The clothing retailer, Jasmine, purchased an insurance policy from

Evanston. The policy covered any claim that sought relief for wrongful

employment practices. The policy contained a coverage exclusion for

claims based on “conduct. . . committed with wanton, willful, reckless or

intentional disregard of any law. . . .” Manganella sold Jasmine to Lerner

New York, Inc. Lerner kept Manganella as President of Jasmine and $7

million of the purchase price was placed in escrow as security for any

major employment breach by Manganella.

 

Multiple sexual harassment allegations prompted Lerner to fire

Manganella and invoked the arbitration clause to demand the escrow

fund. The arbitration panel found that Manganella did not comply with

the Lerner’s corporate Code of Conduct on sexual harassment and did so

willfully. The panel, however, did not award the escrow funds because

Lerner failed to give notice and an opportunity to remedy as required by

the purchase agreement.

 

A month before the arbitration ended, a former human resources

manager for Jasmine filed a discrimination charge against Manganella,

Lerner, and Jasmine with the Massachusetts Commission Against

Discrimination. After receiving the discrimination charge, Manganella

requested coverage from Evanston Insurance under Jasmine’s

Employment Practices Liability Policy. Because Evanston denied

coverage based on the policy’s coverage exclusion, Manganella brought

action against Evanston in federal district court. The district court, a few

months after the arbitration decision on the escrow funds, held that the

doctrine of issue preclusion barred Manganella from re-litigating the

willful violation issue.

 

Arbitration awards receive the same preclusive effects if the issues

are sufficiently similar and the determination on the issue in arbitration

was necessary. The First Circuit ultimately determined that both issues

were substantially identical because the state law and the Code both

prohibit sexual harassment in a similar way. The arbitrators weighed

Manganella’s conduct with the notice and remedy requirements of the

purchase, so the willful issue was necessary to the decision reached by

the arbitrators. The arbitration award precluded Manganella from relitigating

the willful violation issue with Evanston.

 

 

a. Rodriguez-Garcia v. Miranda-Marin, 610 F.3d 756, 771 (1st Cir

2010) (issue preclusion prevents a party from re-litigating an

issue).

 

b. FleetBoston Fin. Corp. v. Alt, 638 F.3d 70, 79 (1st Cir. 2011)

(earlier arbitration awards may receive the same preclusive

effects as prior court judgments).

 

 

 

Continental sold its metal can technology business to Crown via a

stock purchase agreement (SPA). The parties disputed the extent of each

other’s resultant liabilities, as defined by the indemnity provision in the

SPA, and agreed to arbitrate claims related to environmental liabilities in

binding arbitration. However, while arbitration was pending, Continental

chose to litigate the parties’ respective liability for former employees’

occupational claims.

 

Shortly after Continental filed its occupational hazard lawsuit,

Crown filed a motion with the arbitrator requesting a ruling that

Continental violated a section of the arbitration agreement which stated

that parties would not, during the pendency of the arbitration, commence

any action against the other party “relating to” any matters which were
the subject of arbitration. However, the arbitrator concluded that the