By Sarah G. Anderson
The “extraordinary remedies” authorized by the All Writs Act do not permit a district court to enjoin an arbitration based on whatever claim-preclusive effect may result from the court’s prior judgment when that judgment, merely confirmed the result of the parties’ earlier arbitration.
Citigroup, Inc. vs. Abu Dhabi Investment Authority, No. 13-4825-cv (2nd Cir., 1/14/15).
Abu Dhabi Do-Over
Abu Dhabi Investment Authority (“ADIA”) invested billions of dollars in Citigroup under an agreement containing a clause requiring any disputes to be decided through AAA arbitration. ADIA commenced arbitration proceedings, alleging that Citigroup had diluted the value of its investment by issuing preferred shares to other investors. The panel ruled for Citigroup, its Award was confirmed and the confirmation was affirmed on appeal (see summaries of both decisions in SLA 2014-07). While that appeal was pending, ADIA served Citigroup with a new notice of arbitration. Citigroup brought this action to enjoin the second arbitration on the ground that the new claims were barred by res judicata because they could have been raised in the first arbitration, citing the All Writs as one of the bases for doing so. The district court granted ADIA’s motions on the ground that Citigroup’s preclusive defense was properly resolved in arbitration (see SLA 2013-45). Citigroup appealed.
All Writs Act Abnegation
The sole issue in this appeal is whether the district court erred when it refused to enjoin the second arbitration pursuant to the All Writs Act, a residual source of authority to issue writs that are not otherwise covered by statute. The FAA’s framework authorizes the federal courts to conduct only a limited review of discrete issues before compelling arbitration, leaving the resolution of all other disputes to the arbitrators. The FAA supplies a body of federal substantive law of arbitrability applicable to any arbitration agreement within coverage of the Act and also supplies a procedural framework applicable in federal courts, in which courts are only to decide questions of arbitrability. The All Writs Act remedies are “extraordinary” and should not be used simply to avoid the inconvenience of following statutory procedures that govern the particular circumstances. The FAA’s policy favoring arbitration and the Court’s precedents interpreting that policy indicate that it is the arbitrators, not the federal courts, who should determine the claim-preclusive effect of a federal judgment that confirms an arbitration Award.
The Court does recognize a weighty practical concern for the integrity of federal judgments that could arise if parties could relitigate in arbitration claims previously resolved by a federal court, but the district court’s earlier judgment simply confirmed the arbitration Award. If this Court were to agree with Citigroup that the preclusive effect of federal judgments confirming arbitration Awards should be decided by the courts, the claim preclusive effect of federal confirmation judgments issued by state courts would always be decided by federal courts under the All Writs Act. The Court reasons that its precedents in cases addressing comparable issues preclude a district court from using the All Writs Act in that way.
(S. Anderson) (EIC: Neither the earlier arbitration proceeding nor, presumably, the new one are before FINRA. However, we think it worth noting that, since the preclusive effect of a prior, contested arbitration is not one of the narrow grounds for pre-hearing dismissal that FINRA recognizes, a respondent in a FINRA arbitration faced with similar circumstances would probably have to wait until the claimant rested its case before presenting the same defense.)
(SLC Ref. No. 2015-04-04)
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