Case Title: Interdiction of Harold Wright

Citation: 

Docket Number: 2010-CC-1826

State: louisiana

Court: Louisiana Supreme Court

Date: 2011-10-25T00:00:00Z

Document:
ocr 25 zon
SUPREME COURT OF LOUISIANA

No. 2010-CC-1826
INTERDICTION OF HAROLD OTIS WRIGHT

ON SUPERVISORY WRITS TO THE TWENTY-FIRST JUDICIAL
DISTRICT COURT, PARISH OF TANGIPAHOA,

CLARK, Justice
a 2 We granted certiorari to determine whether the court of appeal erred in
reversing the trial court’s denial of the defendant's exception of res judicata. For the

reasons that follow, we find an unconfirmed arbitration award does not have a

 

2 \} preclusive effect. Accordingly, we reverse the court of appeal’s ruling and remand

CDK

by mee FACTS AND PROCEDURAL HISTORY

the matter to the trial court for proceedings consistent with this holding.

Harold Otis Wright was paralyzed and incapacitated by a medical accident in
1973. Hereceived damages totaling approximately $1.7 million asa result of ensuing
litigation. Wright. United States, 507 F. Supp. 147(E.D. La, 1981). Thereafter, his
wife, Audrey Wright, filed a Petition for Interdiction in the 21" Judicial District
Court. The court declared Mr. Wright an interdict and appointed Mrs. Wright as his
curatrix. In conjunction with the interdiction proceeding, the court issued an order
(“the 1982 order”) which allowed the curatrix to invest the money from the judgment
in long-term bonds. Additionally, the court ordered all interest income be deposited
and channeled through a Custodian Account, with the provision “that no portion of
the interdict’s capital estate be withdrawn from any of the said long range investment
accounts, without further and specific orders of this court.” With permission of the

court, Mrs. Wright established an account with A.G. Edwards & Sons, Inc. (“A.G.

p. crmeccrnenge fe pal ¢ heatatiingy: > Pe fo
Lagos ebgsege gee ~

7 dizeent O14 Gaergne (Wareta

Pyare, Seah ow KEW) Peal

   
Edwards”) through one of its investment bankers, Edwin Reardon, Both Mr, Reardon.
and A.G. Edwards received a certified copy of the court’s order which authorized

disbursement.

 

‘On December 23, 2002, Mrs. Wright filed a Petition for Damages in the 21"
Judicial District Court against several defendants, including Mr. Reardon and A.G.
Edwards, alleging breach of fiduciary and contractual duties, including violations of
securities law. Particularly, Mrs. Wright argued Mr. Reardon misappropriated the
entire $1.7 million and disbursed the principal from the account, thereby violating the
court’s 1982 order. Additionally, Mrs. Wright alleged further violation of the court's
order when Mr. Reardon left A.G. Edwards, went to work for Morgan Stanley Dean
Witter, Inc. (“Morgan Stanley"), and took the remaining principal of the account
($700,000) with him to Morgan Stanley. Also, she contended A.G. Edwards failed
to supervise Mr. Reardon’s management of the account.

In response to the defendants’ Exception of Prematurity and in light of the
arbitration clause in the account agreement, the court issued an order, staying the
action pending arbitration before the National Association of Securities Dealers

(“NASD”). Mrs. Wright consented to the arbitration. While the arbitration was still

 

pending, Mr. Wright died, thereby terminating the interdiction proceeding. Harold
‘Asher was appointed as the decedent's succession representative and was substituted
for Mrs. Wright in the arbitration. On July 31, 2006, the NASD arbitration panel
issued a $150,000 award in favor of the succession against A.G. Edwards.!

On June 18, 2008, Mr. Asher filed a Motion for Contempt of Court against

 

" A.G. Edwards is the only defendent involved in the instant matter. Morgan Stanley was
dismissed with prejudice and Mr. Reardon entered into a stipulated judgment for the amount of
$100,000.
A.G. Edwards under La. Code Civ.P. art. 3611? for violating the 1982 court order.?

  

AG. Edwards filed several exceptions, including an exception of res judicata,
wherein itcontended the NASD arbitration proceeding was between the same parties,
‘based on the same alleged wrongful conduct, and awarded the same damages sought

in the Motion for Contempt of Court. ‘The trial court denied the exception of res

   

Judicata. On July 21, 2010, the Louisiana First Circuit Court of Appeal granted the

 

 

writ, reversing the trial court’s ruling and dismissing Mr. Asher’s claims as res

judicata. Interdiction of Harold Wright, 10-449 (La. App. 1 Cir. 7/22/10).
Particularly, the court of appeal stated:

‘The trial court erred in denying A.G. Edwards and Sons,
Inc.'s Exception of Res Judicata. The arbitration
proceeding was between the same parties, based on the
same alleged wrongful conduct, and awarded the same
damages sought in Harold Asher’s Motion for Contempt
(which we find to be a misnamed petition for damages,
‘given that there was no injunction issued). Therefore, the
arbitration award, albeit unconfirmed, is res judicata and
precludes Mr. Asher’s suit. See Aucoin v. Gauthier, 2010
WL 502793 (La.App. 1" Cir. 2/12/10), writ granted, (La
18/10) _So.3d__. Accordingly, the exception is hereby
granted, dismissing the claims of Harold Asher against
AG. Edwards and Sons, Ine.

 

This court granted Mr. Asher’s writ application for certiorari to determine
whether an arbitration award that is not confirmed in accordance with La, R.S. 9:4209

can havea preclusive effect on subsequent proceedings that involve the same parties,

* Louisiana Code of Civil Procedure Article 3611 provides:

Disobedience of or resistance to a temporary restraining order or preliminary or final
injunetion is punishable as a contempt of court. The court may cause to be undone
or destroyed whatever may be done in violation of an injunction, and the person
‘aggrieved thereby may recover the damages sustained as a result ofthe violation.

 

® Mr. Asher previously filed a Motion for Contempt of Court while arbitration was pending.
AG. Edwards removed the matter to federal court, The plaintiff filed a motion to remand to state
court, where the order was initially issued. The federal district court denied the motion to remand;
hhowever, the United States Court of Appeals for the Fifth Circuit remanded the matter to the 21”
Judicial District Court. Thereafter, Mr. Asher re-urged the Motion for Contempt of Court, which
is relevant to the instant litigation.
are based on the same wrongful conduct, and seek the same damages.‘ Assuming an
unconfirmed award does have a preclusive effect, we then must determine whether
‘Mr. Asher’s Motion for Contempt of Court involves the same parties, wrongful
conduct, and damages as the Petition for Damages, which was the basis for the
arbitration award. Interdiction of Harold Otis Wright, 10-1826 (La. 11/12/10), 49
So.3d 875.
DISCUSSION

Mr. Asher contends the unconfirmed arbitration award in this case cannot have
a res judicata effect because it is not a judgment by a court vested with judicial
power. On the other hand, A.G, Edwards argues the arbitration award, though
unconfirmed, has a preclusive effect and bars the plaintiff's suit because the award
was between the same parties, based on the same conduct, and awarded the same
damages as the instant litigation. For the reasons that follow, we agree with Mr.

Asher’s assertion that res judicata does not apply to an unconfirmed arbitrat

 

award,
Louisiana's res judicata statute is codified in La, RS. 13:4231:

Except as otherwise provided by law, a valid and final judgment
is conclusive between the same parties, except on appeal or other direct
review, to the following extent:

(1) If the judgment is in favor of the plaintiff, all causes of action
existing at the time of final judgment arising out of the transaction or
‘occurrence that is the subject matter of the litigation are extinguished
‘and merged in the judgment.

(2) If the judgment is in favor of the defendant, all causes of action
ing at the time of final judgment arising out of the transaction or
occurrence that is the subject matter of the litigation are extinguished
and the judgment bars a subsequent action on those causes of action.

 

 

 

* La. RS. 9:4209 provides, in pertinent part: “[aJt any time within one year after the
arbitration award is made any party to the arbitration may apply to the court .. . for an order
‘confirming the award and thereupon the court shall grant such an order unless the award is vacated,
‘modified. oF corrected”

 
(3) A judgment in favor of either the plaintiff or the defendant is
conclusive, in any subsequent action between them, with respect to any

issue actually litigated and determined if its determination was essential

to that judgment. (Emphasis added)

‘The statute applies only when there isa “valid and final judgment” between the
parties. Comment (d) to the statute further explains the requirement of a “valid and
final judgment”

To have any preclusive effect a judgment must be valid, that is, it must

have been rendered by a court with jurisdiction over subject matter and

over parties, and proper notice must have been given. ... The use of the

phrase “final judgment” also means that the preclusive effect of a

judgment attaches once a final judgment has been signed by the trial

court. (Emphasis added).

As supported by the language of the comment, an unconfirmed arbitration award is
not a “judgment” and was not “rendered by a court.” As such, it does not qualify as

“valid and final judgment” under the statute and has no res judicata effect.

To illustrate the distinction between an “arbitration award” and a “judgment,”

  

wwe look to the language of the Louisiana Binding Arbitration Law, La, R.S. 9:4209,
which provides, in pertinent part: “at any time within one year after the award is
‘made any party to the arbitration may apply to the court ... for an order confirming
the award.” (emphasis added). Pursuant to La. R.S. 9:4210, a court is required to

vacate an award if certain enumerated events occur.’ Similarly, under La. R.S.9:4211

* La RS. 9:4210 provides:

Inany ofthe following cases the court in and forthe parish wherein the award
was made shal issue an order vacating the award upon the application of any party
to the arbitration,

 

‘A, Where the award was procured by corruption, fraud, or undue means.

B. Where there was evident partiality or corruption on the part ofthe arbitrators oF
any of them.

C. Where the arbitrators were guilty of misconduct in refusing to postpone the
heating, upon sufficient cause shown, or in refusing to hear evidence pertinent and
‘material to the controversy, or of any other misbehavior by which the rights of any
party have been prejudiced.

 
‘a court can modify or correct an arbitration award for reasons listed in the statute.®
Because awards are subject to court-ordered vacation or modification, arbitration
awards are clearly not “valid and final judgments” unless and until they have been
confirmed,

La. R.S. 9:4212 even contrasts the two terms: “Upon the granting of an order

confirming, modifying, or correcting an award, judgment may be entered

 

conformity therewith in the court wherein the order was granted.” (emphasis added).
La. RS. 9:4214 provides the procedure for converting the award to a judgment and
states, “{tJhe judgment so entered shall have the same force and effect... as a
Judgment in an action, and it may be enforced as ifit had been rendered in an action
in the court in which itis entered.” Indeed, ifthe legislature intended unconfirmed
awards to have preclusive effects, there would be no reason to include a procedure
for confirming awards. By enacting La. R.S. 9:4209, er seq., the legislature intended
for parties to seek judicial confirmation before an arbitration award would become
a legally enforceable judgment.

. Where the arbitrators exceeded their powers or so imperfectly executed them that
‘mutual, final, and definite award upon the subject matter submitted was not made,

* La. RS. 9:4211 provides:

Inany of te following cases the court in and forthe parish wherein the award
‘was made shall issue an order modifying or correcting the award upon the application
‘of any party tothe arbitration

A. Where there was an evident material miscalculation of figures or an evident
‘material mistake inthe description of any person, thing or property referred to inthe
award.

 

'B. Where the arbitrators have awarded upon a matter not submitted to them unless
it isa matter not affecting the merits of the decision upon the matters submitted.

C. Where the award is imperfect in matter of form not affecting the merits of the controversy.

‘The order shall modify and correct the award so as to effect the inten thereof
and promote justice between the parties.
 

Werrecently confirmed this interpretation by way of jurisprudence in FIA Card
Services, NA v. Weaver, 10-1372, p. 5. (La. 3/15/11), 62 $0.3d 709, 712 when we
held “[floran arbitral award to be made enforceable by law, it must first be confirmed
by a court.” In that case, we rejected the argument that the failure to timely file a
motion to vacate an award necessitates a court’s confirmation of the orderas a purely
ministerial act. Rather, we held a court is obligated to first satisfy itself that a valid
arbitration agreement was in existence. This holding stands for the proposition that
a court’s confirmation of an award is more than a rubber-stamping task. Thus, a
judgment is required in order to give an arbitration award legal effect. See also
‘MeCarty v. Zacharie, 11 La. Ann.474 (1856), wherein the court held the parties were
not bound by the arbitration award because it was never confirmed.

Moreover, the applicability of the res judicata statute presupposes the
judgment was rendered by a court with constitutional authority. The Louisiana
Constitution of 1974 vests judicial authority solely in the hands of the “supreme
court, courts of appeal, district courts, and other courts authorized by this Article.”
La. Const. Art. V, § 1. The power to issue legally binding judgments cannot be
delegated to non-judicial personnel. See State v. O'Reilly, 00-2684 (La. 5/15/01), 785
So.2d 768 (striking down a statute which delegated judicial power to unelected
commissioners). Our Constitution mandates independent judicial review before an
arbitrator's award can serve as the ground for a judgment. Ifan arbitration award is
afforded immediateres judicata effect, the arbitrator is essentially acting asan Article
‘V tribunal insofar as his award will have the immediate effect of a judgment. As
mentioned above, the law prohibits this type of unauthorized exercise of power.

In Wooley v. State Farm Fire and Casualty Ins. Co., 04-882, p. 36 (La.

1/19/05), 893 So.2d 746, 771, this court held that an order of an administrative law
Judge is “not a valid and final judgment for purposes of res judicata.” We also held
that the “valid and final judgment” requirement of the res judicata statute assumes
“that the judgment at issue was one wherein judicial power was exercised by an
Article V tribunal.” Id. By analogy, ifthe ruling ofan administrative law judge, who

is appointed by the executive brancl

 

not a “final and valid” judgment, neither is
the decision of an arbitrator.

Because we held that an unconfirmed arbitration award does not have a

 

preclusive effect, itis unnecessary for us to address whether the Motion for Contempt,
of Court sought the same relief as the Petition for Damages. Thus, we pretermit
discussion of this issue.
DECREE
For the reasons stated herein, the ruling of the court of appeal is reversed and
the trial court ruling that denied the exception of res judicata is reinstated. The

matter is remanded for further proceedings in accordance with this decision.

REVERSED AND REMANDED.
oN

SUPREME COURT OF LOUISIANA

No. 2010-CC-1826 Oct 25 zon

INTERDICTION OF HAROLD OTIS WRIGHT

(ON SUPERVISORY WRITS TO THE TWENTY-FIRST JUDICIAL
DISTRICT COURT, PARISH OF TANGIPAHOA

WEIMER, J., concurring in part and dissenting in part.

‘This case involves two issues: (1) whether the arbitration award at issue in this
case, which was not confirmed in accordance with La. RS. 9:4209, can have
preclusive effect in a subsequent proceeding; and (2) whether that unconfirmed
arbitration award is entitled to preclusive effect as to a subsequent petition for
damages and/or a motion for contempt.

Asto the first issue, I respectfully disagree with the majority's conclusion that
the award at issue cannot be accorded preclusive effect. There are two facts that I
find to be dispositive in this regard. First, the matter was submitted to arbitration
because the parties entered into a “Uniform Submission Agreement,” in which they
agreed to be bound by the decision of the arbitrators. This submission’ or contractual
agreement to be bound by the decision of the arbitrators, is effectively a compromise,
or “acontract whereby the parties, through concessions made by one or more of them,
settlea dispute or an uncertainty concerning an obligation or other legal relationship.”
La, CC. art, 3071. A compromise is entitled to preclusive effect in a subsequent

action between the same parties. La. C.C. art. 3080 (“A compromise precludes the

 

* submission is defined by La. C.C. art. 3099 as “a covenant by which persons who have a lawsuit
‘or difference with one another, name arbitrators to decide the matter and bind themselves
‘reciprocally to perform what shall be arbitrated.” A submission, therefore, hasall the characteristics
‘of a compromise,

 
parties from bringing a subsequent action based upon the matter that was

compromised”).

 

Second, following the decision of the arbitrators, the defendant tendered, and
the plaintiff accepted, the $150,000 awarded in the arbitration proceeding. Under the
law, confirmation of an arbitration award is not mandatory; rather, confirmation is
necessary only for purposes of execution. La. C.C. art. 3129 (“The award in order to

be put in execution, ought to be approved by the judge; but this formality is only

  

intended to invest the award with a sufficient authority to ensure its execution ..."
In this case, because the plaintiff accepted the proceeds of the award, there was no
reason fora confirmation proceeding. The plaintiff, by agreeing tothe arbitration and
accepting the benefits of same, effectively compromised the claim, and that
compromise can, and should be, accorded preclusive effect in this proceeding,

While I disagree with the majority’s conclusion that the arbitration award
cannot have preclusive effect with respect to the petition for damages filed in district
court, I do agree that the award does not have preclusive effect as to the separate
‘motion for contempt.

A contempt proceeding is not directly designed for the benefit of one or more
of the litigants; rather, its object and purpose is to vindicate the authority and
maintain the dignity of the court itself. Billiot v. Billiot, 01-1298, pp. 8-9 (La.

1/25/02), 805 So.2d 1170, 1176, citing State ex rel. Duffy & Behan v.

 

vil Dist.
Ct. for Parish of Orleans, 112 La. 182, 36 So. 315 (1904). Therefore, I do not
believe the parties, by arbitration, can deprive a court of its authority to enforce its
own orders and to punish for the violation thereof through contempt proceedings.

‘The violation of a court order is a matter between the court and the party in violation
of that order. It is not a matter between the parties and, thus, not a matter that falls
under the agreement to arbitrate,

With the foregoing being said, while I believe the motion for contempt remains
viable in this case, I also believe the district court is limited to the remedies afforded
inLa. R.S. 13:4611 in punishing that contempt. The order issued by the district court
was not an injunction; therefore, the penalties imposed under La. C.C.P. art. 3611 are

not available.
SUPREME COURT OF LOUISIANA
NO. 2010-CC-1826 OCT 25 zor
INTERDICTION OF HAROLD OTIS WRIGHT

IN SUPERVISORY WRITS TO THE TWENTY-FIRST JUDICIAL
DISTRICT COURT, PARISH OF TANGIPAHOA,

JOHNSON, J., dissents and assigns reasons

This case has had a long and tortuous history. It began in April 1973 when
Harold Wright, complaining of having a sore throat, visited his physician, who
diagnosed the cause as tonsillitis or strep throat. Mr. Wright suffered an allegeric
reaction to the penicillin prescribed, and eventually became a spastic quadriplegic,
suffering total and permanent disability. In the resulting litigation, he received a
judgment of approximately $1.7 million

In the Petition for Interdiction which was filed in the 21" Judicial District
Court, the court declared Mr. Wright an interdict, and appointed his wife, Audrey
Wright, as his curatrix. The court allowed Mrs. Wright (o invest the proceeds from
the $1.7 million with A.G, Edwards & Sons, Ine. (“A. G. Edwards”) through one of
its investment bankers, Edwin Reardon. Ultimately, Mrs. Wright filed a Petition for
Damages against Edwin Reardon, A.G. Edwards, and several other defendants
including Morgan Stanley Dean Witter, alleging breach of fiduciary and contractual
duties, including violations of federal and state securities law.

‘What is important to note for purposes of resolving this issue, is thatthe district
court issued an order on September 25, 2003, staying the action against defendants,

pending arbitration before the National Association of Securities Dealers, Inc.
("NASD"). Mrs. Wright in fact signed the NASD Arbitration Uniform Submission
Agreement, consenting to arbitration.

On July 26, 2005, Harold Wright died, which terminated the interdiction
proceeding. Shortly thereafter, Harold Asher (“Asher”) was appointed as the

Succession representative, Asher entered into a Stipulated Judgment in the

underlyi

 

litigation, which dismissed Edwin Reardon, who admitted to mismanaging
the Interdict’s funds. On July 31, 2006, the NASD arbitration panel held that A.G.
Edwards was liable for compensatory damages in the amount of $150,000, which was
Paid by A.G. Edwards and accepted by Asher. The First Circuit Court of Appeal, in
Interdiction of Harold Wright, 10-449 (La. App. | Cir. 7/22/10), reversed the district
court and dismissed Asher’s remaining claims against A. G. Edwards as res judicata,
stating

The trial court erred in denying A. G. Edwards and Sons, Inc's
Exception of Res Judicata. The arbitration proceeding was between the
‘same parties, based on the same alleged wrongful conduct, and awarded
the same damages sought in Harold Asher’s Motion for Contempt
(which we find to be a misnamed petition for damages, given that there
was no injunction issue). Therefore, the arbitration award, albeit
‘uncon firmed, is res judicata and precludes Mr. Asher's suit. See Aucoin
¥. Gauthier, 2010 WL 502793 (La. App. Ist Cir. 2/12/10), writ granted,
(La. 6/18/10). _So.2d___. [sic] Accordingly, the exception is hereby
granted, dismissing the claims of Harold Asher against A. G. Edwards
and Sons, Ine

 

 

 

Lagree with the court of appeal

LSA-RS. 9:4209 allows, but does not require, confirmation of an arbitration
award. The statute provides "any party may apply to the court" to vacate, modify, or
correct an arbitration award. The term “may” is permissive, not mandatory. Had the
legislature intended to make it mandatory to confirm an arbitration award before it
could be given preclusive effect, it would have used the term “shall” instead of

may.”
 

Inthe case sub judice, neither party filed a motion to vacate, modify, or correct

the award within the prescribed time limits.

 

ince both Mrs. Wright, as curatrix, and

A.G. Edwards agreed contractually to arbitrate th

 

dispute, and agreed to be bound
by the arbitration award, the arbitration is final and binding on the parties.
Louisiana's doctrine of res judicata, as defined by LSA-R.S. 13:4231, is
intended (o increase judicial efficiency, and to protect the defendants against the
unnecessary burdens of litigation arising from repeated lawsuits. Terrebonne Fuel &

Lube, In

 

"Placid Refining Co., 1995-0671 (La. 1/16/96), 666 So.2d 624. Under
“issue preclusion”, resolution of an issue of fact or law essential to determination of
the dispute precludes re-litigation of the same issue in a different action between the
‘same parties. In my view, an unconfirmed arbitration award may have preclusive

effect in a subsequent proceeding involving the same parties, based on the same

 

Wrongful conduct, and seeking the same damages, especially where, as here, the
petitioner has accepted payment of the monies awarded in the arbitration process,

thereby acquiescing in the award,
OCT 25 a,
SUPREME COURT OF LOUISIANA

No. 2010-CC-1826
INTERDICTION OF HAROLD OTIS WRIGHT

‘ON SUPERVISORY WRITS TO THE TWENTY-FIRST JUDICIAL
DISTRICT COURT, PARISH OF TANGIPAHOA

dissents with reasons.

 

GGG The panties agreed to arbitration, the matter was submitted to arbitration,

and a.$1.50,000 award was issued in favor of the succession and against A.G.
Edwards, The arbitrator's decision was honored by the parties and the amount
awarded was tendered by A.G. Edwards and accepted by the succession, The
issues resolved through arbitration and accepted by the succession were final
between the parties.

‘The requirement of confirmation is necessary only for the purposes of
execution of the judgment. La, C.C. art, 3129. This requirement is primarily
intended to protect the creditor and is not necessary for the decision to have
reclusive effect between the parties, especially here where there are no grounds
alleged (o vacate the award. The Motion for Contempt clearly involves the same
parties and conduct and secks the same damages.

therefore, | betieve that the award does have preclusive eflect between the
parties. In any event, on remand, when A. G. Edwards’ other exceptions are
considered, the unconfirmed arbitration award will support the dismissal of the

plaintift’s petition.