## Facts

- Chiron developed and patented diagnostic blood tests for hepatitis C and AIDS.
- Chiron and Ortho entered a 50-year collaboration agreement: Chiron handled research and manufacturing; Ortho received an exclusive license and led product development, distribution, marketing, and sales; proceeds were shared equally.
- A six-member Supervisory Board (three representatives each) controlled budgetary and strategic decisions; if deadlocked, Ortho could unilaterally set the next year’s budget and strategic plan.
- The agreement required arbitration of “any dispute, controversy or claim arising out of or relating to” the agreement.
- A first dispute arose after a Board deadlock over which company’s diagnostic machine would be used; Ortho implemented a plan using its machine, leading to arbitration.
- The first arbitration resulted in a final, binding award for Ortho, later confirmed by a federal district court.
- Later, Chiron proposed amending the business plan to include Chiron’s machine; Ortho rejected the proposal.
- Chiron sought a second arbitration; Ortho refused, asserting res judicata based on the first arbitration award.
- Chiron filed a declaratory judgment action to compel arbitration under the FAA; Ortho sought summary judgment, arguing the court must decide the preclusive effect of the earlier award.
- The district court compelled arbitration and held the res judicata question itself was for the arbitrator; Ortho appealed.

## Issues

1. Whether the res judicata effect of a prior arbitration award on a subsequent arbitration is decided by a court or by the arbitrator when the parties agreed to a broad arbitration clause.

## Decision

- The Ninth Circuit affirmed the order compelling arbitration.
- The court held that, under a broad arbitration clause, the preclusive (res judicata) effect of a prior arbitration award on a later arbitration is for the arbitrator—not the court—to decide.
- The court treated res judicata as a merits-related defense intertwined with the dispute the parties agreed to arbitrate.

## Legal Principles

- Courts generally decide “questions of arbitrability” (e.g., whether an arbitration agreement exists and whether a dispute falls within its scope), but merits-related defenses are presumptively for the arbitrator once arbitrability is satisfied.
- Res judicata, when asserted to bar claims in a subsequent arbitration under the same contractual arbitration clause, is a merits defense “necessarily intertwined with the merits” and therefore within the arbitrator’s authority.
- Broad clauses covering disputes “arising out of or relating to” an agreement encompass defenses to those disputes, absent a clear contractual carve-out assigning the defense to judicial determination.
- Confirmation of an arbitration award under the FAA does not, by itself, require that later preclusion disputes be decided by a court rather than in arbitration.
- The FAA’s pro-arbitration policy supports leaving merits defenses, including res judicata, to arbitrators when the parties contracted for broad arbitral dispute resolution.

## Conclusion

The Ninth Circuit held that when parties agree to broadly arbitrate disputes arising out of or relating to their contract, an arbitrator—rather than a court—must decide whether a prior arbitration award precludes a subsequent arbitration on res judicata grounds.


Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126 (9th Cir. 2000)