Court Opinion

ID: 9530739
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:03:08.226505+00
Date Added: 2024-06-11T13:28:14.222219
License: Public Domain

DISSENTING OPINION OF
MOON, J.
I respectfully dissent.
*185I believe that the circuit court properly refused to confirm the award of $164,058.23 plus interest, based on appellee Universal Investment, Inc.’s (Universal) contention that there was no arbitration agreement. I would affirm the denial of confirmation and remand for a trial on the issue of whether there was an enforceable contract between the parties that included an arbitration provision.
In this case, Universal, a Pennsylvania corporation, denies the existence of a contract with appellant Westin Hotel Company (Westin). Universal’s sole business contact with Hawaii was a 1988 vacation trip for its sales staff at the Westin Kauai Hotel based on a 1987 sales incentive program. As a result of a decline in business in 1988, Universal claims it could not afford to implement the same incentive program in 1989. Universal denies authorizing Mitzi Calder of Travel Selections, Inc., a Texas corporation, to contract with Westin for hotel accommodations in 1989.
Consistent with its position of the non-existence of a contract with Westin, Universal refused to appear at the arbitration hearing. According to the majority, “[ujnder HRS § 658-3 [the issue of arbitrability] could, and should, have been raised by the appellee [Universal] when the demand for arbitration was first made.” I fail to see how HRS § 658-3 supports this conclusion. As noted by the majority, the statute provides that “[a] party aggrieved by the failure, neglect, or refusal of another to perform under an agreement in writing providing for arbitration, may apply to the circuit court for an order directing that the arbitration proceed in the manner provided for in the agreement.” Under the plain language of the statute, Universal had no standing to institute an action in circuit court. Universal was not aggrieved by any party’s failure, neglect, or refusal to perform under an arbitration agreement. Westin was so aggrieved, yet did not apply to the circuit court.
Although the written order being appealed did not include the trial court’s reasons for denying the motion to confirm the arbitra*186tion award, the minute order entered on May 16, 1990, states as follows:
Motion denied. Defendant [Universal] has timely interposed its objection to the arbitration proceeding by opposing the motion herein. As such, the court must make a preliminary decision regarding the validity of the arbitration “agreement” per HRS section 658-3. Defendant has not waived its right to contest the “agreement”, since defendant has clearly objected to the arbitration from its commencement.
(Emphasis added.) The trial court specifically found that Universal had timely raised the issue of arbitrability by opposing the motion to confirm. More importantly, the court concluded that a judicial determination regarding the validity of the alleged arbitration agreement was necessary before it could confirm the award. In conformity with the language of HRS § 658-3, the court properly denied the motion.
Westin’s counsel represented at oral argument that Westin “had no idea” why Universal did not appear at the arbitration hearing. However, even before it initiated the arbitration proceedings, Westin knew that Universal was contesting the existence of the contract itself, of which the arbitration clause in question was a part. Westin’s own memorandum in support of its motion to confirm the arbitration award asserts in its chronology of events that “Westin made demand on Universal, pursuant to the cancellation and liquidated damages provision in the Group Agreement [for hotel accommodations] and Universal refused to pay Westin the liquidated damages amount, alleging that it had no agreement ■with Westin and therefore was not liable.” (Emphasis added.) Westin further states that it then proceeded to initiate arbitration proceedings. Thus, Westin was well aware of the reason for Universal’s non-appearance at the arbitration hearing. It is ironic that in this case the majority should cite HRS § 658-3 to impose an *187obligation on Universal that the statute itself imposes on Westin, the party seeking to enforce the alleged arbitration agreement. Although it may have been preferable for Universal to have responded to the arbitration hearing notice, there was no legal requirement to do so.
The majority criticizes Universal’s “tactics,” yet fails to recognize Westin’s own attempts to circumvent the clear requirement of HRS § 658-3 in order to have its claim against an out-of-state company resolved at the least expense to Westin. The majority here not only misinterprets HRS § 658-3, but attempts to justify its position by elevating the public policy of encouraging arbitration over other important policies, such as creating a favorable environment for out-of-state businesses here in Hawaii. HRS § 658-3 contemplates that the party seeking to compel arbitration apply for such an order from the circuit court, a requirement which clearly would not discourage arbitration. The majority’s new mle will, in my view, have a serious adverse effect on out-of-state companies’ decisions to do business in or to visit Hawaii.
Although this court has not been faced with the issues of timeliness in raising the issue of arbitrability and whether arbitrability is a question solely reserved for judicial determination, they have been addressed by the Michigan Supreme Court in Arrow Overall Supply Co. v. Peloquin Enterprises, 414 Mich. 95, 323 N.W.2d 1 (1982). The facts of Arrow are almost identical to the facts of the present case. In Arrow, plaintiff sought to confirm an award entered by the American Arbitration Association. Defendant filed opposition in the circuit court denying that there was a valid agreement to arbitrate. Defendant had not appeared at the arbitration hearing even though it had received notice. The circuit court confirmed the award, and the court of appeals affirmed, concluding that defendant had not timely raised the invalidity of the arbitration agreement. The Michigan Supreme Court reversed, finding that defendant’s raising of the issue of arbitrability at the hearing on the *188motion to confirm the award was timely. The supreme court further stated that “[w]henever the jurisdiction of an arbitrator is questioned, it must be determined in order to make an award on arbitration binding. The existence of a contract to arbitrate and the enforceability of its terms is a judicial question which cannot be decided by an arbitrator.” Arrow, 414 Mich. at 98-99, 323 N.W.2d at 2-3 (footnotes omitted); see also 5 Am. Jur. 2d Arbitration and Award § 15 (1962).
The Michigan arbitration statute is similar to Hawaii’s in that it provides that a party may apply to the court to compel arbitration where a question is raised as to the existence or validity of an agreement to arbitrate. Unlike Hawaii’s arbitration statute, the Michigan statute also provides for application to the court to stay any arbitration proceeding. See Arrow, 414 Mich. at 100, 323 N.W.2d at 3; HRS § 658-3. With respect to its arbitration statute, the Michigan Supreme Court commented as follows:
If plaintiff proceeds without moving the court to compel arbitration, he risks spending time, money and effort, only to have an award vacated or held unenforceable on a later finding that no arbitration agreement was in existence. If a party denying the existence of an agreement fails to seek a stay of the proceedings, he risks a later judicial determination that there was a contract requiring arbitration and of being obligated to the award though he did not participate in the proceedings.
Arrow, 414 Mich. at 100, 323 N.W.2d at 3. The Arrow' court also concluded that the burden to obtain a preliminary judicial determination should be on the party seeking to compel arbitration. The court therefore held that notice of an arbitration imposes no duty on someone who claims the non-existence of an agreement to arbitrate to commence any legal proceedings.
According to the majority, Universal’s letter of February 22, 1990 to the arbitrator “was not... a seasonable raising of the issue *189[of arbitrability].” As noted previously, Westin essentially admits that prior to instituting arbitration proceedings, it knew that Universal was taking the position that there was no agreement. Even if Westin’s knowledge of Universal’s position is disregarded, Universal’s letter, which was solicited by the arbitrator, was submitted within the prescribed time. That letter clearly contested the existence of an agreement to arbitrate. Thus, before the arbitration award was made, the claim of non-arbitrability had been raised. Such claim should have, at that point, been submitted for judicial determination.
The second issue raised by Universal is that the arbitrator did not have personal jurisdiction over it. In finding that the arbitrator had personal jurisdiction, the majority relies on Universal’s request that the arbitration proceedings be dismissed with prejudice. The majority states that “had there been no request that the arbitrator dismiss the case with prejudice it would not have been submitted and could have been raised on the motion to confirm.” The majority then concludes that Universal “did submit to the arbitrator, for decision, the two issues of arbitrability, and personal jurisdiction because a dismissal of the proceedings with prejudice was sought.” For the majority to hold that an out-of-state corporation submits to an arbitrator’s jurisdiction merely by the inclusion of two words in a letter is wholly untenable. This is especially true in this case where, in the same letter, Universal clearly states that its response “is to contest the institution of this proceeding and in no way is an admission of the jurisdiction of the American Arbitration Association with respect thereto.” While I am in total agreement with the public policy of encouraging arbitration, I see no basis to burden out-of-state businesses, which make substantial contributions to Hawaii’s economy, with the expense of returning to Hawaii to contest arbitrability before an arbitrator who obviously has no jurisdiction to decide this preliminary issue.
*190Based on the above, I would remand this case for a judicial determination of the existence of an agreement to arbitrate and the enforceability of its terms. As the court in Arrow reasoned, if the court determines that no arbitration agreement existed, then the award must be vacated and held unenforceable. However, if the court below finds that there was a valid agreement to arbitrate, then Universal would be bound by the arbitration award and the award may be confirmed.