Case Law Chronicle: Second Circuit finds that res judicata issue is for arbitrators, not courts

January 15, 2015

This is the first installment in a new, regular series offered by NYIAC’s Executive Director, Alexandra Dosman. Follow this series to learn about recent decisions by New York federal and state courts and for easy access to the full text of the decisions.



Citigroup, Inc. v. Abu Dhabi Investment Authority, No. 13-4825-cv (January 14, 2015) [Dkt. 86-1], in which the Second Circuit found that under the Federal Arbitration Act, “the preclusive effect of a prior federal judgment confirming an arbitration award is to be left to the arbitrators.”

Second Circuit finds that res judicata issue is for arbitrators, not courts

Who decides: courts or arbitral tribunals? The Second Circuit has put one more issue—whether a federal judgment confirming a prior arbitral award precludes subsequent arbitration of claims—squarely within the remit of arbitrators.  Citigroup, Inc. v. Abu Dhabi Investment Authority, No. 13-4825-cv (January 14, 2015) [Dkt. 86-1] (U.S. Court of Appeals for the Second Circuit)

The case arose out of an investment agreement between Citigroup, Inc. and the Abu Dhabi Investment Authority (“ADIA”) that contained an arbitration agreement. ADIA commenced arbitration, and the arbitrators issued an award in favor of Citigroup. In 2013, the award was confirmed by the United Sates District Court for the Southern District of New York (Daniels, J.).  ADIA appealed to the Second Circuit seeking to vacate the award; the appeal was denied.

Meanwhile, ADIA served a new notice of arbitration on Citigroup under the investment agreement. Citigroup brought a new action in the Southern District of New York to enjoin the arbitration. Citigroup argued that ADIA’s claims were barred by the doctrine of res judicata (claim preclusion) because they could have been adjudicated in the first arbitration. The district court (Castel, J.) compelled arbitration on the basis that Citigroup’s res judicata defense was a matter for the arbitrators, not the court.

On appeal, the Second Circuit agreed, holding that: “The FAA’s policy favoring arbitration and our precedents interpreting that policy indicate that it is the arbitrators, not the federal courts, who ordinarily should determine the claim-preclusive effect of a federal judgment that confirms an arbitration award.” The court noted that the breadth of the arbitration clause (“any dispute that arises out of or relates to the [Investment Agreement], or the breach thereof”) further supported the conclusion that the claim preclusion issue was one for the arbitrators rather than the court.

The Second Circuit’s guidance is clear: “even if we harbored some doubt as to whether the claim preclusion dispute in this case is arbitrable, we would resolve that doubt in favor of arbitration.” Who decides? The arbitral tribunal.

Circuit Judges: Wesley, Hall, Lynch

Counsel to Citigroup: Paul, Weiss, Rifkind, Wharton & Garrison LLP (Leslie Gordon Fagen, Brad S. Karp, Gregory Laufer)

Counsel to ADIA: Quinn Emanuel Urquhart & Sullivan, LLP (Sanford I. Weisburst, Peter E. Calamari, Tai-Heng Cheng)

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