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IN THE SUPREME COURT OF THE STATE OF HAWAI#I ---o0o--FRANK HAMADA; VERNON G. KOIKE, TRUSTEE FOR THE BENEFIT OF VLC, INC. MONEY PURCHASE PENSION PLAN and VLC, INC. PROFIT SHARING PLAN; KOICHI OHARA; PACIFIC CONSULTANTS, INC.; and HIROSHI SHIMADA, Petitioners-Appellees vs. JAY WESTCOTT; WAIKIKI BEACH ICE CREAM, INC.; and AKAHI HAWAII, INC., Respondents-Appellants (NO. 23125; S.P. NO. 99-0597) ----------------------------------------------------------------JAY WESTCOTT; WAIKIKI BEACH ICE CREAM, INC.; and AKAHI HAWAII, INC., Petitioners-Appellants vs. FRANK HAMADA; VERNON G. KOIKE, TRUSTEE FOR THE BENEFIT OF VLC, INC. MONEY PURCHASE PENSION PLAN and VLC, INC. PROFIT SHARING PLAN; KOICHI OHARA; PACIFIC CONSULTANTS, INC.; and HIROSHI SHIMADA, Respondents-Appellees (NO. 23124; S.P. NO. 99-0594)

NO. 23125 APPEALS FROM THE FIRST CIRCUIT COURT (S.P. NOS. 99-0597 & 99-0594) AUGUST 7, 2003 MOON, C.J., LEVINSON, NAKAYAMA, ACOBA, JJ., AND CIRCUIT JUDGE CRANDALL, ASSIGNED BY REASON OF VACANCY

*** FOR PUBLICATION *** OPINION OF THE COURT BY ACOBA, J. In the absence of an express authorization by statute, as is the case here, we hold that attorneys' fees and costs may not be awarded in an arbitration proceeding unless the governing arbitration agreement provides for such an award. The underlying

arbitration agreement lacked any provision authorizing an award of attorneys' fees and costs to the prevailing party. Accordingly, the January 4, 2000 order of the first circuit court (the court)1 which confirmed an arbitrator's award of attorneys' fees and costs must be reversed.

I. On July 31, 1996, Petitioners-Appellees Frank Hamada; Vernon Koike, Trustee for the Benefit of VLC, Inc. Money Purchase Pension Plan and VLC, Inc. Profit Sharing Plan; Koichi Ohara; Pacific Consultants, Inc.; and Hiroshi Shimada (collectively Appellees) entered into a stock purchase agreement (purchase agreement) with Respondent-Appellant Jay Westcott (Westcott) to acquire all capital stock in PJM Hawai#i, Inc. (PJM). The purchase agreement contained a provision indicating that "any dispute" under the agreement was to be submitted to arbitration.2 This arbitration provision did not contain any

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The Honorable Gail Nakatani presided over this case. The arbitration clause, provision 12.13, states in its entirety [a]ny dispute arising under this Agreement shall be (continued...)

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that

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*** FOR PUBLICATION *** reference to attorneys' fees. A separate provision within the

document stated that each party shall bear their own legal costs and expenses in the "consummation" of the contract.3 Only one

provision related to attorneys' fees, stating that each party shall "be fully liable for any and all damages, costs and expenses (including, but not limited to, reasonable counsel fees) sustained or incurred[,]" in the event of a willful breach of the purchase agreement prior to closing.4 It is undisputed that this

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(...continued) submitted by the parties to, and shall be settled by binding arbitration in Hawaii, pursuant to the rules then pertaining of the American Arbitration Association and judgment upon the arbitrator's award may be entered in any court having jurisdiction thereof. Provision 12.04 entitled "Allocation of Costs and Expenses," Except as otherwise specifically provided herein, all legal and other costs and expenses incurred in connection with the preparation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby shall be paid by the Sellers or the Purchasers, as the case may be, depending upon which party incurred such costs and expenses.

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states:

(Emphases added.) This provision obviously rebuts the position of Respondents-Appellants Westcott, Waikiki Beach Ice Cream Inc., and Aikahi Hawaii, Inc. (collectively, Appellants) that the purchase agreement grants the arbitrator authority to award attorneys' fees inasmuch as it indicates that the parties were to bear their own legal and other costs as to the consummation of the agreement, except in the event of an early termination.
4 Provision 11.02, relating to termination "at any time prior to the Closing[,]" states:

If this Agreement is terminated as permitted by Section 11.01, such termination shall be without liability of either party (or any shareholder, director, officer, employee, agent, consultant or representative of such party) to the other party to this Agreement; provided that if such termination shall result from the willful failure of a party to fulfill a condition to the performance of the obligations of the other party or to perform a covenant of this Agreement, such party shall be fully liable for any and all damages, costs and expenses (including, but not limited to, reasonable counsel fees) sustained or incurred by the other party or parties as a result of such failure or breach. (continued...)

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*** FOR PUBLICATION *** final provision is inapplicable to the instant case as there were no allegations of early termination or willful breach prior to closing. Westcott purchased the stock in PJM to obtain the rights to a store lease at the Royal Hawaiian Shopping Center. It was agreed that Westcott would absorb PJM into Akahi. On the

same day, a separate letter document entitled "Contingent Payment to Stockholders" was signed, wherein the parties agreed that Westcott would pay Appellees twenty-five percent of the net profit realized upon sale of the lease or any part of the lease. The letter document made no mention of attorneys' fees. On September 16, 1996, Akahi agreed to sell a portion of the lease to Bluebell Hawaii, Ltd. (Bluebell). On October 31,

1996, a separate agreement was entered into between Akahi and Bluebell, providing for additional monthly payments to be paid over an eight year period, which would total $1,080,000. A

dispute arose over whether the monthly payments agreed upon by Akahi and Bluebell were to be included in determining the twentyfive percent net profits that Westcott had agreed to pay Appellees in the separate "Contingent Payment to Stockholders" letter document. As stated by Appellants' counsel, it was uncertain as to whether the arbitration provision in the purchase agreement applied to the letter document which was the cause of the

(...continued) (Emphasis added.)

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*** FOR PUBLICATION *** dispute. However, all parties voluntarily agreed to submit the

dispute to arbitration and signed a new arbitration agreement dated November 19, 1998.5 This arbitration agreement stated that

"[t]he Parties agree that the decision and award of the Arbitrator shall be final, conclusive and binding upon the Parties and shall constitute a final resolution and determination of the issues submitted." Additionally, the new arbitration

agreement provided that "[t]his Agreement constitutes the entire and complete agreement of the Parties regarding the Arbitration hereby submitted, and shall not be modified, waived, nor amended without the express written consent of the Parties." The

arbitration agreement made no reference to attorneys' fees or costs. On June 25, 1999, a "stipulation of facts and issues" was submitted to the arbitrator. to attorneys' fees or costs. The stipulation did not refer

However, Appellees requested

attorneys fees' and costs in a pre-hearing statement and in the final arbitration brief. Because pre-hearing statements were

filed simultaneously, Appellants did not contest the issue until the arbitrator requested evidence of the number of attorney hours worked. At this point, Appellants contested the authority of the

arbitrator to award fees and costs.

5 The parties who signed the arbitration agreement, in the order of signature, were Vernon G. Koike, Pacific Consultants, Inc. (signed by its president, Stephen M. Yoshihara), Frank Hamada, Koichi Ohara, Hiroshi Shimada, Jay Westcott, Waikiki Beach Ice Cream, Inc. (signed by its president, Jay Westcott), and Akahi Hawaii, Inc. (signed by its president, Jay Westcott).

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*** FOR PUBLICATION *** On September 3, 1999, the arbitrator issued his decision, ruling that the monthly payments were to be included in determining "net profits" and that certain costs were deductible. Accordingly, the arbitrator awarded Appellees past damages of $208,800.29, prejudgment interest of $37,240.49, and future damages based on twenty-five percent of the monthly payments made. The arbitrator further ruled that Appellees were the

prevailing parties and retained jurisdiction until the issue of attorneys' fees and costs was resolved, and a final award entered. On October 14, 1999, after receiving briefs on the issue, the arbitrator awarded Appellees attorneys' fees of $106,495.79 and costs of $5,755.70. Appellees thereafter filed a

motion for an order to confirm the arbitration award, and Appellants filed a motion to modify the award by deleting the provision granting attorneys' fees and costs. On January 4,

2000, the court granted the motion to confirm the arbitration award and denied the motion to modify.

II. On appeal, Appellants contend that: (1) the parties

did not agree to arbitrate the issue of attorneys' fees;6 (2) a party cannot be required to arbitrate an issue outside the scope

Appellants concede that the arbitrator's decision should stand as to the substantive issues. On appeal, Appellants contest only the arbitrator's authority to award attorneys' fees.

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*** FOR PUBLICATION *** of the arbitration agreement; and (3) the court erred in confirming the arbitrator's award. that: Contrarily, Appellees argue

(1) because the language of the purchase agreement stated

that "any dispute" must be resolved in arbitration, the arbitrator had authority to award attorneys' fees; (2) the matter of attorneys fees was submitted to the arbitrator by way of a pre-hearing brief; (3) arbitrators have been allowed to award "prejudgment interest" without express authority; and (4) the arbitrator had the authority to award attorneys' fees and costs pursuant to Hawai#i Revised Statutes (HRS)

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