text:
    Maria HERRERA, Plaintiff-Appellant, v. Leo LERMA, Defendant-Appellee.
    Court of Appeals No. 17CA0991
    Colorado Court of Appeals, Division IV.
    Announced September 20, 2018
    Killian Davis Richter & Mayle, PC, J. Keith Killian, Damon J. Davis, Benjamin P. Meade, Grand Junction, Colorado, for Plaintiff-Appellant
    Senter Goldfarb & Rice, LLC, Arthur J. Kutzer, Sarah M. Andrzejczak, Denver, Colorado, for Defendant-Appellee
   Opinion by JUDGE HAWTHORNE

¶ 1 Plaintiff, Maria Herrera, appeals the judgment entered on the jury's verdict awarding her damages of $1980.81 on her negligence claim against defendant, Leo Lerma. We reverse and remand.

I. Facts and Procedural Background

¶ 2 In November 2012, defendant's truck hit plaintiff's car from behind as she slowed for traffic. A week later, plaintiff sought healthcare at a hospital where she complained of numbness in her legs and arms as well as neck pain. The doctor diagnosed her with neck strain.

¶ 3 In June 2013, plaintiff was involved in a second car accident. She had stopped at a traffic light and her sandal had become stuck beneath the brake pedal. As she tried to free it, she accidentally pushed the accelerator, causing her to hit the trailer hitch of the truck in front of her. Plaintiff testified that the second accident did not injure her.

¶ 4 A year later, starting in June 2014, plaintiff sought additional medical treatment for her neck and lower back. She then sued defendant for negligence, claiming total damages of $38,356.46. The jury awarded her $1980.81 in economic damages but $0 on her claims of physical impairment and noneconomic damages.

II. Instructional Error

¶ 5 Plaintiff contends that the trial court erred by instructing the jury to consider whether the second accident in June 2013 "increased, aggravated, or worsened any injuries, damages, or losses caused by the" first accident because defendant hadn't presented any evidence supporting such an instruction. We agree.

A. Standard of Review

¶ 6 We review a trial court's decision to give a particular jury instruction for an abuse of discretion. Day v. Johnson , 255 P.3d 1064, 1067 (Colo. 2011) ; Vititoe v. Rocky Mountain Pavement Maint., Inc. , 2015 COA 82, ¶ 67, 412 P.3d 767. A trial court abuses its discretion only when its ruling is manifestly arbitrary, unreasonable, or unfair, or the instruction is unsupported by competent evidence in the record. Day , 255 P.3d at 1067 ; Vititoe , ¶ 67.

¶ 7 "We review a properly preserved objection to a jury instruction for harmless error." Waneka v. Clyncke , 134 P.3d 492, 494 (Colo. App. 2005), aff'd on other grounds and remanded , 157 P.3d 1072 (Colo. 2007). Such an error is harmless unless it affects the parties' substantial rights. C.R.C.P. 61. "The court must order a new trial when the result of the trial may have been different if the court had given the proper instruction." Clyncke , 157 P.3d at 1079 ; Webb v. Dessert Seed Co. , 718 P.2d 1057, 1066-67 (Colo. 1986) (requiring a new trial when the result would probably have been different if the court had given the proper instruction); Mendez v. Pavich , 159 Colo. 409, 411-12, 412 P.2d 223, 224 (1966) (requiring retrial when an instruction is so erroneous that it would probably lead the jury into error).

B. Analysis

¶ 8 Using an instruction consistent with CJI-Civ. 6:9 (2009), the trial court instructed the jury as follows:

The plaintiff ... claims damages from the defendant ... for injuries, damages, or losses caused by an auto accident on November 13, 2012. If you find that the defendant's negligence or negligence per se , if any, was a cause of any such injuries, damages, or losses, then the plaintiff may recover all damages caused by that event. But if you find that plaintiff was later injured in an auto accident on June 6, 2013[,] which was not caused by any acts or omissions of the defendant, then the plaintiff may not recover any damages caused only by the second auto accident.
If you find the auto accident on June 6, 2013, increased, aggravated, or worsened any injuries, damages, or losses caused by the auto accident on November 13, 2012, then you must separate, if possible, those damages caused by the first auto accident from those caused by the second auto accident, and the plaintiff may recover all those separate damages caused by the first auto accident.
If it is not possible to separate any damages caused by the auto accident on November 13, 2012[,] from any caused by the auto accident on June 6, 2013, then the plaintiff may recover those damages only from the date of the first auto accident to the date of the second auto accident.

Such an instruction is proper when sufficient evidence shows that a later event or incident either

(1) causes a new, unrelated injury to the plaintiff or
(2) aggravates the injury the plaintiff suffered as a result of the defendant's tortious conduct.

Lascano v. Vowell , 940 P.2d 977, 982 (Colo. App. 1996) ; see also Francis ex rel. Goodridge v. Dahl , 107 P.3d 1171, 1175 (Colo. App. 2005) ("Because the evidence was sufficient to support the subsequent injury instruction and adequately formed a question of fact for the jury to decide, we perceive no error by the court in instructing the jury on subsequent injury."); Guerrero v. Bailey , 658 P.2d 278, 279-80 (Colo. App. 1982) ("Since the defendant introduced evidence that [plaintiff's layoff] aggravated the emotional injuries caused by the collision ... the instruction was warranted."). Sufficient evidence must exist to justify giving this instruction because, without such evidence, "[i]t would be mere conjecture" to presume that the later event caused or aggravated an existing injury. Brooks v. Reiser , 483 P.2d 389, 391 (Colo. App. 1971) (not published pursuant to C.A.R. 35(f) ).

¶ 9 Such conjecture occurred here. Neither party presented evidence that plaintiff suffered any injury or aggravation of an existing injury because of the second accident. Defendant failed to present his own medical expert and his counsel failed to question plaintiff's medical expert about whether the second accident could've contributed to a later need for medical attention. Cf. Francis ex rel. Goodridge , 107 P.3d at 1175 ("[T]he record reflects some evidence of a later injury suffered by plaintiff" where "experts testified for both parties and expressed conflicting opinions on whether plaintiff's fall from the pommel horse increased her injuries caused by the accident with defendant."). Thus, the evidence at trial was insufficient to justify instructing the jury about the second accident. So we conclude that the trial court abused its discretion in giving such an instruction.

¶ 10 We also conclude that this error harmed plaintiff. Defendant's main defense at trial was that plaintiff's injuries were caused by the second accident. His counsel cross-examined plaintiff extensively about the second accident. He also focused on it during closing arguments. And most of all, the instruction gave the jury an unsubstantiated reason for denying plaintiff's claim for her medical bills sustained after the second accident, which it arguably did by awarding plaintiff only $1980.81-a far cry from her requested $38,356.46, mostly for medical bills accumulated, or expected to accumulate, after the second accident.

¶ 11 We therefore conclude that had it not been for the trial court's improper instruction, the jury may have reached a different verdict. So we reverse the court's judgment and remand this case to the trial court for a new trial.

¶ 12 Because the following two issues will likely arise on remand in the event of retrial, we address them now.

III. Impairment Rating

¶ 13 Plaintiff contends that the trial court erred by excluding her expert's testimony about her 15% permanent whole body impairment rating. We agree.

A. Standard of Review

¶ 14 Trial courts "have broad discretion to admit or to exclude expert testimony." Sovde v. Scott , 2017 COA 90, ¶ 24, 410 P.3d 778. A "trial court abuses its discretion if its ruling is manifestly arbitrary, unreasonable, or unfair, or if it applies an incorrect legal standard." Id.

B. Analysis

¶ 15 Using the American Medical Association Guides to the Evaluation of Impairment (AMA Guides), plaintiff's expert evaluated plaintiff as having a permanent whole person impairment rating of 15%. The AMA Guides is a publication used by physicians to calculate the nature and extent of a medical impairment. See Walker v. Jim Fuoco Motor Co. , 942 P.2d 1390, 1392 (Colo. App. 1997). The revised third edition is required by statute to be used in workers' compensation cases to determine an employee's medical impairment rating. See § 8-42-107(8)(b.5)(I)(A), (b.5)(II), C.R.S. 2017. But, no Colorado statute or case law limits the use of the AMA Guides to workers' compensation cases only.

¶ 16 Before trial, defendant asked the court to exclude testimony about plaintiff's 15% permanent impairment rating as calculated by her medical expert using the AMA Guides' fifth edition. The court excluded the testimony because it determined that the impairment rating was irrelevant under CRE 401 and prejudicial under CRE 403. But it allowed plaintiff's medical expert to testify that plaintiff had suffered permanent impairment according to the AMA Guides, just not as to the actual percentage rating of that impairment.

1. Relevancy

¶ 17 In granting defendant's motion in limine, the court determined that plaintiff's permanent impairment was relevant to her case-but that the percentage rating of that impairment (15%) was not. But it provided no persuasive reason.

¶ 18 Defendant argues that the impairment rating was irrelevant because "this case was not a claim for workers' compensation benefits." It's true that this isn't a workers' compensation case. But, that doesn't mean the impairment rating determined by using the AMA Guides was irrelevant in this case. Simply because the workers' compensation statute requires using the AMA Guides in determining a workers' compensation claimant's medical impairment rating doesn't mean it necessarily excludes using an impairment rating in other types of personal injury claims. See Music v. Hebb , 744 So.2d 1169, 1171 (Fla. Dist. Ct. App. 1999) ("Although impairment rating evidence is specifically permitted in workers' compensation actions, its inclusion there does not preclude such evidence in this personal injury action.... Rather, we hold the admissibility of an impairment rating is governed by the general rules of evidence.") (citations omitted); Estate of Carter v. Szymczak , 951 N.E.2d 1, 6 (Ind. Ct. App. 2011) ("Although it is clear that [impairment rating] evidence is specifically permitted in workers' compensation claims, its inclusion within a worker's compensation statutory scheme does not preclude such evidence in a personal injury action." (citing Music , 744 So.2d at 1171 ) ).

¶ 19 To the contrary, the expert's testimony as to plaintiff's impairment rating was relevant here. Most importantly, it would've helped make the existence of plaintiff's claim of permanent medical impairment more probable by showing that a physician using objective AMA guidelines had concluded not only that plaintiff was permanently impaired, but that the impairment could be quantified into a scientifically determined percentage. And such testimony would've also given the jury a concrete percentage on which it could base its verdict. See Estate of Carter , 951 N.E.2d at 6 ("The [impairment] rating evidence aided the jury in determining whether and to what extent [the plaintiff] was permanently injured. The challenged evidence is therefore relevant. Moreover, [the defendant] has not shown that its probative value is substantially outweighed by the danger of unfair prejudice."); see also Tabieros v. Clark Equip. Co. , 85 Hawai'i 336, 944 P.2d 1279, 1333 (1997) ("The extent to which [the plaintiff] was permanently disabled or impaired by the accident was obviously relevant to his compensatory damage claim. ... Our review of the record convinces us that the jury could not have been confused or [the defendant] unfairly prejudiced concerning the significance, with respect to [the plaintiff's] 'pain and suffering,' of the impairment ratings following ... cross-examination. We are likewise convinced that [the doctor's] expert testimony was of the sort that 'would probably aid the trier of fact in arriving at the truth.' ") (citation omitted).

¶ 20 Because we can't discern any reason why plaintiff's permanent impairment rating determined by her expert witness using the AMA Guides would be irrelevant-and we can perceive reasons why it would be relevant-we could conclude that the trial court abused its discretion when it excluded the expert witness's testimony from the trial. But first we take up the court's CRE 403 concerns.

2. Rule 403

¶ 21 The trial court concluded that the impairment rating's "minimum probative value" was "substantially outweighed by the danger of unfair prejudice and ha[d] the risk of being confusing or misleading to the jury" because it would require evidence

(1) "concerning [the impairment rating's] purpose";
(2) showing "how [the impairment rating] is determined"; and
(3) determining "what [the impairment rating] means and which version of the Guides [is] appropriate given [that] the [workers' compensation] statute requires one set ... and [plaintiff's medical expert] appeared to use another, not the most recent."

The court also reasoned that (4) the "impairment rating's statutory application is [sic] to worker's compensation cases for the purpose of arriving at a statutorily predetermined sum of money to compensate for disability in lieu of wages."

¶ 22 We aren't persuaded by the court's reasoning. First of all, plaintiff's medical expert testified at length about the

• purpose of the AMA Guides,
• determination of the ratings, and
• version of the AMA Guides she used as compared to the version required by the workers' compensation statute.

¶ 23 Second, for reasons already stated, the workers' compensation statute's use of the AMA Guides to determine a medical impairment rating in workers' compensation claims has no bearing on its use in other personal injury claims.

¶ 24 And third, testimony laying the foundation for the scientific basis behind a medical expert's opinion isn't necessarily confusing or misleading to the jury. See Tabieros , 944 P.2d at 1333. If anything, it clarifies the context behind the 15% impairment rating. Yes, it could be argued that the "more meaningful testimony," as the court reasoned, would be about the physical impairment itself because it "better places the jury in a position to determine the extent of any damages." But that doesn't mean the 15% impairment rating is irrelevant. If anything, it complements and corroborates plaintiff's testimony. And it gives the jury another perspective to consider, which arguably places the jury in an even better position to determine plaintiff's damages.

¶ 25 For these reasons, we conclude that the trial court abused its discretion when it excluded plaintiff's expert's testimony about plaintiff's 15% impairment rating.

IV. Insurance Question During Voir Dire

¶ 26 Plaintiff contends that the trial court erred by preventing her counsel from asking prospective jurors during voir dire whether they had an interest in defendant's insurance carrier. We agree. As mentioned earlier, we address this issue because it is likely to arise on remand in the event of retrial. But we don't address defendant's preservation arguments because we doubt that this issue will arise in the same manner as it did in the original proceedings.

A. Standard of Review

¶ 27 We review a trial court's decision to limit voir dire for an abuse of discretion. People v. Collins , 730 P.2d 293, 300 (Colo. 1986) ("The propriety of questions to potential jurors on voir dire is within the discretion of the trial court, and its ruling thereon will not be disturbed on appeal unless an abuse of that discretion is shown.").

B. Analysis

¶ 28 Before trial, plaintiff sought permission from the court to ask prospective jurors during voir dire, "[A]re any of you now or have any of you been an agent, stockholder, or employee of Young America Insurance Company in this case or an underwriting company of Young America or do any of you have any other interest in a subsidiary company of Young America?" (the insurance question). Defendant objected because "this case is fraught with danger to provide some kind of indication to the [j]ury that liability insurance is available." The court ruled that plaintiff could ask the broad insurance question as plaintiff had phrased it, but without mentioning defendant's specific insurance carrier, because "then we're finding out information that may lead to, arguably, reasons to not have a [j]uror be part of the panel." It also said that, "if the [j]uror answers in the affirmative, we can address what may be appropriate from there."

¶ 29 This issue presents essentially the same circumstances reviewed by our supreme court in Smith v. District Court , 907 P.2d 611 (Colo. 1995). There, the court framed the insurance question as "whether prospective jurors are officers, directors, or policyholders of the defendant's insurance carrier." Id. at 612. The court also noted that "[i]t is well established in Colorado that the insurance question ... may be asked by counsel during voir dire of prospective jurors." Id. And the court then held that, "[a]ccording to our precedent, counsel may ask the insurance question during voir dire in order to determine the prejudices and biases of prospective jurors. We therefore hold that the trial court erroneously prohibited plaintiff's counsel from asking whether prospective jurors are officers, directors, or policyholders of [defendant's insurance carrier] during voir dire." Id. at 613.

¶ 30 Still, defendant argues that in a "modern personal injury lawsuit, jurors know, or at least can presume, that insurance is somehow involved ... [and] [t]here is no purpose for plaintiffs to present the insurance question to the jury, as it only indicates that insurance is an issue in the case." He also asserts that the trial court's ruling that plaintiff could ask the broad insurance question was a reasonable option for the trial court to follow. But we are "bound to follow supreme court precedent." In re Estate of Ramstetter , 2016 COA 81, ¶ 40, 411 P.3d 1043 (quoting People v. Gladney , 250 P.3d 762, 768 n.3 (Colo. App. 2010) ). And here, we are bound by the supreme court's explicit holding that counsel is entitled to ask the insurance question during voir dire to determine the biases and prejudices of prospective jurors.

¶ 31 So, the trial court abused its discretion by not allowing plaintiff to ask the insurance question during voir dire.

V. Conclusion

¶ 32 We reverse the trial court's judgment and remand the case to the trial court for a new trial.

Berger and Miller , JJ., concur

      Sitting by assignment of the Chief Justice under provisions of Colo. Const. art. VI, § 5 (3), and § 24-51-1105, C.R.S. 2018.


source: Caselaw Access Project

author: Opinion by JUDGE BERNARD

license: Public Domain

text:
    DIGITAL LANDSCAPE INC., Plaintiff-Appellant, v. MEDIA KINGS LLC, Defendant-Appellee.
    Court of Appeals No. 17CA1111
    Colorado Court of Appeals, Division I.
    Announced September 20, 2018
    Sean Connelly, Connelly Law LLC, Denver, Colorado, for Plaintiff-Appellant
    Sarah De Diego, De Diego Law, Santa Monica, California, for Defendant-Appellee
   Opinion by JUDGE BERNARD

¶ 1 Judge Learned Hand once wrote that "words are chameleons, which reflect the color of their environment." Comm'r v. Nat'l Carbide Corp. , 167 F.2d 304, 306 (2d Cir. 1948), aff'd , 336 U.S. 422, 69 S.Ct. 726, 93 L.Ed. 779 (1949). In this appeal, the words are the phrase "arising under." Their environment is an arbitration clause, which reads: "Any disputes arising under this [a]greement will be resolved by binding arbitration...." (Emphasis added.) We are tasked with figuring out whether this phrase takes on a narrow or a broad hue from its context in the arbitration clause.

¶ 2 The appellant in this case-plaintiff, Digital Landscape Inc., which we shall call Digital-asserts that "arising under" has a narrow scope. For Digital, this means that the arbitrator lacked jurisdiction to decide a claim that Digital submits did not "arise under" the contract in this case. The appellee-defendant, Media Kings LLC, which we shall call Media-submits that the scope of "arising under" is broad, so the arbitrator had jurisdiction to consider the claim. In this appeal, Digital asks us to review the district court's judgment confirming an arbitrator's order and denying Digital's request to vacate it.

¶ 3 Modern arbitration clauses are products of a strong policy that favors arbitration. For example, divisions of this court have concluded that "arising under," as it is used in an arbitration clause, is broad because (1) Colorado courts favor arbitration to resolve disputes; and (2) we should resolve any doubts that we have about a clause's scope in favor of arbitration.

¶ 4 But Digital points us to a debate among federal circuits concerning the scope of "arising under" in an effort to convince us to part company with these Colorado decisions. One side of the debate thinks that the scope of "arising under" is narrow, while the other side thinks that the phrase's scope is broad. After considering both sides of the debate, we are persuaded by the reasoning of the circuits that conclude that "arising under" is broad: these circuits are convinced that "arising under" is colored by a fundamental attribute of its environment-the arbitration clause-which reflects the strong federal policy that encourages arbitration.

¶ 5 We therefore conclude that all the claims that the arbitrator considered in this case were "dispute[s] arising under" the contract between Digital and Media, which were to "be resolved by binding arbitration." The arbitrator therefore had jurisdiction to resolve those claims.

¶ 6 We also disagree, for reasons that we explain below, with two other contentions that Digital raises. As a result, we affirm the district court's judgment.

I. Background

¶ 7 Media entered into a contract to provide marketing services to Transcendent Marketing, LLC, which we shall call Transcendent. Transcendent was not a named party in this case.

¶ 8 Media then contracted with Digital to provide advertising services to Transcendent. Under the contract, Media agreed to pay Digital a portion of its earnings from Transcendent in exchange for Digital's work on the project.

¶ 9 But Media did not pay Digital. And someone from Digital told someone from Transcendent that Media had not paid. Apparently dissatisfied with Media's work and with its lack of payment to Digital, Transcendent proposed that Digital take over the project. Digital's principal officer agreed, but he had one of his other companies assume the work. This proposal effectively cut Media out of its agreement with Transcendent.

¶ 10 Digital sued Media for breach of contract, seeking unpaid earnings that Digital contended Media owed it for work it had done for Transcendent. Media filed counterclaims. The one that is the focus of the appeal alleged that Digital had breached the implied covenant of good faith and fair dealing by disclosing confidential information to Transcendent, Media's client; by soliciting Transcendent's business; by disparaging Media to Transcendent; and by stealing Transcendent as a client.

¶ 11 Because the contract between Media and Digital included an arbitration clause, the district court ordered them to arbitrate their dispute. The court stayed the case until the arbitration proceeding was finished.

¶ 12 During the arbitration proceeding, Digital argued that Media had breached the contract because Media had not paid Digital the amount that the contract required. The arbitrator agreed, and she awarded Digital $68,197.41.

¶ 13 When discussing the counterclaim alleging that Digital had breached the implied covenant of good faith and fair dealing, the arbitrator also referred to it as addressing a breach of Digital's duty of loyalty to Media. She then decided that, although the agreement described Digital as an independent contractor, Digital still owed a duty of loyalty to Media, which Digital had breached. So the arbitrator awarded Media $24,400 in damages.

¶ 14 In her final order, the arbitrator concluded that neither Media nor Digital had prevailed. She therefore declined to award either of them attorney fees.

¶ 15 Digital filed a petition in the district court that asked the court to confirm the part of the arbitration order that awarded damages to Digital, vacate the part of the order that awarded damages to Media because the arbitrator had exceeded the scope of the arbitration clause, and award Digital its attorney fees. The district court disagreed with Digital's requests, so it confirmed the order in its entirety.

II. Digital's Contentions

¶ 16 Digital raises three contentions.

¶ 17 First, Digital contends that the arbitrator did not have jurisdiction to consider whether Digital had breached a duty of loyalty to Media because the duty of loyalty claim did not "arise under" the arbitration clause.

¶ 18 Second, Media filed a counterclaim alleging that Digital had breached the implied covenant of good faith and fair dealing. Digital submits that the arbitrator improperly converted this counterclaim to a different claim-breach of loyalty-that Media had not raised. Digital continues that it did not have notice of the different elements of this claim. Digital wraps up this contention by asserting that the arbitrator's ruling on this different claim was unfair and that the arbitrator's award to Media was therefore void.

¶ 19 Third, even if we disagree with the first two contentions, Digital asserts that it was nonetheless entitled to attorney fees because (1) its contract with Media stated that the prevailing party in an arbitration proceeding concerning the terms of the contract would be entitled to attorney fees; (2) it prevailed on its breach of contract claim; (3) Media prevailed on a claim-the breach of loyalty claim-that was not part of the contract; so (4) Media did not prevail on a claim that was related to the contract.

III. Standard of Review and General Arbitration Principles

¶ 20 We review de novo

• whether a dispute falls within the scope of an arbitration clause, Taubman Cherry Creek Shopping Ctr., LLC v.Neiman-Marcus Grp., Inc. , 251 P.3d 1091, 1093 (Colo. App. 2010) ;
• "a district court's legal conclusions on a motion to confirm or vacate an arbitration award,"
Rocha v. Fin. Indem. Corp. , 155 P.3d 602, 604 (Colo. App. 2006) ; and
• whether "the arbitrator's refusal to award attorney fees to plaintiff as the prevailing party was a determination beyond the scope of the parties' arbitration agreement," Magenis v. Bruner , 187 P.3d 1222, 1225 (Colo. App. 2008).

¶ 21 "To facilitate confidence in the finality of arbitration awards and discourage piecemeal litigation, [Colorado's arbitration statutes] strictly limit[ ] the role of the courts in reviewing awards, and a party challenging an award bears a heavy burden." BFN-Greeley, LLC v. Adair Grp., Inc. , 141 P.3d 937, 940 (Colo. App. 2006). "An arbitrator is the final judge of both fact and law," id. , and courts may not review the merits of an arbitration award if there are not statutory grounds to vacate, modify, or correct them, Levy v. Am. Family Mut. Ins. Co. , 293 P.3d 40, 49 (Colo. App. 2011).

¶ 22 Such statutory grounds are found in section 13-22-223(1)(d), C.R.S. 2018, which provides, as is pertinent to this case, that a court "shall vacate" an award "if the court finds that ... [a]n arbitrator exceeded [her] powers." An arbitrator does not "exceed [her] powers by rendering a decision that is contrary to the rules of law that would have been applied by a court, so long as there is no violation of an express term of the agreement to arbitrate." Byerly v. Kirkpatrick Pettis Smith Polian, Inc. , 996 P.2d 771, 774 (Colo. App. 2000). In other words, "[i]t is not sufficient ... to argue merely that the arbitrator committed an error of law on the merits." Giraldi v. Morrell , 892 P.2d 422, 424 (Colo. App. 1994). "Rather, [a] plaintiff must establish that the arbitrator exceeded the powers granted in the agreement by refusing to apply or ignoring the legal standard agreed upon by the parties for resolution of the dispute." Id. And an arbitrator has a great deal of flexibility in fashioning appropriate remedies. BFN-Greeley, LLC , 141 P.3d at 941.

IV. Scope of "Arising Under"

A. Introduction

¶ 23 Arbitration is a "favored method of dispute resolution" in Colorado. Lane v. Urgitus , 145 P.3d 672, 678 (Colo. 2006). "Our constitution, our statutes, and our case law all support agreements to arbitrate disputes." Id. But, like the federal courts, we do not force parties to arbitrate disputes when they have not clearly agreed to submit them to arbitration. Id. at 679.

¶ 24 An arbitration clause is a contract. Allen v. Pacheco , 71 P.3d 375, 378 (Colo. 2003). We must therefore "interpret the [arbitration clause] in a manner that best effectuates the intent of the parties." Id. We determine their intent by reading the language of the clause, looking to "the plain and ordinary meaning of its terms." Id. We will enforce the clause as it is written unless it contains an ambiguity. Id.

¶ 25 "If ambiguities are found ... we must afford the parties a presumption in favor of arbitration and resolve doubts about the scope of the arbitration clause in favor of arbitration." Id. "More specifically, we must compel arbitration unless we can say 'with positive assurance' that the arbitration clause is not susceptible of any interpretation that encompasses the subject matter of the dispute." Id. (quoting City & Cty. of Denver v. Dist. Court , 939 P.2d 1353, 1364 (Colo. 1997) ). A " 'broad or unrestricted' arbitration clause makes the strong presumption favoring arbitration apply with even greater force." Id. (quoting City & Cty. of Denver , 939 P.2d at 1364 ).

¶ 26 Courts should "look beyond the legal cause of action and consider the factual allegations upon which the claims are premised." Smith v. Multi-Fin. Sec. Corp. , 171 P.3d 1267, 1270 (Colo. App. 2007) (citing City & Cty. of Denver , 939 P.2d at 1364 ).

The factual allegations which form the basis of the claim asserted, rather than the legal cause of action pled, should guide the district court in making the determination as to whether a particular dispute falls within the reach of the [alternative dispute resolution] clause. Tort claims and claims other than breach of contract claims are not necessarily excluded from [alternative dispute resolution].

City & Cty. of Denver , 939 P.2d at 1364.

¶ 27 Federal courts also have a "healthy regard for the ... policy favoring arbitration."

Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Federal cases interpreting or applying the Federal Arbitration Act help us to understand our Colorado arbitration statutes because the two statutory schemes "contain substantially similar language." E-21 Eng'g, Inc. v. Steve Stock & Assocs., Inc. , 252 P.3d 36, 39 (Colo. App. 2010).

¶ 28 The Federal Arbitration Act "establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration," including when "the problem at hand is the construction of the contract language itself...." Moses H. Cone Mem'l Hosp. , 460 U.S. at 24-25, 103 S.Ct. 927. Federal courts will not deny a party's request to arbitrate an issue "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." United Steelworkers of Am. v. Warrior & Gulf Navigation Co. , 363 U.S. 574, 582-83, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960).

¶ 29 Answering the question whether a party has agreed to arbitrate an issue requires interpretation of the arbitration clause. "[A] party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." Id. at 582, 80 S.Ct. 1347. Still, courts should "construe ambiguities concerning the scope of arbitrability in favor of arbitration." Mastrobuono v. Shearson Lehman Hutton, Inc. , 514 U.S. 52, 66, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995).

B. Analysis

¶ 30 To remind the reader, the arbitration clause in the contract in this case states that "[a]ny disputes arising under this [a]greement will be resolved by binding arbitration...." (Emphasis added.) Divisions of this court have considered this phrase before.

1. Colorado Cases

¶ 31 Discussing the general phrasing of arbitration clauses, a division of this court held that, "[w]hen an arbitration clause uses the phrase 'arising out of' or 'relating to,' it is broad in scope." Smith , 171 P.3d at 1270. Relatedly, our supreme court noted that courts have interpreted the phrase "relating to" in arbitration clauses "as being broad rather than restrictive." City & Cty. of Denver , 939 P.2d at 1366.

¶ 32 More apropos to the issue in this case, in R.P.T. of Aspen, Inc. v. Innovative Communications, Inc. , 917 P.2d 340, 341-42 (Colo. App. 1996), the division characterized an arbitration clause reading "[a]ny dispute which arises under this [a]greement" as employing "broad language." And BFN-Greeley, LLC , 141 P.3d at 940, described the substantially similar phrase of "arising out of" as "broad[ ]."

¶ 33 And, in Austin v. U S West, Inc. , 926 P.2d 181, 183 (Colo. App. 1996), the division relied on the federal district court's analysis in Lee v. Grandcor Medical Systems, Inc. , 702 F.Supp. 252, 256 (D. Colo. 1988), to conclude that an "arising under" arbitration clause was "sufficiently broad to include claims for fraud in the inducement." (In Lee , the district court decided that claims for fraudulent inducement and tortious interference with business relations "appear[ed]" to "arise under" the arbitration clause, adding that "doubtful" questions about the applicability of arbitration clauses should be resolved in favor of arbitration. Id. (quoting Stateside Mach. Co. v. Alperin , 591 F.2d 234, 240 (3d Cir. 1979) ).) The division also recognized that "[o]ther courts have construed similar clauses equally as broadly." Austin , 926 P.2d at 183.

¶ 34 It turns out that the phrase "arising under" in arbitration clauses has prompted a debate among federal circuit courts about its scope. Considering this debate is helpful because "Colorado has followed federal precedent to determine the scope of an arbitration clause...." City & Cty. of Denver , 939 P.2d at 1363-64. So the next step of our analysis is to explain the parameters of the federal debate.

2. Federal Cases

¶ 35 One side of the debate is represented primarily by cases from the Second, Ninth, and Federal Circuits. A prominent decision interpreting this phrase is Mediterranean Enterprises, Inc. v. Ssangyong Corp. , 708 F.2d 1458 (9th Cir. 1983). Mediterranean Enterprises compared the meanings of two similar, but clearly different, phrases.

¶ 36 The phrase "arising out of or relating to" a contract created a "broad arbitration clause." Id. at 1464 (quoting Michele Amoruso E Figli v. Fisheries Dev. Corp. , 499 F.Supp. 1074, 1080 (S.D.N.Y. 1980) ). This is the standard language recommended by the American Arbitration Association. Id.

¶ 37 Prefiguring Digital's contention in this case, one of the parties in Mediterranean Enterprises argued that "arising under" was narrower than "arising out of or relating to." Id. at 1463. The party added that "arising under" meant that an arbitration proceeding would apply only to disputes "arising under the contract itself" and not to disputes that were "matters or claims independent of the contract or collateral" to it. Id.

¶ 38 The Ninth Circuit agreed, concluding that " 'arising under' has been called 'relatively narrow as arbitration clauses go.' " Id. at 1464 (quoting Sinva, Inc. v. Merrill, Lynch, Pierce, Fenner & Smith, Inc. , 253 F.Supp. 359, 364 (S.D.N.Y. 1966) ). It is "narrower in scope" than "arising out of or relating to." Id. ; see also Cape Flattery Ltd. v. Titan Mar., LLC , 647 F.3d 914, 922-23 (9th Cir. 2011) (applying Mediterranean ).

¶ 39 The court in Evans v. Building Materials Corp. of America , 858 F.3d 1377, 1381 (Fed. Cir. 2017), agreed with this interpretation of "arising under." It observed that " 'arising under' ... is narrower in scope than language, such as 'relating to,' under which a claim may be arbitrable if it has a 'significant relationship' to the contract, regardless of whether it arises under the contract itself." Id.

¶ 40 According to this side of the debate, the phrase "relating to" works to expand the scope of arbitration clauses. Prima Paint Corp. v. Flood & Conklin Manufacturing Co. , 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), illustrates the expansive properties of "relating to." The United States Supreme Court pointed out that the phrase "arising out of"-which has been treated similarly narrowly to the phrase "arising under" when it appears by itself, see Tracer Research Corp. v. Nat'l Envtl. Servs. Co. , 42 F.3d 1292, 1295 (9th Cir. 1994) -has been viewed broadly when combined with "relating to," see Prima Paint Corp. , 388 U.S. at 398, 87 S.Ct. 1801. Indeed, for this side of the debate, adding the phrase "relating to" to "arising under" turns a narrow arbitration clause into a broad one.

¶ 41 We note that the Second Circuit was originally firmly on this side of the debate, issuing the first circuit court opinion to decide that "arising under" was a narrow phrase. In re Kinoshita & Co. , 287 F.2d 951, 953 (2d Cir. 1961). ( Mediterranean Enterprises relied heavily on Kinoshita . Mediterranean Enters. , 708 F.2d at 1464.)

¶ 42 But the Second Circuit's position has changed quite a bit because the United States Supreme Court subsequently emphasized the strong federal policy that favors arbitration. As a result, the Second Circuit recognized that Kinoshita was "inconsisten[t] with federal policy favoring arbitration." S.A. Mineracao Da Trindade-Samitri v. Utah Int'l, Inc. , 745 F.2d 190, 194 (2d Cir. 1984). So the circuit court limited Kinoshita to its facts. See Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading, Inc. , 252 F.3d 218, 225 (2d Cir. 2001).

¶ 43 The law in the Second Circuit today is that, "to ensure that an arbitration clause is narrowly interpreted[,] contracting parties must use ['arising under'] or its equivalent, although the better course, obviously, would be to specify exactly which claims are and are not arbitrable." S.A. Mineracao Da Trindade-Samitri , 745 F.2d at 194. The Second Circuit has not overruled Kinoshita because of its concern that "contracting parties may have (in theory at least) relied on that case in their formulation of an arbitration provision." Id.

¶ 44 The other side of the debate is represented by decisions from the First, Third, Fifth, Sixth, Seventh, Eighth, and Eleventh circuits.

¶ 45 The First Circuit agreed "with the majority of the federal circuits," and it concluded that "the analysis in Kinoshita is not consistent with the strong federal pro-arbitration policy set forth by" the federal arbitration statute. Dialysis Access Ctr., LLC v. RMS Lifeline, Inc. , 638 F.3d 367, 381 (1st Cir. 2011) (addressing an arbitration clause using the phrase "arising under").

¶ 46 The Third Circuit observed that Kinoshita and its progeny have been "discredited both in the Second Circuit and in other jurisdictions." Battaglia v. McKendry , 233 F.3d 720, 725 (3d Cir. 2000). The court then concluded that the phrases "arising under" and "arising out of" "are normally given broad construction," when they appear in arbitration clauses. Id. at 727.

¶ 47 The Fifth Circuit decided that, "[b]ecause the arbitration clause in [this] case differs from that in Kinoshita and recognizing that Kinoshita is inconsistent with federal policy favoring arbitration," the district court had erred when it relied on Kinoshita to grant a request to stay arbitration. Mar-Len of La., Inc. v. Parsons-Gilbane , 773 F.2d 633, 637 (5th Cir. 1985).

¶ 48 The Sixth Circuit said that the Second Circuit "has recognized that the authority of Kinoshita ... is highly questionable even in" that circuit. Highlands Wellmont Health Network, Inc. v. John Deere Health Plan, Inc. , 350 F.3d 568, 577 (6th Cir. 2003). The court added that "[o]ther circuits have declined to follow Kinoshita because of the strong federal policy in favor of arbitration." Id. It then concluded that the phrase "arises out of" in an arbitration clause was "extremely broad." Id. (quoting Cincinnati Gas & Elec. Co. v. Benjamin F. Shaw Co. , 706 F.2d 155, 160 (6th Cir. 1983) ).

¶ 49 The Seventh Circuit distinguished Kinoshita , concluding that the phrase "arising out of" "reache[d] all disputes having their origin or genesis in the contract, whether or not they implicate interpretation or performance of the contract per se." Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Int'l, Ltd. , 1 F.3d 639, 642 (7th Cir. 1993). In reaching this result, the court saw "no need to disagree with the Second and Ninth Circuits that 'arising under' may denote a dispute somehow limited to the interpretation and performance of the contract itself." Id.

¶ 50 The court then suggested a better approach than relying on what are arguably unclear distinctions among various phrases:

[The] contracting parties control their own fate when it comes to deciding which disputes to consign to arbitration. On the one hand, they may delineate precisely those claims that are subject to arbitration or, on the other, they may employ general-even vague-language in their arbitration provisions. They may also combine these techniques by using general language to authorize arbitration together with specific language to identify the types of disputes that are not subject to arbitration, thereby limiting the reach of phrases such as "arising out of," "arising under" or "arising out of or relating to."

Id. at 643. Because the parties had not "taken any steps to narrow the reach" of the contract's arbitration clause, and, "in the light of the heavy presumption in favor of arbitration," the Seventh Circuit concluded that a claim in the complaint was arbitrable. Id. ; accord Cty. of Hawaii v. UNIDEV, LLC , 301 P.3d 588, 606 (Haw. 2013) ("Had the parties intended to restrict arbitration ... it would have been a simple matter to draft unambiguous language to effectuate that intent.... The failure of the parties to unambiguously limit the arbitrability of disputes suggests that they intended a longer reach for the arbitration clauses [using 'arising under'].").

¶ 51 The Eighth Circuit decided that the phrase "arising under" did not bar arbitration of certain claims because the arbitration law did not include any "limiting language" and it was "generally broad in scope." PRM Energy Sys., Inc. v. Primenergy, L.L.C. , 592 F.3d 830, 837 (8th Cir. 2010) ; accord Simitar Entm't, Inc. v. Silva Entm't, Inc. , 44 F.Supp.2d 986, 996 (D. Minn. 1999) ("[W]e believe than an interpretation of 'arising under,' or 'arising out of,' should be as broad as that applied to 'arising out of or relating to,' and we respectfully reject ... Kinoshita ....").

¶ 52 The Eleventh Circuit rejected Kinoshita as "not being in accord with present day notions of arbitration as a viable alternative dispute resolution procedure."

Gregory v. Electro-Mech. Corp. , 83 F.3d 382, 385 (11th Cir. 1996). The phrase "arising hereunder," which is a cheek-by-jowl relative of "arising under," was therefore broadly construed. Id. at 383.

¶ 53 The Tenth Circuit has not decided where it stands in this debate. At least one United States magistrate judge, however, believes that "the Tenth Circuit would follow the majority of the federal circuits and give the phrase 'arising under' a broad construction based on the strong federal policy in favor of arbitration." Cook v. PenSa , Civ. A. No. 13-cv-03282-RM-KMT, 2014 WL 3809409, at *14 (D. Colo. Aug. 1, 2014).

3. Granite Rock

¶ 54 Digital suggests that the United States Supreme Court signaled its position in this debate in Granite Rock Co. v. International Brotherhood of Teamsters , 561 U.S. 287, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010). Granite Rock involved an arbitration clause that included the phrase "arising under." Id. at 304, 130 S.Ct. 2847.

¶ 55 As is pertinent to our analysis, the issue in Granite Rock was "whether a collective-bargaining agreement ... containing a no-strike provision was validly formed during the strike period." Id. at 292, 130 S.Ct. 2847. "For purposes of determining arbitrability, when a contract is formed can be as critical as whether it was formed." Id. at 303-04, 130 S.Ct. 2847. That distinction was key in Granite Rock because the date when the agreement "was formed ... determines whether the agreement's provisions were enforceable during the period relevant to the ... dispute." Id. at 304, 130 S.Ct. 2847 ; see also Buckeye Check Cashing, Inc. v. Cardegna , 546 U.S. 440, 444 n.1, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) (recognizing the difference between questions concerning "the contract's validity" and questions concerning "whether any agreement ... was ever concluded").

¶ 56 Turning to the "arising under" language, the Supreme Court held that the collective-bargaining agreement's arbitration provision was not "fairly read to include a dispute about when the [agreement] came into existence." Granite Rock , 561 U.S. at 308, 130 S.Ct. 2847. The Court also characterized "arising under" as having a "relatively narrow ... scope." Id. at 307, 130 S.Ct. 2847. But the basis of comparison was language in an arbitration clause found in Drake Bakeries, Inc. v. Local 50, American Bakery & Confectionery Workers International , 370 U.S. 254, 82 S.Ct. 1346, 8 L.Ed.2d 474 (1962). This clause read that the parties would "promptly attempt to adjust all complaints, disputes or grievances ... involving questions of interpretation or application of any clause or matter covered by this contract or any act or conduct or relation between the parties ... directly or indirectly." Id. at 256-57, 82 S.Ct. 1346.

¶ 57 We conclude, for the following reasons, that Granite Rock does not send the signal that Digital claims it sends.

¶ 58 First, Granite Rock 's statement that the phrase "arising under" was "relatively narrow," 561 U.S. at 307, 130 S.Ct. 2847, was based on a comparison with the arbitration clause in Drake Bakeries that went well beyond the terms of the contract. The clause in Drake Bakeries included "any act or conduct or relation between the parties ... directly or indirectly." 370 U.S. at 257, 82 S.Ct. 1346. We must therefore consider the Supreme Court's observation about the relative narrowness of "arising under" in the context of what was a very broad arbitration clause in Drake Bakeries . And the arbitration clause in this case is not as broad as the one in Drake Bakeries because it does not refer to Digital's or Media's acts, conduct, or relations.

¶ 59 Second, Granite Rock did not discuss the debate at the core of this case, even though the debate had been vigorously joined well before Granite Rock was decided. It does not analyze, or even refer to, Kinoshita , Mediterranean Enterprises , Tracer , or to any of the cases that we have cited above from the other side of the debate. And, critically, it does not conclude that "arising under" is narrow when compared to phrases such as "relating to."

¶ 60 Third, Granite Rock is distinguishable because the issue in that case concerned whether the arbitration clause was enforceable at a particular time. Digital did not raise that issue in this case. See Dialysis Access Ctr., LLC , 638 F.3d at 382 ( Granite Rock 's holding, "that a question concerning the very existence of the [collective-bargaining agreement] cannot fairly be said to 'arise under' the [collective-bargaining agreement,] does not counsel a result different from the one at which we here arrive.").

4. Conclusion

¶ 61 We conclude, for the following reasons, that the phrase "arising under" was sufficiently broad to include the duty-of-loyalty counterclaim.

¶ 62 First, one side of the debate has a clear majority of adherents. Only three circuits hold that the phrase "arising under" is narrow, although one of them-the Second Circuit-has retreated significantly from that holding. Seven circuits interpret the phrase broadly, and five of those circuits reject the foundation for the minority view-Kinoshita -as inconsistent with the federal policy favoring arbitration. Sheer numbers are not necessarily determinative, of course, but the majority position is also of more recent vintage. We also think that it is more persuasive because it keeps faith with the Colorado and the federal policies favoring arbitration.

¶ 63 Second, the Second Circuit's obvious reluctance to embrace Kinoshita enthusiastically is telling. Kinoshita was the birth of the minority view. But the court that birthed it has had second thoughts about its offspring. The Second Circuit has now

• decided that Kinoshita was "inconsisten[t] with federal policy favoring arbitration," S.A. Mineracao Da Trindade-Samitri , 745 F.2d at 194 ;
• limited Kinoshita to its facts, Louis Dreyfus Negoce S.A. , 252 F.3d at 225 ;
• counseled contracting parties that, instead of relying on the phrase "[arising under] or its equivalent, ... the better course, obviously, would be to specify exactly which claims are and are not arbitrable," S.A. Mineracao Da Trindade-Samitri , 745 F.2d at 194 ; accord SweetDreams Unlimited, Inc. , 1 F.3d at 643 ; Cty. of Hawaii , 301 P.3d at 606 ; and
• has not overruled Kinoshita only because of an apparent concern that "contracting parties may have (in theory at least) relied on that case in their formulation of an arbitration provision," S.A. Mineracao Da Trindade-Samitri , 745 F.2d at 194. (We note that the Ninth Circuit expressed a similar concern. See Cape Flattery Ltd. , 647 F.3d at 923.)

¶ 64 Third, Colorado is not in the Second or the Ninth Circuit. As a result, we do not share the concern of those circuits that contracting parties in this state would have relied on the circuits' view of the phrase "arising under" when drafting arbitration clauses. See Cape Flattery Ltd. , 647 F.3d at 923 ; S.A. Mineracao Da Trindade-Samitri , 745 F.2d at 194. Rather, we think that the clearly preferable course to relying on the phrase "arising under" would be to specify which claims are arbitrable and which claims are not. See S.A. Mineracao Da Trindade-Samitri , 745 F.2d at 194 ; accord Sweet Dreams Unlimited, Inc. , 1 F.3d at 643 ; Cty. of Hawaii , 301 P.3d at 606.

¶ 65 Fourth, Colorado law lines up with the majority federal view. Colorado applies a presumption in favor of arbitration unless a court is "positive[ly] assur[ed]" that an arbitration clause does not "encompass[ ] the subject matter of the dispute." City & Cty. of Denver , 939 P.2d at 1363-64 (quoting Jefferson Cty. Sch. Dist. No. R-1 v. Shorey , 826 P.2d 830, 840 (Colo. 1992) ). We must resolve any doubts about the scope of an arbitration clause in favor of arbitration. Id. at 1364. And a "¢'broad or unrestricted' arbitration clause makes the strong presumption favoring arbitration apply with even greater force." Allen , 71 P.3d at 378.

¶ 66 Austin is the only Colorado decision that we could find that comments on the debate. In that case, the division used a "but see " citation to refer to Mediterranean Enterprises , which indicated that Mediterranean conflicted with or contradicted the division's view that "arising under" was broad in scope. 926 P.2d at 183 ; see Black's Law Dictionary 1563 (10th ed. 2014) (defining "sed vide," or "but see" as "direct[ing] the reader's attention to an authority or a statement that conflicts with or contradicts the statement or principle just given").

¶ 67 We have not unearthed another Colorado case, and the parties did not cite any, that referred to any of the other principal cases in the debate, including Kinoshita , for the proposition that the phrase "arising under" in an arbitration clause is either narrow or broad. But we know that, without commenting on the debate, R.P.T. of Aspen, Inc. , stated that an arbitration clause including the phrase "arises under" contained "broad language," 917 P.2d at 342, and BFN-Greeley, LLC , described the substantially similar phrase of "arising out of" as broad, 141 P.3d at 940.

¶ 68 Although we are not bound by Austin , R.P.T. of Aspen, Inc. , and BFN-Greeley, LLC , see People v. Thomas , 195 P.3d 1162, 1164 (Colo. App. 2008) (one division of the court of appeals is not bound by the decision of another division), we are persuaded by them in light of the preceding analysis. This means to us that the majority position is most consistent with Colorado's law.

¶ 69 We further conclude that the arbitration clause in this case was unrestricted: it was not accompanied by any qualifying language, and it did not include any language expressly excluding particular types of claims from its scope. As a result, (1) we recognize that the "strong presumption favoring arbitration appl[ies] with even greater force" in this case, Allen , 71 P.3d at 378 ; (2) we cannot be "positive[ly] assur[ed]" that the clause did not "encompass[ ] the subject matter of the dispute," City & Cty. of Denver , 939 P.2d at 1363-64 (quoting Jefferson Cty. Sch. Dist. No. R-1 , 826 P.2d at 840); and (3) we must therefore resolve any doubts about whether the arbitrator's ruling on Media's counterclaim was within the scope of the arbitration clause in favor of arbitration, id.

¶ 70 Having now clarified the scope of the arbitration clause, we next consider the arbitrator's analysis of Media's counterclaim.

V. Duty of Loyalty

¶ 71 Relying on the conclusions that we have reached up to this point and the ones that we make below, we reject Digital's assertion that the arbitrator's ruling was void because she lacked jurisdiction to decide a claim that the parties had not presented to her. See State Farm Mut. Auto. Ins. Co. v. Stein , 886 P.2d 326, 328 (Colo. App. 1994) ("If an arbitrator makes an award which is outside the scope of the issues submitted, that portion of the award which goes beyond the matters submitted to it for resolution is void for lack of jurisdiction.").

¶ 72 As an initial matter, Media suggests that the arbitrator actually ruled on the counterclaim that Digital had breached the implied covenant of good faith and fair dealing. It is clear from the arbitration order that she did not intend to do so. She wrote instead that

[t]he assertion that Digital ... is liable to Media ... for disparaging Media ... to Transcendent and effectively stealing Transcendent as a client is not truly a claim for a breach of the implied covenant of good faith and fair dealing because it is not grounded in contract terms.

¶ 73 But even though we recognize that the arbitrator ruled on a facially different counterclaim-breach of the duty of loyalty-we nonetheless conclude, for the following reasons, that the different claim was within the issues that Digital and Media had agreed to submit and, indeed, submitted to the arbitrator. See id.

¶ 74 We must "look beyond the legal cause of action" in this case-the breach-of-the-implied-warranty-of-good-faith-and-fair-dealing counterclaim-and consider the facts on which it was based. Smith , 171 P.3d at 1270 (citing City & Cty. of Denver , 939 P.2d at 1364 ). The factual allegations that formed the basis of that counterclaim, rather than the legal label that Media placed on it, guides us in our analysis of the issue whether a substituted breach-of-the-duty-of-loyalty counterclaim fell within the scope of the arbitration clause. Id. And, based on that factual analysis, claims beyond breach of contract, such as tort claims, "are not necessarily excluded" from arbitration. Id.

¶ 75 The factual allegations in the breach-of-the-implied-duty-of-good-faith-and-fair-dealing counterclaim were that Digital had disparaged Media to Transcendent and that Digital had cooperated with Transcendent to pry Media loose from its contract with Transcendent. These allegations could, for the following reasons, form the basis for a breach-of-the-duty-of-loyalty claim if Digital was Media's agent.

¶ 76 "An agent is one who acts for or in the place of another by authority from him, or one who is entrusted with the business of another." Governor's Ranch Prof'l Ctr., Ltd. v. Mercy of Colo., Inc. , 793 P.2d 648, 651 (Colo. App. 1990). A claim of breach of the duty of loyalty may allege, among other things, that an agent breached "a duty to his principal to act solely for the benefit of the principal in all matters connected with his agency." Restatement (Second) of Agency § 387 (Am. Law Inst. 1958). "[A]n agent is subject to a duty not to compete with the principal concerning the subject matter of his agency." Id. § 393. An agent may breach the duty of loyalty to a principal by acting "in competition with the principal" and by acquiring "interests adverse to" the principal. Id. § 387 cmt. a; see also Jet Courier Serv., Inc. v. Mulei , 771 P.2d 486, 494-98 (Colo. 1989) (observing that an employee's solicitation of coworkers to start a new business that would compete with the employer was a breach of the duty of loyalty to the employer).

¶ 77 "An agent who, without the acquiescence of his principal, acts for his own benefit ... in a transaction is not entitled to compensation which otherwise would be due him because of the transaction." Restatement (Second) of Agency § 469 cmt. a (Am. Law Inst. 1958). And "[a] serious violation of a duty of loyalty ... is a willful and deliberate breach of the contract of service by the agent ." Id. at cmt. b (emphasis added).

¶ 78 But Digital contends that it did not owe Media a duty of loyalty because it was an independent contractor, and independent contractors, since they are not agents, do not owe a duty of loyalty. An independent contractor "is one who engages to perform services for another, according to his own methods and manner, free from the direction and control of the employer in all matters relating to the performance of the work, and accountable to him only for the result to be accomplished." Cont'l Bus Sys., Inc. v. NLRB , 325 F.2d 267, 271 (10th Cir. 1963).

¶ 79 An independent contractor "may or may not be an agent." Restatement (Second) of Agency § 2(3) (Am. Law Inst. 1958). An independent contractor is not an agent if "he is not a fiduciary, has no power to make the one employing him a party to a transaction, and is subject to no control over his conduct." Id. at cmt. b.

¶ 80 The arbitrator found that the evidence presented at the arbitration hearing "established that, although Digital ... exercised substantial autonomy in the manner in which it performed its work under the [c]ontract, Media ... controlled and had the right to control Digital ... in its work and in its direct communications with Transcendent." The arbitrator decided that Digital "was acting as Media['s] ... agent" "in its communications with Transcendent on the project." Digital therefore "owed a duty of loyalty to Media ... in the manner in which it conducted those communications."

¶ 81 The question whether Digital was an agent, an independent contractor, or both was one of fact, see Varsity Tutors LLC v. Indus. Claim Appeals Office , 2017 COA 104, ¶ 16, --- P.3d ----, which fell within the arbitrator's authority as the fact finder in the arbitration hearing, see BFN-Greeley, LLC , 141 P.3d at 940. The record, however, does not contain a transcript of the arbitration hearing, so we do not know what evidence the arbitrator considered when she decided that Digital was Media's agent. In the absence of that transcript, we must presume that the evidence presented at the hearing would support the arbitrator's decision. See Hock v. N.Y. Life Ins. Co. , 876 P.2d 1242, 1252 (Colo. 1994) ("An appellate court must presume that the trial court's findings and conclusions are supported by the evidence when the appellant has failed to provide a complete record."); In re Marriage of McSoud , 131 P.3d 1208, 1223 (Colo. App. 2006) ("[A]n appellate court presumes that material portions omitted from the record would support the judgment of the trial court.").

¶ 82 We do not know whether the arbitrator made a legal mistake when applying the law of agency in this case. But what if she did? It would not affect the result that we reach. Giraldi , 892 P.2d at 424 ("It is not sufficient ... to argue merely that the arbitrator committed an error of law on the merits."). Instead, our review, like the district court's, is limited to deciding whether Digital has "establish[ed] that the arbitrator exceeded the powers granted in the agreement by refusing to apply or ignoring the legal standard agreed upon by the parties for resolution of the dispute." Id. ; see also Container Tech. Corp. v. J. Gadsden Pty., Ltd. , 781 P.2d 119, 121 (Colo. App. 1989) ("[A]n arbitration award is not open to review on the merits," and "the merits of the award include the arbitrators' interpretation of the contract.").

¶ 83 (We note that, at one point, "manifest disregard of the law" was "a judicially created reason" for vacating arbitration awards under the Federal Arbitration Act. Barnett v. Elite Prop. of Amer., Inc. , 252 P.3d 14, 20 (Colo. App. 2010). But the "continuing viability" of that nonstatutory reason is now unclear under federal law. Id. at 21. And a division of this court held that manifest disregard of the law is not a ground for vacating an arbitration award under Colorado's arbitration statutes. Coors Brewing Co. v. Cabo , 114 P.3d 60, 63-66 (Colo. App. 2004).)

¶ 84 We therefore conclude that the arbitrator in this case did not exceed her powers because the substituted breach-of-the-duty-of-loyalty counterclaim "arose under" the contract between Digital and Media. See Restatement (Second) of Agency § 469 cmt. b (Am. Law Inst. 1958) ("A serious violation of a duty of loyalty ... is a willful and deliberate breach of the contract of service by the agent....").

¶ 85 Digital asserts that it did not have notice that the arbitrator was going to recast the breach-of-the-duty-of-good-faith-and-fair-dealing counterclaim as a breach-of-the-duty-of-loyalty counterclaim. Digital adds that the breach-of-the-duty-of-loyalty counterclaim was "never submitted or tried," so Digital "had no opportunity to offer evidence or provide legal argument for why it did not owe or breach any such duty...." As a result, Digital finishes, it was prejudiced "in many ways." We disagree.

¶ 86 First, the language of the breach-of-the-duty-of-good-faith-and-fair-dealing counterclaim alleged that Digital had "disclos[ed] confidential information," "directly solicit[ed]" Media's client, and "disparage[d]" Media to its client. This language obviously incorporated concepts of disloyalty.

¶ 87 Second, Media's other counterclaims provided Digital with notice that Media intended to prove that Digital had been disloyal. A counterclaim based on breach of contract alleged that Digital had disclosed confidential information in violation of a clause in the contract and solicited business from Transcendent in violation of a different contractual clause. A counterclaim based on intentional interference with contractual relations alleged that Digital had induced Transcendent to breach its contract with Media or had made it virtually impossible for Transcendent to perform its obligations under the contract. And a counterclaim based on misappropriation of trade secrets alleged that Digital had improperly taken Media's intellectual property.

¶ 88 Last, contrary to Digital's assertion, we do not know whether Digital expressly or impliedly consented to the arbitrator recasting the breach-of-the-duty-of-good-faith-and-fair-dealing counterclaim as a duty-of-loyalty counterclaim because we do not have a transcript of the arbitration hearing. See C.R.C.P. 15(b) ("When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings."); CB Richard Ellis, Inc. v. CLGP, LLC , 251 P.3d 523, 528-29 (Colo. App. 2010) ("Despite any defect in the pleadings, an issue is deemed properly before the court where it has been tried before the court without timely objection or motion.").

¶ 89 We know from the arbitrator's award that the evidentiary part of the hearing lasted two days, two witnesses testified, the arbitrator admitted about fifty-five exhibits, and the parties gave their closing arguments over the telephone. But we do not know what anyone said during the hearing. As a result, we must, as we have previously concluded, presume that the transcript would support the arbitrator's award. See Hock , 876 P.2d at 1252 ; In re Marriage of McSoud , 131 P.3d at 1223.

VI. Attorney Fees

¶ 90 Digital submits that the arbitrator exceeded her authority when she concluded that, because neither party had prevailed, neither party was entitled to attorney fees. In support of this assertion, Digital points to the holding in Magenis , 187 P.3d at 1225.

¶ 91 The division in Magenis concluded that the language of the parties' arbitration clause did not give the arbitrator discretion to decide who was entitled to fees. The language in this case is similar: "In any action brought to enforce any provision of this Agreement, the losing party shall pay the prevailing party's reasonable attorney fees...."

¶ 92 The arbitrator in Magenis , though, resolved all disputes in one party's favor. Id. at 1223. So, in that case, there was a clear prevailing party. In this case, by contrast, there was no clear prevailing party since Digital prevailed on its breach-of-contract claim and Media prevailed on a counterclaim. The arbitration clause's mandatory language therefore did not apply in the same way.

¶ 93 Digital contends that the arbitration clause in this case required the arbitrator to award attorney fees to the prevailing party in an action to enforce a contract provision. We agree. But Digital also contends that it was the only party that prevailed in an action to enforce a provision of the contract. We disagree with that contention.

¶ 94 We have already "look[ed] beyond the legal cause of action" to consider the facts on which the counterclaim was based. Smith , 171 P.3d at 1270 (citing City & Cty. of Denver , 939 P.2d at 1364 ). Although, by doing so, we considered the concepts of a breach-of-the-duty-of-loyalty counterclaim, they were nonetheless rooted in the facts that were pled in the breach-of-the-duty-of-good-faith-and-fair-dealing counterclaim, which, in turn, concerned a breach of contract claim. The arbitrator's award to Media on the breach-of-the-duty-of-loyalty counterclaim therefore meant that Media had prevailed in an action to enforce a provision of the contract. See Restatement (Second) of Agency § 469 cmt. b (Am. Law Inst. 1958) ("A serious violation of a duty of loyalty ... is a willful and deliberate breach of the contract of service by the agent....").

¶ 95 So, because there was no clearly prevailing party, the arbitrator was not required to award Digital its attorney fees. Likewise, since the result of this appeal maintains the status quo and there is still no prevailing party, we decline Digital's request for appellate attorney fees.

¶ 96 Based on our preceding conclusions, our penultimate conclusion is that the arbitrator did not "exceed [her] powers." § 13-22-223(1)(d). Our ultimate conclusion is that the district court did not err when it confirmed the arbitrator's award because there were no statutory grounds to vacate, modify, or correct it. See Levy , 293 P.3d at 49.

¶ 97 The district court's judgment is therefore affirmed.

JUDGE TAUBMAN and JUDGE WELLING concur.


author: Opinion by JUDGE NAVARRO

text:
    BIG SUR WATERBEDS, INC.; Denver Mattress Company, LLC; and Sofa Mart, LLC, Plaintiffs-Appellees, v. CITY OF LAKEWOOD, Colorado ; and Larry Dorr, in his official capacity as Finance Director of the City of Lakewood, Colorado, Defendants-Appellants.
    Court of Appeals No. 17CA1605
    Colorado Court of Appeals, Division VII.
    Announced October 4, 2018
    Silverstein & Pomerantz LLP, Neil I. Pomerantz, Mark E. Medina, Michelle Bush, Denver, Colorado, for Plaintiffs-Appellees
    Hoffman, Parker, Wilson & Carberry, P.C., M. Patrick Wilson, M. Keith Martin, Denver, Colorado, for Defendants-Appellants
   Opinion by JUDGE NAVARRO

¶ 1 Plaintiffs, Big Sur Waterbeds, Inc., Denver Mattress Co., LLC, and Sofa Mart, LLC, purchase furniture (tax free) from wholesalers worldwide and resell it in stores across the country, including in the City of Lakewood. At each Lakewood store, plaintiffs provide a showroom in which they display some furniture for customers to peruse and try out. Plaintiffs also maintain warehouses, where they store the bulk of their inventory. They ultimately sell all the furniture-including the displayed furniture-and fill customer orders from either the warehouses or the showrooms. Plaintiffs' customers pay Lakewood's sales tax on each purchase.

¶ 2 Lakewood assessed use tax on plaintiffs' purchases of the displayed furniture from 2012 to 2015, on the theory that plaintiffs purchased the displayed furniture at retail for their own use in advertising their products. Plaintiffs challenged the assessments in the district court, which held a bench trial. They argued that, like all the furniture they buy, they purchased the displayed furniture at wholesale -that is, primarily for resale-and thus those purchases were exempt from use tax. Employing the "primary purpose" test from A.B. Hirschfeld Press, Inc. v. City and County of Denver , 806 P.2d 917, 918-26 (Colo. 1991), the court agreed with plaintiffs and cancelled Lakewood's use tax assessments. Addressing an issue of first impression, we also conclude that plaintiffs purchased the displayed furniture primarily for resale. Therefore, we affirm the judgment cancelling the assessments.

I. Standard of Review

¶ 3 We review de novo a district court's interpretation of a tax code. Leggett & Platt, Inc. v. Ostrom , 251 P.3d 1135, 1140 (Colo. App. 2010). Generally, when interpreting tax provisions, we resolve doubts in favor of the taxpayer. Noble Energy, Inc. v. Colo. Dep't of Revenue , 232 P.3d 293, 296 (Colo. App. 2010). When a taxpayer claims a statutory exemption from taxation, however, we presume that taxation is the rule and resolve doubts in favor of the taxing authority. Id.

¶ 4 "Following a bench trial, we defer to a trial court's factual findings unless they are so clearly erroneous as to find no support in the record." Target Corp. v. Prestige Maint. USA, Ltd. , 2013 COA 12, ¶ 24, 351 P.3d 493.

II. Lakewood's Code and Regulations

¶ 5 Lakewood's municipal code imposes a three percent use tax "for the privilege of storing, using, or consuming in the City any articles of tangible personal property or taxable services purchased at retail ." Lakewood Mun. Code 3.01.210 (emphasis added). The use tax does not apply if the purchaser has already paid sales tax on the item, either to Lakewood or to another municipality, in an amount equal to or greater than the amount of Lakewood's tax. Id. at 3.01.220(A)(1), (E).

¶ 6 "Retail sale" is defined as "all sales except wholesale sales made within the city." Id. at 3.01.020. A "[w]holesale sale" is "a sale by wholesalers to retail merchants, jobbers, dealers, or other wholesalers for resale and does not include a sale by wholesalers to users or consumers not for resale...." Id.

¶ 7 Consistent with the definitions of retail sale and wholesale sale, the code also expressly exempts from use tax "the storage, use, or consumption of any tangible personal property purchased for resale in the city, either in its original form or as an ingredient of a manufactured or compounded product, in the regular course of a business." Id. at 3.01.230(B).

¶ 8 Lakewood's sales and use tax regulations supply guidance on interpreting the code. See id. at 3.01.070 ("The City Council shall adopt rules and regulations in conformity with this chapter for the proper administration and enforcement of this chapter."). One such regulation explains that "[u]se tax is a complement to sales tax." Lakewood Sales and Use Tax Reg. 3.01.300(1)(b) (adopted June 24, 1985), https://perma.cc/2LGV-L4B7. Because sales tax is imposed only on retail sales, which are sales to the user or consumer of property or services sold, "use tax shall not apply to the storage, use[,] or consumption of tangible personal property purchased by a licensed retailer for resale within the regular course of a business." Id.

¶ 9 Regulation 3.01.300(1)(b) also cautions, however, that

[t]angible personal property that was purchased tax-free for resale or as an ingredient of a manufactured or compounded product and subsequently withdrawn from stock for the purchaser's own use or consumption shall be taxed at the acquisition cost of all materials. The tax liability attaches at the time that the tangible personal property is withdrawn from stock.

Id. (emphasis added).

¶ 10 In addition, a special regulation entitled "Initial Use of Property" states:

Any item purchased for use or consumption by the purchaser is subject to sales or use tax at the time of purchase, even though the item shall be resold later in either its original or altered form. A tax-free purchase is taxable in full at the first time it is used by the purchaser for a nonexempt purpose.
(Example: A junkman may not buy a new car tax-free under the theory that the car is going to be junked someday and resold through his business for scrap.)

Lakewood Sales and Use Tax Special Regs., at 41.

III. Purchased "At Retail" or "At Wholesale?"

¶ 11 Lakewood contends that plaintiffs' "initial purchase and subsequent use of display furniture is a taxable event." According to Lakewood, "all of [plaintiffs'] inventory purchases were initially treated as exempt wholesale purchases for resale." But "[l]ater, when [plaintiffs] withdrew a portion of this wholesale inventory for use as demonstration and promotion tools, the transactions in which the display models were purchased were properly recharacterized as taxable retail transactions."

¶ 12 For its taxation theory, Lakewood relies on the Initial Use of Property special regulation as well as regulation 3.01.300(1)(b). Respectively, those regulations ask whether the displayed furniture was (1) primarily purchased for use, not for resale; or (2) purchased for resale initially but later withdrawn from stock for plaintiffs' own use (i.e., whether their placing the furniture on display revealed that the primary purpose of their purchase was for their own use rather than for resale). Because both regulations turn on plaintiffs' primary purpose, we first look to the Hirschfeld test.

A. The Primary Purpose Test

¶ 13 In Hirschfeld , 806 P.2d at 918-26, the supreme court considered use tax provisions from Denver's tax code that are nearly identical to Lakewood's code. The supreme court explained that, in assessing whether a purchase was made "at retail" or "for resale," courts should apply "a primary purpose" test. Id. at 921. Under this test, "a purchase of an item of tangible personal property is a purchase for resale and therefore not a purchase at retail if the primary purpose of the transaction is the acquisition of the item for resale in an unaltered condition and basically unused by the purchaser." Id. Five factors inform this determination:

1) "the actual conduct of a purchaser subsequent to a disputed purchase," id. ;
2) "the nature of the purchaser's contractual obligations, if any, to use, alter[,] or consume the property to produce goods or perform services," id. ;
3) "the degree to which the items in question are essential to the purchaser's performance of those obligations," id. ;
4) "the degree to which the purchaser controls the manner in which the items are used, altered[,] or consumed prior to their transfer to third parties," id. ; and
5) "the degree to which the form, character[,] or composition of the items when transferred to third parties differs from the form, character[,] or composition of those items at the time they were initially purchased," id.

¶ 14 If, after considering these factors, a court concludes that the purchaser acquired the property at issue primarily for resale in an unaltered condition and basically unused, the use tax cannot apply "even if the purchaser were to make minor use of the item." Id. ; see also Coors Brewing Co. v. City of Golden , 2013 COA 92, ¶ 48, 411 P.3d 767 (concluding that Coors purchased scrap metal primarily for resale even where it made "minor use" of the scrap during the manufacturing process). This recognition that minor use does not trigger a use tax comports with Lakewood's code, which exempts property purchased for resale even if it is used to some extent. See Lakewood Mun. Code 3.01.230(B) (Use tax shall not apply to "the storage, use, or consumption of any tangible personal property purchased for resale....").

B. Additional Background

¶ 15 In each showroom, plaintiffs typically displayed samples of each item of furniture available for purchase. They stored the rest of their inventory in warehouses attached to the showrooms or in larger distribution centers in Denver and Aurora. Customers perusing the showrooms were invited to try out the furniture by, for example, sitting on couches, turning on lamps, or lying on beds. At all times, including at the time plaintiffs purchased the furniture from wholesalers, plaintiffs intended to sell all the furniture-including the displayed furniture.

¶ 16 Following a three-day bench trial, the district court made extensive factual findings. It found that all of plaintiffs' floor furniture was always available for sale at the discretion of plaintiffs' employees. Although employees generally preferred to fill orders from the warehouses instead of from the showroom floors, employees "often [sold] floor model items" in certain situations. Those situations included

(a) when a customer indicate[d] an immediate need for the item; (b) when the item on display [was] discontinued or "rotated" pursuant to a pre-determined schedule; (c) when the store manager desire[d] to change the furniture being displayed on the showroom floor; (d) where the item on display [was] a one-of-a-kind item (e.g., furniture using reclaimed wood); (e) when the furniture on display [was] needed to provide furniture to a customer who received a damaged or defective item upon delivery; and (f) where the item [was] characterized as "home décor" or an accessory item.

The court found that, when employees chose not to sell floor model items, "it was not because these items were not for sale; it was because they do not want to spend the time to replace a floor model, and they 'don't like to have a gap on the floor' that would cause them to miss a sale."

¶ 17 The court further found that displayed items remained on the showroom floor for an average of six to twelve months. Roughly 40% of the displayed items were sold within the first six months, and about 30% remained on the floor longer than one year. The court explained that "[a]ll of [the] floor models are eventually sold," a fact Lakewood did not dispute.

¶ 18 Regarding price, the court determined that "floor model items were often sold at full sales price where a customer exhibited an immediate need for the item." Also, "discounts up to 50% or more were common on warehouse items and floor models alike." Overall, the court found "no meaningful difference between the frequency and size of the discounts on floor models and the discounts on warehouse items."

¶ 19 As for tax treatment, "[plaintiffs] did not depreciate any of the floor model items for income tax, accounting, or financial reporting purposes."

¶ 20 Of the plaintiffs, only Denver Mattress was obligated by contract to take any action regarding the furniture. Denver Mattress agreed "to reserve a number of 'slots' on its showroom floor for [certain] vendors' mattresses and to give the vendors' products fair placement on the showroom floor."

¶ 21 The court outlined the procedures plaintiffs employed to display products on the showroom floors:

• "Un-boxing or un-wrapping the product."
• "Assembling tables, beds, desks, and other items (attaching table and sofa legs, installing knobs, connecting footboards/headboards, building chairs, and plugging in adjustable bases)."
• " 'Breaking in' the cushions and pillows on sofas and chairs."
• "For overhead light fixtures and lamps, hard-wiring to the building's electrical system and installing lightbulbs."
• "For mattresses, trimming threads remaining from the manufacturing process and installing a 'shoe protector' at the foot of the mattress."
• "Staging the display models in 'vignettes' with other furniture and home décor or accessories to mimic a real living room."

The court reviewed witness testimony and found that, although plaintiffs often changed the "packaging" of their inventory to prepare it for the showroom, the showroom furniture was "well-maintained and kept in a like-new condition."

¶ 22 The court then applied the Hirschfeld test and concluded that plaintiffs purchased the displayed furniture primarily for resale.

C. Application of the Primary Purpose Test

¶ 23 Lakewood does not challenge any of the district court's factual findings as clearly erroneous. So, we accept them all. We review de novo the application of the Hirschfeld primary purpose test to those facts. See Conoco, Inc. v. Tinklenberg , 121 P.3d 893, 896 (Colo. App. 2005) ; see also Coors , ¶ 42.

1. Plaintiffs' Actual Conduct Following the Purchase of the Furniture

¶ 24 Plaintiffs purchased large quantities of furniture, all of which they intended to-and did-sell. Plaintiffs selected a sampling of their inventory to display in their showrooms for customers to try out before purchasing. As the district court noted, plaintiffs' conduct demonstrated that the "primary and overriding concern in [their] treatment of [the] floor models" was to preserve the marketability of the displayed furniture because all inventory would eventually be sold.

¶ 25 When customers purchased furniture, their orders were filled from the warehouse or, sometimes, directly from the showroom floor. Customers paid sales tax on all purchases.

¶ 26 Plaintiffs treated the displayed furniture as inventory for income tax, accounting, and financial reporting purposes. Thus, they did not derive any of the tax benefits, such as depreciation, that could have come with non-inventory status.

¶ 27 We conclude that the totality of plaintiffs' actual conduct shows that they purchased the displayed furniture primarily for resale in an unaltered condition and basically unused. The fact that plaintiffs permitted customers to view and try out the displayed furniture before it was sold does not indicate otherwise.

¶ 28 Lakewood stresses that the furniture remained on the floor for an average of six to twelve months, and sometimes longer. For a couple of reasons, however, the length of time the furniture stayed on the floor is not especially illuminating. First, Lakewood's emphasis on time seems inconsistent with its taxation theory-i.e., once plaintiffs removed the furniture from the warehouse and displayed it on the showroom floor to promote the product, a taxable event occurred. The length of time the furniture remained on the floor appears to be immaterial under this theory.

¶ 29 Second, the evidence did not show that any furniture item remained on the showroom floor longer, on average, than a similar item remained in the warehouse. The evidence did not reveal how long furniture stayed in the warehouse on average. The testimony showed, however, that furniture sometimes stayed in the warehouse for six to twelve months, or longer. And Lakewood did not assess use tax on warehouse items, no matter how long they remained. True, evidence indicated that many more items were sold from the warehouses than from the showrooms. But this fact simply reflects that many more items were stored in the warehouses than in the showrooms and that plaintiffs' employees generally preferred to sell warehouse items first so they would not need to replace the furniture on the floor.

¶ 30 Hence, more significant than the time spent on the showroom floor is whether the displayed furniture was for resale and was sold in an unaltered condition and basically unused. The record demonstrates that the furniture was for resale while on the floor, it was sold in essentially new condition, and displaying the furniture for advertising was therefore a minor use that furthered the resale purpose. See Coors , ¶¶ 54-57 (concluding that purchase of scrap aluminum was primarily for resale where Coors used the scrap "only fleetingly" in the manufacturing process); see also C. F. & I. Steel Corp. v. Charnes , 637 P.2d 324, 330 (Colo. 1981) (concluding that no taxable event occurred where steel corporation "brief[ly] utiliz[ed]" raw materials by diverting them "to its own temporary use and then back to the normal steel-making process").

2. Plaintiffs' Contractual Obligations to Use, Alter, or Consume the Furniture to Produce Goods or Perform Services

¶ 31 Plaintiffs' only contractual obligation regarding the displayed furniture was Denver Mattress's duty to give fair placement on the showroom floor to some vendors' mattresses. As the district court explained, "[T]hese contractual obligations related only to prominent placement on the showroom floor; not to committing Denver Mattress to any manner of usage, alteration, or consumption that differed from its treatment of other floor models not governed by the contract." Beyond prominent floor placement, those obligations did not require any use.

¶ 32 In contrast, in Hirschfeld , a printing company purchased pre-press materials-such as printing plates, film, and transparencies-for use in printing brochures, letterheads, and greeting cards for its customers. 806 P.2d at 918. In holding that the company's purchase of these materials was subject to the use tax, the supreme court noted, "[I]t is clear that Hirschfeld could not perform the services it was contractually obligated to perform for its customers without making extensive use of the pre-press materials." Id. at 923. "Hirschfeld substantially used and often altered the pre-press materials in performing its contractual obligations to its customers ." Id. at 924 (emphasis added).

¶ 33 Plaintiffs here had no contractual obligations to their customers to display the furniture. At most, one plaintiff had obligations to certain vendors as to some products. So, unlike in Hirschfeld , plaintiffs had no contractual obligations to customers that would require them to use, alter, or consume any furniture to produce goods or perform services. Cf. City of Colorado Springs v. Inv. Hotel Props., Ltd. , 806 P.2d 375, 379 (Colo. 1991) (holding that primary purpose of hotel's purchase of guest room furniture was for the hotel's "use thereof in fulfilling its contractual obligations to its guests").

¶ 34 Lakewood argues that, because this case arose in the retail context as opposed to the manufacturing context, "some deviation from the exact ... Hirschfeld factual predicate is warranted." We agree that the absence of the contractual obligations discussed in Hirschfeld is not dispositive. Still, as Lakewood acknowledges, "a contract requiring use may be evidence of a taxable interim use...." Therefore, the absence of such a contract tends to support plaintiffs' view that they purchased the displayed furniture primarily for resale. Cf. Coors , ¶ 44 ("Although the manufacturer is contracted to manufacture beer can ends and tabs, it is not obligated to incorporate the scrap into those ends and tabs. Rather, it is free to resell the scrap [to other customers].").

3. Degree to Which the Furniture is Essential to Plaintiffs' Performance of Their Contractual Obligations

¶ 35 All parties seem to agree, and the district court found, that this factor does not add much to the analysis because plaintiffs did not have contractual obligations (to customers) to use, alter, or consume the displayed furniture to produce goods or perform services. As discussed, however, the lack of pertinent contractual obligations cuts in plaintiffs' favor to some extent.

4. Degree to Which Plaintiffs Controlled the Manner in Which the Furniture Was Used, Altered, or Consumed Prior to Sale

¶ 36 The supreme court found this factor germane in Hirschfeld because Hirschfeld purchased the pre-press materials to use in performing contractual obligations to its customers and "the manner and extent of Hirschfeld's use of the items was vested solely in Hirschfeld." 806 P.2d at 923. This factor is perhaps less relevant here, where plaintiffs had no contractual obligations to use, alter, or consume the furniture to produce goods or perform services.

¶ 37 To the extent this factor remains relevant, we note that plaintiffs controlled the manner in which the furniture was displayed. For instance, plaintiffs removed the items from the warehouses, unboxed them, assembled them into functioning furniture, and arranged them in groupings to simulate living spaces so that customers could try them out. Plaintiffs also controlled the length of time that displayed items remained on the showroom floors.

¶ 38 On the other hand, plaintiffs' customers largely controlled their interactions with the displayed furniture. Plaintiffs' employees sometimes encouraged customers to sit on a sofa or lie on a bed, but customers were generally free to roam around the showrooms and test the furniture as they pleased.

¶ 39 Consequently, this factor does not clearly support either plaintiffs' position or Lakewood's position.

5. Degree to Which Plaintiffs Altered the Form, Character, or Composition of the Furniture Prior to Sale

¶ 40 Lakewood contends that plaintiffs altered the form or composition of the displayed furniture when they assembled it for staging in the showrooms. Lakewood also argues that, after such display, the character of the furniture went "from brand new to used."

¶ 41 As discussed by the district court, however, plaintiffs' unboxing and assembly constituted merely a change in packaging of the displayed furniture, not an alteration of form, character, or composition. We find the reasoning in Coors instructive. The division concluded that "the process that collects the [aluminum] scrap and compresses it into briquettes is a change in packaging , not a change in 'form, character[,] or composition .' ... '[S]imply put, [the manufacturer] purchased aluminum and ultimately resold aluminum.' " Coors , ¶ 51 (quoting Hirschfeld , 806 P.2d at 921 ).

¶ 42 Likewise, plaintiffs purchased sofas, beds, chairs, etc. and ultimately resold sofas, beds, chairs, etc. The district court found that the furniture was well maintained and sold in "like-new condition" on generally the same price terms as warehouse furniture. Hence, this factor also weighs in plaintiffs' favor.

¶ 43 In sum, the Hirschfeld factors in combination weigh decidedly in plaintiffs' favor. Under that test, then, plaintiffs' primary purpose in purchasing the displayed furniture was for resale.

D. Returning to Lakewood's Regulations

¶ 44 Lakewood relies heavily on its special regulation pertaining to "Initial Use of Property," which states that any item purchased "for use or consumption by the purchaser" is subject to tax for that use even if the item is eventually resold in its original condition. Lakewood Sales and Use Tax Special Regs., at 41. Lakewood says that, under this regulation, whether the item shows physical signs of use is irrelevant. The item could be used extensively and then resold in its original condition, in which case the use tax would still apply.

¶ 45 That may be true, but the Initial Use regulation-by its plain terms-applies only to items purchased for the purchaser's use or consumption. As explained, plaintiffs purchased the displayed furniture primarily for resale, not for their own use or consumption; so the Initial Use regulation does not control here.

¶ 46 Nor does regulation 3.01.300(1)(b)'s explanation that the use tax applies to items "withdrawn from stock." That provision pertains to tax-free purchases for resale that are later removed from inventory "for the purchaser's own use or consumption." But plaintiffs never withdrew the displayed furniture from stock. The record reveals that the displayed furniture was always available for resale. Sometimes it was sold quickly; other times it took more than a year. But it was available for sale and always sold eventually.

¶ 47 Finally, our reading of the tax code and regulations is confirmed by Lakewood's special regulation on "Automobile Dealers and Demonstration Vehicles." Lakewood Sales and Use Tax Special Regs., at 31. A dealer's "use of an inventory or stock vehicle is not subject to a use tax if [the] vehicle is available for and in fact used for the promotion of business." Id. According to Lakewood, this special regulation exempts a use to which the use tax would otherwise apply. All tax regulations, however, must conform to the tax code. See Lakewood Mun. Code 3.01.070. Therefore, this regulation does not create an exemption from the use tax that is not intended by the tax code itself. Instead, this regulation clarifies how the use tax exemptions of the code apply to demonstration vehicles used by dealers to promote sales. Plaintiffs' use of the displayed furniture for demonstration purposes is analogous; so, the use tax consequences should be analogous.

¶ 48 For all the reasons discussed above, the use tax does not apply to plaintiffs' purchase of the displayed furniture.

IV. Conclusion

¶ 49 The judgment is affirmed.

J. Jones and Kapelke , JJ., concur

      This code provision exempting property from use tax mirrors the provision imposing use tax: both provide that use tax does not apply to wholesale sales (i.e., purchases for resale). The parties disagree, therefore, about whether this case presents a tax-imposition dispute (requiring doubts to be resolved against taxation) or a tax-exemption dispute (requiring doubts to be resolved in favor of taxation). We need not settle this disagreement. Even assuming that plaintiffs claim an exemption, they should prevail because they are clearly entitled to the exemption, as we will explain.

      We apply this version of the regulations because it was admitted into evidence at trial without objection. See Alpenhof, LLC v. City of Ouray , 2013 COA 9, ¶ 10, 297 P.3d 1052 ("[A]ppellate review extends only to those [municipal] code provisions included in the record."). While these regulations have apparently been amended since their 1985 adoption, see Lakewood Sales and Use Tax Rules, Regs. & Special Regs. (amended effective June 12, 1993 and revised Oct. 21, 1994), https://perma.cc/SG2X-WV4L, the relevant regulatory language discussed in this opinion has not changed.

      Illustrating this point is Lakewood's treatment of certain "out-the-door" items in the showroom, which consisted of small merchandise that was regularly sold from the floor (e.g., vases and pillows). Lakewood excluded those items from use tax no matter how long they remained on the floor because they were always for resale.

      Because Lakewood's code and regulations, considered in light of Colorado case law, are sufficient to resolve this case, we need not address the out-of-state cases cited by the parties. Besides, none of those cases brings much to the table because none involved facts very similar to those here.

      Sitting by assignment of the Chief Justice under provisions of Colo. Const. art. VI, § 5 (3), and § 24-51-1105, C.R.S. 2018.