Santich v. VCG Holding Corp.: Contract Enforcement and Arbitration Opinion
Santich v. VCG Holding Corp.: Contract Enforcement and Arbitration Opinion
2019 CO 67
The supreme court accepted jurisdiction over a certified question of law from the
United States District Court for the District of Colorado to determine whether there
of equitable estoppel. The court holds that Colorado’s law of equitable estoppel applies
in the same manner when a dispute involves an arbitration agreement as it does in other
contexts. The supreme court recognizes that under Colorado law, equitable estoppel
2019 CO 67
Plaintiffs:
v.
Defendants:
1
Attorneys for Plaintiffs:
Killmer, Lane & Newman, LLP
Mari Newman
Liana Orshan
Denver, Colorado
Towards Justice
David H. Seligman
Denver, Colorado
Attorneys for Amici Curiae National Employment Lawyers Association and Plaintiff
Employment Lawyers Association:
Sweeney & Bechtold, LLC
Joan M. Bechtold
Denver, Colorado
2
¶1 Under Colorado law, equitable estoppel requires proof of four elements. One of
those elements has long been detrimental reliance on the words or actions of the party
against whom estoppel is sought. In this case, we accepted jurisdiction over a certified
question of law from the United States District Court for the District of Colorado that
applies in the same manner when a dispute involves an arbitration agreement as it does
detrimental reliance.
¶2 In 2017, a group of current and former exotic dancers sued the owners of clubs
where they perform and the club owners’ corporate parent companies in the United
States District Court for the District of Colorado. The plaintiffs allege in their amended
complaint that the defendants acted in concert to wrongfully deprive the dancers of basic
protections provided by law to employees. The plaintiffs contend that they have been
3
misclassified as nonemployee “independent contractors” or “lessees” pursuant to
club-owner and corporate-parent defendants are jointly and severally liable for denying
the dancers earned minimum wages and overtime pay, confiscating or otherwise
misallocating their gratuities, charging them fees to work, and subjecting them to onerous
fines.
plaintiffs’ claims based on the arbitration clause included in the agreements the dancers
signed with the club owners. The corporate-parent defendants seek to do the same, but
because they were not parties to the agreements or to any other written contract with the
dancers, they have to find a different hook to compel the dancers into arbitration. They
argue that the dancers should be equitably estopped from litigating their claims against
one set of defendants because they are in compelled arbitration of the same claims against
recommended that the district court accept that argument and compel the arbitration of
the plaintiffs’ claims against the corporate-parent defendants. The recommendation was
predicated, in large part, upon a prediction that this court would agree with the court of
appeals’ decision in Meister v. Stout, 2015 COA 60, 353 P.3d 916. In that case, a division
arbitration clause asserts a claim arising from that contract against a defendant who was
4
not a party to the contract, he may be estopped from avoiding arbitration and instead be
353 P.3d at 919, 920–22. Relying on Meister, the magistrate judge determined that,
although they had not signed the agreements, the corporate-parent defendants are
entitled to enforce the arbitration provisions against the plaintiffs because the claims
asserted against all defendants are interdependent and intertwined with duties and
recommendation, urging the federal district court to certify to this court the question
¶5 The federal district court observed that “[a]s it currently stands, Meister fails to
address the [reliance] issue and the Court is unclear whether this element is required
under Colorado law . . . [because] there is no controlling precedent in the decisions of the
Colorado Supreme Court.” The district court therefore certified the question to this court,
II. Analysis
of state contract law. Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630–31 (2009). In most
instances, only the parties to a contract can compel arbitration under that contract and
only as to another signatory of the contract. See N.A. Rugby Union LLC v. U.S. Rugby
Football Union, 2019 CO 56, ¶20, ___ P.3d ___. If no such agreement exists between
particular litigants, as is the case here, there are certain limited circumstances in which a
5
nonsignatory to an arbitration agreement may compel a signatory to arbitrate. Id. at ¶ 21.
(6) successor-in-interest; and (7) third-party beneficiary.” Id. Here, the nonsignatory
corporate-parent defendants argue that they fit within the equitable estoppel exception.
Thus, to answer the certified question, we must consider how the doctrine of equitable
¶7 Under our state law, equitable estoppel is generally understood as arising “where
one party induces another to detrimentally change position in reasonable reliance on that
party’s actions through words, conduct, or silence.” V Bar Ranch LLC v. Cotten, 233 P.3d
1200, 1210 (Colo. 2010) (citing City of Thornton v. Bijou Irr. Co., 926 P.2d 1, 75 (Colo. 1996)).
However, Colorado law has never favored estoppel. See Dove v. Delgado, 808 P.2d 1270,
1275 (Colo. 1991) (“The doctrine of estoppel is not favored . . . and will be applied only
when all of the elements constituting an estoppel are clearly shown.”); Univ. of Colo. v.
Silverman, 555 P.2d 1155, 1158 (Colo. 1976) (same); Susman v. Exch. Nat’l Bank of Colo.
Springs, 183 P.2d 571, 573 (Colo. 1947) (same); see also Langley v. Young, 211 P. 640, 642
(Colo. 1922) (“[The] doctrine is not regarded with favor and should be applied only when
all the elements constituting an estoppel clearly appear.”). For this reason, we have
consistently held that the doctrine “will be applied only when all of the elements
constituting an estoppel are clearly shown.” Dove, 808 P.2d at 1275 (citing Susman, 183
P.2d at 573).
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¶8 Under this court’s longstanding precedent, estoppel may not be applied as a bar
Jefferson Cty. Sch. Dist. No. R-1 v. Shorey, 826 P.2d 830, 841 (Colo. 1992) (citing Dove, 808
P.2d at 1275; Dep’t of Health v. Donahue, 690 P.2d 243, 247 (Colo. 1984)).
¶9 In Meister, the court of appeals broke from that long line of precedent and
courts. ¶¶ 13–15, 353 P.3d at 920–21. The division acknowledged that it was creating a
new breed of equitable estoppel in Colorado, but it found the reasoning of courts from
other jurisdictions that had adopted this arbitration-specific rule persuasive. See id. The
new theory adopted by Meister provides that equitable estoppel would apply where
(1) “a signatory must rely on the terms of a written agreement containing an arbitration
provision to assert its claims against a nonsignatory” or (2) the “signatory alleges
more signatories” and the claimed misconduct “is intertwined with duties or obligations
arising from the underlying contract.” Id. at ¶¶ 14–15, 353 P.3d at 921. This theory of
equitable estoppel would apply even in circumstances where the party seeking to assert
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¶10 The court of appeals appears to have adopted this new theory of equitable estoppel
because “Colorado has a strong policy favoring arbitration agreements.” Id. at ¶ 10, 353
P.3d at 920. That rationale is not sufficient to support the creation of an entirely new
theory of equitable estoppel that is unmoored from the basic premise of the doctrine, that
it “arises where one party induces another to detrimentally change position in reasonable
reliance on that party’s actions through words, conduct, or silence.” V Bar Ranch, 233
P.3d at 1210. As the New Jersey Supreme Court said in rejecting the same theory that we
reject here: “Equitable estoppel is more properly viewed as a shield to prevent injustice
rather than a sword to compel arbitration.” Hirsch v. Amper Fin. Servs., 71 A.3d 849, 852
(N.J. 2013); see also Ervin v. Nokia, Inc., 812 N.E.2d 534, 542–43 (Ill. App. 2004) (declining
to adopt this theory of equitable estoppel because it is inconsistent with state law on
estoppel); B.C. Rogers Poultry, Inc. v. Wedgeworth, 911 So. 2d 483, 491–92 (Miss. 2005)
(same). We see no compelling reason to depart from our traditionally defined elements
be able to compel arbitration on equitable estoppel grounds, but to do so they would need
to prove all four traditionally defined elements of the doctrine, including, but not limited
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a special estoppel rule predicated upon the interconnectivity of claims and actions taken
III. Conclusion
2We recognize that our answer to the certified question may result in piecemeal litigation
in which related claims simultaneously proceed in court and arbitration. But “‘policy
reasons’ alone cannot replace . . . necessary predicate[s] for the application of equitable
estoppel.” Goldman v. KPMG, LLP, 92 Cal. Rptr. 3d 534, 553 (Cal. Ct. App. 2009).