March 24, 2019

Colorado Court of Appeals: Phrase “Arising Under” in Arbitration Clause Should Be Interpreted Broadly

The Colorado Court of Appeals issued its opinion in Digital Landscape Inc. v. Media Kings LLC on Thursday, September 20, 2018.

Arbitration Clause “Arising Under”Broad DefinitionAttorney Fees.

Media Kings LLC (Media) entered into a contract to provide marketing services to Transcendent Marketing, LLC (Transcendent). Media then contracted with Digital Landscape Inc. (Digital) to provide advertising services to Transcendent. The contract between Media and Digital had an arbitration clause providing that any disputes arising under the agreement would be resolved by binding arbitration. Per the contract, Media agreed to pay Digital a portion of its earnings from Transcendent in exchange for Digital’s work on the project. Media failed to pay Digital, and Transcendent proposed that Digital take over the project. Digital’s principal officer agreed, but had one of his other companies take over the work. Thus, Media was effectively cut out of its agreement with Transcendent.

Digital sued Media for breach of contract, and as relevant here, Media filed a counterclaim alleging that Digital had breached the implied covenant of good faith and fair dealing. The district court ordered the parties to arbitrate the dispute. The arbitrator awarded Digital $68,197.41. While discussing the counterclaim, the arbitrator also referred to it as addressing a breach of Digital’s duty of loyalty to Media. The arbitrator decided that Digital still owed a duty of loyalty to Media that it had breached, and she awarded Media damages on the counterclaim. Lastly, finding that there was no prevailing party, she declined to award either party attorney fees. The district court confirmed the order.

On appeal, Digital contended that the arbitrator lacked jurisdiction to consider whether Digital had breached a duty of loyalty to Media because this claim did not “arise under” the arbitration clause. The court of appeals analyzed the phrase “arising under” and concluded that it was sufficiently broad to include the duty-of-loyalty counterclaim. Further, the arbitration clause was unrestricted.

Digital further contended that the arbitrator improperly converted the counterclaim alleging breach of implied covenant of good faith and fair dealing to a different one, breach of loyalty, which Media had not raised. It alleged that the ruling on this different claim was unfair and the award to Media was therefore void. The court found as an initial matter that the arbitrator did not intend to rule on a facially different counterclaim. But even assuming that she had, the different claim was within the issues that the parties had agreed to submit. The arbitrator did not exceed her powers because the substituted counterclaim “arose under” the contract between Digital and Media. Further, the evidence and arguments were encompassed in the breach-of-the-duty-of-good-faith-and-fair-dealing claim. The district court did not err when it confirmed the arbitrator’s award.

Finally, Digital argued that the arbitrator exceeded her authority by refusing to award attorney fees because neither party had prevailed. The court concluded there was clearly no prevailing party, so the arbitrator did not have to award attorney fees.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

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