Chapter 21 - § 21.2 • ARBITRATION - GENERALLY

• Jurisdiction: Colorado

§ 21.2 • ARBITRATION - GENERALLY

Arbitration and mediation are by far the most commonly used alternative means of dispute resolution in the construction industry. Because mediation requires the agreement of the parties in order to resolve a dispute, there are relatively few legal requirements governing the process. Arbitration, on the other hand, requires only that the parties agree upon the process. This section attempts to provide an overview of those rules and structures based on Colorado statutes and case law, as well as federal statutes and Colorado federal procedure court case law. No attempt is made to cover the mass of decisions decided by non-Colorado courts. See Benson, Colorado and Federal Arbitration Law and Practice.

Arbitration is defined in the Colorado Dispute Resolution Act at C.R.S. § 13-22-302(1) as "the referral of a dispute to one or more neutral parties for a decision based on evidence and testimony provided by the disputants."¹ As the reader will see, that definition is narrower than the scope of arbitration covered by this chapter. For example, arbitration that does not require that all of the arbitrators be neutral.

Arbitration can be binding or non-binding. This chapter deals primarily with binding arbitration. Generally, a reference to arbitration is to binding arbitration, meaning the arbitrator's award is final and conclusive upon the parties, except for the limited judicial review provided by the state and federal arbitration statutes. (There may also be a common law judicial review.) However, sometimes the parties agree the arbitration is non-binding. Very generally speaking, all procedures should be the same except the effect of the award. However, the role of the court is untested in non-binding arbitration.

§ 21.2.1-Public Policy and the Common Law of Arbitration

Arbitration is a very long and well-established method of dispute resolution. George Washington purportedly had an arbitration clause in his will. However, at common law in most jurisdictions, arbitration agreements were not enforceable, although that was not true under Colorado common law.²

Since 1876, the Colorado Constitution, Art. XVIII, § 3 has provided:

It shall be the duty of the general assembly to pass such laws as may be necessary and proper to decide differences by arbitrators, to be appointed by mutual agreement of the parties to any controversy who may choose that mode of adjustment. The powers and duties of such arbitrators shall be as prescribed by law.

It is, at least since 1876, the policy of the State of Colorado to foster and encourage arbitration as a method of dispute resolution,³ and all disputes as to whether a dispute is arbitrable are to be resolved in favor of arbitration.⁴ Prior to the passage of the Colorado Uniform Arbitration Act, effective July 14, 1975, there was very little statutory or court rule governing arbitration. The common law provided the law.

As reflected in the Federal Arbitration Act (FAA), federal law also establishes a strong policy favoring arbitration. Public policy in Colorado also strongly encourages the resolution of disputes through arbitration.⁵ "A broad or unrestricted arbitration clause makes the 'strong presumption favoring arbitration [apply] with even greater force,'"⁶ and any state law relative to arbitration will not take precedence over the federal policy when the federal act is applicable.⁷ Failure to follow the mandates of a valid alternate dispute resolution clause will contravene that policy.

As a result of this state and federal public policy, when issues involved in arbitration are presented to a court, the starting point is a public policy in favor of the arbitration process.⁸

Colorado has defined the purpose of the Colorado Uniform Arbitration Act as "to provide a uniform statutory framework for arbitration and to encourage settlement of disputes through the arbitration process."⁹ The U.S. Supreme Court, on the other hand, has stated that the primary policy underlying the FAA is enforcement of the parties' agreement to arbitrate.¹⁰

§ 21.2.2-Arbitration: Applicable Law, Rules, and Procedure

Generally

Arbitration is governed by statutes (state or federal); common law (state or federal); the agreement to arbitrate, including the rules adopted by the parties; and the arbitrator's inherent power. Generally, the order of precedence in defining the rules governing arbitration is as follows:

1) The arbitration agreement agreed to by the parties, including incorporated rules such as those of the American Arbitration Association (AAA). Arbitration is a consensual process. Without the agreement of parties to arbitrate, there is no arbitration. Within the broad confines of the statutes, the parties can design the arbitration any way they want because it is alternative dispute resolution (alternative to litigation), and the parties can conduct it in nearly any way they wish. Some of the restrictions will be discussed hereafter.

Thus, the agreement of the parties governs the arbitration, unless overridden by a statute or the common law. Examples under the Colorado Revised Uniform Arbitration Act of statutory provisions that cannot be overridden by the parties' agreement include motions to stay or compel arbitration, immunity of arbitrators, increasing the scope of subpoena power of arbitrators over non-parties, grounds for vacating arbitration awards, judicial enforcement, and the scope of an appeal. Generally, however, the agreement of the parties will govern most aspects of an arbitration and will govern the arbitrator.

2) Applicable statutes, unless the statute provides that the parties may otherwise agree, and the parties have otherwise agreed. Some provisions of the arbitration statutes expressly provide that they apply to an arbitration only upon the failure of the parties to otherwise agree: they are default provisions. Two examples are FAA § 5 (applicable if there is no agreement as to how the arbitrator is to be selected, or the agreed method fails) and the Colorado Revised Uniform Arbitration Act, C.R.S. § 13-22-215 (applicable if there is no agreement as to time and place of hearing and notification, adjournment, and postponement; the right to be heard, present evidence, and cross-examine witnesses; and the duty of the arbitrator not to give undue weight to hearsay).

A primary purpose of the arbitration statutes is to validate agreements to arbitrate future disputes¹¹ in order to overcome the common law rule in most jurisdictions that agreements to arbitrate future disputes were unenforceable. The statutes also define the arbitration procedures where the parties fail to agree upon procedures. Finally, the statutes provide for judicial involvement where the arbitration process might otherwise collapse.

Within the very broad confines of the statutes, the parties have tremendous freedom to define the arbitration process to fit their particular circumstances. As the second category in the order of precedence, the statutes primarily supplement the agreement of the parties, but in some instances preempt any agreement of the parties. The statutes also place the enforcement power of the judiciary behind every stage of the arbitration process.

In Colorado, absent an extraordinary situation, one of two statutes is applicable to an arbitration: the Federal Arbitration Act (FAA) or Colorado Revised Uniform Arbitration Act (CRUAA). Because the Colorado Uniform Arbitration Act (CUAA) applies only to arbitration agreements entered into prior to August 4, 2004, it is today rarely applicable. These Acts are discussed below.

3) Applicable common law. The common law of arbitration, as reflected by the case law, governs an arbitration unless it is overridden by an agreement of the parties, or by the arbitration acts.

4) The arbitrator's inherent power. The last resort to defining the rules that govern and define the arbitration is the inherent power of the arbitrator. To the extent the parties have not agreed and there is no applicable law, the arbitrator defines the procedures and process. For example, when there is no agreement between the parties, and no statutory or common law provision, the arbitrator has inherent power to define the date, time, and location of the arbitration; the discovery he or she will permit between the parties; the form of the award; most hearing procedures; whether rules of evidence will be followed; whether dispositive motions will be considered; and the form of the award.

Colorado Revised Uniform Arbitration Act (CRUAA)

The Colorado Revised Uniform Arbitration Act (CRUAA), C.R.S. §§ 13-22-201, et seq., was passed in 2004 and applies to arbitration agreements in Colorado entered into after August 4, 2004, unless preempted by the FAA, and to earlier agreements if the parties so agree.¹² Thus, application of the CRUAA has "gradually" replaced the Colorado Uniform Arbitration Act (CUAA).

The CRUAA and the CUAA have the same statutory numbering system. Hence, when citing to either of them, it must be explicitly stated whether the citation is to the CRUAA or the CUAA. Colorado Revised Statutes issued in 2005 and thereafter contain only the CRUAA, although many arbitrations occurring in 2005 and a few years after were governed by the CUAA. In this chapter, when the statutory citation is followed by "(2003)," that means that the cite is to the CUAA; if the citation is followed by "(2020)," or does not have a date, the citation is to the CRUAA.

A case might arise in Colorado where under Colorado's choice of law rules or the parties' choice of law agreement, the substantive arbitration law of another state would be applicable.¹³ However, unless the parties validly selected the arbitration law of a particular state, an arbitration having such an interstate commerce connection probably means that federal law applies. Applying the concept enunciated in Erie Railroad Co. v. Tompkins,¹⁴ that only state substantive law and not procedural law...