Sixth Circuit Limits Res Judicata Effect of Arbitration
O’Neil Co. v. Shepley, Bulfinch, Richardson & Abbot, Inc.
involved the delayed construction of the University of Michigan’s Cardiovascular Center Hospital. The University’s architect was Shepley, Bulfinch, Richardson & Abbot (“SBRA”), and SBRA subcontracted with Smith Seckman Reid, Inc. (“SSR”) for certain specific designs. The University hired Barton Marlow (“Barton”) as the construction manager, who hired O’Neil as the mechanical contractor. Each contract contained a separate arbitration provision, but no single arbitration clause covered all the parties.
Delays haunted the project. O’Neil eventually initiated arbitration against Barton. Barton then initiated a separate arbitration proceeding against the University, which was consolidated with O’Neil’s arbitration. The University joined SBRA as a third-party defendant for indemnity, and SBRA joined SRR as a third-party defendant for indemnity. All of the parties thus were present in the arbitration. O’Neil prevailed on its claims against Barton; all of the various parties’ indemnity claims failed.
O’Neil then filed claims against SBRA and SSR in federal court for professional negligence and other torts – arising from the exact same facts and issues that were adjudicated in the arbitration. The district court held that the arbitration proceeding collaterally estopped the federal lawsuit.
On appeal, O’Neil argued that the district court’s decision should be reversed because O’Neil did not have privity with SBRA or SSR and, therefore, could not compel them to arbitration in the first instance. The Sixth Circuit agreed. Since O’Neil never agreed with SBRA or SSR to arbitrate disputes, it was not barred by res judicata from pursing claims against SBRA and SSR in court.
thus stands for the proposition that an arbitration decision will not have res judicata effect on a later federal court lawsuit if the plaintiff and defendant are not bound by a mutual arbitration agreement – even where the defendant actually participated in the arbitration.
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