Mandatory Arbitration Bill Stays Hanging in Senate

Sponsors working through briar patch of opposition

A bill making changes to arbitration practices in Colorado has snagged in the Senate as the sponsors work out a version the sponsors have confidence will pass in the House as well. 

A key piece of Senate Bill 93 establishes definitions for ethical arbitrators. Among the framework it lays out, the bill says an arbitrator has acted with partiality if they have a conflict of interest that would disqualify a judicial officer or don’t disclose information to their fairness. The bill also bars waiving standards and challenges to an arbitrator’s partiality before a claim is filed. 

The Senate Judiciary Committee first heard the bill Jan. 29 and it passed on second reading in the chamber Feb. 6. But it has sat on the third readings calendar since. At a news conference last Tuesday, Senate Majority Leader Steve Fenberg said he hoped for the chamber to pass the bill sometime during the week. 

“We don’t have any set deadlines. We’ve laid it over because we want to get it right,” he said. “It’s a bill that will impact literally every single Coloradan.” That piece of Fenberg’s statement probably isn’t a stretch: It’s difficult to find a good or service now that doesn’t have a clause requiring arbitration buried in its terms of use. 

The bill’s other sponsor, Sen. Mike Foote, said the bill is intended to make sure one party in arbitration doesn’t have an inherent advantage, especially if there’s an extreme resource disparity, such as in employee-employer and business-consumer disputes.

“We just want to make sure the consumers and employees have a fighting chance. How we get there is not necessarily set in stone,” Foote said. He did say he wouldn’t consider carving out any whole industry from the bill or limiting the types of consumer and employee disputes it covers.

The construction industry in particular has vocally opposed Senate Bill 93 because of concerns it could undo some insulation from construction defects litigation the industry gained when the Colorado Supreme Court ruled in Vallagio at Inverness Residential Condominium Association. v. Metropolitan Homes, Inc. That decision said a developer has the right to consent to changing a homeowners association agreement that required binding arbitration for disputes in order for the development to sue for construction defects. 

Foote said they’ve tried to take into account business groups’ fear of increased litigation because it runs against the purpose of arbitration in the first place. He explained the bill applies to situations in which a mandatory arbitration clause already exsists, and doesn’t create any new requirements for when arbitration can be used. “The bottom line is at the front end, if all parties agree on an arbitrator they think is fair, the possibility of litigation goes away,” Foote said. “But if one party insists on their own arbitrator despite objections from the other party, then there may be litigation that finds that arbitrator partial at a later date.”

The sponsors said the sector’s opposition lingers despite a change to the bill saying the measure does not change or override the Vallagio decision. Lobbying data shows groups such as the Colorado Civil Justice League, the Association of General Contractors and the Denver Metro and Colorado Chambers of Commerce opposing the bill.

“I think the industry is probably not going to like the bill no matter what, but the question is are they going to just get to a point where they can live with it or not,” Foote told Law Week. “This changes the system, and the system right now is advantageous to them.”

A handful of groups have registered in support of the bill, including the Colorado Trial Lawyers Association, construction defects law firm Kerrane Storz and the Colorado Fiscal Institute. 

—Julia Cardi

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