Santich v. VCG Holding Corp.

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          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, Denver, Colorado, Towards Justice, David H. Seligman, Denver, Colorado

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

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

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

         OPINION

         JUSTICE HART

         [¶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

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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 ...