Chapter 32 - § 32.3 • ARBITRABILITY OF FEDERAL AND STATE CLAIMS

• Jurisdiction: Colorado

§ 32.3 • ARBITRABILITY OF FEDERAL AND STATE CLAIMS

§ 32.3.1—Who Determines Arbitrability?

In First Options of Chicago v. Kaplan (which was not an employment case), the U.S. Supreme Court examined the issue of whether the arbitrator or the court should determine the arbitrability of disputes. 514 U.S. 938 (1995). The Court held that, unless the parties have clearly and unmistakably agreed to arbitrate the arbitrability question, it is up to the court to decide whether the parties have agreed to be bound by arbitration, and up to the arbitrator to decide what issues are to be arbitrated. Id. at 942; accord Riley Mfg. Co., Inc. v. Anchor Glass Container Corp., 157 F.3d 775, 779-80 (10th Cir. 1998).⁹ Recently, the Supreme Court held that parties can delegate the threshold question of arbitrability to an arbitrator if the language is clear in the agreement, notwithstanding the fact that the court may believe the question of arbitrability is "wholly groundless." See Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019). Henry Schein thus eliminated what was previously recognized as the "wholly groundless" exception to threshold questions of who determines arbitrability.

One Colorado federal case interpreted the Kaplan holding on arbitrability expansively. In Pike's Peak Nephrology Assocs., P.C. v. Total Renal Care, Inc., 2010 U.S. Dist. LEXIS 42694 (D. Colo. March 30, 2010), an arbitration agreement required that any disputes be resolved in accordance with the American Arbitration Association (AAA) Commercial Arbitration Rules. At the time the arbitration agreement was executed, the AAA rules did not grant arbitrators the authority to determine the scope of the arbitration agreement. However, subsequent versions of the AAA rules in effect at the time the dispute arose granted such authority to the arbitrators. Finding that the parties did not specify which version of the rules would control, the court concluded that the parties contracted to be bound by any amendments to the rules. Id. at *20. Therefore, applying the most current version of the AAA rules, the court concluded that it lacked jurisdiction to determine the scope of the arbitration provisions.

Recently, the Tenth Circuit Court of Appeals similarly found that the parties to an arbitration agreement clearly and unmistakably agreed to arbitrate the issue of arbitrability by incorporating the JAMS Rules into the agreement. Belnap v. Iasis Healthcare, 844 F.3d 1272 (10th Cir. 2017) (applying the Federal Arbitration Act). In Belnap, the arbitration agreement required that any disputes of arbitrability be resolved in accordance with the JAMS Rules "or another suitable dispute resolution agreeable to [the parties'] respective attorneys." Id. at 1275. The JAMS Rules require that the arbitrator rule on arbitrability disputes. The appellant argued that the parties did not know which rules they were agreeing to at the time of the agreement, and thus did not clearly intend to follow the JAMS Rules. The court disagreed and found that the JAMS Rules were the "default controlling rubric" established by the arbitration agreement and that the parties thus "clearly and unmistakably intended" that the arbitrator rule on disputes regarding arbitrability. Id. at 1281.

However, two years prior to Belnap, another federal court in Colorado interpreted Riley Manufacturing Co. to mean that the mere incorporation of rules into an arbitration agreement cannot constitute "clear and convincing" evidence that the parties meant for an arbitrator to determine the question of arbitrability. St. Charles v. Sherman & Howard L.L.C., No. 14-cv-03416-RM-CBS, 2015 WL 1887758, at *3 (D. Colo. Apr. 24, 2015). The Belnap court distinguished Riley, explaining that "the version of the AAA Rules that was incorporated into the [Riley Mfg. Co.] agreement did not include a provision concerning the arbitration of arbitrability," and therefore did not control under different circumstances. Belnap, 844 F.3d at 1284 (emphasis in original).

Practice Pointer
Specify whether the rules to be applied are those in effect as of the effective date of the agreement, or those in effect at the time the dispute arises and arbitration is initiated.

Absent an express agreement to the contrary, the revised Colorado Act provides that the court, and not the arbitrator, decides whether an agreement to arbitrate exists and whether a controversy is subject to arbitration, and the arbitrator decides whether a condition precedent to arbitration has been satisfied or whether the agreement containing the arbitration provision is enforceable. C.R.S. §§ 13-22-206(2) and (3); DISH Network, LLC v. Ray, 226 F. Supp. 3d 1168, 1172 (D. Colo. 2016); Lane v. Urgitus, 145 P.3d 672, 677 (Colo. 2006); cf. Youmans v. District Court, 589 P.2d 487, 489 (Colo. 1979) (holding that, under former Colorado Act, the arbitrability of a particular question is, in the first instance, for the arbitrator to decide). Compare Adams v. ModernAd Media, LLC, 2013 U.S. Dist. LEXIS 25263, at *13 (D. Colo. Feb. 25, 2013) (determining under Federal Arbitration Act that whether the employer "failed to negotiate in good faith is not a substantive arbitrability issue for the Court to decide, but a procedural one for the arbitrator" and compelling arbitration as to all defendants, including a non-signatory). Under the Colorado Act, if a party challenges the existence of a valid agreement to arbitrate or whether a controversy is subject to the agreement to arbitrate, the arbitration may nevertheless proceed pending a resolution of the issue by the court, unless the court orders otherwise. C.R.S. § 13-22-206(4).

Recently, a Colorado federal district court considered the arbitrability of putative collective and class claims in addition to individual claims under the Fair labor Standards Act and Colorado Wage Claim Act. The defendant asked the court to rule that only the individual claims were arbitrable, and to dismiss or stay the collective and class claims. The plaintiff contended that the arbitrator should determine whether the collective and class claims could proceed in arbitration. The federal district court, recognizing that the Tenth Circuit had not yet decided this issue, ultimately held that "the arbitrator should decide whether the claims could proceed in arbitration on a class-wide basis." Dent v. Encana Oil & Gas, Inc., 166 F. Supp. 3d 1210, 1213 (D. Colo. 2016); see also Fisher v. General Steel Domestic Sales, LLC, 10-CV-1509, 2010 WL 2791181, at *2 (D. Colo. Sept. 22, 2010) (based on the plain language of Stolt-Nielsen, "an arbitrator may, as a threshold matter, appropriately determine 'whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class.'"). The district court in Dent relied on the plurality opinion in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), in finding that the arbitration clause entered into by the parties ("[a]ny disputes between the parties arising out of or in connection with this Agreement shall be fully and finally settled by arbitration") was sufficiently broad to encompass the dispute as to whether the contract permits class arbitration. Dent, 166 F. Supp. 3d at 1212 (citing Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 672 (2010)). But practitioners should take heed of the Supreme Court's recent admonishment in Henry Schein that courts should not assume that parties agreed to arbitrate arbitrability unless there is "clear and unmistakable evidence that they did so." Henry Schein, Inc., 139 S. Ct. at 531 (citing First Option of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)).

Practice Pointer
Ensure that you have clearly delineated the arbitrator's authority in your arbitration agreement, including whether the arbitrator will determine arbitrability, to the extent permitted by applicable law. If you wish to delegate the question of arbitrability to the arbitrator, make that delegation clear and unmistakable.

§ 32.3.2—Supreme Court

In Alexander v. Gardner-Denver Co., the U.S. Supreme Court held that a union member could bring a Title VII suit in court, even though his discharge already had been arbitrated under a collective bargaining agreement. 415 U.S. 36 (1974). The Gardner-Denver decision repeatedly was cited for the rule that an arbitration agreement could not prevent a civil rights plaintiff from asserting claims in court. Swenson v. Mgmt. Recruiters Int'l, Inc., 858 F.2d 1304, 1308-09 (8th Cir. 1988); Nicholson v. CPC Int'l, Inc., 877 F.2d 221, 229 (3d Cir. 1989); Lyght v. Ford Motor Co., 643 F.2d 435, 439 (6th Cir. 1981).

Nearly 20 years after the Gardner-Denver decision, the U.S. Supreme Court reversed the longstanding presumption against the enforcement of pre-dispute agreements to arbitrate statutory civil rights claims in Gilmer, where the Court held that a securities broker was required to submit his federal age discrimination claim to arbitration pursuant to an arbitration agreement contained in his New York Stock Exchange (NYSE) securities registration application.¹⁰ The Court held that the "federal policy favoring arbitration" required compelling arbitration unless the plaintiff could: (1) show a congressional intent to preclude compulsory arbitration of ADEA cases; (2) demonstrate the inadequacy of the arbitral forum; or (3) meet the FAA's common-law test for revocation. Gilmer, 500 U.S. at 26-33. Congressional intent to preclude arbitration could be found in any one of three sources: (1) "the text of the ADEA"; (2) "its legislative history"; or (3) "an 'inherent conflict' between arbitration and the ADEA's underlying purposes." Id. at 26.

The plaintiff in Gilmer conceded that neither the ADEA's text nor legislative history explicitly precluded arbitration. He then presented a series of generalized attacks against the arbitration of statutory claims, all of which were rejected by the Court, including: (1) compulsory...