Koolau Radiology, Inc. v. Queen's Medical Center

Decision Date26 August 1992
Docket NumberNos. 15258,15257,s. 15258
Citation834 P.2d 1294,73 Haw. 433
PartiesKOOLAU RADIOLOGY, INC., a Hawaii corporation, Plaintiff-Appellee, v. The QUEEN'S MEDICAL CENTER, a Hawaii Eleemosynary corporation, Defendant-Appellant. In the Matter of the Appointment of An Arbitrator for the Dispute Between QUEEN'S DEVELOPMENT CORP., Petitioner-Appellant, v. KOOLAU RADIOLOGY, INC., Respondent-Appellee.
CourtHawaii Supreme Court

Syllabus by the Court

1. Under Hawaii's arbitration statute, before parties to a lawsuit can be ordered to arbitrate pursuant to Hawaii Revised Statutes (HRS) § 658-3, HRS § 658-1 requires that an enforceable, valid, and irrevocable agreement, in writing, exists.

2. The trial court can only decide, as a matter of law, whether to compel the parties to arbitrate their dispute if there is no genuine issue of material fact regarding the existence of a valid agreement to arbitrate. Thus, the standard of review applicable to that decision should be that which is applicable to a motion for summary judgment.

3. A trial court's ruling regarding a motion to compel arbitration is reviewed de novo, using the same standard employed by the trial court and based upon the same evidentiary materials as were before it in determination of the motion.

4. Orders denying an application for a stay of proceedings until arbitration had been completed made in accordance with HRS § 658-5 are appealable orders within the contemplation of HRS § 641-1(a).

5. There exists a small class of orders which finally determine claims of right separable from, and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated.

6. An order granting or denying a motion to compel arbitration under HRS § 658-3 is appealable if it results in a dismissal of the action.

7. Where the court denies a motion to compel arbitration and instead directs that the parties engage in a trial to determine whether an arbitration agreement exists, such denial is not appealable because the anticipated trial would not determine the merits of the action.

8. When presented with a motion to compel arbitration, the trial court is limited to answering two questions: 1) whether an arbitration agreement exists between the parties; and 2) if so, whether the subject matter of the dispute is arbitrable under such agreement.

9. When the language of the arbitration clause is clear and unambiguous, its interpretation is a question of law which appellate courts are free to interpret and apply the correct law to its enforcement.

10. When faced with a petition to compel arbitration, a court's role is limited to ascertaining whether the party seeking arbitration is making a claim which on its face is governed by the contract. The court neither resolves the underlying factual controversy nor weighs the relative merits of the parties' claims.

Bruce L. Lamon and Carol A. Eblen of Goodsill, Anderson, Quinn and Stifel, Honolulu, for petitioner-appellant Queen's Development Corp.

Robert J. Faris and Steven L. Ching of Gelber, Gelber, Ingersoll & Klevansky Honolulu, for respondent-appellee Koolau Radiology, Inc.

Before LUM, C.J., WAKATSUKI, MOON and LEVINSON, JJ., and BURNS, Intermediate Court of Appeals Chief Judge, in place of KLEIN, J., Recused.

MOON, Justice.

In this consolidated appeal, petitioner-appellant Queen's Development Corp. (Queen's) and defendant-appellant The Queen's Medical Center (QMC or collectively, Queen's) 1 appeal a single order, entered by the circuit court, denying QMC's Motion for Stay of Proceedings and to Compel Arbitration and denying Queen's Petition for Appointment of an Arbitrator filed in favor of respondent/plaintiff-appellee Koolau Radiology, Inc. (Koolau).

Queen's, as lessor, and Koolau, as lessee, are parties to a written lease agreement which contains an arbitration clause. When a dispute arose regarding the lease rent, Koolau filed an action seeking declaratory relief. At the same time, Queen's petitioned the court to appoint an arbitrator and later moved to stay the declaratory judgment action and to compel arbitration. On appeal, Queen's contends that the trial court erred in not staying the declaratory judgment action, compelling arbitration, and appointing an arbitrator. Koolau, on the other hand, contests this court's jurisdiction to hear this appeal on the ground that the trial court's denial of Queen's motion for stay and to compel arbitration was not a final appealable order. 2

Based on our review of the record, we conclude that the trial court's order was final and appealable, and thus this court has jurisdiction to hear this appeal. We find that the trial court erred in concluding that a valid dispute existed regarding the agreement to arbitrate because the existence of a valid arbitration agreement was never disputed. However, we conclude that arbitration is inappropriate because the issues which are in dispute extend beyond the scope of the arbitration clause. We therefore affirm the trial court's rulings, except for that portion which implies that a trial should be held on the issue whether an enforceable arbitration agreement exists, and remand this case for proceedings consistent with this opinion.


On October 1, 1977, Queen's entered into a lease with the Queen's Physicians Office Building Radiologic Laboratory, Ltd. (POBLAB), covering a portion of the Queen's Physicians Office Building. The original lease was amended three times: on November 5, 1979, on November 15, 1983, and on October 3, 1985. On the same day, October 3, 1985, POBLAB assigned the lease to Koolau.

Under the terms of the original lease and the subsequent amendments, POBLAB had successive options to renew its lease for additional three-year terms up to and including September 30, 1997 with the rent to be renegotiated for each additional term.

The original lease stated that the lessee shall pay either ten percent of gross profits per month or the base rent of other "first generation doctors" in the building, that is, doctors who had moved into the Queen's Physicians Office Building when it first opened, whichever is greater. If the parties were unable to agree on the rent for a subsequent term, the lease contained a clause which mandated the appointment of an impartial real estate appraiser by the parties. If the parties could not agree on an appraiser, the clause further provided that either of them could petition the court to appoint an appraiser. This clause was included in all subsequent written amendments to the lease and constitutes the "arbitration agreement" upon which this appeal is based. 3

After POBLAB had exercised its first option to extend the lease, Queen's entered into negotiations with POBLAB to fix the rent. Koolau claims that the parties orally agreed that POBLAB would pay a percentage of its gross revenues as rent until a ten year promissory note for equipment issued from Queen's to POBLAB was fully paid. At that point, the rent would be set at the same per-square-foot rate as that paid by the other first generation doctors in the POBLAB until the termination of the lease. Koolau also claims that the oral agreement was expressed in an unsigned letter dated October 14, 1983, which was sent to POBLAB, and was further corroborated by various representatives of Queen's at the meetings negotiating the agreement as well as Queen's subsequent billings.

After the lease negotiations concluded, Queen's sent POBLAB a document entitled Second Amendment to Lease, which Koolau claims was inconsistent with the alleged oral agreement. The second amendment did not specify that once the promissory note was satisfied, the rent would remain at parity with first generation doctors. Instead, the second amendment reiterated the original percentage of profits or comparable rent rates found in the lease promulgated in 1977 and covered the period from October 2, 1982 through September 30, 1985. The POBLAB representative who signed the lease testified that he believed the amendment contained the oral agreement.

POBLAB assigned the lease to Koolau on October 3, 1985, including the same rights, title, and interest of the Assignor in and to the lease and the amendments thereof. The Assignment of Lease and accompanying Short Form Lease incorporated the original 1977 lease, with its 1979 and 1983 amendment. Koolau later exercised its option to renew the lease from October 1, 1988 to September 30, 1991.

From October 1985 through the summer of 1987, Koolau paid rent to Queen's on a percentage basis. In 1987, when Koolau paid off the promissory note, it reduced the rent paid to Queen's. From 1987 until 1989, Queen's billed Koolau on a monthly basis for rent at a flat per-square-foot rate, similar to that charged to other first generation doctors. Koolau claims that this manner of billing was consistent with the oral agreement. Queen's denies the existence of an oral agreement and argues that it billed Koolau according to the flat rents charged to other first generation doctors only because it had no knowledge of Koolau's gross profits. Hence, Queen's maintains it was unable to determine and charge Koolau the "whichever is greater" rental rate.

In 1989, Queen's management changed, and the current dispute surrounding the method of determining rental payments arose. When attempts to resolve the dispute were unsuccessful, Koolau filed a complaint against Queen's seeking a declaratory judgment and reformation of the lease based on the alleged oral agreement. On the same day, Queen's filed a separate special proceeding, petitioning the court for the appointment of an arbitrator. Subsequently, Queen's filed a motion for stay of proceedings and to compel arbitration in the declaratory judgment action. The petition and motion were heard at the same hearing.

The trial court found that numerous...

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