The Hawaii Supreme Court ruled on September 30, 2026, in the case of Navatek Capital Inc. v. Kao (Docket SCWC-22-0000364), affirming the decisions made by lower courts regarding an arbitration award. The ruling impacts Martin Kao, a former executive, and Navatek Capital Inc. The court determined that there was no sufficient cause to vacate the arbitration award despite Kao's claims of prejudice due to pending criminal charges.
This case is significant as it clarifies the standards for postponing arbitration proceedings in light of criminal charges. It also reinforces the authority of arbitrators to award punitive damages, a point of contention in the case.
Background
The parties involved in this case are Navatek Capital Inc. (NCI), Martin Kao, and PacMar Technologies LLC, formerly known as Navatek LLC. NCI is the plaintiff, while Kao is the defendant. The dispute arose from allegations of fraud and breach of fiduciary duty against Kao, who was the Chief Executive Officer of Navatek.
The conflict began when NCI accused Kao of fraudulently obtaining over $12 million in Paycheck Protection Program (PPP) funds during the COVID-19 pandemic. Following the allegations, NCI sought to disassociate Kao from the company and filed a civil complaint in November 2020. The case was complicated by ongoing criminal charges against Kao, which he argued justified his request to postpone arbitration proceedings.
The case eventually reached the Hawaii Supreme Court after lower courts ruled in favor of NCI, confirming the arbitration award that included punitive damages against Kao. Kao's request to vacate the arbitration award was denied by the circuit court, which led to his appeal.
The Ruling
The Hawaii Supreme Court ruled that the circuit court correctly applied the “good cause” standard to determine whether there was sufficient cause to postpone the arbitration. The court stated, “The circuit court did not err in applying the ‘good cause’ standard to define ‘sufficient cause’ in HRS § 658A-23(a)(3).”
However, the court also noted that the circuit court erred in deferring to the arbitrator's application of the Keating factors, which were based on federal constitutional principles. Instead, the Hawaii Supreme Court established a new standard grounded in state constitutional principles to evaluate requests for postponement due to pending criminal charges.
The court concluded that, under the new standard, there was still no sufficient cause for postponement in Kao's case. Thus, the court upheld the lower courts' decisions, affirming the arbitration award and the punitive damages assessed against Kao.
Impact
This ruling has significant implications for future arbitration cases in Hawaii, particularly those involving allegations of criminal conduct against a party. It clarifies that the courts will apply a more protective standard for defendants in civil proceedings when criminal charges are pending. The decision reinforces the authority of arbitrators to award punitive damages, which may deter fraudulent behavior in business practices.
The ruling also emphasizes the importance of adhering to arbitration agreements and the limited grounds on which arbitration awards can be vacated. Moving forward, parties involved in arbitration should be aware of the standards set forth by the Hawaii Supreme Court regarding postponements and the authority of arbitrators.
What's Next
It remains unclear whether Kao will appeal the decision further, as the Hawaii Supreme Court has provided a definitive ruling on the matter. There may also be related cases pending that could further explore the implications of this ruling on arbitration and business practices in Hawaii.