Opinion

Siopes v. Kaiser Foundation Health Plan, Inc..

130 Haw. 437
312 P.3d 869
2013 Haw. LEXIS 333
2013 WL 5376914

Court: Hawaii Supreme Court
Filed: Sep 26, 2013
Status: Published
On the bench: McKenna, Recktenwald, Nakayama, Acoba, Pollack, Mekenna
Cited by: 37 cases
Authority: More cited than 29.0%

explaining that in Leong, the “plaintiffs did not argue that an agreement to arbitrate was not formed due to a lack of mutual assent,” and therefore, “the Leong court did not analyze the issue of contract formation, including the element of mutual assent”

How later courts described this case

explaining that in Leong, the “plaintiffs did not argue that an agreement to arbitrate was not formed due to a lack of mutual assent,” and therefore, “the Leong court did not analyze the issue of contract formation, including the element of mutual assent”
“[C]ourts have recognized that well-established common law principles dictate that in an appropriate case a nonsignatory can enforce, or be bound by, an arbitration provision within a contract executed by other parties [including] incorporation by reference, assumption, agency, veil-piercing/alter ego, estoppel, and third-party beneficiary theories.” (internal quotation marks omitted)
“The existence of mutual assent or intent to accept is determined by an objective standard.”
“The general rule of contract law is that one who assents to a contract is bound by it and cannot complain that he has not read it or did not know what it contained.” (quotation marks and citation omitted)

Written by the judges who cited it.

The opinion

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Electronically Filed

Supreme Court

SCAP-12-0000361

26-SEP-2013

09:06 AM

IN THE SUPREME COURT OF THE STATE OF HAWAI#I

---o0o---

MICHAEL SIOPES and LACEY SIOPES,

Petitioners/Plaintiffs-Appellants,

vs.

KAISER FOUNDATION HEALTH PLAN, INC.; HAWAI#I PERMANENTE

MEDICAL GROUP, INC.; KAISER FOUNDATION HOSPITALS, INC.,

Respondents/Defendants-Appellees.

SCAP-12-0000361

APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT

(CAAP-12-0000361; CIV. NO. 11-1-2732-11)

September 26, 2013

RECKTENWALD, C.J., NAKAYAMA, ACOBA, AND POLLACK, JJ.,

WITH ACOBA, J., CONCURRING SEPARATELY, AND

MCKENNA, J., CONCURRING SEPARATELY

OPINION OF THE COURT BY POLLACK, J.

Petitioners Michael Siopes and Lacey Siopes

(collectively, “Siopeses”) appeal from the Circuit Court of the

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First Circuit’s (circuit court) March 5, 2012 orders granting the

Motion to Compel Arbitration (Motion to Compel Arbitration) and

the Motion to Stay Discovery and Other Pretrial Proceedings

Pending a Ruling on the Motion to Compel Arbitration (Motion to

Stay Discovery), filed by Respondents Kaiser Foundation Health

Plan, Inc., Hawai#i Permanente Medical Group, Inc., and Kaiser

Foundation Hospitals, Inc. (collectively, “Kaiser”).

For the reasons set forth herein, we hold that the

arbitration provision contained in the relevant contract is

unenforceable based on the lack of an underlying agreement

between Kaiser and Michael to arbitrate. Accordingly, Lacey is

also not bound to arbitrate her claims in this case. The circuit

court’s orders are vacated and the case is remanded for further

proceedings consistent with this opinion.

In 1998, Michael began working as a full-time teacher

at a public school on Maui. Michael was presented with options

for health insurance coverage through the Department of Education

and the Hawai#i State Teachers Association. The Hawai#i Employer-

Union Health Benefits Trust Fund (EUTF) “was established to

provide a single health benefits delivery system for State and

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county employees, retirees, and their dependents.”1 Awakuni v.

Awana, 115 Hawai#i 126, 129, 165 P.3d 1027, 1030 (2007). See

Hawai#i Revised Statutes (HRS) Chapter 87A.

On May 26, 2003, Michael signed a one-page enrollment

form entitled “EUTF Enrollment/Change Form for Active Employees”

(Enrollment Form), enrolling in a Kaiser health plan offered

through the EUTF.

In a section entitled “Premium Conversion Plan

Elections,” Michael selected a box providing:

ENROLL me in the Premium Conversion Plan (PCP) so that my

monthly contribution for my health insurance benefit plans

premiums will be paid using pre-tax payroll deducted monies,

to the extent permitted. I have read and understand the PCP

information provided in the instruction sheet.

(Emphasis added). The record does not include an instruction

sheet or any evidence that an instruction sheet was provided to

Michael.

Michael indicated that he was “Single” on the

Enrollment Form and did not provide any information in the

dependent coverage section of the form with respect to dependents

The EUTF replaced the Hawai#i Public Employees Health Fund on July

1, 2003. Awakuni, 115 Hawai#i at 130, 165 P.3d at 1031. The EUTF is

administered by a board of ten trustees, all appointed by the governor, five

of whom represent the employee-beneficiaries and five who represent the public

employers. HRS § 87A-5 (2012).

HRS § 87A-16 (2012) provides that “[t]he board shall establish the

health benefits plan or plans” and “may contract for health benefits plans or

provide health benefits through a noninsured schedule of benefits.” “Health

benefits plan” is defined to include “[a] group insurance contract or service

agreement that may include medical, hospital, surgical, prescribed drugs,

vision, and dental services, in which a carrier agrees to provide, pay for,

arrange for, or reimburse the cost of the services as determined by the

board[.]” HRS § 87A-1 (2012).

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to include in his selected plan. Lacey, who is presently married

to Michael, has never been a Kaiser member. She did not sign the

Enrollment Form.

At the bottom of the Enrollment Form, a signature box

provides that the enrollee, by signing the Enrollment Form, makes

the following certifications and affirmations2:

Certification: I certify that the information provided in

this application is true and complete. I agree to abide by

the terms and conditions of the benefit plans I selected. I

authorize my employer or finance officer to set my effective

dates of coverage and to make the pre-tax or after-tax

deductions, adjustments or cancellations from my salary,

wages, pension or other compensation for my monthly employee

contribution in accordance with applicable laws, rules or

regulations.

I affirm that any listed dependent child, aged 19 through

23, is attending a college, university or technical school

as a full-time student.

I affirm that I have non-EUTF plan benefits for each Dual

Coverage Plan I selected.

The Enrollment Form does not provide any other

description or identification of what is referred to as the

“terms and conditions of the benefit plans I selected”; nor does

the Enrollment Form provide that the “terms and conditions” are

stated in a separate document.

According to Kaiser, a 2003 Group Medical and Hospital

Service Agreement (Group Agreement) entered into between Kaiser

and the EUTF was applicable to Michael when he signed the

Enrollment Form. However, the 2003 Group Agreement was not

attached to the Enrollment Form or given to Michael prior to his

The affirmations appear to have no applicability to Michael.

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signing the Enrollment Form. There is also no indication in the

record that the agreement was subsequently provided to Michael.

Additionally, the Enrollment Form itself contains no reference by

name to a “Group Medical and Hospital Service Agreement” or to

any agreement between Kaiser and the EUTF. The form also does

not provide a space for the enrollee to acknowledge whether he or

she has read and understood the Group Agreement, including the

“terms and conditions” of the applicable benefit plan.

The 2003 Group Agreement that Kaiser states was

applicable does not contain a section specifically titled “Terms

and Conditions.” In addition, the Group Agreement does not

contain a signature line for a prospective or current Kaiser

member to acknowledge that it was read or received prior to or

after enrollment in the Kaiser plan.

Under a section entitled “Relations Among Parties

Affected by Service Agreement,” the Group Agreement provides that

Kaiser members “authorize” the EUTF “for purposes of entering

into this Service Agreement and for all other purposes in regards

to this Service Agreement,” although the provision does not

explain what is meant by “all other purposes.” Additionally,

this section provides that “[a]ny notice to Group by Health Plan

is deemed notice to the Members.”3

The section provides in its entirety:

B. Group as Agent for Members. By requesting and

accepting membership under the Group’s Service Agreement

(continued...)

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A section entitled “Miscellaneous Provisions” includes

a subsection titled “Service Agreement Binding on Members.” The

subsection provides: “By electing medical and hospital coverage

pursuant to this Service Agreement, or accepting benefits

hereunder, all Members legally capable of contracting, and the

legal representatives of all Members incapable of contracting,

agree to all terms, conditions and provisions of this Service

Agreement.”

Section 8 of the 2003 Group Agreement is entitled

“Appeal and Arbitration Procedures” and begins on page 10 of the

agreement. The arbitration section is titled and set forth in

the same font as all other provisions in the agreement and is not

otherwise distinguished from the other provisions. The

arbitration provision states that it governs all claims “arising

from an alleged violation of a legal duty incident to this

(...continued)

with Health Plan, Members authorize Group for purposes of

entering into this Service Agreement and for all other

purposes in regards to this Service Agreement.

Any notice to Group by Health Plan is deemed notice to

the Members.

The Group Agreement provides in a separate section that “Member” means “Any

Subscriber or Family Dependent.” “Group” is defined as “[t]he organization

identified as the Group on the Face Sheet of this Service Agreement, including

all Subscribers and Family Dependents who are part of Group’s Service

Agreement with Health Plan.” Kaiser states that the EUTF is the “Group.”

“Health Plan” means “Kaiser Foundation Health Plan, Inc., Hawaii Region, a

California nonprofit corporation.”

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Service Agreement” that are brought by a Kaiser member or

representative against a Kaiser entity.4

This section on the scope of the arbitration clause

also provides that “[b]enefit-related claims subject to Chapter

502(a)(1)(B) of the Employee Retirement Income Security Act

(ERISA) are covered by this binding arbitration requirement,”

unless exempted by satisfying two conditions.5

The arbitration provision provides in relevant part:

B. Binding Arbitration. Any claim arising from an alleged

violation of a legal duty incident to this Service Agreement

shall be submitted by the Member to binding arbitration if

the claim is asserted:

(1) By a Member . . . or by any other person entitled to

bring an action for damages for harm to the Member as

permitted by Hawaii state law existing at the time the claim

is filed . . . ;

(2) On account of death, bodily injury, physical ailment,

mental disturbance, or economic loss arising out of the

rendering or failure to render services or the provision or

failure to provide benefits under this Service Agreement, or

arising out of any other claim, irrespective of the legal

theory upon which the claim is asserted;

(3) For monetary damages exceeding the jurisdictional

limit of the Small Claims Division of the District Court of

the State of Hawaii for claims . . . ; and

(4) Against one or more of the following entities or

their employees, officers or directors (“Respondent”):

(i) Kaiser Foundation Health Plan, Inc.,

(ii) Kaiser Foundation Hospitals,

(iii)Hawaii Permanente Medical Group, Inc.,

(iv) The Permanente Federation, LLC,

(v) The Permanente Company, LLC,

(vi) Any individual or organization that contracts

with an organization named in (i), (ii), (iii), (iv) or (v)

above to provide services to Health Plan Members, when such

contract includes a provision requiring arbitration of a

claim of a Health Plan Member.

(Emphases added).

The conditions for exemption provide that the above claims are

covered by the arbitration clause unless: “(a) the U.S. Department of Labor

Regulation in 29 C.F.R. Chapter 2560.503-1(c)(4) applies to prohibit mandatory

binding arbitration of the category of claim presented; and (b) that

Regulation has not been modified, amended, repealed, superceded, or otherwise

found to be invalid or inapplicable to such claims.”

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The arbitration provision limits the scope of civil

discovery to “relevant” documents, “brief depositions,” and

“independent medical evaluations,” with the arbitrator designated

to resolve any disputes:

Limited civil discovery shall be permitted for (1)

production of relevant documents, (2) taking of brief

depositions of parties and expert witnesses, and (3)

independent medical evaluations. The arbitrator(s) shall

resolve any discovery dispute submitted by any party.

In regard to arbitration fees, the arbitration provision requires

that “fees and expenses of the arbitration service and the

arbitrator(s) shall be borne equally by the two parties.” Each

party is required to “bear their own attorney fees.”

In regard to confidentiality, the arbitration provision

prohibits the disclosure of the terms or substance of the

arbitration award except in limited circumstances:

F. Confidentiality. Neither party nor the arbitrator(s) may

disclose the terms or substance of the arbitration award,

except as required by law or as necessary to file a motion

to confirm the award, and in that event, the parties shall

take all appropriate action to request that the records of

the arbitration be submitted to the court under seal.

The arbitration provision also states that the

arbitration decision is “final and binding,” that Kaiser members

“waive their rights to jury or court trial,” and that “[w]ith

respect to any matter not expressly provided for herein, the

arbitration shall be governed by [HRS] Chapter 658.”

According to Kaiser, it “provides copies of the current

Group Service Agreement to employers annually and they are

responsible for making it available to their Kaiser member-

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employees for review. In addition, Kaiser employee-members may

request a copy of the Group Service Agreement that is applicable

to them by contacting Kaiser’s Customer Service Department.”

Kaiser also states that its Group Agreements are

“reviewed and renegotiated with employers on an annual basis, as

necessary.” Kaiser attached a copy of its 2009 Group Agreement

with its Motion to Compel Arbitration and argues that the 2009

Agreement governed the “rights and responsibilities” of Kaiser

and Michael in 2009, “when the events at issue in this case

occurred.” As with the 2003 Group Agreement, there is no

evidence in the record that the 2009 agreement was provided to

Michael, other than Kaiser’s assertion that it provides copies of

the Group Agreement to employers.

The 2009 Group Agreement reflects several changes to

the arbitration provisions as compared to the 2003 Group

Agreement.6 The general provision providing that all claims are

The 2009 Group Agreement provides that “[t]he arbitration

provisions in this Service Agreement shall supercede those in any prior

Service Agreement.”

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subject to binding arbitration7 and the confidentiality provision

remained substantively unchanged.

However, the provision on ERISA was changed to provide

that claims for benefits brought by members of private employer

groups under ERISA § 502(a)(1)(B) are not subject to mandatory

binding arbitration. The discovery provision was also changed to

further limit discovery, permitting brief depositions of only

three “critical witnesses” in addition to medical personnel.8

Section 8(A) of the 2009 Group Service Agreement provides:

A. Binding Arbitration. Except as provided below, any and

all claims, disputes, or causes of action arising out of or

related to this Service Agreement, its performance or

alleged breach, or the relationship or conduct of the

parties, including but not limited to any and all claims,

disputes, or causes of action based on contract, tort,

statutory law, or actions in equity, shall be resolved by

binding arbitration as set forth in this Service Agreement.

(1) This includes but is not limited to any claim

asserted:

(a) By or against a Member, a patient, the heirs or

the personal representative of the estate of the Member or

patient, or any other person entitled to bring an action for

damages for harm to the Member or patient as permitted by

applicable federal or Hawaii state law existing at the time

the claim is filed ("Member Parties");

(b) On account of death, bodily injury, physical

ailment, mental disturbance, or economic loss arising out of

the rendering or failure to render medical services or the

provision or failure to provide benefits under this Service

Agreement, premises liability, or arising out of any other

claim of any nature, irrespective of the legal theory upon

which the claim is asserted; and

entities or their employees, officers or directors (“Kaiser

Permanente Parties”)[.]

The discovery provision in the 2009 Group Agreement provides:

(3) Limited civil discovery shall be permitted only

for

(a) production of documents that are relevant and

material,

(b) taking of brief depositions of treating

physicians, expert witnesses and parties . . . and a maximum

of three other critical witnesses for each side (i.e.,

(continued...)

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The parties’ responsibility for arbitration expenses

was altered as well, to lessen the member’s share to a third of

the costs for the arbitration service and the arbitrator, while

responsibility for other fees remained unchanged, so that each

party bears their own attorney’s fees, witness fees, and

discovery costs. In addition, the provision on the applicable

law for “any matter not expressly provided for herein” was

changed to provide that such matters would be governed by the

Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., rather than

HRS Chapter 658.

Although the first page of the 2009 Group Agreement

provides a “2009 Summary of Important Changes for Kaiser

Permanente Group HMO Plans Contract Renewals,” none of the

changes detailed above are listed in the summary.

The facts alleged in the Siopeses’ Complaint were as

follows. In October 2009, Michael contacted his Kaiser primary

care physician on Maui regarding a persistent upper abdominal

pain. He was prescribed medication, and blood tests were ordered

for him.

(...continued)

respondents or claimants), and

The arbitrator(s) shall resolve any discovery disputes

submitted by any party, including entry of protective orders

or other discovery orders as appropriate to protect a

party’s rights under this paragraph.

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On January 11, 2010, Michael again contacted his

physician because he continued to experience persistent abdominal

pains. After several tests were conducted over the next month,

an upper endoscopy and biopsy conducted on February 16, 2010

revealed an ulcerated cancer tumor at the junction of Michael’s

esophagus and stomach.

The following day, Michael requested an outside

referral from Kaiser for the purpose of seeking a second medical

opinion, but was advised to wait until after he had consulted a

Kaiser surgeon. An appointment was scheduled for February 19,

2010, with a general surgeon at Kaiser’s Moanalua facility on

O#ahu.

The Siopeses flew to O#ahu to meet with the general

surgeon, who informed them that Michael had been diagnosed with

“small cell” neuroendocrine carcinoma of the gastroesophageal

junction, a very rare, aggressive and fatal form of cancer. The

general surgeon explained that Kaiser would develop a course of

treatment based on this diagnosis. He informed the Siopeses that

he had never seen or treated this form of cancer at the juncture

of the esophagus and stomach and did not know of anyone within

the Kaiser Hawai#i network with expertise in this area. He

indicated that he would need to do “internet research” in order

to formulate a proper treatment plan. Nevertheless, the surgeon

informed the Siopeses that the cancer could become fatal within a

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month and required urgent treatment. He therefore wanted to

immediately perform a complete surgical resection of Michael’s

stomach and esophagus.

Two days later, the general surgeon informed Michael

that the surgery was scheduled to take place in nine days. The

surgeon acknowledged that he was still completing his research.

The Siopeses decided to seek a second opinion at Duke

University Medical Center (Duke) in North Carolina, a high volume

cancer center specializing in treating esophageal and stomach

cancers. Upon learning that Duke was willing to immediately

evaluate him, Michael contacted the Kaiser general surgeon in

order to have his pathology slides sent to Duke. When Michael

spoke to the surgeon later that day, the surgeon stated that

after conducting additional internet research and speaking with

an oncologist, he had concluded that his initial treatment plan

may have been inappropriate. The surgeon suggested that Michael

have additional imaging studies done and possibly undergo some

radiation and chemotherapy before the surgery. The surgeon

further stated that he had emailed a Kaiser oncologist to request

a consultation but that no appointment had yet been scheduled.

The next day, February 23, 2010, the Siopeses flew to

North Carolina so that Michael could be examined by the medical

team at Duke. On February 24, the Kaiser oncologist contacted

Michael and scheduled an appointment for March 8, 2010.

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On February 25, 2010, Michael arrived at Duke. A

multidisciplinary cancer treatment team determined that Kaiser’s

diagnosis of “small cell” neuroendocrine carcinoma was erroneous,

and Michael actually had a “high grade” neuroendocrine tumor.

The Duke team explained that this was a serious error, as these

types of cancer require different treatment courses. The Duke

team recommended a treatment plan that combined measured

chemotherapy and targeted radiation to shrink the cancer tumor,

followed by surgical removal of the tumor.

The Siopeses elected to remain at Duke so that Michael

could immediately begin the recommended course of treatment. On

March 3, 2010, a Kaiser physician agreed to provide a referral

for Michael’s evaluation and treatment at Duke and routed the

request to Michael’s primary care physician, the Kaiser

oncologist, and the Kaiser general surgeon. On March 22, 2010,

Michael’s primary care physician, after reviewing the Duke

medical records, made a referral to Duke for treatment and

requested that the treatment be covered by the Kaiser Group Plan.

Michael underwent radiation and chemotherapy treatment

at Duke between March 8 and April 20, 2010. On March 29, Michael

received a letter from Kaiser denying his request for Kaiser to

cover the costs of his treatment at Duke. Kaiser’s reasoning was

that Kaiser had the capacity to perform radiation and

chemotherapy treatment, although Kaiser had not ordered or

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prescribed either treatment for Michael.

On June 3, 2010, Michael’s primary care physician made

another referral request for Kaiser to cover the cost of

Michael’s surgery at Duke. On June 4, Michael underwent thoracic

surgery at Duke. On June 9, he received a letter from Kaiser

again denying his request for coverage.

Duke’s treatment was successful and resulted in

eliminating the cancer while preserving intact the majority of

Michael’s stomach and esophagus. On July 1, 2010, Michael was

cleared by Duke to return to Maui.

Between July and December 2010, Michael filed two

appeals with the Kaiser Permanente Appeals Coordinator,

requesting that Kaiser provide coverage for the testing and

treatment at Duke. Kaiser denied both appeals based on its

assertion that the Duke treatment constituted “elective, non-

emergency, non-urgent care” that was not directed or authorized

by Kaiser.

In total, the Siopeses estimate that they incurred over

$250,000 in medical expenses at Duke.

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On November 9, 2011, the Siopeses filed suit against

Kaiser in circuit court.9 The Siopeses asserted claims for

breach of contract, medical negligence, insurance bad faith,

violations of Hawaii’s consumer protection law (HRS Chapter 480),

breach of fiduciary duty, negligent infliction of emotional

distress, declaratory and injunctive relief, and punitive

damages.

The Siopeses sought a declaration that the mandatory

arbitration requirement in the Kaiser Group Agreement was void

and unenforceable because “it denies Members rights guaranteed by

Hawai#i law, makes it impossible for a Member who is wrongfully

denied benefits to be made whole, and provides an adjudicatory

process that is unconscionable and heavily biased in Kaiser’s

favor.” The Complaint cited the arbitration provision’s

prohibition of the recovery of attorneys’ fees and costs,

limitations on discovery, exemption for members of private

employer Groups bringing ERISA claims, and inclusion of a

confidentiality provision, as reasons why the provision should be

declared void and unenforceable.10 The Siopeses also claimed in

The Honorable Karen T. Nakasone presided.

The Complaint specifically alleged that the arbitration clause

prevents a Kaiser member “from recovering attorneys’ fees and costs incurred

in connection with a breach of contract claim, an insurance coverage claim, or

a claim for unfair and deceptive business practices and/or unfair competition

under [HRS] Chapter 480,” thereby “mak[ing] it impossible for a Plan Member to

recover his full loss or be made whole.” With respect to discovery, the

Complaint alleged that the arbitration provision’s “limited civil discovery”

(continued...)

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this regard that the arbitration provision is a provision of

adhesion for which Michael had neither choice nor bargaining

power to challenge.

The Siopeses also contended that the arbitration

provision was inapplicable to Lacey’s claims “because she has

never been a Plan Member or otherwise agreed to be bound by the

arbitration provision[.]”

The Siopeses sought declaratory and injunctive relief

to permanently enjoin Kaiser from enforcing the arbitration

provision.

On January 10, 2012, Kaiser filed its Motion to Compel

Arbitration and Motion to Stay Discovery pending the ruling on

the motion to compel.

Kaiser argued in its Motion to Compel Arbitration that

the Siopeses’ claims were governed by the 2009 Group Agreement

between Kaiser and the EUTF. Kaiser contended that the

arbitration provision was valid and enforceable because the

(...continued)

unfairly advantages Kaiser, “which has ready access to records, physicians,

nurses, administrators, claims personnel, appeal officers, and others who were

involved in the events that gave rise to a party’s claims.”

In regard to the ERISA provision, the Complaint alleged that the

arbitration provision requires public employee Group Plan Members, but not

private employee members, to arbitrate their claims. The Complaint asserted

that this practice “constitutes unfair discrimination between insureds having

substantially like insuring, risk, and exposure factors and expense elements,

and constitutes an unfair method of competition and an unfair and deceptive

act or practice under HRS § 431:13-103(a).”

Finally, the Complaint alleged that the confidentiality provision,

which prohibits Kaiser members “from disclosing ‘the substance of the

arbitration proceedings or award,’” has the effect of concealing “adverse

adjudicatory findings” and “denies . . . consumers information that is

essential to the decision of whether to purchase and maintain health insurance

through Kaiser.”

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provision was in writing, unambiguous as to the parties’ intent

to submit disputes to arbitration, and supported by bilateral

consideration. Additionally, Kaiser contended that the

arbitration provision was not an unenforceable contract of

adhesion, but was substantively similar to the arbitration

agreement upheld by this court in Leong v. Kaiser Found. Hosps.,

71 Haw. 240, 788 P.2d 164 (1990), which involved a group

agreement negotiated between Kaiser and the Public Employees

Health Fund.

In the Siopeses’ response in opposition to the Motion

to Compel Arbitration, they argued that a valid agreement to

arbitrate was not formed between Kaiser and Michael because

Michael did not assent to the arbitration provision by signing

the Enrollment Form.11 They noted that the Enrollment Form did

not contain an arbitration agreement or suggest that one existed,

the Group Agreement containing the arbitration provision was not

signed by Michael, and there was no indication that the Siopeses

reviewed and understood its contents.

Kaiser responded by arguing that while the Enrollment

Form did not itself contain a reference to the arbitration

agreement, the form’s statement that the enrollee “agree[s] to

abide by the terms and conditions of the benefit plans I

selected” was sufficient to alert Michael to the arbitration

The Siopeses had no opposition to the Motion to Stay Discovery.

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provision contained in the Group Agreement.

Following a hearing, the circuit court granted Kaiser’s

motions. Regarding the Motion to Compel Arbitration, the circuit

court stated that the scope of its review on a motion to compel

arbitration was “narrow and circumscribed” and consisted of

inquiring first, whether there was a valid agreement to

arbitrate, and second, whether the agreement encompasses the

dispute at issue. The court concluded that the decision in

Leong, 71 Haw. 240, 788 P.2d 164 was “directly on point and

controlling.” The court found that the facts in this case were

similar to those in Leong, “where the Supreme Court held that the

plaintiffs’ mere averment that they did not receive the [Kaiser]

booklet containing the arbitration reference . . . without more,

was insufficient to negate the requirement of binding arbitration

contained in the contract.” Thus, the court found that the two-

step inquiry for compelling arbitration was satisfied.

The court also found that Lacey’s claims were “within

the scope of the broad arbitration provisions contained [in the

Group Agreement].” The court did not review the Siopeses’ claims

of unconscionability based on its conclusion that the claim was a

“separate issue from what the court has to review here, which is

a very narrow scope, whether there’s a valid agreement to

arbitrate.”

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II. APPEAL

The Siopeses timely appealed the circuit court’s

orders,12 and petitioned to transfer their appeal from the

Intermediate Court of Appeals (ICA) to this court.13 On August

29, 2012, this court issued an order granting the transfer.

The Siopeses raise three points of error on this appeal:

A. The Circuit Court erred by failing to find the

arbitration provision unenforceable as to Michael Siopes and

by failing to examine the specific issues raised by Michael

Siopes as to mutual assent and bilateral consideration.

B. The Circuit Court erred by compelling Lacey Siopes to

arbitrate her distinct claims for injury, since she was not

a Kaiser member and had never agreed to be bound by any

provisions of the Kaiser plan.

C. The Circuit Court erred by failing to review the terms

of Kaiser’s arbitration provision, which are unconscionable

and therefore unenforceable.

III. STANDARD OF REVIEW

A petition to compel arbitration is reviewed de novo. The

standard is the same as that which would be applicable to a

motion for summary judgment, and the trial court's decision

is reviewed “using the same standard employed by the trial

court and based upon the same evidentiary materials as were

before [it] in determination of the motion.”

Brown v. KFC Nat'l Mgmt. Co., 82 Hawai#i 226, 231, 921 P.2d 146,

151 (1996) (citations omitted) (brackets in original).

HRS § 641-1(a) (Supp. 2012) provides that “[a]ppeals shall be

allowed in civil matters from all final judgments, orders, or decrees of

circuit and district courts . . . to the intermediate appellate court, subject

to chapter 602.” Orders compelling arbitration are appealable final orders

within the contemplation of HRS § 641-1. Cnty. of Haw. v. Unidev, LLC, 129

Hawai#i 378, 392, 301 P.3d 588, 602 (2013) [hereinafter Unidev II].

HRS § 602-58 (Supp. 2012) and Hawai#i Rules of Appellate Procedure

Rule 40.2 (2012) set forth the requirements for this court to grant an

application for transfer of a case within the jurisdiction of the ICA to this

court.

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IV. DISCUSSION

“‘When presented with a motion to compel arbitration,

the court is limited to answering two questions: 1) whether an

arbitration agreement exists between the parties; and 2) if so,

whether the subject matter of the dispute is arbitrable under

such agreement.’” Douglass v. Pflueger Haw., Inc., 110 Hawai#i

520, 530, 135 P.3d 129, 139 (2006) (quoting Koolau Radiology,

Inc. v. Queen’s Med. Ctr., 73 Haw. 433, 445, 834 P.2d 1294, 1300

(1992)) (brackets omitted). The party seeking to compel

arbitration carries the initial burden of establishing that an

arbitration agreement exists between the parties. Cnty. of Haw.

v. Unidev, LLC, 128 Hawai#i 378, 387, 289 P.3d 1014, 1023 (App.

2012) [hereinafter Unidev I], vacated in part, aff’d in part on

other grounds, Unidev II, 129 Hawai#i 378, 301 P.3d 588 (2013).

If this initial burden is met, the burden shifts to the opposing

party to “present evidence on its defenses to the arbitration

agreement.” Unidev I, 128 Hawai#i at 387, 289 P.3d at 1023. See

4 Am. Jur. 2d Alternative Dispute Resolution § 98 (2007).

“Even though arbitration has a favored place, there

still must be an underlying agreement between the parties to

arbitrate. Without an agreement to arbitrate, a court may not

force parties to engage in arbitration.” Luke v. Gentry Realty,

Ltd., 105 Hawai#i 241, 247, 96 P.3d 261, 267 (2004) (citations

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and quotation marks omitted). Accordingly, “[a]lthough their

terms are not identical, both the FAA[14] and HRS ch. [658A][15]

interpose a written and otherwise valid contract to arbitrate as

a precondition to enforcement.” Brown v. KFC Nat'l Mgmt. Co., 82

Hawai#i 226, 238, 921 P.2d 146, 158 (1996).

Section 2 of the FAA provides in relevant part that “[a] written

provision in . . . a contract evidencing a transaction involving commerce to

settle by arbitration a controversy thereafter arising out of such contract or

transaction . . . shall be valid, irrevocable, and enforceable, save upon such

grounds as exist at law or in equity for the revocation of any contract.” 9

U.S.C. § 2 (2012).

Under Section 2 of the FAA, “[s]tates may regulate contracts,

including arbitration clauses, under general contract law principles and they

may invalidate an arbitration clause ‘upon such grounds as exist at law or in

equity for the revocation of any contract.’” Allied-Bruce Terminix Cos. v.

Dobson, 513 U.S. 265, 281 (1995) (quoting 9 U.S.C. § 2). “Thus, generally

applicable contract defenses, such as fraud, duress, or unconscionability, may

be applied to invalidate arbitration agreements without contravening § 2.”

Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996). See First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (“When deciding

whether the parties agreed to arbitrate a certain matter (including

arbitrability), courts generally . . . should apply ordinary state-law

principles that govern the formation of contracts.”).

In 2001, Hawai#i adopted the Revised Uniform Arbitration Act,

codified in HRS chapter 658A, and repealed HRS chapter 658. 2001 Haw. Sess.

Laws Act 265, § 5 at 820 (repealing HRS chapter 658); 2001 Haw. Sess. Laws Act

65, § 1 et seq. at 810-20 (enacting HRS chapter 658A). HRS chapter 658A

governs arbitration agreements “made on or after July 1, 2002,” unless the

parties otherwise agree, but “[a]fter June 30, 2004, this chapter governs an

agreement to arbitrate whenever made.” HRS § 658A-3 (Supp. 2012).

Prior to 2001, HRS § 658-1 (1993) provided,

A provision in a written contract to settle by arbitration a

controversy thereafter arising out of the contract or the

refusal to perform the whole or any part thereof, or an

agreement in writing to submit an existing controversy to

arbitration pursuant to section 658-2, shall be valid,

enforceable, and irrevocable, save only upon such grounds as

exist for the revocation of any contract.

Currently, HRS § 658A-6(a) (Supp. 2012) provides, “An agreement contained in a

record to submit to arbitration any existing or subsequent controversy arising

between the parties to the agreement is valid, enforceable, and irrevocable

except upon a ground that exists at law or in equity for the revocation of a

contract.”

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We have held that “in order to be valid and

enforceable, an arbitration agreement must have the following

three elements: (1) it must be in writing; (2) it must be

unambiguous as to the intent to submit disputes or controversies

to arbitration; and (3) there must be bilateral consideration.”

Douglass, 110 Hawai#i at 531, 135 P.3d at 140 (citing Brown, 82

Hawai#i at 238-40, 921 P.2d at 158-60).

With respect to the second requirement, “there must be

a mutual assent or a meeting of the minds on all essential

elements or terms to create a binding contract.” Douglass, 110

Hawai#i at 531, 135 P.3d at 140 (quoting Earl M. Jorgensen Co. v.

Mark Constr., Inc., 56 Haw. 466, 470, 540 P.2d 978, 982 (1975))

(brackets, ellipses and quotation marks omitted) (emphasis

added). “The existence of mutual assent or intent to accept is

determined by an objective standard . . . . Unexpressed

intentions are nugatory when the problem is to ascertain the

legal relations, if any, between two parties.” Douglass, 110

Hawai#i at 531, 135 P.3d at 140 (quotation marks omitted).

The Siopeses’ primary contention is that the second

requirement of mutual intent to submit to arbitration is not

present in this case because Michael did not assent to the

arbitration agreement when he enrolled in the Kaiser plan.16

The parties do not dispute that the arbitration provision

constitutes a writing. Although the parties dispute the issue of bilateral

consideration, we resolve the enforceability of the arbitration agreement on

(continued...)

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Michael does not dispute that he entered into a contractual

relationship with Kaiser for health services, which he financed

through deductions from his pay. However, Michael disputes that

a valid agreement to arbitrate was formed between he and Kaiser,

given that he had no knowledge of the existence of the

arbitration provision at the time of his enrollment.17

Kaiser takes the position that Michael’s assent to the

arbitration agreement is irrelevant because the arbitration

agreement is “binding on him and those claiming through him by

virtue of the agreement between Kaiser and the EUTF.” For this

proposition, Kaiser relies on this court’s decision in Leong v.

Kaiser Found. Hosps., 71 Haw. 240, 788 P.2d 164 (1990), holding

that an arbitration provision contained in a Kaiser health plan,

which was negotiated between Kaiser and the Public Employees

Health Fund, the EUTF’s predecessor,18 was enforceable against

Kaiser members who enrolled through the Health Fund.

Kaiser’s reliance on Leong, however, is misplaced for

the following reasons. First, the Leong court’s analysis is not

(...continued)

the basis of the mutual assent requirement and therefore do not reach the

question of bilateral consideration.

“Challenges to the validity of arbitration agreements ‘upon such

grounds as exist at law or in equity for the revocation of any contract’ can

be divided into two types. One type challenges specifically the validity of

the agreement to arbitrate. The other challenges the contract as a whole . .

. .” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 (2006)

(citations omitted). Michael’s claim in this case is of the first type, as he

specifically challenges the enforceability of the arbitration provision rather

than the validity of the Group Agreement as a whole.

See supra note 1.

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applicable here because in that case, the parties did not dispute

the validity of the formation of the arbitration agreement

between Kaiser and the plaintiffs. In Leong, it was undisputed

that the arbitration provision, upon being added to the health

plan contract, was summarized in a booklet that was distributed

to public employees covered by the Health Fund. Id. at 246, 788

P.2d at 168. Despite such evidence, the plaintiffs “insist[ed]

that they failed to receive a copy of the booklet” and argued

that they were not bound by the arbitration term because “they

had no actual knowledge of this provision in the contract.” Id.

The plaintiffs did not argue that an agreement to arbitrate was

not formed due to a lack of mutual assent. Accordingly, the

Leong court did not analyze the issue of contract formation,

including the element of mutual assent, in response to the

plaintiffs’ claim that the arbitration agreement was

unenforceable. Instead, the Leong court proceeded with its

analysis on the basis that the plaintiffs had validly assented to

the contract and its terms: “The general rule of contract law is

that one who assents to a contract is bound by it and cannot

complain that he has not read it or did not know what it

contained.” Id. at 245, 788 P.2d at 168 (emphasis added).

There is a significant distinction between the issue of

lack of knowledge as to a contract provision and lack of mutual

assent to a contract provision; the former issue assumes the

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existence of a valid agreement while the latter questions whether

an agreement to arbitrate was actually formed. In this case, the

issue is whether Michael assented to the arbitration provision in

the first instance, when he enrolled in the Kaiser plan by

signing the Enrollment Form. Therefore, the focus of the inquiry

is one of contract formation, which the Leong plaintiffs did not

raise and which the Leong court did not address.

This court made the same distinction between lack of

knowledge and lack of mutual assent to a contract provision in

Douglass, 110 Hawai#i 520, 135 P.3d 129. The issue in Douglass

was whether an employee who signed an acknowledgment form located

at the end of the employer’s Employee Handbook was bound by the

arbitration provision set forth in the handbook. Id. at 522-24,

135 P.3d at 131-33. Unlike Leong, the parties “raised issues

regarding the validity and enforceability of the alleged

arbitration agreement[.]” Id. at 525, 135 P.3d at 134.

In its analysis of whether the arbitration agreement

met the traditional requirements for contract formation, the

Douglass court noted the differences between its inquiry and the

court’s inquiry in Leong:

We do not suggest, however, that one who is aware that he or

she is entering into a contract may avoid its effect by

failing to read it. Such a rule would undermine reliance on

written instruments. Indeed, we have stated that “the

general rule of contract law is that one who assents to a

contract is bound by it and cannot complain that he has not

read it or did not know what it contained.” In Leong, the

plaintiffs did not dispute the existence of a contract,

which contained an arbitration provision. Rather, they

argued that “they should not be bound by the agreement to

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arbitrate because they had no knowledge of this provision in

the contract.” Here, however, the arbitration “agreement”

does not meet the traditional requirements necessary to the

formation of a contract.

Id. at 534 n.12, 135 P.3d at 143 n.12 (citations and brackets

omitted) (emphases added).

Thus the court distinguished Leong on the basis that

the Leong plaintiffs did not dispute whether the arbitration

agreement met the traditional requirements necessary for the

formation of a contract, but argued only that they should not be

bound by the agreement because they had no knowledge of it. In

this case, as in Douglass, the Siopeses dispute the formation of

an arbitration agreement based on the absence of mutual assent.

Therefore, Leong is not applicable to this case and lends no

support to Kaiser’s assertion that Michael’s assent to the

arbitration agreement is irrelevant to the court’s analysis.

Second, even if it was applicable, Leong is factually

distinguishable from the instant case. In Leong, it was

“undisputed that Kaiser prepared a booklet summarizing the

essential terms of the Plan for distribution for public employees

covered by the Health Fund,” and that the booklet included notice

of the arbitration provision. 71 Haw. at 246, 788 P.2d at 168.

“Affidavits were submitted attesting to the usual manner of

distributing such information to all public employees and

averring that the routine was adhered to at all times pertinent

to this case.” Id. In this context, the Leong court held that

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the plaintiffs’ “averment that they did not receive the booklet,

without more, is insufficient to negate a provision for binding

arbitration contained in the contract.” Id.

In this case, on the other hand, it is far from

“undisputed” that the 2003 or 2009 Group Agreement containing the

arbitration provision was distributed to Michael. Kaiser

submitted a single declaration with its Motion to Compel

Arbitration, by a Kaiser Manager of Contract and Benefit

Administration, stating that “Kaiser provides copies of the

current Group Service Agreement to employers annually and they

are responsible for making it available to their Kaiser member-

employees for review.” The declaration also provided that

“Kaiser employee-members may request a copy of the Group Service

Agreement that is applicable to them by contacting Kaiser’s

Customer Service Department.” However, the record does not

contain any evidence that Michael received a copy of the Group

Agreement, and no evidence was submitted pertaining to the usual

manner in which the Group Agreement is annually distributed to

the Kaiser member-employers.

Furthermore, inasmuch as this case centers on the

formation of the arbitration agreement and Michael’s assent to

the arbitration provision at the time he entered into the

agreement with Kaiser through the EUTF, the critical question is

whether Michael had notice of and assented to the arbitration

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agreement at the time he signed the Enrollment Form. Michael’s

declaration provides: “Prior to signing the Enrollment Form, I do

not recall being provided a copy of the Group Service Agreement

or any other documentation.” The burden was on Kaiser, as the

party moving to compel arbitration, to demonstrate that Michael

mutually assented to the arbitration agreement. Although Kaiser

acknowledges that it has the burden of satisfying the statutory

requirements for disclosure of the enrollee’s rights,

responsibilities, and obligations and information on complaints

and appeals procedures to the enrollee at the time of enrollment,

Kaiser does not claim that it had a policy of requiring employers

to provide prospective members with a copy of the applicable

Group Agreement prior to or contemporaneously with the execution

of the Enrollment Form.19

HRS § 432E-7(a) (Supp. 2003) requires a managed care plan to

provide certain information, including a “statement on enrollee’s rights,

responsibilities, and obligations” and “[i]nformation on complaints and

appeals procedures,” to the enrollee upon enrollment in the plan:

The managed care plan shall provide to its enrollees upon

enrollment and thereafter upon request the following

information:

(1) A list of participating providers which shall be

updated on a regular basis indicating, at a minimum, their

specialty and whether the provider is accepting new

patients;

(2) A complete description of benefits, services, and

copayments;

(3) A statement on enrollee's rights, responsibilities,

and obligations;

(4) An explanation of the referral process, if any;

(5) Where services or benefits may be obtained;

(6) Information on complaints and appeals procedures; and

(7) The telephone number of the insurance division.

This information shall be provided to prospective

enrollees upon request.

(continued...)

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Third, Kaiser relies primarily on the Leong court’s

statement that the Kaiser Plan was a product of negotiations

between two parties of equal bargaining power, the Health Fund

and Kaiser, in order to argue that Michael’s assent to

arbitration is irrelevant. However, the Leong court made its

observation of equal bargaining power in the context of

determining whether the Kaiser Plan was a contract of adhesion,

and not in the context of determining whether an arbitration

agreement was validly formed through mutual assent. 71 Haw. at

247-48, 788 P.2d at 168-69. The asserted equal bargaining power

of the EUTF and Kaiser is irrelevant for the purposes of

determining whether an agreement to arbitrate was formed between

Kaiser and Michael.

(...continued)

(Emphases added). A “managed care plan” means “any plan, regardless of form,

offered or administered by any person or entity, including but not limited to

. . . a health maintenance organization governed by chapter 432D, . . . and

any other mixed model, that provides for the financing or delivery of health

care services or benefits to enrollees . . . .” HRS § 432E-1 (Supp. 2003).

Likewise, HRS § 432D-25 (Supp. 2003) requires all health

maintenance organizations to “provide current and prospective enrollees with

written disclosure of coverages and benefits, including information on

coverage principles and any exclusions or restrictions on coverage,” for the

purpose of “ensur[ing] that all individuals understand their health care

options and are able to make informed decisions.” (Emphasis added). “Health

maintenance organization” means “any person that undertakes to provide or

arrange for the delivery of basic health care services to enrollees on a

prepaid basis, except for enrollee responsibility for copayments, deductibles,

or both.” HRS § 432D-1 (Supp. 2003).

At oral argument, Kaiser argued that it satisfied its obligation

to disclose to enrollees the terms and conditions of the Kaiser group health

plan by contractually requiring the EUTF to provide this information. Oral

Argument at 30:17 (May 16, 2013), Siopes v. Kaiser Found. Health Plan, Inc.,

No. SCAP-12-0000361, available at

http://www.courts.state.hi.us/courts/oral_arguments/archive/oasc12361.html.

Kaiser noted in this regard that the Group Agreement provides that all

information Kaiser provides to the Group will in turn be communicated to all

enrollees. While Kaiser is not precluded from delegating its duty to disclose

to another entity such as the EUTF, Kaiser remains ultimately responsible for

ensuring that its statutory obligations are satisfied.

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Finally, this court has held in cases decided

subsequent to Leong that in order to be valid and enforceable, an

arbitration agreement must be unambiguous as to the intent of the

parties to submit disputes or controversies to arbitration.

Brown, 82 Hawai#i 226, 921 P.2d 146; Douglass, 110 Hawai#i 520,

135 P.3d 129.

In Brown, the court held that an arbitration agreement

set forth in an employment application constituted a valid

agreement binding the plaintiff-employee to arbitrate employment-

related disputes.20 82 Hawai#i at 237-40, 921 P.2d at 157-60.

The arbitration provision was contained in a section of the

application entitled “Agreement,” and a subsection styled

“Arbitration Of Employee Rights.” Id. at 229, 921 P.2d at 149.

The signature line for the applicant appeared just below the

arbitration agreement. Id. at 229, 245, 921 P.2d at 149, 165.

As stated, the Brown court determined that in order to

be valid and enforceable, an arbitration agreement must be in

writing, reflect mutual assent, and be supported by bilateral

consideration. Id. at 237-40, 921 P.2d at 157-60. In regard to

the mutual assent requirement, the court found that the

arbitration agreement at issue reflected mutual assent and

The arbitration agreement provided in relevant part, “Because of

the delay and expense which results from the use of the federal and state

court systems, KFC and I agree to submit to binding arbitration any

controversies concerning my compensation, employment, or termination of

employment, rather than to use such court systems.” Id. at 230, 921 P.2d at

150 (brackets omitted).

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consideration for that mutual assent “on its face,” based on the

language used in the provision. Id. at 240, 921 P.2d at 160.

Later in the opinion, the court discussed the

“arbitration agreement within the greater context of the document

in which it is located in order to determine whether any party to

it could reasonably have failed to understand that it was

intended to govern the entire galaxy of employment-related

controversies.” Id. at 245, 921 P.2d at 165. In particular, the

court looked at the effect of a disclaimer in the application

providing that “nothing contained in this application . . . shall

constitute an implied or expressed contract of employment.” Id.

(quotation marks omitted). The court emphasized the manner in

which the arbitration agreement was set off from other provisions

in the application, thus “highlight[ing]—rather than

camouflag[ing]—its general purpose,” and concluded that given

this context, the disclaimer could not reasonably be construed to

negate the arbitration provision. Id.

Subsequently in Douglass, the court applied the three

elements of the Brown test in determining whether a valid

arbitration agreement was formed and specifically distinguished

the case from Leong based on the contract formation issues raised

by the parties. 110 Hawai#i 520, 135 P.3d 129.

In Douglass, the plaintiff was hired by the employer

and received the employer’s Employee Handbook, which contained

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the employer’s policies and procedures as well as an arbitration

provision. Id. at 523, 135 P.3d at 132. The arbitration

provision provided that “[a]ny and all claims arising out of the

employee’s employment with the Company and his/her termination

shall be settled by final binding arbitration” in accordance with

the FAA. Id. The plaintiff signed an acknowledgment form

located towards the end of the Handbook, separated by

approximately forty pages from the arbitration provision. Id. at

523-24, 135 P.3d at 132-33. By signing the form, the plaintiff

acknowledged that he received a copy of the Handbook and “read

and underst[ood] the information outlined in the handbook.” Id.

at 523, 135 P.3d at 132. The acknowledgment form also provided

that the provisions in the Handbook were “presented as a matter

of information only and do not constitute an employment

contract.” Id. A “disclaimer” preceding the acknowledgment form

further stated that the policies in the Handbook “are intended as

guidelines” and are “not intended to and do not create a contract

between you and the company.” Id. at 532, 135 P.3d at 141.

On appeal, this court held that the arbitration

provision was not valid and enforceable, concluding that the

parties had not mutually assented to arbitration.21 Id. at 531-

34, 135 P.3d at 140-43. The court found that the language used

The Douglass court additionally held that the arbitration

agreement failed for lack of bilateral consideration because the employer

reserved the right to change the Employee Handbook “at any time and without

advance notice.” Id. at 534-36, 135 P.3d at 143-45 (quotation marks omitted).

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in the arbitration provision reflected mutual assent “on its

face,” as was the case in Brown. Id. at 532, 135 P.3d at 141.

Nevertheless, the court looked beyond the language of the

arbitration provision to the “surrounding circumstances

presented” in the case and concluded that it could not find

mutual assent between the parties to arbitrate their disputes.

Id.

In considering the surrounding circumstances, the court

held that the plaintiff “merely acknowledged his receipt and

understanding of the items presented to him,” but “never

expressed assent to the terms contained in those items, except

for those terms expressly stating that the policies in the

Handbook did ‘not create a contract,’ were to be treated as

‘guidelines,’ and were presented for ‘information only.’” Id. at

533, 135 P.3d at 142. The court noted that the acknowledgment

form “makes no mention of the arbitration provision contained in

the Handbook, nor sufficiently informs him that the Handbook

contains terms to which he is contractually obligating himself.

Nothing in the acknowledgment form that [the plaintiff] signed

suggests to us that he was entering into an arbitration

agreement.” Id.

The Douglass court distinguished the case from Brown,

explaining that the arbitration provision in Douglass was “not

‘boxed off’ or otherwise set apart from the other provisions in

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the Handbook or on the acknowledgment form.” Id. The court

further elaborated:

In fact, the arbitration provision, like all the other

provisions in the Employee Handbook, is (1) introduced by

its own bold faced heading and (2) in the same font size as

the rest of the Handbook. Moreover, the agreement, unlike

the agreement in Brown that was set off and on the same page

as the signature line, is located on page 20 of the sixty-

page Handbook, and [the plaintiff’s] signature is not found

until forty pages later on the acknowledgment page, which .

. . makes no mention of the arbitration provision.

Id.

The court reiterated that the Acknowledgment form was

“uninformative” and failed to call attention to the arbitration

clause. Id. Although the record showed that the employer’s

human resources administrator reviewed the Handbook with the

plaintiff as part of his orientation, the record did not reveal

whether she specifically mentioned the arbitration provision.

Id. at 533-34, 135 P.3d at 142-43. The court concluded, “The

record before us . . . does not indicate that [the plaintiff] was

informed of the existence of the arbitration provision, let alone

that he would be bound by it.” Id. at 533, 135 P.3d at 142.

Therefore, the court held that the mutual assent requirement was

not satisfied and the plaintiff could not be compelled to

arbitrate his claims against the employer. Id. at 534, 135 P.3d

at 143.

In comparison to Douglass, the facts of this case are

far less indicative of the parties’ mutual assent to arbitration.

In Douglass, the arbitration provision was at least contained

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within a document that was made available to the employee at the

time he signed the acknowledgment form. Nevertheless, the court

concluded, after considering the “surrounding circumstances,”

that the record did not demonstrate that the employee was “put on

notice regarding the existence of the arbitration provision and

the binding effect thereof.” Id. In this case, the arbitration

provision was not contained in a document that was made available

to Michael at the time of his enrollment, and nothing in the

“surrounding circumstances” suggests that Michael was otherwise

on notice of the arbitration provision.

The only document Michael signed to enroll in the

Kaiser plan was the Enrollment Form. The arbitration provision

was contained in a separate document altogether, the Group

Agreement. The Enrollment Form itself contains no reference to

the Group Agreement or to an arbitration agreement. Unlike the

acknowledgment form in Douglass, there is no provision on the

Enrollment Form providing that the enrollee has read and

understood the Group Agreement or any separate document further

detailing his or her rights. The Enrollment Form does not

indicate that a separate document affecting the enrollee’s rights

exists at all. Additionally, the certification on the Enrollment

Form providing that the enrollee agrees to abide by the “terms

and conditions” of the selected benefit plans does not contain a

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provision stating that the terms and conditions are detailed in

the Group Agreement or in any other document.

In Douglass, the court considered the acknowledgment

form to be “uninformative” and held that the employee was

otherwise uninformed of the existence of the arbitration

provision, despite the plaintiff’s admission that the employer’s

human resources administrator “showed him the whole handbook.”

110 Hawai#i at 533-34, 135 P.3d at 142-43 (brackets and quotation

marks omitted). Here, there was no evidence that Michael was

even shown the Group Agreement prior to signing the Enrollment

Form, let alone that a Kaiser or EUTF representative reviewed the

Group Agreement with him. In fact, there is no evidence in the

record that Michael was told that the Group Agreement existed and

contained the “terms and conditions” of his benefit plans.22 For

its part, Kaiser produced a single declaration averring that it

provides the Group Agreement to the employers, who are then

responsible for distributing the agreement to the member-

employees. However, Kaiser has not claimed that Michael was

According to Kaiser, “[n]o reasonable consumer of health care

coverage could possibly believe that the one-page Enrollment Form represented

the entire agreement between Kaiser and the EUTF,” or that “there were no

other terms or conditions governing a relationship as complex as the purchase

of health care services.” However, as noted supra at note 19, HRS § 432E-

7(a)(3) requires a managed care plan to provide the enrollee with a “statement

on enrollee’s rights, responsibilities and obligations” upon enrollment, and

HRS § 432D-25 requires health maintenance organizations to “provide current

and prospective enrollees with written disclosure of coverages and benefits,”

for the purpose of ensuring that such enrollees “understand their health care

options and are able to make informed decisions.” Clearly, then, the

statutory scheme governing health care plans lacks any assumptions regarding

the knowledge that a “reasonable consumer” is expected to possess.

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aware of the Group Agreement or the arbitration provision when he

signed the Enrollment Form, as Kaiser’s position is that

Michael’s awareness and assent are irrelevant.

Kaiser argues that Douglass and Brown are inapplicable

to the circumstances of this case because the Group Agreement was

negotiated and agreed to between Kaiser and the EUTF. Kaiser’s

argument misstates the issue. Although the Group Agreement was

negotiated and completed between the EUTF and Kaiser, Michael was

required to assent to the Group Agreement in order to have formed

a valid and enforceable contract with Kaiser. The Siopeses do

not argue, as Kaiser suggests, that “every individual employee-

beneficiary had the right to assent to or reject the individual

terms of the agreement between the EUTF and [Kaiser].” Rather,

the relevant issue is whether an agreement to arbitrate was

formed between Michael and Kaiser when Michael signed the

Enrollment Form. This issue implicates the contract formation

requirements discussed in Brown and Douglass. We have never

suggested that contracts for health services fall within an

exception to these formation requirements.

“It is an elementary rule of contract law that there

must be mutual assent or a meeting of the minds on all essential

elements or terms in order to create a binding contract.” Malani

v. Clapp, 56 Haw. 507, 510, 542 P.2d 1265, 1267 (1975). The

record in this case does not indicate that Michael “was informed

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of the existence of the arbitration provision, let alone that he

would be bound by it.” Douglass, 110 Hawai#i at 533, 135 P.3d at

142. Accordingly, it cannot be said that the requirement of

mutual assent to arbitration is satisfied, and Michael cannot be

compelled to arbitrate his claims against Kaiser, barring any

alternative basis for requiring arbitration.

Here, Kaiser alternatively relies on various contract

and agency principles to argue that Michael is bound by the terms

and conditions of the Group Agreement, including the arbitration

clause, regardless of his personal assent.

As stated, generally, “[w]ithout an agreement to

arbitrate, a court may not force parties to engage in

arbitration.” Luke v. Gentry Realty, Ltd., 105 Hawai#i 241, 247,

96 P.3d 261, 267 (2004). See Sher v. Cella, 114 Hawai#i 263,

267, 160 P.3d 1250, 1254 (App. 2007) (“Arbitration is a matter of

contract; so a party cannot be required to submit to arbitration

any dispute which he has not agreed so to submit.”) (quotation

marks omitted). However, courts have recognized that “[w]ell-

established common law principles dictate that in an appropriate

case a nonsignatory can enforce, or be bound by, an arbitration

provision within a contract executed by other parties.” Int’l

Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d

411, 416-17 (4th Cir. 2000) (emphasis added). See Michael A.

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Rosenhouse, Annotation, Application of Equitable Estoppel to

Compel Arbitration By or Against Nonsignatory-State Cases, 22

A.L.R.6th 387, 403 (2007) (“[T]he courts, led by the federal

courts, have developed a body of case law on the subject of

whether a nonsignatory, that is a person or entity that has not

signed an agreement containing an arbitration clause: (a) can

compel arbitration against one who has; or (b) can be required to

arbitrate by one who has signed the document.”) (footnote

omitted). These common law principles include incorporation by

reference, assumption, agency, veil-piercing/alter ego, estoppel,

and third-party beneficiary theories. Id. at 403 n.8. See

Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 776-80

(2d Cir. 1995); Comer v. Micor, Inc., 436 F.3d 1098, 1101 (9th

Cir. 2006); Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631

(2009). In this case, Kaiser argues alternatively that Michael

is bound by the arbitration provision under the theories of

agency, estoppel, and third-party beneficiary. However, none of

these theories are applicable, as Michael is a signatory23 to the

Group Agreement, and this case does not involve a nonsignatory’s

standing to enforce an arbitration provision or a nonsignatory’s

“Signatory” is defined as “[a] person or entity that signs a

document, personally or through an agent, and thereby becomes a party to an

agreement.” Black’s Law Dictionary 1507 (9th ed. 2009). As noted, “[i]t is

an elementary rule of contract law that there must be mutual assent or a

meeting of the minds on all essential elements or terms in order to create a

binding contract.” Malani v. Clapp, 56 Haw. 507, 510, 542 P.2d 1265, 1267

(1975). Accordingly, in order for an arbitration agreement to be valid and

enforceable, the parties must have mutually assented to arbitrate their

disputes. Douglass, 110 Hawai#i at 531, 135 P.3d at 140.

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attempt to avoid enforcement of an arbitration provision against

it.

1. Agency

Kaiser argues that Michael is bound by the arbitration

provision because the EUTF acted as Michael’s agent in agreeing

to the Group Agreement with Kaiser. Kaiser relies on a provision

in the 2003 and 2009 Group Agreement, entitled “Group As Agent

for Members,” which states, “By requesting and accepting

membership under the Group’s Service Agreement with Health Plan,

Members authorize Group for purposes of entering into this

Service Agreement and for all other purposes in regards to this

Service Agreement.”

It is hornbook law that an agent can commit its

(nonsignatory) principal to an arbitration agreement. But

the requirements for such vicarious responsibility are

exacting: not only must an agency arrangement exist so that

one party acts on behalf of the other and within usual

agency principles, but the arrangement must be relevant to

the legal obligation in dispute.

InterGen N.V. v. Grina, 344 F.3d 134, 147-48 (1st Cir. 2003)

(citations, quotation marks, brackets and ellipses omitted).

According to the terms of the Group Agreement, the

agency relationship between the EUTF and the EUTF employee is

entered into only upon the employee’s enrollment in the Kaiser

plan: “By requesting and accepting membership . . . Members

authorize Group . . . .” (Emphasis added). The EUTF could not

agree on behalf of the individual to request and accept Kaiser

membership; the EUTF could only agree to the terms of the Group

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Agreement. Whether the individual validly assented to the terms

of the Group Agreement upon enrollment is a separate question

entirely. Thus the agency arrangement referred to in the Group

Agreement could not have existed at the time that the EUTF and

Kaiser entered into the contract, and in any event would be

irrelevant for the purpose of determining whether Michael

assented to all of the terms of the Group Agreement.24

Although the EUTF was clearly empowered by statute to

enter into the Group Agreement with Kaiser on behalf of EUTF

employees, this authority does not eliminate the requirement that

a valid agreement to arbitrate be formed between EUTF employees

and Kaiser.25 The EUTF employee has the option of choosing to

receive health care coverage pursuant to the Kaiser plan. Thus

the relevant agreement is not the one between Kaiser and the

EUTF, but the agreement of the EUTF employee to enroll in the

Kaiser plan. Because the EUTF employee must independently agree

For the same reason, an agency relationship is not created by the

provision in the 2009 Group Agreement providing: “Group is contracting on

behalf of the Members (Members are not contracting with Health Plan), but by

electing medical and hospital coverage pursuant to this Service Agreement, or

accepting benefits hereunder, Members agree to all terms, conditions and

provisions of this Service Agreement.”

In Leong, the court did not examine or mention the theory of

agency in reaching its determination that the plaintiffs were bound by the

arbitration provision. Rather, the court relied on the “undisputed” fact that

Kaiser distributed a booklet including notice of the arbitration provision and

held that “an averment [by the Leongs] that they did not receive the booklet,

without more, is insufficient to negate a provision for binding arbitration

contained in the contract.” 71 Haw. 240, 246, 788 P.2d 164, 168 (1990). Such

an observation would be unnecessary for an agency theory analysis, as all

Kaiser members would be bound by the arbitration provision based on their

agent’s agreement to the provision.

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to enroll in the Kaiser plan, the EUTF’s authority to negotiate

the Kaiser plan is not relevant for the purposes of determining

whether the employee actually agreed to arbitrate any disputes

with Kaiser.

Furthermore, in Luke, the court held that a

nonsignatory agent’s standing to invoke an arbitration agreement

under certain circumstances26 is distinct from the question of

whether the arbitration agreement is enforceable. 105 Hawai#i at

249, 96 P.3d at 269. The court explained that while the

nonsignatory agent “was entitled to ask the circuit court to

enforce the arbitration agreement, . . . the circuit court could

grant this request only if the Plaintiffs had actually agreed to

arbitrate their claims.” Id. The court noted that “it is

axiomatic that there must be an agreement to arbitrate in the

first instance.” Id. at 249 n.12, 96 P.3d at 269 n.12. In

determining whether the plaintiffs actually agreed to arbitrate

their claims, the court examined the language of the arbitration

agreement and found that the language left the scope of the

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 an

arbitration clause raises allegations of substantially

interdependent and concerted misconduct by both the

nonsignatory and one or more of the signatories to the

contract.

105 Hawai#i at 248, 96 P.3d at 268 (quoting Westmoreland v. Sadoux, 299 F.3d

462, 467 (5th Cir. 2002)).

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arbitration agreement “unclear,” such that a reasonable person

“entering into this contract would not know whether she or he

maintained the right to judicial redress or whether she or he had

agreed to arbitrate any potential dispute.” Id. Resolving this

ambiguity in favor of the plaintiffs, the court held that the

plaintiffs did not agree to submit their claims to arbitration

and the circuit court erred in granting the defendants’ request

to enforce the arbitration agreement. Id.

In this case, there is no dispute that Kaiser has

standing to seek to invoke the arbitration agreement against the

Siopeses. Thus, the only relevant question is whether the

Siopeses agreed to the arbitration clause contained in the Group

Agreement. Pursuant to Luke, this question of enforceability is

distinct from the issue of standing and is not governed by the

alternative theory of agency.

2. Estoppel

Kaiser argues that Michael is equitably estopped from

denying the arbitration agreement because he has “accept[ed] all

the benefits of the Group Agreement.” Kaiser further contends

that “[b]y bringing a breach of contract action against Kaiser,

the Siopes[es] are equitably estopped from arguing that [Michael]

did not agree to the arbitration provisions contained in that

very contract.” Kaiser reasons that the Siopeses “cannot present

claims for damages based upon alleged violations of certain

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portions of the Group Agreement, and then claim other portions of

the same agreement are not binding and enforceable.”

Generally, “estoppel precludes a party from claiming

the benefits of a contract while simultaneously attempting to

avoid the burdens that contract imposes.” Comer v. Micor, Inc.,

436 F.3d 1098, 1101 (9th Cir. 2006) (quotation marks omitted).

In the context of arbitration, estoppel theory has generated

several lines of cases.27 However, as with the alternative

theory of agency, pursuant to Luke, estoppel theory is only

relevant to determining whether a party has standing to invoke an

arbitration agreement. The enforceability of the arbitration

agreement is a separate issue determined through the application

of general contract law principles. Luke, 105 Hawai#i at 249, 96

P.3d at 269. See Rosenhouse, supra, at 409 (noting that the

doctrine of equitable estoppel “cannot be invoked where the

agreement containing the arbitration clause is itself

unenforceable”). Given that there is no issue as to whether

See Rosenhouse, supra, at 387, explaining:

The federal courts have initiated and many state courts have

recognized and adopted a unique body of "equitable estoppel"

law that is peculiarly applicable to cases in which a

nonsignatory to an arbitration agreement either seeks to

compel arbitration of a claim against itself brought by a

signatory party to the arbitration agreement, or asserts a

claim against such a signatory, who then seeks to compel the

nonsignatory to arbitrate that claim. The doctrine differs

from traditional equitable estoppel in that it contains no

requirement of justifiable reliance, and it has not been

accepted by all state courts.

(Emphasis added).

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Kaiser has standing to invoke the arbitration agreement, Kaiser

must demonstrate that Michael actually agreed to arbitrate his

claims pursuant to the traditional requirements of contract

formation.

3. Third-party beneficiary

Kaiser also argues that Michael is bound by the

arbitration provision because he is a third-party beneficiary of

the Group Agreement between Kaiser and the EUTF. [AB at 10-11]

“A third party beneficiary is one for whose benefit a

promise is made in a contract but who is not a party to the

contract.” Ass’n of Apartment Owners of Newtown Meadows ex rel.

Bd. of Directors v. Venture 15, Inc., 115 Hawai#i 232, 270, 167

P.3d 225, 263 (2007) (quoting Pancakes of Haw., Inc. v. Pomare

Props. Corp., 85 Hawai#i 300, 309, 944 P.2d 97, 106 (App. 1997))

(quotation marks omitted) (emphasis added). “Ordinarily, third-

party beneficiary status is a question of fact . . . .” Jou v.

Dai-Tokyo Royal State Ins. Co., 116 Hawai#i 159, 168, 172 P.3d

471, 480 (2007).

Kaiser argues that the facts of this case demonstrate

that Michael was a third-party beneficiary of a contract between

Kaiser and the EUTF:

It is clear that the EUTF intended for Mr. Siopes to benefit

from the Group Agreement with Kaiser, that the health

benefits to be provided under the Group Agreement were in

satisfaction of the EUTF’s pre-existing obligation to Siopes

to provide his health benefits, and that a material part of

the parties’ purpose in entering into the Group Agreement

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was to provide health benefits to Mr. Siopes under the

Kaiser Plan.

(Quotation marks omitted).

However, it is not the case that all State and county

employees and retirees, for whom the EUTF manages health care

plans, are third-party beneficiaries of all contracts the EUTF

negotiates for the purpose of fulfilling its statutory

obligation. The employee must select between the different plans

presented by the EUTF, and it is only upon enrollment that the

employee receives any benefit from the plan negotiated by the

EUTF. Thus there is no relationship between the employee and

Kaiser until the employee enrolls in a Kaiser plan by signing the

Enrollment Form. Once enrollment is completed, the employee and

Kaiser are in privity of contract. See Hunt v. First Ins. Co. of

Haw., Ltd., 82 Hawai#i 363, 367, 922 P.2d 976, 980 (App. 1996)

(“Privity of contract is ‘that connection or relationship which

exists between two or more contracting parties.’”) (brackets

omitted) (quoting Black’s Law Dictionary 1199 (6th ed. 1990)).

Therefore, it would be inaccurate to characterize Michael, an

enrollee of the Kaiser plan, as a third-party beneficiary of the

Group Agreement, given that a third-party beneficiary is by

definition not a party to the contract. See Venture 15, 115

Hawai#i at 270, 167 P.3d at 263.

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Based on the foregoing, the arbitration provision is

not binding on Michael based on the theories of agency, estoppel

and third-party beneficiary, as those theories are not applicable

to the circumstances of this case. In order to enforce the

arbitration agreement against the Siopeses, Kaiser must

demonstrate that Michael actually agreed to arbitrate his claims

with Kaiser when he enrolled in the Kaiser plan.

As repeatedly emphasized by this court, “[a]rbitration

is a matter of contract and a party cannot be required to submit

to arbitration any dispute which he [or she] has not agreed so to

submit.” Brown, 82 Hawai#i at 244, 921 P.2d at 164 (quotation

marks and brackets omitted). Thus in order for any arbitration

provision to be enforceable, it must meet the requirements of

contract formation as articulated in Douglass. The parties to

the agreement must mutually assent to arbitration, as determined

by the terms of the agreement and the surrounding circumstances.

See Douglass, 110 Hawai#i at 532, 135 P.3d at 141 (“we cannot

conclude that, in combination with the surrounding circumstances

presented in this case, there is mutual assent”). In this case,

the Enrollment Form that Michael signed did not reference the

arbitration agreement and the record does not establish that

Michael was otherwise informed of the existence of the

arbitration agreement, much less that he assented to it. Thus,

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Kaiser has failed to demonstrate “unambiguous intent to submit to

arbitration,” and the arbitration provision is unenforceable as

between Kaiser and Michael.28

Given our conclusion that the arbitration provision

contained in the Group Agreement is unenforceable as between

Michael and Kaiser, we accordingly hold that Lacey is not bound

to arbitrate her claims.29

However, we note that even if the arbitration agreement

was enforceable in this case, Lacey, who is not a Kaiser member

and not a party to the Group Agreement, would not be

automatically required to submit all of her claims to binding

arbitration. As stated, generally only parties to an arbitration

agreement may be required to arbitrate their claims. In this

case, Lacey did not agree to arbitrate her claims with Kaiser.

In Brown, this court undertook an extensive analysis of

whether a spouse who was not a signatory to the arbitration

In Brown, this court recognized that “[f]or almost forty years,

arbitration agreements have been regarded, as a matter of federal law, as

severable and distinct from the underlying agreement.” 82 Hawai#i at 245, 921

P.2d at 165. The court held that generally, “an arbitration agreement is

severable from the writing in which it is embedded.” Id. at 246, 921 P.2d at

166. See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445 (2006)

(“as a matter of substantive federal arbitration law, an arbitration provision

is severable from the remainder of the contract”); Richard A. Lord, 21

Williston on Contracts 245 (4th ed. 2001) (“Ordinarily, an arbitration clause

will be treated as a separate contract, and severable from the main body of

the contract. Thus, whenever possible, an arbitration clause will be held

severable . . . .”) (footnote omitted).

Lacey joins in Michael’s claims for damages due to breach of

contract, medical negligence, insurance bad faith, violations of HRS Chapter

480, and punitive or exemplary damages. Lacey pleads an individual claim for

negligent infliction of emotional distress.

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agreement could be bound to arbitrate her claims for loss of

consortium and negligent and intentional infliction of emotional

distress. 82 Hawai#i at 240-43, 921 P.2d at 160-63. In

resolving this issue, the court distinguished between a

nonsignatory co-plaintiff “asserting contract claims as the agent

or functional equivalent of a primary plaintiff who is a party to

the contract containing an arbitration agreement,” and a

nonsignatory co-plaintiff “asserting claims that are distinct and

separable from those of a primary plaintiff who is a party to an

arbitration agreement[.]” Id. at 242, 921 P.2d at 162.

In the former situation, “[b]ecause recovery as an

agent would necessarily be limited to that amount recoverable by

the principal, the claimant . . . [would] understandably [be]

bound by the arbitration agreement that had been signed by the

principal.” Id. at 243, 921 P.2d at 163 (quotation marks

omitted). In the latter situation, however, although the claims

derive from the same injury, the bases for damages are “totally

separate” from the damages that the injured spouse would assert

for a claim such as breach of contract. Id.

For example, claims for loss of consortium are

“derivative in the sense that they do not arise unless one’s

spouse has sustained a personal injury,” but they are

“independent and separate” claims for damages. Id. at 241, 921

P.2d at 161 (brackets and quotation marks omitted).

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Thus, while these types of derivative claims are barred when

the victim’s initial claim of injury cannot be maintained,

and are subject to defenses premised on the injured spouse’s

contributory or comparative negligence, it does not

inevitably follow that they must be adjudicated in the same

forum as the claims for injury to which they relate or that

they are not otherwise separable.

Id. (citations omitted). Accordingly, the Brown court held that

the nonsignatory spouse’s claims for loss of consortium and

negligent and intentional infliction of emotional distress were

derivative but separable from the signatory’s claims, as the

claims were asserted “neither as an agent for her husband nor

pursuant to a ‘derivative’ and contract-based theory of recovery,

such as that of a third party beneficiary.” Id. at 243, 921 P.2d

at 163. Thus the court held, “to the extent that she is not

pursuing claims as [her husband’s] agent or under a breach of

contract theory (pursuant to which she stands in [her husband’s]

shoes), [the nonsignatory spouse] is not bound by the arbitration

agreement between [the signatory husband] and [his employer].”

Id.

In this case, the circuit court held that all of

Lacey’s claims, including her claim for negligent infliction of

emotional distress, were subject to arbitration because the Group

Agreement “specifically contained language that would

specifically encompass claims by non members for harm to

members.” The circuit court’s determination that Lacey was

required to arbitrate all of her claims is inconsistent with

Brown, which considered the derivative and separable nature of

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the nonsignatory spouse’s claims in determining whether the

claims were subject to the arbitration agreement.30 Thus the

circuit court erred in not considering the nature of Lacey’s

claims in determining whether she was bound by the arbitration

agreement.

VI.

The Siopeses also argue that the circuit court was

required to consider their claims of unconscionability prior to

compelling arbitration.

Unconscionability has generally been recognized to include

an absence of meaningful choice on the part of one of the

parties together with contract terms which are unreasonably

favorable to the other party. Whether a meaningful choice

is present in a particular case can only be determined by

consideration of all the circumstances surrounding the

transaction.

City & Cnty. of Honolulu v. Midkiff, 62 Haw. 411, 418, 616 P.2d

213, 218 (1980) (quoting Williams v. Walker-Thomas Furniture Co.,

350 F.2d 445, 449 (D.C. Cir. 1965)). See Lewis v. Lewis, 69 Haw.

497, 502, 748 P.2d 1362, 1366 (1988) (stating “[i]t is apparent

that two basic principles are encompassed within the concept of

unconscionability, one-sidedness and unfair surprise,” and

describing “one-sidedness” in the context of premarital

agreements to “mean that the agreement leaves a post-divorce

economic situation that is unjustly disproportionate”);

The arbitration clause in Brown required binding arbitration for

“any controversies concerning my compensation, employment[,] or termination of

employment . . . .” 82 Hawai#i at 230, 921 P.2d at 150. In this case, the

arbitration provision in the 2009 Group Agreement specifically provides that

it applies to “any other person entitled to bring an action for damages for

harm to the member . . . .”

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Restatement (Second) of Contracts § 208 cmt. a (1981) (“The

determination that a contract or term is or is not unconscionable

is made in the light of its setting, purpose and effect.”).

In the context of adhesion contracts, “form contract[s]

created by the stronger of the contracting parties” and “offered

on a ‘take this or nothing’ basis,” this court has held that such

contracts are “unenforceable if two conditions are present: (1)

the contract is the result of coercive bargaining between parties

of unequal bargaining strength; and (2) the contract unfairly

limits the obligations and liabilities of, or otherwise unfairly

advantages, the stronger party.” Brown, 82 Hawai#i at 247, 921

P.2d at 167 (citations omitted).

As stated, the circuit court is limited to answering

two questions in deciding a motion to compel arbitration: “1)

whether an arbitration agreement exists between the parties; and

2) if so, whether the subject matter of the dispute is arbitrable

under such agreement.” Koolau Radiology, Inc. v. Queen’s Med.

Ctr., 73 Haw. 433, 445, 834 P.2d 1294, 1300 (1992). Pursuant to

HRS § 658A-6(a), an agreement to arbitrate is “valid,

enforceable, and irrevocable except upon a ground that exists at

law or in equity for the revocation of a contract.”

Unconscionability is a generally applicable contract

defense and is within the scope of the circuit court’s review on

the question of whether a valid and enforceable agreement to

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arbitrate exists. See Restatement (Second) of Contracts § 208

(1981) (“If a contract or term thereof is unconscionable at the

time the contract is made a court may refuse to enforce the

contract, or may enforce the remainder of the contract without

the unconscionable term . . . .”). See also Brown, 82 Hawai#i at

247, 921 P.2d at 167 (“a contract that is ‘adhesive’ . . . is

unenforceable if two conditions are present”). In this case, the

circuit court granted Kaiser’s Motion to Compel Arbitration

without addressing whether the arbitration provision in the Group

Agreement was unconscionable, based on its determination that the

issue was beyond the scope of the court’s review.

The Siopeses raised several grounds supporting their

claim that the arbitration provision was unconscionable. The

Siopeses specifically cited the arbitration agreement’s

provisions governing fees, discovery, confidentiality and ERISA

members as evidence that the arbitration agreement impermissibly

advantages Kaiser and limits Kaiser’s obligations and potential

liabilities.31 In particular, the Siopeses argued that the

arbitration provision’s various limitations on civil discovery,

including the taking of “brief” depositions of three “critical

witnesses,” unfairly advantages Kaiser, which has unlimited

access to medical records and personnel. Considering that

unconscionability is a defense to the enforceability of a

See supra note 10.

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contract or contract provision, the Siopeses raised issues

related to the question of whether a valid and enforceable

agreement to arbitrate existed in the Group Agreement.

Thus, even if the arbitration provision had met the

requirements of contract formation as articulated in Douglass,

the circuit court should have also addressed whether the

provision was unconscionable.32 The circuit court therefore

erred in determining that the Siopeses’ claims of

unconscionability were beyond the scope of its review in deciding

the Motion to Compel Arbitration.33

The 2009 Group Agreement provides, “If the [FAA] or other law

applicable to these arbitration terms is deemed to prohibit any term in this

Service Agreement in any particular case, then such term(s) shall be severable

in that case and the remainder of this Service Agreement shall not be affected

thereby.” The 2003 Group Agreement provides more generally, “If any term(s)

in this Service Agreement is found invalid under applicable law, the validity

of the remaining portions . . . shall not be affected and the rights and

duties hereunder shall be construed and enforced as if this Service Agreement

did not contain the term(s) held to be invalid.” In light of our disposition

of this case, it is unnecessary to address the merits of the unconscionability

claims or to resolve whether any provision deemed unconscionable would be

severable.

Given our determination that the arbitration provision is

unenforceable against Michael due to the lack of mutual assent, the circuit

court is not required to address the issue of unconscionability on remand.

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VII.

Based on the foregoing, we hold that the circuit court

erred in ordering the Siopeses to arbitrate their claims against

Kaiser. The circuit court’s March 5, 2012 orders granting the

Motion to Compel Arbitration and Motion to Stay Discovery are

therefore vacated, and the case is remanded for proceedings

consistent with this opinion.

Mark Davis /s/ Mark E. Recktenwald

Michael K. Livingston

Matthew C. Winter /s/ Paula A. Nakayama

Clare E. Connors

for petitioners /s/ Simeon R. Acoba, Jr.

William S. Hunt /s/ Richard W. Pollack

Dianne Winter Brookins

Jan M. Vernon

David A. Abadir

for respondents

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.