If you've signed a construction contract that includes an arbitration clause, you might be wondering whether you're stuck with it or if there are ways to get out of it. The short answer is: it depends on several factors, including the specific language in your contract, how the clause was presented to you, and the actions both you and your contractor have taken since signing.
Let me walk you through what Colorado law says about arbitration clauses in construction contracts and when you might have options to avoid arbitration.
What Is an Arbitration Clause?
An arbitration clause is a provision in your construction contract that requires you to resolve disputes through private arbitration rather than going to court. Instead of having a judge or jury decide your case, a neutral arbitrator (or panel of arbitrators) will hear evidence from both sides and make a binding decision.
These clauses typically include language like "all disputes arising out of this contract shall be decided by arbitration" or similar wording that directs you to use arbitration services from organizations like the American Arbitration Association.
Colorado's General Approach to Arbitration
Colorado courts generally favor arbitration as a method of dispute resolution. Under Colorado Revised Statutes § 13-22-206, arbitration agreements are "valid, enforceable, and irrevocable except on a ground that exists at law or in equity for the revocation of a contract."
This means that most arbitration clauses will be enforced by Colorado courts. However, the law also provides several important exceptions where you might be able to avoid arbitration.
Grounds for Getting Out of an Arbitration Clause
1. The Contractor Waived Their Right to Arbitration
One of the most common ways to avoid arbitration is if the contractor has waived their right to demand it. This can happen when the contractor takes actions that are inconsistent with wanting to arbitrate.
In the case of Waldman v. Old Republic National Title Insurance Co., the Colorado Court of Appeals ruled that a party can waive their right to arbitration "by taking actions inconsistent with such right in circumstances where prejudice will accrue to other parties."
Examples of waiver might include:
Filing a lawsuit against you in court instead of demanding arbitration
Participating extensively in court proceedings without mentioning arbitration
Waiting too long to demand arbitration after a dispute arises
Engaging in discovery or other court processes that suggest they want to proceed in court
The key is that the contractor's actions must show they intended to give up their right to arbitrate, and you must have been prejudiced (harmed) by relying on their conduct.
2. Unconscionable Arbitration Terms
Colorado law allows courts to refuse to enforce contract terms that are "unconscionable" under C.R.S. § 4-2-302. An unconscionable arbitration clause is one that is so unfair or one-sided that it would be unreasonable to enforce it.
Courts look at two types of unconscionability:
Procedural unconscionability involves problems with how the contract was formed:
High-pressure sales tactics
Hidden or buried arbitration clauses in fine print
Lack of meaningful choice in accepting the terms
Significant differences in bargaining power
Substantive unconscionability involves unfair terms in the arbitration clause itself:
Requiring you to pay excessive arbitration costs
Limiting your ability to present evidence
Restricting your right to legal representation
Severely limiting the types of damages you can recover
3. Problems with Contract Formation
Since arbitration clauses are part of your construction contract, any issue that makes the entire contract invalid will also invalidate the arbitration clause. Common issues include:
Fraud or misrepresentation by the contractor
Lack of proper signatures or execution
Contractor lacking proper licensing
Contract terms that violate Colorado law
4. The Arbitration Process Was Fundamentally Flawed
Even if you initially agreed to arbitration, you might be able to challenge an arbitration award under C.R.S. § 13-22-223 if:
The award was obtained through corruption, fraud, or other improper means
The arbitrator showed evident bias or engaged in misconduct
The arbitrator exceeded their authority
You didn't receive proper notice of the arbitration proceedings
The arbitrator refused to consider material evidence
5. Disputes Outside the Scope of the Arbitration Clause
Not all disputes may be covered by your arbitration clause. The specific language matters enormously. Some arbitration clauses only cover certain types of disputes, such as:
Warranty claims only
Disputes arising directly from the construction contract
Claims under a certain dollar amount
If your dispute involves violations of Colorado consumer protection laws, professional licensing violations, or other claims not specifically covered by the arbitration language, you might be able to pursue those claims in court.
Special Considerations for Construction Defect Cases
Construction defect cases often involve multiple parties – the original contractor, subcontractors, suppliers, and sometimes even previous homeowners. In cases like Eagle Ridge Condominium Association v. Metropolitan Builders, Inc., Colorado courts have had to determine whether arbitration clauses in individual purchase agreements bind homeowner associations or new owners who didn't sign the original contracts.
The courts have also applied an "intertwining doctrine" in some cases. As seen in Gergel v. High View Homes, LLC, when you have both arbitrable claims (like breach of contract) and non-arbitrable claims (like consumer protection violations) that are closely related, courts sometimes keep all claims together in one forum to avoid inconsistent results.
This can work in your favor if you have claims that clearly fall outside the arbitration clause, as it might allow you to bring your entire case to court rather than splitting it between arbitration and court proceedings.
The Importance of Timing
If you want to challenge an arbitration clause, timing is crucial. You generally cannot participate in arbitration proceedings and then later claim the arbitration clause was invalid. As shown in Ringwelski v. Pederson, once you participate in arbitration, you may be bound by the results even if the arbitration clause said arbitration was only a "condition precedent" to court action.
Similarly, if you want to claim that the contractor waived their right to arbitration, you need to act promptly once you become aware of their inconsistent conduct.
What This Means for You
Before assuming you're stuck with arbitration, carefully review your contract and the circumstances surrounding your dispute. Key Construction Contract Terms to Watch For can help you understand what to look for in your agreement.
Consider these questions:
How was the arbitration clause presented to you when you signed the contract?
Has your contractor filed any court actions against you or taken other steps inconsistent with wanting to arbitrate?
Are all of your claims covered by the arbitration clause, or do some fall outside its scope?
Were there any problems with how your contract was formed or negotiated?
Remember that even if you can't avoid arbitration entirely, you might be able to challenge an arbitration award after it's issued if there were serious problems with the arbitration process.
Understanding Your Contract Language
The specific wording of your arbitration clause makes a significant difference in your options. Some clauses are broader than others, and Construction Contract Language: Why Clarity Matters explains why these details are so important to understand.
If you're entering into a new construction contract and want to avoid arbitration issues, Construction Contract Terms to Negotiate provides guidance on terms you should discuss with your contractor before signing.
Get Professional Legal Advice
While there are several potential ways to challenge or avoid arbitration clauses, each case depends heavily on its specific facts and circumstances. What worked in one case might not apply to your situation, and the stakes are often high in construction disputes.
The laws governing arbitration agreements are complex, and courts generally lean toward enforcing these clauses when possible. An experienced Colorado construction defect attorney can review your specific contract, analyze your particular circumstances, and advise you on the best strategy for your case.
Don't assume you're automatically stuck with arbitration, but also don't assume you can easily get out of it. The sooner you consult with a qualified attorney, the better you'll understand your options and the stronger your position will be, regardless of whether your case ultimately proceeds in arbitration or court.
If you're dealing with construction defects or disputes and have questions about an arbitration clause in your contract, contact our office for a consultation. We can review your specific situation and help you understand your legal options under Colorado law.
Have Questions About Construction Contracts?
Our experienced construction defect attorneys are here to help. Schedule a free 15-minute screening call to discuss your situation.
