Opinion ID: 768180
Heading Depth: 2
Heading Rank: 2

Heading: Arbitrability of Res Judicata Defense

Text: 21 Recognizing that the dispute itself is subject to arbitration, Ortho attempts to shift the debate by arguing that, unlike a determination on the merits of a claim, the defense of res judicata is not arbitrable. Whether Ortho's res judicata objection to Chiron's claims is itself arbitrable also raises the separate issue of who determines the preclusive effect of an earlier arbitration award, the court or the arbitrator. Chiron counters that a res judicata defense goes to the merits of the dispute and is thus arbitrable under the broad terms of the parties' arbitration agreement. Ortho, on the other hand, points out that the district court entered judgment upon the arbitration award as provided for by S 9 of the Act. Relying on cases from other circuits, Ortho argues that because courts generally determine the preclusive effect of a court judgment on a subsequent court proceeding, the court rather than an arbitrator should reach the merits of its res judicata objection. We address each argument in turn. 22 The simplest answer to Ortho's argument is to look once again at the parties' agreement, which requires arbitration of any dispute. Nowhere is the defense of res judicata treated differently or singled out for exclusion. Rather, Ortho's argument to treat res judicata as a special case appears premised on the notion that the court will make a better decision than the arbitrator or that it is somehow unfair to leave this issue to an arbitrator. We need not go down that path. Ortho already opted to arbitrate all disputes arising under the Agreement and this election was not a casual one, evidenced by not only an unambiguous arbitration clause, but also by the negotiated, detailed, and extensive procedures for alternate dispute resolution that were included in the joint business agreement. 23 The question of whether Ortho's res judicata defense to arbitration is itself an arbitrable issue is bound up with the question of who should make such a determination. Although we have not had previous occasion to consider this issue, we find the Second Circuit's analysis persuasive: a res judicata objection based on a prior arbitration proceeding is a legal defense that, in turn, is a component of the dispute on the merits and must be considered by the arbitrator, not the court. See National Union Fire Ins. Co. v. Belco Petroleum Corp., 88 F.3d 129 (2d Cir. 1996); see also John Hancock Mutual Life Ins. Co. v. Olick, 151 F.3d 132 (3d Cir. 1998) (holding res judicata objection based on prior arbitration is issue to be arbitrated under National Association of Securities Dealers arbitration procedures). 24 In the case before the Second Circuit, Belco objected to National Union's petition to compel arbitration on grounds similar to those raised by Ortho, namely that the preclusive effect of a prior arbitration award must be determined by the court, not the arbitrator. Belco argued that its preclusion defense did not require an interpretation of the arbitration agreement and thus fell outside the scope of arbitrable issues. The court disagreed: 25 The preclusion issue is not . . . a disagreement over whether [the parties] agreed to arbitrate the merits of their dispute. Belco's claim of preclusion is a legal defense to National Union's claim. As such, it is itself a component of the dispute on the merits. Belco's attempt to characterize the preclusion issue as not related to the merits is unavailing. It is as much related to the merits as such affirmative defenses as a time limit in the arbitration agreement or laches, which are assigned to an arbitrator under a broad arbitration clause similar to the one [here]. 26 Belco, 88 F.3d at 135-36 (citations omitted). 27 Belco is directly on point -it addresses who determines the effect of a prior arbitration award on a subsequent demand for arbitration. Ortho's reminder that the doctrine of res judicata serves to avoid future litigation of the same dispute sidestepsthe issue of who decides the res judicata issue in these circumstances. Ortho's further suggestion that sending the matter to arbitration is somehow unfair because it will be litigating the same matter twice assumes that Ortho is correct in its comparison of the claims between the first arbitration and this one. This bootstrap approach does not further the debate of who should determine res judicata and, in any event, we need not address this issue as it falls within a merits analysis that is subject to arbitration under the parties' agreement. 28 Ortho urges us to ignore the Belco rationale and, alternatively, look to other provisions of the FAA to support its position that the court should reach the merits of its res judicata defense. Pursuant to Ortho's request, the district court entered judgment upon the arbitration award under S 13 of the FAA. Citing cases from other circuits, 1 Ortho argues that because S 13 treats an arbitration judgment the same as a court judgment, the court should determine its preclusive effect. 29 By its terms, the Agreement provides that [a]ny judgment upon the award rendered by the neutral may be entered in any court having jurisdiction thereof. The FAA, in turn, permits any party to an arbitration to petition the court for an order confirming the award. See 9 U.S.C. S 9. The resultant judgment shall have the same force and effect, in all respects, as, and be subject to all the provisions of law relating to, a judgment in an action. 9 U.S.C. S 13. Relying on the language of the statute, Ortho argues that we must treat the district court's confirmation of the arbitration award as if it were a judgment rendered in a judicial proceeding. This approach, however, begs the question because the statute says nothing about which forum or who determines the effect of the judgment. Moreover, it obscures the fact that while a judgment entered upon a confirmed arbitration award has the same force and effect under the FAA as a court judgment for enforcement purposes, it is not wholly parallel to a court judgment for all purposes. 30 Indeed, there are fundamental differences between confirmed arbitration awards and judgments arising from a judicial proceeding. Absent an objection on one of the narrow grounds set forth in sections 10 or 11, 2 the Act requires the court to enter judgment upon a confirmed arbitration award, without reviewing either the merits of the award or the legal basis upon which it was reached. A judgment upon a decision or order rendered by the court at the conclusion of a judicial proceeding, by contrast, confirms the merits of that decision. Along the same lines, a judgment under S 13 of the FAA is not subject to Federal Rules of Civil Procedure 59 or 60 whereas a judgment arising from a judicial proceeding is subject to reopening and challenge under those rules. 3 And, unless the provisions of the parties' agreement provides to the contrary, there is no right under the FAA to appeal the merits of a confirmed arbitration award. In sum, a judgment upon a confirmed arbitration award is qualitatively different from a judgment in a courtproceeding, even though the judgment is recognized under the FAA for enforcement purposes. 31 Even were we to accept Ortho's position that S 13 requires us to treat a confirmed arbitration award as a court judgment for all purposes, the primary cases on which Ortho relies are distinguishable in that both involved the court determining the res judicata effect of its own prior judgment on a subsequent arbitration proceeding. See In re Y&A Group Sec. Litig., 38 F.3d 380 (8th Cir. 1994); Kelley v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 985 F.2d 1067 (11th Cir. 1993). In In re Y&A, for example, the Eighth Circuit premised its holding on the court's inherent authority to defend its own judgments as res judicata, a power the court found to include the authority to enjoin or stay subsequent arbitration proceedings: [t]he district court, and not the arbitration panel, is the best interpreter of its own judgment. In re Y&A Group , 38 F.3d at 383. The Eleventh Circuit similarly relied on this rationale, noting that [c]ourts should not have to stand by while parties re-assert claims that have already been resolved.  Kelly, 985 F.2d at 1069. This justification rests on the presumption that the court issuing the original decision is best equipped to determine what was considered and decided in that decision and thus what is or is not precluded by that decision. The policy underlying these decisions is not served in this case, however, when the district court merely confirmed the decision issued by another entity, the arbitrator, and was not uniquely qualified to ascertain its scope and preclusive effect. Nor do these cases take into consideration the FAA's policy limiting the role of the court once arbitrability is determined. 32 Like the agreement in Belco, Chiron and Ortho's arbitration agreement is undeniably broad. Ortho's res judicata defense to a subsequent arbitration proceeding necessarily involves an inquiry into Chiron's underlying claims. As with other affirmative defenses 4 such as laches and statute of limitations, we agree with the Second Circuit that a res judicata defense is a component of the merits of the dispute and is thus an arbitrable issue.