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Under the Federal Arbitration Act (FAA), arbitrators must resolve procedural questions such as "gateway arbitrability" issues. Therefore a res judicata defense must be decided by an arbitrator and not by the court if the agreement is subject to the FAA, according to a North Carolina appellate court.
In WMS, Inc. v. Alltel Corp., No. COA06-793, 2007 WL 2238450 (N.C. Ct. App. Aug. 7, 2007), WMS and Alltel entered into a cellular dealer agreement. WMS filed suit asserting various claims arising out of the business dealings between the parties. WMS included a motion to compel arbitration in compliance with the agreement.
In return, Alltel filed a Rule 12(b)(6) motion to dismiss on the basis of res judicata and collateral estoppel. WMS's predecessor, Cellular Plus, previously arbitrated the same claims with Alltel, and this Court previously confirmed the award. The trial court granted Alltel's motion to dismiss.
On appeal, WMS argued that determination of res judicata and collateral estoppel issues should take place in arbitration. In resolving the issue, the Court first noted that because the agreement evidences a transaction involving commerce the FAA governs, and not the North Carolina Uniform Arbitration Agreement. The Court noted that the FAA preempts conflicting state law, and issues concerning the scope of arbitrable issues are resolved in favor of arbitration.
Under the FAA, gateway arbitrability issues are generally for arbitrators to decide. Procedural questions, such as allegations of waiver, or delay, are gateway arbitration conditions, which are to be resolved by the arbitrator. The Court distinguished these issues from those of substantive arbitrability, which are left to the court to decide.
Therefore, res judicata and collateral estoppel, as gateway arbitration issues, must be considered in arbitration and not court.
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