Arbitration of Nordic PCL Constr., Inc. v. Lpihgc, LLC

• Decision Date: 23 July 2015
• Docket Number: SCWC-11-0000350
• Parties: In the Matter of the Arbitration of NORDIC PCL CONSTRUCTION, INC., fka NORDIC CONSTRUCTION, LTD., Respondent/Claimant/Counterclaim Respondent-Appellant, v. LPIHGC, LLC, Petitioner/Respondent/Counterclaimant-Appellee.
• Court: Hawaii Supreme Court

In the Matter of the Arbitration of NORDIC PCL CONSTRUCTION, INC.,fka NORDIC CONSTRUCTION, LTD., Respondent/Claimant/Counterclaim Respondent-Appellant, v. LPIHGC, LLC, Petitioner/Respondent/Counterclaimant-Appellee.

SCWC-11-0000350

SUPREME COURT OF THE STATE OF HAWAI'I

JULY 23, 2015

*** FOR PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REPORTER ***

CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS

(CAAP-11-0000350; S.P. NO. 10-1-0346)

NAKAYAMA, ACTING C.J., McKENNA, AND POLLACK, JJ., CIRCUIT JUDGE ALM, IN PLACE OF RECKTENWALD, C.J., RECUSED, AND CIRCUIT JUDGE SAKAMOTO, IN PLACE OF WILSON, J., RECUSED

OPINION OF THE COURT BY McKENNA, J.

I. Introduction

Petitioner/Counterclaimant-Appellee LPIHGC, LLC ("LPIHGC") seeks review of the April 4, 2014 Judgment on Appeal of the Intermediate Court of Appeals ("ICA"), entered pursuant to its February 14, 2014 Memorandum Opinion, which vacated and remanded the March 24, 2011 Final Judgment ("judgment") of the CircuitCourt of the First Circuit ("circuit court") in favor of LPIHGC and against Respondent/Claimant-Appellee Nordic PCL Construction, Inc. fka Nordic Construction Ltd. ("Nordic").

The circuit court's judgment was based on its grant of LPIHGC's motion to confirm, and denial of Nordic's motion to vacate, the Partial Final Award of Arbitrator dated October 15, 2010 ("the Partial Award") and the Final Award of Arbitrator dated December 15, 2010 ("the Final Award") (the Partial Award and the Final Award are sometimes collectively referred to as "the Arbitration Award"). The Arbitration Award was issued by the arbitrator selected by the parties, retired circuit court judge Patrick K.S.L. Yim ("the Arbitrator"). On appeal, the ICA ruled that the Arbitrator's failure to disclose various relationships with the law firms of LPIHGC's attorneys established a reasonable impression of partiality requiring vacatur of the Arbitration Award.

The "evident partiality" bases for vacatur alleged by Nordic present various questions of disputed material facts. The circuit court denied Nordic's motion without orally stating its reasoning on the record or entering any findings of fact and conclusions of law. As this court ruled in Clawson v. Habilitat, Inc., 71 Haw. 76, 783 P.2d 1230 (1989), "whenever material facts are in dispute in determining whether an arbitration award shouldbe vacated, the circuit court should conduct an evidentiary hearing and render findings of fact and conclusions of law in support of granting or denying [a] motion to vacate [an] arbitration award." 71 Haw. at 79, 783 P.2d at 1232.

In this case, although neither party requested an evidentiary hearing to address disputed issues of material fact, because the circuit court did not explain the basis of its rulings on the record or enter findings of fact or conclusions of law, this court is unable determine whether the circuit court erred in denying Nordic's motion to vacate. Specifically, with respect to the "evident partiality" bases of Nordic's motion, it is unclear whether the circuit court found no violation of the Arbitrator's duties of reasonable inquiry, disclosure, or continuing duty to disclose; found that despite a violation, the objection was not timely or had been waived; or found that despite a showing of evident partiality and timely objection without waiver, it exercised its discretion not to vacate the award. Thus, the factual and/or legal bases upon which the circuit court denied the motion to vacate are unascertainable. Because we are unable to determine the grounds on which the circuit court based its decision, we are unable to appropriatelyreview its ruling.¹

Accordingly, we vacate the ICA's April 4, 2014 Judgment on Appeal and remand this case to the circuit court for an evidentiary hearing and entry of findings of fact and conclusions of law on Nordic's motion to vacate.²

II. Background

A. Facts

This case arises from a dispute over the adequacy of concrete work Nordic performed on a Maui condominium construction project³ as a subcontractor to LPIHGC. The owner of the project, Maui Beach Resort Limited Partnership ("Owner"),⁴ incorporated LPIHGC to be its general contractor and executed a prime contract between them. Thereafter, LPIHGC and Nordic executed a written subcontract, which provided for a contract price of $39,2689,396 (as amended) to perform the concrete work for the project. Theparties subsequently disputed whether Nordic's concrete work was adequately flat and level, and LPIHGC made only partial payment to Nordic under the subcontract.

The subcontract contained a binding arbitration clause, which provided for the arbitration to be governed by Hawai'i Revised Statutes ("HRS") chapter 658A (Supp. 2010) and conducted by Dispute Prevention & Resolution, Inc. ("DPR"). In addition, it provided for the arbitration to be conducted "by a single arbitrator, who shall either be a former judge with substantial experience in residential real estate litigation matters or a licensed attorney with at least ten (10) years experience in residential real estate transactions and/or litigation involving residential real estate."

In the arbitration hearings, Nordic was represented by attorneys Anna H. Oshiro ("Oshiro"), Mark M. Murakami, and Noelle B. Catalan of Damon Key Leong Kupchak Hastert ("Damon Key"). Although he did not appear at the hearings, the name of attorney Kenneth R. Kupchak ("Kupchak") of Damon Key also began appearing on Damon Key's correspondence and pleadings after the issuance of the Arbitrator's October 15, 2010 Partial Award. LPIHGC was represented by Terence J. O'Toole "O'Toole") and Judith Ann Pavey ("Pavey") of Starn O'Toole Marcus & Fisher ("Starn O'Toole") and John P. Manaut ("Manaut") of Carlsmith Ball LLP ("CarlsmithBall").

B. Arbitration

1. Initial Disclosures and Arbitration Proceeding

After his selection by the parties, on March 17, 2009, the Arbitrator, through DPR, provided the following disclosures by email:

[The Arbitrator] is willing and able to serve as Arbitrator in this matter and thanks the parties for his selection.

[The Arbitrator] provides the following disclosures for your review:

1. While serving on the bench, counsel and members of their law firms appeared before me;

2. Since retirement, I have served as a neutral for counsel and members of their law firms;

3. To the best of my knowledge, I do not know anyone involved with LPIHGC, LLC;

4. I served as a neutral in a matter where Nordic was a party. That matter was concluded at least five years ago;

5. I will provide additional disclosures as necessary throughout this proceeding;

6. These disclosure will not prevent me from serving as a neutral and unbiased Arbitrator.

Any comments regarding this disclosure should be filed in writing with DPR by March 20, 2009.

On October 7, 2009, the Arbitrator, through DPR, provided an additional disclosure pertaining to the inclusion of an individual on the expert witness lists submitted by the parties who had appeared before the Arbitrator on matters completed prior to the arbitration proceeding.⁵ The parties did not respond tothe Arbitrator regarding either disclosure.

Arbitration hearings were held intermittently on thirty-one days from January 25, 2010 to April 29, 2010. In general, the parties contested which of two concrete flatness and levelness standards⁶ applied to Nordic's work and whether Nordic had proven its satisfaction of the applicable standard by providing quantitatively sufficient F-meter data to establish its statistical validity.⁷

On October 15, 2010, the Arbitrator issued the Partial Award, ruling in favor of LPIHGC for $9,804,108.27.

2. Post-Award Demand Letters and Supplemental Disclosures

Two weeks after the Partial Award was issued, Damon Key sent a letter to DPR dated October 29, 2010 requesting

updated disclosure details . . . including, but not limited to, any and all arbitration or mediation matters involvingattorneys from the law firms of either [Carlsmith Ball] or [Starn O'Toole] . . . which [the Arbitrator] has presided over since January 1, 2009 . . . as well as any matter for which [the Arbitrator] is currently being considered or has been contacted to serve as a potential arbitrator or mediator.

Four days later, Oshiro and Kupchak of Damon Key sent another letter to DPR, demanding the Arbitrator's immediate disqualification on the basis of Carlsmith Ball's alleged representation of the Arbitrator and his nondisclosure of that representation. The letter asserted that:

It has just come to our attention that [the Arbitrator] has had an undisclosed, long standing professional relationship with opposing counsel . . . . We have reason to understand that [the Arbitrator] was represented by Carlsmith Ball, including an attorney working on this case, on at least seven separate occasions over the last ten years. One of these cases was a matter that was ongoing . . . during the term of the parties' recent arbitration proceedings.

This allegation related to Carlsmith Ball's representation of the QLT on unrelated real estate and lease matters on the island of Hawai'i. The Arbitrator has served as one of three trustees of the QLT since 2002, and along with the other two trustees, the Arbitrator's name appears as trustee on lawsuits involving the QLT.

On November 4, 2010, Manaut of Carlsmith Ball sent a letter to DPR that characterized Nordic's request for updated disclosure details as "an improper fishing expedition[,]" and asserted that Nordic "never once raised an issue or questioned anything about the sufficiency of any disclosures" prior to the issuance of the Partial Award. Damon Key sent a responsive letter to DPR on thesame day, stating neither the Arbitrator nor Manaut had disclosed seven cases in which Carlsmith Ball allegedly represented the Arbitrator, and demanding the Arbitrator's immediate disqualification.

On November 9, 2010, Pavey of Starn O'Toole sent a letter to DPR challenging Nordic counsel's demand for disqualification. On the same day, Pavey...