Santich v. VCG Holding Corp.

          Certification of Question of Law United States District Court for the District of Colorado Case No. 17CV00631-RM-MEH

          Attorneys for Plaintiffs: Killmer, Lane & Newman, LLP Mari Newman Liana Orshan Towards Justice David H. Seligman

          Attorneys for Defendants: Berg Hill Greenleaf & Ruscitti LLP Rudy E. Verner Jackson Lewis P.C. Collin O'Connor Udell Hartford, Connecticut Jackson Lewis P.C. Ryan P. Lessmann Melisa H. Panagakos Jackson Lewis P.C. Allan S. Rubin

          Attorneys for Amicus Curiae the Colorado Trial Lawyers Association: Lowrey Parady, Attorneys at Law Sarah J. Parady

          Attorneys for Amici Curiae National Employment Lawyers Association and Plaintiff Employment Lawyers Association: Sweeney & Bechtold, LLC Joan M. Bechtold

          HART, JUSTICE

         ¶1 Under Colorado law, equitable estoppel requires proof of four elements. One of those elements has long been detrimental reliance on the words or actions of the party against whom estoppel is sought. In this case, we accepted jurisdiction over a certified question of law from the United States District Court for the District of Colorado that requires us to determine whether there should be an exception to that requirement in the context of arbitration agreements.^[1] We hold that Colorado's law of equitable estoppel applies in the same manner when a dispute involves an arbitration agreement as it does in other contexts. Thus, a nonsignatory to an arbitration agreement can only assert equitable estoppel against a signatory in an effort to compel arbitration if the nonsignatory can demonstrate each of the elements of equitable estoppel, including detrimental reliance.

         I. Facts and Procedural History

         ¶2 In 2017, a group of current and former exotic dancers sued the owners of clubs where they perform and the club owners' corporate parent companies in the United States District Court for the District of Colorado. The plaintiffs allege in their amended complaint that the defendants acted in concert to wrongfully deprive the dancers of basic protections provided by law to employees. The plaintiffs contend that they have been misclassified as nonemployee "independent contractors" or "lessees" pursuant to "Entertainment Lease" agreements that identify the club-owner defendants as "landlords" rather than employers. According to the plaintiffs' pleadings, the club-owner and corporate-parent defendants are jointly and severally liable for denying the dancers earned minimum wages and overtime pay, confiscating or otherwise misallocating their gratuities, charging them fees to work, and subjecting them to onerous fines.

         ¶3 The club-owner defendants have successfully compelled arbitration of the plaintiffs' claims based on the arbitration clause included in the agreements the dancers signed with the club owners. The corporate-parent defendants seek to do the same, but because they were not parties to the agreements or to any other written contract with the dancers, they have to find a different hook to compel the dancers into arbitration. They argue that the dancers should be equitably estopped from litigating their claims against one set of defendants because they are in compelled arbitration of the same claims against the other set of defendants.

         ¶4 A federal magistrate judge examined Colorado state contract law and recommended that the district court accept that argument and compel the arbitration of the plaintiffs' claims against the corporate-parent defendants. The recommendation was predicated, in large part, upon a prediction that this court would agree with the court of appeals' decision in Meister v. Stout, 2015 COA 60, 353 P.3d 916. In that case, a division of the court of appeals concluded that when a signatory to a contract containing an arbitration clause asserts a claim arising from that contract against a defendant who was not a party to the contract, he may be estopped from avoiding arbitration and instead be compelled to arbitrate by and with the nonsignatory defendant. Id. at ¶¶ 6, 13-18, 353 P.3d at 919, 920-22. Relying on Meister, the magistrate judge determined that, although they had not signed the agreements, the corporate-parent defendants are entitled to enforce the arbitration provisions against the plaintiffs because the claims asserted against all defendants are interdependent and intertwined with duties and obligations in the Leases. The plaintiffs challenged the magistrate judge's recommendation, urging the federal district court to certify to this court the question whether nonsignatories to an arbitration agreement may invoke the doctrine of equitable estoppel in the absence of a showing of detrimental reliance.

         ¶5 The federal district court observed that "[a]s it currently stands, Meister fails to address the [reliance] issue and the Court is unclear whether this element is required under Colorado law . . . [because] there is no controlling precedent in the decisions of the Colorado Supreme Court." The district court therefore certified the question to this court, and we accepted the certification. See C.A.R. 21.1.

         II. Analysis

         ¶6 The enforceability of arbitration agreements is governed by traditional principles of state contract law. Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630-31 (2009). In most instances, only the parties to a contract can compel arbitration under that contract and only as to another signatory of the contract. See N.A. Rugby Union LLC v. U.S. Rugby Football Union, 2019 CO 56, ¶20, ___P.3d ___. If no such agreement exists between particular litigants, as is the case here, there are certain limited circumstances in which a nonsignatory to an arbitration agreement may compel a signatory to arbitrate. Id. at ¶ 21. These limited circumstances include: "(1) incorporation of an arbitration provision by reference in another agreement; (2) assumption of the arbitration obligation by the nonsignatory; (3) agency; (4) veil-piercing/alter ego; (5) estoppel; (6) successor-in-interest; and (7) third-party beneficiary." Id. ...