RT Import, Inc. v. Torres, SCWC-14-0000970

• Decision Date: 13 April 2017
• Docket Number: SCWC-14-0000970
• Citation: 393 P.3d 997
• Parties: RT IMPORT, INC., Respondent/Plaintiff-Appellee, v. Jesus TORRES and Mila Torres dba Hawaiian Quilt Wholesale, Petitioners/Defendants-Appellants, and Worldwide Flight Services, Inc., Defendant.
• Court: Hawaii Supreme Court

393 P.3d 997

RT IMPORT, INC., Respondent/Plaintiff-Appellee,

v.Jesus TORRES and Mila Torres dba Hawaiian Quilt Wholesale, Petitioners/Defendants-Appellants,andWorldwide Flight Services, Inc., Defendant.

SCWC-14-0000970

Supreme Court of Hawai'i.

APRIL 13, 2017

Barry L. Sooalo, Honolulu, for petitioner.

Robert E. Badger, Honolulu, for respondent.

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

OPINION OF THE COURT BY McKENNA, J.

I. Introduction

Jesus and Mila Torres dba Hawaiian Quilt Wholesale ("the Torreses") appeal an arbitration award between them and RT Import, Inc. ("RT Import"), raising four questions, of which only the first, relating to the circuit court's award of fees and costs, has merit. We hold that the circuit court erred by including in its judgment $ 4,738.74 that was not included in the final arbitration award or otherwise allowed by law.

II. Background

A. Court Proceedings Prior to Arbitration

On May 24, 2012, RT Import filed a complaint in the District Court of the First Circuit against both the Torreses and Worldwide Flight Services ("WFS") seeking $ 25,000 in damages for merchandise allegedly misdelivered by WFS to the Torreses, which was then converted by the Torreses. The Torreses answered the complaint and filed a cross-claim against WFS, seeking indemnification and/or contribution in the event they were found liable to RT Import. The Torreses also filed a demand for jury trial, and the case was then transferred to the circuit court.¹

After discovery, RT Import filed a petition to approve a confidential good faith settlement with WFS pursuant to Hawai'i Revised Statutes ("HRS") § 663-15.5 (Supp. 2012). After the Torreses withdrew their objection, the settlement between RT Import and WFS was approved by the circuit court.

A few weeks before the scheduled trial date, after additional pre-trial proceedings and discovery, RT Import and the Torreses agreed to resolve their dispute through binding arbitration under the auspices of Dispute Prevention and Resolution, Inc. ("DPR"), and they filed a stipulation for binding arbitration.

B. Arbitration Proceedings

The following facts were adduced in arbitration. Although the Torreses were to receive forty boxes of merchandise, WFS mistakenly delivered eighty-eight boxes. The mistaken delivery contained eighteen boxes belonging to RT Import, thirty-six belonging to the Torreses, and thirty-four boxes belonging to another company. The Torreses returned the thirty-four boxes belonging to the other company, but they never acknowl . The T edged receiving merchandise belonging to RT Import.

The arbitrator ruled that although WFS's misdelivery led to the Torreses' initial receipt and possession of RT Import's merchandise, the Torreses' subsequent actions, including removing RT Import's box labels and selling the merchandise at the Aloha Stadium Swap Meet, proved that they committed the intentional tort of conversion. The Final Award of Arbitrator ("final award") awarded RT Import a total of $ 106,711.62, with subtotals of $ 71,663.33 for special damages and $ 35,000.00 for general damages for emotional distress.² The arbitrator specifically found:

29. As the prevailing party, RT is entitled to the fair market value of the chattel, in addition to any special damages, including compensation for the time and money properly expended in pursuit of the property, plus emotional distress.

30. The undisputed evidence adduced establishes that the fair market retail value of the merchandise [sic] $ 62,047.00.

31. The undisputed evidence adduced from RT establishes the following costs related to this converted merchandise: freight charges of $ 2,777.53, customs entry services of $ 1,128.80, airport fees of $ 35.00, business related airline travel of $ 2,175.00, incidental travel expenses of $ 3,500.00.³ All other claims of expenses are denied.

32. RT is also entitled to an award of damages for emotional distress.

33. RT is entitled to be awarded its arbitration costs and expenses.

34. In light of the fact that the claims asserted by RT are tort claims, RT is not entitled to an award of attorney's fees and costs.

The arbitrator also ordered:

The Respondents are responsible for 100% of the arbitration fees and costs. The Claimant is therefore awarded, and the Respondents shall reimburse to the Claimant directly, all arbitration related fees and costs paid by the Claimant to DPR, and shall pay said fees and costs as directed by Dispute Prevention & Resolution, Inc.

(Emphasis added.) Pursuant to this portion of the final award, DPR sent RT Import a final invoice ("DPR invoice"), directing the Torreses to immediately remit $ 3,616.75 to RT Import (via their attorney) as reimbursement for arbitration fees. This amount was to reimburse RT Import for its advance toward the arbitrator's fees.

Several weeks after DPR issued its invoice, however, RT Import sent a letter directly to the Torreses stating, "As agreed by the parties and ordered by the Arbitrator, below please find for your review and payment, the fees and costs of this Arbitration matter. All supporting invoices in regard to costs are enclosed ... $ 8,355.49." ("RT Import invoice") The RT Import invoice listed the following costs:

DPR Order/letter: $ 3,616.75

Postage, Photocopying Costs: $ 2,278.29

Deposition transcript of J. Torres, M. Torres, C. Murata:

$2,244.75

Services of process regarding depositions: $ 215.70

These amounts total $ 8,355.49. When the $ 3,616.75 in arbitration fees reflected in the DPR invoice is subtracted, the difference is $ 4,738.74.

C. Further Circuit Court Proceedings

Although they had stipulated to submit this case to binding arbitration, the Torreses filed a Notice of Appeal and Request for Trial De Novo of the final award, citing Rule 22 of the Hawai'i Arbitration Rules. On the same day, the Torreses also filed a motion with DPR to set aside the final award. The Torreses alleged that RT Import had been made whole through the confidential settlement, rendering the case moot, and that the arbitrator lacked subject matter and personal jurisdiction.

RT Import opposed this motion before DPR, arguing that the jurisdictional arguments were meritless, that the parties had stipulated to binding arbitration, and that RT Import had not been made whole by its settlement with WFS. DPR responded that it had no authority under HRS § 658A or DPR's Arbitration Rules to rule on the motion.

RT Import then filed a motion in the circuit court to confirm the final award pursuant to HRS § 658A-22. RT Import requested that judgment be entered in its favor in the amount of $ 106,663.33, plus $ 8,355.49 in costs paid for postage, photocopying, deposition transcripts, and service of process costs related to the arbitration as well as $ 1,692.80 for attorney's fees incurred in bringing the motion. RT Import included both the DPR invoice and RT Import invoice in its motion to confirm.

The Torreses incorporated the arguments contained in their motion with DPR in their opposition memorandum to RT Import's circuit court motion to confirm. The Torresses did not file a motion to vacate or modify the award with the circuit court.

The circuit court granted RT Import's motion to confirm the final award and entered a judgment awarding RT Import a total of $ 116,759.91, comprised of $ 106,711.62 for damages, $ 8,355.49 for "Plaintiff's Arbitration attorney's fees and costs," and $ 1,692.80 for "Plaintiff's Costs of Motion for an Order to Confirm Final Award of Arbitrator Dated April 2, 2014."

D. Appeal to the Intermediate Court of Appeals ("ICA")

On appeal to the ICA, the Torreses asserted that the circuit court abused its discretion by: (1) concluding that they were not entitled to a trial de novo on the grounds that this case was not in the Court-Annexed Arbitration Program; (2) awarding attorney's fees and costs to RT Import despite the arbitrator's ruling that attorney's fees were not available for this tort matter; and (3) granting the motion to confirm the final award without confirming whether the arbitrator had subject matter and personal jurisdiction. The Torreses also alleged that DPR's arbitration administrator abused its discretion by refusing to hear and decide their motion to set aside the final award pursuant to the Hawai'i Arbitration Rules.⁴

In a summary disposition order, the ICA determined that the Torreses' appeal was without merit. RT Imp., Inc. v. Torres , No. CAAP-14-0000970, 139 Hawai'i 261, 2016 WL 6125676, at *1 (Haw. Ct. App. Oct. 20, 2016). The ICA resolved the Torreses' points on appeal as follows:

(1) when the circuit court heard RT Import's Motion to Confirm Award, Appellants did not raise HRS chapter 658A as a basis for challenging the arbitration award;

(2) the DPR case manager had no authority to consider or rule on the Appellants' Motion to Set Aside under HRS chapter 658A; and

(3) this case was never part of the Court–Annexed Arbitration Program or subject to the rules of the program, but instead was conducted pursuant to HRS chapter 658A.

The ICA therefore affirmed the circuit court's confirmation of the final arbitration award and judgment.

E. Application for Writ of Certiorari

The Torreses raise the following four questions on certiorari:

1. Whether the ICA gravely erred in concluding that the circuit court properly awarded attorney's fees in an arbitration case where the awarding of attorney's fees was precluded by the arbitrator pursuant to the American rule and where no language in the arbitration agreement permitted the awarding of attorney's fees?

2. Whether the ICA gravely erred in concluding an arbitration case may proceed to trial and a verdict may be obtained, even where the facts show that prior to the commencement of the arbitration trial, the injured party was made whole prior to the commencement of that trial?

3. Whether the ICA gravely erred in affirming the award of an arbitration award of $ 106,711.62, where Plaintiff only sought $ 15,800 in damages?

4. Whether the ICA gravely erred in concluding

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