Opinion ID: 774991
Heading Depth: 2
Heading Rank: 2

Heading: Freeman's Indemnification Claims

Text: 40 In the district court, Freeman asserted for the first time a counterclaim against Pike for indemnification, and cross-claims for indemnification against all of the other respondents, i.e., all of the various limited partnership and corporate entities, as well as MedApproach, Jeffrey Rush, and Bio-Pharm Investments. The counterclaim seeks indemnification under the Engagement for any judgment entered in favor of [Pike] and against defendant Freeman, and defendant Freeman is entitled to judgment against Pike in such amount, plus interest. 10 The cross-claims seek indemnification under, inter alia, the Agreement for any judgment entered in favor of [Pike] and against defendant Freeman, and for any costs and legal fees incurred in connection with the underlying transaction, the arbitration proceedings and in the [district court] action, together with interest. 11 41 The district court did not discuss the indemnification counterclaim and the cross-claims separately, and appeared to assume that both were asserted primarily under the Agreement. 12 The court first found the claims to be within the scope of the Agreement's arbitration clause and thus subject to arbitration. Finding that Freeman could have asserted his indemnification claims in the arbitration but had failed to do so, the district court then concluded that Freeman had waived his right to assert these claims: 42 Freeman had ample opportunity to raise the issue of indemnification during the arbitration. The fact that the precise issue of indemnification was not raised, nor were the calculations regarding indemnification made, did not relieve respondent Freeman of the duty to raise at arbitration all questions or matters relevant to the outcome of the case, including indemnification. United Food and Comm. Workers, Local 400 v. Marval Poultry Company, Inc., 876 F.2d 346, 349 (4th Cir. 1989). 43 .... Arbitration is not a trial run in which a party may sit quietly by without raising pertinent issues, wait to see if the result is in his favor and then seek judicial relief as an afterthought. See Marino v. Writers Guild of Am., East, Inc., 992 F.2d 1480, 1483-84 (9th Cir. 1993). If that were the case, arbitration would lose its vitality as an alternative to litigation, which is inconsistent with the strong federal policy favoring arbitration, the enforcement of arbitration agreements and the confirmation of arbitration awards. Porush v. Lemire, 6 F. Supp. 2d 178, 182 (E.D.N.Y. 1998). To the extent that respondent Freeman would have had any right to be indemnified in this action, any dispute on that issue was required to be arbitrated pursuant to the arbitration agreement contained in the contract. As respondent Freeman did not raise this issue during the arbitration before the panel, he has waived the right to do so. 44 In light of this waiver finding, the district court dismissed Freeman's indemnification claims with prejudice. 45 We agree with the district court's determination that the cross- claims are subject to arbitration because, as noted, these claims are predicated in large part on the Agreement, and the Agreement's arbitration clause is sufficiently broad to cover disputes about indemnification claims based on the Agreement. 46 We do not agree, however, with the district court's determination that the counterclaim is subject to arbitration because that determination is based on the erroneous assumption that the counterclaim was premised on the Agreement. As noted, the counterclaim was actually premised on the Engagement. Whether the counterclaim is subject to arbitration despite the fact that the Engagement lacks an arbitration clause is a question that the district court should address on remand. 47 Turning to the district court's waiver finding, we note that the cases upon which the district court based this finding do not support the view that one failure to raise an indemnification claim in an arbitration (in which the claims underlying the indemnification claim have been raised) constitutes a waiver of the indemnification claim. None of these cases concerned an indemnification claim that a party had failed to raise during such an arbitration. Nor is the general rule recognized by these cases applicable to indemnification claims such as those asserted by Freeman. This rule prohibits collateral[] attack[s] on an arbitration procedure on grounds not raised before the arbitrators. Marino, 992 F.2d at 1484-85 (holding that party waived challenge to award predicated on allegation that his opponent precluded him from ascertaining the qualifications or partiality of the arbitrators); see also Marval Poultry, 876 F.2d at 352-53 ([A] party to arbitration cannot voluntarily engage in the arbitration of the issues submitted to the arbitrator and then attack the award on grounds not raised before the arbitrator.) (internal quotation marks omitted) (holding that party waived his challenges to the arbitration award); Porush, 6 F. Supp. 2d at 182 (holding that party waived attack on arbitration award that alleged that award was based on insufficient evidence). 13 It is evident that Freeman's indemnification claims are not collateral attacks on the Award. On the contrary, they necessarily presuppose the validity of the Award. 48 In a vein similar to the district court's waiver finding, Pike argues that Freeman was barred from bringing his indemnification claims in the district court by the doctrine of res judicata or claim preclusion. 14 It is well settled that this doctrine serves to bar certain claims in federal court based on the binding effect of past determinations in arbitral proceedings. See Goldstein v. Doft, 236 F. Supp. 730, 732-33 (S.D.N.Y. 1964) (Weinfeld, J.), aff'd, 353 F.2d 484 (2d Cir. 1965) (per curiam); Am. Ins. Co. v. Messinger, 43 N.Y.2d 184, 189-90,371 N.E.2d 798 (1977). To prove that a claim is precluded under this doctrine, a party must show that (1) the previous action involved an adjudication on the merits; (2) the previous action involved the [parties] or those in privity with them; [and] (3) the claims asserted in the subsequent action were, or could have been, raised in the prior action. Monahan v. New York City Dep't of Corr., 214 F.3d 275, 284-85 (2d Cir. 1999) (citing Allen v. McCurry, 449 U.S. 90, 94 (1980)). Whether a claim that was not raised in the previous action could have been raised therein depends in part on whether the same transaction or connected series of transactions is at issue, and whether the same evidence is needed to support both claims. Interoceanica Corp. v. Sound Pilots, Inc., 107 F.3d 86, 90 (2d Cir. 1997) (internal alterations and quotation marks omitted). To ascertain whether two actions spring from the same `transaction' or `claim,' we look to whether the underlying facts are `related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage.' Id. (quoting Restatement (Second) of Judgments § 24(b)). As this same transaction test indicates, the could have been language of the third requirement is something of a misnomer. The question is not whether the applicable procedural rules permitted assertion of the claim in the first proceeding; rather, the question is whether the claim was sufficiently related to the claims that were asserted in the first proceeding that it should have been asserted in that proceeding. See, e.g., Kane v. Magna Mixer Co., 71 F.3d 555, 560 (6th Cir. 1995) (stating that one of the elements of res judicata is an issue in the subsequent action which was litigated or which should have been litigated in the prior action). This said, showing that the applicable procedural rules did not permit assertion of the claim in question in the first action of course also suffices to show that the claim is not barred in the second action. 49 With respect to the third requirement, the parties agree that Freeman did not assert his indemnification claims in the arbitration. Consequently, the question is whether these claims should have been raised in the arbitration, that is, whether they are based on the same transaction as were the claims asserted by Pike in the arbitration. 15 Freeman contends that his indemnification claims are not based on the same transaction upon which Pike's breach of contract claims were based because the indemnification claims ar[ose] out of the entry of the Award against Freeman and the costs and expenses of the arbitration and of the [proceedings before the district court]. We agree. The two sets of claims are related in neither time nor origin: Whereas Pike's breach of contract claims are based on the party's conduct prior to institution of the arbitration, Freeman's indemnification claims did not arise until the Award was granted and the district court proceedings were prosecuted. 16 Cf. Bank of India v. Trendi Sportswear, Inc., 239 F.3d 428, 440 (2d Cir. 2000) (rejecting fourth-party defendant's argument that indemnification claim brought against it by fourth-party plaintiff was barred by res judicata because fourth-party plaintiff could have obtained a conditional judgment against [fourth-party defendant] in [a previous action] if [fourth-party plaintiff] believed it had a valid indemnification claim, on the ground that we have uncovered no authority requiring a party to obtain a conditional judgment for the purpose of avoiding the preclusive effect of res judicata). We hold, therefore, that Freeman's indemnification claims are not barred by the doctrine of res judicata. 17 50 Finally, we note that there is a third potential justification for the conclusion that Freeman forfeited his indemnification cross-claims (and, assuming that it is subject to arbitration, his indemnification counterclaim) by not asserting them in the arbitration below: because he was required to do so by the Agreement or the Engagement (or some other agreement to which he was a party and which is at issue in this case). If Freeman was not so required, then even assuming that the counterclaim was subject to arbitration, Freeman did not waive his indemnification claims by not asserting them in the arbitration below. Freeman would thus be free to assert them in a future arbitration. Hence, on remand, the district court is instructed to determine whether Freeman was required, pursuant to an agreement to which he was a party and which is at issue in this case, to assert his indemnification cross-claims in the arbitration below. Similarly, if the district court determines on remand that the indemnification counterclaim is subject to arbitration, the district court is instructed to determine whether Freeman was required, pursuant to an agreement to which he was a party and which is at issue in this case, to assert his indemnification counterclaim in the arbitration below.