Hawaii Supreme Court Finds Arbitration Clause Not Applicable Where Defendants Fail to Comply With Statutory Arbitration Notice Requirements and Claims Did Not Fall Within Scope of Arbitration Clause

The Supreme Court of Hawaii vacated the decisions of the intermediate appellate court and the circuit court, which found that the plaintiff's claims against her former law firm and law partner were subject to the arbitration clause in the partnership agreement, remanding the case to the circuit court for further proceedings consistent with its opinion.

In Yamamoto v. Chee, the plaintiff, a former law firm partner, brought an action against the law firm and another partner after they refused to return personal funds that the plaintiff had tendered to repay a retirement account loan, which had already been repaid from the plaintiff's partnership capital account. The circuit court granted the defendants' motion to compel arbitration. The plaintiff appealed, and the intermediate appellate court affirmed. The Supreme Court granted certiorari review.

On certiorari, the Supreme Court of Hawaii found that the intermediate appellate court erred when it concluded that (1) the plaintiff's claims were "in connection with" the partnership agreement; and (2) compliance with Hawaii Revised Statutes section 658A-9's notice requirements was not required to initiate arbitration.

First, the Supreme Court held that the plaintiff's conversion claims were not subject to the arbitration provision in the partnership agreement. The court noted that the partnership agreement by its own terms limited the scope of its provisions, including the arbitration clause, to "the conduct of the partnership business," which was "solely for the purpose of rendering legal services and services ancillary thereto." Because the "partnership business" was not to lend money or administer 401(k) plans, the arrangement fell outside the "partnership business." As such, the Supreme Court found that any claims arising from the arrangement did not comprise a dispute "in connection" with the partnership agreement and were therefore not subject to the arbitration clause.

Second, the Supreme Court held that the defendants' failure to comply strictly with the statutory arbitration notice requirements precluded granting the motion to compel. Relying on the guiding principles in Ueoka v. Szymanski, which mandate strict compliance with section 658A-9's notice requirements, the Supreme Court found that the requirements of section 658A-9 must be met before a party files a motion to compel arbitration under section 658A-7. The Supreme Court noted that at the time the defendants filed their motion to compel, no letter had been issued by certified mail, no return receipt had been obtained, and therefore any allegations in the motion that the plaintiff had refused to arbitrate were baseless as a matter of law because a party "cannot be found to have refused to arbitrate" until the formal requirements for initiating an arbitration are met.

Accordingly, the Supreme Court vacated the intermediate appellate court's judgment on appeal and the circuit court's order compelling arbitration, and remanded to the circuit court for further proceedings consistent with its opinion.

Yamamoto v. Chee, No. SCWC-16-0000260 (Haw. Mar. 2, 2020).