One of the issues addressed by the FINRA Dispute Resolution Task Force in its Interim Report is a suggestion to “[e]xpand the grounds for Motions to Dismiss Prior to Conclusion of Case in Chief to include situations where the dispute was previously adjudicated by an order, judgment, award or decision.” In this survey, we attempt to ascertain how successful or unsuccessful respondents are likely to be if the suggestion is adopted.
There are two legal principles that could be applied to bar a claim on the basis of a prior decision of another arbitration panel or a court: res judicata and collateral estoppel. Res judicata, also known as claim preclusion, bars consideration of a claim that was previously raised or could have been raised in an earlier case between the same parties. Collateral estoppel, also known as issue preclusion, bars reconsideration of an issue that was previously decided between the parties in a prior case.
Raising the Defense. To answer the question we posed above, we looked for instances in which the panel expressly addressed the allegation that a claim was barred by a prior adjudication (usually in a motion) since the current restrictions on motions to dismiss before a claimant rests his or her case took effect (February 23, 2009). We found 13 cases that sought to dismiss or deny a claim based on prior litigation, 10 of them in pre-hearing motions to dismiss, one in a motion for directed verdict, one in a counterclaim for malicious prosecution and abuse of process, and one in a decision “on the papers” in a Small Claims case. We expect that the three cases in which the issue was not raised in a pre-hearing motion represent only the tip of the iceberg, since the bases for decisions on motions for directed verdicts and decisions on the merits are rarely addressed, but we include them anyway, because we think that they shed further light on the subject of our study.
How Successful? Next, we determined how the panel ruled on the issue of claim or issue preclusion in the motion, counterclaim or defense itself. Since claim and issue preclusion are not currently recognized grounds for pre-hearing adjudications, we would not expect this to be the end of the matter. Therefore, we next computed how often the respondents were held liable when the initial decision was negative. Although we cannot be sure that a denial of liability was a vindication of the respondent’s objection to relitigation, a finding of liability would certainly be proof that the panel rejected the defense.
On two occasions, the pre-hearing motions were granted without the need for the presentation. In a third instance, a decision was deferred until after the hearing commenced, but before the claimant rested, because the panel deemed that the prospective testimony of the claimant’s remaining witnesses would not change the relevant facts. The remaining seven motions (70% of them) were denied. In only two of those cases (29%), however, were the respondents held liable. The motion for directed verdict and decision on the papers were both granted, and while the counterclaim was denied, the respondent in that case was also not liable. Altogether, then, panels that expressly considered the defenses of res judicata or collateral estoppel clearly rejected them only 15% (2/13) of the time.
(ed: *FINRA imposed those restrictions in response to concerns that respondents were filing pre-hearing motions of dubious merit in order to wear down claimants and force them to settle. While we do not express any opinion as to whether this concern was justified, we deemed it better to limit our survey to a period when that is no longer a concern. **In a prior survey (see SAA 2013-24), we found that dispositive motions enjoyed a 70% success rate (167/237) between June 1, 2009 and May 31, 2013. Thus, our findings for the success of motions based on claim and issue preclusion, as limited in scope as they are, seem to be in line with those based on grounds that FINRA already recognizes. ***It makes sense to add this ground to the list of permissible bases for pre-hearing adjudication, one of which is the existence of a written release. As is true of a released claim, it should be easy to document the existence of the judgment that purportedly precludes the pending arbitration and will save the need for hearings in a claim that, if the motion is meritorious, should never have been brought.)
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