Navatek Capital Inc. v. Kao

NOT FOR PUBLICATION IN WEST'S HAWAI‘I REPORTS AND PACIFIC REPORTER

Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
29-JUL-2025
08:32 AM
Dkt. 75 SO

NO. CAAP-XX-XXXXXXX

IN THE INTERMEDIATE COURT OF APPEALS

OF THE STATE OF HAWAI‘I

NAVATEK CAPITAL INC., individually and derivatively on
behalf of Nominal Defendant MARTIN DEFENSE GROUP, LLC,
fka NAVATEK LLC, Plaintiff-Appellee,
v.
MARTIN KAO, Defendant/Cross-claim Defendant-Appellant,
MARTIN DEFENSE GROUP, LLC, fka NAVATEK LLC,
Nominal Defendant/Cross-claimant-Appellee, and
JOHN DOES 1-10; JANE DOES 1-10; DOE PARTNERSHIPS 1-5;
DOE CORPORATIONS 1-10; DOE ENTITIES 1-10; and
DOE GOVERNMENTAL UNITS 1-10, Defendants,
JOHN DOES 11-20, JANE DOES 11-20, DOE PARTNERSHIPS 6-10,
DOE CORPORATIONS 11-20, and DOE ENTITIES 11-20,
Cross-claim Defendants

APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT
(CASE NO. 1CCV-XX-XXXXXXX)

SUMMARY DISPOSITION ORDER
(By: Leonard, Presiding Judge, McCullen and Guidry, JJ.)

Defendant/Cross-claim Defendant-Appellant, Martin Kao

(Kao), appeals from the Circuit Court of the First Circuit's
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(circuit court)1: (1) April 27, 2022 "Findings of Fact [(FOFs)],

Conclusions of Law [(COLs)] and Order Granting Plaintiff[-

Appellee] Navatek Capital Inc., [(Navatek)] Individually and

Derivatively on Behalf of Nominal Defendant Martin Defense

Group, LLC, fka Navatek LLC's [(MDG)] Motion to Confirm

Arbitration Award" (Order Confirming Award); (2) April 27, 2022

"[FOFs], [COLs], and Order Granting [MDG]'s Joinder to

[Navatek's] Motion to Confirm Arbitration Award, Filed on

December 7, 2021 [DKT. 252], Filed on December 9, 2021 [DKT.

267]" (Order Granting Joinder); (3) April 27, 2022 "Order

Denying [Kao's] Motion to Vacate Arbitration Award" (Order

Denying Motion to Vacate); and (4) April 28, 2022 "Final

Judgment Confirming Arbitration Award" (Final Judgment).

This matter arises out of an arbitration between

Navatek, MDG,2 and Kao, in September and October of 2021, that

resulted in the issuance of a Final Award in favor of Navatek

and MDG. The Final Award, inter alia, awarded $4,537,610.80 in

punitive damages to MDG. Navatek filed a motion in circuit

court to confirm the Final Award; Kao moved to vacate the Final

Award. After hearing the motions, the circuit court denied

1 The Honorable Gary W.B. Chang presided.

2 MDG is a nominal defendant-appellee in this matter.

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Kao's motion to vacate, granted Navatek's motion to confirm, and

entered the Final Judgment. This appeal followed.

On appeal, Kao raises three points of error,

contending that the circuit court erred in: (1) denying Kao's

motion to vacate the Final Award; (2) granting Navatek's motion

to confirm the Final Award; and (3) entering COLs 3 and 43 in its

Order Confirming Award and Order Granting Joinder.

Upon careful review of the record, briefs, and

relevant legal authorities, and having given due consideration

to the arguments advanced and the issues raised by the parties,

we resolve Kao's points of error as follows:

"We review the [circuit] court's ruling on [the]

arbitration award de novo," but are mindful that the circuit

court's review "is confined to the strictest possible limits and

[the] [circuit] court may only vacate an award on the grounds

specified in [Hawaii Revised Statutes (HRS)] § 658A-23[

(2016)]." Tatibouet v. Ellsworth, 99 Hawaiʻi 226, 233, 54 P.3d

3
COLs 3 and 4 state:

3. The [circuit c]ourt, having already denied
Kao's Motion to Vacate, concludes that there is no basis to
modify, correct, or vacate the Final Award under Hawaii
law.
4. The [circuit c]ourt concludes that the Final
Award, having been made in good faith by the Arbitrator,
and there being no basis to modify, correct[,] or vacate
the Final Award, is binding and conclusive upon the
parties.

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397, 404 (2002) (citation omitted); Haw. State Tchrs. Ass'n v.

State Dep't of Educ., 140 Hawaiʻi 381, 391, 400 P.3d 582, 592

(2017) (cleaned up).

"The scope of an arbitrator's authority is determined

by [the] agreement [between] the parties." State Org. of Police

Officers (SHOPO) v. Cnty. of Kauaʻi, 134 Hawaiʻi 155, 159, 338

P.3d 1170, 1174 (App. 2014) (citation omitted). The Agreement

to Participate in Binding Arbitration states that the parties

"agree to follow and abide by the [Dispute Prevention &

Resolution, Inc.] Arbitration Rules, Procedures & Protocols

[(DPR Rules)]" and that, absent an agreement that states

otherwise,4 the Arbitrator "may grant any and all remedies that

the Arbitrator determines to be just and appropriate under the

law." The DPR Rules provide that the Arbitrator "may award

punitive damages . . . if the conditions of [HRS § 658A-21

(2016)] are met.

"[W]henever material facts are in dispute in

determining whether an arbitration award should be vacated, the

circuit court should conduct an evidentiary hearing and render

[FOFs] and [COLs] in support of granting or denying the motion

to vacate the arbitration award." Clawson v. Habilitat, Inc.,

4 The Operating Agreement does not expressly limit the Arbitrator's
authority with respect to the award and/or remedies it can issue.

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71 Haw. 76, 79, 783 P.2d 1230, 1232 (1989). Although the

circuit court is not required to enter FOFs and COLs on all

motions to vacate, its reasoning must be "clearly stated on the

record . . . to allow appropriate appellate review." Nordic PCL

Constr., Inc. v. LPIHGC, LLC, 136 Hawaiʻi 29, 54, 358 P.3d 1, 26

(2015).

Kao made several arguments to the circuit court, which

he again raises on appeal,5 in support of his contention that the

Final Award should be vacated. The circuit court did not make

FOFs or COLs as to any of Kao's contentions. However, the

circuit court explained its ruling with respect to Kao's

contention that the Arbitrator exceeded its authority in

awarding punitive damages. The circuit court also explained its

ruling as to Kao's contention that the Arbitrator erroneously

5 Kao asserts the following arguments for why the Final Award
should have been vacated: "(1) The Arbitrator refused to postpone the
hearing"; (2) "Kao was denied a fair hearing because he was required to
submit to a hearing in which his voice would be silent due to his invocation
of his constitutional right against self-incrimination"; (3) The award, in
effect, was a penalty for his invocation of his right against self-
incrimination; (4) The Arbitrator erred in awarding punitive damages; (5) The
Arbitrator exceeded his authority by "purporting to apply a 'beyond a
reasonable doubt' standard and determining that [Kao] violated criminal
laws"; (6) The Arbitrator's award of punitive damages shows the Arbitrator's
bias against Kao; (7) The Arbitrator demonstrated evident partiality by
"raising the issue of punitive damages sua sponte"; (8) The Final Award
violates public policy; (9) The Arbitrator exceeded his authority when he
awarded excessive attorneys' fees and costs; and (10) The Arbitrator erred in
denying Kao's motion to disqualify Vernon Woo and the Starn O'Toole Marcus &
Fisher law firm.

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denied his motion to stay the arbitration6 due to the

Arbitrator's misapplication of the factors set forth in Keating

v. Off. of Thrift Supervision, 45 F.3d 322, 324-25 (9th Cir.

1995). We therefore address those specific contentions as

follows.

First, with regard to punitive damages, HRS § 658A-

21(a) (2016) provides, in relevant part, that "[a]n arbitrator

may award punitive damages . . . if such an award is authorized

by law in a civil action involving the same claim and the

evidence produced at the hearing justifies the award under the

legal standards otherwise applicable to the claim."

Here, at least some of the claims that Navatek alleged

in its Demand for Arbitration, such as the claims for fraud and

breach of fiduciary duty, are tort claims for which punitive

damages are permitted. See TSA Int'l Ltd. v. Shimizu Corp.,

92 Hawaiʻi 243, 264, 990 P.2d 713, 734 (1999) (concluding that

claims for fraud and breach of fiduciary duty are tort claims);

Llanes v. Bank of Am., N.A., 154 Hawaiʻi 423, 429, 555 P.3d 110,

116 (2024) (noting that punitive damages is an awardable

6 In September 2020, prior to the arbitration proceedings, the
United States Department of Justice filed a criminal complaint against Kao
based on allegations that Kao had "fraudulently obtained more than $12.8
million in Paycheck Protection Program ("PPP") funds on behalf of [MDG]" and
then subsequently "transferred approximately $2 million to himself." In May
2021, after the arbitration proceedings had commenced, Kao filed a motion to
stay the arbitration until his federal criminal case was resolved.

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category in tort actions). Moreover, it appears from the

multiple testimonies presented during arbitration that there was

clear and convincing evidence that Kao "intended to harm

[Navatek and/or MDG], or recklessly disregarded a substantial

risk of harm to [Navatek and/or MDG], or otherwise acted in an

outrageous or malicious manner."7 See Guieb v. Guieb, No. SCWC-

XX-XXXXXXX, 2025 WL 1806355, at *5 (Haw. July 1, 2025) (citation

omitted) (stating the standard the plaintiff must meet to

recover punitive damages). We therefore conclude that the

circuit court did not err in finding that the Arbitrator did not

exceed its authority in awarding punitive damages.

Second, we address Kao's contention that the

Arbitrator erred in denying his motion to stay the arbitration

until after the resolution of his criminal proceedings because

the Arbitrator did not properly apply the Keating factors. In

the instant case, the circuit court found, after reviewing the

Arbitrator's application of the Keating factors, that the

Arbitrator did not abuse its discretion in denying Kao's motion

to stay.

7 For example, Steven C. H. Loui, Navatek's President, testified
about the undisclosed distributions to Kao, Kao's use of company funds to pay
for personal criminal matters not covered by the Operating Agreement, and
Kao's other fraudulent and illegal conduct.
Tom Simon, a private investigator, also testified about emails
sent to and by Kao that demonstrated Kao's purported intention to engage in
fraudulent activities.

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"It is well settled that arbitration awards may not be

vacated . . . [even] if the arbitrators commit a legal or

factual error in reaching its final decision." Tatibouet,

99 Hawaiʻi at 236, 54 P.3d at 407 (citation omitted); see also

Haw. State Tchrs. Ass'n, 140 Hawaiʻi at 391-92, 400 P.3d at 592-

93 (noting that parties who agree to arbitrate assume all the

risks of arbitration such as the arbitrator's incorrect

application of the law). We determine, on this basis, that the

circuit court did not err in deferring to the Arbitrator's

application of the Keating factors.

We must also address, however, whether the circuit

court adequately considered the mandate of HRS § 658A-23(a)(3)

(2016). HRS § 658A-23(a)(3) provides that the circuit court

shall vacate an arbitration award if "[the] arbitrator refused

to postpone the hearing upon showing of sufficient cause for

postponement . . . so as to prejudice substantially the rights

of a party to the arbitration proceeding."

The record reflects that, in applying the Keating

factors, the Arbitrator expressly addressed Kao's argument that

"conducting the [arbitration] proceedings while the criminal

matters were pending risked violating [Kao's] state and federal

constitutional privileges against self-incrimination and was

otherwise inherently prejudicial." In so doing, the Arbitrator

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considered whether the lack of a postponement would "prejudice

substantially the rights" of Kao. The circuit court found that

the Arbitrator "meticulously weighed the evidence on each of the

five factors that comprised the [Keating] test and concluded

that there was an insufficient basis to postpone the

arbitration." On this record, we determine that the circuit

court's denial of Kao's motion to vacate did not violate HRS §

658A-23(a)(3).

Finally, as noted above, the circuit court did

not enter FOFs and/or COLs or otherwise state its rationale for

rejecting Kao's other asserted grounds for vacating the Final

Award, and therefore, we are unable to discern its

reasoning. Accordingly, we are unable to determine whether the

circuit court adequately considered the remaining grounds8 that

Kao asserted in support of his motion to vacate. We therefore

vacate the Final Judgment, and instruct the circuit court, on

remand, to address these contentions.

For the foregoing reasons, we vacate the Final

Judgment and Order Denying Motion to Vacate, and we vacate in

part and affirm in part the Order Confirming Award and Order

8 See supra note 5.
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Granting Joinder. We remand for further proceedings consistent

with this summary disposition order.

DATED: Honolulu, Hawaiʻi, July 29, 2025.

On the briefs: /s/ Katherine G. Leonard
Presiding Judge
Keith M. Kiuchi,
for Defendant/Cross-claim /s/ Sonja M.P. McCullen
Defendant-Appellant. Associate Judge

Jesse W. Schiel, /s/ Kimberly T. Guidry
for Plaintiff-Appellee, Associate Judge
and Nominal Defendant/Cross-
claimant-Appellee.

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