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A federal district court Pennsylvania ruled that an arbitrator had authority to grant summary judgment where the underlying claims were barred by res judicata, collateral estoppel, and waiver.
In Sherrock Brothers, Inc. v. DaimlerChrysler Motors Co., No. 06 CV 351, 2006 WL 2927636 (M.D. Pa. Oct. 12, 2006), Sherrock Brothers and DaimlerChrysler submitted an automobile dealership dispute to arbitration. Previously, Sherrock Brothers had unsuccessfully pursued its claims before: (1) the State Board of Motor Vehicle Manufacturers, Dealers, and Sales Persons; (2) the Commonwealth Court of Pennsylvania; and (3) the Pennsylvania Supreme Court.
At arbitration, DaimlerChrysler moved for summary judgment. The panel granted summary judgment, finding that Sherrock Brothers’ previous litigation barred the arbitration under three theories: res judicata, collateral estoppel, and waiver of the right to arbitrate by engaging in previous litigation. Sherrock Brothers filed a motion to vacate the arbitration award, arguing that the arbitrators acted in manifest disregard of the law in finding that those theories precluded its claims. Sherrock Brothers also argued that the arbitrators exceeded their powers by granting summary judgment and committed misconduct in refusing to hear pertinent evidence.
In ruling on those objections, the Court first reviewed the award to determine whether the arbitrators acted in manifest disregard of the law (i.e., whether they recognized the applicable law and proceeded to ignore it). The Court found that there was no manifest disregard of the law because the panel recognized the governing law and applied it correctly.
The Court next turned to Sherrock Brothers’ argument that the arbitrators exceeded their powers and committed misconduct by granting summary judgment. In support of this argument, Sherrock Brothers relied on The Chem-Met Co. v. Metaland International, Inc., No. Civ. A. 96-02548 (D.D.C. filed Mar. 25, 1998) which held that the arbitrators exceeded their powers by granting summary judgment because the applicable rules required an evidentiary hearing. The Court distinguished Chem-Met by pointing out that res judicata and collateral estoppel are meant to prevent relitigation of claims previously decided. Similarly, the arbitrators’ refusal to hold an evidentiary hearing did not constitute misconduct because the application of res judicata and collateral estoppel meant that “all evidence related to those claims [wa]s irrelevant.”
Since arbitration is a streamlined procedure that offers added efficiency in dispute resolution, it would be counterproductive to adopt rules that require an evidentiary hearing in every case and thereby preclude summary disposition of ill-fated claims and defenses. Parties can ensure added efficiency by adopting arbitration rules that explicitly allow a party to request summary disposition. See, e.g., Rule 18A of the National Arbitration Forum Code of Procedure.
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