Chapter 4 - § 4.5 • AGREEMENT OF THE PARTIES AS TO GOVERNING ARBITRATION LAW
| Jurisdiction | Colorado |
Generally, the parties are free to agree upon the arbitration law that will govern — state or federal. Thus, while the FAA may apply according to its terms, the parties generally may agree that state arbitration law shall govern.110 Conversely, the parties can agree that federal law shall apply instead of state law.111 Exceptions may exist when substantial questions of state or federal policy are involved.112 A common choice-of-law provision in form construction contracts provides that the contract will be governed by the law of the place where the project is located. This clause is effective as to a choice of substantive state law, but does not define the parties' selection of state or federal arbitration law as governing. This language invokes both state substantive and federal arbitration law when interstate commerce is involved.113 Thus, "generally" arbitration law is considered procedural. However, parts of arbitration law, e.g., validity of agreements to arbitrate, are substantive, and federal law, when applicable, preempts state law.
Where the arbitration agreement provided that it "shall be governed by and construed in accordance with the laws of the State of Montana," the Colorado Court of Appeals held that nevertheless Colorado law controls as to procedural matters in the Colorado courts.114 The substantive law issue was whether the parties intended the arbitration agreement to cover a particular dispute. The court also noted that the standard of appellate review was procedural, and hence Colorado law governed the issue.115
In 1745 Wazee LLC v. Castle Builders, Inc.,116 the Colorado Court of Appeals applied the FAA, and (1) recognized that the parties may agree in certain circumstances that an arbitration dispute will be governed by state arbitration law rather than the FAA; (2) held that a contract clause stating that "The contract shall be governed by the law of the place where the contract is located" did not select state arbitration law over the FAA, which was otherwise applicable (and applied only to substantive law); and (3) since the FAA applied, the then federal common law ground for vacation of an arbitration award by reason of being "contrary to public policy" was applicable in a Colorado state court proceeding. The court distinguished and declined to follow the earlier decision of the court of appeals in Byerly v. Kirkpatrick Pettis Smith Polian, Inc.,117 which held that in state court, when the FAA is applicable, the federal common law ground for vacating an arbitration award for manifest disregard of the law would not be applied, as Colorado statutory and common law did not recognize that ground.
Therefore, in order for the parties to select the law of a particular state insofar as the arbitration rights and procedures, given the 1745 Wazee case, and as to federal law, Mastrobuono v. Shearman Lehmann Hutton, Inc.,118 the agreed-upon choice of law as to arbitration must be specifically stated, e.g. , "the arbitration and the substantive rights and procedural requirements and limitations shall be governed by the Federal Arbitration Act." A choice-of-law clause providing that the laws of a given state shall govern is ambiguous.
The importance of specific wording choosing state or federal arbitration law was discussed in Barker v. Halliburton Co.119 There, absent agreement, the FAA was applicable. The Texas Court of Appeals held that a Texas choice-of-law provision did not...
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