May 12, 2015 Articles

Lessons Learned from In re Colorado Energy Management

By Charles E. Harris II and Sarah E. Reynolds

In re Colorado Energy Management, LLC, 981 N.Y.S.2d 44 (App. Div. 2014), serves as a cautionary tale to claimants in arbitration who are not consistently transparent about the legal theories that they are relying on to recover damages. In this action, the New York Supreme Court's Appellate Division affirmed a trial court decision vacating a $22 million arbitration award in favor of Lea Power Partners (LPP) and against Colorado Energy Management (CEM), concluding that the arbitrator exceeded his authority by awarding those damages under a breach of contract theory that was never submitted to him. In June 2014, the New York Court of Appeals denied leave to hear LPP's further appeal, and on remand in September 2014, the trial court entered a final judgment in the matter.

Accordingly, LPP received no recovery after demanding arbitration and investing five years litigating it, and surely incurring significant legal costs. To add insult to injury, LPP paid over $1 million to CEM's parent, Centennial Energy Holdings (Centennial), for damages awarded to CEM in the arbitration, which were upheld by the Appellate Division. This article focuses on the award for LPP that was vacated; it will not discuss that award to CEM. In particular, we will discuss, in detail, the matters giving rise to the arbitration, the arbitration proceedings, and the court proceedings to vacate the arbitration award. We will also consider whether Colorado Energy was correctly decided and conclude by offering basic suggestions on how parties in arbitration might avoid the result that LPP experienced.

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