We all know that the doctrines of issue preclusion (collateral estoppel) and claim preclusion (res judicata) apply with equal force to both arbitration awards and court orders. But, if your adversary brings new claims that you believe have already been determined in arbitration, where do you go to shut down those new claims — court or arbitration? A recent decision from the Second Circuit clarifies that arguments about issue or claim preclusion should generally be made in arbitration. Citigroup, Inc. v. Abu Dhabi Investment Authority, __ F.3d__, 2015 WL 161745 (2d Cir. Jan. 14, 2015).
In Citigroup, the parties’ investment agreement provided that “any dispute that arises out of or relates to” the agreement will be decided in AAA arbitration. The Abu Dhabi Investment Authority (ADIA) asserted claims against Citigroup in arbitration, and after a full hearing, the panel ruled in favor of Citigroup. ADIA moved to vacate the award, but the Southern District of New York found no “manifest disregard” and confirmed the award. At that point, ADIA did two things. It appealed the confirmation to the Second Circuit and served Citigroup with a new arbitration demand, asserting some of the same claims it asserted in the first arbitration. (Gutsy move.)
At that point, Citigroup started a new federal action, seeking to enjoin the second arbitration under the All Writs Act (or the Declaratory Judgment Act). ADIA moved to dismiss the complaint and compel arbitration. The district court compelled arbitration.
The Second Circuit affirmed, but after some soul-searching. It had to weigh the FAA’s policy favoring arbitration on the one hand, against its concern for “the integrity of federal judgments.” It also had to address its own 2011 ruling , which enjoined a pending arbitration because the claims had been settled and the settlement implementation remained under the district court’s exclusive authority.
In the end, the Second Circuit appears to have concluded that agreeing to enjoin arbitrations in situations like this would be opening a Pandora’s Box. “The FAA’s policy favoring arbitration and our precedents interpreting that policy indicate that it is the arbitrators, not the federal courts, who ordinarily should determine the claim-preclusive effect of a federal judgment that confirms an arbitration award.” The court distinguished its 2011 ruling by noting that in Citigroup, the district court did not retain any jurisdiction over the judgment confirming the arbitration award. It will be for a new AAA panel to determine whether ADIA’s claims are precluded by the previous arbitration award.
By Liz Kramer