First Circuit: Arbitral Tribunal and Not Court to Decide Collateral Estoppel Effect of Judgment Confirming Arbitration Award | Practical Law

First Circuit: Arbitral Tribunal and Not Court to Decide Collateral Estoppel Effect of Judgment Confirming Arbitration Award | Practical Law

In a case of first impression for the court, the US Court of Appeals for the First Circuit in Employers Insurance Company of Wausau v. OneBeacon American Insurance Co. held that the issue of whether a federal judgment confirming an arbitration award has collateral estoppel effect is decided by the arbitral tribunal, and not the federal court.

First Circuit: Arbitral Tribunal and Not Court to Decide Collateral Estoppel Effect of Judgment Confirming Arbitration Award

by Practical Law Litigation
Published on 28 Feb 2014 • USA (National/Federal)
In a case of first impression for the court, the US Court of Appeals for the First Circuit in Employers Insurance Company of Wausau v. OneBeacon American Insurance Co. held that the issue of whether a federal judgment confirming an arbitration award has collateral estoppel effect is decided by the arbitral tribunal, and not the federal court.
On February 26, 2014, in a case of first impression for the court, the US Court of Appeals for the First Circuit in Employers Insurance Company of Wausau v. OneBeacon American Insurance Co. held that the collateral estoppel effect of a federal judgment confirming an arbitration award is decided by the arbitral tribunal, and not the federal court (744 F.3d 25 (1st Cir. 2014)).
This decision arises out of a declaratory judgment action started by plaintiffs Employers Insurance Company of Wausau and National Casualty Company against defendant, OneBeacon American Insurance Company, and others (collectively OneBeacon) to determine the collateral estoppel effect of a federal judgment confirming an arbitration award. Defendant OneBeacon had entered into reinsurance contracts with various reinsurers, including Swiss Reinsurance America Corporation and plaintiffs. In December 2007, OneBeacon demanded arbitration with Swiss Re seeking reinsurance recovery for losses paid by OneBeacon to various policyholders. The arbitration panel decided in favor of Swiss Re and the US District Court for the District of Massachusetts confirmed the award.
In April 2012, OneBeacon demanded arbitration with each of the plaintiffs. By agreement, OneBeacon, Wausau and National Casualty combined the arbitrations into a single proceeding. Subsequently, the plaintiffs petitioned the District of Massachusetts for a declaratory judgment that the prior arbitration award between OneBeacon and Swiss Re had preclusive effect on the arbitration pending between OneBeacon and Wausau. The district court denied the petition, holding that "the preclusive effect of a prior arbitration is a matter for the arbitrator to decide." Wausau appealed.
On appeal, the First Circuit affirmed. The court held that when an arbitration decision is confirmed by a federal court, the preclusive effect of the decision is a matter for the arbitrator rather than the court. The court rejected Wausau's argument that only federal courts should have the authority to determine the preclusive effect of federal court judgments confirming an arbitration award. In reaching its decision, the First Circuit held:
  • The scope of the arbitration agreement determines whether the preclusive effect of an arbitration award is an arbitrable issue.
  • There is a broad agreement among the circuit courts that the effect of an arbitration award on future awards is properly resolved through arbitration.
  • Under the FAA, the federal court's review of an arbitration decision rarely considers the merits and serves two very limited purposes:
    • whether the decision should be vacated or amended on one of the specified statutory grounds; and
    • a mechanism for enforcement.
  • By contrast, collateral estoppel analysis requires the court to examine the details of the prior arbitration.
Practitioners should be aware that the preclusive effect of a federal judgment confirming an arbitration award is determined by the arbitral tribunal, and not the federal court.