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A federal district court in New York held that the doctrine of res judicata barred a RICO action that was premised on the same “nucleus of operative facts” at issue in an earlier arbitration proceeding resulting in a valid and final award.
In Batlle v. Associates for Women's Medicine, PLLC, No. 05 Civ. 8373(DC), 2006 WL 2642137 (S.D.N.Y. Sep. 15, 2006), Associates for Women’s Medicine (AWM) and Batlle entered into an agreement whereby Batlle would work as an independent primary care physician for AWM. The agreement contained an arbitration clause.
In connection with the agreement, AWM obtained a $100,000 bank loan with Batlle acting as guarantor. A year later, AWM terminated its relationship with Batlle and informed him that he would be responsible for repaying the loan. Batlle denied liability for the loan.
Pursuant to the agreement, AWM and Batlle submitted the loan dispute to arbitration. The arbitrator determined that Batlle was liable for the loan and awarded AWM $119,151.74. A New York court confirmed the award.
Three months later, Batlle commenced a RICO action in federal court, alleging that AWM engaged in a fraudulent scheme to extort payment for the bank loan. AWM moved for dismissal, arguing that the doctrine of res judicata precluded Batlle from relitigating claims that were decided against him in the arbitration proceeding.
The Court started by citing the rule that a valid and final arbitration award is generally given the same res judicata effect as a court judgment. The doctrine of res judicata bars a subsequent action where: “(1) the prior action concluded with a final adjudication on the merits; (2) the prior claims and the current claims involve the same parties or those in privity with them; and (3) the claims asserted in the present action were, or could have been, asserted in the prior action because they arise from a common nucleus of operative fact.”
Applying those requirements, the Court held that the doctrine of res judicata barred Batlle’s RICO action. Specifically, the Court found that: (1) the arbitration award was a final determination on the merits; (2) the arbitration proceedings and RICO action involved the same parties; and (3) the claims in the RICO action “ar[o]se from the same transactional nucleus of operative facts that formed the basis for the arbitration proceedings.” Based on those findings, the Court dismissed the RICO action.
It is well-established that arbitration awards are given res judicata effect in a subsequent court proceeding. However, the Connecticut Supreme Court recently held that arbitrators are not required to give res judicata to a prior arbitration award, unless the parties agree otherwise. See LaSalla v. Doctor’s Associates, Inc., 898 A.2d 803 (Conn. 2006). Parties can obligate arbitrators to give res judicata effect to prior arbitration awards by adopting rules that require arbitrators to follow the applicable substantive law. See, e.g., Rule 20D of the National Arbitration Forum Code of Procedure.
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