September 23, 2015 Practice Points

Second Circuit Denies Employees' Arbitration Bid

The court acknowledged that both employees had added additional facts to their FINRA statement of claim, but found that the new facts were not necessary to prove Citigroup’s liability and therefore did not establish a different factual predicate from the settled litigation.

By Catherine Phillips Crowe

The Second Circuit recently affirmed the Southern District of New York’s decision to enjoin two Citigroup employees from proceeding with their FINRA arbitration based on the employees’ failure to properly opt out of a class action settlement. The case is Burgess v. Citigroup Inc., Case No. 13-3014-cv (2d Cir. September 14, 2015). One employee failed to properly complete his opt-out form and also mailed it to the incorrect address.  The second signed a release during the settlement discharging all subsequent claims and received a $43 settlement check in August 2012. Both employees filed a FINRA arbitration in December 2013.

The court rejected the first employee’s contention that “excusable neglect” entitled him to arbitrate his claims. The court additionally found no abuse of discretion in the district court’s determination that the employees’ FINRA actions were based on the same factual predicate as the underlying claims in the settled class action, as both centered on the employees’ allegations that Citigroup’s stock (which they received in part as equity compensation) was overvalued due to its misrepresentations about exposure to toxic assets.

The court acknowledged that both employees had added additional facts to their FINRA statement of claim, but found that the new facts were not necessary to prove Citigroup’s liability and therefore did not establish a different factual predicate from the settled litigation. Additionally, the Second Circuit rejected the employees’ contention that their interests were not adequately represented during the class action settlement because they received their stock as part of equity compensation, whereas the other class plaintiffs received their stock outside an employment relationship. The court found that the class settlement was designed to compensate all participants for losses from Citigroup stock, no matter how acquired. Lastly, the court upheld the district court’s determination that the class action settlement superseded the employees’ prior agreement to arbitrate, because the settlement agreement expressly released any and all claims, including those originally agreed to arbitrate.

Keywords: securities litigation, FINRA, arbitration, Citigroup

Catherine Phillips Crowe, Bressler, Amery & Ross, P.C., Birmingham, AL


Copyright © 2016, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).

Catherine Phillips Crowe – September 23, 2015