A Three-year Survey of Colorado Appellate Decisions on Arbitration-part I

• Publication year: 2005
• Pages: 41
• Citation: Vol. 34 No. 2 Pg. 41

34 Colo.Law. 41 Colorado Bar Journal 2005.

2005, February, Pg. 41. A Three-Year Survey of Colorado Appellate Decisions on Arbitration-Part I

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41

Vol. 34, No. 2, Pg. 41

The Colorado Lawyer
February 2005
Vol. 34, No. 2 [Page 41]

Specialty Law Columns
Alternative Dispute Resolution Column
A Three-Year Survey of Colorado Appellate Decisions on Arbitration - Part I
by Steven C. Choquette
C 2005 Steven C. Choquette

This column is sponsored by the CBA Alternative Dispute Resolution Committee. The articles printed here describe recent developments in the evolving field of ADR, with a particular focus on issues affecting Colorado attorneys and ADR providers

Column Editors

Jonathan Boonin of Warren & Boonin LLP, Boulder - (303) 413-1111, jboonin@warren-boonin. com; James L. Stone of JAMS Denver - (303) 534-1254, jstone1672@aol.com

About The Author:

Steven C. Choquette
This month's article was written by Steven C. Choquette, Denver, a litigation partner with Holland & Hart LLP specializing in personal injury, insurance, and commercial disputes.

He also dedicates a portion of his practice to ADR, having completed mediation training and served as a mediator. He is a member of the CBA's ADR Section. He welcomes comments on this article: (303) 295-8031, schoquette@hollandhart.com.

This two-part article reviews Colorado state appellate decisions pertaining to arbitration. The decisions discussed here were issued between January 1, 2002 and December 31, 2004.

Colorado state appellate courts considered a number of significant arbitration-related issues from January 1, 2002 through December 31, 2004.1 The growing prevalence of appellate input in the field of arbitration is illustrated by simple data. From 1869 through 2001, Colorado's appellate courts decided roughly 150 cases involving arbitration issues, approximately one decision per year. By contrast, during the three-year period of this survey, Colorado appellate courts decided fourteen cases involving arbitration matters.2

This two-part article reviews Colorado state appellate decisions dated between January 1, 2002 and December 31, 2004. Part I covers: (1) interlocutory appeals of trial court decisions to grant or deny motions to compel or stay arbitration; (2) application of the Federal Arbitration Act ("FAA"); and (3) arbitration contracts and federal preemption.

Part II, which will be published in this column in March 2005, discusses cases involving: (1) appellate guidance on arbitrators' powers; and (2) judicial review of arbitral awards. Part II also analyzes apparent trends in arbitration suggested by the cases discussed in Parts I and II.

004)

Motions to Compel or Stay Arbitration

During the survey period, Colorado appellate courts devoted significant attention to interlocutory appeals of trial court decisions granting or denying motions to compel or stay arbitration. The four survey-period cases, all of which involved construction disputes, should guide trial courts in deciding such motions and disputants in determining whether to pursue interlocutory appeals of adverse rulings.

Gergel II

Of the four cases discussed in this section of the article, Gergel v. High View Homes, L.L.C. ("Gergel II"),3 represented homeowner plaintiffs' most ambitious effort to avoid arbitration. Gergel II ended "round two" of the parties' dispute. In "round one," defendant builders moved to compel arbitration under the parties' home purchase contract. The trial court denied that motion in Gergel I,4 holding that plaintiffs' claims were not subject to arbitration due to Colorado's "intertwining doctrine."5 The Colorado Court of Appeals reversed.6

Round two commenced on remand from that reversal. The trial court stayed the proceedings before it per the mandate, and directed the parties to arbitrate.7 They contacted the American Arbitration Association ("AAA"), as their contract required. However, after initial efforts to select a panel, the homeowners returned to court and filed motions to: (1) supplement their complaint by, among other things, adding AAA as a defendant and seeking declaratory and injunctive relief against it; (2) obtain a temporary restraining order, preliminary injunction, and permanent injunction against arbitration, and have the trial court decide the merits; and (3) in the alternative, have the court select an arbitrator.

The homeowners based their motions on contentions that the AAA was not impartial, and that its excessive, unreasonable administrative fees rendered the arbitration clause unconscionable.8 The trial court denied the motions,9 and again directed the parties to arbitrate. The homeowners then brought their second interlocutory appeal.10

The Gergel II court dismissed the homeowners' appeal for lack of subject matter jurisdiction, basing its decision on relevant provisions of the version of Colorado's Uniform Arbitration Act ("CUAA") in effect at that time.11 In reaching its decision, the Court of Appeals addressed a new issue: Could parties pursue an interlocutory appeal of an order denying a motion to stay an arbitration?12

The court referenced its prior decisions holding that a party who opposes, but fails to defeat, a motion to compel arbitration cannot pursue an interlocutory appeal of the ruling, because the CUAA does not permit such appeals.13 It then considered the CUAA's provisions concerning stay orders related to arbitration.14 The CUAA permitted appellate review only of an order "granting an application to stay arbitration"15; therefore, the court held that the CUAA "does not authorize an appeal from an order denying a stay of arbitration."16 (Emphasis in original.)

The court found unpersuasive the plaintiffs' attempt to make their interlocutory appeal viable by alleging that AAA's administrative fees rendered the arbitration clause unconscionable, and consequently requesting injunctive relief. It concluded that the assertion of unconscionability did not materially alter the appeal, because "the essence of the dispute is the existence of a valid agreement compelling arbitration of the claims at issue."17 Moreover, the issue would not become moot if the homeowners proceeded to arbitration or defaulted by failing to pay the administrative fees, inasmuch as they could appeal the trial court's adverse ruling on unconscionability following entry of a final arbitration award.

The Gergel II court also rejected the homeowners' argument that the motion for an injunction created jurisdiction, because the Colorado Appellate Rules permit an interlocutory appeal of the grant or denial of a temporary or preliminary injunction.18 To determine whether the district court's order was subject to review, the court stated it must consider "the substance and not the form of the order."19 Noting its prior holdings precluding interlocutory appeal of an order that is the "functional equivalent" of an order requiring arbitration,20 the Gergel II court ruled that the trial court order declining to enjoin arbitration was not an appealable order denying injunctive relief. Instead, it was an unappealable order compelling arbitration. Consequently, the Gergel II court dismissed the appeal and remanded for arbitration.21

Fonden v. U.S. Home

In Fonden v. U.S. Home Corporation,22 the homeowner contracted with U.S. Home Corporation ("U.S. Home") to buy land and have a home built. The contract included an arbitration clause stating that: (1) the transaction involved interstate commerce; (2) disputes would be mediated; and (3) if mediation failed, the parties would arbitrate under the Federal Arbitration Act ("FAA").23 After...