Opinion ID: 2564358
Heading Depth: 2
Heading Rank: 1

Heading: The Applicability of HRS Chapter 658 Versus HRS Chapter 658A

Text: In 2001, HRS chapter 658 was replaced by a modified version of the Uniform Arbitration Act. 2001 Haw. Sess. L. Act 265, §§ 5, 8 at 820. As originally promulgated, HRS § 658A-3 (Supp.2001) specifically provided that: When chapter applies. (a) Except as provided in subsection (c), this chapter governs an agreement to arbitrate made on or after July 1, 2002. (b) This chapter governs an agreement to arbitrate made before July 1, 2002, if all the parties to the agreement or to the arbitration proceeding so agree in a record. (c) After June 30, 2004, this chapter governs an agreement to arbitrate whenever made. (Bold emphasis in original.) In 2002, the legislature amended HRS § 658A-3 by adding an additional sentence to subsection 3(b), which provides that: If the parties to the agreement or to the arbitration do not so agree in a record, an agreement to arbitrate that is made before July 1, 2002, shall be governed by the law specified in the agreement to arbitrate or, if none is specified, by the state law in effect on the date when the arbitration began or on June 30, 2002, whichever first occurred. 2002 Haw. Sess. L. Act. 50, § 1 at 186. In amending subsection 3(b), the legislature specifically stated that: The purpose of this measure is to clarify the applicability of the State's Revised Uniform Arbitration Act, codified last year as Chapter 658A[.] . . . . Your Committee finds that the measure addresses an omission in the Revised Uniform Arbitration Act which governs arbitration agreements made prior to the effective date of Chapter 658A, HRS, if agreed to by the parties to the agreement or to the arbitration proceeding. However, the Revised Uniform Arbitration Act is silent as to which law governs if the parties do not agree. This measure will enable the use of the provision in the previous arbitration law, which has since been repealed, when warranted. Sen. Stand. Comm. Rep. No. 3169, in 2002 Senate Journal, at 1511; see also Sen. Stand. Comm. Rep. No. 2850, in 2002 Senate Journal, at 1378-79; Hse. Stand Comm. Rep. No. 260, in 2002 House Journal, at 1331. [15] Accordingly, the current version of HRS § 658A-3 (Supp.2005) provides in its entirety: When chapter applies. (a) Except as provided in subsection (c), this chapter governs an agreement to arbitrate made on or after July 1, 2002. (b) This chapter governs an agreement to arbitrate made before July 1, 2002, if all the parties to the agreement or to the arbitration proceeding so agree in a record. If the parties to the agreement or to the arbitration do not so agree in a record, an agreement to arbitrate that is made before July 1, 2002, shall be governed by the law specified in the agreement to arbitrate or, if none is specified, by the state law in effect on the date when the arbitration began or on June 30, 2002, whichever first occurred. (c) After June 30, 2004, this chapter governs an agreement to arbitrate whenever made. (Bold emphasis in original.) We have repeatedly announced that: In construing statutes, a court's primary objective is to ascertain and give effect to the intention of the legislature as gleaned primarily from the language contained in the statute itself. Accordingly, it is well settled that this court is bound by the plain, clear[,] and unambiguous language of a statute[,] unless the literal construction would produce an absurd and unjust result, and would be clearly inconsistent with the purposes and policies of the statute. CARL Corp. v. State of Hawai`i, Dep't of Educ., 85 Hawai`i 431, 459, 946 P.2d 1, 29 (1997) (internal quotation marks, ellipses, original brackets, and citations omitted) (format altered). Furthermore, we must read statutory language in the context of the entire statute and construe it in a manner consistent with its purpose. Courbat v. Dahana Ranch, Inc., 111 Hawai`i 254, 260, 141 P.3d 427, 433 (2006) (citations omitted). Bearing the foregoing principles in mind, we now examine the language of HRS § 658A-3 as it applies to the instant case.
Subsection 3(a) clearly directs that, except as provided in subsection (c), see section III.A.4., infra, the new chapter governs an agreement to arbitrate made on or after July 1, 2002.  HRS § 658A-3(a) (emphasis added). Here, it is undisputed that (1) UPW and Dawson entered into the Plan Agreement, which contained the dispute resolution provisions, on February 24, 2000, prior to the enactment of HRS chapter 658A and (2) UPW and Dawson executed the DPR Arbitration Agreement on August 23, 2003 and January 30, 2004, respectively, which agreement explicitly provides that [t]he parties, DPR, and James Paul, Esq. agree to follow and abide by the DPR Arbitration Rules[.] Further, the parties do not dispute that, prior to Dawson's signing of the DPR Arbitration Agreement on January 30, 2004, they conducted discovery under the old arbitration law. [16] On appeal, Dawson maintains that HRS chapter 658 is applicable inasmuch as the Plan Agreement was entered into prior to the enactment of HRS chapter 658A. Specifically, Dawson argues that the DPR Arbitration Agreement does not contain language that expressly alters the statutory jurisdiction that the parties have followed since the commencement of the arbitration proceeding and throughout the discovery period. Dawson maintains that: When it signed [the DPR Arbitration Agreement,] to pay fees, [Dawson] had no intention of changing the statutory jurisdiction of the [a]rbitrator or abandoning the version of the DPR[AR] that the parties and the arbitrator were following up until that time. Moreover, the statements made by UPW's counsel after UPW signed the DPR form acknowledge that the proceedings were under Chapter 658 and acknowledge that the only arbitration agreement between the parties that matters is the one contained in the Plan [Agreement]. UPW goes so far as to state that DPR's agreement is just a formality to provide additional protections for [the] DPR related to responsibility for paying [the] DPR and the [a]rbitrator. (Footnote omitted.) In sum, Dawson essentially maintains that the DPR Arbitration Agreement does not constitute a new and enforceable arbitration agreement nor displaces or overrides the dispute resolution provisions of the Plan Agreement. Conversely, UPW argues that, when Dawson signed the DPR Arbitration Agreement on January 30, 2004, it agreed to be bound by the DPRAR, including DPRAR Rule 31. At that time, Rule 31 provided that: Parties may apply to the Arbitrator(s) to modify, correct or clarify an Award, pursuant to the procedures specified in the RUAA, Section 20[, i.e., HRS § 658A-20]. HRS § 658A-20 expressly permits the arbitrator to act on a party's request to make mathematical corrections or clarify an arbitration award. Consequently, UPW contends that Dawson's argument that it is somehow not bound by [the DPRAR] flies in the face of its express agreement to the contrary when signing [the DPR Arbitration Agreement]. UPW further contends that: Dawson's extrinsic evidence of alleged secret undocumented intentions of Dawson when signing the DPR [Arbitration] Agreement [is] not supported by the record (no affidavit by Dawson) and were properly not considered by the circuit court. The plain language of the [DPR] Arbitration Agreement controls over what Dawson may have secretly intended when it signed the agreement. Based upon the respective positions of the parties, the inquiry is whether the DPR Arbitration Agreement constitutes a new valid and enforceable agreement to arbitrate, thereby, superseding the dispute resolution provisions of the Plan Agreement and triggering the applicability of HRS chapter 658A. Preliminarily, we recognize the well-settled principle that courts should not draw inferences from a contract regarding the parties' intent when the contract is definite and unambiguous. In fact, contractual terms should be interpreted according to their plain, ordinary meaning and accepted use in common speech. The court should look no further than the four corners of the document to determine whether an ambiguity exists. State Farm Fire & Cas. Co. v. Pac. Rent-All, Inc., 90 Hawai`i 315, 324, 978 P.2d 753, 762 (1999) (citations omitted). Where a writing is found to be clear and unambiguous and represents the final and complete agreement of the parties, the parol evidence rule bars evidence of prior contemporaneous negotiations and agreements that vary or alter the terms of a written instrument. Id. (citation omitted). Thus, [o]nce the parties execute an instrument which contains their whole agreement, their previous negotiations and agreements are legally ineffective and evidence relating to those previous negotiations or agreements is irrelevant regardless of who offers it. Akamine & Sons, Ltd. v. Am. Sec. Bank, 50 Haw. 304, 310, 440 P.2d 262, 266 (1968). However, it is equally well-settled that, because the parol evidence rule presupposes a valid agreement, it will not prohibit evidence showing that there was no agreement or no enforceable agreement. See E. Allan Farnsworth, Contracts §§ 7.3-7.4, at 239-47 (3d ed.2004); [17] see also 11 Williston on Contracts, § 33:17 at 632-40 (4th ed.1999); Restatement (Second) of Contracts § 210, cmt. b (1981) ([A] writing cannot of itself provide its own completeness, and wide latitude must be allowed for inquiry into circumstances bearing on the intention of the parties.). In other words, the parol evidence rule only applies to enforceable contracts and thus extrinsic evidence should be considered in assessing defenses to contract formation. Boskoff v. Yano, 217 F.Supp.2d 1077, 1086 (D.Haw.2001) (citation omitted); see also State Farm Fire & Cas. Co., 90 Hawai`i at 324, 978 P.2d at 762 (absent fraud, duress, mistake or ambiguity, extrinsic evidence is excluded once it is determined that a contract is fully integrated ) (citations omitted) (emphasis added); Local Motion, Inc. v. Niescher, 105 F.3d 1278, 1280 (9th Cir.1997) (the rule only applies when the court is interpreting a contract that is enforceable) (citation omitted). Intrinsic to finding the existence of an agreement is finding the intention of the parties. It is an elementary rule of contract law that there must be a meeting of the minds on all essential elements or terms in order to create a binding contract[.] Moss v. Am. Int'l Adjustment Co., 86 Hawai`i 59, 63, 947 P.2d 371, 375 (1997) (citation, internal quotation marks, and original brackets omitted) (holding that the parties failed to enter into a binding arbitration agreement because there was no meeting of the minds); see also S. Foods Group, L.P. v. State of Hawai`i, Dep't of Educ., 89 Hawai`i 443, 457, 974 P.2d 1033, 1047 (1999) ([C]ontracting is a sentient process. There must be objective proof of a meeting of the minds. The prospective contracting parties are not expected to engage in telepathy. There must be a confluence of assent around specific terms. (Citation omitted.)). The existence of mutual assent or intent to accept is determined by an objective standard. A party's words or acts are judged under a standard of reasonableness in determining whether he has manifested an objective intention to agree. All reasonable meanings will be imputed as representative of a party's corresponding objective intention. Unexpressed intentions are nugatory when the problem is to ascertain the legal relations, if any, between two parties. Earl M. Jorgensen Co. v. Mark Constr., Inc., 56 Haw. 466, 470-71, 540 P.2d 978, 982 (1975) (citations omitted). It follows then that, [a]n arbitration agreement, like any contract, must be construed to give effect to the intention of the parties. Wayland Lum Constr., Inc. v. Kaneshige, 90 Hawai`i 417, 422, 978 P.2d 855, 860 (1999) (citation omitted). In our view, the record on appeal in the instant case evinces that there was no meeting of the minds between the parties to create a new binding contract to arbitrate that would replace or supersede the dispute resolution provisions contained in the Plan Agreement. UPW, in a letter dated January 27, 2004 to the DPR regarding Dawson's failure to make the $6,000.00 initial deposit for the arbitration proceedings, expressly maintained that: As to Dawson's failure to sign the Agreement to Participate in Binding Arbitration, we respectfully assert that Dawson's signature is but a mere formality and is not necessary in order to go forward. Dawson originally initiated this arbitration back in 2001, and, thereafter, has since participated by selecting the arbitrator, submitting a Statement of Claim, submitting an Answer to UPW's Statement of the Case, exchanging documents responsive to discovery requests, and appearing/arguing in several scheduling and discovery telephone conferences with Arbitrator Jim Paul. Please note also that Dawson already signed the underlying contract at issue in this matter which included Dawson's agreement to resolve any contract disputes with UPW through arbitration. That arbitration provision was the basis for initiating these arbitration proceedings with DPR. Under these circumstances, Dawson is already bound by an arbitration agreement and its conduct to date, other than its refusal to pre-pay its share, certainly constitutes an agreement to participate in this arbitration. [The DPR Arbitration Agreement] merely provides additional protection for DPR's and the arbitrator's fees, but is now unnecessary because UPW is willing to advance all of these fees. (Emphases added.) Thereafter, on January 30, 2004, Dawson signed the DPR Arbitration Agreement. Under these circumstances, it cannot reasonably be said that Dawson manifested an objective intention to agree, Earl M. Jorgensen Co., 56 Haw. at 470, 540 P.2d at 982, that the DPR Arbitration Agreement constituted a new agreement to arbitrate. See Restatement (Second) of Contracts § 20 (There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and (a) neither party knows or has reason to know the meaning attached by the other; or (b) each party knows or each party has reason to know the meaning attached by the other.). Moreover, UPW's statements in its January 27, 2004 letter that (1) Dawson already signed the underlying contract, (2) the arbitration provision [in that contract] was the basis for initiating these arbitration proceedings with DPR, and (3) Dawson is already bound by an arbitration agreement demonstrate that UPW, itself, did not consider the DPR Arbitration Agreement as a new agreement to arbitrate that would displace the dispute resolution provisions of the underlying contract, i.e., the Plan Agreement. Rather, we believe the DPR Arbitration Agreement complied with section 5.03 of the Plan Agreement. As previously quoted, section 5.03 sets forth the parties' agreement to arbitrate any disputes and also provides that the parties shall select an Arbitrator by mutual agreement. The DPR Arbitration Agreement clearly evinces the parties' mutual assent to (1) James Paul, Esq. as their arbitrator, (2) the scope of the arbitrator's authority in determining the dispute, and (3) the arbitrator's compensation and expenses. In other words, the DPR Arbitration Agreement merely memorializes, in writing, the parties mutual agreement regarding the selection of an arbitrator, as required by section 5.03 of the Plan Agreement. Indeed, as UPW's letter of January 27, 2004 indicates, Dawson is already bound by an arbitration agreement [ ( i.e., section 5.03 of the Plan Agreement),] and, therefore, the post-July 1, 2002 DPR Arbitration Agreement is not a new arbitration agreement that would dictate the application of HRS chapter 658A to the arbitration proceedings. Accordingly, inasmuch as the Plan Agreement was executed on February 24, 2000, HRS § 658A-3(a) is inapplicable to the instant case. See also section III.A.4., infra.
The fact that the Plan Agreement was executed prior to July 1, 2002, however, does not necessarily foreclose the application of the new arbitration lawHRS chapter 658Ato the instant case under HRS § 658A-3(b), quoted supra. Based on the first sentence of subsection 3(b), the new chapter may govern an arbitration agreement made before July 1, 2002, as long as the parties to the agreement or the proceedings so agree in a record.  HRS § 658A-3(b) (emphasis added). If the parties cannot agree, the second sentence of subsection 3(b) states that the law specified in the agreement shall govern; but, if no governing law is specified in the agreement, the arbitration shall be governed by the law in effect on the date when the arbitration began or on June 30, 2002, whichever occurred first.  HRS § 658A-3(b) (emphases added). As previously stated, UPW maintains that, by signing the DPR Arbitration Agreement, Dawson agreed to be bound by the DPRAR, which references HRS chapter 658A and that, therefore, the DPR Arbitration Agreement is the record for purposes of subsection 3(b). However, notwithstanding the fact that the parties agreed to follow and abide by the DPRAR, the DPR Arbitration Agreement does not specifically reference which version of the DPRAR would be followed, i.e., those promulgated during the time when HRS chapter 658 was effective or those promulgated after the effective date of HRS chapter 658A. We, therefore, reject UPW's argument that the DPR Arbitration Agreement is the record evincing the parties' agreement that the new arbitration law would apply to the arbitration proceeding. In the absence of an agreement by the parties in a record to the application of HRS chapter 658A, the second sentence of subsection 3(b) mandates the governing law to be that which is specified in the agreement to arbitrate or, if none is specified, by the state law in effect on the date when the arbitration began or on June 30, 2002, whichever first occurred. HRS § 658A-3(b) (emphases added). As previously discussed, the DPR Arbitration Agreement is not a new agreement to arbitrate; thus, the Plan Agreement entered into on February 24, 2000 controls. The dispute resolution provisions of the Plan Agreement, however, do not specify or make reference to the law that would govern an arbitration proceeding pursuant to the Plan Agreement. Thus, we look to the alternative enunciated in the second sentence of subsection 3(b), i.e., the date when the arbitration began. The arbitration proceeding in the instant case commenced on February 18, 2004after June 30, 2002. Consequently, pursuant to the plain reading of the alternative stated in the second sentence of HRS § 658A-3(b), the governing law is that which was in effect on June 30, 2002, i.e., HRS chapter 658. [18]
As previously stated, HRS § 658A-3(a) provides that the new arbitration law applies to all agreements entered into after July 1, 2002 except as provided in subsection (c). Subsection 3(c) provides that, after June 30, 2004, the new arbitration law governs an agreement to arbitration whenever made.  HRS § 658A-3(c) (emphasis added). In other words, a plain reading of subsection 3(c) indicates that, after June 30, 2004, HRS chapter 658A applies whether an arbitration agreement was made before or after July 1, 2002. However, being mindful that we must read statutory language in the context of the entire statute, Courbat, 111 Hawai`i at 260, 141 P.3d at 433, we must examine the apparent conflict between HRS §§ 658A-3(b) and -3(c). Under subsection 3(c), after June 30, 2004, the new arbitration law would apply regardless whether an arbitration proceeding may be ongoing. In other words, in cases where a pre-July 1, 2002 arbitration agreement did not specify the governing law and the arbitration began at any time between July 1, 2002 and June 30, 2004, the second sentence of subsection 3(b) controls, that is, the old arbitration law would apply because June 30, 2002 occurred first; but, if the proceeding is not completed by June 30, 2004, the new arbitration law is triggered on July 1, 2004. However, inasmuch as a rational, sensible, and practicable interpretation of a statute is preferred to one which is unreasonable or impracticable, Kinkaid v. Bd. of Review of City & County of Honolulu, 106 Hawai`i 318, 323, 104 P.3d 905, 910 (2004) (internal quotation marks, brackets, and citation omitted), we presume that the legislature would not have intended the absurd result of having parties to an arbitration be subjected to a change of rules while in the midst of an ongoing arbitration proceeding. See id. (stating that the legislature must be presumed not to intend an absurd result, such that legislation will be construed to avoid, if possible, inconsistency, contradiction, and illogicality (internal quotation marks, brackets, and citation omitted)). Changing the rules mid-stream could impact prior rulings made by the arbitrator under a different scheme, cause confusion, create delays, and increase the expenses of the parties. Such a result would be inconsistent with the general proposition that parties resort to arbitration to settle disputes more expeditiously and inexpensively than by a court action[.] Daiichi Hawai`i Real Estate Corp. v. Lichter, 103 Hawai`i 325, 339, 82 P.3d 411, 425 (2003) (citation omitted). Indeed, it would also be inconsistent with the purposes of the Uniform Arbitration Act. See Sen. Stand. Comm. Rep. No. 1467, in 2002 Senate Journal, at 1514 (Your Committee finds that arbitration is a desirable alternative to litigation. Your Committee believes that this bill will facilitate arbitration as an effective means of resolving contractual disputes without the need for litigation by augmenting procedures to meet modern needs.); Sen. Stand. Comm. Rep. No. 1248, in 2002 Senate Journal, at 1420 (Your Committee finds that arbitration has become a more viable alternative to litigation.). Thus, in our view, the rationale, sensible, and practicable interpretation of HRS § 658A-3(c) is that it does not apply to an ongoing arbitration proceeding, but to arbitration proceedings commenced after June 30, 2004. Stated differently, under subsection 3(c), arbitration proceedings commenced after June 30, 2004 are governed by the new arbitration law regardless of when the arbitration agreement was made. Accordingly, inasmuch as the arbitration proceeding in this case commenced prior to June 30, 2004, HRS § 658A-3(c) is inapplicable to the instant case. Consequently, we hold that, under the circumstances of this case and the plain language of HRS § 658A-3(b), the governing law applicable to the arbitration proceeding in this case is HRS chapter 658. [19] We now turn to the dispositive issue on appealwhether the circuit court's remand to the arbitrator was proper under Chapter 658. [20]