Construction Law

The finality of arbitration cuts both ways

By Tim Gordon

One reason that parties include arbitration provisions in their contracts is the belief that arbitration is less expensive than litigation.  This is only partially true.  Discovery is typically the most expensive part of any lawuit, and discovery has become common in arbitration.  In fact, under the Colorado Uniform Arbitration Act, arbitrators have authority to permit discovery.  C.R.S. § 13-22-217(3).  Additionally, everyone's tax dollars have already paid for our Judges, whereas the parties to an arbitration have to pay for the arbitration panel's time.

But arbitration can theoretically be less expensive in that an arbitraton panel's decision is almost bullet proof.  And because it is so difficult to challenge an arbitration decision, there is less liklihood of an appeal following arbitration.  This can cut both ways.

In Treadwell v. Village Homes of Colorado, Inc., the contract at issue only allowed an award of attorneys' fees "upon a showing of egregious conduct."  The arbitrator awarded attorneys' fees in favor of the plaintiff/homeowners "pursuant to the [Colorado Constumer Protection Act] CCPA", but did not specifically find that Village Homes engaged in "egregious conduct."  A district court confirmed the arbitration award, and Village Homes appealed, arguing that the arbitrator improperly awarded attorneys' fees.  The Court of Appeals affirmed the confirmation of the award.

The Court explained that the award of fees is not subejct to attack simply because the arbitrator did not fully explain her reasoning for awarding fees.  And the fact that the arbitrator did not expressly find that Village Homes engaged in egregious conduct is not grounds to challenge the award.  Arbitration awards cannot be set aside for want of explanation.  According to the Court:

Given that the award cannot be invalidated or remanded because the arbitrator said too little to justify it, we would have to confirm it had the arbitrator simply written: "Homeowners are awarded [X amount] in fees and costs."

This case demonstrates how difficult it is to challenge an arbitration award.  Although the limited avenues for appeal might reduce costs in some cases, parties must realize that in choosing to arbitrate they are waiving their traditinoal appeal rights.

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Full post as published by Colorado Construction Law on November 25, 2009 (boomark / email).