Opinion
No. 08CA0304.
November 25, 2009.
Appeal from the District Court, Douglas County, Paul A. King, J.
Hall Evans, L.L.C., Alan Epstein, Denver, Colorado; The Nelson Law Firm, LLC, Mark W. Nelson, Colleen S. Pennella, Denver, Colorado, for Plaintiffs-Appellees.
Wheeler Trigg Kennedy LLP, Marsha M. Piccone, Michael D. Alper, Denver, Colorado, for Defendant-Appellant.
This case highlights the great deference that courts owe to arbitration rulings — even where the arbitrators do not fully explain their reasoning. Defendant, Village Homes of Colorado, Inc. (Village Homes), appeals a district court judgment confirming an arbitration award of attorney fees, costs, and post-and pre-judgment interest in favor of plaintiffs (the homeowners). We affirm.
I. Background
Village Homes sold the homeowners (seven couples and one individual) residences in a planned community. Each of the standard-form sales agreements contained an arbitration clause.
The arbitration clause provided that "[a]ll disputes" regarding the sales agreement or underlying transaction "shall be determined by final, binding arbitration . . . and not by a court of law." It defined such disputes to include without limitation any controversies "related to the interpretation or meaning of any terms" of the agreement. It stated that "each party shall pay its own attorneys' fees; provided, however, upon a showing of egregious conduct the arbitrator(s) may award to the prevailing party reasonable attorneys' fees and expenses."
The underlying dispute was triggered by a water district's construction of a well site and water treatment facility on an easement adjacent to the planned community. The homeowners alleged that Village Homes had made misrepresentations that the easement would remain recreational open space and, in so doing, had violated the Colorado Consumer Protection Act (CCPA), §§ 6-1-101 to -115, C.R.S. 2009.
The dispute proceeded to a week-long arbitration hearing in April 2007. In May 2007, the parties' agreed-upon arbitrator issued a written award finding that Village Homes had made negligent misrepresentations and violated the CCPA. The homeowners were awarded a total of $525,000 in damages together with attorney fees and costs (in amounts to be determined) pursuant to the CCPA. This initial award did not mention statutory interest. In July 2007, after a further hearing, the arbitrator issued a "Final Arbitration Award," awarding the homeowners $164,478.50 in attorney fees, $28,447.98 in costs, and $105,387.25 in pre-judgment interest. As had the initial award, this final award stated that the fees and costs were awarded pursuant to the CCPA.
The homeowners filed a motion in the district court to confirm the arbitration award. Village Homes ultimately paid the $525,000 damages, but it disputed the roughly $300,000 awarded as attorney fees, costs, and interest. The district court confirmed the arbitration award and also awarded postjudgment interest on the unsatisfied portion of the award.
II. Discussion
Village Homes contends the "arbitrator exceeded the arbitrator's powers." § 13-22-223(1)(d), C.R.S. 2009. We disagree.
Courts independently review whether an arbitrator had power to resolve a dispute. Allen v. Pacheco, 71 P.3d 375, 378 (Colo. 2003). But where the parties empower an arbitrator to resolve an issue, courts may not review the merits — including issues of contract interpretation — of the arbitration decision. Container Technology Corp. v. J. Gadsden Pty., Ltd., 781 P.2d 119, 121 (Colo.App. 1989); accord Coors Brewing Co. v. Cabo, 114 P.3d 60, 66 (Colo.App. 2004). We review de novo the district court's legal conclusions. Barrett v. Investment Mgmt. Consultants, Ltd., 190 P.3d 800, 802 (Colo.App. 2008).
A. The Arbitrator's Award of Attorney Fees and Costs
The agreement here indisputably empowered the arbitrator to decide whether to award attorney fees and costs. We hold that the ultimate award involved the merits of the dispute (not an issue of empowerment), and that it cannot be overturned just because the arbitrator did not fully explain her reasoning.
The "merits of the award" — not subject to judicial review — include the arbitrators' interpretation of the contract." Container Technology, 781 P.2d at 121. Container Technology followed the Supreme Court's teaching that "`so far as the arbitrator's decision concerns construction of the contract, the courts have no business overruling him because their interpretation of the contract is different from his.'" Id. (quoting United Steelworkers v. Enterprise Wheel Car Corp., 363 U.S. 593, 599, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960)). Thus, where "an arbitrator resolves disputes regarding the application of a contract, and no dishonesty is alleged, the arbitrator's improvident, even silly, factfinding does not provide a basis for a reviewing court to refuse to enforce the award." Major League Baseball Players Ass'n v. Garvey, 532 U.S. 504, 509, 121 S.Ct. 1724, 149 L.Ed.2d 740 (2001) (internal quotations omitted).
Courts "may decline to confirm an arbitration award only in limited circumstances." Barrett, 190 P.3d at 802. These limited circumstances, listed in section 13-22-223(1), do not include the merits of the award. Rather, they involve "specific instances of outrageous [arbitral] conduct" and "egregious departures from the parties' agreed-upon arbitration." See Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, ___, 128 S.Ct. 1396, 1404, 170 L.Ed.2d 254 (2008) (construing similar provisions of the Federal Arbitration Act (FAA), 9 U.S.C. §§ 9- 11). The deference to arbitrators is so great, see Barrett, 190 P.3d at 802, that referring to judicial review of arbitral awards may be something of a misnomer. See Wise Wachovia Securities, LLC, 450 F.3d 265, 269 (7th Cir. 2006) (Posner, J.).
The line between the unreviewable merits of arbitral awards and the enforceable limits upon arbitrators' powers is most easily blurred where arbitrators must interpret and apply contractual language. Because parties do not empower arbitrators to misconstrue contracts, losing parties could always claim the arbitrators exceeded their powers by failing to follow the contractual preconditions to the challenged awards.
In drawing this line, we must be mindful of the benefits of arbitration and the consequences of judicial review. See Hall Street, 552 U.S. at —, 128 S.Ct. at 1405; Magenis v. Bruner, 187 P.3d 1222, 1224 (Colo.App. 2008). Arbitration is favored — and the parties presumably chose it in the first place-because it ordinarily is less expensive and more expeditious than litigation. See City County of Denver v. District Court, 939 P.2d 1353, 1362-63 (Colo. 1997). Judicial review reintroduces the costs and delays the parties sought to avoid by choosing an arbitral forum. See Hall Street, 552 U.S. at ___, 128 S.Ct. at 1405; Coors Brewing, 114 P.3d at 65.
Village Homes' challenge falls on the merits rather than empowerment side of the line. Because the arbitrator indisputably had power to award fees and costs, Village Homes' challenge goes not to what the arbitrator did but rather to why she did it (and more precisely, to her explanation or lack of explanation for why she did it). We decline to hold the arbitrator exceeded her powers by entering the award without expressly finding that Village Homes engaged in egregious conduct.
The parties can require arbitrators to issue written findings and, where agreements so require, arbitrators exceed their powers by not making such findings. See Western Employers Ins. Co. v. Jefferies Co., 958 F.2d 258, 261-62 (9th Cir. 1992). The agreement here, however, required no such findings. Indeed, even the provision relied on by Village Homes referred to a "showing" — not a "finding" — of egregious conduct.
Federal courts have uniformly held that absent some requirement in the agreement, "[a]rbitrators are not required to set forth their reasoning supporting an award." In re Arbitration of Bosack v. Soward, 586 F.3d 1096, 1104 (9th Cir. 2009); accord American Postal Workers Union v. U.S. Postal Service, 550 F.3d 27, 30 (D.C. Cir. 2008); PaineWebber Group, Inc. v. Zinsmeyer Trusts Partnership, 187 F.3d 988, 994 (8th Cir. 1999); Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 112 (2d Cir. 1993). Because "[a]rbitrators have no obligation to the court to give their reasons for an award," they do not exceed their powers by failing to explain their reasoning. Enterprise Wheel, 363 U.S. at 598, 80 S.Ct. 1358.
We similarly hold as a matter of Colorado law that arbitrators are not required to explain their reasons for issuing awards authorized by an agreement. Thus, absent an affirmative showing of invalidity, arbitration awards may not be set aside "for want of explanation (or, what is in effect almost the same thing, remanded for an explanation)." Sargent v. Paine Webber Jackson Curtis, Inc., 882 F.2d 529, 532 (D.C. Cir. 1989). We follow the Supreme Court in holding that "[a] mere ambiguity in the opinion accompanying an award, which permits the inference that the arbitrator may have exceeded his authority, is not a reason for refusing to enforce the award." Enterprise Wheel), 363 U.S. at 598, 80 S.Ct. 1358.
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." Village Homes' challenge may actually be that the arbitrator said too much rather than too little by essentially writing: "Homeowners are awarded [X amount] in fees and costs, pursuant to the CCPA." Regardless, the challenge ultimately is that the arbitrator inadequately justified the award.
The arbitrator might have decided to award fees and costs pursuant to the CCPA by reasoning (1) as a matter of fact, the CCPA violations here were egregious; (2) as a matter of law, CCPA violations are always egregious; or (3) as a matter of contract interpretation, an egregiousness showing is required only for non-statutory fees. Each reason would suffice: the first because courts have "no authority to reweigh th[e] evidence," Giraldi v. Morrell, 892 P.2d 422, 424 (Colo.App. 1994); the second because courts do not decide "whether the arbitrator's legal rulings were correct," Coors Brewing, 114 P.3d at 64; and the third because arbitrators' contract interpretations are binding, Container Technology, 781 P.2d at 121.
We do not know whether the arbitrator relied on one, all, or none of these reasons. But as long as there was a reason that could have justified the award, an award will not exceed the arbitrator's power just because its explanation was lacking or even mistaken. See Barrett, 190 P.3d at 802-03 (confirming attorney fee award, even though "the arbitrators mistakenly referenced an inapplicable [statutory] provision," because "such fees could properly be awarded" under other law not cited by arbitrators).
Because there were grounds on which the arbitrator properly could have based her award, we will not invalidate it or remand for further explanation. This case is unlike Magenis v. Bruner, where a division of this court concluded that an arbitrator had exceeded his authority by denying attorney fees to the prevailing party even though the contract plainly required such fees and limited the arbitrator to determining their reasonableness. 187 P.3d at 1224-26. Here, unlike in Magenis, the agreement gave the arbitrator the power to determine whether to award fees.
We conclude that Village Homes' challenge goes to the merits of that award and not to the arbitrator's power to issue it. Consistent with Allen and Magenis, we have independently reviewed the agreement and concluded that it empowered the arbitrator to decide whether to award fees. Village Homes' challenge, however, is dependent not on what the arbitrator did — issue an award plainly within her power — but rather than on what she said (or didn't say) in issuing that award. The present case, therefore, is controlled by cases such as Enterprise Wheel, Barrett, and Container Technology that preclude review of arbitral merits.
For reasons set forth above, we will not review the merits of the arbitrator's award of fees and costs. We thus do not, indeed we cannot, consider its ultimate correctness.
We need not decide whether an award may be set aside where an arbitrator manifestly disregards an agreement. A prior division has held that manifest disregard is not an independent basis under Colorado law for vacating awards, Coors Brewing, 114 P.3d at 64-65, and the Supreme Court recently held likewise under the FAA. Hall Street, 552 U.S. at ___, 128 S.Ct. at 1405; but see Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349, 353-58 (5th Cir. 2009) (discussing continued divide among federal courts on whether arbitrators may be held to have exceeded their powers where it is shown they manifestly disregarded the agreement); see also DMA Int'l, Inc. v. Qwest Communications Int'l, Inc., 585 F.3d 1341, 1345 n. 2 (10th Cir. 2009) (leaving open "interesting issue" of whether manifest disregard "remains a valid ground for vacatur"). Village Homes has not argued and it cannot show that the arbitrator manifestly disregarded the agreement. See id. at 1345 ( discussing exceptionally high standards for such a claim).
B. Remaining Issues
1. Prejudgment Interest
Village Homes also contends the arbitrator exceeded her power by including prejudgment interest in the final award issued some two and one-half months after the initial award. We disagree.
Colorado law allows an award to be amended if "the arbitrator has not made a final and definite award upon a claim submitted by the parties to the arbitration proceeding." § 13-22-220(1)(b), C.R.S. 2009. Village Homes contends this section was inapplicable because the initial award was not denominated an "interim award" and did not expressly reserve the determination of pre-judgment interest. We conclude these contentions elevate form over substance. While not called an interim award, the initial award plainly envisioned further proceedings. And while it specifically referenced only the issues of fees and costs, the parties previously had signed a stipulation providing that the arbitrator could consider issues regarding fees, costs, and statutory interest after the initial award. Accordingly, we hold that the arbitrator did not exceed her powers by awarding prejudgment interest in the final award.
2. Postjudgment Interest and Appellate Attorney Fees
We finally hold that the homeowners are entitled to postjudgment interest on the unsatisfied portion of the arbitration award and to their appellate attorney fees pursuant to § 13-22-225(3), C.R.S. 2009. Village Homes' challenges to such interest and fees are predicated on its challenge to the underlying award itself. Because we have held that this underlying award was properly confirmed, we hold the homeowners are entitled to post-judgment interest and appellate attorney fees for successfully defending the arbitrator's award. We remand the case to the district court for it to calculate and award this postjudgment interest and reasonable appellate attorney fees to the homeowners.
III. Conclusion
The district court judgment confirming the arbitrator's award of attorney fees, costs, and prejudgment interest is affirmed. The case is remanded to the district court for it to award postjudgment interest and reasonable appellate attorney fees to the homeowners.
Judge GRAHAM concurs.
Judge GABRIEL concurs in part and dissents in part.