JA Walker Co., Inc. v. Cambria Corp.

Justice EID

delivered the Opinion of the Court.

This opinion is a companion to our decision announced today in Ingold v. AIMCO/Bluffs, L.L.C., Apartments, No. 06SA240, 159 P.3d 116, 2007 WL 1532155 (Colo. May 29, 2007). In Ingold, we held that the former version of the Colorado Uniform Arbitration Act distinguishes between two types of allegations of fraudulent inducement. Allegations of fraudulent inducement specifically directed to an arbitration agreement, including an arbitration provision in a contract, must be resolved by the trial court. Fraudulent inducement allegations directed more broadly to a contract as a whole, of which an arbitration agreement is only a part, must be resolved in arbitration.

In this case, we hold that the current version of the Colorado Uniform Arbitration Act, sections 13-22-201 to -230, C.R.S. (2006) (the "CUAA"), recognizes the same distinction between fraudulent inducement allegations. Thus the trial court-not an arbitrator-must resolve allegations that a party was fraudulently induced specifically into entering an arbitration agreement. Here, Petitioner J.A. Walker Company, Inc. ("Walker") directs its fraudulent inducement allegations specifically to the arbitration agreement relied upon by Respondent Cambria Corporation ("Cambria"), not to the parties' contract as a whole. The trial court ordered the parties to arbitrate their dispute, but the arbitration order is unclear whether the trial court resolved Walker's fraudulent inducement challenge to the arbitration agreement. We therefore make the rule to show cause absolute so that the trial court can "proceed summarily to decide," pursuant to section 13-22-207(1)(b), Walker's fraudulent inducement challenge directed specifically to the agreement to arbitrate.

I.

We accept Walker's factual allegations as true for purposes of this proceeding. See Rosenthal v. Dean Witter Reynolds, Inc., 908 P.2d 1095, 1099 (Colo.1995). In April 2004, 450 Seventeenth, LLC ("450") entered into a construction contract (the "Prime Contract") with Cambria for improvements to property owned by 450 in downtown Denver. Cam-bria executed a separate contract (the "Subcontract") in May 2005 with Walker, a subcontractor, for the placement and finish of structural concrete at the project site.

While the Subcontract itself does not contain an explicit arbitration provision, it incorporates by reference the dispute resolution procedure detailed in the Prime Contract. The Prime Contract incorporates by reference a document known as the General Conditions of the Contract for Construction (the "General Conditions"). The General Conditions provides that "[alny Claim arising out of or related to the Contract ... shall ... be subject to arbitration."

Walker alleges that it requested but never received a copy of either the Prime Contract or the General Conditions. Walker further alleges that when it asked Cambria whether arbitration was required by the Prime Contract, Cambria assured Walker that it was not. Walker alleges that it relied on those representations when it executed the Subcontract with Cambria.

Walker subsequently filed suit seeking both payment for work that it allegedly performed and foreclosure on its mechanics liens. In its answer to Walker's complaint, Cambria asserted that the trial court lacked jurisdiction because Walker's claims were subject to the mandatory arbitration provision of the General Conditions, incorporated by reference into the Prime Contract and applicable to Cambria by operation of the Subcontract. On similar grounds, 450 moved to compel arbitration. Walker objected, claiming it was not bound by the arbitration provision because Cambria fraudulently induced it into entering the Subcontract with assurances that the dispute resolution procedure did not include arbitration. Walker submitted several affidavits in support of its fraudulent inducement challenge.

The trial court compelled arbitration and stayed the remainder of the case. In its order, which was based on the parties' briefing and "the file in this matter," the trial court made no mention of Walker's allegations that it was fraudulently induced into agreeing to arbitrate its dispute with Cam-bria. Instead, the trial court held that "the arbitration provisions incorporated into the Subcontract Agreement between the Plaintiff and Defendant Cambria Corporation through the General Conditions of the prime construction project are enforceable and valid in accordance with the Uniform Arbitration Act, C.RS. § 18-22-201, et seq." We issued a rule to show cause to consider the trial court's order compelling arbitration.¹

IL.

Walker argues that the trial court erred in compelling arbitration because it has alleged that it was fraudulently induced into agreeing to arbitrate. We hold that section 18-22-206 requires the trial court to resolve allegations of fraudulent inducement, like Walker's, that are directed specifically to an agreement to arbitrate. Because it is unclear from the trial court's order whether it resolved this issue, we make our rule to show cause absolute and remand the case to the trial court for its determination of whether the parties' arbitration agreement was fraudulently induced.

A.

Colorado law favors the resolution of disputes through arbitration. See Huizar v. Allstate Ins. Co., 952 P.2d 342, 346 (Colo.1998). To this end, the General Assembly enacted the CUAA, sections 18-22-2201 to -223, C.R.S. (2003). The CUAA has since been revised and reenacted in its current form. See §§ 13-22-201 to -230, C.R.S. (2006). The current version of the CUAA applies to agreements, like the Subcontract, entered into after August 4, 2004. See § 13-22-203(1).

Interpreting the former version of the CUAA, we held in Ingold that the arbi-trability of an allegation of fraudulent inducement depends upon whether the allegation is directed specifically to the agreement to arbitrate or more broadly to the contract containing the arbitration agreement. See In-gold, slip op. at 12-18, 159 P.3d at 121. A fraudulent inducement claim directed specifically to the arbitration agreement is a challenge to "the existence of the agreement to arbitrate," § 183-22-204(1), C.R.S. (2008), and therefore must be resolved by the trial court under the statute. See id. at 9-10, 159 P.3d at 120. A fraudulent inducement claim directed to a contract as a whole-of which the arbitration agreement is only a part-is to be decided by the arbitrator, not the trial court. See id. at 9, 159 P.8d at 120. As explained in Ingold, the United States Supreme Court drew the same distinction between fraudulent inducement claims under the Federal Arbitration Act in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 895, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). See id. at 9-10, 159 P.3d at 120.

Cambria argues that the current version of the CUAA does not distinguish between fraudulent inducement allegations in the way we recognized in Ingold. According to Cam-bria, the mere showing of an unambiguous arbitration agreement is sufficient to demonstrate that "an agreement to arbitrate exists" under section 13-22-206(2), and therefore, the arbitrator must decide all other issues concerning the enforceability of the agreement, including allegations of fraudulent inducement. We disagree.

Section 13-22-206 of the current version of the CUAA recodifies the statutory distinction between challenges to arbitration agreements that we recognized in Ingold and that the United States Supreme Court recognized in Prima Paint. As under the former version of the CUAA, the current version empowers the trial court to determine "whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate." § 18-22-206(2) (emphasis added). As we explained in Ingold, a fraudulent inducement allegation directed specifically to the arbitration agreement is a challenge to the existence of the agreement to arbitrate. See Ingold, slip op. at 9, 159 P.3d at 120. This is different from a situation where a party alleges fraudulent inducement of a contract as a whole. Under both the former and current version of the statute, the arbitrator must decide "whether a contract containing a valid agreement to arbitrate is enforceable." § 13-22-206(8) (emphasis added). Cambria offers no reason for why the current version of the CUAA should be interpreted differently from the former version of the CUAA.

In this case, Walker claims it is not bound by the arbitration provision because Cambria fraudulently induced it into entering the Subcontract through assurances that the dispute resolution procedure did not include arbitration. These allegations of fraudulent inducement are specifically directed to the arbitration agreement, and consequently, must be resolved by the trial court. See § 18-22-206(2). Here, it is unclear whether the trial court resolved Walker's allegations of fraudulent inducement. Its order states that "the arbitration provisions incorporated into the Subcontract ... are enforceable and valid," but it does not specifically address Walker's contention that the arbitration agreement was fraudulently induced. It may be the case that it resolved the allegation of fraudulent inducement against Walker and sent the case to arbitration. But it may also be the case that the trial court did not believe that the CUAA required it to resolve the fraudulent inducement challenge and instead compelled arbitration with the expectation that the arbitrator would resolve Walker's allegations of fraudulent inducement.

Cambria argues that this court can decide Walker's challenge based on the evidence before us. It points out that Walker is a sophisticated contracting party and that there is evidence undermining Walker's allegations of fraudulent inducement. Much of Cambria's argument echoes our teaching that a party-particularly a sophisticated party-claiming fraudulent inducement faces a formidable challenge in proving its claim if the contracting parties "have access to information that was equally available to both parties and would have" dispelled the alleged fraud. M.D.C./Wood, Inc. v. Mortimer, 866 P.2d 1380, 1382 (Colo.1994). Walker, in turn, argues that its evidence of fraudulent inducement has gone unrebutted by Cambria, and that therefore, presumably, there is nothing left for the trial court to decide on remand other than that the Subcontract's arbitration provision is the result of fraudulent inducement.

We decline to reach the merits of Walker's fraudulent inducement allegations. Instead, we remand the case to the trial court to "proceed summarily to decide" Walker's fraudulent inducement challenge as required by section 18-22-207(1)(b).

Section 18-22-207(1)(b) of the CUAA states that a trial court "shall proceed summarily to decide" a challenge to an arbitration agreement. Beginning with the statute's plain language, to proceed "summarily" means to "settle[ ] a controversy or disposel ] of [an issue] in a relatively prompt and simple manner." Black's Law Dictionary 1222 (7th ed.1999).

We have not previously considered the nature of the proceeding required by section 13-22-207(1)(b), but courts in other jurisdictions have held that a "summary proceeding" to determine the existence of an arbitration agreement is an expedited process that starts with the trial court considering "affidavits, pleadings, discovery, and stipulations" submitted by the parties Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 269 (Tex.1992). The court then must determine "whether material issues of fact are disputed and, if such factual disputes exist, [it must] conduct[ ] an expedited evidentiary hearing to resolve the dispute." Haynes v. Kuder, 591 A.2d 1286, 1290 (D.C.1991) (internal quotation omitted); see also Grad v. Wetherholt Galleries, 660 A.2d 903, 905 (D.C.1995); Jack B. Anglin Co., 842 S.W.2d at 269. Thus an evidentiary hearing only is necessary if "the material facts necessary to determine the issue are controverted, by an opposing affidavit or otherwise admissible evidence...." Jack B. Anglin Co., 842 S.W.2d at 269. To require an evidentiary hearing regardless of the cireumstances would defeat the benefits of arbitration. See id. ("Because the main benefits of arbitration lie in expedited and less expensive disposition of a dispute, and the legislature has mandated that a motion to compel arbitration be decided summarily, we think it unlikely that the legislature intended the issue to be resolved following a full evi-dentiary hearing in all cases."); see also Unif. Arbitration Act, 7 U.L.A. 1, § 7 (2000), emt. ("The term 'summarily' in Section 7(a) and (b) ... has been defined to mean that a trial court should act expeditiously and without a jury trial to determine whether a valid arbitration agreement exists.").

We believe that the uniform interpretation of "summary proceedings" offered by these courts is consistent with the language of section 18-22-207(1)(b) of the CUAA. Consequently, a trial court considering a fraudulent inducement challenge to an arbitration agreement should begin by considering the undisputed "affidavits, pleadings, discovery, and stipulations." Jack B. Anglin Co., 842 S.W.2d at 269. If the material facts are undisputed, then the trial court can resolve the challenge on the record before it. See id. However, if the material facts are in dispute, then the trial court should proceed expeditiously in holding an evidentiary hearing to consider the disputed facts and resolve the party's challenge to the arbitration agreement.

We remand this case for the trial court to follow the procedure we have outlined in order to consider Walker's fraudulent induce ment challenge.

IH.

We hold that under section 13-22-206 of the current version of the CUAA, allegations of fraudulent inducement directed to the arbitration clause itself are to be resolved by the trial court, while allegations challenging the validity of the contract as a whole are to be decided by the arbitrator. Since it is unclear whether the trial court considered Walker's fraudulent inducement challenge, we make the rule to show cause absolute and remand the case for the trial court to "summarily decide" this issue in accordance with section 183-22-207(1)(b).

Justice HOBBS dissents, and Chief Justice MULLARKEY joins in the dissent.

1 . Walker and 450 have entered into a settlement agreement resolving the above-mentioned dispute and therefore 450 is no longer a party in this matter.