KRISHNA NARAYAN; SHERRIE NARAYAN; VIRENDRA NATH; NANCY MAKOWSKI; KEITH MACDONALD AS CO-TRUSTEE FOR THE DKM TRUST; SIMON YOO; SUMIYO SAKAGUCHI; SUSAN RENTON, AS TRUSTEE FOR THE RENTON FAMILY TRUST; STEPHEN XIANG PANG; FAYE WU LIU; MASSY MEHDIPOUR AS TRUSTEE FOR MASSY MEHDIPOUR TRUST; G. NICHOLAS SMITH; TRISTINE SMITH; RITZ 1303 RE, LLC, a Colorado Limited Liability Company; and BRADLEY CHAFFEE AS TRUSTEE OF THE CHARLES V. CHAFFEE BRC STOCK TRUST AND THE CLIFFORD W. CHAFFEE BRC STOCK TRUST, Petitioners/Plaintiffs-Appellees,
THE RITZ-CARLTON DEVELOPMENT COMPANY, INC.; THE RITZ-CARLTON MANAGEMENT COMPANY, LLC; JOHN ALBERT; EDGAR GUM, Respondents/Defendants-Appellants, and MARRIOTT INTERNATIONAL INC.; MAUI LAND & PINEAPPLE CO., INC.; EXCLUSIVE RESORTS, LLC; KAPALUA BAY, LLC; ASSOCIATION OF APARTMENT OWNERS OF KAPALUA BAY CONDOMINIUM; CAROLINE PETERS BELSOM; CATHY ROSS; ROBERT PARSONS; RYAN CHURCHILL; THE RITZ-CARLTON HOTEL COMPANY, L.L.C.; MARRIOTT VACATIONS WORDWIDE, CORPORATION; MARRIOTT OWNERSHIP RESORTS, INC.; MARRIOTT TWO FLAGS, LP; MH KAPALUA VENTURE, LLC; MLP KB PARTNER LLC; KAPALUA BAY HOLDINGS, LLC; ER KAPALUA INVESTORS FUND, LLC; ER KAPALUA INVESTORS FUND HOLDINGS, LLC; EXCLUSIVE RESORTS DEVELOPMENT COMPANY, LLC; and EXCLUSIVE RESORTS CLUB I HOLDINGS, LLC, Respondents/Defendants.
REMAND FROM THE UNITED STATES SUPREME COURT (CAAP-12-0000819;
CIV. NO. 12-1-058 6(3))
Terence J. O'Toole, Judith Ann Pavey, and Andrew J.
Lautenbach for petitioners.
T. Kobayashi, Jr., Lex R. Smith, Joseph A. Stewart, Maria Y.
Wang, and Aaron R. Mun for respondents The Ritz-Carlton
Development Company, Inc., The Ritz- Carlton Management
Company, LLC, John Albert and Edgar Gum and respondents
Marriott International, Inc., The Ritz-Carlton Hotel Company,
LLC, Marriott Two Flags, LP, Marriott Ownership Resorts,
Inc., MH Kapalua Venture, LLC, and Marriott Vacations
RECKTENWALD, C.J., NAKAYAMA, McKENNA, AND POLLACK, JJ., AND
CIRCUIT JUDGE NAKASONE, IN PLACE OF ACOBA, J.,
Narayan v. Ritz-Carlton Development Co., 135
Hawai'i 327, 350 P.3d 995 (2015) (Narayan I),
this court held that the Plaintiffs, a group of individual
condominium owners, could not be compelled to arbitrate
claims arising from the financial breakdown of a Maui
condominium project. In reaching this conclusion, this court
determined that the arbitration clause was unenforceable
because the Plaintiffs did not unambiguously assent to
arbitration and because the terms of arbitration were
January 11, 2016, the Supreme Court of the United States
(Supreme Court) vacated and remanded Narayan I to
this court for further consideration in light of its recent
decision in DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463
(2015) . In Imburgia, the Supreme Court determined
that state law must place arbitration agreements "on
equal footing with all other contracts." Id. at
471 (quoting Buckeye Check Cashing, Inc. v.
Cardegna, 546 U.S. 440, 443 (2006)).
recognizing this principle, we affirm our decision in
Narayan I, concluding that, under long-standing
Hawai'i contract law, the arbitration clause is
unconscionable. As such, we vacate the Intermediate Court of
Appeals' (ICA) October 28, 2013 judgment on appeal,
affirm the Circuit Court of the Second Circuit's (circuit
court) August 28, 2012 order denying the Defendants'
motion to compel arbitration, and remand the case to the
circuit court for further proceedings consistent with this
following facts are summarized from this court's
earlier opinion in Narayan I.
Krishna Narayan et al. (collectively, the Homeowners)
purchased ten condominium units from Kapalua Bay, LLC, a
joint venture owned by Marriot International, Inc., Exclusive
Resorts, Inc., and Maui Land & Pineapple Co., Inc.
(collectively, the Defendants). These units were part of a
Maui condominium development formerly known as the
Ritz-Carlton Club & Residences at Kapalua Bay (the
Homeowners entered into purchase agreements with the
Defendants when they purchased their condominiums. The
purchase agreements contain two clauses relating to dispute
resolution: a jury waiver clause and an attorneys' fee
clause. While these clauses do not mention a binding
agreement to arbitrate, the purchase agreement references
another document, the Declaration of Condominium Property
Regime of Kapalua Bay Condominium (declaration), which
includes an arbitration clause. The Defendants recorded the
declaration and the Association of Apartment Owners of
Kapalua Bay Condominium Bylaws (AOAO bylaws) in the State of
Hawai'i Bureau of Conveyances prior to the sale of the
individual condominium units to the Homeowners. Additionally,
the Defendants registered the Condominium Public Report
(public report) with the Hawai'i Real Estate Commission.
All of these documents are incorporated by reference through
the purchase agreement.
arbitration clause is found towards the end of the thirty-six
page condominium declaration and provides, in its entirety:
ALTERNATIVE DISPUTE RESOLUTION.
In the event of the occurrence of any controversy or claim
arising out of, or related to, this Declaration or to any
alleged construction or design defects pertaining to the
Common Elements or to the Improvements in the Project
("dispute"), if the dispute cannot be resolved by
negotiation, the parties to the dispute agree to submit the
dispute to mediation by a mediator mutually selected by the
parties. If the parties are unable to agree upon a mediator,
then the mediator shall be appointed by the American
Arbitration Association. In any event, the mediation shall
take place within thirty (30) days of the date that a party
gives the other party written notice of its desire to mediate
the dispute. If the dispute is not resolved through
mediation, the dispute shall be resolved by arbitration
pursuant to this Article and the then-current rules and
supervision of the American Arbitration Association. The
duties to mediate and arbitrate hereunder shall extend to any
officer, employee, shareholder, principal, partner, agent
trustee-in-bankruptcy, affiliate, subsidiary, third-party
beneficiary, or guarantor of all parties making or defending
any claim which would otherwise be subject to this Article.
The arbitration shall be held in Honolulu, Hawaii before a
single arbitrator who is knowledgeable in the subject matter
at issue. The arbitrator's decision and award shall be
final and binding and may be entered in any court having
jurisdiction thereof. The arbitrator shall not have the
power to award punitive, exemplary, or consequential damages,
or any damages excluded by, or in excess of, any damage
limitations expressed in this Declaration or any other
agreement between the parties. In order to prevent
irreparable harm, the arbitrator may grant temporary or
permanent injunctive or other equitable relief for the
protection of property rights.
Issues of arbitrability shall be determined in accordance
with the federal substantive and procedural laws relating to
arbitration; all other aspects of the dispute shall be
interpreted in accordance with, and the arbitrator shall
apply and be bound to follow, the substantive laws of the
State of Hawaii. Each party shall bear its own attorneys'
fees associated with negotiation, mediation, and arbitration,
and other costs and expenses shall be borne as provided by
the rules of the American Arbitration Association.
If court proceedings to stay litigation or compel arbitration
are necessary, the party who unsuccessfully opposed such
proceedings shall pay all associated costs, expenses, and
attorneys' fees which are reasonably incurred by the
The arbitrator may order the parties to exchange copies
of nonrebuttable exhibits and copies of witness lists in
advance of the arbitration hearing. However, the arbitrator
shall have no other power to order discovery or depositions
unless and then only to the extent that all parties otherwise
agree in writing.
Neither a party, witness, or the arbitrator may disclose
the facts of the underlying dispute or the contents or
results of any negotiations, mediation, or arbitration
hereunder without prior written consent of all parties,
unless and then only to the extent required to enforce or
challenge the negotiated agreement or the arbitration award,
as required by law, or as necessary for financial and tax
reports and audits.
No party may bring a claim or action, regardless of form,
arising out of or related to this Declaration or to any
construction or design defects claims pertaining to the
Common Elements or to the Improvements of the Project,
including any claim of fraud, misrepresentation, or
fraudulent inducement, more than one year after the cause of
action accrues, unless the injured party cannot reasonably
discover the basic facts supporting the claim within one
Notwithstanding anything to the contrary in this Article, in
the event of alleged violation of a party's property or
equitable rights, including, but not limited to, unauthorized
disclosure of confidential information, that party may seek
temporary injunctive relief from any court of competent
jurisdiction pending appointment of an arbitrator. The party
requesting such relief shall simultaneously file a demand for
mediation and arbitration of the dispute, and shall request
the American Arbitration Association to proceed under its
rules for expedited procedures. In no event shall any such
court-ordered temporary injunctive relief continue for more
than thirty (30) days.
If any part of this Article is held to be unenforceable, it
shall be severed and shall not affect either the duties to
mediate and arbitrate hereunder or any other part of this
added.) Significantly, the underlined portions above indicate
that the arbitration clause includes a limit on damages, a
limit on discovery, and a confidentiality provision.
April of 2012, the Homeowners learned that the Defendants had
defaulted on loans encumbering the project and that, as a
result, the Defendants could not pay maintenance and operator
fees to Marriott's management subsidiaries. The
Defendants eventually defaulted on the AOAO assessments,
abandoned the project, and revoked the Ritz-Carlton branding.
Marriott or one of its subsidiaries withdrew approximately
$1, 300, 000.00 from the AOAO operating fund and threatened
to withdraw the remaining $200, 000.00 from the fund. The
AOAO board members, many of whom were employed by Marriott,
Ritz-Carlton, and/or other interested entities, did not
attempt to block Marriott from taking these actions but
instead indicated that the multi-million dollar shortfall
would have to be covered by the Homeowners.
7, 2012, the Homeowners filed suit in the circuit
court asserting claims for breach of fiduciary
duty, access to books and records, and injunctive/declaratory
relief. The circuit court denied the Defendants' motion
to compel arbitration, which the Defendants appealed. The ICA
concluded that the parties had entered into a valid agreement
to arbitrate, that the dispute fell within the scope of that
agreement, and that the agreement was not procedurally
unconscionable. Thus, the ICA held that the Defendants could
compel the Homeowners to arbitration.
3, 2015, this court issued an opinion in Narayan I,
vacating the ICA's judgment on appeal, affirming the
circuit court's order denying the Defendants' motion
to compel arbitration, and remanding the case to the circuit
court for further proceedings consistent with the opinion.
135 Hawai'i at 339-40, 350 P.3d at 1007-08. This court
held that the Homeowners could not be compelled to arbitrate
for two reasons. First, this court determined that "the
arbitration provision contained in the condominium
declaration is unenforceable because the terms of the various
condominium documents are ambiguous with respect to the
Homeowners' intent to arbitrate." Id. at
335, 350 P.3d at 1003. Second, this court determined that
portions of the arbitration clause were unconscionable.
Id. at 336-39, 350 P.3d at 1004-07.
court subsequently issued summary disposition orders in line
with its opinion for two related cases, Nath v.
Ritz-Carlton Hotel Co., No. SCAP-13-2732 (Haw. June 30,
2015)(SDO), and Narayan v. Marriott International,
Inc., No. SCAP-13-3607 (Haw. June 30, 2015)(SDO),
(collectively, the Narayan cases).
Defendants filed petitions for writ of certiorari for the
Narayan cases and, on January 11, 2016, the Supreme
Court entered orders granting the petitions and vacating and
remanding the Narayan cases: "The judgment is
vacated, and the case is remanded to the Supreme Court of
Hawaii for further consideration in light of DIRECTV,
Inc. v. Imburgia, [136 S.Ct. 463] (2015)."
remand, both parties filed supplemental briefs addressing the
impact of Imburgia on the Narayan cases.