June 26, 2019

Colorado Court of Appeals: Participation in Mandatory Arbitration Affirmed Existence of Disputed Contract

The Colorado Court of Appeals issued its opinion in Harper Hofer & Associates, LLC v. Northwest Direct Marketing, Inc. on Thursday, November 6, 2014.

Contract—Arbitration—Waiver—Colorado Uniform Arbitration Act.

Defendants engaged plaintiff to provide expert reports and possible testimony in an unrelated legal matter. The parties exchanged various engagement letters, each containing an arbitration clause. Plaintiff later initiated arbitration proceedings against defendants for the fees and costs associated with the work it performed. Defendants, via e-mail to the arbitrator, requested that a court determine whether the parties had executed a valid contract (and, thereby, had agreed to arbitration). However, defendants also requested that the arbitrator make a determination that no contract between the parties existed and, after receiving an unfavorable ruling on that issue, participated in the arbitration proceedings. Ultimately, the arbitrator found in favor of plaintiff and against defendants, and ordered defendants to pay plaintiff $27,982.24. The district court granted plaintiff’s motion to convert the arbitration award to a civil judgment and denied defendants’ motion to vacate.

On appeal, defendants argued that the trial court erred when it converted the arbitration award to a civil judgment over defendants’ objections at both the arbitration and district court stages based on the nonexistence of a valid contract. Under the Colorado Uniform Arbitration Act, the court, not the arbiter, decides whether a controversy is subject to an agreement to arbitrate. However, defendants waived their objection to the validity of the agreement containing the arbitration clause by actively participating in the arbitration proceeding and not timely seeking judicial review. The judgment was affirmed and the case was remanded to the district court for determination of reasonable attorney fees.

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

Tenth Circuit: Ambiguities in Arbitration Agreement Must Be Resolved in Favor of Arbitration

The Tenth Circuit Court of Appeals issued its opinion in Sanchez v. Nitro-Lift Technologies, L.L.C. on Friday, August 8, 2014.

Miguel Sanchez, along with co-plaintiffs Shane Schneider and Eddie Howard, worked for Nitro-Lift Technologies in and around Johnston County, Oklahoma, servicing and monitoring oil rigs. At the beginning of their employment, they signed a “Confidentiality/Non-Compete Agreement.” They claim they were not allowed to read the document, ask questions, or have an attorney review it before signing. The agreement, which Nitro-Lift alleges is an employment agreement despite its title, contains a broad arbitration clause requiring arbitration for “any dispute, difference or unresolved question” between Nitro-Lift and the employee.

The employees brought suit against Nitro-Lift in the Eastern District of Oklahoma, alleging violations of the FLSA because they were forced to work more than forty hours nearly every week and did not receive overtime compensation from Nitro-Lift for the hours they worked in excess of forty hours per week. In response, Nitro-Lift filed a motion to dismiss and compel arbitration pursuant to the provision in the purported employment agreement, or, alternatively, a motion to stay pending arbitration. Plaintiffs argued the arbitration agreement was unenforceable as to their FLSA claims for a variety of reasons, their wage disputes did not fall under the scope of the arbitration clause, the arbitration clause’s fee-shifting provisions were impermissible as to their employment dispute, and the forum selection clause and application of commercial arbitration rules make the clause unenforceable because they would force employees to pay substantial costs they cannot afford. The district court denied Nitro-Lift’s motion to compel arbitration, ruling that the contract’s broad arbitration clause did not encompass wage disputes because the contract only applied to confidentiality and non-competition. Nitro-Lift filed an interlocutory appeal, and on the same day filed a new motion to dismiss based on plaintiffs’ amended complaint adding Howard and reasserting the same issues contained in its original motion. The district court denied Nitro-Lift’s second motion as a motion for reconsideration. Nitro-Lift timely appealed and the appeals were consolidated for Tenth Circuit review.

The Tenth Circuit first addressed the dispute regarding the applicability of the arbitration clause. The Tenth Circuit found a strong presumption in favor of arbitration, noting that any ambiguities must be resolved in favor of arbitration. Because the Tenth Circuit found ambiguity regarding whether the arbitration clause applied to the dispute at hand, it ruled that arbitration was required and reversed the district court’s denial of the motion to compel arbitration.

The district court did not address plaintiffs’ FLSA claims, and the Tenth Circuit declined to address them for the first time on review, instead remanding to the district court for determination of plaintiffs’ unresolved issues. The Tenth Circuit also left for the district court determination of whether the fee-shifting provision in the arbitration clause rendered the agreement unenforceable in light of U.S. Supreme Court and Tenth Circuit precedent. The Tenth Circuit also declined to address plaintiffs’ argument that Nitro-Lift’s willingness to waive the fee-shifting provision, the forum selection clause, and the rules governing arbitration constituted an impermissible unilateral contract amendment, instead leaving this issue for the district court’s determination.

The district court’s denial of Nitro-Lift’s motion to compel arbitration was reversed and the case was remanded for further findings consistent with the Tenth Circuit’s opinion.

Tenth Circuit: Withheld Disputed Funds Due Upon Resolution of Dispute

The Tenth Circuit Court of Appeals issued its opinion in BP America Production Co. v. Chesapeake Exploration, LLC on Friday, May 2, 2014.

BP and Chesapeake entered into a purchase and sale agreement (PSA) for $1.75 billion regarding certain oil and gas properties. The PSA allowed the purchase price to be adjusted downward or upward based on property defects or benefits discovered by the parties before closing. “Title defects” would decrease the purchase price in favor of BP, and “title benefits” would increase the purchase price in favor of Chesapeake.  However, the adjustments would not affect the purchase price until they met the aggregate defect threshold of $35,000,000. The PSA contained three arbitration provisions: disputes regarding title defects and benefits would be referred to title arbitration, disputes regarding accounting issued would be covered in accounting arbitration, and a third, catch-all arbitration would apply to any dispute arising out of or relating to the PSA.

After closing, the parties agreed on title defects of $116,234,556. Less the aggregate threshold, the parties agreed BP was owed $81,234,556. Title disputes were submitted to title arbitration around the same time.  BP sought approximately $46 million for disputed title defects, and Chesapeake sought approximately $22 million for disputed title benefits and “credits.” While the title arbitration was pending, BP submitted a proposed final accounting statement reflecting the agreed title defects of approximately $80 million. To BP’s surprise, Chesapeake responded with an exception report changing the $80 million to $58 million, which Chesapeake said was the agreed-upon amount minus the amount Chesapeake was disputing in title arbitration. BP did not raise the withheld $22 million in arbitration.

In an effort to wrap up ongoing accounting arbitration, BP sent a letter to Chesapeake offering to settle the final statement. It said that the parties had “reached consensus regarding the minimum price adjustment owed to BP which is $59,857,470” and offered to withdraw from accounting arbitration upon payment of that amount. Chesapeake accepted.

The title arbitration panel issued an award finding $11,526,434 in title defects (favoring BP) and $3,727,031 in title benefits (favoring Chesapeake). In explanatory comments, the panel noted that it made no determination of whether these amounts exceeded the aggregate threshold, or whether its ruling would actually cause any money to exchange hands. BP requested payment from Chesapeake. Because the $3 million in title benefits awarded to Chesapeake did not exceed the aggregate threshold, Chesapeake received no price adjustment to offset the $22 million it previously withheld, and BP requested the full $33 million. Chesapeake paid the $11 million, but refused to pay the $22 million. BP then asked the panel to clarify and modify its award and order Chesapeake to pay the $22 million, and requested attorneys’ fees as the prevailing party. Chesapeake contested the panel’s jurisdiction and claimed it could not entertain BP’s request. Chesapeake also opposed BP’s request for attorneys’ fees, claiming that Chesapeake, not BP, was the prevailing party.

The panel found that it retained jurisdiction over the dispute and noted that it was the panel’s understanding that the withheld amounts would become due if the withholding party did not prevail. The panel said that the parties should submit briefing if they could not resolve the dispute. Chesapeake  continued to dispute the panel’s jurisdiction, refused to comply with the briefing schedule, and would not pay the $22 million. The panel ordered BP to provide a detailed explanation of why it was owed $22 million, which it did, but Chesapeake refused to reply. Chesapeake instead filed a complaint in Oklahoma state court seeking to confirm and modify the panel’s December 30, 2009 award, to vacate all rulings issued by the panel after the December 30, 2009 award, to enjoin the panel from issuing further rulings, and for a declaratory judgment that the panel lacked jurisdiction to adjudicate any further disputes. BP removed to federal court and counterclaimed for fees and a declaration of its entitlement to the $22 million. The district court later granted BP’s motion to stay the litigation pending completion of the arbitration proceedings. The arbitration panel found that Chesapeake owed BP $22 million, subject to any defenses Chesapeake might have outside the scope of the arbitration.

The parties filed competing motions to confirm in the district court. Chesapeake’s motion sought confirmation of the December 30, 2009 award only and to have all later awards vacated. The district court agreed with Chesapeake and ordered that the panel exceeded its jurisdiction by awarding the $22 million to BP. That order is the subject of BP’s cross-appeal.

The district court requested a joint proposal from the parties on how to proceed with regard to BP’s counterclaim for $22 million and fees. Both sides’ proposals failed, though, and after a 3-day bench trial, the district court found that Chesapeake waived its right to arbitrate the remaining disputes and that Chesapeake’s contract defenses failed. The court entered judgment in favor of BP for $22,265,302 plus interest. Chesapeake appeals from that judgment. The district court later granted in part BP’s motion for attorneys’ fees and costs and awarded $1,403,669.38 against Chesapeake for fees and disbursements. Chesapeake appeals that judgment as well.

The Tenth Circuit reviewed the record and determined that Chesapeake waived its right to arbitrate, and the attempt to arbitrate after that waiver was disingenuous. Chesapeake’s argument that BP’s claim was not timely was ineffective because the dispute did not arise until after completion of arbitration. Chesapeake also argued that BP’s counterclaim was not cognizable under the FAA, citing authority from other circuits. The Tenth Circuit does not have a rule prohibiting counterclaims in confirmation, and it rejected Chesapeake’s proposal. The Tenth Circuit next addressed BP’s cross-appeal. BP advised that if the Tenth Circuit rejected Chesapeake’s arguments, its appeal would be moot, and the Tenth Circuit agreed. Finally, the Tenth Circuit affirmed the award of attorney fees against Chesapeake.

SB 14-220: Requiring Mediation or Arbitration of Construction Defect Claims Where Required by Owners’ Association Governing Documents

On April 30, 2014, Sen. Jessie Ulibarri introduced SB 14-220 – Concerning Prerequisites to the Authority of a Unit Owners’ Association to Pursue Resolution of Disputes Involving Construction Defects. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill states that when the declaration, bylaws, or rules of a common interest community require mediation or arbitration of construction defect claims and the requirement is later removed, mediation or arbitration is still required for a construction defect claim based on an alleged act or omission that occurred when the mediation or arbitration requirement was in place. Section 1 also specifies that the arbitration must take place in the judicial district in which the community is located and that the arbitrator must:

  • Be a neutral third party;
  • Make certain disclosures before being selected; and
  • Be selected as specified in the community’s governing documents if possible or, if that is not possible, in accordance with the uniform arbitration act.

The bill adds to the disclosures required prior to the purchase and sale of property in a common interest community a notice that the community’s governing documents may require binding arbitration of certain disputes.

The bill requires that before a construction defect lawsuit is filed on behalf of the association, the executive board of the association must give advance notice to all unit owners, together with a disclosure of the projected costs, duration, and financial impact of the litigation, and must obtain the written consent of a majority of the unit owners.

The bill is assigned to the State, Veterans & Military Affairs and the Judiciary Committees; the State Affairs Committee will take up the bill first at 1:30 p.m. on Monday, May 5.

Since this summary, State, Veterans & Military Affairs Committee referred the bill, unamended, to the Judiciary Committee, which voted to postpone the bill indefinitely.

Colorado Court of Appeals: Funds Received in Arbitration Award Determined to be “General Intangibles”; Prevailing Party Entitled to Attorney Fees

The Colorado Court of Appeals issued its opinion in Millenium Bank v. UPS Capital Business Credit on Thursday, March 13, 2014.

Summary Judgment—Creditors’ Rights— Uniform Commercial Code.

UPS Capital Business Credit (UPS) loaned Superior Plaster and Drywall, Inc. (Superior) $1,027,000, secured by Superior’s assets. Millennium Bank (Millennium) loaned Superior $1.5 million, also secured by Superior’s assets. Millennium and UPS entered into an Intercreditor Agreement to establish the respective priority of their secured interests in Superior’s assets. Under the Intercreditor Agreement, (1) Millennium had first priority, and UPS second priority, in Superior’s accounts receivable; and (2) UPS had first priority, and Millennium second priority, in Superior’s general intangibles.

This case arose when Millennium and UPS disputed their rights to funds awarded to Superior in an arbitration proceeding. Superior had subcontracted with Beck Development, LLC (Beck) to perform drywall and paint work as part of the construction of two condominium towers. Superior claimed Akzo Nobel Paints, LLC (Akzo) had supplied defective paint; Akzo countered that Superior’s application techniques were to blame. Superior repainted the project four times at Beck’s insistence. The problem was not fixed, and Beck terminated Superior, without paying Superior for the costs incurred in repainting.

Superior sued Beck and Akzo, claiming (1) breach of contract by Beck and Akzo; (2) breach of warranty by Akzo; and (3) the right to receive payment on a mechanic’s lien it had filed on the condominium towers for work performed on the subcontract. The three entities agreed to arbitrate the claims against Akzo.

The arbitration panel determined that Akzo’s paint was the cause of the paint problems. The panel awarded consequential damages to Beck and Superior. To Superior, the damages encompassed (1) the amount due on Superior’s lien for work performed under the subcontract on the towers; (2) Superior’s costs for excess labor and excess materials in repainting the towers; and (3) punitive damages. Two weeks later, Superior filed for bankruptcy. Approximately one year later, Beck successfully moved, without objection, for dismissal of Superior’s claims against it.

The funds awarded in the arbitration became part of Superior’s bankruptcy estate. Millennium and UPS asserted their rights in those funds as secured creditors under Colorado’s version of the Uniform Commercial Code (UCC). They disputed only the priority rights with respect to the part of the funds representing the excess costs in labor and materials ($638,226.83) incurred by Superior in repainting the towers (challenged funds).

Millennium asserted the challenged funds were the proceeds of an account, on which it had first priority; UPS asserted they were the proceeds of an intangible right, on which it had first priority. The bankruptcy court determined it lacked jurisdiction to adjudicate the priority dispute and ordered the trustee to deliver the challenged funds to Millennium and UPS jointly for state law determination of their interests in the funds.

After the parties filed a statement of undisputed facts and cross-motions for summary judgment, the district court entered summary judgment for UPS, concluding that the challenged funds were general intangibles, rather than accounts. Millennium appealed and the Court of Appeals affirmed.

The parties agreed the resolution of the case depended on whether, as a matter of law, the challenged funds were, under the UCC, proceeds of an “account” or the proceeds of a “general intangible.” The “general intangible” category of assets traditionally encompassed proceeds from the right to pursue many types of lawsuits between a debtor and a party other than the interested creditor. However, this category, under the UCC, does not include “accounts.”

Here, the challenged funds were from an arbitration award Superior recovered from Akzo on a breach of warranty claim, not the right to payment of a monetary obligation for services rendered or to be rendered. Thus, the funds recovered from Akzo were not proceeds from an “account,” but rather proceeds of a “general intangible.” The district court’s classification of the funds was affirmed.

UPS requested its attorney fees incurred on appeal pursuant to a prevailing party fee provision in the Intercreditor Agreement. The Court agreed that UPS was entitled to those fees and remanded the case to the district court to award a reasonable amount of attorney fees incurred on appeal.

Summary and full case available here.

Colorado Court of Appeals: Arbitration Provision in Separation Agreement Covered Dispute Over Husband’s Payment Credits

The Colorado Court of Appeals issued its opinion in In re Marriage of Dorsey on Thursday, February 27, 2014.

Post-Dissolution of Marriage—Arbitration Provision.

The parties’ marriage ended in 2007. They entered into a separation agreement dividing their marital property and debt, and resolving maintenance and attorney fees. Under the property division, husband agreed to pay wife $4 million, in installment payments of no less than $40,000 a month for fifty-nine months, and the balance by December 20, 2011. Husband was entitled to reimbursement for certain expenses incurred in selling their properties and in facilitating wife’s purchase of her new home, and was entitled to apply any proceeds from the sale of property that was awarded to him to the amount owed to wife.

The separation agreement had a dispute resolution provision providing for mediation and then arbitration, if mediation was unsuccessful. The parties could not agree on the expenses for which husband was entitled to a credit, and wife refused to mediate/arbitrate. Husband requested the court order the parties to mediate/arbitrate pursuant to the agreement. Wife objected, arguing that the governing law provision should be read to mean that the courts should decide any disputes between the parties.

The district court ordered the parties to mediate/arbitrate. The arbitrator entered an award resolving their dispute concerning the final amount owed based on the credits. Wife moved to vacate the arbitrator’s award under CRS § 13-22-223(1)(d), contending that the arbitrator exceeded her authority by interpreting the separation agreement. The court denied the motion and confirmed the award. Wife appealed, and the Colorado Court of Appeals affirmed.

The arbitration provision in the separation agreement was extremely broad in scope, covering “any claim or controversy arising out of or as a result of [the parties’] dissolution of marriage.” The dispute regarding the credit due husband was clearly encompassed by this language. Wife’s argument regarding the “governing law and jurisdiction” provision does not supersede the arbitration clause. Because the dispute was subject to arbitration, the Court did not need to address wife’s contentions concerning the merits of the arbitrator’s award.

Summary and full case available here.

Tenth Circuit: Action to Vacate Arbitration Award Untimely

The Tenth Circuit Court of Appeals published its opinion in United Food & Commercial Workers International Union v. King Soopers on Friday, February 28, 2014.

The United Food and Commercial Workers International Union, Local No. 7 (the Union) sued King Soopers, Inc. under § 301 of the Labor Management Relations Act of 1947 (LMRA), 29 U.S.C. § 185, to enforce an arbitration award. The United States District Court for the District of Colorado ruled that the award did not draw its essence from the Union’s collective bargaining agreement (CBA) with King Soopers and refused to enforce it.  The Union appealed.

The Tenth Circuit reversed. This appeal was controlled by the court’s decision in Babcock & Wilcox, 826 F.2d 962. Although King Soopers could have brought a timely action to vacate the award on the ground adopted by the district court, it did not do so. The passing of the 90-day time limitation period for an action to vacate an arbitration award completely barred, in a subsequent confirmation proceeding, the raising of defenses that could have been raised as grounds to vacate the award. King Soopers could therefore not raise that defense against the Union’s action to enforce the award. For the same reason, the court also held that King Soopers could not raise the defense that the arbitrator lacked authority to impose a remedy.

Based on the untimelinessof King Soopers’ challenge, the Tenth Circuit REVERSED with instructions to enforce the award.

Tenth Circuit: FAA Preempted State Law Compelling Arbitration

The Tenth Circuit Court of Appeals published its opinion in Thi of New Mexico at Hobbs Center v. Patton on Tuesday, January 28, 2014.

THI of New Mexico at Hobbs Center, LLC, and THI of New Mexico, LLC (collectively THI) operate a nursing home in New Mexico. When Lillie Mae Patton’s husband was admitted into the home, he entered into an arbitration agreement that required the parties to arbitrate any dispute arising out of his care at the home except claims relating to guardianship proceedings, collection or eviction actions by THI, or disputes of less than $2,500. After Mr. Patton died, Mrs. Patton sued THI for negligence and misrepresentation. THI then filed a complaint in the United States District Court for the District of New Mexico to compel arbitration. The district court initially ordered arbitration.

But the New Mexico Court of Appeals then held an identical arbitration agreement unconscionable in Figueroa v. THI of New Mexico at Casa Arena Blanca, LLC, 306 P.3d 480 (N.M. Ct. App. 2012), and the district court reversed its prior decision, granting a motion by Mrs. Patton under Fed. R. Civ. P. 60(b)(6). The district court further held that the Federal Arbitration Act (FAA) did not preempt the law set forth in Figueroa because the New Mexico appellate court applied generally applicable unconscionability law against grossly unreasonable one-sided contracts as allowed by the FAA. THI appealed.

Under New Mexico law, a compulsory-arbitration provision in a contract may be unconscionable, and therefore unenforceable, if it applies only, or primarily, to claims that just one party to the contract is likely to bring. The question before the court was whether the (FAA) preempted this state law.

With this background in mind, the court turned to an examination of the Figueroa rule. The New Mexico Court of Appeals held that the agreement in Figueroa (which is identical to the agreement here) was unconscionably unfair to nursing home residents because it permitted THI to litigate its most likely claims against the resident—guardianship, collection, and eviction claims—while requiring arbitration of the resident’s most likely claims against the nursing home—personal-injury claims and the like. The court assumed as true the state court’s factual premise that the claims most likely to be brought by residents were the ones that must be arbitrated, while the claims most likely to be brought by THI were to be litigated in court. The only way the arrangement could be deemed unfair or unconscionable was by assuming the inferiority of arbitration to litigation.

The Tenth Circuit held that New Mexico law was preempted and the arbitration clause must be enforced. Just as the FAA preempts a state statute that is predicated on the view that arbitration is an inferior means of vindicating rights, it also preempts state common law—including the law regarding unconscionability—that bars an arbitration agreement because of the same view. Thus, the Tenth Circuit held that the FAA preempted the New Mexico law set forth in Figueroa. THI was entitled to compel arbitration of Mrs. Patton’s claim.

The district court’s grant of the Rule 60(b)(6) relief was REVERSED and the case was REMANDED to the district court with instructions to reinstate its order compelling arbitration.

Tenth Circuit: Arbitration Award in Favor of Helicopter Pilot Affirmed

The Tenth Circuit Court of Appeals published its opinion in Air Methods Corporation v. OPEIU on Tuesday, December 3, 2013.

This case arose out of an arbitration award granted in favor of a helicopter pilot whom plaintiff Air Method Corporation had terminated following an incident in April 2010. The pilot, Jeff Stackpole, is a member of defendant Office and Professional Employees International Union, Local 109 (“OPEIU Local 109”). Mr. Stackpole was represented by OPEIU Local 109 throughout the arbitration process. After the arbitration award was granted in Mr. Stackpole’s favor, plaintiff filed a complaint against defendants Office and Professional Employees International Union (“OPEIU”) and OPEIU Local 109 in the United States District Court for the District of Colorado seeking to vacate the award. On cross-motions for summary judgment, the district court ruled in favor of defendants, thereby upholding the arbitration award. Plaintiff appealed.

The standard that courts apply to arbitral awards is among the narrowest known to the law. The Tenth Circuit’s review was extremely deferential, and it is with this deference toward the arbitrator’s award that the court considered plaintiff’s appeal.

The court initially considered whether the arbitrator’s award impermissibly altered or removed language from the parties’ collective bargaining agreement contrary to both a provision in the agreement forbidding arbitrators from modifying terms of the agreement and to Tenth Circuit law. Plaintiff argued there were three primary ways in which the arbitrator’s award impermissibly altered, ignored, or removed language from the collective bargaining agreement. The Tenth Circuit found none of these arguments persuasive. First, plaintiff argued the award failed to consider whether Mr. Stackpole’s actions qualified as “serious misconduct” for which “a Pilot may be immediately removed from the payroll and suspended or discharged without pay.” Second, plaintiff argued the arbitrator’s award impermissibly altered the collective bargaining agreement to require a pilot to engage in “willful and egregious” misconduct before he would be subject to immediate discharge. Third, plaintiff argued the arbitrator impermissibly ignored Section 37.3 and effectively removed it from the collective bargaining agreement, with the result that his award was contrary to the express language of the agreement. The court concluded that none of the alleged alterations or omissions of the collective bargaining agreement rendered the arbitrator’s award contrary to the express language of the agreement, nor did they violate the agreement’s proscription against modifying its terms. Therefore, the arbitration award drew its essence from the collective bargaining agreement and was upheld.

Second, plaintiff argued the arbitrator “intentionally disregarded and thus violated the clear, specific language of the contract, and created an escape hatch through which he could dispense his own brand of industrial justice.” However, the arbitrator found Mr. Stackpole had violated a company policy, which was found in the General Operations Manual and was closely related to Federal Aviation Regulations, and subjected him to a six-month suspension without pay as a result. Therefore, the Tenth Circuit held that plaintiff’s argument that the arbitrator ignored provisions requiring pilots to comply with company rules and policies and the Federal Aviation Regulations lacked merit.

Finally, the court held that the arbitrator’s award did not violate a clear public policy.


Colorado Court of Appeals: Homeowners’ Association Must Follow Nonprofit Corporation Rules When Amending Declaration Without a Meeting

The Colorado Court of Appeals issued its opinion in Triple Crown at Observatory Village Association, Inc. v. Village Homes of Colorado, Inc. on Thursday, November 7, 2013.

Construction Defect—Interlocutory Review—Revised Nonprofit Corporation Act Relation to Colorado Common Interest Ownership Act—Consumer Protection Act.

Triple Crown at Observatory Village (Triple Crown) is a common interest community organized under the Colorado Common Interest Ownership Act (CCIOA). The developer of Triple Crown, Village Homes of Colorado, Inc. (Village Homes), was Triple Crown’s declarant under CCIOA § 38-33.3-103(12). Village Homes drafted and recorded Triple Crown’s Declaration of Covenants, Conditions, and Restrictions (Declaration). The Declaration created the Triple Crown at Observatory Village Association, Inc. (Association). It was organized as a nonprofit corporation under the Colorado Revised Nonprofit Corporation Act (CRNCA).

Article 14 of the Declaration established a dispute resolution procedure for claims arising from the design or construction of Triple Crown. It required arbitration of claims under American Arbitration Association rules if good faith negotiation and mediation efforts were unsuccessful.

On January 14, 2012, the Association began collecting votes from its members to revoke Article 14. 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 revoke Article 14. The Association recorded the amendment revoking Article 14. The Association then brought this action against Village Homes and several of its principals and employees (collectively, respondents), alleging negligent construction, Colorado Consumer Protection Act (CCPA) violations, and breach of fiduciary duties.

Respondents moved to dismiss for lack of jurisdiction, citing the mandatory arbitration provision in Article 14. They argued that because the Association had not amended Article 14 within the time limits in the CRNCA, they were still bound by the Article 14 dispute resolution procedures. The trial court granted the motion, dismissed the case, and ordered the parties to follow Article 14.

The trial court ruled that when an association amends its declaration without a meeting under CCIOA, the association must comply with the sixty-day time limit provided in CRNCA § 7-127-107. The Court of Appeals agreed. Because the Association did not comply, the amendment was ineffective.

The Court also agreed that CCIOA established the power of unit owners’ associations to “[i]nstitute, defend, or intervene in litigation or administrative proceedings . . . on the matters affecting the common interest community” and that “litigation” includes both judicial proceedings and arbitrations. Therefore, the mandatory arbitration provision did not infringe on the Association’s statutory power to institute litigation.

The Association argued 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 were not subject to mandatory arbitration, because CCPA provisions “shall be available in a civil action. The Court agreed that such a right can be waived, and Article 14 was such a waiver. The trial court’s order was affirmed and the case was remanded.

Summary and full case available here.

Colorado Court of Appeals: Petition for Interlocutory Review Granted in Construction Defect Case

The Colorado Court of Appeals issued its opinion in Triple Crown at Observatory Village Association, Inc. v. Village Homes of Colorado, Inc. on Thursday, October 24, 2013.

Construction Defect—Interlocutory Review—Arbitration Provision Enforcement.

In this construction-defect action, plaintiff Triple Crown at Observatory Village Association, Inc. (Association) petitioned for interlocutory review of the district court’s order granting defendants’ motion to enforce an arbitration provision in the Association’s declaration. The petition was granted.

Defendants created the Association to manage, maintain, and repair certain properties. Defendant Village Homes of Colorado, Inc. recorded a Declaration of Covenants, Conditions, and Restrictions under the Colorado Common Interest Ownership Act. Article 14 of the Declaration established a dispute resolution procedure for claims arising from the design or construction of the improvements and structures on the property. It required arbitration of such claims if good faith negotiation and mediation efforts were unsuccessful. Disputes arose regarding defendants’ responsibility for construction defects, and the Association sought to revoke Article 14. The Association appeared to have received the requisite votes and recorded an amendment to the declaration and filed this action.

Defendants moved to enforce the arbitration provision, arguing that the revocation was ineffective because the Association did not obtain the written consent from 67% percent of its members within the sixty-day time period required under the Colorado Revised Nonprofit Corporation Act. The district court granted defendants’ motion. The Association then filed an unopposed motion for certification of the order pursuant to CAR 4.2. The district court granted the motion and certified three issues for appeal. The Association then filed the present CAR 4.2 petition for interlocutory review.

The Court of Appeals may grant such an appeal when (1) immediate review may promote a more orderly disposition or establish a final disposition of the litigation; (2) the order from which an appeal is sought involves a controlling question of law; and (3) that question is unresolved. The Court concluded that immediate review could promote a more orderly disposition of the litigation. If it did not grant review, the parties might arbitrate all the issues and then the Association could appeal the order compelling arbitration. Also, the questions certified present unresolved questions of law, none of which has been addressed by the Colorado Supreme Court or Court of Appeals. Finally, the district court’s order compelling arbitration involved a controlling question of law. Accordingly, the petition was granted.

Summary and full case available here.

Tenth Circuit: Court Lacked Jurisdiction to Decide Motion to Compel Arbitration

The Tenth Circuit Court of Appeals published Grosvenor v. Qwest Corporation on Wednesday, August 14, 2013.

Richard Grosvenor filed a complaint against Qwest Corporation and Qwest Broadband Services, Inc. (“Qwest”) alleging that Qwest violated its “Price for Life Guarantee” by raising the price for internet service after he signed up for the program. He sought to represent a proposed class of certain Qwest internet customers. After Grosvenor filed this putative class action, Qwest moved to compel arbitration under the Federal Arbitration Act (“FAA”). The district court denied Qwest’s motion and scheduled a trial to determine whether the parties had reached an agreement to arbitrate. Both parties then moved for partial summary judgment. Qwest argued that the parties had entered into an arbitration agreement and that Grosvenor should be compelled to arbitrate under the terms of that agreement. However, Qwest did not make another request for an order to compel arbitration.

Instead, Qwest indicated that it would move for summary judgment on another issue and to compel the agreed-upon arbitration. In Grosvenor’s motion for partial summary judgment, he argued that the agreement to arbitrate was illusory. The district court granted both motions in a single order, concluding that the parties entered into an agreement, but that the agreement was illusory and unenforceable.

Qwest argued that the Tenth Circuit possessed interlocutory appellate jurisdiction to review the district court’s summary judgment ruling because it constituted “an order . . . denying a petition under section 4 of the FAA to order arbitration to proceed. 9 U.S.C. § 16(a)(1)(B). However, the Tenth Circuit had previously held that “in order to properly invoke appellate jurisdiction under the [FAA], the movant must either explicitly move to stay litigation and/or compel arbitration pursuant to the [FAA], or it must be unmistakably clear from the four corners of the motion that the movant seeks relief provided for in the FAA.” Conrad v. Phone Directories Co., 585 F.3d 1376, 1379 (10th Cir. 2009).

The court concluded Qwest did not satisfy this standard. The issue of whether the court had appellate jurisdiction turned on whether the district court’s summary judgment order was one “denying a petition . . . to order arbitration” within the meaning of 9 U.S.C. § 16(a)(1)(B). The order at issue was titled “Opinion and Order Granting Motions for Summary Judgment.” It identified the parties’ summary judgment motions, not Qwest’s motion to compel arbitration. It recited the standards for summary judgment rather than discussing the criteria for deciding a motion to compel arbitration. Qwest stated that a motion to compel arbitration would be forthcoming: Qwest noted in the motion that it “will move for summary judgment on the unconscionability issues and to compel the agreed-upon arbitration.” Far from making it “unmistakably clear” that it sought an order to compel arbitration, this statement demonstrated that Qwest was not seeking an order to compel arbitration in the motion for partial summary judgment. Instead, Qwest notified the district court that it would move for such an order in a future filing.

Accordingly, the Tenth Circuit DISMISSED the appeal for lack of jurisdiction.