Coors Brewing Co. v. Cabo

• Citation: 114 P.3d 60
• Decision Date: 16 December 2004
• Docket Number: No. 03CA2452.,03CA2452.
• Parties: COORS BREWING COMPANY, Plaintiff-Appellee, v. Federico CABO, an individual, and Corporacion Calfik, S.A. de C.V., Defendants-Appellants.
• Court: Colorado Court of Appeals

114 P.3d 60

COORS BREWING COMPANY, Plaintiff-Appellee, v. Federico CABO, an individual, and Corporacion Calfik, S.A. de C.V., Defendants-Appellants.

No. 03CA2452.

Colorado Court of Appeals, Div. A.

December 16, 2004.

Certiorari Denied May 31, 2005.¹

Dorsey & Whitney LLP, Tucker K. Trautman, Van Aaron Hughes, Gregory S. Tamkin, Denver, Colorado, for Plaintiff-Appellee.

Haddon, Morgan, Mueller, Jordan, Mackey & Foreman, P.C., Norman R. Mueller, Rachel A. Bellis, Denver, Colorado, for Defendants-Appellants.

DAVIDSON, Chief J.

Defendants, Federico Cabo and Corporacion Calfik, S.A. de C.V., appeal from the judgment of the trial court confirming an arbitration award in favor of plaintiff, Coors Brewing Company. We affirm. On May 19, 2000, Coors purchased an equity interest in Cerveceria Mexicana (CerMex), a Mexican brewery. This transaction was embodied in a Master Agreement and a Stock Purchase Agreement. Coors, Cabo, and Calfik were signatories to these agreements. The Master Agreement designated Colorado law as governing its enforcement and interpretation and contained an arbitration provision.

Coors subsequently sought indemnification from Cabo and Calfik for costs incurred by Coors to correct allegedly inaccurate representations and warranties in the Master Agreement and the Stock Purchase Agreement. Pursuant to the Colorado Uniform Arbitration Act of 1975 (CUAA), Colo. Sess. Laws 1975, ch. 154, § 13-22-205 at 574 (now recodified with amendments as the Colorado Revised Uniform Arbitration Act of 2004 (CRUAA), § 13-22-211, C.R.S.2004), an arbitrator was appointed to resolve the dispute.

An arbitration proceeding was conducted and an award was issued. Pursuant to request, the arbitrator issued a modified and corrected award. Defendants then petitioned the trial court to vacate, modify, or correct the award. The court affirmed the arbitrator's decision.

On appeal, defendants contend the arbitration award should be vacated because the arbitrator exceeded his power by misinterpreting the Master Agreement and the Stock Purchase Agreement in "manifest disregard of Colorado law." In a related argument, defendants contend the trial court erred because in its judgment it did not explicitly recognize that the arbitrator was required to apply Colorado law. We disagree with both contentions.

I.

The CUAA governs this dispute and neither party contests its application. The CUAA establishes five grounds under which a court may vacate an arbitration award.

[T]he court shall vacate an award where:

(I) The award was procured by corruption, fraud, or other undue means;

(II) There was evident partiality by an arbitrator appointed as a neutral or corruption in any of the arbitrators or misconduct prejudicing the rights of any party;

(III) The arbitrators exceeded their powers;

(IV) The arbitrators refused to postpone the hearing upon sufficient cause being shown therefor or refused to hear evidence material to the controversy or otherwise so conducted the hearing ... as to prejudice substantially the rights of a party; or

(V) There was no arbitration agreement... and the party did not participate in the arbitration hearing without raising the objection.

Colo. Sess. Laws 1975, ch. 154, § 13-22-214(1)(a) at 576 (now recodified with amendments as § 13-22-223(1), C.R.S.2004). Defendants contend that an arbitrator's "manifest disregard of the law" should operate as an implied ground for vacating an award under former § 13-22-214(1)(a)(III), which permits vacation of an award where the arbitrator exceeds his powers, or as an additional, nonstatutory ground. We disagree.

A.

An arbitrator's manifest disregard of the law is a federal common law ground for vacating an arbitration award under the Federal Arbitration Act (FAA), which was drawn from dictum in the Supreme Court decision, Wilko v. Swan, 346 U.S. 427, 436-37, 74 S.Ct. 182, 187-88, 98 L.Ed. 168 (1953) ("the interpretations of the law by the arbitrators in contrast to manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation"), overruled on other grounds by Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989)

. The Supreme Court, however, has never elucidated the precise meaning of the phrase, but has apparently approved of its use in the review of arbitration awards. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942, 115 S.Ct. 1920, 1923, 131 L.Ed.2d 985 (1995) ("parties [are] bound by [an] arbitrator's decision not in `manifest disregard' of the law").

Consequently, the federal circuit courts' definitions and applications of the manifest disregard of the law standard are varied. See Williams v. Cigna Fin. Advisors Inc., 197 F.3d 752, 761-62 (5th Cir.1999)

(noting the various applications). While all circuits agree that manifest disregard of the law is more than mere legal error, see, e.g., Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997), they do not agree as to how much more.

Although variations exist even within some of the circuits, several common approaches to expressing the manifest disregard of the law standard are apparent. Generally, many of the circuits require, in a variety of articulations, that the governing law be well defined and the record indicate that the arbitrator willfully ignored the governing law. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933-34 (2d Cir.1986)

("The error must have been obvious and capable of being readily and instantly perceived.... Moreover, the term `disregard' implies that the arbitrator appreciates the existence of a clearly governing legal principle but decides to ignore or pay no attention to it.... The governing law alleged to have been ignored by the arbitrators must be well defined, explicit, and clearly applicable." (citations omitted)); see also Bowen v. Amoco Pipeline Co., 254 F.3d 925, 937 (10th Cir. 2001); Barnes v. Logan, 122 F.3d 820, 821-22 (9th Cir.1997); Prudential-Bache Sec., Inc. v. Tanner, 72 F.3d 234, 239 (1st Cir. 1995); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros, 70 F.3d 418, 421 (6th Cir.1995); Lee v. Chica, 983 F.2d 883, 885 (8th Cir.1993); Upshur Coals Corp. v. United Mine Workers, 933 F.2d 225, 228 (4th Cir. 1991); News Am. Publ'ns, Inc. Daily Racing Form Div. v. Newark Typographical Union, Local 103, 918 F.2d 21, 24 (3d Cir.1990); Sargent v. Paine Webber Jackson & Curtis, Inc., 882 F.2d 529, 532 (D.C.Cir.1989).

The Fifth Circuit, in contrast, does not inquire into the arbitrator's subjective disregard of the law and, instead, asks whether it is manifest that the arbitrator acted contrary to the applicable law and whether enforcing the award would result in significant injustice. See Williams v. Cigna Fin. Advisors Inc., supra, 197 F.3d at 758-59

. The Seventh Circuit recently determined its version of the standard was limited to cases where the arbitrator actually directs the parties to violate nonderogable rules of law. See George Watts & Son, Inc. v. Tiffany & Co., 248 F.3d 577, 580-81 (7th Cir.2001). The Eleventh Circuit has only applied the manifest disregard of the law standard where the arbitrators were blatantly urged by one of the parties to disregard the law and the award expressly noted that it did not follow the law. See Montes v. Shearson Lehman Bros., Inc., 128 F.3d 1456, 1461 (11th Cir. 1997).

Some state courts have adopted the manifest disregard of the law standard as a nonstatutory ground to review arbitration awards governed by their states' Uniform Arbitration Act (UAA). A majority of these courts appear to use the standard's general formulation, as expressed in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, supra, 808 F.2d at 934, that the arbitrator deliberately ignored the well-defined governing law. See Garrity v. McCaskey, 223 Conn. 1, 612 A.2d 742, 747 (1992)

; Colchoneria Jiron, S.A. v. Blumenthal Print Works, Inc., 629 So.2d 1288, 1290 (La.Ct.App.1993); Geissler v. Sanem, 285 Mont. 411, 949 P.2d 234, 237-38 (1997); Graber v. Comstock Bank, 111 Nev. 1421, 905 P.2d 1112, 1116 (1995); Buzas Baseball, Inc. v. Salt Lake Trappers, Inc., 925 P.2d 941, 950-51 (Utah 1996).

In Geissler, the Montana Supreme Court reasoned that such review was necessary because it was "the better reasoned approach and more consistent with [the court's] responsibility to uphold the laws" of Montana. Geissler v. Sanem, supra, 949 P.2d at 237.

At least one court has created its own formulation of the manifest disregard of the law standard. See Detroit Auto. Inter-Ins. Exch. v. Gavin, 416 Mich. 407, 442, 331 N.W.2d 418, 434 (1982)

"Where it clearly appears on the face of the award or the reasons for the decision as stated, being substantially a part of the award, that the arbitrators through an error of law have been led to a wrong conclusion, and that, but for such error, a substantially different award must have been made, the award and the decision will be set aside." (quoting Howe v. Patrons' Mut. Fire Ins. Co., 216 Mich. 560, 185 N.W. 864, 867-68 (1921)).

At the same time, numerous other states have declined to expand the grounds for judicial review of an arbitration award under the UAA to include an arbitrator's manifest disregard of the law. A majority of these courts rejected the standard because it was not articulated in their state statutes, which listed the exclusive grounds upon which an arbitration award could be vacated, and they were "not free to add language, nor to ignore language, contained in statutes." SIGNAL Corp. v. Keane Fed. Sys., Inc., 265 Va. 38, 574 S.E.2d 253, 257 (2003); see also Progressive Data Sys., Inc. v. Jefferson Randolph Corp., 275 Ga. 420, 568 S.E.2d 474, 475 (2002)

; Stifel, Nicolaus & Co. v. Francis, 872 S.W.2d 484, 486 (Mo.Ct.App.1994); Fernandez v. Farmers Ins. Co., 115 N.M. 622, 857 P.2d 22, 26 (1993); Arnold v. Morgan Keegan & Co., 914 S.W.2d 445,...