator. 400 F.3d at 385. The Walker Court also 

recognized the exception set forth in McMullen for prearbitration challenges to the fundamental fairness of the 

arbitrator-selection process. Id. The Walker court then held 

that EDSI’s arbitral forum was not neutral and, therefore, the 

arbitration agreements were unenforceable. 400 F.3d at 385-86.

The specific evidence the Walker court considered was that 

EDSI was a for-profit business, and Ryan’s annual fee accounted 

for over 42% of EDSI’s gross income in the year the employees 

filed their complaint. 400 F.3d at 386. Thus, “[g]iven the 

symbiotic relationship between Ryan’s and EDSI, Ryan’s 

effectively determines the three pools of arbitrators, thereby 

rendering the arbitral forum fundamentally unfair to claimants 

who are applicants or employees.” Id. The Sixth Circuit 

ultimately concluded that “EDSI’s and Ryan’s arbitration scheme 

does not allow for the effective vindication of Plaintiffs’ FLSA 

claims.” 400 F.3d at 388. The Sixth Circuit thus declined to 

enforce the arbitration agreements. Id. 

In Geiger v. Ryan’s Family Steak Houses, Inc., 134 

F.Supp.2d 985 (S.D. Ind. 2001), the United States District Court 

for the Southern District of Indiana also had occasion to 

consider the arbitration agreement between EDSI and employees of 

Ryan’s. In that case, plaintiff employees sued Ryan’s under 
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Title VII of the Civil Rights Act of 1964. 134 F.Supp.2d at 

988. As with Walker, the plaintiff employees’ arbitration 

agreement with EDSI allowed EDSI to select the three pools of 

arbitrators, and the employer and employee would alternately 

strike names from the pools of arbitrators until only one name 

remained. 134 F.Supp.2d at 990-91. The district court held, 

“[T]here is a strong potential for bias in the selection of the 

arbitration panel.” 134 F.Supp.2d at 995. This was because 

EDSI received payment from its agreements with Ryan’s and “thus 

clearly has an incentive to maintain its contractual 

relationship with Ryan’s . . . while applicants or employees 

. . . have no leverage. . . .” Id. Further, the court noted, 

“EDSI also retains full authority to select both the Rules for 

arbitration as well as the pools of potential arbitrators. Such 

power in the face of the potential for bias on the part of EDSI 

in favor of employers such as Ryan’s renders it unlikely that

applicants/employees will participate in an unbiased forum.” 

Id. (footnote omitted).

McMullen, Walker, and Geiger all hold that courts may 

entertain pre-arbitration challenges to the arbitrator-selection 

process, because such claims are the exception to the general 

rule that challenges to arbitrator bias must await the 

completion of arbitration under 9 U.S.C. § 10. Further, 
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McMullen and Walker hold that the standard by which a court 

analyzes arbitrator-selection clauses is fundamental fairness.6

B. The ICA’s “Actual Bias” Holdings

The ICA initially properly analyzed the Nishimuras’ case 

for fundamental fairness under McMullen and Walker. 133 Hawaii 

at 228, 325 P.3d at 640. The ICA then distinguished those two 

cases and held that the Nishimuras did not present facts showing 

that the arbitrator-selection clause in the HBLW was 

fundamentally unfair. Id. The ICA then proceeded, however, to 

hold, “In order to avoid enforcement of an allegedly 

unconscionable arbitration clause, Nishimura Plaintiffs were 

required to present evidence of actual partiality or bias of the 

arbitration service designated by PWC or the neutral arbitrator 

selected.” Id. (emphasis added). Later in the opinion, the ICA 

also held, “Because Nishimura Plaintiffs failed to prove that 

the arbitration selection process would necessarily result in 

actual partiality or bias, the circuit court should have 

 

6 We note that “fundamental fairness” in arbitration is a concept 

our appellate courts have already recognized. In In re Arbitration between 

United Pub. Workers, AFSCME, Local 646, AFL-CIO & City & Cnty. of Honolulu, 

119 Hawaii 201, 210, 194 P.3d 1163, 1172 (App. 2008), the ICA quoted the 

Prefatory Note to the revised Uniform Arbitration Act (2000), the basis of 

HRS Chapter 658A, for the proposition that “arbitration is a consensual 

process in which autonomy of the parties who enter into arbitration 

agreements should be given primary consideration, so long as their agreements 

conform to notions of fundamental fairness. . . .” (Emphasis added). See

also Kay v. Kaiser Found. Health Plan, Inc., 119 Hawaii 219, 229, 194 P.3d 

1181, 1191 (App. 2008) (“Arbitrators wield great power over the scope and 

nature of the arbitration proceedings and all determinations of fact and law, 

with virtually no appellate review of their decisions. The fundamental 

‘fairness’ of these expansive powers must be grounded in the assurance that 

neutral arbitrators are indeed neutral. . . .”) (Emphasis added).
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confined judicial review to the fairness of the completed 

arbitration award, at which time 9 U.S.C. § 10 could provide for 

vacating the award upon a finding that the arbitrators acted 

with evident partiality.” 133 Hawaii at 229, 325 P.3d at 641 

(emphasis added). 

In support of this “actual bias” standard, the ICA cited to 

Doctor’s Assocs., Inc., 85 F.3d 975. Doctor’s Assocs., Inc., 

however, did not involve a pre-arbitration challenge to the 

fundamental fairness of an arbitrator-selection provision. 

Rather, in that case, the defendants alleged that the 

arbitration service named in the arbitration agreement (American 

Arbitration Association or “AAA”) “relies on [the plaintiffs] to 

provide it with repeat business and thus has a bias in favor of 

[that party].” 85 F.3d at 980. The Second Circuit in that case 

rejected the argument, stating, “Defendants have failed to 

present any credible evidence indicating bias on the part of the 

AAA –- or its arbitrators –- in favor of [the plaintiffs] in 

this case, particularly because Defendants’ claims have not yet 

gone to arbitration.” 85 F.3d at 981 (citing 9 U.S.C. § 10(a)). 

Importantly, nowhere in the Doctor’s Assocs., Inc. opinion does 

the “actual bias” standard appear.

Although not cited in the ICA’s published opinion, it 

appears that the “actual bias” language comes from Phillips, 179 

F.Supp.2d 840, which Gentry cited in its Opening Brief. 
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Phillips is also a case in which the fundamental fairness of an 

arbitrator-selection provision was not at issue. In that case, 

the arbitration agreement called for AAA to arbitrate the 

dispute. 179 F.Supp.2d at 843. The plaintiff in Phillips

argued that “arbitration is inappropriate because the American 

Arbitration Association is biased in favor of the defendants,” 

and analogized her case to the series of cases involving EDSI. 

179 F.Supp.2d at 845. The United States District Court for the 

Northern District of Illinois rejected the argument, holding, 

“[The EDSI] cases are clearly distinguishable; in those cases, 

the defendants had ongoing service contracts with ESDI [sic] and 

paid ESDI [sic] to maintain an employment dispute resolution 

forum. Here, [the plaintiff] provides no evidence that the AAA, 

one of the country’s leading non-for-profit dispute resolution 

organizations, is on defendants’ payroll or any other evidence 

of actual bias on the part of the AAA.” Id. (emphasis added).

In Phillips, only the bias of AAA was alleged, not the 

process by which AAA was selected as the arbitrator; 

nevertheless, the plaintiff and the district court analyzed the 

bias claim using the EDSI line of cases. While the financial 

interest linking EDSI to Ryan’s in Walker and Geiger arguably 

demonstrates “actual bias,” Phillips overstates the holding in 

those cases to conclude that only “actual bias” rendered the 

arbitrator-selection provisions fundamentally unfair. 
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“Actual bias” need not be proven in a pre-arbitration 

challenge to an arbitrator-selection provision, where, as in 

McMullen, the mere fact of one party’s “exclusive control over 

the pool of potential arbitrators from which the arbitrator is 

selected” renders the arbitrator-selection process fundamentally

unfair. 355 F.3d at 487, 494. In other words, an arbitratorselection provision “grant[ing] one party to the arbitration 

unilateral control over the pool of potential arbitrators” 

prevents arbitration “from being an effective substitute for a 

judicial forum because it inherently lacks neutrality.” 355 

F.3d at 494. 

Further, contrary to Gentry’s argument and the ICA’s 

holding, the Nishimuras did not need to await PWC’s selection of 

the arbitration service and arbitrator before challenging the 

enforceability of the HBLW’s arbitrator-selection provision. We 

note that in McMullen, the Sixth Circuit focused on the process 

of arbitrator selection, not any actual arbitrator or his or her 

alleged bias, even though an arbitrator had been selected in 

that case. See 355 F.3d at 488. Accordingly, the Sixth Circuit 

did not conclude that “actual bias” must be shown to render an 

arbitrator-selection process unfair; rather, the Sixth Circuit 

held, “When the process used to select the arbitrator is 

fundamentally unfair, . . . there is no need to present separate 
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evidence of bias or corruption in the particular arbitrator 

selected.” 355 F.3d at 494 n.7. 

In short, we adopt the “fundamental fairness” standard 

under McMullen to review pre-arbitration challenges to the 

arbitrator-selection process. There is no requirement for a 

party challenging the arbitration-selection process to show 

“separate evidence of bias,” and, therefore, no requirement to 

show “actual bias” on the part of any particular arbitrator. 

Hence, the ICA erred in its holding that the Nishimuras needed 

to demonstrate “actual bias” in order to invalidate the HBLW’s 

arbitrator-selection provision. 133 Hawaii at 228-29, 325 P.3d 

at 640-41.

C. Application of the “Fundamental Fairness” Standard to 

the Instant Case

The HBLW arbitration provision states, in relevant part, 

the following:

VIII. Binding Arbitration Procedure

Any disputes between YOU and US, or parties acting on OUR 

behalf, including PWC, related to or arising from this 

LIMITED WARRANTY, the design or construction of the HOME or 

the COMMON ELEMENTS or the sale of the HOME or transfer of 

title to the COMMON ELEMENTS will be resolved by binding 

arbitration. Binding arbitration shall be the sole remedy 

for resolving any and all disputes between YOU and US, or 

OUR representatives. . . . 

The arbitration shall be conducted by Construction 

Arbitration Services, Inc., or such other reputable 

arbitration service that PWC shall select, at its sole 

discretion, at the time the request for arbitration is 

submitted. 

Ordinarily, an arbitration agreement is valid unless there is 

some basis to refuse to enforce it. 9 U.S.C. § 2. In this 
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case, PWC’s identification with Gentry provides a basis for 

finding the arbitrator-selection provision unenforceable as 

fundamentally unfair. The plain language of the arbitration 

agreement shows that PWC acts on Gentry’s behalf in 

administering the HBLW, which would include selecting an 

arbitration service, at PWC’s “sole discretion,” now that 

Construction Arbitration Services, Inc. is no longer available. 

As PWC acts on Gentry’s behalf under the HBLW, the Nishimuras’ 

concern that PWC’s exercise of its sole discretion is akin to 

Gentry’s exercise of such discretion is legitimate. As such, 

under McMullen, the HBLW’s arbitrator-selection provision, which 

“grants one party to the arbitration unilateral control over the 

pool of potential arbitrators . . . prevents [arbitration under 

the parties’ agreement] from being an effective substitute for a 

judicial forum because it inherently lacks neutrality”; 

therefore, the arbitrator-selection process is fundamentally 

unfair. 355 F.3d at 494, 494 n.7. Accordingly, the circuit 

court properly severed and struck the arbitrator-selection 

provision. Although the circuit court severed and struck the 

arbitrator-selection provision due to “potential conflict of 

interest,” and not expressly due to “fundamental unfairness,” we 

may “affirm a judgment of the lower court on any ground in the 

record that supports affirmance.” Canalez v. Bob’s Appliance 
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Serv. Ctr., Inc., 89 Hawaii 292, 301, 972 P.2d 295, 304 (1999) 

(citations omitted). 

D. Fashioning Relief for an Unenforceable ArbitratorSelection Provision

We next address whether the circuit court had the authority 

under RCCH Rule 12.2 to order the parties to meet and confer to 

select a local arbitration service. As Gentry points out, RCCH 

Rule 12.2(a) authorizes the circuit court to order non-binding 

arbitration, and the parties have agreed to binding arbitration 

under the HBLW:

Authority to order. The court, sua sponte or upon motion by 

a party, may, in exercise of its discretion, order the 

parties to participate in a non-binding Alternative Dispute 

Resolution process (ADR or ADR process) subject to terms 

and conditions imposed by the court. ADR includes

mediation, summary jury trial, neutral evaluation, nonbinding arbitration, presentation to a focus group, or 

other such process the court determines may be helpful in 

encouraging an economic and fair resolution of all or any 

part of the disputes presented in the matter. . . .

(Emphasis added). On the other hand, as the Nishimuras

point out, the circuit court did not order the parties into

binding arbitration under RCCH Rule 12.2 to settle the 

construction defect dispute. Rather, the circuit court 

ordered the parties to meet and confer to select a local 

arbitration service, which constitutes such other “process 

the court determines may be helpful in encouraging an 

economic and fair resolution of all or any part of the 

disputes presented in the matter.” Thus, pursuant to RCCH 

Rule 12.2, the circuit court’s action was appropriate.
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Further, the circuit court’s order provided, “If 

Plaintiffs and Gentry are unable to agree, the Court shall 

select a local arbitration service for this matter.” This 

part of the order followed the Nishimuras’ counsel’s 

request to the circuit court: “If we cannot come to an 

agreement [about who we want to arbitrate this case], you 

select somebody.” Whether or not RCCH Rule 12.2 applied, 9 

U.S.C. § 5 provided authority for the circuit court to 

select an arbitrator in such a situation:

If in the agreement provision be made for a method of 

naming or appointing an arbitrator or arbitrators or an 

umpire, such method shall be followed; but if no method be 

provided therein, or if a method be provided and any party 

thereto shall fail to avail himself of such method, or if 

for any other reason there shall be a lapse in the naming 

of an arbitrator or arbitrators or umpire, or in filling a 

vacancy, then upon the application of either party to the 

controversy the court shall designate and appoint an 

arbitrator or arbitrators or umpire, as the case may 

require, who shall act under the said agreement with the 

same force and effect as if he or they had been 

specifically named therein; and unless otherwise provided 

in the agreement the arbitration shall be by a single 

arbitrator.

Therefore, we affirm in toto the circuit court’s order granting 

in part and denying in part Gentry’s motion to compel 

arbitration, as well as its order denying Gentry’s motion for 

reconsideration of that order. 

V. Conclusion

The ICA erred in requiring a party challenging an 

arbitrator-selection provision to show evidence of “actual 

bias.” In resolving a challenge to an arbitrator-selection 
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provision, we apply the “fundamental fairness” standard 

articulated by the United States Court of Appeals for the Sixth 

Circuit. In the instant case, we conclude that the arbitratorselection provision is fundamentally unfair because it 

authorized one party’s agent to exercise its sole discretion in 

selecting an arbitration service to hear a dispute between that 

party and the plaintiffs. We therefore vacate the ICA’s 

Judgment on Appeal, and affirm the circuit court’s “Order 

Granting in Part and Denying in Part Defendant Gentry Homes, 

Ltd.’s Motion to Compel Arbitration Filed on August 29, 2012” 

and its “Order Denying Gentry Homes’ Motion for Reconsideration 

of the Order Granting in Part and Denying in Part Gentry Homes, 

Ltd.’s Motion to Compel Arbitration [Filed August 29, 2012], 

Filed November 13, 2012.”

Melvin Y. Agena /s/ Mark E. Recktenwald

for petitioners

/s/ Paula A. Nakayama

Ryan H. Engle

for respondent /s/ Sabrina S. McKenna

/s/ Richard W. Pollack

/s/ Michael D. Wilson