Second Circuit Holds That Arbitrators -- Not the Federal Courts -- Should Determine the Preclusive Effect of a Federal Judgment Confirming An Arbitration Award

In Citigroup, Inc. v. Abu Dhabi Investment Authority, 776 F.3d 126 (2nd Cir. 2015), the issue was whether the federal court had the authority to enjoin a second arbitration filed by Abu Dhabi Investment Authority (“ADIA”) against Citigroup, Inc. (“Citigroup”) after the United States District Court for the Southern District of New York had confirmed a previous award in favor of Citigroup and against ADIA. Citigroup claimed that ADIA’s new claims were barred by claim preclusion and res judicata of the federal judgment that had confirmed the prior award because ADIA’s current claims were or could have been raised in the first arbitration.

Citing to its previous decisions that held that arbitrators are to resolve the preclusive effects of an arbitration award confirmed by a state court and a federal judgment that had been issued on the merits, the Second Circuit held that it was the arbitrators, not the federal courts, who should determine the preclusive effect of a federal judgment confirming an arbitration award. The court noted that, in confirming the award, the district court did not review the merits of any of ADIA’s substantive claims or the context in which the claims arose, considering only whether the panel’s evidentiary rulings and application of New York’s choice of law provisions violated the FAA. Accordingly, the court found that a district court unfamiliar with the underlying circumstances, transactions, and claims was not the best interpreter of what had been decided in the arbitration proceedings.

A copy of the Second Circuit’s decision is linked here.