DAIICHI HAWAI'I REAL ESTATE v. Lichter, 23285.

• Citation: 103 Haw. 325,82 P.3d 411
• Decision Date: 30 December 2003
• Docket Number: No. 23285.,23285.
• Parties: In the Matter of the Arbitration between: DAIICHI HAWAI'I REAL ESTATE CORPORATION, a Hawai'i Corporation, Lessee-Appellee, v. Rowlin L. LICHTER, Linda Maile Harris, and Marcy Friedman as Trustees of and for Martin H. Lichter Education Trust, Lessor-Appellants.
• Court: Hawaii Supreme Court

82 P.3d 411

103 Haw. 325

In the Matter of the Arbitration between:

DAIICHI HAWAI'I REAL ESTATE CORPORATION, a Hawai'i Corporation, Lessee-Appellee, v. Rowlin L. LICHTER, Linda Maile Harris, and Marcy Friedman as Trustees of and for Martin H. Lichter Education Trust, Lessor-Appellants.

No. 23285.

Supreme Court of Hawaii.

December 30, 2003.

Reconsideration Denied January 20, 2004.

J. Stephen Street and Glen T. Melchinger, of Rush, Moore, Craven, Sutton, Morry, & Beh, Honolulu, on the briefs, for the Lessor-Appellants Rowlin L. Lichter, Linda Maile Harris, and Marcy Friedman, as trustees of and for Martin H. Lichter Education Trust.

Thomas Sylvester, of Carlsmith Ball LLP, Honolulu, on the briefs, for the Lessee Appellee Daiichi Hawai'i Real Estate Corporation.

MOON, C.J., LEVINSON, NAKAYAMA, and DUFFY, JJ., and ACOBA, J., dissenting.

Opinion of the Court by LEVINSON, J.

The lessor-appellants Rowlin L. Lichter, M.D., Linda Maile Harris, and Marcy Friedman, as trustees of and for the Martin H. Lichter Education Trust [collectively, "the trustees"], appeal from the findings of fact, conclusions of law, and order of the circuit court of the first circuit, the Honorable Gail C. Nakatani presiding, filed on February 18, 2000, vacating an arbitration decision dated September 12, 1999. On appeal, the trustees contend that the circuit court: (1) clearly erred in its findings of fact (FOFs) Nos. 8, 12, 13, 17, 18, 22, and 25 through 30; (2) erred in applying the standard of "evident partiality," as set forth in Schmitz v. Zilveti, III, 20 F.3d 1043 (9th Cir.1994), to its conclusions of law (COLs) Nos. 4 through 6 and 11 through 19; (3) erred in applying the code of ethics established by the International Center for Dispute Resolution for Arbitrators in Commercial Disputes to its COLs Nos. 10, 13, 20, and 21; (4) erred, as set forth in its COL No. 8, in concluding (a) that the disclosure by William M. Swope, Esq., the arbitrator appointed by the trustees to the three-member arbitration panel, was insufficient to shift the burden to the plaintiff-appellee Daiichi Hawai'i Real Estate Corporation (Daiichi) to investigate any conflicts of interest between the parties and Swope and (b) that Daiichi's failure to challenge Swope's appointment as an arbitrator did not constitute a waiver for purposes of a motion to vacate the arbitration decision based on "evident partiality," pursuant to Hawai'i Revised Statutes (HRS) ? 658-9(2) (1993);¹ (5) erred, as set forth in its COL Nos. 25-26, in concluding that Swope had engaged in gross negligence and could not possibly have served as an impartial arbitrator; and (6) erred in concluding that Daiichi was entitled to its attorneys' fees and costs.

We agree with the trustees that the circuit court erred in concluding that Swope's disclosure was insufficient to shift the burden to Daiichi to investigate any conflicts of interest between the parties and Swope and that Daiichi's failure to challenge Swope's appointment as an arbitrator did not constitute a waiver for purposes of a motion to vacate the arbitration decision based on "evident partiality." Accordingly, we vacate the circuit court's findings of fact, conclusions of law, and order granting Daiichi's motion to vacate the arbitration decision, filed on February 18, 2000, and remand the matter to the circuit court with instructions to reinstate the arbitration decision dated September 12, 1999.

I. BACKGROUND

A. The Arbitration

The present matter arose out of an arbitration proceeding, convened pursuant to a lease contract between the trustees and Daiichi, the subject of the arbitration being the basic annual rent?€”for the fifteen-year period commencing June 1, 1998 and terminating May 31, 2013?€”payable by Daiichi, as the lessee, to the trustees, as the lessor, for the property located at 1776 Kapi'olani Boulevard [hereinafter, "the subject property"]. On June 1, 1973, Daiichi and the trustees had entered into a fifty-five-year lease contract [hereinafter, "the Lease"] relating to the subject property. The Lease set forth, inter alia, the rent to be paid by Daiichi during the initial ten-year period and provided that the rents payable during the three subsequent fifteen-year periods were to be renegotiated by the parties. The Lease further provided that any disputes arising out of rent negotiations were to be submitted to arbitration, pursuant to the provisions of HRS chapter 658.²

In 1998, after negotiations between Daiichi and the trustees failed to produce an agreement regarding the annual rent for the fifteen-year period commencing June 1, 1998 and terminating May 31, 2013, the parties proceeded to arbitration. Pursuant to the arbitration clause set forth in the Lease, each party was to appoint an arbitrator, and the two party-appointed arbitrators were jointly to appoint a neutral arbitrator in order to constitute a three-member arbitration panel. Daiichi appointed Robert C. Hastings, Jr., MAI, CRE, a real estate appraiser, to the panel. The trustees appointed Swope, a former partner in the Cades, Schutte, Fleming, & Wright law firm (CSF & W) to the panel. Swope and Hastings then appointed Harlin S.K.Y. Young, MAI, SRA, also a real estate appraiser, to "chair" the panel as the neutral arbitrator.³

On June 22, 1999, the parties executed a Submission Agreement (SA), which set forth, inter alia, the scope, procedures, and schedules to which the parties and arbitrators would adhere. The SA also contained disclosures by the arbitrators regarding any prior dealings with the parties. For purposes of disclosing his prior attorney-client relationship with the trustees, Swope had earlier requested that CSF & W produce all the records and files regarding its past representations of any trustees-related individuals or entities. A CSF & W employee, however, had informed Swope that the relevant files were purged and no longer existed. As a result, Swope relied on his own recollection in disclosing the following prior attorney-client relationship, as set forth in the June 22, 1999 SA:

Mr. Swope discloses that he did render legal services for Rowlin L. The trustees, MD., that consisted of a review of a standard form of consent document[, dated August 28, 1995,] either in connection with an assignment of lease or for a mortgage lender in connection with the property in question. An issue of valuation was not involved. Mr. Swope recalls ... the documents being prepared by other legal counsel and he was asked to approve the documents as to form and content.

In addition to the foregoing disclosure,⁴ Swope submitted a "Supplemental Disclosure Statement" in response to a May 3, 1999 letter from the Carlsmith Ball law firm (Carlsmith), wherein Carlsmith sought additional disclosures from Swope "due to its comment that Cades Schutte Fleming & Wright may have previously represented Daiichi Finance Corporation, an affiliate of the lessee." Swope's supplemental statement recited the following:

1. William M. Swope is no longer active in the practice of law; rather he is Of Counsel to the Cades law firm.

2. He has never worked on any legal matter involving Daiichi Finance Corporation.

3. Following receipt of the Carlsmith Ball letter identified above, he has only recently been informed that other attorneys in the Cades firm may have handled legal matters involving Daiichi Finance Corporation and that such matters may have covered acquisitions, loans and condominium projects, but that none of such matters had anything to do with the valuation of the property at 1776 Kapi'olani Blvd.

4. He has had no involvement of any kind, nor has he received any information of any kind regarding Daiichi Finance Corporation except that he only discovered that others had worked on matters as described in the above paragraph 3 as a result of the letter from Carlsmith Ball identified above.

On August 9, 1999, the arbitration commenced, during which Daiichi and the trustees presented oral arguments and adduced evidence relevant to the basic annual rent to be paid with respect to the subject property. There were four central issues presented to the arbitration panel: (1) the square-footage value of the subject property; (2) whether the annual rent should be based on three five-year periods, rather than one fifteen-year period; (3) the percentage rate of return on the subject property; and (4) whether to include the building with the underlying land in the valuation of the subject property. Daiichi requested that the panel assign the annual rent at approximately $56,000.00 per year based on one fifteen-year period; by contrast, the trustees requested a sliding scale of rent increases in five-year increments entailing a minimum rent in an amount between $134,000.00 and $152,000 during the first five-year period and approximately $201,000 during the third five-year period. (The record is unclear as to what the trustees' position was regarding the second five-year period.) On September 14, 1999, the three-member panel informed the parties by written correspondence of their decision, wherein the panel unanimously agreed to assign a basic annual rent of $87,500.00 for the subject property during a single fifteen-year period commencing June 1, 1998 and terminating May 31, 2013.

B. The Motion To Vacate

On September 27, 1999, Daiichi filed a motion to vacate the arbitration decision, pursuant to HRS ? 658-9(2), see supra note 1, on the basis that Swope had demonstrated "evident partiality" during the arbitration proceeding. Daiichi argued that Swope "never disclosed the extensive degree of his prior involvement, on behalf of and as attorney for Lichter, with the issues and the Lease involved in this arbitration, instead disclosing only that his services `consisted of a review of a standard form consent document.' "⁵ In particular, Daiichi contended that Swope "never disclosed that he had represented the trustees against Daiichi/Kapi'olani Capital ... that he had...