1998 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

8-10-1998

John Hancock Insur. Co. v. Olick

Precedential or Non-Precedential:

Docket 97-1956

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Recommended Citation

"John Hancock Insur. Co. v. Olick" (1998). 1998 Decisions. Paper 189.

http://digitalcommons.law.villanova.edu/thirdcircuit_1998/189
Filed August 10, 1998 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

No. 97-1956 

JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY; 

JOHN HANCOCK DISTR; LARRY CARTER 

 Appellants 

v. 

THOMAS W. OLICK 

Appeal from the United States District Court 

for the Eastern District of Pennsylvania 

(D.C. No. 96-cv-04460) 

Submitted Under Third Circuit LAR 34.1(a) 

June 4, 1998 

Before: SCIRICA, NYGAARD and SEITZ, Circuit Ju dges. 

Filed: August 10, 1998 

 Edward C. Mengel, Jr., Esquire 

 Jane O. McCahill, Esquire 

 White & Williams 

 1800 One Liberty Place 

 Philadelphia, PA 19103-7395 

 Attorneys for Appellants 
 Thomas W. Olick, Pro se 

 4014 Crestview Avenue 

 Easton, PA 18045 

OPINION OF THE COURT 

SEITZ, Circuit Judge. 

This appeal presents the question of whether, under the 

Federal Arbitration Act, 9 U.S.C. SS 1-16 ("the FAA" or "the 

Act"), a district court has the authority, notwithstanding a 

valid arbitration clause, to enjoin a party from pursuing 

arbitration on res judicata grounds arising from both a 

prior arbitration and a prior judgment. The district court 

exercised diversity jurisdiction pursuant to 28 U.S.C. 

S 1332 as well as federal question jurisdiction under 28 

U.S.C. S 1331 based on the alleged violations of the 

securities laws. Because the issues raised in the context of 

this appeal are purely legal, our standard of review is 

plenary. See Smith v. Magras, 124 F.3d 457, 460-61 (3d 

Cir. 1997). 

I. Facts and Procedural History 

On October 13, 1992, John J. Carroll and others sued 

John Hancock Distributors, Inc. ("Hancock") and eighteen 

other defendants in Carroll v. Hancock, 92-cv-5907 (E.D. 

Pa. 1995). The complaint primarily alleged violations of 

several federal and state statutes, along with various 

common law fraud theories, in connection with a series of 

limited partnership transactions. Thomas Olick ("Olick"), a 

former employee of Hancock and a registered life insurance 

agent, was a named defendant in the Carroll action. Olick 

attempted to assert a cross-claim against Hancock in the 

Carroll litigation, but the district court denied the claim in 

its entirety. The case was closed on November 30, 1994. 

During the pendency of that litigation, Olick filed, on 

December 2, 1992, a Statement of Claim with the National 

Association of Securities Dealers ("NASD") against Hancock, 

demanding the arbitration of disputes relating to certain 

limited partnership transactions -- the same transactions, 

 2 
according to Hancock, that were the subject of the Carroll 

action. The NASD, on February 28, 1995, issued an 

arbitration award in favor of Olick and denied a number of 

third party claims asserted by Hancock. The record does 

not show that Hancock objected to the 1992 NASD 

arbitration based on the existence of the then pending 

Carroll litigation. 

On May 4, 1996, after the conclusion of both the Carroll 

case and the 1992 NASD arbitration, Olick filed with the 

NASD another Statement of Claim against Hancock seeking 

the arbitration of claims sounding in fraud, 

misrepresentation, tortious interference with business 

relations, slander, libel, and RICO violations. In response, 

Hancock moved the arbitration panel to dismiss this claim 

based on the res judicata effect of the prior 1992 

arbitration award and the judgment rendered in the Carroll 

action. Hancock in particular argued that Olick's 1996 

Statement of Claim arose from the same factual 

circumstances as the previous arbitration in 1992 as well 

as the prior federal judgment, and therefore principles of 

res judicata barred Olick from raising a claim that could 

have been raised at either the prior arbitration proceeding 

or the Carroll litigation. The arbitration panel, on February 

11, 1997, denied Hancock's motion to dismiss without a 

hearing or a discussion of the merits. So far as we are 

aware, that proceeding is still pending. 

Before the arbitration panel had denied Hancock's motion 

to dismiss the second arbitration, Hancock filed a 

complaint in the district court seeking a declaration that 

the claims raised by Olick in the 1996 arbitration were 

barred on res judicata grounds. Hancock also filed in the 

district court a motion seeking to preliminarily enjoin the 

NASD from further proceedings in resolution of the 1996 

arbitration. The district court, however, denied Hancock's 

motion and dismissed its complaint, holding that under the 

Federal Arbitration Act the arbitrator, and not the court, 

decides preclusion issues. While the district court noted 

what was, in its view, an absence of third circuit case law 

directly on point, it found persuasive a line of cases holding 

that courts are not to rule on the validity of various 

defenses to arbitration. See Conticommodity Services, Inc. v. 

 3 
Philipp & Lion, 613 F.2d 1222, 1223 (2d Cir. 1980) 

(timeliness of demand decided by arbitrator); North River 

Ins. Co. v. Allstate Ins. Co., 866 F. Supp. 123, 129 (S.D.N.Y. 

1994) (res judicata decided by arbitrator). 

In its order denying Hancock's motion for 

reconsideration, the district court declined to apply case 

law holding that courts, and not arbitrators, are to decide 

res judicata issues stemming from a prior judgment 

rendered by federal court. The district court found those 

cases distinguishable because they failed to address what it 

viewed as the "hybrid" situation raised -- namely, "whether 

an arbitrator or a federal court should determine the res 

judicata effect of both a prior arbitration and a prior federal 

court decision on an arbitration claim." D. Ct. Order, Nov. 

11, 1997, at 2 (emphasis in original). Hancock now appeals 

the district court's dismissal of its complaint and the denial 

of its motion for a preliminary injunction. 

II. Appellate Jurisdiction 

As a preliminary matter, Olick contests this court's 

jurisdiction to entertain this appeal. Section 16 of the FAA 

governs the appealability of district orders with respect to 

arbitration and provides: 

 (a) An appeal may be taken from-- 

 (1) an order-- 

 (A) refusing a stay of any action under sectio n 3 of 

 this title, 

 (B) denying a petition under section 4 of this title to 

 order arbitration to proceed, 

 (C) denying an application under section 206 o f this 

 title to compel arbitration, 

 (D) confirming or denying confirmation of an award 

 or partial award, or 

 (E) modifying, correcting, or vacating an award; 

 (2) an interlocutory order granting, continuing, or 

 modifying an injunction against an arbitration 

 that is subject to this title; or 

 4 
 (3) a final decision with respect to an arbitrat ion that 

 is subject to this title. 

9 U.S.C. S 16(a). While identifying the district court orders 

with respect to arbitration that are the subject of immediate 

appeal, the Act affirmatively removes appellate jurisdiction 

to review certain types of "interlocutory" orders: 

 (b) Except as otherwise provided in section 1292(b ) of 

 title 28, an appeal may not be taken from an

 interlocutory order-- 

 (1) granting a stay of any action under section 3 of 

 this title; 

 (2) directing arbitration to proceed under section 4 of 

 this title; 

 (3) compelling arbitration under section 206 of th is 

 title; or 

 (4) refusing to enjoin an arbitration that is subj ect to 

 this title. 

9 U.S.C. S 16(b). The general approach to appellate

jurisdiction as set forth in the FAA is constrained; the Act 

typically precludes appellate review of orders allowing 

arbitration "until after the arbitration process has gone 

forward." Stedor Enterprises, Ltd. v. Armtex, Inc., 947 F.2d 

727, 730 (4th Cir. 1991); see also David D. Siegal, Practice 

Commentary, 9 U.S.C.A. S 16, at 352 (West Supp. 1997). 

Nevertheless, the FAA specifically states that any"final 

decision with respect to an arbitration," is immediately 

appealable, 9 U.S.C. S 16(a)(3), regardless of whether that 

decision allows the arbitration process to go forward. See 

Siegal, supra, at 352. Thus, the answer to the immediate 

question in considering our appellate jurisdiction critically 

turns on whether the district court orders were"final" or 

"interlocutory," and consequently subject to the 

jurisdictional hurdles set forth in section 16(b). See 

American Cas. Co. of Reading v. L-J, Inc., 35 F.3d 133, 136 

(4th Cir. 1996). 

Congress did not define a "final decision" for purposes of 

this section, and therefore we look to the prior, settled, 

usage of that term. A final decision, as that term is 

 5 
commonly understood for purposes of appellate 

jurisdiction, refers to an order that "ends the litigation on 

the merits and leaves nothing for the court to do but 

execute the judgment." Oritz v. Doge, 126 F.3d 545, 547 (3d 

Cir. 1997) (quoting Catlin v. United States, 324 U.S. 229, 

233 (1945)). Within the context of orders relating to 

arbitration, the decisive issue is "whether arbitrability was 

the sole issue presented in the action or whether the issue 

of arbitrability originated as part of an action raising other 

claims for relief." American Cas., 35 F.3d at 136; see also 

F.C. Schaffer & Assoc. v. Demech Contractors, Ltd. , 101 

F.3d 40, 41 (5th Cir. 1996). If the arbitration issue arises 

in what is known as an "embedded proceeding"-- that is, 

embedded in some broader context raising issues or claims 

for relief outside the arbitration context -- then the district 

court order addressing arbitration cannot be considered a 

final order subject to immediate appeal under section 

16(a)(3) and the appellant must search for another avenue 

of appellate jurisdiction under section 16(a). See Siegal, 

supra, at 352. Conversely, an appeal from an "independent 

proceeding" raising solely arbitration issues with no other 

claims for relief falls under section 16(a)(3) as an appeal 

from a final order because the litigation before the district 

has effectively ended on the merits. Id. at 352-53. It 

matters not whether the district court decision favors 

arbitration or litigation. Id. 

In this case, Hancock sought both legal and injunctive 

avenues for relief: a judgment declaring Olick barred from 

arbitration under the doctrine of res judicata, and an 

injunction halting the NASD from entertaining Olick's 

demand for arbitration. At first blush, it may be argued, as 

Olick seems to do, that Hancock's motion for a preliminary 

injunction is embedded within the broader complaint

seeking a declaratory judgment, and hence the district 

court's denial of that injunction is not appealable under 

section 16(a)(3) or section 16(b)(4). Yet, there was only one 

issue before the district court, and that was whether Olick 

might properly seek arbitration of his claims against 

Hancock. When the district court decided that single issue 

in favor of arbitration, the litigation effectively ended, 

leaving nothing for the district court to do but enter 

judgment. Accordingly, this independent proceeding before 

 6 
the district concluded in a final order and is therefore 

appealable under 9 U.S.C. S 16(a)(3). 

III. The Federal Arbitration Act 

Having established our jurisdiction, we now turn to the 

merits of this appeal. Because this case raises questions 

about the scope of the duty to honor an arbitration

agreement, our analysis must begin with the Federal

Arbitration Act. The FAA federalizes arbitration law and 

"creates a body of federal substantive law establishing and 

regulating the duty to honor an agreement to arbitrate 

. . . ." Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 

460 U.S. 1, 25 n. 32 (1983). The operative language in the 

Act, as provided in section two, states that: 

 A written provision in any maritime transaction or a 

 contract evidencing a transaction involving commerce 

 to settle by arbitration a controversy thereafter arising 

 out of such contract or transaction, or the refusal to 

 perform the whole or any part thereof, or an agreement 

 in writing to submit to arbitration an existing 

 controversy arising out of such a contract, transaction, 

 or refusal, shall be valid, irrevocable, and enforceable, 

 save upon such grounds as exist at law or in equity for 

 the revocation of any contract. 

9 U.S.C. S 2. The parties agree that the arbitration 

agreement at issue falls within the ambit of the FAA. 

Because the FAA enforces arbitration agreements as a 

matter of federal law, the statute authorizes district court 

involvement in the arbitration process primarily in two 

ways. See Local 103 of the Int'l Union of Elec., Radio and 

Mach. Workers v. RCA Corp., 516 F.2d 1336, 1339 (3d Cir. 

1975). One such function of the court arises when a party 

resists arbitration under an existing arbitration clause. In 

this case, the FAA allows a district court to compel, or 

enjoin, arbitration as the circumstances may dictate. See 9 

U.S.C. SS 3, 4; Painewebber v. Hartmann , 921 F.2d 507, 

511 (3d Cir. 1990). The other basis of court involvement is 

found when enforcement of an arbitration award is sought. 

Here, the statute authorizes the district court to confirm, 

 7 
vacate, or modify the award under a narrow scope of

judicial review. 9 U.S.C. SS 9-11. 

Beyond these two areas, the statute does not authorize 

court involvement in enforcing arbitration and we have 

consistently admonished the courts "to exercise the utmost 

restraint and to tread gingerly before intruding upon the 

arbitral process." Lewis v. American Fed'n of State, County 

and Municipal Employees, 407 F.2d 1185, 1191 (3d Cir. 

1969); see also Local 103 of the Int'l Union of Elec., Radio 

and Mach. Workers v. RCA Corp., 516 F.2d 1336, 1339 (3d 

Cir. 1975). There is, of course, good reason for this 

restrained approach. Arbitration is, above all, a matter of 

contract and courts must respect the parties' bargained-for 

method of dispute resolution. See Local 1545, United Mine 

Workers Of Am., 876 F.2d 1288, 1293 (7th Cir. 1989). 

Indeed, arbitration most often arises in areas where courts 

are at a significant experiential disadvantage and 

arbitrators, who understand the "language and workings of 

the shop," may best serve the interest of the parties. See 

United Steelworkers of Am. v. Enterprise Wheel and Car 

Corp., 363 U.S. 593, 596 (1960); RCA Corp. , 516 F.2d at 

1340. Thus, there is a strong policy in favor of arbitration 

and courts must resist the attempt to intrude upon 

arbitration proceedings where the statute does not explicitly 

authorize court involvement. 

Turning to the district court's authority to enjoin

arbitration, which is the heart of this dispute, we again 

explore the nature of the district court's involvement in the 

arbitration process. Here, the FAA states that a court may 

issue an order compelling arbitration only "upon being 

satisfied that the making of the agreement for arbitration or 

the failure to comply therewith is not in issue." 9 U.S.C. 

S 4. Starting with the familiar proposition that arbitration is 

a creature of contract, courts have long since drawn the 

conclusion that, as a matter of contract, no party can be 

forced to arbitrate an issue unless that party has entered 

into an agreement to do so. See AT&T Technologies v. 

Communication Workers of Am., 475 U.S. 643, 648 (1986). 

Because the competence of an arbitrator stems exclusively 

from contract, a district court may only order, or enjoin, 

arbitration based on the agreement to arbitrate itself. Id. 

 8 
This includes, as a matter of course, an exploration into 

whether the parties entered into a valid arbitration 

agreement in the first instance, and whether the specific 

dispute raised falls within the scope of that agreement. See 

In re Prudential Ins. Co. of Am. Sales Practice Litig., 133 

F.3d 225, 228 (3d Cir. 1998). 

Thus, the threshold questions a district court must

answer before compelling or enjoining arbitration are these: 

(1) Did the parties seeking or resisting arbitration enter into 

a valid arbitration agreement? (2) Does the dispute between 

those parties fall within the language of the arbitration 

agreement? See In re Prudential, 133 F.3d at 128, 133; 

Painewebber, 921 F.2d at 511. Absent a compelling federal 

policy to the contrary, see Shearson/American Express Inc. 

v. McMahon, 482 U.S. 220 (1989), the sina qua non of 

arbitrability is simply stated: that a valid arbitration exists 

and the dispute falls within the contours of that agreement. 

In re Prudential, 133 F.3d at 128. As we have previously 

concluded, district courts need only "engage in a limited 

review to ensure that the dispute is arbitrable-- i.e., that 

a valid agreement to arbitrate exists between the parties 

and that the specific dispute falls within the substantive 

scope of that agreement." Painewebber, 921 F.2d at 511. In 

conducting this limited review, the court must apply 

ordinary contractual principles, with a healthy regard for 

the strong federal policy in favor of arbitration. Moses H. 

Cone, 460 U.S. at 24; In re Prudential, 133 F.3d at 128. 

A. The Res Judicata Dispute Between the Parties 

As the district court recognized, this case presents 

somewhat of a "hybrid" situation in that Hancock's 

objection to arbitrating Olick's claims stems from both a 

prior arbitration and a prior federal judgment. Apparently, 

no case to date has addressed this precise factual complex, 

and we will analyze each component of Hancock's position 

in turn. 

1. Res Judicata Based on a Prior Federal Judgment 

Notwithstanding the analysis discussed above, many 

federal courts have held as a matter of law that claims of 

 9 
res judicata based on a prior federal judgment must be 

decided by the district court before compelling or enjoining 

arbitration. See, e.g., In re Y&A Group Sec. Litig., 38 F.3d 

380, 382 (8th Cir. 1994); Kelly v. Merrill Lynch, Pierce, 

Fenner & Smith, Inc., 985 F.2d 1067, 1069 (11th Cir. 1993); 

Miller Brewing Co. v. Forth Worth Distrib. Co., 781 F.2d 794, 

499 (5th Cir. 1986); see also Miller v. Runyon , 77 F.3d 189, 

194 (7th Cir. 1996) (collecting other cases). These courts 

typically reason that federal courts must protect the finality 

and integrity of prior judgments. See Kelly, 985 F.2d at 

1069; In re Y&A, 38 F.3d at 382. As succinctly stated by 

the Eleventh Circuit Court of Appeals, federal "[c]ourts 

should not have to stand by while parties re-assert claims 

that have already been resolved." Kelly, 985 F.2d at 1069. 

Because the FAA contemplates that an arbitration award 

may be enforced by judgment, see 9 U.S.C.S 9, these

courts would allow a district court to enjoin arbitration if 

the claim would be precluded under ordinary rules of res 

judicata. Miller Brewing Co., 781 F.2d at 499. 

Not all courts, however, have been persuaded by such 

logic. Most notably, the Second Circuit Court of Appeals 

has held that a collateral estoppel defense to arbitration 

based on a prior federal judgment should be decided by an 

arbitrator because it is a merit-based defense to arbitration. 

See United States Fire Ins. Co. v. National Gypsum Co., 101 

F.3d 813, 817 (2d Cir. 1996). Whether such a defense is 

itself arbitrable, like any other ambiguity in the scope of 

arbitration, must stem from the language of the arbitration 

agreement itself because arbitration is a matter of contract 

and a "defense based on the issue preclusive effect of the 

prior judgment is part of the dispute on the merits." Id. 

Thus, the court reasoned, unless it may be said"with 

positive assurance" that the parties intended to place the 

collateral estoppel issue with a court, the viability of that 

affirmative defense must be decided by an arbitrator. Id. 

These competing considerations present the court with a 

high order challenge. On the one hand, a realistic concern 

for the finality and integrity of judgments would arise if 

parties were free to ignore federal court decisions that have 

conclusively settled claims or issues now sought to be 

arbitrated. Yet, arbitration is a matter of contract and the 

 10 
FAA only authorizes a "limited review" of the parties' intent 

before compelling or enjoining arbitration. See 

Painewebber, 921 F.2d at 511. The issue is thoughtfully 

discussed in Miller v. Runyon, 77 F.3d 189, 193-94 (7th Cir. 

1996), but that court fell short of providing a 

comprehensive answer. In the final analysis, we conclude 

that a decent respect for a precedent of this court dictates 

that we resolve the issue in favor of district court 

jurisdiction to decide the res judicata defense as it relates 

to a prior judgment. Thus, we stated in Telephone Workers 

Union of New Jersey v. New Jersey Bell Tel. Co., 584 F.2d 

31 (3d Cir. 1978): 

 The district court did not reach the merits of the 

 Board of Arbitrators' interpretation of the Collective 

 Bargaining Agreement. It turned, first, to the judgment 

 preclusion effect of the Consent Decree. This was the 

 proper course. When a federal court is presented with 

 the contention that a prior federal judgment

 determined issues now sought to be relitigated in an 

 arbitral forum it must first determine the effect of the 

 judgment. This is so whether the question arises in an 

 action to compel arbitration or, as here, in an action to 

 enforce a disputed award. The federal policy favoring 

 forum selection clauses, based in part on the 

 institutional interest of federal courts in avoiding 

 litigation, does not come into play until the courtfirst 

 determines whether prior completed litigation has 

 already finally determined all issues. 

Id. at 32-33 (citation omitted). In that case, an aggrieved 

employee sought arbitration of a matter that had been 

conclusively settled by a consent decree entered by a 

federal district court. Arbitration had in fact rendered a 

result that conflicted with the consent decree and the 

district court, in considering a motion to enforce the 

arbitrator's award, turned first to the issue preclusive effect 

of the consent decree. We affirmed on the principle that a 

district court must first determine the effect of a prior 

federal judgment when faced with the possibility of

relitigating issues already settled by that judgment. 

Moreover, we explicitly stated that this was the correct 

course regardless of whether parties seek to compel

arbitration or confirm a disputed award. 

 11 
The district court did not apply our analysis in New 

Jersey Bell to this case because of the unique"hybrid" res 

judicata objection raised by Hancock -- "hybrid" in the 

sense that Hancock's claim of preclusion stems from both 

a prior judgment and a prior arbitration. We find no 

principled reason underlying this distinction. When a party 

resisting arbitration bases its claim of res judicata not only 

on a prior judgment but also on the existence of a prior 

arbitration, the analysis must focus on each aspect of the 

claim; hybrid facts do not call for a hybrid analysis. To be 

sure, there may be a number of factual grounds to 

distinguish our holding in New Jersey Bell, but the legal 

principle announced in that case directly controls the issue 

presented before the district court -- in particular, whether 

an arbitrator or a court must decide the preclusive effect of 

a prior federal judgment. Given the broadly worded 

language in that case, many courts have read New Jersey 

Bell, as do we, for the proposition the federal courts must 

intervene in the arbitration process when faced with res 

judicata objections stemming from a prior federal judgment. 

See Aircraft Braking Systems Corp. v. Local 856, Int'l Union, 

United Auto., Aerospace and Agric. Implement Workers , 97 

F.3d 155, 159 (6th Cir. 1996); John Morrell & Co. v. Local 

Union 304a of the United Food and Commercial Workers , 

913 F.2d 544, 562 (8th Cir. 1990); American Trade 

Dispatchers Assoc. v. Burlington N. R.R., 784 F. Supp. 899, 

903 (D.D.C. 1992). Thus, whether we honor our internal 

operating procedure governing the application of this 

court's precedent, see 3d Cir. IOP Chapter 9.1. ("[T]he 

holding of a panel in a reported opinion is binding on 

subsequent panels.") (emphasis added), or apply the

pertinent language in New Jersey Bell, we conclude that 

the district court in this case should have first decided the 

preclusive effect of the prior federal judgment as it relates 

to Olick's demand for arbitration before the NASD. 

2. Res Judicata Based on the Prior Arbitration 

The question remains, however, whether the district

court, under the FAA, may consider the preclusive effect of 

the prior NASD arbitration as a basis for enjoining the 

current NASD proceeding. We now turn to that issue.

 12 
As stated above, the judicial inquiry before compelling or 

enjoining arbitration is narrow, and the FAA authorizes the 

district court to explore only two threshold questions in 

considering a demand for arbitration: (1) Did the parties 

seeking or resisting arbitration enter into a valid arbitration 

agreement? (2) Does the dispute between those parties fall 

within the language of the arbitration agreement? See In re 

Prudential, 133 F.3d at 128, 133; Painewebber, 921 F.2d at 

511. While we have previously held that claims of res 

judicata based on a prior federal judgment are an 

exception, see Telephone Workers Union of New Jersey v. 

New Jersey Bell Tel., 584 F.2d 31-32 (3d Cir. 1978), res 

judicata objections based on a prior arbitration do not 

implicate the institutional concerns underlying that 

holding. Therefore, the proper analytical inquiry mandated 

under the FAA is to focus on both the existence of a valid 

arbitration agreement and the nature of that agreement as 

it relates to the parties' current dispute. 

We have previously held, for example, that where there is 

a contractual provision barring the re-arbitration of similar 

disputes between parties, the arbitrator is to decide the 

preclusionary effect, if any, of a previous arbitration. See 

Local 103 of the International Union of Elec., Radio, and 

Mach. Workers v. RCA Corp., 516 F.2d 1336, 1340 (3d Cir. 

1975). The reasoning underlying this approach is that a 

provision regarding the finality of arbitration awards is a 

creature of contract and, like any other contractual 

provision that is the subject of dispute, it is within the 

province of arbitration unless it may be said "with positive 

assurance" that the parties sought to have the matter 

decided by a court. Id. Although the contractual provision 

before the RCA court specifically stated that "in no event 

. . . shall the same question or issue be the subject of 

arbitration more than once," this court approved the same 

reasoning when faced with a broader agreement between 

parties that arbitration awards are "final and binding." Id. 

at 1341; see also Local 616, International Union of Elec., 

Radio, and Mach. Workers v. Byrd Plastics, Inc., 428 F.2d 

23, 25 (3d Cir. 1970). 

The parties' arbitration agreement in this case may be 

found in the "Uniform Application for Securities Industry 

 13 
Registration," ("Form U-4") signed by Olick, which submits 

to the NASD "any dispute, claim, or controversy that may 

arise between me and my firm, or a customer, or any other 

person, that is required to be arbitrated under the rules, 

constitutions, or by-laws of the organizations with which I 

registered." Form U-4 P 5. The NASD Code of Arbitration 

Procedure provides for the "arbitration of any dispute, 

claim, or controversy arising out of or in connection with 

the business of any member of the Association, with the 

exception of disputes involving the insurance business of 

any member which is also an insurance company . . . ." 

NASD Code of Arbitration Procedure P 3701. The parties do 

not contest the validity of the arbitration agreement here, 

nor do they dispute that Olick's claims raised before the 

NASD properly fall within the scope of the arbitration 

clause. Indeed, both Olick and Hancock explicitly agreed to 

"submit the present matter in controversy, as set forth in 

the . . . statement of claim, answers, cross claims and all 

related counterclaims and/or third party claims which may 

be asserted, to arbitration . . . ." NASD Uniform Submission 

Agreement P 1, Def.'s App. at 1. The only remaining

question, therefore, is whether the parties intended the 

current controversy -- whether the prior NASD award

precludes Olick from asserting his claims -- to be 

arbitrated as well. 

The arbitration procedure agreed to here, as incorporated 

in the arbitration agreement, states that all arbitration 

awards are to be "final and not subject to review or appeal." 

NASD Code of Arbitration Procedure P 10330(b). Moreover, 

the parties agreed that "arbitrators shall be empowered to 

interpret and determine the applicability of all provisions 

under this Code and to take appropriate action to obtain 

compliance with any ruling by the arbitrator(s)." Id. 

P 10324. The NASD Code of Arbitration Procedure further 

provides that "[s]uch interpretations and actions to obtain 

compliance shall be final and binding upon the parties." Id. 

Given this language, we must conclude that Hancock's 

res judicata objection based on the prior arbitration is an 

issue to be arbitrated and is not to be decided by the 

courts. The procedural rules quoted above no doubt 

demonstrates the parties' intentional adherence to a 

 14 
binding principle of finality similar to res judicata as 

applied to arbitration awards rendered by the NASD. It is 

equally quite clear from the arbitration procedure adopted 

here that the parties intended the NASD, and not the 

district court, to determine the nature and extent, if any, of 

that finality. Accordingly, the district court correctly 

declined to decide Hancock's res judicata objection based 

on the prior NASD award. 

IV. Conclusions 

For the reasons stated in this opinion, we will reverse the 

order of the district court dismissing the complaint and 

denying the preliminary injunction to the extent that it 

provides that Hancock's res judicata defense based on the 

prior judgment is an issue for resolution by the arbitrator. 

We, of course, express no opinion on the merits of that 

affirmative defense. To the extent the order of the district 

court dismissed Hancock's res judicata defense based on 

the prior arbitration, we will affirm. Accordingly, this case 

will be remanded for such further proceedings as may be 

appropriate. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

 15