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In a decision that strongly affirms the breadth of legal implications arising from an arbitration panel's ruling, the 11th Circuit Court of Appeals ruled that defenses raised and dismissed in arbitration cannot be raised again in subsequent litigation.
In Dadeland Depot, Inc. v. St. Paul Fire & Marine Ins. Co., No. 03-13540 D.C., 2007 WL 562862 (11th Cir. Feb. 26, 2007), shopping center developer Dadeland contracted with St. Paul to act as surety on a performance bond. When structural and design defects were discovered, Dadeland ultimately won a $1.4 million award in arbitration, in a ruling which specifically held St. Paul bound to the award.
However, claiming that St. Paul had acted in bad faith and had failed to perform its duties under the performance bond—both in violation of applicable Florida law— Dadeland subsequently sued St. Paul in Federal Court. Relying on interpretations provided by the Florida Supreme Court, the 11th Circuit Court found broad and significant legal implications arising from the arbitration panel's rulings.
Specifically, the Court found first that the arbitration award satisfied a legal requirement that a "judicial decision" determining liability be made prior to making the bad faith claim. Second, because matters raised by Dadeland in the subsequent lawsuit were not—and could not have been—raised in arbitration meant that its claims were not barred by res judicata.
Third, and most significantly, the Court ruled that because affirmative defenses raised by St. Paul in the arbitration hearing were specifically rejected by the arbitration panel, St. Paul was therefore barred from using these same defenses in court. The overall effect of each of these rulings is to essentially equate the legal implications of an arbitration award with those of any judicial decision.
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