Chapter 7 - § 7.5 • IS THE DISPUTE WITHIN THE SCOPE OF THE ARBITRATION AGREEMENT?

• Jurisdiction: Colorado

§ 7.5 • IS THE DISPUTE WITHIN THE SCOPE OF THE ARBITRATION AGREEMENT?

Arbitration agreements generally are limited to certain defined disputes. Commonly, an arbitration provision applies to all disputes arising out of a certain agreement or transaction. It is not typical for parties to simply agree to arbitrate any dispute they may have in the future.

See generally Chapter 5 as to interpreting arbitration agreements.

§ 7.5.1—Is There An Arbitrable Dispute?

Whether arbitration is the correct forum for the resolution of the issue requires a determination of whether an arbitrable dispute exists. For a dispute, claim, or question to be present and subject to arbitration, a difference between the parties is required. If there are no differences, there is no question to submit and hence no duty to arbitrate.⁷³ Thus, whether there is an arbitrable dispute is analogous to the issue in courts of whether there is a case or controversy.

If there is ambiguity in the arbitration agreement, there is a presumption in favor of arbitration, and all doubts about the scope of arbitration are resolved in favor of arbitration.⁷⁴

§ 7.5.2—Scope Of An Arbitration Clause — Generally

FAA

Once it is determined that there is an agreement to arbitrate, that there is an arbitration procedure within the scope of the arbitration statute, and that there is an arbitrable dispute, the dispute must be within the scope of the arbitration clause to be arbitrable. If the FAA applies, whether a dispute is within the scope of the arbitration clause is governed by federal law.⁷⁵ Because arbitration is a favored means of dispute resolution and state and federal public policy favors arbitration, any doubts about the scope of an arbitration clause should be resolved in favor of arbitration.⁷⁶ An arbitration agreement is a contract; therefore, the interpretation of the contract is a matter of law that is reviewed de novo on appeal.⁷⁷

An agreement to arbitrate must implicitly or explicitly define the disputes to which it applies, i.e., define the scope of the agreement to arbitrate. For example, an arbitration clause in a contract, without more, probably will apply to all disputes arising out of the performance or non-performance of that contract. The public policy of Colorado and under the FAA favors the arbitration of disputes. Hence, once the court or arbitrator finds there is an agreement containing an arbitration clause, a presumption that the dispute is within the clause arises. That presumption is overcome only if "'it may be said with positive assurance'" that the dispute is outside the clause.⁷⁸

Arbitration agreements frequently define their scope as any dispute arising under this agreement. Such language is typically given a broad construction.⁷⁹

CRUAA

In Galbraith v. Clark,⁸⁰ the Colorado Court of Appeals reaffirmed an earlier rule of interpretation in determining whether the dispute was within the scope of an arbitration agreement:

[W]e focus on the underlying factual allegations, rather than the party's characterization of its claim. "If the allegations underlying the claims 'touch matters' covered by the parties' [arbitration agreement], then those claims must be arbitrated, whatever the legal labels attached to them."⁸¹

Of course, the parties could agree to arbitrate only breach of contract claims, and not tort claims.

In Gergel v. High View Homes, LLC,⁸² the issue presented was: which of the asserted claims were covered by the arbitration clause? The action was brought by plaintiffs who contracted with the defendant for the construction of a residence. The plaintiffs sought to recover for damage from swelling of expansive soil, alleging negligence, violation of Colorado Consumer Protection Act, negligent misrepresentation, negligent concealment, and breach of the Soils Disclosure Act. The court first acknowledged that it must determine whether the factual allegations underlying the claims were within the scope of the arbitration clause, regardless of how the claim was characterized (legal theory) in the pleading. Thus, a claim based upon tort does not necessarily take it out of a clause requiring arbitration of a contract dispute.

The contract provided that at closing the parties agreed to execute a Limited Warranty Agreement, which required arbitration of "all disputes relating to warranty issues." It further provided that after closing, "all claims, rights and remedies of purchasers arising out of this contract and sellers construction shall be limited to those set forth in such Limited Warranty Agreement." The warranty required arbitration under the rules of the AAA.

The court concluded that all of the plaintiffs' claims were based upon allegations that the defendant represented to the plaintiffs it would build them a home without defects and failed to do so, and failed to adequately and clearly inform plaintiffs that their home was being built on expansive soil. "Such claims, in our view, arise out of, or relate to, the warranty agreement."⁸³

Compare, however, Ferris v. Poplarhouse, LLC,⁸⁴ where the court reached a somewhat opposite conclusion by comparing the Gergel contract language (all claims, rights, and remedies of plaintiffs that arose out of, or relate to the contract shall be limited to those set forth in the limited warranty) with the wording in this case that the plaintiffs accept the residence "as is," subject only to the defendants' limited warranty obligations, which excluded consequential damages. The court found the latter language did not restrict the plaintiffs' remedies solely to those expressed in the limited warranty. Claims for damage to the residence were subject to arbitration as clearly within the limited warranty (defects in workmanship and material), while other claims such as loss of use of property, personal injury caused by exposure to mold, loss of profits, and loss of consortium did not involve the limited warranty against defects in workmanship and materials.

See § 5.8.

§ 7.5.3—Broad Versus Narrow Arbitration Clauses

An arbitration clause may be either very broad in scope as to the types of disputes to be arbitrated, or very narrow and limited. The parties to a contract "who agree to submit matters to arbitration are presumed to have agreed that everything, both as to law and fact, necessary to render an ultimate decision, is included in the authority of the arbitrator."⁸⁵ Like every contract interpretation issue, the objective is to ascertain and give effect to the mutual intent of the parties and to carry out the purposes of the agreement.⁸⁶

For example, is an arbitration clause intended to cover all disputes arising out of the subject matter of the contract or only certain types of disputes? The arbitrability of claims is dramatically affected when there is a narrow arbitration clause. Some arbitration clauses are...