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In re Arbitration Between Hawai'i State Teachers Association

Supreme Court of Hawaii

August 11, 2017

IN THE MATTER OF THE ARBITRATION BETWEEN HAWAI'I STATE TEACHERS ASSOCIATION, Respondent/Union-Appellant, and STATE OF HAWAI'I, DEPARTMENT OF EDUCATION, Petitioner/Employer-Appellee.

         CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-11-0000065; S.P. NO. 10-1-0165)

          Robert T. Nakatsuji for petitioner.

          Herbert R. Takahashi and Rebecca L. Covert for respondent.

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

          OPINION

          NAKAYAMA, J.

         I. INTRODUCTION

         At issue is whether the doctrine of sovereign immunity protects the State from an arbitrator's award of prejudgment interest. We hold that, under the facts of this case, it does not. Because judicial review of an arbitration award is confined to the strictest possible limits, and because the arbitrator in this case reasonably interpreted the arbitration agreement in fashioning the award, we hold that the arbitrator did not exceed his authority in awarding prejudgment interest against the State. We also hold that the award of attorneys' fees and costs on appeal was proper.

         Thus, we affirm the Intermediate Court of Appeals' (ICA) November 21, 2016 judgment on appeal, which 1) vacated in part the Circuit Court of the First Circuit's (circuit court) February 24, 2011 final judgment, 2) reversed the circuit court's January 4, 2011 orders, 3) affirmed the circuit court's January 31, 2011 order, and 4) granted Hawai'i State Teachers Association's (HSTA) request for fees and costs.

         II. BACKGROUND

         A. Arbitration Proceedings[1]

         On July 18, 2008, Kathleen Morita (Morita or grievant), a public school teacher, was terminated from her job for allegedly smoking marijuana and possessing alcohol while in her classroom at Hau'ula Elementary School. HSTA filed a grievance on Morita's behalf and an arbitration hearing was held pursuant to the collective bargaining agreement (the agreement) between HSTA and the Hawai'i State Department of Education (State or Employer).

         Article V of the agreement outlines the grievance procedure, which provides that a grievant may request arbitration. Article V.G.2.f provides the arbitrator with the authority to enter an award in favor of the grievant if the arbitrator finds that the Employer's actions were improper:

When the arbitrator finds that any disciplinary action was improper, the action may be set aside, reduced or otherwise modified by the arbitrator. The arbitrator may award back pay to compensate the teacher wholly or partially for any salary lost. Such back pay award shall be offset by all other compensation received by the grievant(s) including but not limited to unemployment compensation or wages.

         On May 7, 2010, the arbitrator issued a decision and award, which sustained the grievance because the State lacked just cause to terminate Morita. The arbitrator ordered that Morita be restored to her position at Hau'ula Elementary School and be given back wages "with interest at the rate of ten (10) percent per annum on any unpaid amounts that are due and owing." The arbitrator also noted that he would "retain limited jurisdiction for a period not to exceed 6 months from the date of this award to assure compliance with the award."

         On July 28, 2010, HSTA filed a motion for final decision and award requiring the State to pay Morita $30, 454.57 in backpay, plus ten percent interest until the amount was fully paid. In its memorandum in support of the motion, HSTA explained that there "has been no compliance with the remedial terms of the award . . . as to back pay by Employer" and requested that the arbitrator enter a final decision in order to settle any remaining disputes over the calculation of the award between the parties.

         On September 27, 2010, the arbitrator entered a compliance order. In it, the arbitrator noted that the State had filed a July 22, 2010 motion to strike or vacate the interest portion of the award with the circuit court and that this motion was still pending at the circuit court level.[2]

         As to the issues of backpay and interest (also labeled throughout the proceedings as prejudgment or backpay interest), the arbitrator offered the following explanation:

While the Union has requested a final award and order which fixes the amount of backpay and interest, the Arbitrator has elected to treat it as a compliance matter pursuant to his continuing jurisdiction because the May 7, 2010 decision and award was final except for what normally would have been ministerial mathematical calculation. As a general proposition, Arbitrators are authorized to proceed under the authority permitted by the collective bargaining agreement and the Uniform Arbitration Act, HRS, Chapter 658A. As previously indicated in the order of June 16, 2010, the Arbitrator believes that he is acting in conformity tithe [sic] 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. The doctrine of interest assessed by an arbitrator as compensation or penalty to prevent further damages is demonstrated by Morris Knudsen Company vs. Makahuena Corporation and Tea Pacific, Inc., 66 Haw. 663 (1983) and Sussell vs. Civil Service Commission of the City & County of Honolulu, 74 H, [sic] 599 (1993).

         As such, the arbitrator reaffirmed his May 7, 2010 determination that Morita was entitled to interest on unpaid backpay, but left the calculation to the parties:

The Grievant is entitled to a reimbursement of backpay of $25, 169.05 excluding interest for the period from August 1, 2008 to May 31, 2010. She is also entitled to interest on any unpaid backpay at the rate of 10 percent per annum. Since the Employer has indicated the possibility of appealing at least the interest portion of the award, no amount is set forth as to accrued interest. If the Employer does not contest the principal amount of the backpay, it should be paid forthwith as it may be the source of the repayment by the Grievant of retirement benefits received from the State of Hawaii Retirement System. The calculation of accrued interest is left to the parties using financial management software. The calculation should assume the deficit in backpay accrued monthly from August 1, 2008 by dividing the aggregate deficit in backpay for each year by the number of months that the unpaid deficit remained unpaid multiplied by the rate of 10 percent per annum until paid.

         B. Circuit Court Proceedings[3]

         On May 18, 2010, HSTA filed a motion to confirm the arbitration award, entry of judgment and allowing costs and other appropriate relief with the circuit court. The State filed a response, arguing that Morita was not entitled to the awarded interest and opposing HSTA's request for attorneys' fees and costs.

         Confusion appears to have arisen when the State filed two separate motions, which sought the same relief from the arbitrator's award of interest, but relied on different statutory grounds. The first, filed on July 9, 2010, [4] was the State's motion to modify or correct the arbitration award (motion to modify award), in which the State sought to modify the portion of the arbitrator's decision that awarded prejudgment interest on the backpay. This motion was brought pursuant to Hawai'i Revised Statutes (HRS) § 658A-24 (Supp. 2010).[5]

         HSTA's motion to confirm and the State's motion to modify the award were heard on July 15, 2010. At the hearing, the State also made an oral request to file a motion to vacate the award.

         The second of the State's written motions, filed on July 26, 2010, [6] wa``s the State's motion to vacate in part the arbitration award (motion to vacate award), in which the State sought to vacate the portion of the arbitrator's decision that awarded prejudgment interest on the backpay. This motion was brought pursuant to HRS § 658A-23 (Supp. 2010).[7] On September 13, 2010, a hearing was held on the State's motion to vacate award. The circuit court orally granted the motion and vacated the portion of the award that gave Morita prejudgment interest. Counsel for HSTA was not at the hearing. Both parties assert that there was a service error and that HSTA did not receive notice of the hearing date until after the hearing.

         On October 7, 2010, HSTA filed a motion for reconsideration of the State's motion to vacate award, arguing that HSTA did not receive notice of the hearing on the State's motion. A hearing on HSTA's motion for reconsideration was held on November 22, 2010. Both parties appeared and argued as to whether the doctrine of sovereign immunity applied when awarding prejudgement interest. At the close of the hearing, the circuit court took the matter under advisement. The following day, November 23, 2010, the circuit court entered a minute order denying HSTA's motion for reconsideration.

         Meanwhile, on October 1, 2010, the circuit court entered three orders and one judgment: 1) Order Denying Employer's Oral Motion For Leave to File Motion to Vacate Award Dated May 7, 2010, Filed Orally on July 15, 2010; 2) Order Denying Employer's Motion to Modify or Correct Award Dated May 7, 2010, Filed on July 18, 2010;[8] 3) Order Granting in Part and Denying in Part Motion to Confirm Arbitration Award, Entry of Judgment and Allowing Costs and Other Appropriate Relief Filed on May 18, 2010;[9] and 4) Judgment (October judgment).

         The October judgment reads in its entirety as follows:

Pursuant to the 1) order granting in part and denying in part motion to confirm arbitration award, entry of judgment and allowing costs and other appropriate relief filed on May 18, 2010, entered on OCT.- 1, 2010, 2) order denying Employer's motion to modify or correct award dated May 7, 2010, filed on July 18, 2010, entered on OCT.- 1, 2010, and 3) order denying Employer's motion for leave to file motion to vacate award dated May 7, 2010, filed orally on July 15, 2010, entered on OCT.- 1, 2010, Judgment is hereby entered in conformity with the arbitration award filed on May 18, 2010 in accordance with Section 658A-25(a), Hawaii Revised Statutes, in favor of the Hawaii State Teachers Association and against Employer, State of Hawaii, Department of Education.
This judgment is entered as to all claims raised by the parties, and it resolves all claims by and against the parties in the above-entitled case. No claims or parties remain. Any and all remaining claims, if any, are dismissed with prejudice.

(Formatting altered.)

         On October 11, 2010, HSTA filed a motion to alter and amend the circuit court's October judgment (motion to amend) so that the judgment would either include the specific amount of backpay reflected in the arbitrator's compliance order or to confirm the arbitrator's compliance order. At the November 8, 2010 hearing on HSTA's motion to amend, the circuit court orally granted HSTA's motion and ordered the State to pay Morita backpay in the amount of $25, 169.05. The court noted that HSTA's motion for reconsideration, which addressed the issue of the prejudgment interest, would be heard on November 22, 2010.

         On January 4, 2011, the circuit court entered two written orders: 1) granting the State's motion to vacate the award as to the prejudgment interest, and 2) denying HSTA's motion for reconsideration.

         On January 31, 2011, the circuit court entered its written order, 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." The order states:

It is hereby ordered, adjudged, and decreed that the 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, is hereby granted. The judgment will be amended to state the Employer shall pay the employee $25, 169.05.

(Formatting altered.) The order also addresses the issue of retirement benefits, and then concludes with a final paragraph that an amended judgment would be filed at a later time. The final paragraph, originally typed, states the following:

An amended judgment consistent with this order will not be filed until the Court has ruled on the other matters pending in the case, i.e., the HSTA's request for atto and costs and the HSTA's Motion for Reconsiderati rney of fees oyer's Motion to Vacate in Part Award Dated May 7, 2010, Filed July 26, 2010 which will be heard on November 22, 2010.

(Emphasis added.) The portion underlined above was subsequently crossed out and in its place is the following handwritten sentence: "An amended judgment consistent with this order shall be filed at an appropriate time."

         On February 24, 2011, the circuit court entered a final judgment, which reads as follows:

Pursuant to the 1) Order Granting In Part And Denying In Part Motion To Confirm Arbitration Award, Entry Of Judgment And Allowing Costs And Other Appropriate Relief Filed On May 18, 2010, entered on October 1, 2010, 2) Order Denying Employer's Motion To Modify Or Correct Award Dated May 7, 2010, Filed On July 18, 2010, entered on October 1, 2010, 3) Order Denying Employer's Motion For Leave To File Motion To Vacate Award Dated May 7, 2010, Filed Orally On July 15, 2010, entered on October 1, 2010, 4) Minute Order on Decision Regarding HSTA's Motion to Allow Attorney's Fees and Costs, filed January 3, 2011, 5) Order Denying HSTA's Motion For Reconsideration Of Employer's Motion To Vacate In Part Award Dated May 7, 2010, filed January 4, 2011, 6) Order Granting Employer's Motion To Vacate In Part Award Dated May 7, 2010, filed January 4, 2011, Final Judgment is hereby entered in accordance with Section 658A-25(a) Hawaii Revised Statutes, in favor of Hawaii State Teachers Association (HSTA) and against Employer, State of Hawai'i, Department of Education (DOE) on the reinstatement and back pay to the grievant in conformity with the arbitration award filed on May 18, 2010, and in favor of the DOE and against HSTA on the 10% interest on the back pay in the arbitration award and on HSTA's request for fees.
This final judgment is entered as to all claims raised by the parties, and it resolves all claims by and against the parties in the above-entitled case. No claims or parties remain.

(Emphasis added.)

         C. ICA Proceedings

         On appeal, HSTA argued that the circuit court exceeded its authority in vacating the interest portion of the arbitration award because the doctrine of sovereign immunity was not implicated in this case.[10]

         1. The ICA's 2013 Opinion

         On November 26, 2013, the ICA issued a published opinion in which it: 1) vacated the circuit court's February 24, 2011 final judgment; 2) reversed the circuit court's January 4, 2011 orders (order granting State's motion to vacate award, and the order denying HSTA's motion for reconsideration); and 3) dismissed HSTA's appeal of the circuit court's January 31, 2011 order granting HSTA's motion to alter and to amend the October 1, 2010 judgment. Haw. State Teachers Ass'n v. State Dep't of Educ, 131 Hawai'i 301, 312, 318 P.3d 591, 602 (App. 2013), vacated, CAAP-11-0000065, 2014 WL 4548491, at *1 (Haw. Ct. App. Sept. 15, 2014) (HSTA I).

         The ICA's opinion held, inter alia, that the circuit court erred when it vacated the portion of the arbitration award pertaining to interest, concluding that "[n]either sovereign immunity nor the statutory prohibition against the award of prejudgment interest against the State are implicated here." Id. at 302, 318 P.3d at 592.

         On September 15, 2014, the ICA entered an order vacating the opinion sua sponte, "[i]n light of the Hawai'i Supreme Court's Opinion in Association of Condominium Homeowners of Tropics at Waikele v. Sakuma, 131 Hawai'i 254, 319 P.3d 94 (December 17, 2013)." Haw. State Teachers Ass'n v. State Dep't of Educ, CAAP-11-0000065, 2014 WL 4548491, at *1 (Haw. Ct. App. Sept. 15, 2014). The order further stated that a "new opinion shall be filed." Id.

         2. The ICA's 2016 Opinion

         On September 30, 2016, the ICA issued an unpublished memorandum opinion. Haw. State Teachers Ass'n v. State Dep't of Educ, CAAP-11-0000065, 2016 WL 5719745, at *1 (Haw. Ct. App. Sept. 30, 2016) (HSTA II). This opinion, other than resolving the procedural issues raised by Sakuma, was substantially similar to its 2013 opinion in its analysis and disposition of the issues.

         Before reaching HSTA's points on appeal, the ICA first addressed two preliminary questions: 1) whether the ICA had appellate jurisdiction to review all of the issues on appeal, and 2) whether the circuit court had the authority to proceed to enter orders and a second judgment after it entered the October 1, 2010 judgment. Id. at *6.

         In addressing the first question, the ICA first concluded that the October judgment was "a final and appealable judgment" pursuant to HRS §§ 658A-25 and 658A-28. Id. Next, the ICA examined whether there was a timely appeal from the October judgment. Id. The ICA noted that neither party timely appealed the judgment, but that HSTA timely filed a post-judgment motion-its motion to amend the October judgment. Id. The ICA further explained that, under Hawai'i Rules of Appellate Procedure (HRAP) Rule 4(a)(3), the circuit court failed to enter an order within ninety days after the date that HSTA's motion to amend was filed. Id. at *6-7. In HSTA I, the ICA concluded that under HRAP Rule 4(a)(3), HSTA's motion to amend was deemed denied on January 10, 2011 and that the parties would have had thirty days from that date to timely file an appeal from the October judgment. Id. at *7. The following excerpt from HSTA II explains why this conclusion was incorrect:

However, in Sakuma, the majority opinion held that when a timely post-judgment motion for reconsideration is deemed denied, it does not trigger a thirty-day deadline for filing a notice of appeal until thirty days after the entry of an order disposing of the motion. . . . Thus, the HSTA's Motion to Amend 10/1/10 Judgment was not "deemed denied" on January 10, 2011 (as we previously had held), and the January 31, 2011 Order Granting HSTA's Motion to Amend 10/1/10 Judgment constitutes the effective disposition on this motion. Finally, the January 31, 2011 Order Granting HSTA's Motion to Amend 10/1/10 Judgment specifically states that: "An amended judgment consistent with this order shall be filed at an appropriate time." This judgment appears to be the 2/24/11 Judgment, which expressly enters judgment on six orders . . . [and] the HSTA timely filed a Notice of Appeal from the 2/24/11 Judgment.

Id. Thus, the ICA concluded that it had appellate jurisdiction over all of the issues raised in HSTA's appeal. Id.

         In addressing the second question, the ICA examined HRS Chapter 658A, which sets out the framework for judicial action of arbitration proceedings, and explained that the framework does not contemplate the convoluted procedural posture of this case:

HRS Chapter 658A does not contemplate a case like this one, where one party secures an order confirming an award, and the court enters final judgment on the confirmation order, while the other party later secures an order vacating in part the same award, without challenging the court's entry of final judgment on the confirmation award.
We cannot speculate as to why the Circuit Court entered the 10/1/10 Judgment notwithstanding the parallel requests for relief. We also cannot speculate as to why the State failed to seek relief from the 10/1/10 Judgment.
HRS § 658A-23 provides statutory authority for relief from an arbitration award, but not from a final judgment on an order confirming an arbitration award. In order to seek relief in the Circuit Court from a final judgment entered pursuant to HRS § 658A-25(a), such as the 10/1/10 Judgment, the State had to file a timely motion to alter or amend the judgment. It did not. Under these circumstances, we must conclude that the Circuit Court was no longer authorized to enter an irreconcilably inconsistent order based on the State's Motion to Vacate Award. See Wong, 79 Hawai'i at 29-30, 897 P.2d at 956-57. On this basis alone, we conclude that the Circuit Court erred when it entered the Order Partially Vacating Award and the Order Denying HSTA's Motion for Rehearing.

Id. at *8-9. As such, the ICA concluded that the circuit court did not have authority to enter subsequent orders or another judgment after the October judgment. Id. at *9.

         Despite arriving at this conclusion, the ICA went on to analyze the substantive claims raised on appeal. The ICA determined that, even if the circuit court could have vacated in part the award, the circuit court erred in doing so in this case because the State expressly waived sovereign immunity with respect to Morita's grievance. Id. The ICA explained that Morita's grievance was a contract claim pursuant to the collective bargaining agreement and that, as such, the State "waived its immunity with respect to the submission of the claim to binding arbitration." Id.

         The ICA examined the collective bargaining agreement, which provided that the "arbitrator may award back pay to compensate the teacher wholly or partially for any salary lost, " and determined that it was "clear from the record of the arbitration proceedings that the Arbitrator interpreted this contract provision to allow an award to include interest on back pay in order to 'wholly' compensate a teacher for lost salary." Id. The ICA concluded that the arbitrator did not exceed his powers in this regard and that "[e]ven if he incorrectly construed the agreement or misinterpreted applicable law, he acted within his power to interpret the agreement and fashion a remedy in accordance with his interpretation." Id. at *10 (citing Daiichi Haw. Real Estate Corp. v. Lichter, 103 Hawai'i 325, 336, 82 P.3d 411, 422 (2003)).

         Citing Kenneth H. Hughes, Inc. v. Aloha Tower Development, Corp., 654 F.Supp.2d 1142, 1149 (D. Haw. 2009), the ICA further concluded that neither the doctrine of sovereign immunity nor the statutory prohibition against awards of prejudgment interest against the State prevented the arbitrator from awarding interest against the State. Id. Therefore, the ICA held that the circuit court erred in vacating that part of the arbitrator's award. Id.

         As such, the ICA entered the following order:

For the foregoing reasons, we: (1) vacate in part the Circuit Court's February 24, 2011 Final Judgment; (2) reverse the Circuit Court's January 4, 2011 orders, the Order Granting Employer's Motion to Vacate in Part Award Dated May 7, 2010, and the Order Denying HSTA's Motion for Reconsideration of Employer's Motion to Vacate in Part Award Dated May 7, 2010; and (3) affirm the Circuit Court's January 31, 2011 Order Granting HSTA's Motion to Alter and to 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. This case is remanded to the Circuit Court for further proceedings consistent with this Memorandum Opinion.

Id. at *11.

         On October 12, 2016, the ICA entered an order granting in part and denying in part HSTA's request for attorneys' fees and costs filed on December 20, 2013. The ICA awarded HSTA fees in the amount of $13, 696.33 pursuant to HRS § 658A-25(c) and costs in the amount of $371.30 pursuant to HRS § 685A-25(b).[11]The ICA noted that HSTA "may submit a supplemental motion for costs within (5) days from the date of this order."

         On October 17, 2016, HSTA filed a supplemental motion for expenses, requesting an additional $24.08 for the costs of ordering a transcript of the November 8, 2010 proceeding. On November 9, 2016, the ICA granted HSTA's October 17, 2016 ...


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