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Friday, November 18, 2005

Cases: Collateral Estoppel by Arbitral Award

California_flag_17 An arbitrator’s decision that a contract is unenforceable because it was not signed by the defendant collaterally estops the plaintiff from raising issues under the contract in a subsequent court proceeding, according to a new unpublished decision by the California Court of Appeals.  But it can raise non-contract-based theories that arise out of the same transaction.

In the case,  plaintiff Ultimate Experience sold a ride simulator to defendant Castle Rock, an amusement park.  When a dispute arose, Ultimate sought arbitration.  The three arbitrators subsequently agreed unanimously that the contract had never been validly signed and executed by Castle Rock.  Accordingly, they issued a “take nothing” order against Ultimate.  Ultimate then sued in state court, arguing in effect that if there was no valid contract with Castle Rock, there was no valid arbitration clause.  If there was no valid arbitration clause, then Ultimate had not agreed to arbitrate.  If it had not agreed to arbitrate, it was free to bring an action in state court on its contract claims.

Wrong, said the court.  The determination that the contract is unenforceable was validly before the arbitrators, and its decision that plaintiffs cannot claim under the contract -- made on whatever ground -- collaterally estops the plaintiffs from recovering.  But that doesn’t end the inquiry.  Here,

Ultimate alleges that Castle Park had possession of its property (the simulator and accessory equipment) and was so careless about storing it that losses were suffered due to exposure to the elements, vandalism, and theft. It also alleges that Castle Park refused to return the property, retaining it for its own use.

These aren’t contractual claims, and the arbitrators did not rule on them.  Therefore the determination that the contract was unenforceable does not prevent Ultimate from bringing an action in state court.

Ultimate Experience v. Raging Waters Group, 2005 Cal. App. Unpub. LEXIS 10277  (2d Dist. Nov. 9, 2005)

[Frank Snyder]

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