In re Y&A Group Sec. Litig.

Issue Discussed: Res Judicata / Collateral Estoppel

Submitted by Aluyah I. Imoisili, Jamie E. Sutton*

Date Promulgated: October 21, 1994

In re Y&A Group Sec. Litig., 38 F.3d 380 (8th Cir. 1994)

Court: United States Court of Appeals, Eighth Circuit

Issues Decided: Whether a party in arbitration can be protected by consent judgment where they were not a defendant in the original action.

Key Holding

An investor brought a class action against Y&A Group Inc. (“Y&A”) for alleged false financial and other misleading statements that artificially inflated the company’s stock.  After the district court approved, by consent judgment, a negotiated settlement resolving the claims, the investor brought arbitration against Dean Witter Reynolds, Inc (“Dean Witter”), a brokerage firm that had not been a defendant in the Y&A litigation.  The arbitration panel denied Dean Witter’s motion to dismiss the arbitration as covered by the consent order.  Dean Witter then moved for an injunction in district court to enjoin the arbitration, which the district court granted.

The Eighth Circuit affirmed the district court’s ruling that the consent judgment barred claims against Dean Witter because there is a realistic identity of claims and the parties to the consent judgment intended to cover noncontributing third parties.

Key Takeaways

Parties may avoid arbitration if they are protected by the preclusive effect of a prior consent judgment that is intended to cover them even though they are not parties to the original action.

* Aluyah I. Imoisili is a Partner and Jamie E. Sutton is an Associate at Greenberg Gross LLP, where they specialize in commercial litigation and arbitration.