2018 COA 142
Colo. Ct. App.2018Background
- Media Kings contracted with Digital Landscape to provide advertising services for a client (Transcendent); Media agreed to pay Digital a share but failed to pay.
- Transcendent, dissatisfied, proposed Digital take over the project; Digital’s principal had another of his companies assume the work, effectively cutting Media out.
- Digital sued Media for breach of contract seeking unpaid amounts; Media counterclaimed alleging breaches including breach of the implied covenant of good faith and fair dealing (based on disclosures, solicitation, disparagement) and misappropriation claims.
- The Media–Digital agreement contained an arbitration clause: “Any disputes arising under this Agreement will be resolved by binding arbitration.” The district court stayed litigation and compelled arbitration.
- Arbitrator awarded Digital $68,197.41 on its contract claim and awarded Media $24,400 on a claim the arbitrator characterized as breach of a duty of loyalty (rather than the pleaded implied-covenant tort); the arbitrator found no clear prevailing party and denied attorney fees.
- Digital petitioned to vacate the arbitration award (challenging arbitrator jurisdiction over the loyalty claim, claiming lack of notice and seeking fees). The district court confirmed the award; the Court of Appeals affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of "arising under" in arbitration clause | "Arising under" is narrow; arbitrator lacked jurisdiction to decide the duty-of-loyalty claim | Phrase is broad in arbitration clauses; arbitrator had jurisdiction | Court holds "arising under" is broad here and includes the loyalty claim; arbitrator had jurisdiction |
| Conversion of counterclaim label (good faith → loyalty) | Arbitrator improperly converted pleaded counterclaim to a different cause of action without notice or opportunity to defend | The court should look to factual allegations, not labels; allegations supported a loyalty theory and issues were tried | Court finds the arbitrator did not exceed authority; factual allegations and other counterclaims gave notice; presumption that hearing transcript supports award |
| Whether Digital owed duty of loyalty despite independent-contractor label | Digital: as an independent contractor it owed no duty of loyalty | Media: factual evidence showed control and agency in communications with client, creating a duty of loyalty | Finding that agency is a factual issue for arbitrator; award stands even if legal application might be debatable |
| Attorney fees under contract's prevailing-party clause | Digital prevailed on contract claim and thus is entitled to fees | No clear prevailing party because each side prevailed on different claims | No single prevailing party; arbitrator did not err in denying fees; appellate fees denied |
Key Cases Cited
- Mediterranean Enters., Inc. v. Ssangyong Corp., 708 F.2d 1458 (9th Cir. 1983) (interprets “arising under” as relatively narrow in arbitration clauses)
- In re Kinoshita & Co., 287 F.2d 951 (2d Cir. 1961) (early Second Circuit decision treating “arising under” narrowly)
- Granite Rock Co. v. International Broth. of Teamsters, 561 U.S. 287 (2010) (characterizes “arising under” as relatively narrow in context but distinguishes on facts)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (federal policy favors arbitration; doubts resolved in favor of arbitration)
- City & County of Denver v. District Court, 939 P.2d 1353 (Colo. 1997) (Colorado presumption in favor of arbitration; interpret clause to effectuate parties’ intent)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) (discusses expansive effect of clauses using “relating to” or combined phrasing on arbitrability)