No. SCWC-13-0000137, Thursday, Sept. 4, 2014, 11:15 a.m.

THOMAS NISHIMURA, COLETTE NISHIMURA, individually and on Behalf of a Class of All Persons Similarly Situated, Petitioners/Plaintiffs-Appellees, vs. GENTRY HOMES, LTD., a Hawai?i Domestic Profit Corporation, Respondent/Defendant-Appellant and SIMPSON MANUFACTURING CO., INC., a Delaware Corporation; SIMPSON STRONG-TIE COMPANY, INC., a California Corporation; JOHN and JANE DOES 1-100, DOE PARTNERSHIPS 1-100; DOE CORPORATIONS 1-100; DOE GOVERNMENTAL AGENCIES 1-100; and DOE ASSOCIATIONS 1-100, Defendants.

The above-captioned case was set for argument on the merits at:

Supreme Court Courtroom
Ali`iolani Hale, 2nd Floor
417 South King Street
Honolulu, HI 96813

Attorneys for Petitioners: Melvin Y. Agena, Glenn K. Sato, and Graham B. Lippsmith

Attorneys for Respondent:  Ryan H. Engle, Sarah M. Love, and Summer L. Sylva

NOTE: Order accepting Application for Writ of Certiorari, filed 07/07/14.

COURT: MER, C.J.; PAN, SSM, RWP, & MDW, JJ.

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Brief Description:

In this case, Petitioners/Plaintiffs-Appellees Thomas and Colette Nishimura, individually and on behalf of a class of all persons similarly situated (collectively, “the Nishimuras”), filed a Complaint against Respondent/Defendant-Appellant Gentry Homes, Ltd. (“Gentry”), alleging that Gentry constructed the Nishimuras’ home without adequate high wind protection. Gentry moved to compel arbitration pursuant to the arbitration agreement contained in the Home Builder’s Limited Warranty (“HBLW”). The HBLW was administered by Professional Warranty Service Corporation (“PWC”). The arbitration agreement provided the following:

Any disputes between YOU [the homeowner] and US [Gentry], or parties acting on OUR [Gentry’s] behalf, including PWC, related to or arising from this LIMITED WARRANTY . . . will be resolved by binding arbitration. . . . .

The arbitration shall be conducted by Construction Arbitration Services, Inc., or such other reputable arbitration service that PWC shall select, at its sole discretion, at the time the request for arbitration is submitted.

The Nishimuras opposed the motion to compel arbitration, first pointing out that Construction Arbitration Services, Inc., was no longer conducting construction arbitrations. Therefore, under the terms of the arbitration agreement, PWC would then select a reputable arbitration service. The Nishimuras argued that PWC marketed its close relationship with an insurance company that was the parent of the insurer of another developer, Haseko Homes, which was also being sued for the same construction defect. Thus, the Nishimuras argued, PWC had a conflict of interest because it would likely align itself with Haseko Homes, and, therefore, with Gentry on the construction defect issue. The Nishimuras contended that the arbitrator-selection provision allowing PWC to unilaterally select the arbitrator would deprive them of a fair and effective forum in which to vindicate their claims. The circuit court granted Gentry’s motion to compel arbitration in part and denied it in part, striking and severing the arbitrator-selection provision after finding “a potential conflict of interest with [PWC] selecting the arbitration service as set forth under the [HBLW].” As a result, the circuit court ordered the parties to meet and confer to select a local arbitration service. The circuit court then denied Gentry’s motion for reconsideration, and Gentry appealed.

The ICA vacated the circuit court’s orders. The ICA first stated, “We decline to conclude that PWC’s potential conflict of interest constitutes bias rendering the arbitrator selection process under the [HBLW] so ‘fundamentally unfair’ as to be unenforceable.” Slip Opinion at 11. The ICA then stated, “In order to avoid enforcement of an allegedly unconscionable arbitration clause, [the Nishimuras] were required to present evidence of actual partiality or bias of the arbitration service designated by PWC or the neutral arbitrator selected.” Id. The ICA also stated, “Because [the Nishimuras] failed to prove that the arbitration selection process would necessarily result in actual partiality or bias, the circuit court should have confined judicial review to the fairness of the completed arbitration award, at which time 9 U.S.C. § 10 could provide for vacating the award upon a finding that the arbitrators acted with evident partiality.” Id. at 12.

On certiorari, the Nishimuras present the following question: “Did the ICA err by ruling that in a pre-arbitration challenge to a one-sided arbitration-selection clause, the challenging party must prove that the arbitrator-selection process would actually or necessarily result in a biased arbitrator or arbitrator service?”

This appeal presents an issue of first impression in this jurisdiction: Under what standard does a court analyze a pre-arbitration challenge to the arbitrator-selection process?