### 1998 D e c i sion s O p inion s of the U nit e d

S t a t e s C our t of Appe al s for the Thir d C ir c uit

8-10-1998 

# J ohn H a nco ck I ns ur

. C o . v . Olick

P r e c e de n t i al or N on-P r e c e de n t i al :

D ock e t 97-1956

F o l lo w thi s a nd a dd it ion al w ork s a t : h tt p://d i g it alc ommon s .l a w

. v i l l a no v a

. e du/thir dc ir c uit_1998

Thi s de c i sion i s br ou gh t t o y ou for f r e e a nd ope n a c c e s s b y the O p inion s of the U nit e d S t a t e s C our t of Appe al s for the Thir d C ir c uit a t V i l l a no v a

U niv e r sit y S choo l of L a

w Di g it al R e posit or y

. I t h as be e n a c c e pt e d for inclusion in 1998 D e c i sion s b y a n a uthor i z e d a dmini s tr a t or of V i l l a no v a

U niv e r sit y S choo l of L a

w Di g it al R e posit or y

. F or mor e infor m a t ion, p le as e c on t a ct Be n j a min

. C a rl s on@l a

w

. v i l l a no v a

. e du

. 

### R e c omme nde d C it a t ion

" J o hn H a nc ock I n s ur

. C o . v . Ol ick " (1998). 1998 D e cisio n s

. P a pe r 189.

h tt p://d i g it alc ommon s .l a

w

. v i l l a no v a

. e du/thir dc ir c uit_1998/189Filed 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 AppellantsThomas 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, notwiths tanding a valid arbitration clause, to enjoin a party from pu rsuing arbitration on res judicata grounds arising from bo th a prior arbitration and a prior judgment. The distric t court exercised diversity jurisdiction pursuant to 28 U.S .C. S 1332 as well as federal question jurisdiction und er 28 U.S.C. S 1331 based on the alleged violations of th e securities laws. Because the issues raised in the c ontext of this appeal are purely legal, our standard of revie w 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 sue d John Hancock Distributors, Inc. ("Hancock") and eig hteen other defendants in Carroll v. Hancock, 92-cv-5907 (E.D. Pa. 1995). The complaint primarily alleged violatio ns of several federal and state statutes, along with vari ous common law fraud theories, in connection with a ser ies of limited partnership transactions. Thomas Olick ("Ol ick"), a former employee of Hancock and a registered life in surance agent, was a named defendant in the Carroll action. Olick attempted to assert a cross-claim against Hancock i n the Carroll litigation, but the district court denied t he claim in its entirety. The case was closed on November 30, 1 994.

During the pendency of that litigation, Olick filed , on December 2, 1992, a Statement of Claim with the Nat ional Association of Securities Dealers ("NASD") against Hancock, demanding the arbitration of disputes relating to c ertain limited partnership transactions -- the same transa ctions,

2according 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 nu mber 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 pend ing Carroll litigation.

On May 4, 1996, after the conclusion of both the Ca rroll case and the 1992 NASD arbitration, Olick filed wit h the NASD another Statement of Claim against Hancock see king the arbitration of claims sounding in fraud, misrepresentation, tortious interference with busin ess 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 1 996

Statement of Claim arose from the same factual circumstances as the previous arbitration in 1992 a s well as the prior federal judgment, and therefore princi ples of res judicata barred Olick from raising a claim that could have been raised at either the prior arbitration pr oceeding or the Carroll litigation. The arbitration panel, o n February 11, 1997, denied Hancock's motion to dismiss withou t 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 m otion to dismiss the second arbitration, Hancock filed a complaint in the district court seeking a declarati on 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 en join the NASD from further proceedings in resolution of the 1996 arbitration. The district court, however, denied Ha ncock's motion and dismissed its complaint, holding that un der 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 ca ses holding that courts are not to rule on the validity of vari ous defenses to arbitration. See Conticommodity Service s, Inc. v.

3Philipp & 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, 12 9 (S.D.N.Y. 1994) (res judicata decided by arbitrator).

In its order denying Hancock's motion for reconsideration, the district court declined to app ly case law holding that courts, and not arbitrators, are t o decide res judicata issues stemming from a prior judgment rendered by federal court. The district court found those cases distinguishable because they failed to addres s what it viewed as the "hybrid" situation raised -- namely, "whether

an arbitrator or a federal court should determine t he res judicata effect of both a prior arbitration and a p rior federal

court decision on an arbitration claim." D. Ct. Ord er, 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 o f the FAA governs the appealability of district orders with r espect to arbitration and provides:

(a) An appeal may be taken from--

(1) an order--

(A) refusing a stay of any action under sec tio n 3 of this title,

(B) denying a petition under section 4 of t his title to order arbitration to proceed,

(C) denying an application under section 20 6 o f this title to compel arbitration,

(D) confirming or denying confirmation of a n award or partial award, or

(E) modifying, correcting, or vacating an a ward;

(2) an interlocutory order granting, continu ing, or modifying an injunction against an arbitrati on that is subject to this title; or

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

is subject to this title.

9 U.S.C. S 16(a). While identifying the district co urt orders with respect to arbitration that are the subject of immediate appeal, the Act affirmatively removes appellate jur isdiction 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 sect ion 3 of this title;

(2) directing arbitration to proceed under s ection 4 of this title;

(3) compelling arbitration under section 206 of th is title; or

(4) refusing to enjoin an arbitration that i s 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 allo wing arbitration "until after the arbitration process ha s 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. 199 7). Nevertheless, the FAA specifically states that any" final decision with respect to an arbitration," is immedi ately appealable, 9 U.S.C. S 16(a)(3), regardless of whet her that decision allows the arbitration process to go forwa rd. See Siegal, supra, at 352. Thus, the answer to the imme diate question in considering our appellate jurisdiction critically

turns on whether the district court orders were"fin al" 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 purp oses of this section, and therefore we look to the prior, s ettled, usage of that term. A final decision, as that term is

5commonly understood for purposes of appellate

jurisdiction, refers to an order that "ends the lit igation on the merits and leaves nothing for the court to do b ut 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 arbitra bility was the sole issue presented in the action or whether t he issue of arbitrability originated as part of an action ra ising 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 iss ue 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 consid ered a final order subject to immediate appeal under secti on 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 "indep endent proceeding" raising solely arbitration issues with no other claims for relief falls under section 16(a)(3) as a n appeal from a final order because the litigation before th e district has effectively ended on the merits. Id. at 352-53. It

matters not whether the district court decision fav ors arbitration or litigation. Id.

In this case, Hancock sought both legal and injunct ive avenues for relief: a judgment declaring Olick barr ed 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 a rgued, as Olick seems to do, that Hancock's motion for a prel iminary injunction is embedded within the broader complaint seeking a declaratory judgment, and hence the distr ict court's denial of that injunction is not appealable under section 16(a)(3) or section 16(b)(4). Yet, there wa s only one issue before the district court, and that was wheth er Olick might properly seek arbitration of his claims again st Hancock. When the district court decided that singl e issue in favor of arbitration, the litigation effectively ended, leaving nothing for the district court to do but en ter judgment. Accordingly, this independent proceeding before

6the district concluded in a final order and is ther efore

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 que stions about the scope of the duty to honor an arbitration agreement, our analysis must begin with the Federal

Arbitration Act. The FAA federalizes arbitration la w and "creates a body of federal substantive law establis hing and regulating the duty to honor an agreement to arbitr ate . . . ." 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 transact ion or a contract evidencing a transaction involving commerce to settle by arbitration a controversy there after 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 exist ing 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 arbitratio n agreement at issue falls within the ambit of the FA A.

Because the FAA enforces arbitration agreements as a matter of federal law, the statute authorizes distr ict court involvement in the arbitration process primarily in two ways. See Local 103 of the Int'l Union of Elec., Ra dio 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 c lause. In this case, the FAA allows a district court to compe l, or enjoin, arbitration as the circumstances may dictat e. See 9 U.S.C. SS 3, 4; Painewebber v. Hartmann , 921 F.2d 507, 511 (3d Cir. 1990). The other basis of court involv ement is

found when enforcement of an arbitration award is s ought. Here, the statute authorizes the district court to confirm,

7vacate, 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 author ize court involvement in enforcing arbitration and we h ave consistently admonished the courts "to exercise the utmost restraint and to tread gingerly before intruding up on the arbitral process." Lewis v. American Fed'n of State , County and Municipal Employees, 407 F.2d 1185, 1191 (3d Ci r. 1969); see also Local 103 of the Int'l Union of Ele c., Radio and Mach. Workers v. RCA Corp., 516 F.2d 1336, 1339 (3d Cir. 1975). There is, of course, good reason for th is restrained approach. Arbitration is, above all, a m atter of contract and courts must respect the parties' barga ined-for method of dispute resolution. See Local 1545, Unite d Mine Workers Of Am., 876 F.2d 1288, 1293 (7th Cir. 1989)

. Indeed, arbitration most often arises in areas wher e courts are at a significant experiential disadvantage and arbitrators, who understand the "language and worki ngs of the shop," may best serve the interest of the parti es. 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 ar bitration 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 involvem ent in the arbitration process. Here, the FAA states that a co urt may issue an order compelling arbitration only "upon be ing satisfied that the making of the agreement for arbi tration or the failure to comply therewith is not in issue." 9 U.S.C. S 4. Starting with the familiar proposition that ar bitration is a creature of contract, courts have long since draw n 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 (19 86). Because the competence of an arbitrator stems exclu sively from contract, a district court may only order, or enjoin, arbitration based on the agreement to arbitrate its elf. Id.

8This includes, as a matter of course, an exploratio n into

whether the parties entered into a valid arbitratio n agreement in the first instance, and whether the sp ecific dispute raised falls within the scope of that agree ment. See

In re Prudential Ins. Co. of Am. Sales Practice Lit ig., 133 F.3d 225, 228 (3d Cir. 1998).

Thus, the threshold questions a district court must answer before compelling or enjoining arbitration a re these: (1) Did the parties seeking or resisting arbitratio n enter into a valid arbitration agreement? (2) Does the dispute between those parties fall within the language of the arbit ration agreement? See In re Prudential, 133 F.3d at 128, 1 33; Painewebber, 921 F.2d at 511. Absent a compelling f ederal policy to the contrary, see Shearson/American Expre ss Inc. v. McMahon, 482 U.S. 220 (1989), the sina qua non o f arbitrability is simply stated: that a valid arbitr ation exists and the dispute falls within the contours of that a greement. In re Prudential, 133 F.3d at 128. As we have previ ously concluded, district courts need only "engage in a l imited review to ensure that the dispute is arbitrable-- i .e., that a valid agreement to arbitrate exists between the p arties and that the specific dispute falls within the subs tantive scope of that agreement." Painewebber, 921 F.2d at 511. In conducting this limited review, the court must appl y ordinary contractual principles, with a healthy reg ard 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 present s 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. App arently, no case to date has addressed this precise factual complex, and we will analyze each component of Hancock's pos ition

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 cl aims of

9res 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, P ierce, 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 t he finality and integrity of prior judgments. See Kelly, 985 F. 2d at 1069; In re Y&A, 38 F.3d at 382. As succinctly stat ed 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 a t 1069. Because the FAA contemplates that an arbitration aw ard may be enforced by judgment, see 9 U.S.C.S 9, these courts would allow a district court to enjoin arbit ration if the claim would be precluded under ordinary rules o f res judicata. Miller Brewing Co., 781 F.2d at 499.

Not all courts, however, have been persuaded by suc h logic. Most notably, the Second Circuit Court of Ap peals has held that a collateral estoppel defense to arbi tration based on a prior federal judgment should be decided by an

arbitrator because it is a merit-based defense to a rbitration. See United States Fire Ins. Co. v. National Gypsum Co., 101 F.3d 813, 817 (2d Cir. 1996). Whether such a defens e is itself arbitrable, like any other ambiguity in the scope of arbitration, must stem from the language of the arb itration 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"wit h positive assurance" that the parties intended to pl ace the collateral estoppel issue with a court, the viabili ty of that affirmative defense must be decided by an arbitrato r. Id.

These competing considerations present the court wi th a high order challenge. On the one hand, a realistic concern for the finality and integrity of judgments would a rise 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 contrac t and the

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

before compelling or enjoining arbitration. See Painewebber, 921 F.2d at 511. The issue is thoughtf ully 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 con clude that a decent respect for a precedent of this court dictates

that we resolve the issue in favor of district cour t jurisdiction to decide the res judicata defense as it relates to a prior judgment. Thus, we stated in Telephone W orkers Union of New Jersey v. New Jersey Bell Tel. Co., 58 4 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 t he judgment preclusion effect of the Consent Decree. Thi s was the proper course. When a federal court is prese nted with the contention that a prior federal judgment determined issues now sought to be relitigat ed in an

arbitral forum it must first determine the e ffect of the judgment. This is so whether the question ar ises 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 th e institutional interest of federal courts in avoiding litigation, does not come into play until th e courtfirst determines whether prior completed litigatio n has already finally determined all issues.

Id. at 32-33 (citation omitted). In that case, an a ggrieved employee sought arbitration of a matter that had be en conclusively settled by a consent decree entered by a federal district court. Arbitration had in fact ren dered 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 precl usive 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 judgmen t. Moreover, we explicitly stated that this was the co rrect course regardless of whether parties seek to compel arbitration or confirm a disputed award.

11The district court did not apply our analysis in Ne w

Jersey Bell to this case because of the unique"hybr id" 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 n o principled reason underlying this distinction. When a party resisting arbitration bases its claim of res judica ta 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 analys is. 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 particula r, 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 Je rsey Bell, as do we, for the proposition the federal cou rts must intervene in the arbitration process when faced wit h res judicata objections stemming from a prior federal j udgment. See Aircraft Braking Systems Corp. v. Local 856, In t'l Union, United Auto., Aerospace and Agric. Implement Worker s , 97 F.3d 155, 159 (6th Cir. 1996); John Morrell & Co. v . Local

Union 304a of the United Food and Commercial Worker s , 913 F.2d 544, 562 (8th Cir. 1990); American Trade Dispatchers Assoc. v. Burlington N. R.R., 784 F. Su pp. 899, 903 (D.D.C. 1992). Thus, whether we honor our inter nal operating procedure governing the application of th is 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 d ecided 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 e ffect of the prior NASD arbitration as a basis for enjoining the current NASD proceeding. We now turn to that issue.

12As stated above, the judicial inquiry before compel ling or

enjoining arbitration is narrow, and the FAA author izes the district court to explore only two threshold questi ons in considering a demand for arbitration: (1) Did the p arties seeking or resisting arbitration enter into a valid arbitration agreement? (2) Does the dispute between those parti es fall within the language of the arbitration agreement? S ee In re Prudential, 133 F.3d at 128, 133; Painewebber, 921 F.2d at 511. While we have previously held that claims of r es judicata based on a prior federal judgment are an exception, see Telephone Workers Union of New Jerse y 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 tha t holding. Therefore, the proper analytical inquiry m andated

under the FAA is to focus on both the existence of a valid arbitration agreement and the nature of that agreem ent as it relates to the parties' current dispute.

We have previously held, for example, that where th ere is a contractual provision barring the re-arbitration of similar disputes between parties, the arbitrator is to deci de the preclusionary effect, if any, of a previous arbitra tion. See Local 103 of the International Union of Elec., Radi o, and Mach. Workers v. RCA Corp., 516 F.2d 1336, 1340 (3d Cir. 1975). The reasoning underlying this approach is th at a provision regarding the finality of arbitration awa rds is a creature of contract and, like any other contractua l provision that is the subject of dispute, it is wit hin the province of arbitration unless it may be said "with positive assurance" that the parties sought to have the matt er decided by a court. Id. Although the contractual pr ovision before the RCA court specifically stated that "in n o event . . . shall the same question or issue be the subje ct of arbitration more than once," this court approved th e same reasoning when faced with a broader agreement betwe en parties that arbitration awards are "final and bind ing." Id. at 1341; see also Local 616, International Union of Elec., Radio, and Mach. Workers v. Byrd Plastics, Inc., 42 8 F.2d 23, 25 (3d Cir. 1970).

The parties' arbitration agreement in this case may be found in the "Uniform Application for Securities In dustry

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

to the NASD "any dispute, claim, or controversy tha t 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 Arbitra tion Procedure provides for the "arbitration of any disp ute, claim, or controversy arising out of or in connecti on with the business of any member of the Association, with the exception of disputes involving the insurance busin ess of any member which is also an insurance company . . . ." NASD Code of Arbitration Procedure P 3701. The part ies do not contest the validity of the arbitration agreeme nt here, nor do they dispute that Olick's claims raised befo re the NASD properly fall within the scope of the arbitrat ion clause. Indeed, both Olick and Hancock explicitly a greed to "submit the present matter in controversy, as set f orth in the . . . statement of claim, answers, cross claims and all related counterclaims and/or third party claims whi ch may be asserted, to arbitration . . . ." NASD Uniform S ubmission Agreement P 1, Def.'s App. at 1. The only remaining question, therefore, is whether the parties intende d 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 incorp orated in the arbitration agreement, states that all arbit ration awards are to be "final and not subject to review o r appeal." NASD Code of Arbitration Procedure P 10330(b). More over, the parties agreed that "arbitrators shall be empow ered to interpret and determine the applicability of all pr ovisions under this Code and to take appropriate action to o btain compliance with any ruling by the arbitrator(s)." I d.

P 10324. The NASD Code of Arbitration Procedure fur ther provides that "[s]uch interpretations and actions t o obtain compliance shall be final and binding upon the part ies." Id.

Given this language, we must conclude that Hancock' s res judicata objection based on the prior arbitrati on 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

14binding principle of finality similar to res judica ta 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 th e district court, to determine the nature and extent, if any, of that finality. Accordingly, the district court corr ectly 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 rev erse the order of the district court dismissing the complain t and denying the preliminary injunction to the extent th at it provides that Hancock's res judicata defense based on the prior judgment is an issue for resolution by the ar bitrator. 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 base d on the prior arbitration, we will affirm. Accordingly, this case will be remanded for such further proceedings as ma y be appropriate.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

15