In Freecharm Ltd. v. Atlas Wealth Holdings Corp., 499 F. App'x 941 (11th Cir. 2012), Freecharm Limited (Freecharm) brought an action against Atlas Wealth Holdings Corporation (Atlas), alleging "egregious misrepresentations and fraud" in violation of federal securities law and various state laws. Freecharm claimed that Atlas had engaged in a pattern of unauthorised activities designed to generate higher commissions for the company and to mislead Freecharm about the value of its investments.

In 2009, Freecharm initiated arbitration proceedings before the Financial Industry Regulatory Authority (FINRA) against Atlas. The FINRA arbitration panel held evidentiary hearings on Freecharm’s claims and concluded that Freecharm had failed to adequately support its claims. When Atlas sought confirmation of the FINRA award, the District Court remanded the case to the arbitration panel for clarification. On remand, the arbitration panel reiterated its rejection of Freecharm’s claims and the District Court subsequently confirmed the arbitration award.

Before the FINRA arbitration award was made, Freecharm had initiated practically identical claims against Atlas, and its officers and parent company, in a state court. Atlas removed that case to federal court and asserted that, in light of the pending arbitration, all of Freecharm’s claims were barred by res judicata and collateral estoppel. The District Court agreed and granted summary judgment. Freecharm appealed to the Eleventh Circuit, arguing that the District Court had erred in giving preclusive effect to the FINRA arbitration award.

The Eleventh Circuit affirmed the District Court, by holding that collateral estoppel barred re-litigation of issues resolved by the FINRA arbitration. The Eleventh Circuit explained that collateral estoppel or issue preclusion prevents the re-litigation of an issue of fact or law that has been litigated and decided in a prior suit. The Eleventh Circuit noted that collateral estoppel applies when the:

The Eleventh Circuit reviewed the FINRA arbitration record and concluded that all four requirements were fulfilled. The Eleventh Circuit emphasised that Freecharm had conceded that the factual allegations of wrongdoing in the action were identical to those alleged in the arbitration. Freecharm was seeking to hold the principals (that is, the parent companies and their individual officers) liable for the same alleged wrongdoing for which the arbitration panel had already exonerated the agents (that is, Atlas One and its brokers). The exoneration of the agent necessarily operates as a preclusive exoneration of the principal’s liability.

The Eleventh Circuit noted that the clarified arbitration award made it "absolutely clear" that these factual issues were actually litigated in the arbitration and that these issues were a critical and necessary part of the arbitration decision. Moreover, there was no suggestion that Freecharm did not have every opportunity to litigate these issues in the FINRA arbitration. Accordingly, the Eleventh Circuit concluded that collateral estoppel barred Freecharm from re-litigating the claims that had already been resolved against it in the FINRA arbitration.

This case illustrates the preclusive effects that an arbitration proceeding may have in court litigation. In particular, the case provides an example of collateral estoppel foreclosing the re-litigation of an issue of fact or law that has already been resolved through arbitration.