Chapter 11 - § 11.1 • BASIS FOR ORDERING ARBITRATION

• Jurisdiction: Colorado

§ 11.1 • BASIS FOR ORDERING ARBITRATION

Under the CUAA, the court decides whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate, while the arbitrator decides whether a condition precedent to arbitrability has been fulfilled and whether a contract containing a valid agreement to arbitrate is enforceable.⁵ If a dispute exists regarding the validity of an arbitration provision itself (versus the validity of the contract as a whole), the trial court must "proceed summarily to decide" the issue, and if material facts are in dispute, the court should expeditiously hold an evidentiary hearing to resolve the challenge.⁶ While arbitration is favored, and an ambiguous arbitration provision will be construed broadly, courts determine whether an agreement to arbitrate exists in accord with ordinary contract principles.⁷ Some home-rule cities have adopted local ordinances that may, if not preempted by state law, modify the CUAA and case law interpreting it regarding arbitrating parties' rights and remedies. See § 2.2.6, "Construction Defect Municipal Ordinances."

If the dispute is subject to the Federal Arbitration Act (FAA), then that statute, rather than a state arbitration law, governs.⁸ For the FAA to apply, the contract containing the arbitration clause must evidence a transaction involving interstate commerce.⁹ This is not a rigorous inquiry; "the slightest nexus" with interstate commerce will suffice.¹⁰ Some courts have held that certain kinds of real estate transactions primarily affect intrastate rather than interstate commerce.¹¹ Under the FAA, like the CUAA, the court decides a challenge directed specifically to the agreement to arbitrate, while the arbitrator decides the enforceability of the contract as a whole.¹²

The factual allegations that form the basis of the claim asserted, rather than the legal cause of action pleaded, determine whether a particular dispute falls within an ADR clause.¹³ "The scope of an arbitration clause must faithfully reflect the reasonable expectations of the parties," according to its terms their plain and ordinary meaning, and "[a]ny doubts about the scope . . . should be resolved in favor of arbitration."¹⁴

Courts construe arbitration clauses broadly in favor of arbitration.¹⁵ Thus, an arbitration clause in a limited warranty agreement with a builder requiring all disputes arising under or relating to the warranty to be arbitrated requires arbitration of negligence, Consumer Protection Act, and misrepresentation and concealment claims touching on the construction of the home.¹⁶ One court found the typical "all-encompassing" arbitration clause in the home purchase contracts of many production builders inapplicable to personal injury claims arising from construction defects.¹⁷ In an unpublished opinion, Workplace Lofts Condominium Ass'n v. New Providence Co., the Colorado Court of Appeals held, where the declaration required arbitration of claims "related to the interpretation, application, or enforcement of the declaration," that (1) the express language of the arbitration provision established that the parties did not intend the declaration's arbitration provision to govern construction defect actions; (2) the question whether the association's negligent repair claim was based on the declaration-created duty to repair or a separate, independent duty to repair would need to be resolved on remand; and (3) the trial court improperly denied the defendant's motion to compel arbitration of the association's breach of fiduciary duty claims against the declarant and two declarant-appointed association board members.¹⁸

Where parol evidence establishes that a homeowner did not see or sign a purchase contract addendum containing an arbitration provision, and despite the existence...