Tenth Circuit Remands Case for Arbitrability Determination, Concludes That State Court Decision Relied on by District Court No Longer Had Preclusive Effect

In Nu Skin Enterprises Inc. v. Raab, the Tenth Circuit Court of Appeals considered the preclusive effect of a state trial court decision as it related to the arbitrability of the parties’ dispute under the Federal Arbitration Act.

As the trial court relayed, the underlying dispute involved beauty products marketer Nu Skin Enterprises and several of its distributors. The distributors filed an action against Nu Skin in Washington state court alleging, among other things, violations of Washington’s consumer protection act. Nu Skin then filed a separate action in federal court in the District of Utah, seeking to compel arbitration of the parties’ dispute in Utah pursuant to identical arbitration provisions in two of the parties’ agreements.

Before the Utah district court had a chance to rule on the question of arbitrability, the Washington state court denied Nu Skin’s motion to dismiss, holding that the dispute was not subject to arbitration under the parties’ agreements. Thereafter, the district court denied Nu Skin’s motion to compel arbitration, holding that the district court was bound by the Washington state court’s earlier conclusion under the doctrine of issue preclusion. Nu Skin appealed this ruling to the Tenth Circuit.

In a procedural twist, a Washington appellate court reversed the state trial court’s decision, holding that the claims in the litigation were disputes subject to the arbitration agreements and remanding to the trial court for further proceedings, including a determination of whether the arbitration clause was unconscionable. In the related appeal that was then pending in the Tenth Circuit, both parties acknowledged that as a result of the Washington appellate court’s decision, the state trial court’s decision on arbitrability no longer had preclusive effect.

Effectively agreeing with both parties, the Tenth Circuit reversed the district court’s decision, holding that the state trial court decision on which the district court relied no longer had preclusive effect. The court then remanded the case to the district court to consider the issue of arbitrability anew, noting: “We express no view on any other issue in this case, including the possible preclusive effect of any other proceedings or decisions in the Washington courts.”

Nu Skin Enterprises Inc. v. Raab, No. 22-4068 (10th Cir. Mar. 19, 2024).