The Colorado Court of Appeals in Herrera v. Santangelo Law Offices, P.C., 2022COA93, recently held that a lawyer could not be sanctioned by an arbitrator.
The lawyer represented a client in an arbitration proceeding. The case had been submitted to arbitration pursuant to an agreement calling for the application of the AAA commercial rules. The lawyer was not a signatory to the arbitration agreement. However, the lawyer had agreed on behalf of the client at the outset of the arbitration that the Colorado Rules of Civil Procedure and Colorado law generally would apply to the arbitration. During the course of the arbitration, the lawyer falsely represented in an e-mail to the arbitrator that the parties had settled their dispute. Indeed, the supposed settlement had been secured through an elaborate ruse bearing no indicia of actual consent to settle.
Upon learning of the deceit, the opposing party moved for sanctions against the attorney. The arbitrator determined that the sanctions issues against the lawyer was arbitrable and that there was authority for the arbitrator to sanction the lawyer under Rule 11 and Colorado law (C.R.S. § 13-17-102). The arbitrator went on to award almost $150,000 in sanctions against the lawyer. The lawyer filed a district court action seeking to vacate the arbitration award. The district court denied the lawyer’s request and instead confirmed the sanctions award.
The Court of Appeals reversed the district court’s decision upholding the arbitrator’s sanctions award against the lawyer because the lawyer had not agreed to arbitrate any issues of attorney sanctions and the arbitrator had no authority to sanction the attorney of an arbitrating party absent an agreement granting the arbitrator such authority. The Court of Appeals rejected the aggrieved party’s arguments that the arbitration language in the underlying agreement bound the lawyer and that the lawyer had personally agreed that the arbitrator possessed the authority to sanction the parties’ counsel individually. The Court of Appeals explained that the lawyer had not assumed the arbitration obligation by entering an appearance in the case or agreeing to the application of the Rules of Civil Procedure on behalf of the client. Without assuming the obligation to arbitrate, there was no other basis for binding a non-signatory (including the lawyer) to the arbitration agreement. Indeed, the Court of Appeals rejected the argument that the lawyer had agreed to the arbitrator’s sanctioning authority by entering an appearance or agreeing to the application of the Rules of Civil Procedure to the arbitration because there was no evidence of contract formation through these actions.
The final issue addressed by the Court of Appeals was whether the arbitrator had inherent authority to sanction the lawyer. The Court of Appeals held that the arbitrator did not have such inherent authority. The main source of the arbitrator’s authority comes from the parties’ agreement, and it conferred no such sanctioning power. In addition, Colorado law (including the Colorado uniform arbitration act) also did not confer sanctioning authority on the arbitrator. The Court of Appeals explained that sanctioning authority was not necessary to protect the integrity of the arbitral forum because other mechanisms exist for this purpose (e.g., referrals to the office of attorney regulation and sanction awards against clients).