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Brightstar LLC v. Jordan.

2024 COA 39. No. 22CA0946. Civil Procedure—Service and Filing of Pleadings and Other Papers—Service by Email—Arbitration Agreement—Jurisdiction Over Non-Party to Agreement—Application of Federal Arbitration Act—Vacatur of Arbitration Award.

April 18, 2024

A series of disputes arose among Ginsberg, Jordan, and Brightstar LLC, the three members of an amalgamation of limited liability companies (LLCs) operating in the cannabis industry under the name Native Roots. Pursuant to an arbitration clause in Native Roots’ operating agreement (operating agreement), the members arbitrated their disputes, which resulted in a $100 million award and a permanent injunction in favor of Ginsberg and Jordan and against Brightstar and its sole member, Knobel. Ginsberg and Jordan moved the district court to confirm the arbitration award, and Brightstar and Knobel moved to vacate it. In an omnibus order, the court denied the motions to confirm and granted the motions to vacate, concluding, among other things, that Brightstar’s and Knobel’s motions to vacate were timely, the arbitrator was biased against Brightstar and Knobel, and Knobel wasn’t subject to arbitral jurisdiction.

On appeal, Ginsberg and Jordan contended that the district court erred by applying the Federal Arbitration Act (FAA), rather than the Colorado Revised Uniform Arbitration Act (CRUAA), to the motions to confirm and to vacate. The FAA favors enforcement of any written arbitration clause in a contract involving a transaction involving commerce, and courts presume that an arbitration clause within any such contract falls within the FAA’s scope. Parties may contractually agree to apply other rules, such as state arbitration laws, rather than the FAA, but their contract must clearly evidence their intent for those other rules to apply. Here, neither the operating agreement nor the parties’ conduct during the arbitration proceeding indicates a clear intent to apply the CRUAA. Accordingly, the FAA applies to the dispute.

Ginsberg argued that the district court erred by finding that Brightstar and Knobel timely served notice of their motions to vacate the arbitration award. However, under CRCP 5, service of a pleading or other paper by email to a party’s attorney is effective if the attorney has included an email address in previous court filings. Here, Brightstar and Knobel served the motions on Ginsberg’s counsel by email before the filing deadline to the email address that Ginsburg previously provided in his signature block in previous filings.

Ginsberg and Jordan further contended that the district court erred by vacating the arbitration award on the grounds of the arbitrator’s evident partiality. Based on its review of the arbitrator’s conduct over the course of the 4,000-page hearing transcript and the pre- and post-hearing rulings, the court of appeals determined that the record does not establish that the arbitrator was actually partial. Therefore, the district court erred by vacating the arbitration award on that basis.

Brightstar argued that the arbitrator (1) committed misconduct, (2) didn’t provide a fair hearing, and (3) exceeded his powers. However, Brightstar did not develop or support any argument indicating that the arbitrators’ alleged actions resulted in a fundamentally unfair proceeding, so the court rejected these contentions.

Ginsberg and Jordan also asserted that the district court erred in concluding that the arbitrator lacked jurisdiction over Knobel. They maintained that by filing objections in the arbitration without challenging the arbitrator’s authority to resolve those objections, Knobel clearly submitted the issue of arbitrability to the arbitrator. Here, Knobel was not a party to the operating agreement, and the arbitration record doesn’t establish by a preponderance of the evidence that Brightstar and Knobel are alter egos. Accordingly, Knobel could not be compelled to arbitrate a dispute under that agreement. Further, Knobel directly opposed arbitrability before the arbitrator decided the merits, and Knobel didn’t otherwise clearly and unmistakably submit the question of arbitrability to the arbitrator. Therefore, the district court correctly determined that the arbitrator lacked jurisdiction over Knobel.

The court also determined that the arbitrator properly exercised jurisdiction over a dispute concerning a loan transaction between Brightstar and Native Roots, which issue the district court didn’t resolve because of its decision to vacate the entire arbitration award on the basis of partiality.

The ruling granting Knobel’s motion to vacate the arbitration award entered against him was affirmed. The ruling granting Brightstar’s motion to vacate the arbitration award entered against it was reversed. The ruling denying Ginsberg’s and Jordan’s motions to confirm the arbitration award was affirmed as it relates to the award against Knobel but was reversed as it relates to the award against Brightstar. The case was remanded to the district court with instructions to reinstate the arbitration award against Brightstar and to enter judgment on that award.

Official Colorado Court of Appeals proceedings can be found at the Colorado Court of Appeals website.

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