Commercial Litigation and Arbitration

Res Judicata / Collateral Estoppel May Form Valid Defenses to Motion to Compel Arbitration

Saucier v. Aviva Life & Annuity Co., 2012 U.S. App. LEXIS 23531 (5th Cir. Nov. 16, 2012):

Under the Mississippi Structured Settlement Protection Act ("MSSPA"), no direct or indirect transfer of structured settlement payment rights is effective unless a court finds, among other things, that the transfer is in the best interest of the settlement payee. Miss. Code Ann. § 11-57-7. The MSSPA also requires the transferee to provide notice to all interested parties at least twenty days prior to any hearing on the transferee's application to transfer payment rights. Miss. Code Ann. § 11-57-11. The Chancery Court of Harrison County, Mississippi (the "state court") initially approved the sale of Saucier's future payments to RSL. However, on Saucier's motion, the state court later set aside the approval order, apparently due to noncompliance with the MSSPA. The state court denied RSL's motion to reconsider this decision on January 15, 2010. ***

The judgment of the district court [staying arbitration] is REVERSED and the case is REMANDED for further proceedings. On remand, the district court should determine whether RSL is entitled to compel arbitration under 9 U.S.C. § 3. The state court has previously held that the purported agreement between Saucier and RSL is invalid due to noncompliance with the MSSPA. Furthermore, the state court views this holding as a final order. R. 765. Arbitration cannot be used to relitigate claims or issues that have been definitively decided and have therefore acquired res judicata or collateral estoppel effect. See, e.g., Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 499 (5th Cir. 1986) ("Since an arbitration award involves the entry of judgment by a court [confirming the award], parties should be barred from seeking relief from arbitration panels when, under the doctrine of res judicata, they would be barred from seeking relief in the courts." ). Of course, the district court must determine in the first instance whether any issues or claims decided by the state court are entitled to preclusive effect. This court further notes circuit precedent holding that "a sham arbitration cannot be used as a device to bring about an otherwise unlawful transfer" -- specifically, a party cannot use arbitration to enforce an agreement to transfer structured settlement payments if this agreement has been rejected by the state court under a structured settlement protection act. Rapid Settlements, Ltd. v. Symetra Life Ins Co., 567 F.3d 754 (5th Cir. 2009); see also Symetra Life Ins. Co. v. Rapid Settlements, Ltd., 599 F. Supp. 2d 809 (S.D. Tex. 2008).

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