Opinion ID: 1613273
Heading Depth: 1
Heading Rank: 1

Heading: Application of the Doctrine of Collateral Estoppel

Text: As a threshold matter, Baker and the PC contend that the question of the applicability of the doctrine of collateral estoppel is, itself, arbitrable. In other words, they contend that the trial court erred even in considering whether the doctrine of collateral estoppel was applicable. This determination, they insist, must be made by the arbitrators. In Alabama, the doctrine of collateral estoppel will bar the relitigation of a previously resolved issue where (1) the issue and the parties in the second case are the same as the issue and the parties in the first case; (2) the issue was actually litigated in prior action; and (3) the resolution of the issue was necessary to the prior judgment. Wheeler v. First Alabama Bank of Birmingham, 364 So.2d 1190, 1199 (Ala.1978). The question of who decides whether the arbitration of a previously litigated issue is collaterally estopped appears to be a matter of first impression in this Court. The issue has been addressed in other jurisdictions, and those courts have reached divergent conclusions. For example, some courts have held that the preclusive effect of a prior judicial determination is to be decided by a court, rather than an arbitrator: John Hancock Mut. Life Ins. Co. v. Olick, 151 F.3d 132, 139 (3d Cir.1998) (preclusive effect of prior judgments is a matter to be resolved by courts, not arbitrators); In re Y & A Group Sec. Litigation, 38 F.3d 380, 383 (8th Cir.1994) (The district court, and not the arbitration panel, is the best interpreter of its own judgment.); Kelly v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 985 F.2d 1067 (11th Cir.), cert. denied, 510 U.S. 1011, 114 S.Ct. 600, 126 L.Ed.2d 565 (1993); C & O Dev. Co. v. American Arbitration Ass'n, 48 N.C.App. 548, 552, 269 S.E.2d 685, 687 (1980) (the extent of a judgment's binding effect is a matter for judicial determination). Some cases hold that the preclusive effect of a prior arbitration proceeding on claims asserted in a subsequent arbitration proceeding is to be decided by the court. Waterfront Marine Constr., Inc. v. North End 49ers Sandbridge Bulkhead Groups A, B & C, 251 Va. 417, 432, 468 S.E.2d 894, 903 (1996) (the court, not the arbitration panel, determines whether a previous arbitration award operates as res judicata or collateral estoppel on a subsequent action or demand for arbitration); Monmouth Pub. Sch., Dist. No. 38 v. Pullen, 141 Ill.App.3d 60, 489 N.E.2d 1100, 1105, 95 Ill. Dec. 372 (1985); Rembrandt Indus., Inc. v. Hodges Int'l, Inc., 38 N.Y.2d 502, 344 N.E.2d 383, 384, 381 N.Y.S.2d 451, 452 (1976) ( res judicata effect of a prior arbitration is a matter for courts rather than for arbitrators). Other courts have held that the preclusive effect of a prior arbitration proceeding on claims asserted in a subsequent arbitration proceeding is arbitrable. See Consolidation Coal Co. v. United Mine Workers of America, Dist. 12, Local Union 1545, 213 F.3d 404 (7th Cir.2000); Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126 (9th Cir.2000); Olick, supra, 151 F.3d at 139-40; National Union Fire Ins. Co. of Pittsburgh v. Belco Petroleum Corp., 88 F.3d 129 (2d Cir.1996). The appellants cite only one case holding that the preclusive effect of a judgment on claims subsequently asserted in arbitration is itself arbitrable. United States Fire Ins. Co. v. National Gypsum Co., 101 F.3d 813, 816 (2d Cir.1996), cert. denied, 521 U.S. 1120, 117 S.Ct. 2512, 138 L.Ed.2d 1015 (1997). This case falls in the first category, i.e., those that involve the preclusive effect of a prior judicial determination on claims asserted in a subsequent arbitration proceeding. Clearly, courts in the first two groups cited above would agree that the issue in this case is to be decided by the judiciary. The principle stated in cases representative of the first group is that even when arbitration is involved, ... `[c]ourts should not have to stand by while parties re-assert claims that have already been resolved.' In re Y & A Group Sec. Litigation, 38 F.3d at 382 (quoting Kelly, 985 F.2d at 1069). No matter what, courts have the power to defend their judgments as res judicata, including the power to enjoin or stay subsequent arbitrations. Id. (Emphasis added.) [2] Courts in the third group have distinguished between cases like this one and those involving a prior arbitration. For example, the court in Olick, which involved both a prior judgment and a prior arbitration, explained: While we have previously held that claims of res judicata based on a prior... judgment are an exception, see Telephone Workers Union of New Jersey v. New Jersey Bell Tel. [Co.], 584 F.2d [31], 31-32 (3d Cir.1978), res judicata objections based on a prior arbitration do not implicate the institutional concerns underlying that holding.... We have previously held ... 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. 151 F.3d at 139 (emphasis added). We agree with the holdings of those courts in the first group, and with the rationales expressed by those in the second and third groups, insofar as they are applicable to a case involving the preclusive effect of a prior judgment. [3] Alabama has a strong interest in the finality of its courts' judgments. The courts of Alabama are not authorized to render advisory opinions, except in very limited circumstances. See, e.g., Carrell v. Masonite Corp., 775 So.2d 121, 125 (Ala.2000) (Alabama's Declaratory Judgment Act bars trial courts from issuing advisory opinions); Ala.Code 1975, § 12-2-10 (authorizing the Supreme Court to issue advisory opinions on important constitutional questions at the request of the Governor or the Legislature). Were we to adopt the position advocated by Baker and the PC, however, we would be establishing a procedure that would transform otherwise binding judicial decisions into mere advisory opinions. Thus, Alabama has a strong policy against procedures such as the one advocated by the appellants. We conclude that the trial court was the proper forum for Merrill Lynch to present its collateral-estoppel defense. We turn, therefore, to the substance of that defense.
The appellants do notindeed, cannot seriously contend that the issues asserted in its action before the NASD are different from those involved in Alabama-Baker IV. In fact, at the heart of both cases is one dispositive factual issue. That issue is whether account number XXX-XXXXX was a personal account of Baker. If it was, it was subject to discovery, and Merrill Lynch could not be held liable for disclosing it. That that issue was actually litigated in Alabama-Baker IV cannot be disputed. In its October 25, 1994, order, the trial judge declared: The court specifically finds as a matter of fact that Baker's Merrill Lynch account [XXX-XXXXX] is a personal account of Baker's. (Emphasis added.) Obviously, that finding was necessary to the judgment, because the action was commenced for the very purpose of discovering and preserving assets held for Baker by Merrill Lynch. Because this Court affirmed that judgment without an opinion, the correctness of the findings on which the judgment was based is not before us in this case. Indeed, the only element about which there is a colorable controversy is the identity of the parties. Specifically, Baker and the PC contend that the doctrine of collateral estoppel does not bar the PC's claims before the NASD, because, they insist, the PC was not a party in Alabama-Baker IV. To be sure, the PC was not a named party in that case. Ordinarily, [a] party to the second suit will not be estopped from relitigating an issue unless all of the requisite elements exist. It is noteworthy that Alabama has not followed the trend of abolishing the requirement that parties be identical, sometimes referred to as the mutuality of estoppel requirement. McMillian v. Johnson, 878 F.Supp. 1473, 1520 (M.D.Ala.1995), rev'd in part on other grounds, 88 F.3d 1554 (11th Cir.1996), cert. denied, 521 U.S. 1121, 117 S.Ct. 2514, 138 L.Ed.2d 1016 (1997). An exception is made to this requirement for parties in privity with a party to the prior action. Id. (emphasis added). Thus, regardless of the fact that the PC was not a named party in Alabama-Baker IV, it will be bound by that judgment if it was in privity with Baker. `The term privity has not been uniformly defined with respect to [collateral estoppel].' Hughes v. Martin, 533 So.2d 188, 191 (Ala.1988) (quoting Issue Preclusion in Alabama, 32 Ala. L.Rev. 500, 520-21 (1981)). Privity is often deemed, however, to arise from `(1) the relationship of one who is privy in blood, estate, or law; (2) the mutual or successive relationship to the same rights of property; [or] (3) an identity of interest in the subject matter of litigation.' Id. Thus, the existence of privity has generally been resolved `on an ad hoc basis in which the circumstances determine whether a person should be bound by or entitled to the benefits of a judgment.' Id. See also Dairyland Ins. Co. v. Jackson, 566 So.2d 723, 726 (Ala. 1990) (collecting cases). Generally, a corporation is in privity with its sole shareholder for collateral estoppel purposes. A ruling adverse to a controlling person of a corporation precludes the corporation from litigating that claim in a subsequent action. Jordache Enters., Inc. v. National Union Fire Ins. Co. of Pittsburgh, 204 W.Va. 465, 479 n. 16, 513 S.E.2d 692, 706 n. 16 (1998) (quoting 50 C.J.S. Judgment § 867, pp. 441-42 (1997))(emphasis added). See also Restatement (Second) of Judgments § 59(3)(b) (1982). It is undisputed that Baker is the owner and sole shareholder of the PC. Moreover, in holding that the PC was collaterally estopped from asserting claims in arbitration that depended for their efficacy on a finding contrary to the finding of the court in Alabama-Baker IV, the trial court expressly found the following: Mr. Baker has been the PC's only president and is the only person with a financial interest in the PC; the PC has had no employees since 1987; for years, the PC has not actively engaged in the practice of law (in fact, for years it has done nothing on a daily basis); it has held no meetings; it has kept no corporate minutes; it has paid no salaries; its funds have been used for Mr. Baker's personal purposes; ... and Mr. Baker himself gave testimony suggesting that he and his PC were one and the same. (Emphasis added.) Indeed, those findings are also undisputed. On these facts, we conclude that Baker and the PC are in privity, and, therefore, that the identity-of-parties element of collateral estoppel is also satisfied. Consequently, the trial court correctly held that the PC's claims in arbitration are barred by collateral estoppel.