Court Opinion

ID: 9393990
Source: CourtListenerOpinion
Date Created: 2023-05-11 20:03:34.931072+00
Date Added: 2024-06-11T17:18:56.694894
License: Public Domain

NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER

                                                  Electronically Filed
                                                  Intermediate Court of Appeals
                                                  CAAP-XX-XXXXXXX
                                                  11-MAY-2023
                                                  07:50 AM
                                                  Dkt. 81 MO

                           NO. CAAP-XX-XXXXXXX

                 IN THE INTERMEDIATE COURT OF APPEALS

                        OF THE STATE OF HAWAI#I

ALOHA INSURANCE SERVICES, INC., Plaintiff/Counterclaim Defendant-
                             Appellee,
                                 v.
CHRIS SMITH, Defendant/Counterclaimant-Appellant; LAURA JENNISON,
   Defendant/Counterclaimant/Third-Party Plaintiff-Appellant,
                                and
     ROBYN CHUNG-HOON, Defendant/Counterclaimant/Third-Party
                            Plaintiff,
                                and
            PETER NOTTAGE, JR., Third-Party Defendant
                                and
ATLAS INSURANCE AGENCY, INC.; JOHN DOES 1-50; JANE DOES 1-50; AND
                JOHN DOE ENTITIES 1-50, Defendants

          APPEAL FROM THE CIRCUIT COURT OF THE THIRD CIRCUIT
                       (CIVIL NO. 3CC13100470K)

                         MEMORANDUM OPINION
   (By:   Hiraoka, Presiding Judge, Wadsworth and McCullen, JJ.)

            Aloha Insurance Services, Inc. and Chris Smith and
Laura Jennison arbitrated a business dispute.1           The Arbitrator
was appointed by order entered on June 5, 2015.           The Arbitrator

      1
            This appeal arises from two lawsuits that were consolidated by the
circuit court. In JEFS No. 3CC13100421K, Smith and Jennison were the
petitioners and Aloha was the respondent. In JEFS No. 3CC13100470K, Aloha was
the plaintiff/counterclaim defendant; Smith was the defendant/counterclaimant;
and Jennison was the defendant/counterclaimant/third-party plaintiff. There
are other parties to JEFS No. 3CC13100470K who are not parties to this appeal.
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issued an award on November 10, 2017. Smith and Jennison moved
to confirm the award. Aloha moved to vacate the award.
          On February 15, 2018, the Circuit Court of the Third
Circuit entered its Findings of Fact, Conclusions of Law and
Order.2 The Order denied the motion to confirm and granted the
motion to vacate without directing a rehearing.           Smith and
Jennison appealed. We have jurisdiction under Hawaii Revised
Statutes (HRS) § 658A-28(a)(3) and (5) (2016). For the reasons
explained below, we affirm the Order.
          Smith and Jennison don't challenge the circuit court's
findings of fact. They raise two points on appeal: (1) "The
Circuit Court erred when it ruled that an undisclosed potential
conflict of interest of the [A]rbitrator required as a matter of
law that the arbitration award be vacated"; and (2) "The Circuit
Court erred when, based on the undisputed facts of the case, it
concluded that [the Arbitrator] had an undisclosed conflict of
interest that warranted vacating the arbitration award." The
Order applied HRS § 658A-12, the statute requiring disclosures by
an arbitrator. "Statutory interpretation is a question of law
reviewable de novo." Noel Madamba Contracting LLC v. Romero, 137
Hawai#i 1, 9, 364 P.3d 518, 526 (2015) (citation omitted).
           The parties disagree on which version of HRS § 658A-12
applies to this case. The statute was amended effective July 11,
2017. 2017 Haw. Sess. Laws Act 187, § 3 at 671. Aloha contends
that the former version, in effect when the Arbitrator was
appointed, and when the arbitration hearings were conducted,
applies.3 Smith and Jennison contend that the current version,
in effect when the arbitration award was issued, the motions to
confirm and to vacate were filed, and the Order was entered,
applies. We conclude that the former version of the statute
applies under the undisputed facts of this case.

      2
            The Honorable Robert D.S. Kim presided.
      3
            The arbitration hearings were held on May 1-5, 8-12, June 21-23,
and 26-29, 2017.

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           Hawai#i adopted the Uniform Arbitration Act (UAA) in
2001.   2001 Haw. Sess. Laws Act 265, §§ 1, 5 at 810-20.           Act 265
was codified at HRS Chapter 658A.        HRS § 658A-12 originally
provided:

           Disclosure by arbitrator. (a) Before accepting appointment,
           an individual who is requested to serve as an arbitrator,
           after making a reasonable inquiry, shall disclose to all
           parties to the agreement to arbitrate and arbitration
           proceeding and to any other arbitrators any known facts that
           a reasonable person would consider likely to affect the
           impartiality of the arbitrator in the arbitration
           proceeding, including:
                 (1)   A financial or personal interest in the outcome
                       of the arbitration proceeding; and
                 (2)   An existing or past relationship with any of the
                       parties to the agreement to arbitrate or the
                       arbitration proceeding, their counsel or
                       representatives, a witness, or another
                       arbitrator.

                 (b)   An arbitrator has a continuing obligation to
           disclose to all parties to the agreement to arbitrate and
           arbitration proceeding and to any other arbitrators any
           facts that the arbitrator learns after accepting appointment
           which a reasonable person would consider likely to affect
           the impartiality of the arbitrator.
                 (c)   If an arbitrator discloses a fact required by
           subsection (a) or (b) to be disclosed and a party timely
           objects to the appointment or continued service of the
           arbitrator based upon the fact disclosed, the objection may
           be a ground under section 658A-23(a)(2) for vacating an
           award made by the arbitrator.
                  (d)  If the arbitrator did not disclose a fact as
           required by subsection (a) or (b), upon timely objection by
           a party, the court under section 658A-23(a)(2) may vacate an
           award.
                 (e)   An arbitrator appointed as a neutral arbitrator
           who does not disclose a known, direct, and material interest
           in the outcome of the arbitration proceeding or a known,
           existing, and substantial relationship with a party is
           presumed to act with evident partiality under section
           658A-23(a)(2).
                 (f)   If the parties to an arbitration proceeding
           agree to the procedures of an arbitration organization or
           any other procedures for challenges to arbitrators before an
           award is made, substantial compliance with those procedures
           is a condition precedent to a motion to vacate an award on
           that ground under section 658A-23(a)(2).

HRS § 658A-12 (2016).

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          In Nordic PCL Constr., Inc. v. LPIHGC, LLC, 136 Hawai#i
29, 358 P.3d 1 (2015), the supreme court stated:

                At first glance, it may seem that after a
          determination that an arbitrator failed to disclose a fact a
          reasonable person would consider likely to affect his
          impartiality, there must also be a separate finding that the
          arbitrator acted with "evident partiality" or bias before an
          award can be vacated. As explained below, however, a
          failure to meet disclosure requirements under HRS § 658A-
          12(a) or (b) is equivalent to, or constitutes, "evident
          partiality" as a matter of law.

Id. at 50, 358 P.3d at 22 (emphasis added). However, later in
its opinion the supreme court stated that if the party seeking to
vacate the award sustained its "burden of proving evident
partiality, i.e., the failure to disclose facts that a reasonable
person would consider likely to have affected the Arbitrator's
impartiality[,]" id. at 52, 358 P.3d at 24, "the circuit court
. . . has discretion under HRS § 658A–12(d) to decide whether or
not to grant the motion to vacate[,]" id. at 53, 358 P.3d at 25
(emphasis added).
           Then, in Madamba, the supreme court stated: "if a
neutral arbitrator demonstrates evident partiality, the
arbitration award shall be vacated" as a matter of law. 137
Hawai#i at 16, 364 P.3d at 533. The supreme court explained the
seeming paradox in a third case, Narayan v. Ass'n of Apt. Owners
of Kapalua Bay Condo., 140 Hawai#i 75, 398 P.3d 664 (2017):

                 In Madamba, we held that a finding of evident
          partiality based on a violation of HRS § 658A-12(a) or (b)
          by a neutral arbitrator requires the court to vacate the
          arbitration award pursuant to HRS § 658A-23(a)(2)(A). 137
          Hawai#i at 16, 364 P.3d at 533. We recognized the
          permissive language of HRS § 658A-12(d) but found the
          following:

                The function of the 'may' language . . . is to provide
                reference to the different circumstances that require
                vacatur under HRS § 658A-23(a)(2), i.e., a neutral
                arbitrator's evident partiality, and any arbitrator's
                corruption or misconduct. For example, if a non-
                neutral arbitrator fails to make a disclosure required
                under HRS § 658A-12(a) or (b), although the award
                would not be vacated based on evident partiality — as
                evident partiality only applies to neutral arbitrators
                — it could be vacated based on the corruption and
                misconduct provisions in HRS § 658A-23(a)(2).

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          Id. (citation and footnote omitted). We also noted that the
          Commentary "takes into account the fact that jurisdictions
          have developed different views regarding what constitutes
          evident partiality," so the standard for evident partiality
          due to nondisclosure will differ among jurisdictions that
          have adopted the UAA. 137 Hawai#i at 16 n.20, 364 P.3d at
          533 n.20. "[O]ur standard for evident partiality based on a
          failure to disclose is equivalent to the standard laid out
          in HRS § 658A-12's disclosure provisions. Accordingly, in
          this context, once evident partiality [as to a neutral
          arbitrator] is established, the arbitration award must be
          vacated." Id.

                Based on the standards outlined in Nordic and
          clarified in Madamba, an arbitrator's compliance with the
          disclosure requirements set forth in [HRS] §§ 658A-12(a) and
          (b) is paramount to the validity of an arbitration award.

Id. at 86, 398 P.3d at 675 (emphasis added).
          In 2017, in response to Nordic and Madamba, the
legislature introduced a bill to amend HRS § 658A-12. The Senate
Committee on Judiciary and Labor reported:

                Your Committee finds that two recent decisions by the
          Supreme Court of Hawaii in Nordic PCL Construction, Inc. v.
          LPIHGC, LLC, 136 Hawaii 29 (2015) and Noel Madamba
          Contracting LLC v. Romero, 137 Hawaii 1 (2015) have resulted
          in implications to the arbitration process and have possible
          unintended consequences. Specifically, these two decisions
          affected the law relating to the disclosure requirements of
          an arbitrator that authorizes the trial court to vacate an
          arbitration award if the arbitrator failed to disclose a
          known fact that a reasonable person would consider likely to
          affect the impartiality of the arbitrator. In these two
          cases, the court held that an arbitrator's nondisclosure of
          information that may affect the arbitrator's impartiality
          constituted evident partiality as a matter of law and that
          the court was required to vacate the arbitrator's decision.
          This measure authorizes the trial court to determine the
          facts then impose relief that is appropriate and provides
          specific standards to enable the trial court to determine
          whether the arbitrator failed to disclose an interest or
          relationship that a reasonable person would consider likely
          to affect the impartiality of the arbitrator and whether to
          vacate an award made by an arbitrator who failed to disclose
          that information.

S. Stand. Comm. Rep. No. 551, in 2017 Senate Journal, at 1046,
available at https://www.capitol.hawaii.gov/sessions/session2017/
Comm Reports/SB314_SD1_SSCR551_.pdf (emphasis added). The bill,
in its final form (Act 187), made these changes to HRS § 658A-12
(new material looks like this; [deletions look like this]):

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        Disclosure by arbitrator. (a) Before accepting appointment,
        an individual who is requested to serve as an arbitrator,
        after making a reasonable inquiry, shall disclose to all
        parties to the agreement to arbitrate and arbitration
        proceeding and to any other arbitrators any known facts that
        a reasonable person would consider likely to affect the
        impartiality of the arbitrator in the arbitration
        proceeding, including:
              (1)   A direct and material financial or personal
                    interest in the outcome of the arbitration
                    proceeding; and

              (2)   An existing or past substantial relationship
                    with any of the parties to the agreement to
                    arbitrate or the arbitration proceeding, their
                    counsel or representatives, a witness, or
                    another arbitrator.
              (b)   An arbitrator has a continuing obligation to
        disclose to all parties to the agreement to arbitrate and
        arbitration proceeding and to any other arbitrators any
        facts that the arbitrator learns after accepting appointment
        [which] that a reasonable person would consider likely to
        affect the impartiality of the arbitrator.

              (c)   If an arbitrator discloses a fact required by
        subsection (a) or (b) to be disclosed and a party timely
        objects to the appointment or continued service of the
        arbitrator based upon the fact disclosed, the objection may
        be a ground under section 658A-23(a)(2) for vacating an
        award made by the arbitrator.

               [(d) If the arbitrator did not disclose a fact as
        required by subsection (a) or (b), upon timely objection by
        a party, the court under section 658A-23(a)(2) may vacate an
        award.

              (e)   An arbitrator appointed as a neutral arbitrator
        who does not disclose a known, direct, and material interest
        in the outcome of the arbitration proceeding or a known,
        existing, and substantial relationship with a party is
        presumed to act with evident partiality under section
        658A-23(a)(2).]

              (d)   If the court, upon timely objection by a party,
        determines that the arbitrator did not disclose a fact
        required by subsection (a) or (b) to be disclosed, the court
        may determine that such failure to disclose constituted
        evident partiality and vacate an award made by the
        arbitrator pursuant to section 658A-23(a)(2).

              [(f)] (e)   If the parties to an arbitration
        proceeding agree to the procedures of an arbitration
        organization or any other procedures for challenges to
        arbitrators before an award is made, substantial compliance
        with those procedures is a condition precedent to a motion
        to vacate an award on that ground under section
        658A-23(a)(2).

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2017 Haw. Sess. Laws Act 187, § 1 at 670-71. Act 187 took effect
on July 11, 2017, when it was approved by Governor Ige. Id. § 3
at 671.
          HRS § 1-3 (2009) provides: "No law has any
retrospective operation, unless otherwise expressed or obviously
intended." HRS § 658A-12 (Supp. 2017) contains no provision for
retrospective operation. Nor does the legislative history of
Act 187 show any intent for the statutory amendments to apply
retrospectively. Accordingly, we consider whether retroactive4
application of the 2017 amendment to HRS § 658A-12 in this case
would impair existing rights, create new obligations, or impose
additional duties with respect to past transactions — or would
merely alter the means of enforcing or giving effect to
preexisting rights. Gov't Emps. Ins. Co. v. Hyman, 90 Hawai#i 1,
5, 975 P.2d 211, 215 (1999).
          Before Act 187 took effect, a potential arbitrator was
required to disclose all financial or personal interests they had
in the outcome of the arbitration proceeding, and all existing or
past relationships they had with a party to the arbitration
proceeding or its counsel or representatives, a witness, or
another arbitrator. The disclosure obligation continued after
selection of the arbitrator, to protect the right of the parties
to a fair and impartial arbitration. This is important because
an arbitrator's findings of fact and conclusions of law are not
subject to judicial review even if clearly erroneous or wrong.
Nordic, 136 Hawai#i at 42, 358 P.3d at 14.
          Since Act 187 took effect, a potential arbitrator is
required to disclose only "direct and material" interests in the
outcome of the arbitration proceeding, and only "substantial"

      4
            We use the terms "retroactive" and "retrospective"
interchangeably; "[t]here is no difference in principle between a
retrospective law and a retroactive law, either of which is one which takes
away or impairs vested rights acquired under a different law or creates a new
obligation, imposes a new duty or attaches a new disability in respect to
transactions or consideration already past." Roe v. Doe, 59 Haw. 259, 263-64,
581 P.2d 310, 314 (1978) (citing Oleson v. Borthwick, 33 Haw. 766, 774 (Haw.
Terr. 1936)).

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relationships with a party or its counsel or representatives, a
witness, or another arbitrator. Thus did Act 187 limit an
arbitrator's obligation to disclose — and thus the parties' right
to receive — information about potential conflicts of interest,
before and after an arbitrator is selected.
           Before Act 187 took effect, an arbitration award had to
be vacated as a matter of law if a party showed that an
arbitrator violated the disclosure provisions of HRS § 658A-12(a)
or (b), which the supreme court held was the "standard for
evident partiality based on a failure to disclose[.]" Narayan,
140 Hawai#i at 86, 398 P.3d at 675 (quoting Madamba, 137 Hawai#i
at 16 n.20, 364 P.3d at 533 n.20). In effect, the party that
prevailed in the arbitration could be held strictly liable for
the arbitrator's failure — however inadvertent — to disclose any
relationship required to be disclosed under HRS § 658A-12(a)
or (b), and lose the benefit and finality of the award.
           Since Act 187 took effect, an arbitrator's failure to
disclose the (now more limited) information required by HRS
§ 658A-12(a) or (b) is no longer grounds for vacating the award
as a matter of law. Rather, the party challenging the award is
required to prove that an arbitrator failed to disclose a "direct
and material" interest in the outcome of the arbitration, or a
"substantial" relationship with a party or its counsel or
representatives, a witness, or another arbitrator. HRS § 658A-
12(a) (Supp. 2017). The party prevailing under the award can
argue that the undisclosed information does not show a direct or
material interest in the outcome of the arbitration, or does not
establish a substantial relationship with a party or its counsel
or representatives, a witness, or another arbitrator. The
circuit court then has discretion to determine whether the
arbitrator's failure to disclose constituted evident partiality,
warranting vacation of the award. HRS § 658A-12(d) (Supp. 2017).
The differences are not merely procedural. Act 187 eliminated
the strict liability standard and created new substantive burdens

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for parties challenging or defending an arbitration award under
HRS § 658A-23(a)(2).
          We decline to apply Act 187 retroactively in this case.
Hyman, 90 Hawai#i at 5, 975 P.2d at 215; Clark v. Cassidy, 64
Haw. 74, 77-78, 636 P.2d 1344, 1346-47 (1981). The Arbitrator's
HRS § 658A-12 disclosure obligations attached when the Arbitrator
was being considered by the parties for appointment, and
continued through the hearing process, all of which took place
before Act 187 took effect. The circuit court found — and Smith
and Jennison do not contest — that the Arbitrator failed to
timely disclose information required by HRS § 658A-12(a) and (b)
(2016). The court concluded that this established evident
partiality as a matter of law, granted Aloha's motion to vacate
the award, and denied Smith and Jennison's motion to confirm the
award. The court's conclusion was supported by its findings and
reflected an application of the correct rule of law. It will not
be overturned. Est. of Klink ex rel. Klink v. State, 113 Hawai#i
332, 351, 152 P.3d 504, 523 (2007).
          Based upon the foregoing, the "Findings of Fact,
Conclusions of Law and Order" entered by the circuit court on
February 15, 2018, is affirmed.
          DATED: Honolulu, Hawai#i, May 11, 2023.

On the briefs:
                                      /s/ Keith K. Hiraoka
Stephen D. Whittaker,                 Presiding Judge
Scott F. March,
for Defendant/Counterclaimant-        /s/ Clyde J. Wadsworth
Appellant Chris Smith                 Associate Judge
and Defendant/
Counterclaimant/Third-                /s/ Sonja M.P. McCullen
Party Plaintiff-Appellant             Associate Judge
Laura Jennison.

Michele-Lynne E. Luke,
Saori Takahashi,
for Plaintiff/Counterclaim
Defendant-Appellee
Aloha Insurance Services, Inc.

Gregory K. Markham,
Brandon Y. Moriki,
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Jason S. Kasamoto,
for Counterclaim Defendant-
Appellee Aloha Insurance
Services, Inc.

Melvyn M. Miyagi,
Thomas H. Yee,
for Counterclaim Defendant-
Appellee Aloha Insurance
Services, Inc.

David B. Kaapu,
for Plaintiff-Appellee
Aloha Insurance Services, Inc.

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