Hawaiian Supreme Court Strikes Down Arbitration Provision as Fundamentally Unfair

Plaintiffs in Nashimua v. Gentry Homes, Ltd., are a class of persons who believe that the defendant corporation built their homes without adequate high wind protection.  Gentry Homes, Ltd. (Gentry) moved to compel arbitration.  The arbitration provision at issue provided in relevant part:

The arbitration shall be conducted by Construction Arbitration Services, Inc., or such other reputable arbitration service that PWC shall select, at its sole discretion, at the time the request for arbitration is submitted.

By the time the case was filed, Construction Arbitration Services was no longer available, which left the choice of arbiter in Gentry’s sole discreation.  The issue before Hawaii’s Supreme Court was whether plaintiffs could claim that the provision was fundamentally unfair and therefore unenforceable or if they had to await the selection of an arbiter and then show actual bias.  

Following the Sixth Circuit’s approach, he Court held that plaintiffs need not wait: “‘Actual bias’ need not be proven in a pre-arbitration challenge to an arbitrator-selection provision, where . . . the mere fact of one party’s ‘exclusive control over the pool of potential arbitrators from which the arbitrator is selected’ renders the arbitrator-selection process fundamentally unfair.”  Applying the fundamental unfairness standard to the provision at issue, the Court found it fundamentally unfair.

The Circuit Court had orderd the parties to confer and agree upon an arbitral forum.  If they could not do so, the Circuit Court would select an appropriate arbitral forum.  The Supreme Court deemded this solution appropriate.