Arbitration in Hawaii (Part 2)

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Hawaii Courts strongly encourage arbitration. In fact, Hawaii Courts favor arbitration to such an extent that if there are three parties to a contract (and one didn’t sign the agreement containing the arbitration clause) the Court will likely enforce the arbitration agreement (if the nonsignatory wants the agreement enforced).

That’s right, in certain circumstances nonsignatories to an agreement have standing to invoke an agreement’s arbitration clause. The Hawaii Supreme Court explained this principle in Luke v Gentry, Ltd., 105 Hawaii 241, 248 (Hawaii, 2004) as follows:

[W]e hold that a nonsignatory agent has standing to invoke an arbitration agreement if one of the following two conditions is met:

First, when the signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting its claims against the nonsignatory. Second, when the signatory to the contract containing a arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract.

Id. at 248.

Thus, if you have entered into an arbitration agreement in Hawaii, it appears that it will be enforceable by parties and non parties.

Moreover, if a Hawaii court holds that defendant has standing to invoke an arbitration clause, the court will stay the case pending the outcome of the arbitration. H.R.S. section 658A-7. Admittedly, the stay may be limited to the claim(s) subject to the arbitration that are severable. H.R.S. section 658A-7; Ueoka v Szymanski, 107 Hawaii 386, 396 (Hawaii, 2005). However, in order to promote judicial efficiency, the court will likely the remainder of the action (not just the claims subject to the arbitration) until the arbitrable issues are decided or the parties waive their right to arbitrate. Creative Telecommunications, Inc. v Breeden, 120 F.Supp.2d, 1225, 1242-43 (D.Haw., 1999)(“[I]f non-arbitrable issues depend on arbitrable issues, or if resolution of arbitrable issues would render the district court’s ruling on the non-arbitrable issues unnecessary, litigation on the non-arbitrable issues should be stayed pending arbitration.”).

For a discussion of our Arbitration and Mediation Practice, please click
here.