IN THE MATTER OF THE ARBITRATION BETWEEN HAWAII STATE TEACHERS ASSOCIATION, Union-Appellant,
STATE OF HAWAI'I, DEPARTMENT OF EDUCATION, Employer-Appellee, (GRIEVANCE OF KATHLEEN MORITA) (2008-045)
APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (S.P. NO. 10-1-0165 (GWBC))
Herbert R. Takahashi Rebecca L. Covert Davina W. Lam (Takahashi and Covert) for Union-Appellant
Robert T. Nakatsuji Deputy Solicitor General Department of the Attorney General for Employer-Appellee
FUJISE, PRESIDING JUDGE, LEONARD and REIFURTH, JJ.
Union-Appellant Hawaii State Teachers Association (HSTA) appeals from the February 24, 2011 Final Judgment entered by the Circuit Court of the First Circuit (Circuit Court),  and challenges the following Circuit Court orders: (1) Order Granting Employer's Motion to Vacate in Part Award Dated May 7, 2010, which was filed January 4, 2011; (2) Order Denying HSTA's Motion for Reconsideration of Employer's Motion to Vacate in Part Award Dated May 7, 2010, which was filed January 4, 2011; and (3) Order Granting HSTA's Motion to Alter and Amend Judgment Entered October 1, 2010 or in the Alternative to Confirm Supplemental Arbitration Award Clarifying Award Of May 7, 2010, Filed October 11, 2010, which was filed on January 31, 2011.
HSTA primarily contends that the Circuit Court erred when it vacated, in part, an arbitrator's award that interpreted a Collective Bargaining Agreement provision to allow interest on back pay in order to make the grievant whole. We agree. Neither sovereign immunity nor the statutory prohibition against the award of pre-judgment interest against the State are implicated here. Public policy does not bar the arbitrator's award. An arbitrator's error in construing an agreement or misinterpreting applicable law is not sufficient ground for overturning an arbitration award, even assuming such errors were made. Before reaching these issues, however, this court must first address the complex procedural posture of this appeal.
I. RELEVANT BACKGROUND FACTS
A. The Arbitration Proceedings
HSTA participated in an arbitration with the State of Hawai'i, Department of Education (State or Employer) with respect to the State's termination of a union member and public school teacher, Kathleen Morita (Morita). Morita was a public school teacher at Hauula Elementary School, and a member of HSTA. Based on a custodian's report of the smell of "pot" in her classroom and the presence of what appeared to the custodian (based on its shape and cap cover) to be wine inside a paper bag, Morita was allegedly smoking marijuana, and in possession of alcohol in her classroom, on September 12, 2007. Over a period of several months, the incident was investigated, and the State terminated Morita from her teaching position on July 18, 2008, effective July 31, 2008.
Pursuant to the applicable Collective Bargaining Agreement, and in accordance with Hawaii Revised Statutes (HRS) § 89-10.8 (2012), Morita's grievance was submitted to binding arbitration before Arbitrator Walter Ikeda (Arbitrator), who rendered a Decision and Award on May 7, 2010 (Award). In the Award, the Arbitrator sustained Morita's grievance, determining that the State lacked just cause to terminate Morita. The Arbitrator ordered that Morita be reinstated, and that she should be restored her service time for benefits, and awarded her back pay "with interest at the rate of ten (10) percent per annum on any unpaid amounts that are due and owing." The Award did not specify an amount, as it was potentially subject to offsets for unemployment benefits, wages, and other payments received during the period of unemployment. The Award also stated that the Arbitrator would retain limited jurisdiction, for a period not to exceed six months from the date of the Award, to assure compliance with the Award.
On May 27, 2010, the State filed a motion to correct or modify the Award, requesting that the Arbitrator delete the interest on the back pay. The State's motion was denied on June 16, 2010.
On July 28, 2010, HSTA filed a motion requesting that the Arbitrator enter a final decision and award. On or about September 25, 2010, the Arbitrator entered a Compliance Order; Post Decision and Award of May 7, 2010 (Compliance Order). In the Compliance Order, the Arbitrator identified various filings in the Circuit Court (which are discussed below). He explained that, while HSTA had requested a final award and order with a fixed amount because the parties had been unable to agree to what normally would have been a ministerial mathematical calculation, he elected to treat it as a compliance matter pursuant to his continuing jurisdiction pursuant to the Award, the Collective Bargaining Agreement and HRS Chapter 658A. The Compliance Order specifically addressed several issues potentially affecting the amount of payment due to Morita, including the effect of unemployment insurance payments, wages from another job, health care deductibles, and the treatment of retirement benefits.
The other issue addressed by the Arbitrator in the Compliance Order was the issue of the Arbitrator's award of interest on any unpaid back pay, after the required offsets. The Arbitrator considered and rejected the State's argument, i.e., that the Arbitrator lacked authority to impose interest because it had not been agreed to in the Collective Bargaining Agreement. He stated his reasoning as follows:
[T]he Arbitrator believes that he is acting in conformity [with] the Collective Bargaining Agreement and the authority granted by HRS, Chapter 658A in the determination that any backpay award includes interest at the rate of 10 percent per annum. The purpose of an award of backpay including interest is to 'make whole' financially the Grievant had she not been terminated. Elkouri & Elkouri, How Arbitration Works, 6th Ed. 2003, p. 1224. Payment to the Grievant of wrongfully withheld pay without interest would not restore her whole as loss of use of funds for that period entailed either deprivation or additional costs to the Grievant if she had to borrow funds to replace lost wages while awaiting the results of her grievance.
Noting that the Employer indicated a possible appeal from at least the interest portion of the Award, the Compliance Order set forth the principal amount of the back pay (which was adjusted for setoffs) and detailed the methodology to be used for the calculation of the interest, from a date certain (August 1, 2008) until the back pay was paid.
B. The Circuit Court Proceedings
1. HSTA's Motion to Confirm the Arbitration Award
On May 18, 2010, HSTA filed a Motion to Confirm Arbitration Award, Entry of Judgment and Allowing Costs and Other Appropriate Relief (Motion to Confirm). The State filed a memorandum in opposition, challenging the awarded interest and opposing HSTA's request for attorneys' fees and costs. On October 1, 2010, the Circuit Court entered (1) an Order Granting in Part and Denying in Part Motion to Confirm Arbitration Award, Entry of Judgment and Allowing Costs and Other Appropriate Relief (Order Confirming Award) and (2) a Judgment in favor of HSTA and against the State (10/1/10 Judgment). In the Order Confirming Award, the Circuit Court confirmed the Award, and ordered that judgment be entered, but denied without prejudice HSTA's request for attorneys' fees and costs. The 10/1/10 Judgment included reference to HRS § 658A-25(a), and expressly stated that it resolved all claims by and against the parties, and that "[a]ny and all remaining claims, if any, are dismissed with prejudice."
2. The State's Challenges to the Award
Meanwhile, on what appears to be a parallel track in the same case, the State filed two motions pertaining to the Arbitration Award: (1) a July 9, 2010 Employer's Motion to Modify or Correct [the Award] (State's Motion to Modify Award); and (2) a July 26, 2010 Employer's Motion to Vacate in Part [the Award] (State's Motion to Vacate Award). Both motions sought relief from the Arbitrator's award of interest, but the State's Motion to Modify Award relied on HRS § 658A-24(a)(3),  whereas the State's Motion to Vacate Award relied on HRS § 658A-23(a) (4) .
Pursuant to an order entered on October 1, 2010, the State's Motion to Modify Award was denied on the grounds the motion impermissibly sought to affect the merits of the Award (Order Denying Modification of Award). On October 1, 2010, the Circuit Court also entered an order entitled "Order Denying Employer's Oral Motion for Leave to File Motion to Vacate Award Dated May 7, 2010, Filed Orally on July 15, 2010" (Order Denying Oral Motion).
The disposition of the State's Motion to Vacate Award was more complicated. In the first instance, an unfiled copy of the motion was delivered to HSTA's attorneys. The unfiled copy did not include a hearing date and therefore did not provide notice of a hearing on the motion. A hearing was held on September 13, 2010. No opposition was filed and no one appeared for HSTA at the September 13, 2010 hearing. At that hearing, the State entered its appearance and the Circuit Court orally granted the State's Motion to Vacate Award. The written order on the State's Motion to Vacate Award was not entered until January 4, 2011, and was entitled "Order Granting Employer's Motion to Vacate in Part Award Dated May 7, 2010" (Order Partially Vacating Award).
Prior to the entry of the Circuit Court's Order Partially Vacating Award, on October 7, 2010, HSTA filed a motion denominated as a "Motion for Reconsideration" of the State's Motion to Vacate Award, but which we will refer to as a motion for rehearing (HSTA's Motion for Rehearing). HSTA's Motion for Rehearing apprised the Circuit Court that HSTA had not been served with notice of the September 13, 2010 hearing, and addressed the merits of the State's Motion to Vacate Award. While the State agreed that, under the circumstances, a further hearing should be set, it argued that the relief setting aside the Arbitrator's award of interest was properly granted. On November 22, 2010, a hearing was held on HSTA's Motion for Rehearing and the matter was taken under advisement by the Circuit Court. On November 23, 2010, a minute order was entered denying HSTA's Motion for Rehearing. A written order denying HSTA's Motion for Rehearing was entered on January 4, 2011 (Order Denying HSTA's Motion for Rehearing).
3. HSTA's Motion to Amend the 10/1/10 Judgment
Meanwhile, shortly after the Circuit Court entered the Order Confirming Award and the 10/1/10 Judgment, back on what appears to be the first track, on October 11, 2010, HSTA filed a Motion to Alter and Amend Judgment Entered October 1, 2010 (HSTA's Motion to Amend 10/1/10 Judgment). In this motion, HSTA sought to amend the 10/1/10 Judgment to either include the specific amount of back pay reflected in the Arbitrator's Compliance Order or, in the alternative, to confirm Arbitrator's Compliance Order. On November 8, 2010, a hearing was held on HSTA's Motion to Amend 10/1/10 Judgment. At the November 8thhearing, the Circuit Court orally granted HSTA's Motion to Amend 10/1/10 Judgment. However, the written order reflecting this ruling, entitled Order Granting HSTA's Motion to Alter and Amend Judgment Entered October 1, 2010 or in the Alternative to Confirm Supplemental Arbitration Award Clarifying Award Of May 7, 2010, Filed October 11, 2010 (Order Granting HSTA's Motion to Amend 10/1/10 Judgment), was not entered until January 31, 2011.
4. The (Second) Final Judgment
On February 24, 2011, the Circuit Court entered a "Final Judgment" (2/24/11 Judgment), which entered judgment: (1) in favor of HSTA and against the State "on the reinstatement and back pay to grievant in conformity with the [Award]"; and (2) in favor of the State and against HSTA "on the 10% interest on the back pay in the [Award] and on HSTA's request for fees."
5. The Genesis of this Appeal
On February 1, 2011, HSTA filed a Notice of Appeal from the January 4, 2011 orders, i.e., the Order Partially Vacating the Award and the Order Denying HSTA's Motion for ...