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When an Arbitration Claim is Made in Both State and Federal Courts, Is It Considered the Same for Res Judicata Purposes?

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The United States Court of Appeals for the Tenth Circuit had a chance to determine that in Fundamental Administrative Services, LLC; Fundamental Clinical Consulting, LLC v. Seth T. Cohen, as Personal Representative for the Estate of Tessie Hammann, deceased; VICKI MONTANO, No. 17-2025, (D. N.M., Oct. 2017).

In January 2014, Tessie Hammann was admitted to the Casa Arena Blanca Nursing Center (“Center”) in New Mexico. As part of the admission process, her daughter and attorney in fact, Vicki Montano (“Montano”), signed an agreement (“Agreement”) requiring arbitration of serious disputes, regardless of their cause or legal basis, involving an individual resident (or an individual resident’s representative). The agreement also had a delegation clause, stating that any disagreements regarding the applicability, enforceability or interpretation of the Agreement will be decided by the arbitrator and not by a judge or jury.

Ms. Hammann died not long after her admission to the Center. The personal representative of her estate, Seth Cohen (“Cohen”), and Montano filed a wrongful-death action in state court against Fundamental, which provided management and consulting services to the Center. Eight months later, Fundamental filed in federal district court to compel arbitration based on the Agreement that Montano had signed on Ms. Hammann’s behalf. Cohen and Montano then filed in state court a motion to determine arbitrability. The state court ruled that Fundamental could not enforce the Agreement because Fundamental was neither a signatory to, nor a third-party beneficiary of, the Agreement.

When the federal district court learned of the state court’s arbitrability ruling, it invited briefing on the ruling’s res-judicata effect. The district court then dismissed Fundamental’s complaint as precluded by res judicata. Fundamental appealed.

To determine the preclusive effect of a state court judgment in a subsequent federal lawsuit, the Court uses the preclusion law of the state in which the prior judgment was rendered. Under New Mexico law, the doctrine of claim preclusion, or res judicata, bars re-litigation of the same claim between the same parties when the first litigation resulted in a final judgment on the merits.

There are four requirements: the parties must be the same, the cause of action must be the same, there must have been a final decision in the first suit, and the first decision must have been on the merits. Fundamental challenges the second and fourth requirements, saying the causes of action were not the same and that the state court’s decision was not on the merits.

Fundamental contends the state case involved the arbitrability of Cohen and Montano’s wrongful-death action, while the federal case involved the antecedent issue of who should decide arbitrability—an arbitrator or a court. However, Fundamental raised both points in the district court. Therefore, the district court concluded that the arbitration claim in the state and federal proceedings was the same for res judicata purposes. This Court agreed.

The Court explained that this case is about Fundamental’s attempt to invoke the Agreement and keep Cohen and Montano’s wrongful-death action out of court. Whether the claim is presented in terms of arbitrability on the one hand, or the determination of arbitrability on the other hand, the claim originates from the same source—the Agreement.

In regard to the fourth res-judicata factor—whether the first decision was on the merits—Fundamental argues that the state court did not decide its delegation-clause claim that only an arbitrator could decide arbitrability.

The state court answered that question in the negative, applying principles of contract formation and concluding that Fundamental was not a party to the Agreement or even a third-party beneficiary who could enforce the Agreement. This Court stated that if Fundamental wants to appeal on the erroneousness of the state court’s ruling, that is an appeal that should be taken up in state court. The Court of Appeals affirms the lower court’s ruling.

The Metier Law Firm is committed to assisting people with personal injury claims throughout Colorado, Wyoming and Nebraska, and we frequently serve as co-counsel to law firms nationwide. Tom Metier recently secured the largest personal injury verdict in Colorado