Chapter 7 - § 7.11 • VOID, INVALID, OR ILLEGAL PROVISIONS IN THE ARBITRATION AGREEMENT

• Jurisdiction: Colorado

§ 7.11 • VOID, INVALID, OR ILLEGAL PROVISIONS IN THE ARBITRATION AGREEMENT

As frequently stated throughout this chapter, in most instances the agreement between the parties governs the form and substance of the arbitration. The purpose of many provisions of the statutes is to provide rules and procedures, but not to supersede the agreement of the parties.²⁴¹ As to some subjects, the law imposes terms that cannot be altered by agreement of the parties, or that can be altered only after the dispute arises.

However, there are certain clauses that under the common law a court will not enforce. These invalid terms are often found when the parties have disparate bargaining power, particularly in consumer arbitration agreements. Sometimes, seemingly one-sided clauses have been upheld, and in other cases, they have been stricken.

The Colorado Court of Appeals has held that under the CUAA the parties cannot by agreement define and prescribe the powers of the appellate court with respect to appeal of arbitration awards.²⁴² In that case, the arbitration agreement provided:

The parties further agree that for the purpose of any appeal to the Colorado Court of Appeals or the Colorado Supreme Court the arbitrators' award shall be reviewed using the same standard as findings of fact and the conclusions of law by a Colorado District Court.²⁴³

The court held that the parties' agreement conferring authority on the court to review on a substantive basis the award of the arbitrators was void and unenforceable, as under the Colorado Constitution the authority to determine the jurisdiction of the court was vested exclusively in the General Assembly.

The Colorado federal court decisions under the FAA as to modifying an appellate court's scope of review were somewhat confusing.²⁴⁴ However, while there are still substantial issues as to its holding, the topic insofar as federal law is now governed by Hall Street Associates, L.L.C. v. Mattel, Inc.²⁴⁵ See Chapter 17 for a detailed discussion.

Examples of statutory provisions under the CRUAA that generally cannot be waived or altered substantially by the parties prior to the controversy arising include: motions to compel or stay arbitration, immunity of the arbitrator, judicial enforcement of pre-award rulings, submission by a court to the arbitrator of a motion to modify or correct an award, confirmation of awards, vacating the award, modification or correction of an award, and judgment on the award, including costs.²⁴⁶ While these limitations are defined by the CRUAA, the common law under the CUAA and the common law under the FAA probably are the same. The CRUAA also expressly defines statutory provisions that can be waived only after a dispute arises under an agreement to arbitrate.²⁴⁷

In Sehulster Tunnels/Pre-Con v. Traylor Brothers, Inc./Obayashi Corp.,²⁴⁸ the California appellate court considered a provision in the prime contract requiring a dispute review board (DRB) procedure prior to litigation that was otherwise binding on a subcontractor, but did not give the subcontractor any voice in retention of the DRB neutrals. The court held, therefore, that the DRB was presumptively biased in favor of the owner and prime contractor, and the subcontractor was excused from complying with the DRB process.

As mentioned earlier, sometimes seemingly one-sided clauses have been upheld and in other cases stricken. According to some courts, these terms include altering the Title VII employment discrimination right of the plaintiff to recover attorney fees²⁴⁹ and...