Arbitration: A 4-3 Georgia Supreme Court Sends Res Judicata Question to Trial Court (Web)

In a 4-3 decision, the Georgia Supreme Court reversed an appellate court that required a res judicata determination to be made by an arbitrator, holding that, under the arbitration agreement in the case, the parties didn’t “expressly intend” arbitration for the threshold question. Bryan County v. Yates Paving & Grading Co. Inc., et al., No. S06G0119, 2006 WL 3438073 (Nov. 30, 2006)(also available at http://www.gasupreme.us/pdf/s06g0119.pdf).

The Court case granted certiorari to determine whether the state Court of Appeals erred by holding that an arbitrator, rather than a court, should determine the preclusive effect of a previous arbitration on a subsequent arbitration.

Res judicata, the Court explains, acts as a procedural bar to claims that were raised or could have been raised in an earlier action.

The Bryan County dispute arose of out of a public works contract between Bryan County and Yates Paving & Grading Co., under which Yates agreed to build and improve public roads in a subdivision.
The county ordered Yates to halt construction and hired a third party to complete the project. Yates demanded arbitration and received a monetary damages award, which was confirmed by a trial court and affirmed on appeal. Bryan County v. Yates Paving & Grading Co., 251 Ga.App. 441, 554 S.E.2d 584 (2001).

Three years later, Yates initiated another arbitration under the contract. It alleged, according to the Court’s opinion, that “the county's wrongful conduct rendered Yates unable to bid on other government contracts.”

Bryan County argued that the new claims were barred by the doctrine of res judicata, because they were not raised in the first arbitration. A trial court granted Bryan County’s summary judgment motion, denying Yates' motion to compel arbitration.

The appeals court reversed, holding, because the res judicata effect of the first arbitration award fell within the scope of the parties' agreement to arbitrate, the arbitrator, not the court, should have decided whether the arbitration was barred by res judicata. Yates Paving & Grading Co. v. Bryan County, 275 Ga. App. 347, 620 S.E.2d 606 (2005).

The Supreme Court opinion examines the trial court’s role in determining whether the claims covered by the agreement are actually arbitrable before submitting them to an arbitrator. Justice Harold Melton, writing on behalf of the majority, observes that “the trial court here was not passing on the merits of appellee's underlying arbitration claims by applying res judicata. It was merely fulfilling its gatekeeping role to determine whether any arbitrable claim had been presented in the current action. Where the claims presented are barred by res judicata, no arbitrable claims remain to be submitted to an arbitrator.”
The opinion also notes that the arbitration agreement language “does not indicate that the parties expressly intended only for an arbitrator to resolve the issue of res judicata, which is a principle of law that does not arise out of the contract documents,” relying on Waterfront Marine Constr. Inc. v. North End 49ers Sandbridge Bulkhead Groups A, B, and C, 468 S.E.2d 894 (1996).

The Court emphasizes that res judicata is a procedural bar to the claim and not something arising out of or relating to the parties’ contract. It notes, “Because arbitration has already taken place on the issues that were previously raised, there is nothing left for an arbitrator to resolve relating to those same issues.”
The Court emphasizes that it isn’t barring an arbitration res judicata determination. It notes that arbitration is limited to the arbitration agreement’s scope, and that res judicata didn’t fall under the Bryan County agreement.

Presiding Justice Carol W. Hunstein dissented, stating, “Consistent with the provisions of the Georgia Arbitration Code limiting the issues to be considered by trial courts when ruling on motions to compel arbitration and the parties' agreement to refer to arbitration all of the claims, disputes, and other matters arising out of or relating to the public works contract, I would agree with the Court of Appeals and hold that the applicability of Bryan County's res judicata defense was an issue to be decided by the arbitrator.”

The dissent disagrees with the majority opinion on three points. First, it finds the majority has ignored the legislature's policy favoring arbitration in its argument that the trial courts are authorized to consider res judicata as a procedural issue, rather than the arbitrator. The dissent says that the view directly contravenes OCGA § 9-9-4(d), “the statute prohibiting courts from considering either the tenability or the merits of a claim with respect to which arbitration is sought.” (Emphasis is in the opinion.)

Second, the dissenting panel asserts that the majority's argument that res judicata did not arise out of or relate to the contract documents isn’t supported by the record. Presiding Justice Hunstein asserts, “The broad and comprehensive scope of the parties' arbitration agreement, requiring arbitration of all issues between the parties in any way arising out of or related to the contract, cannot reasonably be interpreted to mean that the parties intended to refer to arbitration all claims, disputes or other matters except issues of res judicata.” (Emphasis is in the opinion.)

Finally, the dissent follows the U.S. Supreme Court in Howsam v. Dean Witter Reynolds Inc., 537 U.S. 79 (2002), holding that “issues of procedural arbitrability are presumptively for the arbitrator.”

Hunstein applies the rationale, concluding “that a claimed defense of res judicata does not present a ‘gateway dispute’ about whether the agreement to arbitrate is valid or whether the particular claim in dispute falls within the scope of the agreement. Rather, it is a question, like waiver, delay, laches, and estoppel, that bears on the final disposition of the parties' dispute and, as such, presents an issue of procedural arbitrability for the arbitrator to decide.”

Chief Justice Leah Ward Sears and Justice Robert Benham joined Hunstein’s dissent.

--By Ongmu Tshering, CPR Intern