What opportunities are created when only one defendant moves to compel arbitration, and who gets the advantage?
This is the scenario that confronted the D.C. Court of Appeals in Walker v. FedEx Office & Print Services, Inc., __ A.3d __, 2015 WL 4773731 (D.C. Aug. 13, 2015), downloadable at http://bit.ly/1Js5OWn. Kisha Walker, a terminated manager, sued the company under the D.C. Human Rights Act, alleging racial discrimination and retaliation. She also named as defendants her supervisor and a Human Resources official, alleging that they aided and abetted FedEx.
Walker had signed an optional arbitration agreement that applied to “all claims and disputes arising from or relating to employment with FedEx Kinko’s or the termination of employment,” including discrimination and retaliation. It also stated: “this Agreement shall extend to FedEx Kinko’s and also to its officers, directors, employees, agents, administrators, parent companies, subsidiary companies, and affiliated entities….”
FedEx moved by itself to compel arbitration, the motion was granted, and the Superior Court stayed proceedings. Walker filed an arbitration claim naming only FedEx as respondent.
She lost. The arbitrator found no discrimination and no retaliation. FedEx moved in court to confirm the award and for dismissal with prejudice, and the court granted the motion.
The FedEx officials then moved for dismissal based on collateral estoppel (issue preclusion), and the motion was granted. Walker appealed.
D.C.’s Definition of Collateral Estoppel
The Court of Appeals defined collateral estoppel: “Collateral estoppel bars relitigation of an issue of fact or law when ‘(1) the issue is actually litigated; (2) determined by a valid, final judgment on the merits; (3) after a full and fair opportunity for litigation by the parties or their privies; and under circumstances where the determination was essential to the judgment, and not merely dictum.’”
Arbitration Awards Qualify for Collateral Estoppel
The court then held that collateral estoppel was available for arbitration awards: “‘An arbitration award is considered a final judgment on the merits for purposes of res judicata’ . . . and we see no reason to reach a different conclusion for purposes of collateral estoppel.”
Defendants Can Invoke It, Even Though Not Part of the Arbitration
The court went on to say: “Collateral estoppel may be invoked defensively by a defendant who was not a party to the original proceedings, to prevent a plaintiff from relitigating an issue that the plaintiff had previously litigated unsuccessfully.” (Emphasis supplied.)
Reasons for the Rule
The court gave a short explanation of the benefits of the rule: “Precluding ‘parties from contesting matters that they have had a full and fair opportunity to litigate protects their adversaries from the expense and vexation attending multiple lawsuits, conserves judicial resources, and fosters reliance on judicial action by minimizing the possibility of inconsistent decisions.’”
Privity Not Required for Defensive Collateral Estoppel
The court rejected Walker’s argument that FedEx and its officials were not in privity, stating that privity was not required for collateral estoppel in D.C. While the court did not limit its statement to defensive collateral estoppel, that is a fair reading of the decision and its authorities.
The Court of Appeals concluded that, while the arbitrator did not explicitly make any findings as to the two officials, the award covered all of their actions because those were the basis for Walker’s claims against FedEx. There was no evidence that either official acted in any way other than as agents of FedEx, and since FedEx did not discriminate or retaliate there were no violations of law they could have aided or abetted.
Individuals’ Canny Strategy Worked
As a result, the two individuals were able to wait out the arbitration and take advantage of FedEx’s victory.
Defense? Offense? What Does it Matter?
This interesting decision would have become even more interesting if Ms. Walker had won the arbitration. The court dealt with defensive collateral estoppel, where the answers are easier than if offensive collateral estoppel had been involved.
For example, if Ms. Walker had won the arbitration, could she have obtained partial summary judgment against the two individuals on the issue whether there was an underlying violation of the D.C. Human Rights Act? What if the arbitrator had made findings of discrimination or retaliation by the two individuals, even though they were not parties to the arbitration?
Privity Returns to the Fray
A two-part test provides the answer.
First, were the two individuals in “privity” with FedEx? A 2006 decision of the D.C. Court of Appeals, Modiri v. 1342 Restaurant Group, Inc., 904 A.2d 391, 396-97 (D.C. 2006), defined the term:
A privy is one so identified in interest with a party to the former litigation that he or she represents precisely the same legal right in respect to the subject matter of the case.” . . . The “orthodox categories” of privies are “‘those who control an action although not parties to it …; those whose interests are represented by a party to the action …; [and] successors in interest.” . . .
If Ms. Walker had won the arbitration and tried to bind the individual defendants to the result, the positions of the parties would have switched: Ms. Walker would have needed to argue that the two individuals were each in privity with FedEx, and they would have needed to deny it. Based on the facts recited by the Court of Appeals, Ms. Walker would probably have won this argument.
Second, would it be fair to apply offensive non-mutual collateral estoppel to bind someone who was not a party to the earlier action, even if in privity with a party to that action? Modiri relied on a longstanding standard articulated in a case called Ali Baba Co., Inc. v. WILCO, Inc., 482 A.2d 418, 423 (D.C. 1984):
(1) Whether the first suit was for a trivial amount while the second was for a large amount; (2) whether the party asserting the estoppel could have effected joinder between himself and his present adversary, but did not do so; (3) whether the estoppel is based on one of conflicting judgments, another of which is in defendant’s favor; (4) whether there are significantly different procedural advantages available to the defendant in the second suit which could affect the outcome.
If Ms. Walker had won the arbitration and had won the that argument whether FedEx’s officials were in privity with it, she would clearly have the better argument on the first and third factors, and the individuals could argue that the fourth factor would weigh in their favor since they would have the right to jury trial and appeal in court. The argument would not be strong, because many plaintiffs have made the same argument in opposing notions to compel arbitration, and lost.
Where Ms. Walker would have the most problem would be on the second factor. Just as the individual defendants could have moved to compel arbitration, plaintiff could have filed a demand in arbitration that named them as respondents. It is not at all clear that plaintiff would win this argument.
Take-Aways for Future Cases in Light of the Walker Decision
The case provides some important take-aways.
First, a plaintiff does not have an opportunity to have a “do over” against defendants’ officials for actions or omissions within the scope of their duties by leaving them out of the arbitration.
Second, a plaintiff who wins the arbitration without naming the individuals as respondents may have to have a second trial against the individuals later on, run as much risk as if there had never been an arbitration, still get no more back pay than she already got against the employer, and still be at hazard as to liability and damages.
Third, individual defendants can “sit out” the arbitration if plaintiff lets them, never have to pay the arbitration fees, forum fees, attorneys’ fees or expenses resulting from being in the arbitration, win if the defendant wins and the only acts alleged against them were in the scope of their duties for defendant, and still have a fighting chance even if the defendant loses the arbitration.
Fourth, those corporate or agency defendants who are paying the legal expenses of their officials who have been sued in their individual capacities—an arrangement that is pretty important to keeping their officials happy and avoiding a lot of turnover—can save a bundle by imitating the actions of FedEx here, moving by themselves to compel discovery, and giving the plaintiff a chance to name only the company or agency as a defendant.
Fifth, in light of all this, plaintiffs making demands in arbitration should name all defendants covered by the agreement, even if suing multiple defendants and fewer than all defendants moved to compel arbitration, if the defendants consisted of a corporation or agency and its officials, where the officials acted solely within the scope of their duties.
Why would a plaintiff want to give some defendants a free pass, where it’s “heads I win, tails you still may lose”?
Why wouldn’t a sensible corporate or agency defendant fail to try this strategy?
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Richard T. Seymour
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