Noel Madamba Contracting, LLC v. Romero. , 137 Haw. 1 ( 2015 )

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Electronically Filed
Supreme Court
SCWC-12-0000778
25-NOV-2015
08:54 AM
IN THE SUPREME COURT OF THE STATE OF HAWAII
---o0o---
________________________________________________________________
NOEL MADAMBA CONTRACTING LLC,
Petitioner/Movant and Cross-Respondent-Appellant,
vs.
RAMON ROMERO and CASSIE ROMERO,
Respondents/Respondents and Cross-Petitioners-Appellees,
and
A&B GREEN BUILDING LLC,
Respondent/Cross-Respondent-Appellee.
________________________________________________________________
SCWC-12-0000778 & SCWC-12-0000868
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-12-0000778 & CAAP-12-0000868; S.P. NO. 12-1-0210)
NOVEMBER 25, 2015
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 Hawaiʻi 29, 358 P.3d
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1 (2015), of whether under the Hawaiʻi Uniform Arbitration Act
(HUAA) (codified at Hawaiʻi 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.
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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 Hawaiʻi 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
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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
1
A&B was hired by the Romeros to provide design services in
relation to the project. A&B did not participate in the arbitration at
issue.
2
Both the agreement between the Romeros and Madamaba and the
agreement between the Romeros and A&B provided for arbitration for disputes.
The agreement with Madamaba noted that disputes should first be submitted to
the architect in charge of the project prior to submitting them to
arbitration. In their demand for arbitration, the Romeros stated that the
agreement provided “that disputes may first be submitted to [the architect]
for decision before being referred to arbitration,” but noted that “in light
of the number and pervasiveness of the disputes herein,” referring the matter
to the architect would not “assist in reaching a resolution.”
3
Yim is a former judge of the Circuit Court of the First Circuit.
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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
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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
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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.
4
In the third supplemental disclosure it was clarified that “this
most recent disclosure” referred to the February 22, 2012 first supplemental
disclosure.
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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
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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 file.”
Regarding Yim’s contact with Cades in relation to his retirement
accounts, the disclosure stated: “Judge Yim first spoke with
Ellen Kawashima at the Cades firm one or two days days [sic]
prior to his February 22, 2012 disclosure. Until his
conversation with Ellen, he did not know his file was with
Cades.” Finally, the disclosure stated that Bryant confirmed
with Kiwada that Yim’s file had “been reassigned to another law
firm.”
Madamba responded to the third disclosure, requesting
additional information related to the communications between Yim
and Kiwada that occurred in May 2011. Madamba also argued that
the Partial Final Award should be vacated due to Yim’s
violations of the disclosure rules. Despite Madamba’s
objections and its request for additional discovery, DPR
affirmed Yim’s role as arbitrator and informed the parties that
Yim would issue a final arbitration award.6
5
Kiwada later testified that the meeting at issue took place on
January 20, 2012 and not in 2011.
6
Madamba’s counsel notified DPR that Madamba had filed a Motion to
Vacate the Partial Final Award along with a Motion to Stay Arbitration
(continued . . .)
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On April 25, 2012, Yim issued the Final Award of
Arbitration (Final Award), which incorporated the Partial Final
Award and awarded the Romeros approximately $42,000 in
attorneys’ fees, based on work performed by Cades.
B. Circuit Court Proceedings
Following Yim’s supplemental disclosures, Madamba
filed pleadings in the circuit court to disqualify Yim, stay the
arbitration proceeding, and vacate the Partial Final Award.
However, prior to the circuit court’s hearing on Madamba’s
motion to vacate the Partial Final Award, Yim issued the Final
Award.
Accordingly, after Yim issued the Final Award, Madamba
filed a Motion to Vacate Final Award, arguing, inter alia, that
Yim failed to disclose his relationship with Cades and that
“there was evident partiality of the [a]rbitrator.” In support,
Madamba cited several provisions of HRS chapter 658A7 as well as
DPR Rule 9, which required that arbitrators disclose “any past,
present, or possible future relationship with the parties, their
( . . . continued)
Proceedings and Disqualify Yim in the circuit court and that the arbitration
should be stayed pending the resolution of the motions. DPR responded that
since there was no court order to stay arbitration and no mutual agreement
between the parties, Yim would proceed to issue a final award.
7
Pursuant to HRS § 658A-3(c) (Supp. 2001), “[a]fter June 30, 2004,
[chapter 658A] governs an agreement to arbitrate whenever made.”
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witnesses, their counsel or another arbitrator including any
bias or any financial or personal interest in the result of the
arbitration.” The Romeros filed a Motion to Confirm Final
Award.
Madamba also requested additional discovery related to
Yim’s relationship with Cades. Specifically, Madamba subpoenaed
and, as a result, received records from DPR.8 Madamba also
deposed three PSC employees: Kiwada, the president of PSC;
Julie Kiwada (Julie), Kiwada’s daughter who was being trained as
a consultant at PSC; and Bruce Lee (Lee), a pension consultant.
Madamba also deposed Kawashima, the Cades pension benefits
attorney who had been mentioned in the disclosures.9
Kiwada’s deposition testimony confirmed that Kiwada
met with Yim in May 2011—more than seven months before Yim
issued the January 26, 2012 Partial Final Award—and advised Yim
that PSC would be negotiating with Cades and the law firm
Carlsmith Ball LLP (Carlsmith) to potentially handle compliance
work related to his retirement accounts. Kiwada also testified
8
Madamba filed a motion to compel production of the DPR files, and
DPR objected on the grounds that HRS § 658A-14(d) “preclude[d] the production
of documents by DPR or any arbitration association unless you can show
basically a prima facie ground to vacate the award.” The circuit court
disagreed with DPR, stating that a prima facie showing had been made and
ordered DPR to produce certain records from the arbitration.
9
Kawashima’s deposition transcript was not included in the record
on appeal and, thus, was not considered by this court.
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that he informed Yim he would eventually recommend one of the
two firms to represent him. The DPR documents revealed that the
next month, in June 2011, PSC sent an email to Kawashima at
Cades providing the names of several clients, including Yim, so
that Cades could research potential conflicts of interest.
Kawashima responded to PSC, stating that that there was no
conflict between Cades and Yim.
Approximately six months later, in December 2011, PSC
sent a letter to Yim stating that it “had made arrangements with
two [Employee Retirement Income Security Act (ERISA)] law firms
in Honolulu” to complete work related to his pension plan.
Specifically, the law firms would be ensuring that Yim’s plans
complied with the requirements of the Economic Growth & Tax
Relief Reconciliation Act prior to submission to the Internal
Revenue Service. The letter noted that the fee charged by the
law firm would be “approximately $2,500.”
Both Kiwada and Julie also testified that they met
with Yim in January 2012 regarding his retirement plan. Kiwada
and Julie stated that this meeting occurred on January 20, 2012.
The meeting date was corroborated by handwritten notes taken by
Julie. Their testimony that the meeting date was January 20th—
six days before Yim issued the Partial Final Award—did not match
the date in Yim’s third supplemental disclosure, which stated
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that Yim and Kiwada met on January 30th. Yim’s disclosure stated
that, “Kiwada advised Judge Yim that his file would be sent to a
law firm, probably Cades.” However, Kiwada did not remember
whether he had specifically mentioned Cades during the meeting,
and Julie testified that she thought “[they] did talk about it”
but could not “recall the details.”
Four days following the meeting, on January 24, 2012—
and two days before issuance of the January 26, 2012 Partial
Final Award—Julie emailed documents related to Yim’s retirement
plan to Kawashima at Cades. The transmittal email noted: “We
spoke to the client and he knows the fee and that your
engagement letter should be coming soon.”
Following transmission of the files to Cades, it
appears that Yim, PSC, and Kawashima discussed the issue of a
potential conflict between Cades and Yim. A February 15, 2012
internal PSC email from Kiwada to Julie, Lee, and others states:
“Pat Yim will resolve his situation directly with Cades. Ellen
[Kawashima] will get back to us in a couple of days if Cades can
still represent Pat Yim.” On February 21, 2012, Yim sent an
email to Bryant at DPR explaining the situation with PSC and
Cades and stating that Kiwada “made the decision to refer [his]
compliance work with a group of his clients to the Cades firm.”
Yim stated that he would be billed directly by Cades for the
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“work performed” but that other than providing signatures as
necessary he did “not expect[] to interact with the firm.” The
first supplemental disclosure was sent to the parties the
following day. Thus, when Yim sent this supplemental disclosure
on February 22, 2012, he was aware Cades would be acting as his
personal attorney.
On June 12, 2012, Madamba filed a motion to continue
the hearing on the Motion to Vacate Final Award and Motion to
Confirm Final Award which had been set for June 19, 2012.
Madamba stated that it needed additional time to conduct
discovery on the disclosure issue, including taking the
depositions of Yim and Bryant.10 The circuit court granted
Madamba a continuance to introduce evidence in support of its
Motion to Vacate Final Award.
On June 18, 2012, Madamba noticed Yim’s deposition as
well as the depositions of Bryant and DPR’s Chief Executive
Officer, Keith Hunter (Hunter). DPR’s counsel filed a motion
for a protective order, stating that Yim and the DPR employees
were immune from testifying pursuant to HRS § 658A-14(d)(2).11
10
In the motion, Madamba also argued that it had the right to a
jury trial on the disclosure issue. The circuit court denied Madamba’s
request for a jury trial but discussed Madamba’s right to an evidentiary
hearing. The court determined, however, that because Madamba had failed to
make a prima facie showing of evident partiality, an evidentiary hearing was
not warranted. This issue was not raised on certiorari.
11
HRS § 658A-14(d)(2) (Supp. 2001) provides:
(continued . . .)
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The motion for protective order was set for hearing on August 1,
2012, the same date the circuit court had scheduled to hear the
Romeros’ Motion to Confirm and Madamba’s Motion to Vacate.
Madamba filed an ex parte motion to shorten time on the motion
for protective order, claiming there were numerous disputed
issues of facts which required further discovery from Bryant,
Hunter, and Yim. The motion to shorten time was denied by the
circuit court on July 2, 2012.
Madamba then filed a memorandum in support of its
motion to vacate, arguing, inter alia, that Yim breached his
duty to disclose under the DPR rules and HRS § 658A-12(a), which
requires an arbitrator to disclose “any known facts that a
( . . . continued)
Immunity of arbitrator; competency to testify;
attorney’s fees and costs.
. . . .
(d) In a judicial, administrative, or similar
proceeding, an arbitrator or representative of
an arbitration organization is not competent to
testify, and shall not be required to produce
records as to any statement, conduct, decision,
or ruling occurring during the arbitration
proceeding, to the same extent as a judge of a
court of this State acting in a judicial
capacity. This subsection does not apply:
. . . .
(2) To a hearing on a motion to vacate an award
under section 658A-23(a)(1) or (2) if the
movant establishes prima facie that a ground
for vacating the award exists.
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reasonable person would consider likely to affect the
impartiality of the arbitrator in the arbitration proceeding.”
On this basis, Madamba maintained that Yim’s failure to disclose
resulted in evident partiality and that accordingly, the
arbitration award should be vacated. The Romeros filed a
response to Madamba’s motion, arguing that Madamba failed to
meets its burden in demonstrating evident partiality.
The circuit court heard the Motion to Vacate Final
Award, Motion to Confirm Final Award, and DPR’s motion for a
protective order on August 1, 2012.12 After hearing from the
parties, the circuit court orally denied Madamba’s Motion to
Vacate and granted the Romeros’ Motion to Confirm Final Award,
explaining its reasoning on the record. The court determined
that the relationship between Yim and Cades was a “possible
future relationship” and thus DPR Rule 9 had been violated.
However, the court indicated that there was no violation of HRS
§ 658A-12 citing to the language in HRS § 658A-12(a)(2), which
specifically refers to disclosures of “existing or past
relationship[s].” In this respect, the court stated:
What we have here, we have a particular situation which,
under the DPR, Rule 9 speaks to a possible future
relationship and a disclosure. There is no dispute that
under 658A-12, it speaks to existing or past relationship.
Now, both parties had agreed to be bound by the DPR rules
regarding whatever rules DPR sets forth which includes
disclosure of a possible -- possible -- future
12
The Honorable Rhonda A. Nishimura presided.
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relationship. What we have here is the existence of a
possible future relationship.
The court next considered whether there was evident
partiality pursuant to HRS § 658A-23. First, the court
reiterated that the relationship between Cades and Yim “was a
potential” or “possible” future relationship that was never
“formulated,” whereas relevant caselaw finding evident
partiality for a failure to disclose considered “prior” or
“current” relationships. The court additionally addressed
Madamba’s claim that “particular instances” in the record
demonstrated evident partiality. In this regard, the court
determined Madamba failed to demonstrate evident partiality.
Accordingly, the court denied Madamba’s motion to vacate and
granted the Romeros’ motion to confirm.
The circuit court additionally determined that DPR’s
motion for protective order was moot, given its confirmation of
the Final Award.
C. ICA Appeal
Madamba raised several issues before the ICA. Of
relevance on certiorari, Madamba argued that the circuit court’s
finding that Yim failed to disclose his relationship with Cades
in violation of DRP Rule 9—in and of itself—required the
circuit court to vacate the award. Further, Madamba contended
that Yim violated his duty to disclose under HRS § 658A-12(a),
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which he claimed encompasses a requirement to disclose potential
future relationships that “a reasonable person would consider
likely to affect the impartiality of the arbitrator in the
arbitration proceeding.” (Quoting HRS § 658A-12(a)). Madamba
additionally argued that the circuit court erred in refusing to
allow additional discovery, including the depositions of Bryant,
Hunter, and Yim.
In response, the Romeros argued that the circuit court
properly denied Madamba’s motion to vacate because Madamba
failed to demonstrate evident partiality. In this regard, the
Romeros claimed that a nondisclosure does not alone constitute
evident partiality and that the potential relationship between
Cades and Yim, which was never consummated, did not create the
impression of bias warranting vacatur. Regarding the
depositions of Bryant, Hunter, and Yim, the Romeros argued that
the reason the depositions were never taken was that Madamba
delayed in scheduling them. The Romeros further contended that
there were no additional facts to be gained through these
depositions.
In its Summary Disposition Order, the ICA rejected
Madamba’s argument that Yim’s failure to disclose required the
circuit court to vacate the arbitration award. Noel Madamba
Contracting LLC v. Romero, No. CAAP-12-0000778, 2014 WL 2180001,
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at *3 (App. May 23, 2014) (SDO). The ICA concluded that
although Yim violated the DPR rules because he failed to
disclose a possible future relationship with Cades, he was “not
necessarily in violation of HRS § 658A-12(a)(2),” which only
applies to disclosure of “past or present relationships.” Id.
Turning to the question of whether the failure to disclose
resulted in evident partiality, the ICA determined that it did
not because the relationship between Yim and Cades “remained
inchoate during the pendency of arbitration”; “was anticipated
to be minimal at best”; and “lacked the significance, actuality,
and contemporaneous nature” discussed in the relevant case law.
Id. at *3-4.
The ICA also found no error in the circuit court’s
decision to rule on Madamba’s motion to vacate prior to the
depositions of Yim and the other DPR personnel. Id. at *4. In
this regard, the ICA held that a prima facie case for vacating
the award did not exist, and thus, the depositions were barred
pursuant to HRS § 658A-14(d)(2), which provides immunity for
arbitrators and representatives of arbitration organizations.
Id.
II. Standards of Review
A. Findings of Fact and Conclusions of Law
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A trial court’s findings of fact are reviewed under
the clearly erroneous standard and conclusions of law are
reviewed de novo under the right/wrong standard. Nordic, 136
Hawaiʻi at 41, 358 P.3d at 13. “A finding of fact is clearly
erroneous when, despite evidence to support the finding, the
appellate court is left with the definite and firm conviction in
reviewing the entire evidence that a mistake has been committed”
or “when the record lacks substantial evidence to support the
finding.” Id. (quoting Daiichi Hawaii Real Estate Corp. v.
Lichter, 103 Hawaii 325, 337, 82 P.3d 411, 423 (2003)).
Substantial evidence is defined as “credible evidence which is
of sufficient quality and probative value to enable a person of
reasonable caution to support a conclusion.” Id. (quoting
Daiichi, 103 Hawaii at 337, 82 P.3d at 423). A conclusion of
law that presents a mixed question of law and fact is reviewed
under the clearly erroneous standard. Estate of Klink ex rel.
Klink v. State, 113 Hawaiʻi 332, 351, 152 P.3d 504, 523 (2007).
B. Motion to Vacate Based on Evident Partiality
As stated in Nordic, “in reviewing a circuit court’s
rulings on a motion to vacate for evident partiality . . .
whether a duty of disclosure exists . . . is a question of law;
[and] whether it has been breached . . . is a question of
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fact[.]” 136 Hawaiʻi at 42, 358 P.3d at 14. Here, the circuit
court concluded that based on the facts surrounding Yim’s
failure to disclose, there was no demonstration of evident
partiality. Because this conclusion presents a mixed question
of law and fact, we review it under the clearly erroneous
standard. See, e.g., Panado v. Bd. of Trs., Emps.’ Ret. Sys.,
134 Hawaiʻi 1, 12, 12 n.11, 332 P.3d 144, 155, 155 n.11 (2014)
(stating a “mixed question of law and fact, . . . is simply an
issue that must be determined by applying the law to the facts
of a case” and applying the clearly erroneous standard (citing
Price v. Zoning Bd. of Appeals, 77 Hawaiʻi 168, 172, 883 P.2d
629, 633 (1994) (applying the clearly erroneous standard of
review to a mixed question of law and fact, defined as a
conclusion “dependent upon the facts and circumstances of the
particular case”))).
C. Statutory Interpretation
“Statutory interpretation is a question of law
reviewable de novo.” State v. Wheeler, 121 Hawaiʻi 383, 390, 219
P.3d 1170, 1177 (2009) (internal quotation marks omitted).
III. Discussion
A. Evident Partiality and Failure To Disclose
1) The Circuit Court Clearly Erred in Determining
that Yim’s Failure To Disclose Did Not Result in
Evident Partiality
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In Nordic, we laid out the legal framework relevant to
an arbitrator’s failure to disclose under HRS chapter 658A.
Specifically, as acknowledged in Nordic, 136 Hawaiʻi at 44-45,
358 P.3d at 16-17, pursuant to the disclosure requirements
enumerated in HRS § 658A-12, prior to accepting appointment and
“after making a reasonable inquiry,” arbitrators are required to
“disclose to all parties . . . any known facts that a reasonable
person would consider likely to affect the impartiality of the
arbitrator[.]” HRS § 658A-12(a). Arbitrators also have a
“continuing obligation to disclose . . . any facts . . .
learn[ed] after accepting appointment which a reasonable person
would consider likely to affect the impartiality of the
arbitrator.” HRS § 658A-12(b).13 If an arbitrator discloses
13
In full, HRS § 658A-12(a)-(b) (Supp. 2001) states:
(a) Before accepting appointment, an individual
who is requested to serve as an arbitrator,
after making a reasonable inquiry, shall
disclose to all parties to the agreement to
arbitrate and arbitration proceeding and to any
other arbitrators any known facts that a
reasonable person would consider likely to
affect the impartiality of the arbitrator in
the arbitration proceeding, including:
(1) A financial or personal interest in the
outcome of the arbitration proceeding; and
(2) An existing or past relationship with any
of the parties to the agreement to arbitrate or
the arbitration proceeding, their counsel or
representatives, a witness, or another
arbitrator.
(b) An arbitrator has a continuing obligation
(continued . . .)
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facts that a reasonable person would consider likely to affect
the impartiality of the arbitrator in the arbitration proceeding
pursuant to HRS § 658A-12(a) or (b) “and a party timely objects
to the appointment or continued service of the arbitrator based
upon the fact disclosed, the objection may be a ground under
section 658A-23(a)(2) for vacating” the award. HRS § 658A-12(c)
(Supp. 2001). Similarly, if an arbitrator does not disclose a
fact required to be disclosed under HRS § 658A-12(a) or (b),
“upon timely objection by a party, the court under section 658A-
23(a)(2) may vacate an award.” HRS § 658A-12(d) (Supp. 2001).
In turn, HRS § 658A-23(a)(2) provides that the court “shall
vacate an award made in the arbitration proceeding” upon a
motion by a party to the proceeding if, inter alia, there was
“[e]vident partiality by an arbitrator appointed as a neutral
arbitrator.”14
( . . . continued)
to disclose to all parties to the agreement to
arbitrate and arbitration proceeding and to any
other arbitrators any facts that the arbitrator
learns after accepting appointment which a
reasonable person would consider likely to
affect the impartiality of the arbitrator.
14
In full, HRS § 658A-23(a)(2) (Supp. 2001) provides:
Vacating award. (a) Upon motion to the court by a
party to an arbitration proceeding, the court shall
vacate an award made in the arbitration proceeding
if:
(continued . . .)
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Our court first established an evident partiality
standard for cases involving an arbitrator’s failure to disclose
in Daiichi Hawaii Real Estate Corp. v. Lichter, where we
acknowledged that “[w]hat constitutes ‘evident partiality’
sufficient to vacate an arbitration award is a difficult
question.” 103 Hawaii at 339, 82 P.3d at 425 (quoting Valrose
Maui, Inc. v. Maclyn Morris, Inc., 105 F. Supp. 2d 1118, 1124
(D. Haw. 2000)). In Daiichi, we considered the circuit court’s
granting of a motion to vacate an arbitration award pursuant to
HRS § 658-9(2), which has since been repealed. Id. at 327-28,
82 P.3d at 413-14. Under HRS § 658-9(2) (1993), a court could
vacate an arbitration award “upon the application of any party
to the arbitration . . . [w]here there was evident partiality
. . . in the arbitrators.” We held that evident partiality is
“present when undisclosed facts show ‘a reasonable impression of
partiality.’” Daiichi, 103 Hawaiʻi at 339, 82 P.3d at 425
( . . . continued)
. . . .
(2) There was:
(A) Evident partiality by an arbitrator
appointed as a neutral arbitrator;
(B) Corruption by an arbitrator; or
(C) Misconduct by an arbitrator prejudicing the
rights of a party to the arbitration
proceeding[.]
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(emphasis added) (quoting Schmitz v. Zilveti, 20 F.3d 1043, 1046
(9th Cir. 1994)). Under this analysis, a finding of evident
partiality related to a failure to disclose is not dependent on
a showing that the arbitrator was actually biased, but instead
stems from the nondisclosure itself. Id. at 352, 82 P.3d at 438
(citing Schmitz, 20 F.3d at 1045). We further noted that the
United States Supreme Court had “emphasized the manifest
importance of a neutral arbitrator disclosing ‘to the parties
any dealings that might create an impression of possible bias,’”
id. at 341, 82 P.3d at 427 (quoting Commonwealth Coatings Corp.
v. Cont’l Cas. Co., 393 U.S. 145, 149 (1968)), but also
acknowledged that “not all dealings rise to the level of
creating the impression—or reality—of possible bias so as to
warrant” vacatur, id. Finally, we stated that “[t]he burden of
proving facts which would establish a reasonable impression of
partiality rests squarely on the party challenging the award.”
Id. at 339, 82 P.3d at 425 (citation omitted) (internal
quotation marks omitted).
As noted supra, we recently reiterated in Nordic, that
evident partiality is established where “undisclosed facts
demonstrate a reasonable impression of partiality.” 136 Hawaiʻi
at 51, 358 P.3d at 23 (quoting Daiichi, 103 Hawaii at 340, 82
P.3d at 426) (internal quotation mark omitted). We also, for
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the first time, explained the relationship between the standards
for disclosure established in HRS § 658A-12 and a finding of
evident partiality. In this respect, we determined that in the
context of neutral arbitrators, “a failure to meet disclosure
requirements under HRS § 658A-12(a) or (b) is equivalent to, or
constitutes, ‘evident partiality’ as a matter of law.” Id. at
50, 358 P.3d at 22. Thus, in Nordic, we interpreted the
standard required for disclosure under § 658A-12(a) and (b),
i.e, “facts a reasonable person would find likely to affect an
arbitrator’s impartiality,” as equivalent to the Daiichi evident
partiality standard previously adopted by our court, i.e.,
undisclosed facts demonstrating a reasonable impression of
impartiality.15
15
Our standard for evident partiality as well as that of the Ninth
Circuit (and some other federal and state courts), requires only a
“reasonable impression of partiality,” and as such, is more expansive than
the standard proposed by a majority of federal circuit courts of appeal,
which limit findings of evident partiality to situations “where a reasonable
person would have to conclude that an arbitrator was partial to one party to
the arbitration.” Andersons, Inc. v. Horton Farms, Inc., 166 F.3d 308, 325
(6th Cir. 1998) (citation omitted) (internal quotation marks omitted); see
also Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240, 253 (3d Cir. 2013)
(“An arbitrator is evidently partial only if a reasonable person would have
to conclude that she was partial to one side.”); Ometto v. ASA Bioenergy
Holding A.G., 12 CIV 1328 (JSR), 2013 WL 174259, at *4 (S.D.N.Y. Jan. 9,
2013) (“The requirement that this Court must perceive partiality so clearly
that it ‘would have to conclude’ the arbitrator was biased before vacating
the awards differs from the standard elaborated by the Ninth Circuit, which
looks only for ‘an impression of possible bias.’”), aff’d, 549 F. App’x 41
(2d Cir. 2014), cert. denied, 134 S. Ct. 2877 (2014).
(continued . . .)
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Under this framework, we now consider whether Yim’s
failure to disclose his relationship with Cades resulted in a
violation of HRS § 658A-12(a) or (b), or stated otherwise,
whether the failure to disclose resulted in evident partiality,
defined in our jurisdiction as a reasonable impression of
partiality. In considering this question, we recognize that
judicial review of arbitration awards is limited. Daiichi, 103
Hawaiʻi at 339, 82 P.3d at 422. However, because review of an
arbitration award is limited, an arbitrator’s impartiality and
appearance of impartiality is paramount. As a corollary, the
( . . . continued)
Indeed, in the federal courts, there is an “absence of a
consensus on the meaning of ‘evident partiality.’” Montez v. Prudential
Sec., Inc., 260 F.3d 980, 983 (8th Cir. 2001). The confusion stems from the
United States Supreme Court’s decision in Commonwealth Coatings. In
Commonwealth Coatings, Justice Black, writing for at least four justices of
the Court, held that an arbitrator’s failure to “disclose to the parties any
dealings that might create an impression of possible bias” was sufficient to
support vacatur. 393 U.S. at 147-49. Accordingly, the court vacated an
award where a neutral arbitrator of a three-arbitrator panel failed to
disclose his ongoing business relationship with one of the parties. Id. at
146-47.
Justice White joined the majority opinion but concurred
separately, adopting a narrower view of the standard. Justice White noted
that arbitrators should not be held to the same standards as judges, id. at
150 (White, J., concurring), but found that “for present purposes” it was
sufficient to “hold . . . that where the arbitrator has a substantial
interest in a firm which has done more than trivial business with a party,
that fact must be disclosed,” id. at 151-52 (White, J., concurring). Justice
White’s concurrence has opened the door for many of the federal circuit
courts of appeal—and some state courts—to adopt a more stringent definition
of evident partiality, requiring a showing beyond “an impression of possible
bias.” Our court’s approach follows Justice Black’s reasoning.
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disclosure process is of utmost import. The Daiichi court
recognized as much, quoting the United States Supreme Court for
the proposition that “we should, if anything, be even more
scrupulous to safeguard the impartiality of arbitrators than
judges, since the former have completely free rein to decide the
law as well as the facts and are not subject to appellate
review.” Id. at 341, 82 P.3d at 427 (quoting Commonwealth
Coatings, 393 U.S. at 149); see also Kay v. Kaiser Found. Health
Plan, Inc., 119 Hawaiʻi 219, 229, 194 P.3d 1181, 1191 (App. 2008)
(acknowledging that the “judiciary should play a minimal rule in
reviewing impartiality” but noting that “the sine qua non for
minimal review must be the arbitrator’s fidelity to the
disclosure obligation”). Based on these principles, we hold
that Yim’s failure to disclose his relationship with Cades
created a reasonable impression of partiality, and accordingly,
the circuit court’s findings that there was no violation of
Yim’s duty to disclose under HRS chapter 658A and no showing of
evident partiality are clearly erroneous.16
16
In Nordic, we remanded the case for an evidentiary hearing
because “the circuit court did not explain the basis of its rulings on the
record or enter findings of fact or conclusions of law” and material facts
were in dispute. 136 Hawaiʻi at 31, 358 P.3d at 3. Here, however, the
material facts were undisputed and the circuit court explained its reasoning
for determining there was no evident partiality, as discussed supra and
infra. Accordingly, we are able to review the circuit court’s findings.
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The key facts in this case establish that Yim was in
discussions concerning his representation by Cades during the
arbitration proceedings. In summary, in May 2011, Yim met with
the administrator of his retirement plan, who informed him that
either Cades or Carlsmith would eventually handle compliance
work related to his personal retirement accounts. Yim was
appointed as arbitrator in the underlying contract dispute the
same month, and in June 2011 made a disclosure to the parties
regarding his relationship with both law firms, but did not
disclose that Cades might be representing him in connection with
his personal retirement accounts. Approximately six months
later, in December 2011, Yim received a letter from his
retirement plan administrator, explaining that arrangements had
been made with two local ERISA law firms to review documents
related to his retirement accounts, for a fee of “approximately
$2,500.”
In January 2012, after the arbitration hearing, but
while the arbitration was pending, PSC, the administrator of
Yim’s retirement accounts, met with Yim and informed him that
his files would probably be sent over to Cades. Also at this
time, PSC transmitted Yim’s files to Cades. A few days after
the files were transmitted, Yim issued his Partial Final Award
on January 26, 2012. Yim made no disclosure regarding his
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involvement with Cades until almost a month after issuing the
Partial Final Award, when Yim learned that his file had been
sent to Cades. It was only when Madamba raised concerns
regarding Cades’s representation of Yim, that Yim’s account was
assigned to another law firm. Yim continued to serve as the
arbitrator and issued the Final Award over Madamba’s objections.
Based on these facts, the circuit court determined
that Yim’s failure to disclose his relationship with Cades
resulted in a violation of DPR Rule 9 insofar as the rule
requires the disclosure of certain possible future
relationships. Despite having found a violation of the DPR
rule, and based, in part, on its description of the relationship
between Yim and Cades as yet-to-be “formulated,” “potential,”
“possible,” and “future,” the circuit court determined there was
no evident partiality.17 In reaching this conclusion, the court
stated, “[t]here is no dispute that under 658A-12[(a)(2)], it
speaks to existing or past relationship[s]” as opposed to
potential and future relationships.
17
As discussed supra, the circuit court also appeared to consider
evidence in the record of Yim’s actions during the arbitration that Madamba
claimed demonstrated Yim was partial to the Romeros. Such a consideration
might be appropriate to the extent Madamba raised an actual bias claim.
However, we note that for claims of evident partiality based on a failure to
disclose “an arbitrator’s nondisclosure of facts showing a potential conflict
of interest creates evident partiality warranting vacatur even when no actual
bias is present.” Daiichi, 103 Hawaii at 352, 82 P.3d at 438 (quoting
Schimitz, 20 F.3d at 1045) (internal quotation marks omitted).
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The ICA similarly determined that Yim violated the DPR
rules, but stated that he did “not necessarily [violate] HRS
§ 658A-12(a)(2), as the latter expressly limits disclosure
obligations to past or present relationships.” Madamaba, SDO,
2014 WL 2180001, at *3. The ICA affirmed the circuit court on
the basis that Yim’s failure to disclose did not amount to
evident partiality because 1) his relationship with Cades was
prospective in nature, and 2) the anticipated relationship would
have been minimal and indirect. Id. at *3-4.
At the outset, we address the circuit court and the
ICA’s conclusion in relation to the disclosure requirements in
HRS § 658A-12. In this respect, both the circuit court and the
ICA specifically referred to HRS § 658A-12(a)(2), which provides
an example of information that must be disclosed under HRS
§ 658A-12(a), namely, “[a]n existing or past relationship with
any of the parties . . . , their counsel or representatives, a
witness, or another arbitrator.” However, notwithstanding
whether the nondisclosure at issue here falls under the
definition of HRS § 658A-12(a)(2), the nondisclosure may still
result in a violation of the more general disclosure requirement
in both HRS § 658A-12(a) and (b) of facts that “a reasonable
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person would consider likely to affect the impartiality of the
arbitrator.”18
Thus, even if the relationship at issue is a
prospective or future relationship, a failure to disclose may
result in a reasonable impression of partiality, and
accordingly, a violation of HRS § 658A-12(a) or (b). Here, the
fact that the relationship between Cades was—to a certain
extent—prospective in nature is not determinative, particularly
given the broad view of the reasonable impression of partiality
standard employed in the relevant case law. For example, in
Valrose, the United States District Court for the District of
Hawaii vacated an arbitration award in a construction dispute
where the arbitrator and one of the party’s counsel had an ex
parte discussion regarding the possibility of the arbitrator
serving as the mediator in an unrelated malpractice case. 105
F. Supp. 2d at 1120, 1125. The discussion occurred during the
pendency of the arbitration proceedings, and the arbitrator was
appointed to mediate the malpractice case while the arbitration
18
In Nordic, although we determined that “counsel” under HRS
§ 658A-12(a)(2) “does not include all attorneys in the law firm of an
attorney representing a party to an arbitration,” we noted that HRS
§ 658A-12(a) “requires that an arbitrator disclose facts that a reasonable
person would consider likely to affect the arbitrator’s impartiality.” 136
Hawaiʻi at 47-48, 358 P.3d at 19-20. “Depending on the circumstances, such
facts could include an arbitrator’s relationships with other attorneys within
a law firm of counsel representing a party to the arbitration.” Id. at 48,
358 P.3d at 20.
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was pending, but the arbitrator failed to disclose the
discussion. Id. The only evidence in the record of work on the
malpractice case that occurred during the pendency of the
construction arbitration, however, was one conversation between
the arbitrator and the attorneys in the malpractice case. Id.
at 1123. The court acknowledged that there was no evidence that
party counsel acted with “improper motive” or was attempting to
bias the arbitrator, but nonetheless concluded that “the
nondisclosure of the discussion and appointment . . . was
clearly a serious failing” resulting in a reasonable impression
of partiality and requiring vacatur. Id. at 1123-24.
Similarly, in New Regency Prods., Inc. v. Nippon
Herald Films, Inc., the Ninth Circuit affirmed a decision to
vacate an arbitration award based on the undisclosed fact that
the arbitrator was a senior executive of a film company that was
in negotiations with an executive of one of the parties to co-
produce a movie. 501 F.3d 1101, 1103 (9th Cir. 2007). The
arbitrator started his employment with Yari Film Group in mid-
July 2004, during the pendency of the arbitration, and in late
July 2004 it was reported that Yari Film Group was in
negotiations to finance a film that would be produced by a
production executive at New Regency, one of the parties to the
arbitration. Id. at 1107. Rather than focusing on the finality
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of the deal between Yari Film Group and New Regency, the court
emphasized the fact that the negotiations occurred during the
arbitration. Id. at 1110. Despite the lack of evidence that
the arbitrator had actual knowledge of the negotiations, the
court held that his failure to disclose demonstrated a
“reasonable impression of partiality . . . sufficient to support
vacatur.” Id. at 1111. Recently, in In re Sussex, based in
part on New Regency’s holding, the Ninth Circuit stated that
evident partiality could be demonstrated not only in cases where
there was a “direct financial connection[] between a party and
an arbitrator or its law firm” but also when there is a
“concrete possibility of such connections.” In re Sussex, 781
F.3d 1065, 1074 (9th Cir. 2015) (emphasis added) (citing
Schmitz, 20 F.3d at 1044, 1049; New Regency, 501 F.3d at 1103),
cert. denied sub nom. Turnberry/MGM Grand Towers, LLC, v.
Sussex, 136 S. Ct. 156 (2015).
The facts in the instant case are analogous to Valrose
and New Regency, and comport with the Ninth Circuit’s
explanation that a failure to disclose a “concrete possibility”
of a connection between an arbitrator and a party or party law
firm can result in a reasonable impression of partiality. In re
Sussex, 781 F.3d at 1074. Although it appears that Cades did
not begin to formally represent Yim during the arbitration, it
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is clear that PSC, serving as Yim’s agent, had discussions
during the pendency of the proceedings related to Cades’s
potential representation of Yim. Indeed, Cades completed a
conflict check for Yim in June 2011 after Yim’s appointment as
arbitrator. Cades actually received Yim’s files prior to the
issuance of the Partial Final Award, indicating that the
attorney-client relationship was—at the least—close to being
consummated. Additionally, Yim still planned on being
represented by Cades in February 2012, prior to the release of
his Final Award. In an email he sent to DPR the day prior to
the first supplemental disclosure, Yim indicated that he would
be billed directly by Cades for its work but would have minimal
direct interaction with the firm. Relatedly, per Yim’s first
supplemental disclosure, Yim anticipated “sign[ing] documents
drafted by Cades” and receiving invoices directly from Cades for
“compliance work done on his account.”
In sum, the timing of the undisclosed relationship
lends to our conclusion that the circuit court clearly erred in
determining that Yim’s failure to disclose did not result in
evident partiality, because the communications between PSC—
acting on Yim’s behalf—and Cades occurred during the pendency of
the arbitration, or otherwise stated, were not “distant in time,
but rather ongoing during the arbitration.” New Regency, 501
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F.3d at 1110. The operative facts demonstrate that—at the
least—there was a concrete possibility that an attorney-client
relationship would develop between the arbitrator and the law
firm of party counsel.
We are further persuaded that the circuit court’s
conclusion regarding evident partiality was erroneous, given the
substantive nature of the undisclosed relationship. In this
respect, we also disagree with the ICA’s conclusion that Yim’s
failure to disclose did not result in a reasonable impression of
partiality based on the indirectness and insignificance of his
relationship with Cades. The ICA noted that Yim did not plan on
having direct interaction with Cades other than paying legal
bills, and on this basis described the relationship as “arms-
length.” Madamba, SDO, 2014 WL 2180001, at *4 (internal
quotation marks omitted). However, the fact that PSC would have
acted as an intermediary between Yim and Cades is not
determinative. Indeed, had Cades ultimately completed the work
on Yim’s retirement accounts, Cades would have been acting as
Yim’s personal attorney, resulting not only in a business and
financial relationship, but also an attorney-client
relationship, which carries with it heightened import.
Other courts have found a failure to disclose
resulting in a reasonable impression of partiality based on more
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distant relationships than the one at issue here. In New
Regency, as discussed supra, the undisclosed relationship at
issue was between a film company at which the arbitrator had
been made a senior executive and an executive employed at New
Regency. 501 F.3d at 1103. The arbitrator had no direct role
in the negotiations between the two companies, and in fact, the
record lacked evidence that the arbitrator was even aware of the
potential relationship. Id. at 1107-08. Moreover, the New
Regency executive who communicated with the arbitrator’s film
company did not appear to be “directly representing New Regency
in the negotiations.” Id. at 1110-11. Nonetheless, the court
concluded the executive’s ties to New Regency were of sufficient
import to distinguish the relationship as more than attenuated.
Id. The court’s determination in this regard contributed to its
holding that the district court properly vacated the arbitration
award. Id.; see also Olson v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 51 F.3d 157, 159 (8th Cir. 1995) (holding that the
arbitrator’s failure to disclose his company’s business dealings
with one of the parties required vacatur although the arbitrator
was not “personally involved” in the relationship); Schmitz, 20
F.3d at 1044, 1049 (finding evident partiality where the
arbitrator’s law firm previously represented a parent company of
one of the parties); Houston Vill. Builders, Inc. v. Falbaum,
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105 S.W.3d 28, 34 (Tex. App. 2003) (stating that the
arbitrator’s “ongoing service as counsel” for a trade
association of which parties were members “might create a
reasonable impression of partiality toward” those parties).
Similarly, in Nordic, we cited favorably to a Texas
Supreme Court case in which the court—adopting the reasonable
impression of partiality standard—found evident partiality,
based on an arbitrator’s failure to disclose a more indirect
relationship than the one at issue here. 136 Hawaiʻi at 48-49,
358 P.3d at 20-21. In the Texas case, each party to the
arbitration at issue selected an arbitrator to serve as a party
arbitrator, i.e., a non-neutral arbitrator. Burlington N. R.R.
Co. v. TUCO Inc., 960 S.W.2d 629, 630 (Tex. 1997). The two
party arbitrators then selected the third arbitrator, meant to
“act as the only neutral decision maker.” Id. It was later
revealed that during the arbitration, the neutral arbitrator
accepted “a substantial referral from the law firm of [one of
the] non-neutral co-arbitrator[s].” Id. The arbitrator failed
to disclose his acceptance of the work during the arbitration.
Id. Despite arguments that the “relationship [was] too indirect
because [the law firm at issue] was neither a party in the
arbitration proceedings nor counsel for a party,” the court
determined “that a reasonable person could conclude that the
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referral might affect [the neutral arbitrator’s] impartiality”
and accordingly, “trigger[ed] the duty to disclose.” Id. at
638, 639. The court further noted, that although neither the
non-neutral arbitrator nor the attorney who made the referral
was aware of the other’s relationship with the neutral
arbitrator, “[a]n objective observer could still reasonably
believe that a person in [the neutral arbitrator’s] position,
grateful for the referral, may have been inclined to favor [the
law firm] as an entity,” and accordingly, may have been partial
toward the position of the co-arbitrator whose firm referred
him. Id. at 637.
Here, in contrast to Burlington, the law firm with
whom Yim had an undisclosed relationship—i.e., Cades—was
representing a party to the arbitration and accordingly,
functioned as an agent to one of the parties to the arbitration.
Cf. id. at 640 (Enoch, J., dissenting) (noting that the non-
neutral arbitrator “was chosen” by one of the parties but was
“not their agent”). Further, the nature of the undisclosed
relationship between Yim and Cades was more significant than the
relationship between the arbitrator in Burlington and the law
firm of his co-arbitrator. In Burlington, another attorney at
the co-arbitrator’s law firm had merely facilitated a meeting
between the neutral arbitrator and the potential client. Id. at
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631. Notably, although the referring attorney “attended the
meeting and briefed the other participants” on certain issues
regarding the litigation, “he had no authority to determine
whether [the neutral arbitrator] should be hired.” Id.
Further, there was no indication in Burlington that the law firm
would be involved in the litigation, beyond the initial
referral. In contrast, in the instant case, Yim failed to
disclose a relationship that could have resulted in the Romeros’
counsel’s law firm directly representing Yim in his personal
capacity. As previously noted, this would include signing
documents that Cades prepared and paying Cades directly for its
work.
In sum, based on this record, we conclude that the
circuit court clearly erred in its determination that Yim’s
failure to disclose did not result in evident partiality. We
recognize that whether a failure to disclose creates a
reasonable impression of partiality is a fact-driven question
requiring a close analysis of the circumstances at issue. Here,
the communications between PSC—acting as Yim’s agent—and Cades
were not distant in time, but instead were ongoing during the
arbitration. In terms of substance, the anticipated
relationship between Cades and Yim would have resulted in an
attorney-client relationship with Cades representing Yim in his
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personal capacity. Moreover, Yim’s relationship with Cades was
more than merely a prospective one, as Cades received the files
related to Yim’s retirement accounts during the pendency of the
arbitration. It is also significant that Yim did not begin to
disclose his relationship with Cades until after he issued the
Partial Final Award.
Yim’s failure to disclose his potential relationship
with Cades prior to accepting appointment resulted in a
violation of HRS § 658A-12(a) and his failure to disclose “facts
. . . [he] learn[ed] after accepting appointment” resulted in a
violation of HRS § 658A-12(b). If Yim had disclosed there was a
fifty percent chance Cades would be retained to review his
retirement accounts prior to the arbitration, it would have been
reasonable for a litigant in Madamba’s position to reject Yim as
an arbitrator. See Kay, 119 Hawaiʻi at 230, 194 P.3d at 1192
(“It would have been perfectly reasonable and rational for a
person in [the relevant party’s] position to have rejected an
arbitrator who had such connections—if disclosure had been
made.”); see also Schmitz, 20 F.3d at 1047 (“The parties can
choose their arbitrators intelligently only when facts showing
potential partiality are disclosed.”). Moreover, throughout the
arbitration proceedings, while Cades and PSC continued to work
towards finalizing the attorney-client relationship between
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Cades and Yim, Yim did not make any related disclosures. Under
these circumstances, we conclude that a reasonable impression of
partiality was established.
2) A Finding of Evident Partiality Requires Vacatur
As explained supra, the undisclosed facts demonstrated
a reasonable impression of partiality, and accordingly, resulted
in a violation of the HUAA’s disclosure requirements. Because
Yim was a neutral arbitrator, evident partiality was established
as a matter of law. See Nordic, 136 Hawaiʻi at 22, 358 P.3d at
50. Thus, the arbitration award must be vacated pursuant to HRS
§ 658A-23(a)(2)(A), which provides that the court “shall vacate
an award made in the arbitration proceeding” upon a motion by a
party to the proceeding if there was “[e]vident partiality by an
arbitrator appointed as a neutral arbitrator[.]” (Emphasis
added).
As noted supra, HRS § 658A-12(c) and (d) provide that
if an arbitrator fails to disclose a fact required under
subsections (a) or (b) of the statute, or if the arbitrator does
disclose such a fact but continues to serve as arbitrator—
following timely objection—the award “may” be vacated under HRS
§ 658A-23(a)(2). The function of the “may” language in the
statutes is to provide reference to the different circumstances
that require vacatur under HRS § 658A-23(a)(2), i.e., a neutral
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arbitrator’s evident partiality, and any arbitrator’s corruption
or misconduct. Supra note 14. For example, if a non-neutral
arbitrator fails to make a disclosure required under HRS § 658A-
12(a) or (b), although the award would not be vacated based on
evident partiality—as evident partiality only applies to neutral
arbitrators—it could be vacated based on the corruption and
misconduct provisions in HRS § 658A-23(a)(2).19
In Nordic, because we remanded the case to the circuit
court for an evidentiary hearing, we did not directly address
the effect of a finding of evident partiality on a motion to
vacate. However, we stated that the circuit court “has
discretion under HRS § 658A-12(d) to decide whether or not to
grant the motion to vacate.” Nordic, 136 Hawaiʻi at 53, 358 P.3d
at 25.20 We now clarify that pursuant to the plain language of
19
The HUAA is based on the Uniform Arbitration Act (UAA), drafted
by the National Conference of Commissioners on Uniform Laws in 2000. The
comment to section 12 of the UAA, which mirrors HRS § 658A-12 states as
follows: “A party-appointed, non-neutral arbitrator’s failure to disclose
would be covered under the corruption and misconduct provisions of Section
23(a)(2) because in most cases it is presumed that a party arbitrator is
intended to be partial to the side which appointed that person.” Unif.
Arbitration Act § 12 cmt. 4 (2000), available at
http://www.uniformlaws.org/shared/docs/arbitration/arbitration_final_00.pdf.
For a non-neutral arbitrator, the award would only be vacated if the
arbitrator “fails to disclose information that amounts to ‘corruption’ or to
‘misconduct prejudicing the rights of a party.’” Id. cmt. 5.
20
In Nordic, we noted that the commentary to UAA section 12
provides that “[c]ourts also are given wider latitude in deciding whether to
vacate an award under Section 12(c) and (d) that is permissive in nature (an
award ‘may’ be vacated) rather than Section 23(a) which is mandatory (a court
(continued . . .)
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HRS § 658A-23(a)(2), if a neutral arbitrator demonstrates
evident partiality, the arbitration award shall be vacated.21
B. Discovery Issues
Because we find that based on the record before us
Yim’s failure to disclose requires vacating the arbitration
award, we need not address the circuit court’s disposition of
Madamba’s request for additional discovery. However, we note
that the ICA’s determination that Madamba was not entitled to
take Yim and DPR staff depositions based on DPR’s claim of
immunity was incorrect. See Madamba, SDO, 2014 WL 2180001, at
*4. Pursuant to HRS § 658A-14(d)(2), an arbitrator or a
representative of an arbitration organization is immune from
( . . . continued)
‘shall’ vacate an award).” 136 Hawaiʻi at 53, 358 P.3d at 25 (alteration in
original) (footnote omitted) (quoting Unif. Arbitration Act § 12 cmt. 4).
However, the comment also notes that “[c]hallenges based upon a lack of
impartiality, including disclosed or undisclosed facts, interests, or
relationships are subject to the developing case law under Section 23(a)(2).”
Unif. Arbitration Act § 12 cmt. 4. Thus, the comment takes into account the
fact that jurisdictions have developed different views regarding what
constitutes evident partiality. As discussed supra, our standard for evident
partiality based on a failure to disclose is equivalent to the standard laid
out in HRS § 658A-12’s disclosure provisions. Accordingly, in this context,
once evident partiality is established, the arbitration award must be
vacated.
21
We note that in the instant case, there was no issue as to
whether Madamba waived his right to challenge Yim’s role as arbitrator. A
party’s right to challenge an arbitration award based on a failure to
disclose and evident partiality may be waived under certain circumstances.
See Nordic, 136 Hawaiʻi at 52-53, 358 P.3d at 24-25; Daiichi, 103 Hawaiʻi at
346-47, 82 P.3d at 432-33.
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testifying unless the testimony is related “[t]o a hearing on a
motion to vacate an award under section 658A-23(a)(1) or (2) if
the movant establishes prima facie that a ground for vacating
the award exits.” Here, Madamba met its burden in establishing
prima facie grounds to vacate the award, pursuant to the
preceding discussion. Accordingly, Yim and DPR personnel were
not immune from testifying.
III. Conclusion
For the foregoing reasons, we vacate the ICA’s June
20, 2014 judgments on appeal in CAAP-12-0000778 and CAAP-12-
000086822 and vacate the circuit court’s 1) August 27, 2012 Order
Granting Respondents/Cross Petitioners’ Application to Confirm
Final Award of Arbitrator; 2) August 27, 2012 Order Denying
Motion to Vacate Final Award of Arbitrator; 3) September 20,
2012 Judgment; 4) October 15, 2012 Order Granting
Respondents/Cross-Petitioners’ Motion for Attorneys’ Fees and
Costs; and 5) October 15, 2012 Judgment for Attorneys’ Fees and
Costs. We remand to the circuit court with instructions to
22
The ICA consolidated CAAP-12-0000868 with and under CAAP-12-
0000778. See Madamba, SDO, 2014 WL 2180001, at *1, n.2. We consolidated
SCWC-12-0000868 with and under SCWC-12-0000778 on September 29, 2014.
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vacate the arbitration award and for further proceedings
consistent with this opinion.
Samuel P. King, Jr. /s/ Mark E. Recktenwald
for petitioner
/s/ Paula A. Nakayama
Keith Y. Yamada and
Kirk M. Neste /s/ Sabrina S. McKenna
for respondent
/s/ Richard W. Pollack
/s/ Michael D. Wilson
46