Tuesday, July 28, 2009

HIGHEST COURT HOLDS FEDERAL ARBITRATION ACT PROVISIONS EXCLUSIVE

The United States Supreme Court has held that two sections of the Federal Arbitration Act (“the Act”) provide the exclusive grounds for vacating or modifying an arbitration award on an expedited basis under the Act. Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U. S. ___, 128 S. Ct. 1396, 1403 (2008). The Court noted that agreements seeking to expand or change those exclusive grounds are unenforceable. However, it left open the question of whether federal courts’ authority to manage litigation permitted the District Court of Oregon to vacate an arbitration award for manifestly disregarding the law when the parties had agreed it could apply such a standard and the court had entered an order approving that agreement.

Although scores of federal court decisions over the years have referred “manifest disregard of the law” as a potential ground to vacate an arbitration award, the Supreme Court noted the Act does not so state. The Court found Congress intended that only the four grounds stated in § 10(a) of the Act permit a federal district court to vacate an award. Those grounds are: (1) award “procured by corruption, fraud or undue means”; (2) where one or more arbitrator was evidently partial or corrupt; (3) arbitrators “guilty of misconduct” in refusing to postpone, to hear evidence, or “of any other misbehavior by which the rights of any party have been prejudiced”; and (4) arbitrators exceeded their powers or “so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” See Title 9 U. S. C. § 10 (2000 ed.). The Court also found that three grounds stated in § 11 of the Act constitute the exclusive grounds for modifying or correcting an award. Those grounds are: (1) an evident material miscalculation of figures or mistake describing a person, thing or property; (2) arbitrators awarding on a matter not submitted to them yet affecting the merits of the submitted matter; and (3) imperfection in the form of the award. See 9 U. S. C. § 11.

Hall Street resolved a split in the federal circuit courts over whether these statutory grounds were exclusive when the parties take what the Court called the “FAA shortcut to confirm, vacate, or modify an award”. See 9 U. S. C. § 9. The court noted that the Tenth Circuit Court of Appeals, which includes Colorado, had held previously that parties may not contract for expanded judicial review. See Bowen v. Amoco Pipeline Co., 254 F. 3d 925, 936 (10th Cir. 2001). But see Sheldon v. Vermonty, 269 F.3d 1202, 1206 (10th Cir.2001). However, four other federal circuit courts had held otherwise and a fifth had agreed with those four in an unpublished opinion. Hall Street thus provides certainty for parties whose arbitration awards are subject to challenge under the Act (provided that the agreement is subject to the Act, for instance as one “involving commerce.”) (9 U. S. C. § 2.) However, the Court noted that it was not saying that the Act excludes “more searching review based on authority outside the statute.” Hall Street, 128 S. Ct. at 1406. Parties may, in appropriate circumstances contemplate enforcement of arbitration awards under state statutes or common law where they might argue for a different type of judicial review.

One panel of the Colorado Court of Appeals previously declined to apply the “manifest disregard” standard for determining whether an arbitration award should be vacated. See Coors Brewing Co. v. Cabo, 114 P.3d 60 (Colo. App. 2004) (discussing treatment of manifest disregard of the law in the Federal Circuits). Another very recent Colorado Court of Appeals decision, citing Sheldon, has observed that many courts applying the Act have referred to judicially created reasons for vacating an arbitration award, including an arbitrator’s “manifest disregard of the law.” Ahluwalia v. QFA Royalties, LLC, ___P. 3d ___, 2009 WL 262466 (Colo. App. 2009) (petition for certiorari pending, 2009 S. C. 230). It remains to be seen whether the Colorado Supreme Court will accept certiorari of the Ahluwalia decision in light of the United States Supreme Court decision in Hall Street.

The sweep of the Act in extremely broad, since it applies to all contract “involving commerce.” Thus, it arguably covers each and every commercial contract containing an arbitration provision. This would include commercial leases, employment agreements, contracts for the sale of goods and services, and purchase and sale agreements of many and varied types. When the Act applies, state and federal courts alike, under Hall Street, are limited to the statutorily listed grounds for vacating or for modifying or correcting an arbitration award upon application by a party. Hall Street is now the ultimate authority on whether parties are free to contractually alter those statutory grounds. However, many arbitration provisions alter or add to such grounds in contracts “involving commerce”.

The moral of this story is that the law evolves, creating certainty, but able lawyers have proved over the years that “where there is a will, there is a way” to protect and advocate creatively for their clients. Parties and their counsel have proved zealous by seeking to enforce the provisions they have drafted and previously agreed upon, including standards for enforcing awards. Hall Street is most likely not the last word in the age old prize fight. “In this corner we have the challenger, battling to achieve finality by expeditiously resolving commercial disputes through arbitration. And in the other corner, we have the reigning champion, fighting to guaranty fair application of substantive legal rules and principles. May the best person win!”

Post By Wesley B. Howard, Esq.

Monday, July 27, 2009

DENVER'S NEW ZONING CODE

The City and County of Denver is in the final stages of its comprehensive overhaul of Denver's zoning code. A draft of the new code and new map is available here. Currently, Denver's zoning code task force is conducting public meetings in neighborhoods throughout the city regarding the new code. The remaining meeting dates and neighborhoods are referenced here. Following this public review and comment period, the new code will go to the Planning Board and City Council for discussion, public hearings and adoption.

Friday, July 24, 2009

COVENANTS NOT TO COMPETE -- "MANAGEMENT PERSONNEL"

In Colorado, covenants not to compete are void as a matter of public policy except in a few limited circumstances. C.R.S. sec. 8-2-113(2). One of the exceptions is for "executive and management personnel and officers and employees who constitute professional staff to executive and management personnel." However, there is no statutory definition of "management personnel," and the Colorado courts have not provided clear guidance for who is "management personnel."

A recent Colorado Court of Appeals decision, DISH Network Corp. v. Altomari, Case No. 08CA1741 (June 25, 2009), has shed some light on the management level and authority a person must possess for him or her to be deemed "management personnel" for purposes of this exception. Altomari was a "mid-level manager" at DISH Newtork having "supervisory authority over fifty out of DISH's 22,000 employees" and some decision-making authority. The trial court concluded that Altomari was not "management personnel" because he was not a "key person at the heart of the business." The Court of Appeals rejected the trial court's narrow interpretation of the statute and ruled that the covenant not to compete was not void and could be applied to Altomari. The Court reasoned that the common meaning of the word "management" is not so limited as to include only the top level of management of a company and that excluding persons who "direct, control, and supervise" other employees within a company inappropriately narrows the statutory language and is inconsistent with the plain meaning of term.

Note that the Court of Appeals' opinion has not been released for publication, and therefore a petition for rehearing or a petition for cert. to the Colorado Supreme Court may be pending. Stay tuned!

Post By Brent W. Houston, Esq.

Thursday, July 23, 2009

Colorado Prohibits Insurers from Unreasonably Delaying or Denying Benefits

Since June 2008, Colorado has prohibited insurers from unreasonably delaying or denying benefits to policy holders and has provided additional remedies of an award of attorney fees and damages of double the amount of covered benefits. The law does not apply to worker’s compensation, title or life insurance. The statutes (C.R.S. §§ 10-3-1115 and 1116) also prohibit giving discretion to the insurer, plan administrator, or claim administrator to interpret the terms of health or disability policies, contracts, or plans issued in Colorado. Insurance policies, contracts or plans must provide that health, life, or disability benefit claimants, who have been denied and exhausted administrative remedies, are entitled to bring their claims before juries. On the whole these new statues provide a powerful incentive to insurers to adjust claims promptly and fairly and a potent weapon for policy-holders whose claims are unreasonably delayed or denied.

POSTED BY: WESLEY B. HOWARD, ESQ.

Wednesday, July 22, 2009

NEW RESERVE STUDY POLICY REQUIREMENTS FOR COLORADO HOAS

Effective August 5, 2009, pursuant to House Bill 09-1359, owner's associations governed by the "Colorado Common Interest Ownership Act" must adopt policies, procedures, and rules and regulations concerning: when the association has a reserve study prepared for the portions of the community maintained, repaired, replaced, and improved by the association; whether there is funding plan in place; project sources of funding for reserves; and whether the reserve study is based on a physical and financial analysis. The legislation provides that "an internal reserve study is sufficient," which can be interpreted to mean that the association is not obligated to engage professionals to perform the reserve study. Although engaging professionals is not required, it is a prudent practice under most circumstances.

In a nutshell, a reserve study is forecast of the timing and costs of maintenance, repair, and replacement of those portions of the community for which the association is responsible. Typically, a reserve study consists of an inventory and condition assessment of the common components, and estimates of the useful life and value of each component. This information, viewed in conjunction with the level of existing reserves, if any, is used to develop a funding plan. In most cases, the funding plan will provide for regular reserve assessments to fund all or a portion of the projected costs.

Posted By Brent W. Houston, Esq.