Court Opinion

ID: 9483140
Source: CourtListenerOpinion
Date Created: 2023-08-05 09:12:46.916326+00
Date Added: 2024-06-11T17:49:27.547579
License: Public Domain

REINHARDT, Circuit Judge,
dissenting:
I respectfully dissent from the decision of the majority. I believe that the threshold question in this case is whether Active was justified in pursuing its effort to obtain a judicial determination of its RICO claim in early 1985; because it was, it should not be penalized for having done so. Moreover, Active did not subsequently for*800feit its right to pursue its RICO claim separately, if only for the reason that it specifically preserved that right when it filed its state court action.
That the threshold determination must be whether Active was justified in keeping its RICO claim separate when it originally demanded arbitration in early 1985 can be seen by examining section III of the majority opinion. The opinion is dependent upon the proposition that the preclusive effect of a judgment includes any,claim that could have been raised in that proceeding; here, according to the majority that includes the RICO claim that Active split-off prior to the time the state court action was filed. See ante at 799 (citing DeNardo v. State, 740 P.2d 453, 456 (Alaska), cert. denied and appeal dismissed, 484 U.S. 919, 108 S.Ct. 277, 98 L.Ed.2d 239 (1987). Although the proposition that a litigant may not ordinarily split his claim is often stated, so are several important exceptions to that rule. See generally Restatement (Second) of Judgment § 26.1 If a claim falls within one of those exceptions and has been properly split-off, it is, of course, not precluded by virtue of a plaintiffs failure to raise it in the principal action. Here, there are two exceptions that are applicable and that bar preclusion in this case: first, a plaintiff may split his claim when the defendant acquiesces in such a split; second, a plaintiff may do so when jurisdictional barriers justify the split. See id. §§ 26(a) & (c). Although Active’s actions satisfy both of these exceptions, the majority never discusses either of them.
Active first split its claim in February, 1985, when it filed an arbitration demand that did not contain its RICO claim while continuing to pursue its RICO action in federal court. Active’s decision to split its claim appears to have been justified on jurisdictional grounds. Although by June 8, 1987, it was established that RICO claims were arbitrable, see Shearson v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987), in February of 1985 a reasonable litigant would likely have believed that the contrary was true. The leading case on the issue, S.A. Mineracao da Trindade-Samitri v. Utah Int’l, Inc., 576 F.Supp. 566, amended, 579 F.Supp. 1049 (S.D.N.Y.1983), which held that RICO claims were not arbitrable, had recently been affirmed by the court of appeals, see 745 F.2d 190, 196 (2d Cir.1984). A number of other courts had agreed. See, e.g., Witt v. Merrill Lynch, Inc., 602 F.Supp. 867, 870 (W.D.Pa.1985); Universal Marine Ins. Co. v. Beacon Ins. Co., 588 F.Supp. 735, 738 (W.D.N.C.1984); Wilcox v. Ho-Wing Sit, 586 F.Supp. 561, 567 (N.D.Cal.1984). There does not appear to have been any contrary authority at that time. Thus, in 1985 Active was certainly justified in believing that its RICO claim was not arbitra-ble.
There are other factors which support Active’s right to split its claims in light of the reasonableness of its belief that RICO claims were not arbitrable. First, the specific question facing Active was whether to bring its RICO claim in court or in arbitration. It may be that a litigant cannot rely on uncertainty in the law when choosing to split its claim between state and federal court. In such a case, the law generally assumes that state and federal courts are equally competent so that a litigant cannot justify dividing its claims between the two — it must pick one and seek a definitive resolution of the jurisdictional issue in that court. See Restatement § 86 comment b. By contrast, we generally do not assume that courts and arbitral proceedings are equally competent; to the contrary, the law assumes that legal disputes are ordinarily resolved by courts unless the parties have agreed to arbitrate them. For this reason, the issue of arbitrability is for the courts, not the arbitrator, to decide. See AT & T v. Communications Workers of America, 475 U.S. 643, 647, 106 S.Ct. 1415, 1417-18, 89 L.Ed.2d 648 (1986); United Steelwork*801ers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1352-53, 4 L.Ed.2d 1409 (1960). When a party justifiably believes that it has a right to pursue a claim in a judicial rather than an arbitral proceeding, it must be free to test the validity of that belief.
Second, the nexus of contracts underlying the disputes between Hoffman and Active recognizes that a litigant will split his claim. As both parties recognize, the arbitration clauses in those contracts require arbitration of only some claims. Thus, in drafting the contracts, the parties must have assumed that claims would be divided between arbitration and court proceedings. Accordingly, the burden placed on Hoffman by Active’s pursuit of claims against it in two different fora should be given little if any weight.
As noted earlier, Active’s splitting of its claims also falls under the other exception to the general anti-claim splitting rule. Hoffman acquiesced in Active’s decision to try the RICO claim separately. When Hoffman and Active reached an agreement to consolidate all the claims in the Alaska state court action, Active expressly reserved the RICO claim from the agreement, stating that that claim “w[ould] remain in federal court.” Hoffman did not object to this reservation when the other claims were consolidated in state court. It should hardly be allowed to do so now.
For the above reasons, I believe that the general rule against claim splitting relied on by the majority is simply inapplicable. Active was justified in seeking a judicial resolution of its RICO claim in the federal courts. Its attempt to do so did not serve to waive its right to arbitrate in the event the federal court found that arbitration rather than litigation was the required procedure. The right to pursue a justified belief in the justiciability of a claim presupposes the ability to arbitrate if the court determines that the claim is subject to an arbitration provision. That is what happened here — Active pursued a justified belief in the justiciability of its RICO claim but, after a change in the law, the court determined that the claim was subject to arbitration. Moreover, Hoffman never objected to, and in fact acquiesced in, Active’s preservation of its right to pursue its RICO claim separately, and to withhold that claim from the state court action. In view of the above, there is simply no basis for the majority’s conclusion that Active waived its right to arbitrate the RICO claim or that it was prohibited from splitting that claim off from the remainder of the proceedings. Accordingly, the state court judgment is not res judicata as to the claim that Active deliberately and expressly withheld without objection from Hoffman at the time it filed the state court action.
Aside from the above, I have another fundamental disagreement with the majority’s approach. I believe that the majority opinion fails to take into account the difficulties involved in a party’s decision whether to arbitrate or adjudicate a claim. Some claims are arbitrable, others are not. The law is frequently abstruse and may change during the course of the proceedings, as happened in this case. The majority’s disposition places all the risk resulting from this legal uncertainty on the plaintiff, the person possessing legitimate claims. It imposes the ultimate penalty, that of forfeiture, on plaintiffs who guess “wrong”. This approach does a disservice to plaintiffs generally and is inconsistent with the ultimate purpose of dispute resolution — to resolve disputes on the merits. Cf. Surowitz v. Hilton Hotels Corp., 383 U.S. 363, 373, 86 S.Ct. 845, 851,15 L.Ed.2d 807 (1966) (“If rules of procedure work as they should in an honest and fair judicial system, they not only permit, but should as nearly as possible guarantee that bona fide complaints be carried to an adjudication on the merits.”); Conley v. Gibson, 355 U.S. 41, 48, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957) (“The Federal Rules reject the approach that pleading is a game of skill in which one misstep by counsel may be decisive to the outcome.”). Accordingly, I am compelled to dissent.

. Although the Restatement is not law, both the Alaska Supreme Court and our circuit have cited its split claim provisions with approval, see, e.g., State v. Smith, 720 P.2d 40, 41 (1986); Clark v. Bear Stearns & Co., 966 F.2d 1318, 1321 (9th Cir.1992), and there appears to be no authority to suggest that the Alaska courts would decline to follow its provisions.