April 26, 2017

Colorado Court of Appeals: District Court Lacked Jurisdiction to Confirm Arbitration Award Where Arbitrator Died

The Colorado Court of Appeals issued its opinion in In re Marriage of Roth on Thursday, April 6, 2017.

Subject Matter Jurisdiction—Death of Arbitrator During Pendency of Arbitration.

The parties agreed to arbitrate the permanent orders issues in their dissolution of marriage. The agreement provided that the Colorado Uniform Arbitration Act (CUAA) governed the proceedings; the arbitrator would reserve jurisdiction for 20 days after issuing an award to allow the parties to seek clarification, correction, or modification of the award; and if jurisdiction was reserved on an issue, the arbitrator would hear it unless he was unavailable. The arbitrator issued an award, and both parties submitted timely requests for modification and clarification of the award. During the process of submitting these requests, the arbitrator died. Five days later, wife moved in district court to appoint a replacement arbitrator under C.R.S. § 13-22-215(5). A week later husband moved to confirm the arbitrator’s award under C.R.S. § 13-22-222. The trial court found that wife was essentially seeking to relitigate the permanent orders, and it denied her motion and granted husband’s motion to confirm the award and entered a dissolution decree incorporating the award.

On appeal, wife argued that under the CUAA, the district court lacked subject matter jurisdiction to confirm the arbitration award while the parties’ requests to modify or correct it were pending before the arbitrator. She contended that upon the death of the arbitrator, the court had subject matter jurisdiction only to appoint a replacement arbitrator. Under the CUAA, a valid and enforceable arbitration agreement divests the district court of jurisdiction on all matters submitted to arbitration pending the conclusion of the arbitration. Here, due to the timely requests for modification or correction of the award, the arbitration proceedings had not concluded at the death of the arbitrator and subject matter jurisdiction to confirm the award was not in the district court. Under the CUAA, the district court only had subject matter jurisdiction to appoint a replacement arbitrator to complete the proceedings.

Wife further contended that the district court erred by denying her motion to appoint a replacement arbitrator. Because it is undisputed that the parties’ chosen arbitrator could not act, the district court was required to appoint a replacement arbitrator.

The district court’s judgment confirming the arbitration award was vacated, its order denying wife’s motion to appoint a replacement arbitrator was reversed, and the case was remanded to appoint a replacement arbitrator to complete the arbitration proceedings.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Arbitration Agreement Must Strictly Comply with Statute

The Colorado Court of Appeals issued its opinion in Fischer v. Colorow Health Care, LLC on Thursday, September 8, 2016.

Arbitration Agreement—Motion to Compel—C.R.S. § 13-64-403—Strict Compliance.

Colorow Health Care, LLC, and its management company, QP Health Care Services, LLC, operate a long-term healthcare facility. When Fischer (the decedent) was admitted to the facility, her daughter, acting under a power of attorney, signed an arbitration agreement. The decedent passed away while a resident of the facility. Plaintiffs Amy and Roger Fischer pleaded tort claims arising from the decedent’s death. Defendants appealed the trial court’s order denying their motions to compel arbitration.

Defendants then filed this interlocutory appeal as of right under C.R.S. § 13-22-228(1)(a), contesting the trial court’s order denying their motions to compel arbitration. C.R.S. § 13-64-403 sets out specific language that an arbitration agreement must include to comply with the Health Care Availability Act. Defendants contended that the statute requires only substantial compliance with its provisions; plaintiffs argued that the arbitration agreement had to strictly comply, and because it admittedly did not, it was invalid. The court of appeals concluded that C.R.S. § 13-64-403 calls for strict compliance, and based on the complete lack of bold-faced type in the agreement, the court agreed that the agreement was invalid.  The court further concluded that this neither creates an absurd result nor violates Colorado’s public policy favoring arbitration.

The order was affirmed.

Summary provided courtesy of The Colorado Lawyer.

Tenth Circuit: Arbitration Agreement Requiring Parties to Pay Own Costs Prohibitive to Plaintiff

The Tenth Circuit Court of Appeals issued its opinion in Nesbitt v. FCNH, Inc. on Tuesday, January 5, 2016.

Rhonda Nesbitt was a student at the Denver School of Massage Therapy (DSMT), and as such was required to provide massage therapy services to the public without compensation. Nesbitt filed a class action against DSMT’s parent companies (defendants) in April 2014, alleging that the students were effectively acting as employees in providing services to the public and, as such, were entitled to compensation under the Fair Labor Standards Act and wage and hour laws. Defendants moved the district court to stay the proceedings and compel arbitration pursuant to the arbitration agreement contained in plaintiffs’ student contract. The district court denied defendants’ motion, noting that although the agreement was not unconscionable, it effectively precluded Nesbitt from pursuing her claims because the cost of arbitration was prohibitive. The district court determined that because the arbitration agreement contained no savings clause, the entire agreement was unenforceable. Defendants filed an interlocutory appeal.

The Tenth Circuit first determined that the dispute was governed by the Federal Arbitration Act (FAA), and discussed the effective vindication exception, where plaintiffs are effectively prohibited from pursuing their claims because the prohibitive cost limits use of the arbitral forum. In this case, defendants argued that Nesbitt failed to carry her burden to show that arbitration would be prohibitively expensive. The Tenth Circuit disagreed. The Tenth Circuit found Nesbitt’s argument persuasive that the possibility of fee-shifting later in the arbitration is not the same as FLSA protection. The Tenth Circuit also rejected the defendants’ arguments that the arbitration agreement was silent as to fees and costs, noting it explicitly invoked the American Arbitration Association’s Commercial Rules, which address the allocation of fees and costs. The Tenth Circuit concluded that forcing an employee to pay for arbitration with the mere possibility of future reimbursement constituted prohibitive costs.

The Tenth Circuit affirmed the district court.

Colorado Court of Appeals: District Court Not Statutorily Required to Grant De Novo Review of Arbitrator’s Decision

The Colorado Court of Appeals issued its opinion in In re Marriage of Vanderborgh on Thursday, March 25, 2016.

Parenting Time Dispute—Arbitration Agreement—De Novo Hearing—Constitutional Rights.

The parties submitted their post-dissolution parenting time disputes to an arbitrator pursuant to their agreement in their Parenting Plan. After the third decision by an arbitrator, father moved for a de novo hearing, under CRS § 14-10-128.5(2), on his motion to modify the parenting time schedule. The court denied father’s request for a de novo hearing and confirmed the arbitrator’s decision.

On appeal, father first contended that the district court erred by denying him a de novo hearing on his request for equal parenting time during the school year because CRS § 14-10-128.5(2) mandates such a hearing whenever a party requests one. The plain language of this statute, however, gives the court discretion to grant or deny a party’s motion for a de novo hearing, and the Court of Appeals concluded that the court did not abuse that discretion.

Father next argued that CRS § 14-10-128.5(2) is unconstitutional as the district court applied it because it “allows an arbitration decision on parenting time, a constitutionally protected interest, without procedural safeguards and only discretionary review.” Father agreed to arbitrate the issue of parenting time, and his right to challenge the arbitration award under the Colorado Uniform Arbitration Act and to request (but not necessarily receive) a de novo hearing under CRS § 14-10-128.5 sufficiently protect his rights to procedural due process.

Father also argued that the parties’ child was denied equal protection because he does not have the same rights as children whose parents do not choose arbitration for parenting time disputes. The Court determined that the child’s rights were adequately protected under the dissolution statutes.

The order was affirmed and the case was remanded to determine mother’s request for appellate attorney fees.

Summary and full case available here, courtesy of The Colorado Lawyer.

Top Programs and Homestudies — Intellectual Property, Elder Law, Immigration, and More

Over the past few weeks, we have been featuring the Top Ten Programs and Homestudies in various practice areas. Previous posts include:

Although we addressed several substantive practice areas, we offer many more great programs not featured on the previous Top Ten lists. These are discussed today.

Intellectual Property The Annual Rocky Mountain Intellectual Property & Technology Institute is the region’s premier event for IP lawyers. The 2015 Institute featured four simultaneous tracks of sessions for attorneys, covering patents and patent litigation, trademarks/copyrights, licensing, and transactional/e-commerce. As a bonus, Odyssey Beerwerks in Arvada donated custom brews for the 2015 Institute. The 2016 IP Institute is scheduled for June 2 and 3, 2016, at the Westin Westminster. Click here for more information about the IP Institute and the 2016 conference agenda.

Elder Law Colorado CLE presents an annual mountain program for elder law practitioners, the Annual Elder Law Retreat. The 2015 Retreat, held in beautiful Snowmass, discussed social security issues, including maximizing benefits; trends in VA, including special programs and applications for long-term care; atypical beneficiary requests; financial exploitation of the elderly; long-term care planning; and much more. The dates for the 2016 Retreat have not yet been announced; stay tuned to cle.cobar.org/elder for details.

Immigration — In addition to the comprehensive reference book, Immigration Law for the Colorado Practitioner, Colorado CLE offers several great immigration programs each year. Most recently, the CBA Immigration Law Section co-sponsored the program, “Immigration Law — Asylum and Other Humanitarian Relief,” which covered U visas, T visas, VAWA, special immigrant juvenile status, asylum law, and more. Find this and other important immigration law programs here.

Alternative Dispute Resolution Colorado CLE offers many great ADR programs, but the flagstone event is the 40-hour Mediation Training. This five day live program, taught by renowned mediator Judy Mares-Dixon, presents an in-depth guide to mediation as well as several breakout sessions to practice mediation skills. The 40-hour Mediation Training will occur on January 18, 19, 20, 25, and 26, 2016. Space is limited so register today.

Workers’ Compensation — Each year, the CBA Workers’ Compensation Section co-sponsors two annual events: the Workers’ Compensation Fall Update and the Workers’ Compensation Spring Update. Topics vary from year to year but each program features case law updates and news from the Division. In addition, many times medical professionals will provide education on particular types of injuries, including psychological injuries. More information about CLE’s workers’ compensation offerings can be found here.

Health Law — Two years ago, Colorado CLE began offering an annual Health Law Symposium, co-sponsored by the CBA Health Law Section and the American Health Lawyers Association. This program offers an exceptional speaker lineup of nationally recognized health law experts focused on current issues in health law of interest and concern to practicing attorneys in the rocky mountain. Topics discussed at the 2015 Health Law Symposium include discussion of the Affordable Care Act, franchising in the health care industry, HIPAA and meaningful use, antitrust rules in the provider context, and more.

Juvenile Law Although many family law programs cover topics of interest to juvenile law practitioners, this important practice area also has its own programming. Each year, Colorado CLE presents a juvenile law update, co-sponsored by the CBA Juvenile Law Section. The 2016 Juvenile Law Program, “Ethics! Ethics! Ethics!,” is scheduled for April 1, 2016, with a focus on—you guessed it—ethics. Topics covered include implicit bias, social media, ethical challenges in juvenile defense, and more. Click here to register.

Solo/Small Firm — This technically is not a practice area, but there are myriad issues that solo practitioners face while running a law business that their biglaw counterparts do not. The Solo and Small Firm Section of the CBA puts on great programming throughout the year, including topical lunches, and hosts monthly networking meetings, the Solo in Colo blog, and much more. For information on joining the Solo and Small Firm Section, click here.

If you don’t see your practice area listed here or on the previous Top Ten posts, please let us know. If you are interested at speaking at an event in your practice area, we would love to hear from you. Contact us today!

Resolve Client Conflicts Through Narrative Mediation

ADR2015Editor’s Note: This article is excerpted from materials written by C. Adam Foster of Hoban & Feola, LLC, who will present “Once Upon a Mediation: The Role of Narrative in Alternative Dispute Resolution” at CLE’s 9th Annual Colorado ADR Conference on October 7, 2015. See below for registration information.

Each person tells themselves a story about how their past experiences have shaped them as a person and how these experiences, along with their goals and values, define what is important to them in life. In other words, personal narrative gives meaning to past experiences, which define the individual’s self-image in the present and in turn circumscribes how they view their relationships with others and how they evaluate their choices moving forward. Individuals create multiple narratives in different contexts that inform how they see themselves in various social roles, for instance as professionals, spouses, parents and friends. These individual narratives stand in dialog with larger social narratives involving class, race, gender, sexual orientation, religion and many other aspects of identity. Moreover, the existence of these narratives and their effect on the construction of identity may be more or less consciously acknowledged depending on the individual and their circumstances at any given time. Regardless of whether consciously or (more often) subconsciously, each individual crafts a narrative that reaffirms his or her values and identity. Thus, “[t]he stories that one constructs fit into a wider web of stories relating to other stories created by the same individual, to stories created by members of one’s social network, and even to cultural stories on a societal level” (Hansen, 2003). The notion of interrelated individual narrative and larger scale social discourse has been adopted into the practice of Narrative Mediation. Kure & Winslade (2010) elaborate:

In particular, narrative mediators focus on what can be coined “relational discourses,” which are local systems of meaning that shape the identities of parties in a relationship. These relational discourses map on to larger, more pervasive, discourses, or orders of discourse, but at the personal level, they are manifest through the ‘positioning ’of each of the parties in a power relation.

This idea of individual identity as a product of multiple individual and group discourses and narratives dovetails with the concept of “discursive positioning.” As Winslade (2003) writes: “As people speak, they position themselves not just in immediate relation to other person(s) in the conversation, but also in relation to utterances in other conversations.” Furthermore, discursive positioning occurs not just in relation to past conversations that the parties have had with each other, but innumerable conversations they have had with third parties.

The statement of facts is the most important portion of any legal brief because citation to legal authorities is meaningless unless the decision maker understands the specific factual context of the case. Judges, juries and arbitrators want to achieve a fair outcome. A properly crafted narrative creates moral tension, suggests a proper result and makes the decision maker care about the outcome. Moreover, a great deal of trial strategy focuses on advancing the client’s narrative and suppressing or disrupting the opposing party’s narrative. A compelling narrative has “integrity” in the sense that the facts fit together in a logical fashion and support the party’s message.

Attorneys must recognize that the audience is different in a bench trial, jury trial, arbitration or mediation—and attorneys should tailor this narrative to the appropriate audience while telling the story the client needs to tell. Moreover, each individual—the parties but also the attorneys and mediator, arbitrator, judge, jury, etc.—is trying to make sense of two related, but distinct, narratives: (i) a narrative regarding the facts of case and a desirable outcome; and (ii) a meta-narrative regarding who they are as a person and how case fits in with their life story.

In mediation making sure that the parties feel heard is critical. Parties want to achieve a favorable outcome but also to feel heard and validated in the process, so a good settlement accomplishes both. A party who achieves favorable financial outcome but doesn’t feel heard feels dissatisfied and may try to undermine the settlement when the opportunity arises.

Common sense dictates that it will usually be more important for parties to agree on certain elements of a joint narrative if they will be in a continuing relationship (e.g., in a workplace or parenting time dispute) versus a one-off transaction (e.g., a tort settlement for money damages). But it is often necessary to establish legal and factual stipulations to settle any type of dispute. Litigation will result in a judgment, but may not further agreement on a joint narrative.

C. Adam Foster, Esq., serves as Special Counsel at Hoban and Feola, where his practice focuses on the representation of business owners and mediation of business cases. He received a B.A. in Anthropology in 1998 from the University of Colorado at Boulder and was elected to Phi Beta Kappa. Adam returned to the University of Colorado at Boulder to attend law school, where he served as the Articles Editor of the University of Colorado Law Review, won the CU-DU Cup Mock Trial Competition, and received the Legal Aid Award for Outstanding Advocate. Adam joined Hoban & Feola in September of 2010 and today focuses on representing small to medium-sized business owners—including entrepreneurs within the burgeoning cannabis and industrial hemp industries—in transactions and litigation. He also mediates cases involving business, partnership and employment disputes. He speaks Spanish fluently and volunteers regularly, providing pro bono legal referrals through the Colorado Lawyers Committee Legal Nights and Project Homeless Connect.

 

CLE Program: 9th Annual Colorado ADR Conference

This CLE presentation will take place Wednesday, October 7, 2015 at the Renaissance Hotel in Denver. Live program only – click here to register or call (303) 860-0608.

Learn to Negotiate Effectively – Gain the Edge!®

Everyone negotiates. If you are a lawyer – regardless of your practice area – your ability to negotiate effectively may be one of the most critical skills you possess.

Like any skill we possess, our negotiation techniques will grow and develop as we feed them. Our upcoming Gain the Edge!® Negotiation Strategies for Lawyers seminar with Marty Latz will help lawyers hone their skills and become more effective negotiators. The video clip above shows you just one of Marty’s tips for handling negotiations successfully.

As Marty explained to us “There’s basically a right way to negotiate, and there’s a wrong way to negotiate.” While most of us tend to wing it while negotiating, Marty will share decades of proven expert research to help you sharpen your negotiating skills by navigating away from an instinctive or intuitive mindset towards a more strategic method.

This program has something for everyone. “Everybody benefits. Negotiation is truly a life skill,” as Marty says. Whether you are a litigator, family lawyer, or real estate practitioner, negotiations come into your practice. Perhaps you are trying to close a business deal, encountering discovery disputes, trying to solve a taxation issue, or negotiating your office lease. Whatever it is that you do, this program will provide you tips for negotiating in any professional legal environment. By attending, you’ll gain tools to negotiate more successfully with all of the people you encounter: your bosses, co-workers, employees, clients, and other lawyers.

We hope you’ll join us and Marty for Gain the Edge! ® Negotiation Strategies for Lawyers. You can learn more about the topics Marty will cover by viewing the program brochure. As a bonus, each attendee will receive a copy of Marty’s book, Gain the Edge! Negotiating to Get What You Want. To reserve your spot now, click here to register online or call (303) 860-0608.

Then mark your calendar and come prepared to improve your skills and have fun at the same time. Marty’s other seminar attendees have told him that they “not only find [the information] useful, practical, and interesting but they also really enjoy themselves.”

We hope you’ll enjoy it too!

CLE Program: Gain the Edge! ® Negotiation Strategies for Lawyers

This CLE presentation will take place Friday, October 2, 2015 at the CLE offices. All class attendees will receive a copy of Marty Latz’s book, Gain the Edge! Negotiating to Get What You Want. Live program only – click here to register.

Editor’s Note: A version of this post originally appeared on the blog of the Legal Education Society of Alberta on July 28, 2015. Reprinted with permission.

Tenth Circuit: Concealment of Arbitration Agreements Until Late Stage of Litigation Constituted Waiver of Right to Arbitrate

The Tenth Circuit Court of Appeals issued its opinion in In re Cox Enterprises, Inc.: Healy v. Cox Communications, Inc. on Wednesday, June 24, 2015.

Cox is a cable provider involved in class-action litigation brought by subscribers to its cable service. In 2009, subscribers in several jurisdictions filed suits against Cox, alleging the company illegally tied provision of its cable service to rental of a set-top box. The actions were consolidated in a multi-district litigation and transferred to the U.S. District Court for the Western District of Oklahoma. Cox moved to dismiss, and during the pendency of its motion began inserting mandatory arbitration clauses into contracts with many of its customers, including class members. Cox does not appear to have notified the District Court about its insertion of the clauses. Plaintiffs’ efforts to certify a nationwide class failed, and instead they sought to certify several classes for geographic regions. These actions were again consolidated and transferred to the Western District of Oklahoma.

The instant case was originally brought in April 2012, and Cox unsuccessfully moved to dismiss in September 2012. The parties then engaged in substantial discovery, and named plaintiff Healy moved to certify a class in September 2013. Cox at no time mentioned the arbitration clauses. The court granted class certification in January 2014 as the parties continued to engage in discovery. Cox appealed to the Tenth Circuit in March 2014, again failing to mention the arbitration clauses, but its petition was denied. In April 2014, Cox moved for summary judgment, and that same day it moved to compel arbitration against both the absent class and named plaintiff Healy, citing the arbitration clauses for the first time. It later clarified that it was not compelling arbitration against Healy. The district court denied the motion to compel on the basis that Cox’s prior conduct in the litigation constituted waiver. Cox appealed.

The Tenth Circuit used its six-factor Peterson test to evaluate whether the right to arbitration had been waived. The six factors are (1) whether the party’s actions are inconsistent with the right to arbitrate, (2) whether the parties were well into the preparation of a lawsuit before a party notified the opposing party of an intent to arbitrate, (3) whether a party requested arbitration enforcement close to a trial date or delayed for a long period before seeking a stay, (4) whether a defendant seeking arbitration filed a counterclaim without requesting a stay, (5) whether important intervening steps like discovery had taken place, and (6) whether the delay affected, misled, or prejudiced the opposing party.

The district court determined Cox’s failure to inform it of the presence of arbitration agreements until after class certification was inconsistent with an intent to arbitrate and suggested an attempt to manipulate the process, as it would affect the numerosity of the class. The Tenth Circuit agreed, also finding that because Cox did not request for its motion for summary judgment to be stayed pending arbitration implied an attempt to “play heads I win, tails you lose” by manipulating the litigation machinery. The district court found, and the Tenth Circuit agreed, that the second, third, and fifth Peterson factors also cut strongly against Cox. Cox did not invoke the arbitration agreements until two years after the lawsuit was commenced, and substantial discovery had occurred before the invocation. Further, Cox failed to mention a factor that would have significantly affected the district court’s Rule 23 analysis, and Healy would be significantly prejudiced if arbitration were allowed. The Tenth Circuit opined that perhaps the greatest prejudice would be to the integrity of the judicial process, since both the district court and Tenth Circuit had invested significant time and energy in analyzing literally thousands of pages of documents.

Cox argued the Peterson factors were inapplicable because a party does not invariably waive its right to impose arbitration by filing its motion to compel after class certification. The district court rejected this argument as an improper attempt to artificially narrow the scope of the waiver, and the Tenth Circuit agreed. Cox could have asserted its right to arbitration at many earlier litigation stages but chose to conceal the arbitration provisions. Further, the district court’s denial of the motion to compel was based not on Cox’s failure to compel arbitration earlier but rather its specific conduct evincing an attempt to “take multiple bites of the apple.”

The Tenth Circuit affirmed the district court.

Tenth Circuit: Refusal to Pay Arbitration Fees Justified District Court’s Removal of Stay

The Tenth Circuit Court of Appeals issued its opinion in Pre-Paid Legal Services, Inc. v. Cahill on Tuesday, May 26, 2015.

Todd Cahill was a former sales associate for Pre-Paid Legal Services, Inc., who agreed not to solicit or recruit other Pre-Paid sales associates during his employment or for two years after termination. Cahill left Pre-Paid to join another marketing company, and Pre-Paid contended he misused trade secret information and solicited other Pre-Paid employees for work at his new company. Pre-Paid brought suit in Oklahoma state court, and Cahill removed the action to the U.S. District Court for the Eastern District of Oklahoma, claiming diversity jurisdiction. Cahill then moved to stay the proceedings pending arbitration, which motion was granted. Pre-Paid initiated arbitration proceedings before the American Arbitration Association (AAA). Pre-Paid paid its share of arbitration fees but Cahill did not. Cahill received repeated warnings from the Director of ADR Services at the AAA that arbitration would be suspended and terminated if he failed to pay, but neither paid his fees nor requested other relief. Eventually, the Director terminated arbitration. Pre-Paid petitioned the district court to remove the stay, and the district court granted the motion.

Cahill appealed the lifting of the stay, arguing the Tenth Circuit had jurisdiction under 9 U.S.C. § 16(a)(1)(A). Pre-Paid moved to dismiss the appeal for lack of jurisdiction, and, if the Tenth Circuit found it had jurisdiction, urged the court to affirm the lifting of the stay.

The Tenth Circuit first analyzed its jurisdiction. Although it generally does not have jurisdiction to review non-final orders, the Federal Arbitration Act provides an exception for orders that refuse to stay proceedings pending arbitration. The Circuit found that the order lifting the stay was essentially an order “refusing a stay,” since the district court declined to continue enforcing the stay after arbitration proceedings were terminated. The Tenth Circuit declined to draw a distinction between a district court refusing to apply a stay and a court refusing to continue a stay once arbitration failed. The Circuit likewise found that Cahill’s request to continue the stay was initiated under § 3 of the FAA.

Turning to the merits of the appeal, the Tenth Circuit found the district court properly lifted the stay. The Circuit found that arbitration had “been had in accordance with the terms of the agreement” because the arbitration clause in Cahill’s employment agreement required the parties to pay their share of fees in accordance with AAA rules. Since Cahill failed to pay his fees and the Director terminated the arbitration proceedings, the Tenth Circuit found arbitration had “been had” pursuant to § 3. Similarly, the Tenth Circuit found support for the district court’s actions under § 3’s language regarding default. There was no dispute regarding Cahill’s failure to pay the arbitration fees. Cahill never asserted an inability to pay, nor did he ask for a modified payment schedule or request for Pre-Paid to pay his arbitration fees. Instead, he allowed arbitration to terminate by refusing to pay the fees. The Tenth Circuit found this failure to pay constituted “default” under § 3. Cahill contended the arbitrators were the correct party to determine default, but the Circuit disagreed, finding the district court’s decision to remove the stay appropriate in light of Cahill’s refusal to pay fees. Even assuming the default decision was left to the arbitrators, the Tenth Circuit found that the arbitrators determined Cahill was in default by refusing to pay the fees.

The Tenth Circuit found it had jurisdiction to hear the appeal and affirmed the district court’s lifting of the stay.

Colorado Court of Appeals: Signatory to Arbitration Agreement May Not Equitably Avoid Arbitration After Acknowledging Agreement

The Colorado Court of Appeals issued its opinion in Meister v. Stout on Thursday, May 7, 2015.

First Impression—Compelling Arbitration on a Non-signatory—Appellate Attorney Fees—Confirmation of Arbitration Award.

DeLollis and Stout founded an information technology company, Venti Solutions, LLC. Meister invested in Venti and became a member of the company. The purchase agreement signed by Venti, Stout, DeLollis, and Meister granted Meister a 20% interest in Venti in exchange for a capital contribution of $500,000.

The agreement incorporated by reference the Venti operating agreement, which was executed by Stout and DeLollis. The operating agreement had a dispute resolution article providing that arbitration was the exclusive mechanism for resolving all disputes.

In 2012, Meister sued DeLollis, Stout, and Venti. DeLollis and Venti moved to compel arbitration, and the court so ordered. The arbitrator dismissed Meister’s claims with prejudice and awarded $375,738.70 against him on Venti’s breach of contract counterclaim. The district court confirmed the award.

Meister appealed on the ground that arbitration should not have been compulsory as to his claims against Venti, a non-signatory to the operating agreement. Under Colorado law, both signatory and non-signatory parties may be bound by an arbitration agreement if so dictated by ordinary principles of contract law. Equitable estoppel may also be used to bind parties to an arbitration agreement.

The Court of Appeals held that Meister’s claims against Venti were subject to arbitration under an estoppel theory. All of his claims referenced or presumed and relied on the existence of the operating agreement. He was therefore equitably estopped from avoiding arbitration of his claims against Venti. As additional support for this conclusion, the Court noted that Meister’s claims alleged interconnected and concerted misconduct among Venti, Stout, and DeLollis, and it was admitted that Stout and DeLollis were subject to the operating agreement and the arbitration provision.

Meister also challenged the district court’s confirmation of the arbitration award. The Venti operating agreement required arbitration to take place not more than sixty days after selection of an arbitrator. Originally scheduled for July 9 and 10, 2013, arbitration was postponed to September 3 and 4, after Meister failed to pay the arbitration deposit. Meister was also under travel restrictions stemming from an unrelated federal indictment in Florida. He did not disclose these criminal proceedings to the arbitrator or to defendants. He filed a motion to appear electronically on the basis of poor health. Defendants discovered his involvement in criminal proceedings and Meister refused the arbitrator’s requests to verify his health status. His request to appear electronically was denied. The Court affirmed the district court’s ruling and remanded the case for determination of the appellees’ attorney fees and costs.

Summary and full case available here, courtesy of The Colorado Lawyer.

Frederick Skillern: Real Estate Case Law — Common Interest Communities, Covenants, and CCIOA

Editor’s note: This is Part 2 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick Skillern

Triple Crown at Observatory Village Association v. Village Homes of Colorado
Colorado Court of Appeals, November 7, 2013
2013 COA 150
Construction defect claims; interlocutory review; relationship between revised Nonprofit Corporation Act and the Common Interest Ownership Act.

Arising from alleged construction defects in a common interest community, this interlocutory appeal under C.A.R. 4.2 presents four questions of first impression in Colorado, which the court answers as follows:

  1. Where an association is a nonprofit corporation, the Colorado nonprofit act establishes the time limit for amending its declaration based on action taken without a meeting;
  2. The statutory power to engage in “litigation” under C.R.S. § 38-33.3-302(1)(d) includes arbitration;
  3. C.R.S. § 38-33.3-302(2) does not invalidate the mandatory arbitration provision, because the dispute resolution procedures apply to parties other than the declarant; and
  4. Colorado consumer protection act claims may be subject to mandatory arbitration, because the CCPA does not include a nonwaiver provision.

Village Homes, a residential developer, built homes subject to recorded covenants, and thereby created an association, Triple Crown. Triple Crown was set up as a nonprofit corporation under C.R.S. §§ 7-121-101, et seq. In the declaration of covenants, the developer included a dispute resolution procedure for claims arising from the design or construction of homes in the Triple Crown development. The declaration required that construction defect claims be arbitrated under American Arbitration Association rules.

In 2012, residents began a campaign to amend the declaration by repealing the arbitration clause. Unfortunately, it took more than sixty days to gather the votes to amend the covenants. After sixty days, 48% of the members had cast votes in favor of revocation. After another sixty days, the Association had obtained the required 67% of votes to effect the amendment. The Association recorded the amendment, and then brought this action against Village Homes, alleging negligent construction, Colorado Consumer Protection Act (CCPA) violations, and breach of fiduciary duties.

Village Homes moved to dismiss for lack of jurisdiction, based on the arbitration clause in the declaration. It argued that the amendment repealing the arbitration provision was ineffective because the Association failed to amend Article 14 within the time limits in the Nonprofit Corporations Act, specifically C.R.S. § 7-127-107(2), which deals with time limits for actions taken without a meeting. The trial court granted the motion, dismissed the case, and ordered the case to arbitration. This order is affirmed on appeal. The court holds that when an association amends its declaration without a meeting under the CCIOA, the association, if it is a nonprofit corporation, must comply with the 60-day time limit provided in section 7-127-107.

The Court also agreed that the Common Interest Association Act gives power to associations to “institute, defend, or intervene in litigation or administrative proceedings . . . on the matters affecting the common interest community.” However, the court reasons that “litigation” includes both civil actions in court and arbitrations. It holds that the mandatory arbitration clause did not infringe on the association’s statutory power to “institute litigation.”

The association then argues that CCIOA § 38-33.3-302(2) invalidated Article 14. The trial court rejected this argument. The court agreed with the trial court, finding that the CCIOA section forbids only restrictions unique to the declarant. Article 14 controlled disputes between all parties.

The trial court rejected the association’s argument that its CCPA claims should not be subject to mandatory arbitration, because CCPA provisions by statute “shall be available in a civil action.” The court holds that such a right can be waived, and that Article 14 of the Triple Crown declaration was such a waiver.

 

Ryan Ranch Community Assn., Inc. v. Kelley
Colorado Court of Appeals, March 27, 2014
2014 COA 37M
Liability for homeowner association assessments; annexation; developer side agreement.

This is an interesting situation involving a developer, a side agreement with another landowner to exempt that owner’s land from subdivision covenants, and the annexation provisions of the CCIOA. As a prequel, the following general principles stated in the dissent by Judge Terry set the stage.

  • “Provisions of this article may not be varied by agreement. . . . A declarant may not . . . use any . . . device to evade the limitations or prohibitions of this article or the declaration.” C.R.S. § 38-33.3-104. . . .
  • Members are not “entitled to set up agreements reached with the developer as defenses to the obligation to pay assessments . . . . [T]he developer does not have the power to waive the assessment obligations imposed on property within the common-interest community.” Restatement (Third) of Property: Servitudes, 6.5, cmt. e (2000).

Nice notions, but the developer here found the approval process for a second filing of his development sometimes required some last-minute adjustments. He had a side agreement with Kelley, an owner of a minority of land to be included in a second filing of a large development, to keep the “Kelley Lots” from control of any covenants or new HOAs. At the late stages of approval of the new filing, however, the developer included Kelley’s land in the filing – Kelley signed the plat – and sold the lots in bulk to Ryland.

Ryland, going along with the deal, sold the Kelley lots immediately back to developer, and the developer then deeded the land to Kelley. Kelley sold the lots to another builder, who sold homes to consumers. Several years go by, during which the consumers enjoy neighborhood improvements, and then the HOA takes action to collect assessments – including back fees totaling $70,000. The homeowners had constructive notice of the plat and the declaration from exceptions to their deed warranties. In defense, the homeowners and Kelley argued that their lots had not been appropriately “annexed” into the association. The decision goes through the statutes, and two judges reverse the trial court and hold that the requirements for annexation had not been met.

The reasoning of the majority goes like this. To exercise a development right under CCIOA, a developer must comply with the plat and map requirements of C.R.S. § 38-33.3-209 and the recording requirements of C.R.S. § 38-33.3-217(3). The homeowner defendants argue that to exercise a reserved development right, CCIOA requires the recording of an amendment to the declaration that must contain certain information and be properly indexed. The court agrees that the recording of an Official Development Plan and the declaration was not sufficient to meet these requirements. The original declaration cannot logically be considered an amendment to itself such that it could annex the Kelley Lots. Moreover, nothing was denominated as an amendment, nothing assigned identifying numbers to newly created units, there was no reallocation of interests among all units, and no common elements were described. Nothing on the Filing 2 plat map subjected the described property to the Declaration.

On the other hand, the dissent notes, the Declaration provides that the additional lots will be annexed into the HOA when (1) a plat for additional properties to be annexed is recorded, and (2) either an annexation form is recorded, or a deed for real property within the plat is conveyed from Ryland to a third party other than Ryland. “On November 17, 2005, Ryland recorded the Filing 2 plat, which included the Kelley Lots. On December 20, 2005, Ryland conveyed the Kelley Lots back to the developer by deed. These two actions — filing of the plat and conveyance by deed — fulfilled the requirements of the Declaration to annex real property to the HOA.”

CCIOA fans and developers’ counsel will want to dive into this discussion — and avoid those shortcuts.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Tenth Circuit: Contract’s No Third-Party Beneficiary Provision Effectively Barred Claims of Third-Party Beneficiary Entities

The Tenth Circuit Court of Appeals issued its opinion in Gorsuch Ltd., B.C. v. Wells Fargo National Bank Association on Tuesday, November 4, 2014.

Renie and David Gorsuch founded Gorsuch, Ltd., a retail store, in 1962, and subsequently founded Gorsuch, Limited at Aspen and  Gorsuch, Limited at Keystone to operate additional retail stores. They founded Gorsuch Cooper to own the property from which Gorsuch, Ltd. at Aspen operates its business. The three child entities are collectively known as the Gorsuch Entities. In 2008, Gorsuch, Ltd. obtained a $14 million line of credit from Wells Fargo, and the credit agreement explicitly contained a no third-party beneficiary (NTPB) provision. When Gorsuch’s retail sales were lower than expected in 2009, Wells Fargo suspended the line of credit. Gorsuch Ltd. and the Gorsuch Entities brought suit against Wells Fargo for damages in state court, but Wells Fargo removed to federal court for diversity jurisdiction. Wells Fargo moved to dismiss the Gorsuch Entities’ third-party beneficiary claims due to the NTPB provision.

The district court determined the Gorsuch Entities were impermissible third-party beneficiaries and held the NTPB provision precluded them from seeking relief. The district court dismissed the Gorsuch Entities, granted Wells Fargo’s motion to dismiss the third-party claims, stayed the proceeding while Wells Fargo and Gorsuch, Ltd. proceeded to arbitration, and administratively closed the case without prejudice. Gorsuch, Ltd. moved to amend the complaint to include the Gorsuch Entities, but the district court denied the motion since the case was administratively closed and no one had petitioned to reopen it. Gorsuch, Ltd. eventually petitioned to reopen the case, but later withdrew the motion as it arbitrated its claims. After the district court’s deadline for reopening passed, it dismissed the case without prejudice. Gorsuch, Ltd. subsequently moved to reopen the case, which was granted, and moved for the court to confirm the arbitration award and file a third amended complaint along with the Gorsuch Entities. The district court affirmed the arbitration award, concluding Gorsuch, Ltd.’s involvement in the case. A magistrate judge filed a minute order clarifying that Gorsuch, Ltd. was the only proper plaintiff in the case, and the district court judge agreed, finding that the Gorsuch Entities had been dismissed from the litigation and had not shown good cause to file the third amended complaint. The Gorsuch Entities filed a timely appeal.

On appeal, the Tenth Circuit, applying Colorado law, found that (1) the district court correctly dismissed the Gorsuch Entities, and (2) properly denied their motion to amend. The Tenth Circuit found the Gorsuch Entities were not permissive assignees under the contract with Wells Fargo, and in fact were barred from bringing claims by the contract’s NTPB provision. Although Wells Fargo understood the business relationship between Gorsuch, Ltd. and the Gorsuch Entities, the contract expressly prohibited litigation from the Gorsuch Entities, therefore the district court’s dismissal of the Entities’ claims was correct. The Gorsuch Entities asserted that the district court gave improper weight to the NTPB provision, but there was no evidence in writing that the Entities were permissible third-party beneficiaries under the contract.

The Tenth Circuit also found that the district court correctly denied the Gorsuch Entities’ motion to amend the complaint. They were dismissed as parties in November 2011, and their July 2013 motion to amend was both untimely and showed no good cause to amend the complaint. Because the Gorsuch Entities lacked good cause for the delay in filing their amended complaint, the district court’s dismissal was proper.

The Tenth Circuit affirmed the district court’s dismissal of the Gorsuch Entities as parties and denial of their motion to amend.