Arbitration Provisions in Colorado Construction Contracts: Implications on Challenges to an Arbitrator’s Jurisdiction

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Snell & WilmerMany construction contracts include provisions requiring the parties to arbitrate disputes relating to the contract or construction project rather than bringing their claims in a court of law. Often times, the arbitration provisions specify which arbitral body will decide the claims and which arbitration rules will govern. The American Arbitration Association (or “the AAA”) is one such arbitral body that is commonly specified and, in fact, is designated in the AIA standard agreement between contractors and subcontractors and other AIA standard agreements. The designation of the AAA as the arbitral body and its accompanying rules may seem standard and innocuous but can have significant implications in Colorado on: (1) extent of judicial review of the arbitrator’s jurisdiction, and (2) timing of judicial challenges to the arbitrator’s jurisdiction.

Judicial Review of an Arbitrator’s Jurisdiction

Generally, Colorado courts determine gateway issues of arbitrability, like an arbitrator’s ability to decide the dispute and jurisdiction over claims. However, where parties incorporate arbitration rules which afford the arbitrator with the power to determine his or her own jurisdiction, Colorado courts find that “the parties authorized the arbitrator to decide arbitrability issues.” See, e.g., Ahluwalia v. QFA Royalties, LLC, 226 P.3d 1093, 1099 (Colo. App. 2009).

Parties can still seek judicial review of an arbitrator’s jurisdiction, but Colorado courts will likely give deference to the arbitrator’s findings on its own jurisdiction if the parties designated arbitration rules authorizing the arbitrator to make determinations regarding jurisdiction. Both the AAA Commercial and Construction Arbitration Rules provide arbitrators with the ability to determine their own jurisdiction. Accordingly, parties should be aware that by designating the AAA’s rules or rules that similarly afford arbitrators the ability to determine their own jurisdiction, they are potentially limiting their ability to seek full judicial review on that topic.

Timing to Seek Judicial Review

A party seeking to challenge an arbitrator’s jurisdiction should carefully analyze the proper time in which to bring such a challenge. Colorado’s Uniform Arbitration Act appears to provide parties with the ability to seek vacation of an arbitration award based on the arbitrator’s lack of jurisdiction after the award is entered. CRS § 13-22-223(1)(d). However, waiting to challenge the arbitrator’s jurisdiction is not without risk. The Colorado Court of Appeals has held that “a commercial entity that objects to the arbitrability of a dispute, but does not seek reasonable judicial remedies and instead participates in the arbitration, waives its argument on appeal that the dispute was not arbitrable.” Harper Hofer & Assocs. v. Northwest Direct Marketing, Inc., 412 P.3d 659, 666 (Colo. App. 2014). This holding was a departure from prior Colorado case law, which had permitted a party to challenge an arbitrator’s jurisdiction post-award so long as the party had reserved the right to object to jurisdiction. Id.

Accordingly, parties entering into construction contract in Colorado should pay close attention to the arbitral body and arbitration rules specified in their contract as these rules will affect the timing and extent to which the party may challenge the arbitrator’s jurisdiction.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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