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The Connecticut Supreme Court refused to vacate an award involving the interpretation of a contract provision that had been interpreted differently in an earlier arbitration, holding that an arbitrator is free to apply or reject the doctrine of claim preclusion unless the parties agree otherwise.
In LaSalla v. Doctor’s Associates, Inc., No. 17483, 898 A.2d 803 (Conn. June 13, 2006), Doctor’s Associates (“DA”), a franchiser of Subway sandwich shops, and LaSalla entered into an agreement whereby LaSalla would act as DA’s development agent for northwest Florida. Under the agreement, LaSalla’s share of the royalties would be determined using a formula that accounted for preexisting Subway shops in the area. The agreement provided for mandatory arbitration.
In 1998, LaSalla initiated arbitration seeking a determination that the formula should exclude preexisting Subway shops that had since closed. The arbitration panel determined that such shops should be excluded from the formula. This modification increased LaSalla’s share of the royalties.
In 2002, LaSalla initiated a second arbitration seeking damages based on retroactive application of the modified formula. DA moved for dismissal on the grounds of res judicata (i.e., claim preclusion) and collateral estoppel (i.e., issue preclusion). The panel denied DA’s motion and awarded LaSalla retroactive damages.
DA argued that the second arbitration award should be vacated because it violated public policy by offending “the explicit, well-defined and dominant policy of claim preclusion.” As the Court observed, the doctrine of claim preclusion would have required LaSalla to seek retroactive damages in the original arbitration.
Citing Town of Stratford v. International Ass’n of Firefighters Local 998, 728 A.2d 1063 (Conn. 1999), the Court noted its previous holding that “as a matter of public policy, arbitrators are not required to give collateral estoppel effect to prior arbitral awards.” The Court reiterated the reasoning for its holding, including its observation that in negotiating an arbitration agreement, “parties are free to bargain for whatever terms they choose, including a provision establishing a system of arbitral precedent.”
Based on its reasoning in Stratford, the Court held that “[i]n the absence of a specific contractual provision governing the issue, for which the parties are certainly free to bargain, arbitrators are not required to apply claim preclusion.” Instead, arbitrators “are free to apply or to reject the doctrine to the extent that they deem it appropriate because the parties have bargained for their judgment.” Based on this reasoning, the Court refused to disturb the award.
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