John Hancock Insur. Co. v. Olick

Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit
8-10-1998
John Hancock Insur. Co. v. Olick
Precedential or Non-Precedential:
Docket 97-1956
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Recommended Citation
"John Hancock Insur. Co. v. Olick" (1998). 1998 Decisions. Paper 189.
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Filed August 10, 1998
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 97-1956
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY;
JOHN HANCOCK DISTR; LARRY CARTER
Appellants
v.
THOMAS W. OLICK
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 96-cv-04460)
Submitted Under Third Circuit LAR 34.1(a)
June 4, 1998
Before: SCIRICA, NYGAARD and SEITZ, Circuit Ju dges.
Filed: August 10, 1998
Edward C. Mengel, Jr., Esquire
Jane O. McCahill, Esquire
White & Williams
1800 One Liberty Place
Philadelphia, PA 19103-7395
Attorneys for Appellants
Thomas W. Olick, Pro se
4014 Crestview Avenue
Easton, PA 18045
OPINION OF THE COURT
SEITZ, Circuit Judge.
This appeal presents the question of whether, under the
Federal Arbitration Act, 9 U.S.C. SS 1-16 ("the FAA" or "the
Act"), a district court has the authority, notwithstanding a
valid arbitration clause, to enjoin a party from pursuing
arbitration on res judicata grounds arising from both a
prior arbitration and a prior judgment. The district court
exercised diversity jurisdiction pursuant to 28 U.S.C.
S 1332 as well as federal question jurisdiction under 28
U.S.C. S 1331 based on the alleged violations of the
securities laws. Because the issues raised in the context of
this appeal are purely legal, our standard of review is
plenary. See Smith v. Magras, 124 F.3d 457, 460-61 (3d
Cir. 1997).
I. Facts and Procedural History
On October 13, 1992, John J. Carroll and others sued
John Hancock Distributors, Inc. ("Hancock") and eighteen
other defendants in Carroll v. Hancock, 92-cv-5907 (E.D.
Pa. 1995). The complaint primarily alleged violations of
several federal and state statutes, along with various
common law fraud theories, in connection with a series of
limited partnership transactions. Thomas Olick ("Olick"), a
former employee of Hancock and a registered life insurance
agent, was a named defendant in the Carroll action. Olick
attempted to assert a cross-claim against Hancock in the
Carroll litigation, but the district court denied the claim in
its entirety. The case was closed on November 30, 1994.
During the pendency of that litigation, Olick filed, on
December 2, 1992, a Statement of Claim with the National
Association of Securities Dealers ("NASD") against Hancock,
demanding the arbitration of disputes relating to certain
limited partnership transactions -- the same transactions,
2
according to Hancock, that were the subject of the Carroll
action. The NASD, on February 28, 1995, issued an
arbitration award in favor of Olick and denied a number of
third party claims asserted by Hancock. The record does
not show that Hancock objected to the 1992 NASD
arbitration based on the existence of the then pending
Carroll litigation.
On May 4, 1996, after the conclusion of both the Carroll
case and the 1992 NASD arbitration, Olick filed with the
NASD another Statement of Claim against Hancock seeking
the arbitration of claims sounding in fraud,
misrepresentation, tortious interference with business
relations, slander, libel, and RICO violations. In response,
Hancock moved the arbitration panel to dismiss this claim
based on the res judicata effect of the prior 1992
arbitration award and the judgment rendered in the Carroll
action. Hancock in particular argued that Olick's 1996
Statement of Claim arose from the same factual
circumstances as the previous arbitration in 1992 as well
as the prior federal judgment, and therefore principles of
res judicata barred Olick from raising a claim that could
have been raised at either the prior arbitration proceeding
or the Carroll litigation. The arbitration panel, on February
11, 1997, denied Hancock's motion to dismiss without a
hearing or a discussion of the merits. So far as we are
aware, that proceeding is still pending.
Before the arbitration panel had denied Hancock's motion
to dismiss the second arbitration, Hancock filed a
complaint in the district court seeking a declaration that
the claims raised by Olick in the 1996 arbitration were
barred on res judicata grounds. Hancock also filed in the
district court a motion seeking to preliminarily enjoin the
NASD from further proceedings in resolution of the 1996
arbitration. The district court, however, denied Hancock's
motion and dismissed its complaint, holding that under the
Federal Arbitration Act the arbitrator, and not the court,
decides preclusion issues. While the district court noted
what was, in its view, an absence of third circuit case law
directly on point, it found persuasive a line of cases holding
that courts are not to rule on the validity of various
defenses to arbitration. See Conticommodity Services, Inc. v.
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Philipp & Lion, 613 F.2d 1222, 1223 (2d Cir. 1980)
(timeliness of demand decided by arbitrator); North River
Ins. Co. v. Allstate Ins. Co., 866 F. Supp. 123, 129 (S.D.N.Y.
1994) (res judicata decided by arbitrator).
In its order denying Hancock's motion for
reconsideration, the district court declined to apply case
law holding that courts, and not arbitrators, are to decide
res judicata issues stemming from a prior judgment
rendered by federal court. The district court found those
cases distinguishable because they failed to address what it
viewed as the "hybrid" situation raised -- namely, "whether
an arbitrator or a federal court should determine the res
judicata effect of both a prior arbitration and a prior federal
court decision on an arbitration claim." D. Ct. Order, Nov.
11, 1997, at 2 (emphasis in original). Hancock now appeals
the district court's dismissal of its complaint and the denial
of its motion for a preliminary injunction.
II. Appellate Jurisdiction
As a preliminary matter, Olick contests this court's
jurisdiction to entertain this appeal. Section 16 of the FAA
governs the appealability of district orders with respect to
arbitration and provides:
(a) An appeal may be taken from--
(1) an order--
(A) refusing a stay of any action under sectio n 3 of
this title,
(B) denying a petition under section 4 of this title to
order arbitration to proceed,
(C) denying an application under section 206 o f this
title to compel arbitration,
(D) confirming or denying confirmation of an award
or partial award, or
(E) modifying, correcting, or vacating an award;
(2) an interlocutory order granting, continuing, or
modifying an injunction against an arbitration
that is subject to this title; or
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(3) a final decision with respect to an arbitrat ion that
is subject to this title.
9 U.S.C. S 16(a). While identifying the district court orders
with respect to arbitration that are the subject of immediate
appeal, the Act affirmatively removes appellate jurisdiction
to review certain types of "interlocutory" orders:
(b) Except as otherwise provided in section 1292(b ) of
title 28, an appeal may not be taken from an
interlocutory order--
(1) granting a stay of any action under section 3 of
this title;
(2) directing arbitration to proceed under section 4 of
this title;
(3) compelling arbitration under section 206 of th is
title; or
(4) refusing to enjoin an arbitration that is subj ect to
this title.
9 U.S.C. S 16(b). The general approach to appellate
jurisdiction as set forth in the FAA is constrained; the Act
typically precludes appellate review of orders allowing
arbitration "until after the arbitration process has gone
forward." Stedor Enterprises, Ltd. v. Armtex, Inc., 947 F.2d
727, 730 (4th Cir. 1991); see also David D. Siegal, Practice
Commentary, 9 U.S.C.A. S 16, at 352 (West Supp. 1997).
Nevertheless, the FAA specifically states that any"final
decision with respect to an arbitration," is immediately
appealable, 9 U.S.C. S 16(a)(3), regardless of whether that
decision allows the arbitration process to go forward. See
Siegal, supra, at 352. Thus, the answer to the immediate
question in considering our appellate jurisdiction critically
turns on whether the district court orders were"final" or
"interlocutory," and consequently subject to the
jurisdictional hurdles set forth in section 16(b). See
American Cas. Co. of Reading v. L-J, Inc., 35 F.3d 133, 136
(4th Cir. 1996).
Congress did not define a "final decision" for purposes of
this section, and therefore we look to the prior, settled,
usage of that term. A final decision, as that term is
5
commonly understood for purposes of appellate
jurisdiction, refers to an order that "ends the litigation on
the merits and leaves nothing for the court to do but
execute the judgment." Oritz v. Doge, 126 F.3d 545, 547 (3d
Cir. 1997) (quoting Catlin v. United States, 324 U.S. 229,
233 (1945)). Within the context of orders relating to
arbitration, the decisive issue is "whether arbitrability was
the sole issue presented in the action or whether the issue
of arbitrability originated as part of an action raising other
claims for relief." American Cas., 35 F.3d at 136; see also
F.C. Schaffer & Assoc. v. Demech Contractors, Ltd. , 101
F.3d 40, 41 (5th Cir. 1996). If the arbitration issue arises
in what is known as an "embedded proceeding"-- that is,
embedded in some broader context raising issues or claims
for relief outside the arbitration context -- then the district
court order addressing arbitration cannot be considered a
final order subject to immediate appeal under section
16(a)(3) and the appellant must search for another avenue
of appellate jurisdiction under section 16(a). See Siegal,
supra, at 352. Conversely, an appeal from an "independent
proceeding" raising solely arbitration issues with no other
claims for relief falls under section 16(a)(3) as an appeal
from a final order because the litigation before the district
has effectively ended on the merits. Id. at 352-53. It
matters not whether the district court decision favors
arbitration or litigation. Id.
In this case, Hancock sought both legal and injunctive
avenues for relief: a judgment declaring Olick barred from
arbitration under the doctrine of res judicata, and an
injunction halting the NASD from entertaining Olick's
demand for arbitration. At first blush, it may be argued, as
Olick seems to do, that Hancock's motion for a preliminary
injunction is embedded within the broader complaint
seeking a declaratory judgment, and hence the district
court's denial of that injunction is not appealable under
section 16(a)(3) or section 16(b)(4). Yet, there was only one
issue before the district court, and that was whether Olick
might properly seek arbitration of his claims against
Hancock. When the district court decided that single issue
in favor of arbitration, the litigation effectively ended,
leaving nothing for the district court to do but enter
judgment. Accordingly, this independent proceeding before
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the district concluded in a final order and is therefore
appealable under 9 U.S.C. S 16(a)(3).
III. The Federal Arbitration Act
Having established our jurisdiction, we now turn to the
merits of this appeal. Because this case raises questions
about the scope of the duty to honor an arbitration
agreement, our analysis must begin with the Federal
Arbitration Act. The FAA federalizes arbitration law and
"creates a body of federal substantive law establishing and
regulating the duty to honor an agreement to arbitrate
. . . ." Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 25 n. 32 (1983). The operative language in the
Act, as provided in section two, states that:
A written provision in any maritime transaction or a
contract evidencing a transaction involving commerce
to settle by arbitration a controversy thereafter arising
out of such contract or transaction, or the refusal to
perform the whole or any part thereof, or an agreement
in writing to submit to arbitration an existing
controversy arising out of such a contract, transaction,
or refusal, shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for
the revocation of any contract.
9 U.S.C. S 2. The parties agree that the arbitration
agreement at issue falls within the ambit of the FAA.
Because the FAA enforces arbitration agreements as a
matter of federal law, the statute authorizes district court
involvement in the arbitration process primarily in two
ways. See Local 103 of the Int'l Union of Elec., Radio and
Mach. Workers v. RCA Corp., 516 F.2d 1336, 1339 (3d Cir.
1975). One such function of the court arises when a party
resists arbitration under an existing arbitration clause. In
this case, the FAA allows a district court to compel, or
enjoin, arbitration as the circumstances may dictate. See 9
U.S.C. SS 3, 4; Painewebber v. Hartmann , 921 F.2d 507,
511 (3d Cir. 1990). The other basis of court involvement is
found when enforcement of an arbitration award is sought.
Here, the statute authorizes the district court to confirm,
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vacate, or modify the award under a narrow scope of
judicial review. 9 U.S.C. SS 9-11.
Beyond these two areas, the statute does not authorize
court involvement in enforcing arbitration and we have
consistently admonished the courts "to exercise the utmost
restraint and to tread gingerly before intruding upon the
arbitral process." Lewis v. American Fed'n of State, County
and Municipal Employees, 407 F.2d 1185, 1191 (3d Cir.
1969); see also Local 103 of the Int'l Union of Elec., Radio
and Mach. Workers v. RCA Corp., 516 F.2d 1336, 1339 (3d
Cir. 1975). There is, of course, good reason for this
restrained approach. Arbitration is, above all, a matter of
contract and courts must respect the parties' bargained-for
method of dispute resolution. See Local 1545, United Mine
Workers Of Am., 876 F.2d 1288, 1293 (7th Cir. 1989).
Indeed, arbitration most often arises in areas where courts
are at a significant experiential disadvantage and
arbitrators, who understand the "language and workings of
the shop," may best serve the interest of the parties. See
United Steelworkers of Am. v. Enterprise Wheel and Car
Corp., 363 U.S. 593, 596 (1960); RCA Corp. , 516 F.2d at
1340. Thus, there is a strong policy in favor of arbitration
and courts must resist the attempt to intrude upon
arbitration proceedings where the statute does not explicitly
authorize court involvement.
Turning to the district court's authority to enjoin
arbitration, which is the heart of this dispute, we again
explore the nature of the district court's involvement in the
arbitration process. Here, the FAA states that a court may
issue an order compelling arbitration only "upon being
satisfied that the making of the agreement for arbitration or
the failure to comply therewith is not in issue." 9 U.S.C.
S 4. Starting with the familiar proposition that arbitration is
a creature of contract, courts have long since drawn the
conclusion that, as a matter of contract, no party can be
forced to arbitrate an issue unless that party has entered
into an agreement to do so. See AT&T Technologies v.
Communication Workers of Am., 475 U.S. 643, 648 (1986).
Because the competence of an arbitrator stems exclusively
from contract, a district court may only order, or enjoin,
arbitration based on the agreement to arbitrate itself. Id.
8
This includes, as a matter of course, an exploration into
whether the parties entered into a valid arbitration
agreement in the first instance, and whether the specific
dispute raised falls within the scope of that agreement. See
In re Prudential Ins. Co. of Am. Sales Practice Litig., 133
F.3d 225, 228 (3d Cir. 1998).
Thus, the threshold questions a district court must
answer before compelling or enjoining arbitration are these:
(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. Absent a compelling federal
policy to the contrary, see Shearson/American Express Inc.
v. McMahon, 482 U.S. 220 (1989), the sina qua non of
arbitrability is simply stated: that a valid arbitration exists
and the dispute falls within the contours of that agreement.
In re Prudential, 133 F.3d at 128. As we have previously
concluded, district courts need only "engage in a limited
review to ensure that the dispute is arbitrable-- i.e., that
a valid agreement to arbitrate exists between the parties
and that the specific dispute falls within the substantive
scope of that agreement." Painewebber, 921 F.2d at 511. In
conducting this limited review, the court must apply
ordinary contractual principles, with a healthy regard for
the strong federal policy in favor of arbitration. Moses H.
Cone, 460 U.S. at 24; In re Prudential, 133 F.3d at 128.
A. The Res Judicata Dispute Between the Parties
As the district court recognized, this case presents
somewhat of a "hybrid" situation in that Hancock's
objection to arbitrating Olick's claims stems from both a
prior arbitration and a prior federal judgment. Apparently,
no case to date has addressed this precise factual complex,
and we will analyze each component of Hancock's position
in turn.
1. Res Judicata Based on a Prior Federal Judgment
Notwithstanding the analysis discussed above, many
federal courts have held as a matter of law that claims of
9
res judicata based on a prior federal judgment must be
decided by the district court before compelling or enjoining
arbitration. See, e.g., In re Y&A Group Sec. Litig., 38 F.3d
380, 382 (8th Cir. 1994); Kelly v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 985 F.2d 1067, 1069 (11th Cir. 1993);
Miller Brewing Co. v. Forth Worth Distrib. Co., 781 F.2d 794,
499 (5th Cir. 1986); see also Miller v. Runyon , 77 F.3d 189,
194 (7th Cir. 1996) (collecting other cases). These courts
typically reason that federal courts must protect the finality
and integrity of prior judgments. See Kelly, 985 F.2d at
1069; In re Y&A, 38 F.3d at 382. As succinctly stated by
the Eleventh Circuit Court of Appeals, federal "[c]ourts
should not have to stand by while parties re-assert claims
that have already been resolved." Kelly, 985 F.2d at 1069.
Because the FAA contemplates that an arbitration award
may be enforced by judgment, see 9 U.S.C.S 9, these
courts would allow a district court to enjoin arbitration if
the claim would be precluded under ordinary rules of res
judicata. Miller Brewing Co., 781 F.2d at 499.
Not all courts, however, have been persuaded by such
logic. Most notably, the Second Circuit Court of Appeals
has held that a collateral estoppel defense to arbitration
based on a prior federal judgment should be decided by an
arbitrator because it is a merit-based defense to arbitration.
See United States Fire Ins. Co. v. National Gypsum Co., 101
F.3d 813, 817 (2d Cir. 1996). Whether such a defense is
itself arbitrable, like any other ambiguity in the scope of
arbitration, must stem from the language of the arbitration
agreement itself because arbitration is a matter of contract
and a "defense based on the issue preclusive effect of the
prior judgment is part of the dispute on the merits." Id.
Thus, the court reasoned, unless it may be said"with
positive assurance" that the parties intended to place the
collateral estoppel issue with a court, the viability of that
affirmative defense must be decided by an arbitrator. Id.
These competing considerations present the court with a
high order challenge. On the one hand, a realistic concern
for the finality and integrity of judgments would arise if
parties were free to ignore federal court decisions that have
conclusively settled claims or issues now sought to be
arbitrated. Yet, arbitration is a matter of contract and the
10
FAA only authorizes a "limited review" of the parties' intent
before compelling or enjoining arbitration. See
Painewebber, 921 F.2d at 511. The issue is thoughtfully
discussed in Miller v. Runyon, 77 F.3d 189, 193-94 (7th Cir.
1996), but that court fell short of providing a
comprehensive answer. In the final analysis, we conclude
that a decent respect for a precedent of this court dictates
that we resolve the issue in favor of district court
jurisdiction to decide the res judicata defense as it relates
to a prior judgment. Thus, we stated in Telephone Workers
Union of New Jersey v. New Jersey Bell Tel. Co., 584 F.2d
31 (3d Cir. 1978):
The district court did not reach the merits of the
Board of Arbitrators' interpretation of the Collective
Bargaining Agreement. It turned, first, to the judgment
preclusion effect of the Consent Decree. This was the
proper course. When a federal court is presented with
the contention that a prior federal judgment
determined issues now sought to be relitigated in an
arbitral forum it must first determine the effect of the
judgment. This is so whether the question arises in an
action to compel arbitration or, as here, in an action to
enforce a disputed award. The federal policy favoring
forum selection clauses, based in part on the
institutional interest of federal courts in avoiding
litigation, does not come into play until the courtfirst
determines whether prior completed litigation has
already finally determined all issues.
Id. at 32-33 (citation omitted). In that case, an aggrieved
employee sought arbitration of a matter that had been
conclusively settled by a consent decree entered by a
federal district court. Arbitration had in fact rendered a
result that conflicted with the consent decree and the
district court, in considering a motion to enforce the
arbitrator's award, turned first to the issue preclusive effect
of the consent decree. We affirmed on the principle that a
district court must first determine the effect of a prior
federal judgment when faced with the possibility of
relitigating issues already settled by that judgment.
Moreover, we explicitly stated that this was the correct
course regardless of whether parties seek to compel
arbitration or confirm a disputed award.
11
The district court did not apply our analysis in New
Jersey Bell to this case because of the unique"hybrid" res
judicata objection raised by Hancock -- "hybrid" in the
sense that Hancock's claim of preclusion stems from both
a prior judgment and a prior arbitration. We find no
principled reason underlying this distinction. When a party
resisting arbitration bases its claim of res judicata not only
on a prior judgment but also on the existence of a prior
arbitration, the analysis must focus on each aspect of the
claim; hybrid facts do not call for a hybrid analysis. To be
sure, there may be a number of factual grounds to
distinguish our holding in New Jersey Bell, but the legal
principle announced in that case directly controls the issue
presented before the district court -- in particular, whether
an arbitrator or a court must decide the preclusive effect of
a prior federal judgment. Given the broadly worded
language in that case, many courts have read New Jersey
Bell, as do we, for the proposition the federal courts must
intervene in the arbitration process when faced with res
judicata objections stemming from a prior federal judgment.
See Aircraft Braking Systems Corp. v. Local 856, Int'l Union,
United Auto., Aerospace and Agric. Implement Workers , 97
F.3d 155, 159 (6th Cir. 1996); John Morrell & Co. v. Local
Union 304a of the United Food and Commercial Workers ,
913 F.2d 544, 562 (8th Cir. 1990); American Trade
Dispatchers Assoc. v. Burlington N. R.R., 784 F. Supp. 899,
903 (D.D.C. 1992). Thus, whether we honor our internal
operating procedure governing the application of this
court's precedent, see 3d Cir. IOP Chapter 9.1. ("[T]he
holding of a panel in a reported opinion is binding on
subsequent panels.") (emphasis added), or apply the
pertinent language in New Jersey Bell, we conclude that
the district court in this case should have first decided the
preclusive effect of the prior federal judgment as it relates
to Olick's demand for arbitration before the NASD.
2. Res Judicata Based on the Prior Arbitration
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.
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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.
IV. Conclusions
For the reasons stated in this opinion, we will reverse the
order of the district court dismissing the complaint and
denying the preliminary injunction to the extent that it
provides that Hancock's res judicata defense based on the
prior judgment is an issue for resolution by the arbitrator.
We, of course, express no opinion on the merits of that
affirmative defense. To the extent the order of the district
court dismissed Hancock's res judicata defense based on
the prior arbitration, we will affirm. Accordingly, this case
will be remanded for such further proceedings as may be
appropriate.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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