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In upholding an order compelling arbitration, the Colorado Supreme Court overruled its precedent and rejected the "intertwining doctrine" as a basis for refusing to enforce a valid arbitration agreement. The Court rejected the doctrine because it "unreasonably interferes" with a party's right to arbitration.
In Ingold v. AIMCO/Bluffs, L.L.C. Apartments, No. 06SA240, 2007 WL 1532155 (Colo. May 29, 2007), the Ingolds leased an apartment from Boulder Creek Apartments (BCA). The Ingolds vacated the apartment before the lease expired, allegedly because they were suffering health problems from mold exposure. BCA retained the Ingolds' security deposit.
Two years later, the Ingolds sued BCA, alleging several torts and a violation of the Wrongful Withholding of Security Deposits Act (WWSDA). BCA moved for dismissal pursuant to an arbitration clause in the lease agreement. The trial court granted the motion.
The Ingolds raised three issues on appeal. First, they argued that they were not bound by the arbitration clause because they were fraudulently induced into entering the lease. In rejecting this argument, the Court explained that even under the prior version of the Colorado Uniform Arbitration Act, a court may consider an allegation of fraudulent inducement only if the allegation is directed specifically at the arbitration clause.
The Ingolds also argued that their claims fell outside the scope of the arbitration clause. Though largely unpersuaded, the Court agreed that the WWSDA claim was not arbitrable. The WWSDA, which allows tenants to sue for wrongful withholding of a security deposit, expressly precludes the waiver of any of its provisions. According to the Court, the WWSDA's waiver provision precludes a tenant from waiving its right to sue in court.
Finally, the Ingolds invoked the "intertwining doctrine" in arguing that since the WWSDA claim was not arbitrable, none of the claims should be arbitrated. In Sandefer v. District Court, 635 P.2d 547 (Colo. 1981), the Court adopted the "intertwining doctrine" whereby "arbitration should be denied if the plaintiff presents both arbitrable and non-arbitrable claims requiring the resolution of identical facts."
Sandefer relied mainly on federal court decisions construing the Federal Arbitration Act (FAA). However, as the Court explained, the United States Supreme Court later rejected the "intertwining doctrine" because it conflicted with the FAA's mandate that arbitration agreements be enforced. See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985).
In light of the Byrd decision, the Court revisited its holding in Sandefer and concluded that "[t]he intertwining doctrine unreasonably interferes with the parties' decision to arbitrate their disputes because it allows the trial court to negate the effect of an arbitration clause without a statutory basis for doing so." Accordingly, the Court overruled Sandefer and abandoned the "intertwining doctrine."
Two other states have abandoned the "intertwining doctrine" in the wake of the Byrd decision. See Hallmark Indus., L.L.C. v. First Systech Int'l, Inc., 52 P.3d 812, 814-15 (Ariz. Ct. App. 2002); Wellman, Inc. v. Square D Co., 620 S.E.2d 86, 91 (S.C. App. 2005).
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