Opinion ID: 3010689
Heading Depth: 3
Heading Rank: 2

Heading: Res Judicata Based on the Prior Arbitration

Text: 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.