Colorado Court Compels Arbitration

Daniel McCarthy, Manley Burke

As reported in the November 2012 issue of Fraternal Law, Scott Higuchi sued Delta Tau Delta and various other defendants after his son, Ross Higuchi, died in April 2011 when he fell from a balcony of the fraternity house.   The District Court in Arapahoe County, Colorado recently granted Delta Tau Delta’s motion to compel arbitration in the case.¹

Ross Higuchi was a student at the University of Northern Colorado.  In the complaint, it is alleged that Ross was a pledge of Delta Tau Delta and that he was “hazed with dangerous and fatal quantities of alcohol” by the various defendants.  The complaint further alleged that “pledges were hazed—including being compelled to consume, under circumstances constituting legal duress—dangerous quantities of alcohol.”  The hazing allegedly included a “champagne chug” with each pledge instructed that he “had to consume the alcohol” in his bottle, or else “he would be shirking and passing his responsibility to consume the alcohol to another brother.”

The complaint alleges that late in the evening, Ross was on the balcony of the fraternity house and was prevented re-entry into the house.  He then became agitated and was “visibly and heavily intoxicated.”  Ross fell from the balcony and hit his head.  He was transported to a local hospital and died several days later.

Lawsuit Filed

Scott Higuchi filed suit in October 2012 against Delta Tau Delta Fraternity, Theta Omicron Local Chapter, Theta Omicron House Corporation, Delta Tau Delta Omicron House Found, as well as four individual defendants.  The complaint included claims against the fraternity defendants for negligent and reckless misconduct, hazing, and negligence per se, and negligence against all defendants.

The complaint was initially filed in Boulder County District Court.  Soon thereafter, the fraternity defendants moved to change venue to Arapahoe County District Court.  That motion was granted.  The fraternity then sought to have the case dismissed under the Colorado Dram Shop Act, but that motion was denied.

The Arbitration Clause

The fraternity defendants moved the court to dismiss the case for lack of subject matter jurisdiction and to compel arbitration based on Delta Tau Delta’s “Statement of New Member” form, which contains “The Delta Tau Delta Fraternity Claim and Dispute Resolution Plan and Rules.”  The court cited relevant portions of the Agreement at length, including:

1. Purpose and Construction

The Plan is designed to provide for the quick, fair, accessible, and inexpensive resolution of legal dispute between the Fraternity, and between any parent, affiliate, or successor of the Fraternity, or any of their officers, directors, new members, alumni, or members, and the Fraternity’s present and former members, relating to or arising out of a membership relationship with the Fraternity or participation in a Fraternity activity, expressly including, but not limited to, any legal disputes which any present or former Delta Tau Delta Fraternity member asserts a claim or dispute against the Fraternity, any parent, affiliate, or successor of the Fraternity, or any of their officers, members, and the Fraternity’s present or former members.  The Plan is intended to create an exclusive procedural mechanism for the final resolution of all disputes falling within its terms.  It is not intended either to reduce or enlarge substantive rights available under existing law.  The Plan should be interpreted in accordance with these purposes.

9. Exclusive Remedy

Proceedings under the Plan shall be the exclusive, final and binding method by which Disputes are resolved.  Consequently, the institution of a proceeding under this Plan shall be a condition precedent to the initiation of any legal action (including action before an administrative tribunal with adjudicatory powers) against the Fraternity arising out of the membership or participating in Fraternity activities of a member by the Fraternity and any such legal action shall be limited to those under the Act.

In support of its motion to enforce the arbitration provisions in the Agreement, the fraternity defendants argued that the Agreement was valid and binding and that the provision was not waived.  In response, the plaintiff argued that there was no enforceable arbitration provision because the Agreement was not signed, there was no consideration, the statement was not a contract, the parties did not intend for the Agreement to cover disputes such as the one involved in the case, and that the fraternity defendants breached the terms of the contract.  The plaintiff also argued that the defendants waived the right to enforce the arbitration clause.

The Arbitration Provision is Valid/Electronic Signature Approved

The court initially noted that Colorado favors alternative dispute resolution mechanisms, and that arbitration clauses are generally enforceable.  The court then examined the plaintiff’s arguments.  In response to the argument that the Agreement was not signed, the court noted that “Ross manifested his assent to the Agreement by appending his electronic signature.”  The question of electronic signatures was not addressed beyond that cursory statement in the opinion.  But this is an issue that frequently is asked regarding on-line contracts and records.  The Colorado Statutes include detailed requirements for electronic signatures.  Though the statutes vary by state, the Colorado law, found at Section 24-71.3-101 et seq., C.R.S. (2013) provides a good model electronic signature statute.

On the issue of consideration, the court noted that Ross was required to sign the Agreement in order to gain membership into the fraternity.  The court further found that the Agreement clearly and unambiguously required arbitration.  Finally, in response to the plaintiff’s argument that the alleged hazing constituted a material breach of the Agreement, the court held this did not render the arbitration clause inapplicable.  Rather, that issue should be raised during the arbitration.

Dispute Within the Scope of the Arbitration Provision

The court then looked at whether the dispute was within the scope of the arbitration clause.  Noting the broad language of the Agreement, the court held that all claims arising out of fraternity activities fell within the scope of the arbitration clause, and that it also applied to all claims arising out of tort, including negligence, or statute.  The court concluded, “[b]ecause of the broad and unrestricted language of the Agreement, the strong presumption favoring arbitration applies with even greater force.”

After concluding that the arbitration provision was valid, and that it applied to the dispute, the court then rejected the plaintiff’s argument that the fraternity defendants waived the right to arbitration.  Its final order ordered arbitration.  But the court denied the fraternity defendants’ motion to dismiss, noting that a stay of the proceedings pending arbitration, rather than a dismissal, was the proper proceeding.

To Arbitrate or Not?

For proponents of arbitration, this is a solid victory.  But should more organizations include similar arbitration clauses in membership agreements?  There are certainly pros and cons of arbitration.  Some of the pros also serve as cons.  Arbitration is typically viewed as cheaper than litigation.  But that is not always the case.  There is also more finality with arbitration.  That can be a good thing or a bad thing, depending on the result.  It is much more difficult to appeal an arbitration award than a judge’s decision or a jury verdict.  Further, the right to a jury can be a good thing because it removes the potential of an emotional verdict.  But arbitrators can also be unpredictable.

The bottom line is that arbitration clauses are right for certain groups and certain situations, but not all groups and not all situations.  This opinion affirms the right to use arbitration clauses in agreements between a national organization and its members and potential members.

1  Higuchi v. Delta Tau Delta, et al., Arapahoe County District Court, Case No. 2012CV2380.