The Use of Collateral Estoppel After Arbitration

The general concept of Collateral Estoppel is to bar the re-litigation of issues in a later action that were actually litigated and conclusively adjudicated in a first action. 

While collateral estoppel can be useful in saving large amounts of money and time in trial and preparation, it is not without limitation.  Given the growing use of Arbitration as a litigation means, the question arises whether an arbitration award can be used to assert collateral estoppel in a subsequent lawsuit?  As a general rule, the answer is no.  Absent an agreement to the contrary, issues which are decided by an arbitration can be re-litigated.  However, there are potential exceptions to this rule and manners in which to argue the contrary.

 In Vandenberg v. Superior Court, 21 Cal.4th 815 (1999), the California Supreme Court noted that because of the informal nature of arbitrations, and for various other public policy reasons, that it was “compelled to conclude that a private arbitration award, even if judicially confirmed, can have no collateral estoppel effect in favor of third persons unless the arbitral parties agreed {…} that such a consequence should apply.  Id. at 834.  While this ruling appears to provide no exception to this rule, there are exceptions nonetheless.  For instance, a third party may still be able to seek collateral estoppel if the third party is sufficiently close to a party to the arbitration as measured by interest and relationships.  For example, in Sartor v. Superior Court, 136 Cal. App.3d 322 (1982), the First District Court of Appeals held that because a corporation, which was a party to the arbitration, can only act through its agents and employees, the arbitration findings could be used as basis for asserting collateral estoppel by the third party agents/employees. 

Additionally, a party can seek an exception to the general rule that issues decided in arbitration can be re-litigated by demonstrating the arbitration was not an informal proceeding but rather contained the formality and safeguards that a formal action would have.  For example, in Kelly v. Vons Companies, Inc. the Court suggested that the arbitration in that action “had the elements of an adjudicatory procedure.”  67 Cal. App. 4th 1329, 1336.  Specifically, the arbitration was found to be “formal,” with briefings, discovery, motions and other adjudicatory procedures. 

 The Kelly court summarized the elements necessary for establishing collateral estoppel as including 1) the need for the issues to be identical to those decided in a prior proceeding; 2) the issues were actually litigated; 3) the issues were necessarily decided; 4) the doctrine is asserted against a party to the former action or who was in privity of a prior party; and 5) the former decision was final and made on the merits.  Id. at 1339.

 In summary, while the general rule is to disallow the assertion of collateral estoppel by a third party based on a prior arbitration award, there are exceptions.  To argue in favor of the application of collateral estoppel a party needs to establish:  1) the prior arbitration “had the elements of an adjudicatory procedure” such as an impartial and qualified officer, formal recording of testimony under oath, cross-examination, motions, discovery and a written statement of the decision; 2) the issues attempting to be estopped are identical to those decided in the arbitration; 3) the issues were actually litigated and “necessarily” decided; Id. 4) collateral estoppel is being asserted against a prior party to the arbitration or a party in privity of interest with a prior party; and 5) the decision from the arbitration was made on the merits. 

 ABOUT THE AUTHOR: Ms. Ramirez is a graduate of Southwestern University School of Law. She specializes in the defense of contractors and materials suppliers in the areas of construction defect and construction related claims. Contact her at PRamirez@tysonmendes.com.

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