Ninth Circuit Blocks Use of Issue Preclusion to Invalidate Arbitration Deals

The Ninth Circuit limited non-mutual issue preclusion to prevent parties from avoiding arbitration deals.

The Ninth Circuit’s opinion in O’Dell v. Aya Healthcare Services, Inc. draws a firm line: courts cannot use non-mutual offensive collateral estoppel to sidestep arbitration agreements covered by the Federal Arbitration Act (FAA).

• Aya Healthcare required employees to sign arbitration agreements, including clauses assigning arbitrators the authority to decide validity.
• Former employees brought a class action alleging wage-related claims, resulting in four separate arbitrations—two declared the agreements unconscionable, two upheld them.
• The district court invalidated 255 arbitration agreements in one sweep, relying on the two earlier arbitral decisions via non-mutual issue preclusion.

But the Ninth Circuit reversed, holding that the FAA’s principle of enforcing arbitration agreements according to their terms outweighs attempts to invalidate those agreements by giving collateral estoppel effect to prior arbitral decisions between different parties.

Judge Eric C. Tung wrote, "Precluding an arbitration that the parties had agreed to—because a different arbitrator in a different proceeding had concluded that an agreement between different parties was unconscionable—would render the parties’ consent meaningless." He further underscored that "the application of non-mutual offensive issue preclusion would also violate the principle of consent that the [Federal Arbitration Act] incorporates."

The decision clarifies that each arbitration agreement stands on its own for enforcement and validity, aligning with the FAA's emphasis on tailor-made consent and individualized assessment.