In re Narayan

• Decision Date: 15 June 2017
• Docket Number: SCAP-16-0000588
• Citation: 398 P.3d 664
• Parties: Krishna NARAYAN; Sherrie Narayan; Virendra Nath ; Nancy Makowski; Simon Yoo; Sumiyo Sakaguchi; Stephen Xiang Pang; Faye Wu Liu; Massy Mehdipour, individually and as Trustee for Massy Mehdipour Trust dated June 21, 2006; G. Nicholas Smith; Tristine Smith; Clifford W. Chaffee; Bradley Chaffee, individually and as Trustee of the Charles V. Chaffee BRC Stock Trust dated 12/1/99 and The Clifford W. Chaffee BRC Stock Trust dated 1/4/98; Gary S. Anderson ; Ronald W. Lorenz and Renee Y. Lorenz, Plaintiffs-Appellants, v. ASSOCIATION OF APARTMENT OWNERS OF KAPALUA BAY CONDOMINIUM; Cathy Ross; Robert Parsons; and Andrew Mitchell, Defendants-Appellees.
• Court: Hawaii Supreme Court

398 P.3d 664

Krishna NARAYAN; Sherrie Narayan; Virendra Nath ; Nancy Makowski; Simon Yoo; Sumiyo Sakaguchi; Stephen Xiang Pang; Faye Wu Liu; Massy Mehdipour, individually and as Trustee for Massy Mehdipour Trust dated June 21, 2006; G. Nicholas Smith; Tristine Smith; Clifford W. Chaffee; Bradley Chaffee, individually and as Trustee of the Charles V. Chaffee BRC Stock Trust dated 12/1/99 and The Clifford W. Chaffee BRC Stock Trust dated 1/4/98; Gary S. Anderson ; Ronald W. Lorenz and Renee Y. Lorenz, Plaintiffs-Appellants,

v.ASSOCIATION OF APARTMENT OWNERS OF KAPALUA BAY CONDOMINIUM; Cathy Ross; Robert Parsons; and Andrew Mitchell, Defendants-Appellees.

SCAP-16-0000588

Supreme Court of Hawai'i.

JUNE 15, 2017

Joachim P. Cox, Robert K. Fricke, and Kamala S. Haake, Honolulu, for appellants.

Michele-Lynn E. Luke, Honolulu, for appellees.

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

OPINION OF THE COURT BY McKENNA, J.

I. Introduction

This is the third opinion in a series of recent decisions addressing an arbitrator's statutory disclosure requirements and vacatur on the basis of evident partiality based on Hawai'i Revised Statutes ("HRS") §§ 658A–12 and - 23 (Supp. 2001) ; see Noel Madamba Contracting LLC v. Romero , 137 Hawai'i 1, 364 P.3d 518 (2015) ; Nordic PCL Const., Inc. v. LPIHGC, LLC , 136 Hawai'i 29, 358 P.3d 1 (2015). Nordic and Madamba established standards for evaluating claims of evident partiality. Here, we clarify the scope of relationships that require disclosure.

Krishna Narayan, Sherrie Narayan, Virendra Nath, Nancy Makowski, Simon Yoo, Sumiyo Sakaguchi, Stephen Xiang Pang, Faye Wu Liu, Massy Mehdipour, G. Nicholas Smith, Tristine Smith, Clifford W. Chaffee, Bradley Chaffee, Gary S. Anderson, and Ronald W. Lorenz (collectively, "Appellants"), appeal from an August 15, 2016 final judgment of the Circuit Court of the First Circuit ("circuit court"),¹ based upon its findings of fact, conclusions of law, and order confirming an arbitration award in favor of the Respondents, Association of Apartment Owners of Kapalua Bay Condominium, Cathy Ross, Robert Parsons, and Andrew Mitchell (collectively, the "AOAO").

This case concerns a dispute over financial issues that arose during construction of the Kapalua Bay Condominium project (the "Project"). Appellants are a group of individual condominium owners in the Kapalua Bay Condominium. Previously, Appellants and several other condominium owners sued the Project's developers and management companies regarding financial problems that arose during construction (the "Developer Action"). See Narayan v. Ritz-Carlton Dev. Co., Inc. , 135 Hawai'i 327, 350 P.3d 995 (2015).² The present matter arose from the Appellants' challenge of the AOAO's vote to convert the residential community into a hotel. The dispute was submitted to arbitration. The issues on appeal relate to the adequacy of the neutral arbitrator's disclosures in the arbitration. The circuit court concluded that the undisclosed relationships did not constitute "evident partiality" requiring vacatur. We affirm.

II. Background

A. Arbitration Proceedings

1. Initial Disclosures and Pre-arbitration Motions

The matter was originally submitted to the American Arbitration Association but, by agreement of the parties, was referred to Dispute Prevention & Resolution, Inc. ("DPR") on July 24, 2014. The parties selected the Honorable Victoria Marks (ret.) to serve as the neutral arbitrator (the "Arbitrator") on August 1, 2014.³ After her selection, DPR provided the parties with the following disclosures on her behalf:

I am not familiar with any of the parties.

Both Mr. Cox and Ms. Luke appeared before me when I was on the bench.^[4]

I served as an arbitrator in a case where Mr. Cox represented one of the parties. That case was resolved before the arbitration hearing.

My husband, Robert A. Marks, is a lawyer who is Of Counsel at Price Okamoto Himeno & Lum. I do not know the identity of all of my husband's clients. Similarly, I am not aware of all the cases he is working on and what lawyers he may be working with or opposing. I do not believe that he currently has any cases with any of the lawyers in this matter. Similarly, I do not believe that he is familiar with any of the parties or their principals.

I am on the Board of the following organizations: 1) The Mediation Center of the Pacific; 2) The Hawaii Women's Legal Foundation; 3) The American Judicature Society-Hawaii Chapter; 4) United Cerebral Palsy Association of Hawaii; and 5) The Hawaii Soccer Association. The first 3 organizations are law related and lawyers from various firms in Honolulu [—] large firms to solo practitioners—sit on these boards. In addition, the board members change from year-to-year.

I am also a social golf member of MidPacific [sic] Country Club. I am not familiar with all of the members of this club.

Counsel and the parties should inform the arbitrator and each other of any additional information that a reasonable person would consider likely to affect the impartiality of the arbitrator.

I believe that I can be a fair and impartial arbitrator in this matter.

The parties submitted their expert disclosures and reports in March and September 2015. The witness lists were submitted in October 2015.

On September 15, 2015, one month before the arbitration hearing started, Appellants moved to exclude the AOAO's expert on condominium governance, Philip Nerney, Esq. ("Nerney"). Appellants argued, interalia , that Nerney was providing improper and unfounded legal conclusions on liability. The Arbitrator granted this motion in part and denied it in part, and precluded Nerney from testifying regarding any party's intent and damages, but he was allowed to testify on condominium governance issues.

2. Arbitration Hearing

The arbitration hearing was conducted in several sessions from October 19, 2015 through November 12, 2015.

The AOAO's expert on damages, Richard Stellmacher ("Stellmacher"), testified at the hearing. Among other things, Stellmacher testified that he originally visited the Project when an attorney for the Developer Action briefly retained him. He misidentified the attorney during his oral testimony and subsequently submitted a declaration⁵ clarifying that he "had been retained by [a]ttorney Lex Smith [ ("Smith") ], on behalf of his clients, which included certain Marriott entities, involved in other litigation."⁶ The declaration also stated that Stellmacher "contacted Mr. Smith" to confirm that his work was terminated shortly after he visited the property and that he was not provided any work product related to the matter. Over Appellants' hearsay objection, the Arbitrator admitted the declaration into evidence.

On January 7, 2016, the Arbitrator issued her final arbitration award in favor of the AOAO.

3. Post-award Disclosure Demands

On January 13, 2016, Appellants requested that DPR provide updated disclosures "pursuant to DPR Arbitration Rule 9A and HRS § 658A-12" relating to the AOAO, counsel for the AOAO, in-house counsel for the AOAO, and the AOAO's witnesses and experts. DPR responded that it would not provide a substantive response to Appellants' request as "neither the applicable DPR Arbitration Rules nor the relevant provisions of the Uniform Arbitration Statute (HRS Chapter 658A) provide for a post arbitration award disclosure process[.]" On February 3, 2016, Appellants sought additional disclosures regarding the Arbitrator's relationship with the Kobayashi Sugita & Goda ("KSG") law firm. DPR responded once again that it would not provide a post-arbitration disclosure.

B. Circuit Court Proceedings

1. Motion to Confirm, Motion to Vacate, and Discovery

In the meantime, the AOAO filed a special proceeding in the circuit court to confirm the arbitration award. Before filing their memorandum in opposition, Appellants filed a Notice of Taking Deposition upon Written Questions of AOAO counsel Robert C. Kessner, Esq., and his law firm; the AOAO's in-house counsel, Peter Horovitz, Esq.; and the AOAO's expert witness, Nerney. Appellants also filed a Notice of Taking Deposition upon Written Questions of KSG, the law firm that briefly retained Stellmacher for the Developer Action but did not represent the AOAO and had no direct involvement in the arbitration proceedings.⁷

Appellants also moved to vacate the award on grounds of evident partiality due to the Arbitrator's refusal to provide post-award supplementary disclosures. Appellants alleged that the AOAO's position had no basis in law or the applicable bylaws, that the Arbitrator "oddly adopted [the AOAO's] unsupported interpretation of the law," and that "the Arbitrator's findings fly in the face of the law." Appellants stated that they demanded post-award disclosures because they were "surprised" by the arbitration award, although they acknowledged they had no reason to believe that the Arbitrator may be partial to the AOAO during the course of the arbitration. Yet, Appellants argued, "the Arbitrator's disregard for the law ... now coupled with the Arbitrator's refusal to provide appropriate disclosures, calls into question whether there are undisclosed relationships with [the AOAO], [the AOAO's] counselor or [the AOAO's] witnesses which arose during the course of the arbitration and—to a reasonable person—may have compromised the Arbitrator's neutrality." Appellants requested that the court continue the hearing given the lack of evidence and grant Appellants' Motion to Compel Production of Records from DPR ("Motion to Compel"), which had been filed earlier.

DPR filed a memorandum in opposition to Appellants' Motion to Compel, arguing that it was both procedurally and substantively flawed. The AOAO also filed a memorandum in opposition, arguing that further disclosures by the Arbitrator should not be compelled because Appellants failed to make a primafacie showing that a ground for vacating the arbitration award exists, in accord with HRS § 658A-14...