The State of the Intertwining Doctrine in Colorado

• Publication year: 2007
• Pages: 15

36 Colo.Law. 15 Colorado Lawyer 2007.

2007, January, Pg. 15. The State of the Intertwining Doctrine in Colorado

The Colorado Lawyer
January 2007
Vol. 36, No. 1 [Page 15]

Articles
Alternative Dispute Resolution
The State of the Intertwining Doctrine in Colorado
by Eric B. Liebman, Burkeley N. Riggs

ADR articles are 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.

Article Editors:

Jonathan Boonin of Hutchinson, Black & Cook, LLP Boulder - (303) 442-6514, boonin@hbcboulder.com; O. Russel Murray of ADRcom.com, Denver - (303) 893-1667,
orm@adrcom.com

About the Authors:

Eric B. Liebman is a partner and Burkeley N. Riggs is an associate at Moye White LLP, Denver - (303) 292-2900 eric.liebman@moyewhite.com and burke.riggs@moyewhite.com. The authors gratefully acknowledge the valuable research assistance of James F. Booth, an associate at the firm.

The Intertwining Doctrine states that when arbitrable issues are factually and legally intertwined with non-arbitrable claims in litigation, a court will not compel arbitration of the matter. Although the U.S. Supreme Court rejected this doctrine in 1985, its applicability in Colorado appellate courts is uncertain.

Although the law pertaining to the Intertwining Doctrine has been well-settled in federal jurisprudence for more than two decades, it remains in a state of flux and uncertainty in Colorado. It appeared that this uncertainty might be resolved when the Colorado Supreme Court granted certiorari in the case of Eagle Ridge Condominium Ass'n v. Metropolitan Builders, Inc. on October 18, 2004.(fn1) However, on September 30, 2005, the Court dismissed its writ of certiorari as improvidently granted, without explanation.(fn2)

This article provides an overview and history of the Intertwining Doctrine in federal and Colorado state courts. It also summarizes current Colorado case law to provide guidance to Colorado practitioners who regularly deal with potentially arbitrable cases.

Overview and History of the Intertwining Doctrine

The Intertwining Doctrine refers to the principle that a court must, in deciding whether to compel arbitration in a case in which both arbitrable and non-arbitrable claims are present, determine whether the arbitrable issues are factually and legally intertwined with non-arbitrable issues. If they are, the court will not compel the case to arbitration and all claims will be adjudicated in a court of competent jurisdiction.(fn3) The Intertwining Doctrine was applied by many federal and state courts beginning in the 1970s, with a federal circuit split developing in the early 1980s.(fn4)

To resolve this circuit split, the U.S. Supreme Court granted certiorari in the case of Dean Witter Reynolds, Inc. v. Byrd.(fn5) In that 1985 decision, the Court expressly considered and rejected the Intertwining Doctrine. In doing so, the Court construed the Federal Arbitration Act (FAA).(fn6)

Since then, the Colorado appellate courts have continued to uphold - in some cases - application of the Intertwining Doctrine under the Colorado Uniform Arbitration Act (CUAA). However, Colorado courts also have declined to apply the Intertwining Doctrine in cases where it is determined that the FAA is applicable.

Although the CUAA and FAA are similar statutes with the same stated purpose of preferring arbitration over litigation where the parties have chosen the former in a contract, Colorado courts have upheld the Intertwining Doctrine under the CUAA but rejected it under the FAA.(fn7) Also, the Colorado appellate courts have frequently foregone the analysis of whether the FAA applies and have directly proceeded to the application of the Intertwining Doctrine. It appears, in some cases, that these courts are not declining to analyze the applicability of the FAA because the issue is plainly irrelevant, but rather because the issue was not recognized by the parties or raised sua sponte by the courts.(fn8)

Wilko - A Seed is Planted

The seeds of the Intertwining Doctrine were planted by the U.S. Supreme Court's 1989 decision in Wilko v. Swan.(fn9) There, the Court addressed a perceived conflict between the FAA and the Securities Act of 1933 (1933 Act).(fn10) Specifically, the Court sought to balance the FAA's policy emphasizing "the desirability of arbitration as an alternative to the complications of litigation"(fn11) with the 1933 Act's policy of protecting investors and forbidding a waiver of those rights.(fn12) The Court resolved the balance in favor of the 1933 Act, concluding that "the intention of Congress concerning the sale of securities is better carried out by holding invalid such an agreement for arbitration of issues arising under the [1933] Act."(fn13)

Wilko retained vitality for several decades before being overruled by the U.S. Supreme Court in 1989.(fn14) During this period, the Intertwining Doctrine emerged as a reaction to the Wilko Doctrine. This is exemplified by the numerous federal decisions interpreting Wilko since 1953. For example, in Sibley v. Tandy Corporation,(fn15) the U.S. Court of Appeals for the Fifth Circuit was confronted with a plaintiff who brought a federal securities claim, along with common law breach of contract claims. The lower court had acknowledged that, under the Wilko Doctrine, the federal securities claim was not arbitrable but the common law contract claims were. The defendants then requested that the court sever the claims, submit the contract claims to arbitration, and stay the federal securities claim pending the result of that arbitration.

The Fifth Circuit first acknowledged the issue created by Wilko, stating: "The present case squarely raises the problem of what a court should do where arbitrable claims are joined with claims that are not subject to arbitration."(fn16) The court recognized the applicability of the Intertwining Doctrine, holding:

We agree with the district judge that when it is impractical if not impossible to separate out non-arbitrable federal securities law claims from arbitrable contract claims, a court should deny arbitration in order to preserve its exclusive jurisdiction over the federal securities act claims.(fn17)

However, the court went on to hold the Intertwining Doctrine inapplicable, due to a lack of the requisite intertwining of facts and law between the claims.

The Development of a Split Among Circuits

Thereafter, the Intertwining Doctrine was applied frequently but inconsistently by federal courts throughout the country. This eventually developed into a circuit split, with courts in the Fifth, Ninth, and Eleventh Circuits approving the Intertwining Doctrine (in decisions rendered in 1981, 1982, and 1982, respectively),(fn18) and the Sixth, Seventh, and Eighth Circuits rejecting the doctrine (in decisions rendered in 1983, 1981, and 1984, respectively).(fn19)

The courts that approved the Intertwining Doctrine acknowledged the strong federal policy in favor of enforcing arbitration agreements, but offered two reasons district courts should decline to compel arbitration in an intertwining situation. First, such a result was necessary to preserve what they considered the court's exclusive jurisdiction over the federal securities claim; otherwise, arbitration of an "intertwined" state claim might precede the federal proceeding and the fact-finding done by the arbitrator thereby might bind the federal court through collateral estoppel. The second reason was efficiency. By declining to compel arbitration, the court would avoid bifurcated proceedings and efforts to litigate the same factual questions twice.(fn20)

In contrast, the courts that rejected the Intertwining Doctrine held that the FAA divested the district courts of any discretion regarding arbitration in cases containing both arbitrable and non-arbitrable claims and, instead, required that the courts compel arbitration of arbitrable claims when asked to do so.(fn21) These courts concluded that the...