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Young Men's Christian Association of Honolulu v. Aloha Kai Development, LLC

United States District Court, D. Hawaii

June 5, 2018

YOUNG MEN'S CHRISTIAN ASSOCIATION OF HONOLULU, a Hawaii Nonprofit Corporation, Petitioner,
v.
ALOHA KAI DEVELOPMENT, LLC, a Hawaii Limited Liability Company, Respondent.

          ORDER GRANTING PETITIONER'S MOTION FOR ORDER CONFIRMING ARBITRATION AWARD AND DENYING RESPONDENT'S COUNTERMOTION TO VACATE OR CORRECT THE ARBITRATION AWARD

          Alan C. Kay Sr. United States District Judge.

         For the reasons discussed below, the Court GRANTS Petitioner's Motion for Order Confirming Arbitration Award and DENIES Respondent's Countermotion to Vacate or Correct the Arbitration Award.

         BACKGROUND[1]

         I. The Dispute

         On October 13, 2014, Petitioner Young Men's Christian Association of Honolulu (“YMCA”) and Respondent Aloha Kai Development, LLC (“AKD”)[2] entered into an Amended and Restated Purchase and Sale Agreement (the “Amended PSA”) to develop the property located at 401 Atkinson Drive, Honolulu, Hawaii 96814 (the “Property”).[3] Declaration of Nickolas A. Kacprowski (“Kacprowski Decl.”) Exhibit A, Findings of Fact, Conclusions of Law, and Order (the “Findings”) ¶ 3, ECF No. 1-2. The development was to include a new YMCA facility, the subdivision and sale of a portion of the Property, and construction of a high rise condominium project. Id. at 1.

         The Amended PSA set a closing date of sixty days after AKD obtained certain entitlements for the project. Id. ¶ 7. If a party became unable to perform its obligations on the closing date due to reasons beyond its control, that party had the right to extend the closing date for an additional period not to exceed thirty days. Id.

         The parties executed a First Amendment To Amended And Restated Purchase And Sale Agreement (the “First PSA Amendment”) in early 2016. Id. ¶ 9; YMCA Reply, Kacprowski Decl., Ex. D ¶ 3. Under the First PSA Amendment, the closing date was extended to April 30, 2016. Findings ¶ 9a. Among other provisions, the First PSA Amendment also directed that “[t]here shall be no further extensions of the Closing Date except as mutually agreed upon by the Parties in a signed written agreement.” Id. ¶ 9b. The First PSA Amendment further stated that “EIGHT HUNDRED THOUSAND AND NO/100 ($800, 000.00) of the Developer's Initial Deposit [of $1, 000, 000.00] deposited in to the Escrow Account has already been released by Escrow Holder to the YMCA, and that this amount is nonrefundable in all events, but shall be applied against the Purchase Price on the Closing Date.”[4] Id. ¶ 9c; see also YMCA Reply, Kacprowski Decl., Ex. D ¶ 3.

         On April 28, 2016, AKD emailed a letter to YMCA. Findings ¶ 11. The letter requested, among other things, that YMCA agree to various closing date extensions in exchange for the release of certain amounts from the original deposit held in escrow. Id. ¶ 11e. On April 29, 2016, YMCA emailed a letter response to AKD. Id. ¶ 12. YMCA's letter stated that it was willing to grant AKD's requested extension on two conditions: (1) the extensions were for the sole purpose of allowing more time for AKD to effect the transaction as set forth in an attached summary; and (2) AKD and YMCA would sign an amendment to the PSA documenting such extensions and providing for a mutual termination and release to become effective if AKD were unable to close on the extended closing date. Id. ¶ 12a. YMCA's letter further directed that, if its conditions were agreeable to AKD, AKD was to notify YMCA, which in turn would draft a Second PSA Amendment for the parties to execute. Id. ¶ 12b.

         The same day that AKD received YMCA's letter, it forwarded YMCA a Demand for Mediation, pursuant to section 18.1 of the Amended PSA. Id. ¶ 13. Further, AKD and YMCA never executed a written agreement extending the closing date beyond the April 30, 2016 closing date specified in the First PSA Amendment. Id. ¶ 14. The transaction did not close by April 30, 2016, and despite ongoing discussions between the parties regarding potential modifications to the Amended PSA, the parties never came to a written agreement to extend the closing date. Id. ¶¶ 15-16. On June 6, 2016, YMCA issued a Notice of Default on the Amended PSA. Id. ¶ 17.

         Later that month, the parties' principals met. Id. ¶ 18. AKD asserted at the eventual arbitration in this matter that the meeting of principals produced an agreement “on essential terms that both sides found agreeable” to close the transaction by August 15, 2016 “on what was essentially the current PSA.” Id. ¶ 18 (quoting YMCA Reply Ex. L at 22, ECF No. 10-11).

         As a result of the June meeting of principals, YMCA transmitted on July 6, 2016, a draft Second Amendment to the Amended PSA (the “Second PSA Amendment Draft”) for AKD's review. Id. ¶ 19. The Second PSA Amendment Draft provided, among other things, that: (1) closing had to occur by August 15, 2016; and (2) upon execution of a final version of the Second PSA Amendment Draft, the parties would concurrently sign and deliver into escrow a Termination and Release Agreement and Joint Escrow Instructions, and AKD would sign and deliver into escrow a Bill of Sale for the project documents for the new YMCA facility. Id. ¶¶ 19a, 19b. The Second PSA Amendment Draft further required that the final version and other documents should be signed and delivered to escrow by July 13, 2016. Id. ¶ 19e.

         On July 12, 2016, AKD provided its response to YMCA's Second PSA Amendment Draft. Id. ¶ 20. In its response, AKD made several requests for modifications or deletions of terms that YMCA had proposed in its draft. Id. ¶¶ 20a-f.

         YMCA responded by letter from its counsel on July 15, 2016, which forwarded a revised Second PSA Amendment Draft. Id. ¶ 21. The cover letter YMCA's counsel sent to AKD explained that “YMCA [management] ha[d] not yet reviewed these drafts. . . . [and counsel was] sending these drafts to [AKD] and the YMCA for simultaneous review and comment and, therefore, reserve[d] the right to make changes upon the YMCA's review of the same.” Id. ¶ 21b (certain alterations in original). AKD responded to YMCA's revised Second PSA Amendment Draft on July 26, 2016, with further requests for changes. E.g., ¶ 22b.

         On July 28, 2016, YMCA served AKD with a Notice of Termination, pursuant to section 11.1(d) of the Amended PSA. Id. ¶ 23. The Notice of Termination stated YMCA's view that the parties never agreed on a final version of the Second PSA Amendment Draft, and demanded at least $1 million in liquidated damages. Id. ¶¶ 23a-b.

         AKD responded to YMCA by letter on August 11, 2016. Id. ¶ 24. AKD's letter stated that: (1) all required documents and funds had been deposited into escrow; (2) a copy of the Second PSA Amendment Draft YMCA's counsel sent on July 15, 2016- signed only by AKD-was enclosed; (3) AKD had “fulfilled all requirements to close the transaction by August 15, 2016, except for the documents that are in the control and must be signed by YMCA”; and (4) YMCA should take action to affect the August 15, 2016 closing. Id. ¶¶ 24a-e. No. evidence was submitted in the arbitration in this matter that YMCA ever signed the version of the Second PSA Amendment Draft that AKD signed and submitted in its letter. Id. ¶ 26.

         II. The Arbitration

         On November 30, 2016, YMCA filed its Arbitration Demand. Id. ¶ 1. AKD filed its Answer to Arbitration Demand and Counterclaim on December 22, 2016. Id. ¶ 2. Neither party claimed that the arbitrator lacked jurisdiction over the matter or that the governing arbitration clause located in article XVIII of the Amended PSA was invalid. Kacprowski Decl. ¶ 6. Significantly, the arbitration clause states: “The Award rendered by the Arbitrator shall be final, and judgment may be entered upon it in accordance with [Hawaii's Uniform Arbitration Act (“HUAA”), HRS Chapter 658A].” Id. Ex C. at § 18.2(d).

         From December 4 to December 12, 2017, following wide-ranging discovery and motions practice, the parties participated in the arbitration. E.g., id. ¶¶ 7-10; Pet'r's Mot. for Order Confirming Arbitration Award (“YMCA Motion”) at 4-6.[5] On January 31, 2018, the arbitrator issued the Findings, which ruled in favor of YMCA and against AKD, and against AKD on its counterclaim. Findings at 23-24.

         In the Findings, the arbitrator found that the Amended PSA and First Amended PSA were valid and binding agreements between the parties. Id. ¶ 30. The arbitrator then found that YMCA properly terminated the Amended PSA and First Amended PSA, and AKD had no right to acquire the Property. Id. ¶¶ 32-34, 36, 40. The arbitrator further ruled that YMCA was entitled to damages of $1, 000, 000 and would receive the $200, 000 remaining in the project's escrow account as partial payment. Id. Significantly, the arbitrator determined that the $800, 000 of AKD's initial deposit that had been released to YMCA as memorialized in the First PSA Amendment was “payment/ consideration for the extension of the Closing Date, and [was] not [meant] as any offset to any future liquidated damages that might be awarded pursuant to Section 15.1 of the Amended PSA.” Id. ¶ 46c. The arbitrator opined that AKD confirmed this understanding in its closing brief during the arbitration. Id. ¶ 46d (citing YMCA Reply Ex. L at 57, ECF No. 10-11). Finally, the arbitrator ruled that YMCA was entitled to recover reasonable attorneys' fees, expenses, and costs, and instructed YMCA to file an affidavit and supporting documentation to substantiate its request for attorneys' fees, expenses, and costs. Id. at 24.

         Following the issuance of the Findings, on March 2, 2018, the arbitrator issued a Ruling on YMCA's Request for Fees and Costs, which incorporated the Findings by reference, and entered a Final Decision and Arbitration Award in favor of the YMCA in the amount of $1, 946, 579.17. Kacprowski Decl. Ex. B (the “Fee Award”) at 17.

         On March 7, 2018, YMCA filed its Motion for Order Confirming Arbitration Award with this Court. ECF No. 1. On May 1, 2018, AKD filed its opposition and countermotion to vacate or correct the arbitration award (“Opp.”), ECF No. 7, to which YMCA filed a reply and memorandum in opposition (“YMCA Reply”) on May 16, 2018, ECF No. 10. On May 23, 2018, AKD filed a reply memorandum in support of its countermotion (“AKD Reply”). ECF No. 12. The Court held a hearing on YMCA's motion and AKD's countermotion on May 30, 2018.

         APPLICABLE LAW

         YMCA states, and AKD does not challenge, that the Amended PSA makes Hawaii Revised Statutes (“HRS”) chapter 658A the applicable law in this matter. E.g., YMCA Motion at 7. Its argument relies on the language of the Amended PSA, which directs that “[a]ll arbitration proceedings shall be administered . . . in accordance with Hawaii's Uniform Arbitration Act (Hawaii Revised Statutes Chapter 658(A) (the ‘HUAA').” Amended PSA § 18.2(a). But this provision alone- which by its terms applies only to all “arbitration proceedings”-may be insufficient to nullify the Ninth Circuit's “strong default presumption that the [Federal Arbitration Act (the “FAA”)], not state law, supplies the rules” for confirmation of arbitration awards. Johnson v. Gruma Corp., 614 F.3d 1062, 1066-67 (9th Cir. 2010) (ellipsis and internal quotation marks omitted) (quoting Fid. Fed. Bank, FSB v. Durga Ma Corp., 386 F.3d 1306, 1311 (9th Cir. 2004)). As this Court has explained, that “presumption only can be overcome by clear intent to incorporate state law rules for arbitration” into the confirmation of arbitration awards. Metzler Contracting Co. LLC v. Stephens, 774 F.Supp.2d 1073, 1077 (D. Haw. 2011) (internal quotation marks omitted), aff'd, 479 Fed.Appx. 783 (9th Cir. 2012).

         In another provision, indeed, the Amended PSA appears to specify that state law governs the confirmation of arbitration awards. Specifically, section 18.2(d) of the Amended PSA states: “[t]he award rendered by the Arbitrator shall be final, and judgment may be entered upon it in accordance with the HUAA.” (Emphasis added). The Amended PSA thus contains the type of express limitation stating that the arbitration award may be confirmed under state law that this Court found lacking in Metzler Contracting Co. LLC, 774 F.Supp.2d at 1077. And, as YMCA points out, courts in this district sitting in diversity have previously applied state law to the confirmation of an arbitration award. E.g., Valrose Maui, Inc. v. Maclyn Morris, Inc., 105 F.Supp.2d 1118, 1122 & nn.5-6 (D. Haw. 2000). Under these circumstances, the Court finds that the HUAA governs the confirmation of YMCA's arbitration award.[6]

         STANDARD

         Under the HUAA, and given “the legislative policy to encourage arbitration and thereby discourage litigation, judicial review of an arbitration award is confined to ‘the strictest possible limits.'” Ventress v. Japan Airlines, 603 F.3d 676, 679 (9th Cir. 2010) (citing Gadd v. Kelley, 66 Haw. 431, 667 P.2d 251, 258 (Haw. 1983)). Accordingly, HRS § 658A requires courts to confirm arbitration awards unless an award is modified or corrected pursuant to § 658A-24, or vacated under limited circumstances pursuant to § 658A-23. Matter of Hawai'i State Teachers Ass'n, 140 Haw. 381, 391, 400 P.3d 582, 592 (Haw. 2017); In re Grievance Arbitration Between State Org. of Police Officers, 135 Haw. 456, 462, 353 P.3d 998, 1004 (Haw. 2015). One permissible ground for a court to vacate an award under the HUAA, for example, is where “[a]n arbitrator exceeded the arbitrator's powers.” HRS § 658A-23(a)(4). A permissible ground for an arbitration award to be modified or corrected is where “there was an evident mathematical miscalculation or an evident mistake in the description of the person, thing, or property referred to in the award.” Id. § 658A-24(a).

         However, “the scope of an arbitrator's authority is determined by the agreement of the parties, ” and an arbitrator is imbued with broad discretion in resolving a dispute. Kona Village Realty, Inc. v. Sunstone Realty Partners, XIV, LCC, 123 Haw. 476, 477, 236 P.3d 456, 457 (Haw. 2016). “[P]arties who arbitrate a dispute assume all the hazards of the arbitration process including the risk that the arbitrators may make mistakes in the application of law and in their findings of fact, ” thus “[w]here arbitration is made in good faith, parties are not permitted to prove that an arbitrators [sic] erred as to the law or the facts of the case.” Tatibouet v. Ellsworth, 99 Haw. 226, 233, 54 P.3d 397, 404 (Haw. 2002) (quoting Wayland Lum Constr. Inc. v. Kaneshige, 90 Haw. 417, 422, 978 P.2d 855, 860 (Haw. 1999)).[7] Moreover, a “court's job is not to second-guess the arbitrator's contract interpretation, but only to ensure that he is, in fact, interpreting the contract.” Ass'n of Flight Attendants, AFL-CIO v. Aloha Airlines, Inc., 158 F.Supp.2d 1200, 1205 (D. Haw. 2001) (citing Hawaii Teamsters and Allied Worker's Union, Local 996 v. United Parcel Service, 241 F.3d 1177 (9th Cir. 2001)). To that end, the Supreme Court of Hawaii has stated that “vacatur is not a proper remedy for an arbitrators' imperfect understanding of law.” Tatibouet, 99 Haw. at 236, 54 P.3d at 407.

         DISCUSSION

         The arbitrator found that the Amended PSA and First PSA Amendment were valid and binding contracts between YMCA and AKD, Findings ¶ 30, but that the Second PSA Amendment was not, id. ¶ 32. Because AKD did not close by the date specified in the First PSA Amendment, April 30, 2016, the arbitrator found that YMCA had the right to terminate the Amended PSA. Id. ¶ 36. Neither party disputes these findings, e.g., Opp. at 3, and the Court confirms them.

         After making these findings, the arbitrator awarded YMCA $1, 946, 579.17-an amount which includes liquidated damages and reasonable attorneys' fees and costs. Fee Award at 17. YMCA now moves for an order confirming the award under HRS § 658A-22, which provides:

After a party to an arbitration proceeding receives notice of an award, the party may make a motion to the court for an order confirming the award at which time the court shall issue a confirming order unless the award is modified or corrected pursuant to section 658A-20 or 658A-24 or is vacated pursuant to section 658A-23.

         AKD opposes the confirmation, arguing that the award should be vacated, modified, or corrected because the arbitrator: (1) exceeded his powers by “rewriting” the damages cap in the Amended PSA; and (2) awarded YMCA attorneys' fees in violation of the Amended PSA, the HUAA, and applicable law. E.g., Opp. at 1-2. The Court addresses these arguments in turn.

         I. Damages Cap

         AKD contends that the arbitrator exceeded his powers when he failed to limit YMCA's damages to the “the Deposit” as the Amended PSA requires. Opp. at 13; AKD Reply at 4-8. AKD accordingly requests that the Court either vacate or correct the arbitrator's award of $1, 000, 000 in liquidated damages to AKD. E.g., Opp. at 16.

         Two Amended PSA provisions govern the amount of damages to which YMCA is entitled upon AKD's default. First, section 15.1 of the Amended PSA provides YMCA's remedies upon default and states:

Notwithstanding any other provision contained in this Agreement, if the sale of the Tower Site is not consummated by reason of any default by the Developer under this Agreement, and provided that all conditions precedent to the Developer's obligations hereunder have been fully satisfied or waived in writing or are capable of being satisfied in conjunction with the Closing; and provided, further, that the YMCA is not in default hereunder, then the YMCA shall, as its sole and exclusive remedy, be entitled to retain the entire Deposit as the ...

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