Res Judicata and Collateral Estoppel Do Not Apply To Claims Over Which An Arbitrator Lacked Jurisdiction

In a Decision and Order, dated October 11, 2023, in BT Supplies West, Inc. v. Brookline, LLC., Index No. 651364/2023, Justice Margaret A. Chan denied defendant’s motion to dismiss plaintiff’s breach of contract and account stated claims. (Schlam Stone & Dolan LLP represents the plaintiff in this action). Defendant argued that plaintiff’s claims should be dismissed because they were previously decided in an arbitration and thus res judicata or collateral estoppel applied. The court rejected defendant’s position, explaining:

With respect to Count I - Lilogy's breach of the Second Purchase Order·and Count II - account stated - Lilogy argues that these two claims are barred by res judicata because they were litigated in the Arbitration or could have been properly brought (id. at 7). Specifically, Lilogy contends that Count I was precluded due to lack of subject matter jurisdiction and Count II was precluded due to BT's repeated failure to specify its claims (NYSCEF # 22, MOL in Reply at 9)…

The issue relevant to Count I is whether a dismissal of a complaint for lack of jurisdiction is a judgment on merit. "Under res judicata, a valid final judgment bars future actions between the same parties on the same cause of action" (Simmons v Trans Express, Inc. 37 NY3d 107, 111 [2021]; see also Denehy v St. John's Queens Hosp., 114 AD2d 991, 992 [2d Dept 1985] ["The dismissal of the prior action by the Federal District Court for lack of subject matter jurisdiction does not require that the present action be dismissed on the ground of res judicata"]. Here, despite Lilogy's assertion that BT actually tried Count I in the Arbitration or could have properly brought the claims, the arbitrator determined that "BT has not brought a claim for breach of the separate agreement contained within Purchase Order 07012020A (the Second Purchase Order)" because the Second Purchase Order "formed a separate agreement than what is contained in the Supply Agreement" (Final Award at 21·22). The Second Purchase Order is thus not within BT's breach of contract claim in the Arbitration Complaint because the Arbitration Complaint is limited to the Supply Agreement (Final Award at 21). Put differently, the arbitrator concluded that JAMS had no jurisdiction over the Second Purchase Order based on the arbitration clause in Section 7 of the Supply Agreement. Given this conclusion, the arbitrator had no occasion to address the merits of BT's breach of contract claim arising under the Second Purchase Order. Therefore, the arbitrator's decision was not a final adjudication on the merits (see Baltimore Mail S.S. Co., v Fawcett, 269 NY 379, 390 [1936]). Since BT's Count I in the current lawsuit is only about the Second Purchase Order, Count I is not precluded by the doctrine of res judicata.

The court reaches a similar conclusion with respect to Count II for account stated. The issue relevant to Count II is whether the grant of summary judgment is a judgment on merit. The grant of summary judgment usually results in a final judgment only if the grant resolves all issues for all parties (Burke v Crosson, 85 NY2d 10, 15 [1995] ["an order or judgment that disposes of some but not all of the substantive and monetary disputes between the same parties is, in most cases, nonfinal."]). Here, BT's Count II is [the] same as the account stated claim in its Motion for Summary Disposition of the Arbitration. The arbitrator did not recognize this claim because BT brought this claim after the arbitrator was appointed and did not request for leave to amend (Order on Pending Motions at 4). However, because a summary judgment should resolve all issues for all parties to be a judgment on merit, and the Order on Pending Motions left the issues unresolved, the arbitrator's summary judgment is not a judgment on merit...

For similar reasons, the court found that BT Supplies’ breach of contract and account stated claims were not barred by collateral estoppel.

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning breach of contract or claim or issue preclusion.