The Issue Preclusive Effect of Arbitration Awards

Abstract

Courts in the United States have two primary means (in addition to individual adjudication) by which to resolve disputes in which numerous claimants have claims against a defendant that raise the same or similar issues. The first is the class action, in which the class representative brings suit on behalf of similarly situated but absent plaintiffs. A judgment in the class action (assuming that a class has been certified) binds the defendant and the absent class members. Since the Supreme Court’s decisions in Concepcion and Italian Colors, however, businesses can reduce if not avoid the risk of class actions by using arbitration clauses with class arbitration waivers in their standard form contracts with consumers and employees. When businesses use such contract provisions, disputes are to be resolved in individual arbitration, with no aggregation of claims either in arbitration or in court. The second primary means of resolving duplicative litigation of similar claims is the doctrine of issue preclusion (also referred to as collateral estoppel). Issue preclusion bars a party from relitigating an issue that was resolved in a prior case involving the same party or parties. The issue must have been fully and fairly litigated and actually decided in the prior case, and only a party to the prior litigation or one in privity with a party is bound by the prior judgment. But a non-party to the prior case can, in appropriate circumstances, rely on issue preclusion against a party to the prior case (what is called “nonmutual issue preclusion”) and preclude relitigation of the issue — i.e., hold the other party bound by the resolution of that issue in the prior case. This paper examines the extent to which arbitration awards have issue preclusive effect, such that issue preclusion might substitute for class actions when businesses use arbitration clauses with class waivers. It further suggests that the law governing issue preclusion in arbitration might develop in ways parallel to the law governing class actions and arbitration: with businesses using “issue preclusion waivers” to avoid the issue preclusive effect of awards, consumers and employees challenging such waivers as unenforceable, and businesses relying on FAA preemption in response.