Kahala Beach Association of Apartment Owners v. Kamehameha Schools

NOT FOR PUBLICATION IN WEST'S HAWAII REPORTS OR THE PACIFIC REPORTER

Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
14-MAY-2024
12:08 PM
Dkt. 99 SO

NO. CAAP-XX-XXXXXXX

IN THE INTERMEDIATE COURT OF APPEALS

OF THE STATE OF HAWAI#I

KAHALA BEACH ASSOCIATION OF APARTMENT OWNERS,
Plaintiff/Lessee-Appellant,
v.
KAMEHAMEHA SCHOOLS,
Defendant/Lessor-Appellee

APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT
(S.P. NO. 18-1-0444)

SUMMARY DISPOSITION ORDER
(By: Hiraoka, Presiding Judge, and Wadsworth and Nakasone, JJ.)

This appeal stems from a dispute concerning an
arbitration award, which resolved a lease rent dispute between
Defendant/Lessor-Appellee Kamehameha Schools (KS), as lessor, and
Plaintiff/Lessee-Appellant The Kahala Beach Association of
Apartment Owners (KBA), as the representative of the lessees
under a set of apartment leases (Apartment Leases). KBA appeals
from the "Order Denying [KBA's] Motion To Vacate Arbitration
Award Filed December 4, 2018 and Confirming Award" (Order),
entered on February 22, 2019, in the Circuit Court of the First
Circuit (Circuit Court).1/ The Order confirmed a September 4,
2018 arbitration award (Award), under which three appraisers (the
Panel) appointed pursuant to the Apartment Leases determined "the
total rental value, as of July 16, 2017, of the land comprising
the site of the [Kahala Beach condominium p]roject . . . ."

1/
The Honorable Dean E. Ochiai presided.
NOT FOR PUBLICATION IN WEST'S HAWAII REPORTS OR THE PACIFIC REPORTER

On appeal, KBA contends that the Circuit Court erred
in: (1) failing to vacate the Award, where "the appraisers
plainly exceeded the limited authority delegated to them by the
[p]arties"; and (2) applying a deferential standard of review to
the Award, which "was predicated on matters outside of the
appraisers' scope of power[.]"
After reviewing the record on appeal and the relevant
legal authorities, and giving due consideration to the issues
raised and the arguments advanced by the parties, we resolve
KBA's contentions as follows, and affirm.
KBA contends that the Circuit Court should have vacated
the Award, because the Panel exceeded its powers as set forth in
the appraisal provision in the Apartment Leases (Appraisal
Provision). The Appraisal Provision states in relevant part:

A. Appraisal. Whenever this lease provides that the
total rental value of said land comprising the site of the
project shall be determined by appraisal for computation of
any rent hereunder, such rental value shall be equal to six
percent (6%) of the then market value for multifamily
residential purposes of said land, exclusive of all
improvements thereon, as shall be determined by three
impartial real estate appraisers . . . and the three
appraisers so appointed shall proceed to determine the
matters in question, and the decision of said appraisers or
a majority of them shall be final, conclusive and binding on
both parties hereto . . . .

KBA argues that the Panel's power under this provision was
"exceedingly limited" – that the Panel was to determine the value
of the land at issue, based on the parameters specified in the
Apartment Leases, including use restrictions and encumbrances,
and that when those parameters became an issue, it was for the
court and not the panel to decide "what" the Parties intended to
be valued.2/
KS, on the other hand, contends that the Panel did not
exceed its powers. KS argues that the dispute that arose over
the interpretation of the Appraisal Provision, i.e, whether the
Panel was to determine the "market value" of the "land"
encumbered (or unencumbered) by the Apartment Leases, fell within

2/
KBA further asserts that the Panel exceeded its powers by
determining "what" was to be valued, and in doing so ignored the encumbrances
that run with the land, including a four-story building limitation.

2
NOT FOR PUBLICATION IN WEST'S HAWAII REPORTS OR THE PACIFIC REPORTER

the scope of the parties' agreement to arbitrate. In making this
argument, KS relies primarily on two cases, Ching v. Hawaiian
Rests., Ltd., 50 Haw. 563, 445 P.2d 370 (1968), and Oahuan, Ltd.
v. Trs. of The Violet K. Maertens Tr. Estate, 4 Haw. App. 295,
666 P.2d 603 (App. 1983).
There is no dispute in this case that the Appraisal
Provision constitutes a valid agreement to arbitrate under
Hawai#i law, and that the Panel issued an arbitration award. See
Loyalty Dev. Co. v. Wholesale Motors, Inc., 61 Haw. 483, 487-88,
605 P.2d 925, 928 (1980); Ching, 50 Haw. at 565, 445 P.2d at 372.
The following standards of review apply where a party challenges
an arbitration award:

First, because of the legislative policy to encourage
arbitration and thereby discourage litigation, arbitrators
have broad discretion in resolving the dispute. Upon
submission of an issue, the arbitrator has authority to
determine the entire question, including the legal
construction of terms of a contract or lease, as well as the
disputed facts. In fact, where the parties agree to
arbitrate, they thereby 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.
Second, correlatively, judicial review of an arbitration
award is confined to the strictest possible limits. An
arbitration award may be vacated only on the four grounds
specified in [Hawaii Revised Statutes (HRS)] § 658–9 and
modified and corrected only on the three grounds specified
in HRS § 658–10. Moreover, the courts have no business
weighing the merits of the award.

Third, HRS §§ 658–9 and –10 also restrict the authority of
appellate courts to review judgments entered by circuit
courts confirming or vacating the arbitration awards.

Nordic PCL Const., Inc. v. LPIHGC, LLC, 136 Hawai#i 29, 41, 358
P.3d 1, 13 (2015) (quoting Daiichi Hawaii Real Estate Corp. v.
Lichter, 103 Hawai#i 325, 336, 82 P.3d 411, 422 (2003)).
Settled case law is dispositive here. In Ching,
appraisers were appointed to determine the fair market value of
leased premises in order to set annual rent. Id. at 564, 445
P.2d at 371. The lease provided that the appraisers' decision
would be "final, conclusive and binding on both parties[.]" Id.
at 564 n.1, 445 P.2d at 371 n.1. When the appraisers could not
agree, the lessee brought suit for a declaratory judgment
interpreting the words "fair market value." Id. at 565, 445 P.2d

3
NOT FOR PUBLICATION IN WEST'S HAWAII REPORTS OR THE PACIFIC REPORTER

at 371. The circuit court denied the lessor's request to require
arbitration of the dispute and "ruled that the words 'fair market
value' of the demised land as used in the lease meant fair market
value of the land at its highest and best use, unencumbered by
the lease." Id. On appeal, the Hawai#i Supreme Court held that
under the appraisal provision in the lease, "the parties . . .
intended to provide for and contemplated arbitration on the
question of rental when there was a disagreement." Id. at 566,
445 P.2d at 372. The court further held that "[t]hus, the trial
judge should have submitted the entire question of rental to
arbitration, including the interpretation of the term 'fair
market value.'" Id.
In Oahuan, this court applied the holding in Ching to a
dispute over the confirmation of an arbitration award setting the
lease rent payable by the lessee. See 4 Haw. App. at 302, 666
P.2d at 608. There, the lessors challenged the award, arguing in
part that the arbitrators "exceeded their powers" in disregarding
the words "excluding improvements" and "exclusive of
improvements" in the lease's appraisal provision. Id. at 299,
666 P.2d at 606. This court rejected that argument and held:

[O]nce the determination of the "fair and reasonable market
value" of the land "exclusive of improvements" was submitted
for arbitration, the entire question, including the
interpretation of the terms "exclusive of improvements" and
"excluding improvements," was to be determined by [the
arbitrators] . . . . The arbitrators in good faith did not
exceed or imperfectly execute their powers or make an award
upon a matter not submitted to them.

Id. at 302, 666 P.2d at 608 (1983) (citing Ching).
Similarly, here, the Appraisal Provision in the
Apartment Leases states that the rental value to be determined by
the appraisers "shall be equal to six percent (6%) of the then
market value for multifamily residential purposes of said land,
exclusive of improvements thereon . . . ." This determination
was submitted to the Panel. KBA now argues, in essence, that the
Panel was not empowered to interpret the terms of the Appraisal
Provision, and when it did so, it improperly "ignored" the
encumbrances that run with the land. "When an issue is submitted
[to arbitration], the entire question, including the legal

4
NOT FOR PUBLICATION IN WEST'S HAWAII REPORTS OR THE PACIFIC REPORTER

construction of terms in a contract or lease, is to be determined
by the arbitrator." Oahuan, 4 Haw. App. at 298, 666 P.2d at 606.
Based on the holdings in Ching and Oahuan, once the parties
submitted for arbitration the determination of the rental value
of the land as specified in the Appraisal Provision, the
interpretation of that provision's terms was within the Panel's
powers.
KBA argues that "Ching is not persuasive because it
does not address issues related to the scope of the appraiser's
power[,]" and "Oahuan is distinguishable because it is older and
was decided in a lower court than Koolau[ Radiology, Inc. v.
Queen's Med. Ctr., 73 Haw. 433, 834 P.2d 1294 (1992)] . . . "
These arguments are unavailing. In Ching, the supreme court
expressly held that "the trial judge should have submitted the
entire question of rental to arbitration, including the
interpretation of the term 'fair market value.'" 50 Haw. at 566,
445 P.2d at 372. Morever, Oahuan is still good law. It was not
overruled, criticized, or even mentioned in Koolau Radiology,
which held that an arbitration clause mandating the appointment
of a real estate appraiser to determine lease values did not
empower the appraiser to arbitrate a separate issue involving the
validity of an alleged oral agreement modifying the written
lease. 73 Haw. at 447, 834 P.2d at 1301. The scope of the
arbitration agreement in Koolau Radiology was at issue in a way
that it is not here.3/
Accordingly, we conclude that the Panel did not exceed
its powers under the Arbitration Provision, and thus its
authority within the meaning of HRS § 658A-23(a)(4), and the
Circuit Court did not err in denying KBA's December 4, 2018
motion to vacate the Award. We further conclude that the Circuit

3/
Brennan v. Stewarts' Pharmacies, Ltd., 59 Haw. 207, 579 P.2d 673
(1978), which KBA characterizes as "directly on-point," is also inapposite.
In Brennan, the parties submitted for arbitration the "limited question" of
the "fair monthly rental" of a shopping center space during the second ten-
year period of a 20-year lease. Id. at 222, 579 P.2d at 682. Given the
limited nature of the submitted question, the court held that the arbitrators
clearly exceeded their powers by construing the meaning of various provisions
in the lease agreement. Id. Here, in contrast, when the parties submitted
for arbitration the determination of the rental value of the land as specified
in the Appraisal Provision, the interpretation of that provision's terms was
within the Panel's powers under Ching and Oahuan.

5
NOT FOR PUBLICATION IN WEST'S HAWAII REPORTS OR THE PACIFIC REPORTER

Court did not err in reviewing the Award with deference. See
Tatibouet v. Ellsworth, 99 Hawai#i 226, 233, 54 P.3d 397, 404
(2002); Nordic PCL Const., 136 Hawai#i at 41, 358 P.3d at 13.
For the reasons discussed above, we affirm the "Order
Denying Plaintiff's Motion To Vacate Arbitration Award Filed
December 4, 2018 and Confirming Award," entered on February 22,
2019, in the Circuit Court of the First Circuit.

DATED: Honolulu, Hawai#i, May 14, 2024.

On the briefs:
/s/ Keith K. Hiraoka
Kenneth R. Kupchak and Presiding Judge
Veronica A. Nordyke
(Damon Key Leong Kupchak
Hastert) /s/ Clyde J. Wadsworth
for Plaintiff-Appellant Associate Judge

Dennis W. Chong Kee and
Nicholas M. McLean /s/ Karen T. Nakasone
(Cades Schutte LLP) Associate Judge
for Defendant-Appellee.

6