Noel Madamba Contracting LLC v. Romero

• Decision Date: 25 November 2015
• Docket Number: SCWC–12–0000868.,Nos. SCWC–12–0000778,s. SCWC–12–0000778
• Citation: 137 Hawai'i 1,364 P.3d 518
• Parties: NOEL MADAMBA CONTRACTING LLC, Petitioner/Movant and Cross–Respondent–Appellant, v. Ramon ROMERO and Cassie Romero, Respondents/Respondents and Cross–Petitioners–Appellees, and A & B Green Building LLC, Respondent/Cross–Respondent–Appellee.
• Court: Hawaii Supreme Court

137 Hawai'i 1

364 P.3d 518

NOEL MADAMBA CONTRACTING LLC, Petitioner/Movant and Cross–Respondent–Appellant,

v. Ramon ROMERO and Cassie Romero, Respondents/Respondents and Cross–Petitioners–Appellees,andA & B Green Building LLC, Respondent/Cross–Respondent–Appellee.

Nos. SCWC–12–0000778

SCWC–12–0000868.

Supreme Court of Hawai‘i.

Nov. 25, 2015.

Reconsideration Denied Jan. 12, 2016.

Samuel P. King, Jr., Honolulu, for petitioner.

Keith Y. Yamada and Kirk M. Neste, Honolulu, for respondent.

RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, and WILSON, JJ.

Opinion of the Court by WILSON, J.

In this case we consider the issue first addressed in Nordic PCL Constr., Inc. v. LPIHGC, LLC, 136 Hawai‘i 29, 358 P.3d 1 (2015), of whether under the Hawai‘i Uniform Arbitration Act (HUAA) (codified at Hawai‘'i Revised Statutes (HRS) chapter 658A), a decision of a neutral arbitrator must be vacated due to evident partiality.

The case arises from the arbitration of a construction contract dispute between homeowners Ramon Romero and Cassie Romero (the Romeros) and contractor Noel Madamba Contracting LLC (Madamba). The main question before us is whether arbitrator Patrick K.S.L. Yim's (Yim) failure to disclose his possible attorney-client relationship with the Romeros' counsel's law firm constituted evident partiality requiring vacatur of the arbitration award by the circuit court.

Following Yim's issuance of a partial final arbitration award, the parties learned that Cades Schutte LLP (Cades)—the law firm representing the Romeros throughout the arbitration—had been retained by the administrator of Yim's personal retirement accounts to ensure that the accounts complied with state and federal laws. Based on this previously undisclosed information, Madamba moved to vacate the arbitration award. The Circuit Court of the First Circuit (circuit court) denied Madamba's motion to vacate, determining that Yim's failure to disclose did not constitute evident partiality. The Intermediate Court of Appeals (ICA) affirmed.

We hold that Yim's failure to disclose his relationship with Cades created a reasonable impression of partiality, and as such, resulted in a violation of the disclosure requirements enumerated in HRS § 658A–12. As we recently held in Nordic, for neutral arbitrators, a violation of the disclosure statutes results in evident partiality as a matter of law. 136 Hawai‘i at 50, 358 P.3d at 22. Thus, the circuit court's determination that there was no showing of evident partiality was clearly erroneous. We also clarify Nordic and hold that pursuant to the plain language of HRS § 658A–23(a)(2)(A), where there is evident partiality on the part of a neutral arbitrator, the award shall be vacated. Accordingly, we vacate the ICA and the circuit court's judgments and remand to the circuit court with instructions to vacate the arbitration award.

I. Background

A. Arbitration Proceedings

On June 1, 2009, the Romeros and Madamba entered into a contract in which the Romeros agreed to pay $425,000 for Madamba to complete a new construction for a two-story home in Honolulu, Hawai‘i. Over a year later, in November 2010, Keith Y. Yamada (Yamada), an attorney from the law firm Cades, sent a demand letter to Madamba and A & B Green Building LLC (A & B)¹ notifying them that Cades had been retained by the Romeros and that legal action would be taken against them for breach of contract as the project had been abandoned.

On February 28, 2011, the Romeros filed a demand for arbitration against Madamba and A & B alleging seven separate counts, including breach of contract.² The demand was submitted to Dispute Prevention & Resolution, Inc. (DPR). The Romeros continued to be represented by Yamada of Cades along with Andrew L. Salenger, also of Cades. The parties provided ranked lists of proposed third-party neutrals to DPR and based on the lists received, Yim was appointed as arbitrator on May 31, 2011. On June 1, 2011, Yim provided his disclosures through DPR Case Manager Kelly Bryant (Bryant). The disclosures noted, inter alia, that while Yim was a judge,³ "counsel and members of their firms appeared before [him]" and that "[s]ince retirement, [he had] served as a [n]eutral for counsel and members of their firms." Yim made no disclosures regarding his relationship with Cades in connection with his personal retirement accounts.

The arbitration hearings took place on November 2–4, 2011. On January 26, 2012, Yim issued his Partial Final Award of Arbitrator (Partial Final Award). Yim concluded that Madamba breached the construction contract and that the Romeros were entitled to recover $154,476.51 in compensatory damages. Yim retained jurisdiction to address attorneys' fees and costs.

In February and March 2012, following the issuance of the Partial Final Award, Yim made three supplemental disclosures to the parties regarding his relationship with Cades in connection with his personal retirement accounts. All three supplemental disclosures were transmitted to party counsel by Bryant via email.

Bryant sent the first supplemental disclosure to party counsel on February 22, 2012, almost a month after Yim issued his Partial Final Award. The disclosure informed the parties that Cades had been recently retained by the administrator of Yim's personal retirement accounts to handle compliance documentation related to his accounts. The disclosure stated that Yim hired Pension Services Corporation (PSC) in the 1990s to manage his personal retirement accounts and PSC's role included ensuring that Yim's accounts were "compliant with all state and federal laws." PSC hired Cades to assist in the legal review of Yim's accounts and according to the disclosure, Yim's role in Cades's retention was limited:

Recently, PSC retained two law firms in Honolulu to handle their clients' compliance documentation. Judge Yim's account was in the group given to Cades Schutte.

Please note that Judge Yim is PSC's client, Judge Yim did not select or retain Cades Schutte personally, and he had no input as to who PSC selected. The Judge was advised that his accounts were given to Cades after the fact. Judge Yim will sign documents drafted by Cades, and Cades will invoice Judge Yim directly for any compliance work done on his account.

Bryant's email also noted that Yim "[did] not feel this disclosure will in any way affect his ability to serve in a neutral and unbiased manner, but felt it was best to disclose this newly discovered information." DPR requested that any comments regarding the disclosure be filed in writing by February 24, 2012.

On February 24, 2012, Madamba objected to Yim serving as arbitrator based on the supplemental disclosure, and requested more information regarding Yim's relationship with Cades. The Romeros also responded to the disclosure. Specifically, the Romeros' counsel, Yamada, stated that he confirmed with the firm's pension benefits counsel, Ellen Kawashima (Kawashima), that Cades had done "no work for PSC on Judge Yim's account and will not do so if at all until the completion of the Romero arbitration." Yamada further noted that "[t]here is no existing relationship that is in place and no engagement letter signed." Yamada also stated that he personally had no knowledge of the "proposed relationship" prior to Yim's disclosure and stated that "[a]ll rulings prior to February 24th must remain undisturbed because no one (neither Judge Yim nor Cades Schutte) could have foreseen during the Madamba arbitration that this relationship might develop."

On February 29, 2012, Bryant provided a second supplemental disclosure regarding Yim's relationship with Cades. Bryant stated that Yim first spoke with Kawashima "a day or a couple days before this most recent disclosure was sent out"⁴ and that "[h]e instructed [Kawashima] to run a conflict check through her firm." Bryant also stated that Cades had not provided Yim with any services nor had Yim signed an engagement letter with Cades or paid any fees to Cades. Finally, the disclosure noted that Yim had instructed PSC to withdraw his file from Cades and send the work to another law firm. DPR requested any comments before March 2, 2012. In response, Madamba's counsel requested additional information and clarification regarding the disclosures.

The third and final supplemental disclosure, emailed to party counsel on March 5, 2012, provided additional details about Yim's relationship with Cades. The disclosure stated that "Yim advised DPR that Nobuo Kiwada [ (Kiwada) ] handles his account at [PSC]" and that Kiwada could provide an "accurate timeline" of the relevant events. According to the disclosure, Kiwada first raised the possibility of Cades's review of Yim's retirement accounts with Yim in May 2011—the month Yim was confirmed by the parties as a neutral arbitrator—and Yim deferred to Kiwada as to which firm would be involved:

In May 2011, Mr. Kiwada advised Judge Yim that certain amendments would need to be done to all pension documents to comply with all new state and federal laws. Mr. Kiwada was considering various attorneys of which Roger Fonseca [of Cades] was one. Judge Yim advised Mr. Kiwada that he would defer to Mr. Kiwada's judgment as to who to send his file to, and Judge Yim was not involved in PSC's decision as to which law firms would be selected.

According to the disclosure, "[n]othing further was done on this issue until December 30, 2011 when PSC sent a letter to all their clients advising them that their files would be sent to a law firm (no law firm was named in the letter) to handle [certain statutory] requirements."

The disclosure further noted that Cades's involvement became more definite several months later when Kiwada informed Yim that his accounts would likely be reviewed by Cades: "On January 30, 2011,⁵ Mr. Kiwada advised Judge Yim that his file would be sent to a law firm, probably Cades." At this point, Yim again "advised Mr. Kiwada that he would leave it up to Mr. Kiwada to determine which law firm would receive his...