Laurie Choi, Amanda McKinlay and James Snow | Snell & Wilmer
The construction industry often prefers arbitration for dispute resolution. This is evident as 2022 data demonstrates that construction disputes comprised a significant share of the disputes handled by arbitration organizations.1 Just as arbitration has its advantages for our industry clients, e.g., speed, efficiency, and flexibility, it is important to highlight those risks associated with arbitration in lieu of litigation. A new concern is emerging in arbitrations in Colorado: the applicability or lack thereof of the statute of limitations defense.
In 2022, at least two arbitrators — in one case involving construction defect claims and the other involving claims of fraud, breach of contract, breach of fiduciary duty, and civil theft—found that Colorado’s statutes of limitations did not apply in arbitration proceedings. Both decisions cited a growing national trend in denying statute of limitations defenses in arbitration proceedings. There are arbitration rulings and court decisions (referencing arbitration) in at least half a dozen jurisdictions that all follow a similar line of reasoning.2
Arbitrators rejecting statute of limitations defenses find that the language in the statute itself specifies that it only applies to “civil actions” and arbitrations are arguably not considered civil actions (often courts refer to arbitration as a “special statutory proceeding”). Under this interpretation, statutes of limitations do not apply unless they are specifically referenced in a governing arbitration agreement or contract provision. Using the same logic, arbitrators have also rejected alternative equitable defenses of laches. These decisions are rooted in the general principle that arbitrations are meant to be more informal than court proceedings, and that procedural rules can or should be applied in a more selective manner by the parties.
Client awareness of this developing trend is crucial. In one recent Colorado arbitration, the statute of limitations and laches defenses were rejected by the managing arbitrator of one of the largest alternative dispute resolution organizations in the state. The trend of rejecting these defenses may grow as other jurisdictions follow suit. With that said, the danger of losing these powerful defenses can be mitigated through careful contract drafting.
The American Institute of Architects (the “AIA”) has recognized this specific concern and in its template, agreements specifically reference the applicability of statute of limitations in arbitrations. See§ 15.4.1.1 of the AIA A201, which provides:
A demand for arbitration shall be made no earlier than concurrently with the filing of a request for mediation, but in no event shall it be made after the date when the institution of legal or equitable proceedings based on the Claim would be barred by the applicable statute of limitations. For statute of limitations purposes, receipt of a written demand for arbitration by the person or entity administering the arbitration shall constitute the institution of legal or equitable proceedings based on the Claim.
Language similar to that above should be considered in Colorado contracts with an arbitration agreement unless and until Colorado legislators clarify that the statute of limitations clearly applies to arbitration proceedings.
Footnotes:
[1] Apoorva Patel et al., Construction Disputes Soar, Along With Use of Arbitration Finance, NEW YORK LAW JOURNAL (Nov. 18, 2022, 2:40 PM), https://www.law.com/newyorklawjournal/2022/11/18/construction-disputes-soar-along-with-use-of-arbitration-finance/.
[2] One of the Colorado arbitration proceedings decided in 2022 cited decisions in Ohio, Washington, California, Maine, Connecticut, Idaho, and North Carolina that all rejected the applicability of statute of limitations defenses in arbitration.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.