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

• Publication year: 2005
• Pages: 47
• Citation: Vol. 34 No. 3 Pg. 47

34 Colo.Law. 47 Colorado Bar Journal 2005.

2005, March, Pg. 47. A Three-Year Survey of Colorado Appellate Decisions on Arbitration-Part II

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47

Vol. 34, No. 3, Pg. 47

The Colorado Lawyer
March 2005
Vol. 34, No. 3 [Page 47]

Specialty Law Columns
Alternative Dispute Resolution Column
A Three-Year Survey of Colorado Appellate Decisions on Arbitration--Part II
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:

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.

This two-part article reviews Colorado state appellate decisions dated between January 1, 2002 and December 31, 2004.1 Part I addressed cases involving interlocutory appeals of trial court decisions to grant or deny motions to compel or stay arbitration, application of the Federal AArbitration Act ("FAA"), and arbitration contracts and federal preemption.2

Part II covers cases dealing with arbitrators' powers and judicial review of arbitral awards. In addition, Part II discusses apparent trends suggested by the arbitration cases decided from 2002 - 2004.

Appellate Guidance on Arbitrators' Powers

During the survey period, the Court of Appeals decided five cases that provide guidance on the scope and limits of arbitrators' powers, whether under Colorado's Uniform Arbitration Act ("CUAA"), particular provisions of arbitration agreements, or both. The outcomes of three of the cases addressing similar issues differ,3 suggesting that this is an area in flux. The Colorado Supreme Court already has indicated it will address the "powers" issues by granting certiorari in one of those three cases.4

Carson v. PaineWebber

In Carson v. PaineWebber, Inc.,5 the PaineWebber brokerage firm initiated arbitration against its former investment advisor employee, Carson, after settling claims brought by two of Carson's customers, who asserted he had not executed their investment-related instructions. PaineWebber requested damages, interest, costs, and attorney fees. Carson counterclaimed, alleging that he had communicated the customers' instructions but PaineWebber had failed to execute them. Carson also requested attorney fees. The parties had agreed to arbitrate under the National Association of Securities Dealers' Code of Arbitration Procedure ("NASD Code").6

While the claims were pending, Carson twice demanded discovery. However, PaineWebber produced only some of what he sought and the arbitrator declined to compel further discovery. Carson twice demanded a hearing, but the arbitrator denied those requests as well. The arbitrator subsequently ruled in PaineWebber's favor and awarded PaineWebber attorney fees. The district court denied Carson's motion to vacate the award, and he appealed.7

After concluding that Carson's appeal was not moot,8 the Court of Appeals found no error in the arbitrator's refusal to compel discovery. First, although the NASD Code indicated the arbitrator was "authorized to request the submission of evidence," it did not expressly permit discovery.9 Second, the CUAA permitted vacating an award based on an arbitrator's failure to consider material evidence only when the complaining party demonstrated substantial prejudice, which Carson failed to do.10 Thus, the court found that the arbitrator had acted within his discretion and the lack of discovery did not warrant reversal.

Carson argued that the arbitrator's refusal to hold a hearing constituted misconduct, exceeded the arbitrator's powers, violated the NASD Code, and violated his due process rights.11 The court was not persuaded. Carson failed to show he was substantially prejudiced by the lack of a hearing, because he failed to explain what additional evidence he would have presented.12 Further, the relevant NASD Code provision did not mandate a hearing when a party requested one, but left the matter to the arbitrator's discretion.13

Carson did not strike out completely. As a final matter, the court considered his objection to the arbitrator's award of Paine-Webber's attorney fees. After noting that the CUAA does not permit an arbitrator to award attorney fees unless the parties' arbitration agreement provides for them,14 the court referred to Colorado case law holding that the parties must have agreed specifically that the arbitrator would address the issue of fees.15

PaineWebber sought to avoid these authorities with two arguments. First, the parties had not agreed that Colorado law applied. Second, the fact that both parties had requested fees in their pleadings constituted their agreement that the arbitrator could award fees. The court disagreed, holding that Colorado law did apply and that "the parties' parallel requests for attorney fees, without more, were insufficient to show that they explicitly agreed that the arbitrator could award such fees."16 Thus, the arbitrator's fee award exceeded his powers and, as a result, the court reversed that part of the award.17

[See chart. Summary of Colorado Appellate Decisions Regarding Arbitration--Part II. (pdf format)]

Union Insurance v.
Hottenstein

Union Insurance Co. v. Hottenstein18 offers additional insights into arbitrators' powers and the binding nature of arbitration awards in later proceedings. Hottenstein was a homeowner who contracted with a construction contractor to remodel her home. She alleged breach of contract and negligence, and the parties arbitrated her claims. She received an itemized award of damages for both breach of contract and negligence, and had the award entered as a judgment.19

The contractor's general liability insurer, Union Insurance Co. ("Union"), then filed suit against Hottenstein, seeking a declaration that it had no duty to indemnify the contractor for anything beyond the negligence damages. After Union won summary judgment on this issue,20 Hottenstein appealed.

Hottenstein contended that because the arbitrator had not decided whether Union had to indemnify the contractor, the arbitration award was not binding against her in Union's declaratory judgment action. Drawing on Colorado state and federal decisions, the Court of Appeals held that the arbitrator was the final judge of all questions of fact and law, the merits of the award were not subject to judicial review, and the award was binding on the parties.21

The court further held that principles of collateral estoppel and res judicata could be applied to give preclusive effect to an arbitration award in subsequent proceedings.22 It noted that Hottenstein and the construction company both had been parties to the arbitration, were represented by counsel, and had "a full and fair opportunity to litigate issues surrounding liability for damages due Hottenstein for all claims." The arbitrator made a final award "delineating which damages were attributable to breach of contract and negligence," and Hottenstein did not appeal the judgment confirming that award.23 The court therefore held that: (1) Hottenstein was precluded from relitigating the allocation of the damages awarded; and (2) the trial court properly relied on the arbitrator's findings of fact and conclusions of law in granting Union summary judgment on the coverage issues.24

Applehans v. Farmers
Insurance

The next case considering an arbitrator's ability to modify his or her own award was Applehans v. Farmers Insurance Exchange.25 Applehans was injured in an automobile accident. After settling her claim for the $25,000 limits of the tortfeasor's insurance policy, she sought underinsured motorist ("UIM") coverage from her own auto insurer ("Farmers").26

Applehans' UIM coverage limit was $50,000. Because the policy provided Farmers an offset for payments received from the underinsured tortfeasor,27 Applehans ordinarily would not have been entitled to more than $25,000 under her UIM coverage. The policy required arbitration to settle disputes, and she and Farmers proceeded to arbitration when they could not agree on the amount of UIM coverage to which she was entitled.

The arbitration agreement between Applehans and Farmers provided that the sole arbitration issue was the "amount of damages to which [she was] entitled as a result of her injuries sustained, if any, in the accident."28 Thus, during arbitration, neither Applehans nor Farmers presented evidence of the UIM coverage limits or the amount Applehans had received from the tortfeasor's insurer.29

The arbitrator awarded Applehans $95,000, plus interest and costs ("original award"). Farmers timely requested that the arbitrator modify the original award, asserting that it should be limited to the $25,000 of UIM coverage available under Applehans's policy. Soon after, Applehans moved the district court to confirm the original award.

The Farmers...