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The Supreme Court of Hawaii has held that the attorneys of parties to arbitration are protected by the litigation privilege, which shields them from liability to their client's adversary absent proof of malicious prosecution, abuse of process, or fraud.
In Kahala Royal Corp. v. Goodsill Anderson Quinn & Stifel, Nos. 26669, 26670, 2007 WL 64740 (Haw. Jan. 11, 2007), Kahala Royal (KRC) initiated arbitration proceedings against Mandarin Oriental Holdings (MOH) for failing to properly oversee and control affiliates that operate and manage KRC's hotels.
The parties agreed in writing to stay the arbitration proceedings, and MOH retained a law firm to supervise KRC's inspection of books and records in MOH's possession. Thereafter, KRC brought suit against the law firm for "intentional interference with contractual relations and prospective economic advantage," stemming from the attorneys' alleged interference with KRC's inspections.
The Court determined that the litigation privilege applied to the attorneys during the stay of adversarial arbitration proceedings, which meant that the law firm was shielded from liability.
Litigation immunity protects attorneys from being held liable to their clients' litigation adversaries. The doctrine does not shield attorneys from liability for intentional torts. However, the only such torts recognized by the State of Hawaii in this context are malicious prosecution, abuse of process, and fraud. Because none of those torts were present in the law firm's oversight of the inspection process, KRC could not maintain an action against the law firm.
Although the litigation privilege is generally associated with judicial proceedings, Hawaii has recognized arbitration as a "quasi-judicial proceeding." Coral Kingdom of Kaneohe, Ltd. v. Harter, 649 P.2d 1159, 1161 (Haw. 1982). Accordingly, the law firm was permitted to invoke the litigation privilege, since their actions during the inspections "would not have occurred but for the initiation of arbitration proceedings."
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