Ameriprise Financial Services, Inc. v. Beland ( 2011 )

10-3399
Ameriprise Financial Services, Inc. v. Beland
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3 August Term, 2011
4 (Argued: May 26, 2011 Decided: November 3, 2011)
5 Docket No. 10-3399
6 -------------------------------------
7 IN RE AMERICAN EXPRESS FINANCIAL ADVISORS SECURITIES LITIGATION
8 -------------------------------------
9 CAROL M. ANDERSON, LEONARD D. CALDWELL, DONALD G. DOBBS, KATHIE
10 KERR, SUSAN M. RANGELEY, PATRICK J. WOLLMERING, NARESH CHAND, on
11 behalf of himself and all others similarly situated, JOHN B.
12 PERKINS, ELIZABETH FLENNER, GALE D. CALDWELL, RICHARD T. ALLEN,
13 individually and on behalf of all others similarly situated,
14 Plaintiffs,
15 AMERICAN EXPRESS COMPANY, AMERICAN EXPRESS FINANCIAL CORPORATION,
16 AMERICAN EXPRESS FINANCIAL ADVISORS, INC., JAMES M. CRACCHIOLO,
17 Defendants,
18 AMERIPRISE FINANCIAL SERVICES, INC.,
19 Defendant–Appellee,
20 - v -
21 JOHN BELAND, ELAINE BELAND,
22 Class Members–Appellants.*
23 -------------------------------------
*
The Clerk of Court is directed to amend the official
caption as set forth above.
1 Before: POOLER, SACK, and LYNCH, Circuit Judges.
2 Appeal from a judgment entered by the United States
3 District Court for the Southern District of New York (Deborah A.
4 Batts, Judge) in favor of the defendant–appellee Ameriprise
5 Financial Services, Inc. In an arbitration before the Financial
6 Industry Regulatory Authority, the appellants -- a married couple
7 -- brought claims against the defendant–appellee for, inter alia,
8 breach of fiduciary duty, breach of contract, fraud, and
9 negligent misrepresentation related to the decline in value of
10 various personal financial assets managed by the
11 defendant–appellee. The defendant–appellee then moved before the
12 district court, which had retained exclusive jurisdiction over a
13 2007 class-action settlement, to enforce that settlement
14 agreement against the couple and order them to withdraw their
15 pending arbitration claims. The court, granting the
16 defendant–appellee's motion, determined that the appellants, who
17 had been class members in the prior class action, had expressly
18 released all of their arbitration claims by virtue of their
19 failure to timely opt out of the class-action settlement. But
20 the appellants' arbitration claims include "suitability" claims
21 that are preserved by a carve-out clause in the settlement
22 agreement, in addition to other claims falling outside the bounds
23 of the class settlement and release; therefore, the district
24 court erred in directing the appellants to withdraw their entire
25 arbitration complaint.
2
1 Accordingly, we AFFIRM in part and VACATE in part the
2 judgment of the district court, and we REMAND in part to the
3 district court for resolution consistent with this opinion.
4 DAVID A. GENELLY, Vanasco Genelly &
5 Miller (James E. Judge, of counsel),
6 Chicago, Illinois, for Appellants.
7 DAVID W. BOWKER, Wilmer Cutler Pickering
8 Hale and Dorr LLP (Sue-Yun Ahn, of
9 counsel), Washington, D.C., for
10 Appellee.
11 SACK, Circuit Judge:
12 This appeal requires us to address several unsettled
13 issues concerning the effect of a class-action settlement on an
14 individual class member's preexisting right to arbitrate certain
15 claims. The appellants, John and Elaine Beland (the "Belands"),
16 brought various claims before Financial Industry Regulatory
17 Authority ("FINRA") arbitrators against Ameriprise Financial
18 Services, Inc. ("Ameriprise"), a financial-services company, for,
19 inter alia, breach of fiduciary duty, breach of contract, fraud,
20 and negligent misrepresentation related to the decline in value
21 of various financial assets owned by the Belands and managed by
22 Ameriprise. The claims are based on Ameriprise's alleged failure
23 to adhere to the Belands' conservative investment strategy and
24 its "steering" of the Belands' assets into mutual funds that
25 allowed Ameriprise to collect excessive fees.
26 Ameriprise answered the Belands' FINRA complaint by
27 asserting, principally, that the Belands released their claims by
3
1 operation of a settlement agreement in a class-action suit that
2 had proceeded between 2004 and 2007 in the United States District
3 Court for the Southern District of New York. The Belands were
4 class members in the class action, but -- in part, they allege,
5 on the advice an Ameriprise financial advisor -- they took no
6 action at the time of the settlement, failing to either opt out
7 of the class or submit a claim to share in the settlement funds.
8 By the terms of the settlement agreement, the district court
9 (Deborah A. Batts, Judge) had retained exclusive jurisdiction
10 over disputes arising from the class litigation.
11 After FINRA arbitrators denied Ameriprise's motion to
12 stay the Belands' arbitration, Ameriprise moved in the United
13 States District Court for the Southern District of New York, in
14 which the class action had been litigated and settled, for an
15 order to enforce the settlement agreement that would enjoin the
16 Belands from pressing any of their claims before FINRA
17 arbitrators. The district court concluded that the class
18 settlement barred all of the Belands' arbitration claims, and
19 therefore granted Ameriprise's motion and ordered the Belands to
20 dismiss their FINRA complaint with prejudice.
21 We conclude that the district court had the power to
22 enter such an order and that several of the Belands' arbitration
23 claims were barred by the 2007 class-action settlement. We
24 therefore affirm in part. But because we conclude that the
25 Belands' arbitration complaint pleads claims -- including so-
4
1 called "suitability claims" -- that were not, and could not have
2 been, released by the class settlement, we vacate in part the
3 district court's judgment, and we remand the case for the entry
4 of an order permitting the non-Released claims to proceed in
5 FINRA arbitration. In light of our disposition of this appeal,
6 we dismiss as moot the Belands' appeal from the district court's
7 denial of their motion for reconsideration.
8 BACKGROUND
9 The In re AEFA Class-Action Complaint
10 Between March 4, 2004, and May 4, 2004, various persons
11 who had had dealings with Ameriprise1 (the "Class Plaintiffs")
12 brought a total of five separate class-action lawsuits before the
13 United States District Court for the Southern District of New
14 York against several Ameriprise affiliates. The Class Plaintiffs
15 asserted various federal- and common-law claims based on
16 Ameriprise's alleged conflicts of interest, misrepresentations
17 and omissions, biased and "canned" financial advice and advisory
18 services, failure to disclose financial incentives and fees, and
19 so-called "steering" of clients' money into investments that
20 benefited the defendants without regard to their clients' best
21 interests. On June 25, 2004, the district court consolidated the
1
On August 1, 2005, American Express Financial Corporation
and American Express Financial Advisors officially changed their
names to, respectively, Ameriprise Financial, Inc. and Ameriprise
Financial Services, Inc. On September 30, 2005, these two
entities became independent from the American Express Company.
5
1 five class actions into In re American Express Financial Advisors
2 Securities Litigation ("In re AEFA"), No. 04 Civ. 1773 (S.D.N.Y.,
3 consolidated June 25, 2004).
4 The Second Consolidated Amended Class Action Complaint
5 (the "Class Complaint"), dated September 29, 2005, described the
6 class action as "arising out of the failure of American Express
7 to disclose an unlawful and deceitful course of conduct they
8 engaged in that was designed to improperly financially advantage
9 Defendants to the detriment of [Class] Plaintiffs and other
10 members of the Class." Class Complaint ¶ 1, In re AEFA, No. 04
11 Civ. 1773 (S.D.N.Y. Sept. 29, 2005), ECF No. 119. The Class
12 Plaintiffs alleged that "instead of offering fair, honest and
13 unbiased recommendations to Plaintiffs and other investors,
14 American Express 'financial advisors' gave pre-determined
15 recommendations, pushing clients into a pre-selected, limited
16 number of mutual funds in order to reap millions of dollars in
17 secret kickbacks from the Shelf Space Funds and millions more
18 from sales of American Express Proprietary Funds."2 Id. ¶ 2.
19 They alleged further that the defendants "had an undisclosed,
20 material conflict of interest that made it impossible for them to
21 render impartial advice." Id. ¶ 10. Based on those allegations,
2
The Shelf Space Funds were mutual funds sold by companies
who made undisclosed payments to American Express in order to
promote their mutual funds; these payments were "referred to as
buying 'shelf space' at American Express." Class Complaint ¶ 1.
The Proprietary Funds were owned and operated by American Express
itself. Id.
6
1 the Class Plaintiffs brought claims for violations of the
2 Securities Act of 1933, the Securities Exchange Act of 1934 and
3 various Rules promulgated thereunder, the Investment Advisers Act
4 of 1940, and assorted state-law claims including for breach of
5 fiduciary duty, deceptive trade practices, and unjust enrichment.
6 The Class Period was defined as March 10, 1999, to April 1, 2004,
7 and was later extended to April 1, 2006.
8 In January 2007, the lead plaintiffs in In re AEFA
9 moved for provisional certification of a settlement class and
10 preliminary approval of a settlement agreement pursuant to
11 Federal Rule of Civil Procedure 23. See Stipulation of
12 Settlement ("Class Settlement" or "Settlement Agreement"), Lead
13 Pls.' Notice of Mot. for Prelim. Approval of Settlement Exh. 2,
14 In re AEFA, No. 04 Civ. 1773 (S.D.N.Y. Jan. 18, 2007), ECF No.
15 135-3. They simultaneously submitted a draft Notice of Proposed
16 Settlement of Class Action (the "Class Notice") to the court. On
17 February 15, 2007, the district court provisionally certified the
18 class and approved the Class Notice. In February and March 2007,
19 the parties mailed the Class Notice to roughly 2.8 million
20 potential class members.
21 The Class Notice served several functions. First, it
22 described the lawsuit in general terms:
23 In their lawsuits, the investors complain
24 that they were sold financial plans and/or
25 advice that, instead of being tailored to
26 their individual circumstances, contained
27 standardized recommendations designed to
7
1 steer them into investing in Defendants'
2 proprietary mutual funds and other
3 proprietary investment products [(the
4 Proprietary Funds)] and certain non-
5 proprietary "Preferred" or "Select" mutual
6 funds [(the Shelf Space Funds)].
7 . . . Plaintiffs claim that the conflicts of
8 interest inherent in Defendants' financial
9 plans and/or financial advisory services, and
10 the compensation arrangements between
11 Defendants and the Preferred Funds, were
12 inadequately disclosed to investors. . . .
13 Class Notice at 1, Decl. of Jennifer M. Keough in Supp. of Final
14 Approval of Settlement Exh. 1, In re AEFA, No. 04 Civ. 1773
15 (S.D.N.Y. May 29, 2007), ECF No. 143-2.
16 Second, the Class Notice explained the options
17 available to potential class members in acting on the Class
18 Settlement. In particular, as relevant here, the Class Notice
19 stated: "Unless you exclude yourself, you will continue to be a
20 member of the class, and that means that if the settlement is
21 approved, you will release all 'Released Claims' against the
22 'Released Persons,' and you will be prohibited from bringing or
23 participating in any other cases concerning the 'Released Claims'
24 against the 'Released Persons.'" Id. at 7. The Class Notice
25 also included a description of "Released Claims" and "Released
26 Persons" taken from the Settlement Agreement. The definition of
27 Released Claims included, inter alia,
28 any and all claims, debts, demands, rights or
29 causes of action or liabilities
30 whatsoever . . . , whether based on federal,
31 state, local, statutory or common law or any
32 other law, rule or regulation, . . .
33 including both known claims and Unknown
8
1 Claims . . . that (i) have been asserted in
2 this Action by the Plaintiffs . . . or (ii)
3 could have been asserted in any forum by the
4 Plaintiffs or Class Members . . . against any
5 of the Released Persons; including claims
6 that arise out of or are based upon (a) the
7 allegations, transactions, facts, matters or
8 occurrences, representations or omissions
9 alleged, involved, set forth, or referred to
10 in the [Class Complaint] . . . .
11 Id. at 8. Importantly for present purposes, the Class Notice
12 stated that "'Released Claims' shall not include suitability
13 claims unless such claims are alleged to arise out of the common
14 course of conduct that was alleged, or could have been alleged,
15 in the Action, as more fully described herein."3 Id.
16 The Class Notice further explains that releasing claims
17 "will prevent you from suing Defendants over claims that arise
18 from or are based on the offer and sale of financial planning
19 services or financial advice provided to you by Defendants,
20 including claims to recover the fees you paid for financial
21 advisory services or advice and claims that you were 'steered'
3
The phrase "common course of conduct" is not defined in
the Class Settlement; neither is "suitability claim." However, a
suitability claim, generally, is a claim that a "broker knew or
reasonably believed that the securities he recommended to the
customer were unsuitable in light of the customer's investment
objectives but that he recommended them anyway." Murray v.
Dominick Corp. of Can., 117 F.R.D. 512, 516 (S.D.N.Y. 1987).
Suitability claims -- sometimes called "unsuitability claims" --
are often brought "as a distinct subset" of section 10(b) claims
under the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b).
Dodds v. Cigna Sec., Inc., 12 F.3d 346, 351 (2d Cir. 1993), cert.
denied, 511 U.S. 1019 (1994); see Brown v. E.F. Hutton Grp.,
Inc., 991 F.2d 1020, 1031 (2d Cir. 1993) (discussing the elements
of a federal unsuitability claim).
9
1 toward particular investments that were more profitable for
2 [Ameriprise]." Id. It also warned potential class members,
3 under the heading "EXCLUDING YOURSELF FROM THE SETTLEMENT," that
4 if "you want to retain any right to sue or continue to assert any
5 of the Released Claims on your own against any Defendant or other
6 Released Person, then you must take steps to get out of the
7 class." Id.; see id. at 8–9, 11 (explaining how to "opt[] out"
8 of the Class Settlement and the consequences of "do[ing]
9 nothing").
10 On July 18, 2007, the district court issued an Order
11 and Final Judgment in In re AEFA approving the Class Settlement,
12 dismissing all class members' claims with prejudice, and barring
13 and enjoining class members from asserting Related Claims against
14 Released Persons. The court retained "[e]xclusive
15 jurisdiction . . . over the Parties and the Class Members for all
16 matters relating to this Action and the Settlement,
17 including . . . [the] interpretation, effectuation, or
18 enforcement of the [Settlement Agreement] and this Order and
19 Final Judgment." Order and Final Judgment at 10, In re AEFA, No.
20 04 Civ. 1773 (S.D.N.Y. July 18, 2007), ECF No. 170.
21 The Belands
22 John and Elaine Beland are a retired married couple
23 living on a 4.1-acre parcel of farmland in New Lenox, Illinois,
24 that, together with a much larger tract, had been in John's
25 family for more than a century. For many years, John, whose
10
1 formal education ended in eighth grade, "farmed the family
2 homestead" for the Pesters, his aunt and uncle. Claim in
3 Arbitration Before FINRA ("FINRA Complaint") (filed Feb. 17,
4 2009) ¶ 1, Decl. of David W. Bowker in Supp. of Ameriprise Fin.
5 Servs., Inc.'s Mem. of Law in Supp. of Mot. to Enforce In re AEFA
6 Settlement and Inj. ("Bowker Decl.") Exh. 6, In re AEFA, No. 04
7 Civ. 1773 (S.D.N.Y. Mar. 9, 2010), ECF No. 193-7. After the
8 death of his uncle, John continued to farm the land for his aunt,
9 Hazel Pester.
10 According to the Belands, in 1995, acting on the
11 financial advice of Ronald Miller -- an Ameriprise financial
12 consultant based in Joliet, Illinois -- Hazel sold a large
13 portion of the family farm for approximately $2.6 million. The
14 proceeds of the sale were immediately deposited into two
15 different trusts -- a charitable trust worth $1.757 million and a
16 revocable trust worth $886,000. Hazel was the charitable trust's
17 lifetime beneficiary, and she held a life estate in the revocable
18 trust. In 2004, Hazel died. John Beland took the corpus of the
19 revocable trust, while various local churches and charities, as
20 residuary beneficiaries, received the assets in the charitable
21 trust. John, allegedly on Miller's advice, then converted the
22 revocable trust into an Ameriprise investment account, jointly
23 held by the Belands and managed by Miller.
24 The Belands' FINRA Complaint asserts that Ameriprise
25 and Miller agreed to invest the Belands' funds "in a conservative
11
1 fashion, preserving capital and obtaining income from which the
2 life beneficiaries could receive a return." Id. ¶ 9. However,
3 the Belands allege, "[a] conservative asset allocation approach
4 was not taken." Id. ¶ 13. In the FINRA Complaint, the Belands
5 express two main grievances: (1) "Miller and Ameriprise invested
6 in many house American Express mutual funds including various
7 high yield junk bond funds, as well as risky small cap or start-
8 up funds";4 and (2) "Ameriprise invested in many risky small-cap
9 technology stocks which led to huge, significant losses over
10 time."5 Id. ¶¶ 14–15. They similarly contend that Ameriprise
11 "allocat[ed] the trust assets inappropriately which left the
12 Trusts exposed to greater than expected losses." Appellants' Br.
13 at 7; see FINRA Complaint ¶ 27.
14 The Belands state that their combined account balances
15 dwindled from more than $2.6 million at inception in 1995 to
16 approximately $800,000 in early 2009. FINRA Complaint ¶ 7. John
17 admits that he did not review the account statements until after
18 Hazel's death, when he noticed the "precipitous[]" drop. Id.
4
The Belands allege that "[t]hese 'house' mutual funds were
purchased not because they fit the preservation of capital and
income approach (with growth only a secondary feature), but
because they generated fees for Ameriprise." FINRA Complaint
¶ 14.
5
These "'tech' heavy stock" stocks included: Check Point
Software; Flextronics; Analog Devices; Applied Microcircuits;
Brocade Communications; Ciena Corp.; Enron Corp.; I 2
Technologies, Inc.; Maxim Integrated Products; Selectron Corp.;
and Univision Communications. FINRA Complaint ¶ 16.
12
1 ¶¶ 18–19. The Belands allege that when they confronted Miller
2 about the accounts' declining assets, "Miller set a course of
3 cover-up, lies and deceit in order to obscure the mishandling" of
4 the accounts, providing false justifications for investment
5 decisions and shielding the truth about Ameriprise's motives and
6 conflicts of interest. Id. ¶ 20. Among the allegedly false
7 reasons for the losses were the September 11 terrorist attacks
8 and that the charitable trust was intended to diminish in value
9 "by design." Id. ¶¶ 21–24 (internal quotation marks omitted).
10 Over time, the Belands received notices of myriad
11 class-action lawsuits against or involving various companies in
12 which Ameriprise and Miller had invested on the Belands' behalf.
13 In addition, John Beland conceded that in early 2007 he received
14 multiple notices relating to the In re AEFA action. Decl. of
15 John Beland ¶ 5, Reply in Supp. of Mot. for Ltd. Disc. Exh. A, In
16 re AEFA (S.D.N.Y. June 22, 2010), ECF No. 204-2. Because he
17 found the notices, including the In re AEFA notices, "complex and
18 confusing," he asked Miller for advice. Id. ¶ 6. According to
19 John, "Miller told [the Belands] to do nothing about these
20 notices and [they] followed his advice." Id. As a result of
21 their failure to take any action with respect to the In re AEFA
22 Class Settlement, the Belands did not share in its proceeds.6
6
The Belands did receive a $25 payment from an SEC
disgorgement and restitution fund related to its investigation
into Ameriprise's investment-advisory activities.
13
1 The Belands' FINRA Action
2 In late 2008, the Belands sought legal advice regarding
3 their accounts' declining values, and on February 17, 2009, they
4 filed an arbitration complaint with FINRA. They made claims
5 (collectively, the "FINRA Claims") against Miller and Ameriprise
6 for: (1) breach of fiduciary duty for "failing to manage the
7 trusts according to their investment objectives, and by self-
8 dealing," FINRA Complaint ¶ 31; (2) breach of contract for
9 "mishandling the [Belands'] assets and . . . covering up the
10 mishandling," id. ¶ 35; (3) common-law fraud for "mak[ing]
11 material misstatements of fact" regarding the reasons for the
12 assets' decline in value, among other things, id. ¶ 39; and (4)
13 negligent misrepresentation, id. ¶ 44. See generally id. ¶¶ 29-
14 45. The Belands sought an arbitration award of "not less than
15 $1,500,000 for 'well managed' account damages . . . , for
16 punitive damages[,] and [for] their costs and fees of [the FINRA]
17 action." Id. at 11.
18 In response before the FINRA arbitrators, Miller and
19 Ameriprise (collectively, the "FINRA Defendants") filed a
20 Statement of Answer, Defenses and Affirmative Defenses on
21 September 18, 2009. At the same time, the FINRA Defendants moved
22 before the arbitrators to stay the arbitration proceedings on the
23 basis that, as members of the In re AEFA class, the Belands had
24 "released Ameriprise Financial and its agents and affiliates for"
25 the Released Claims defined in the Class Settlement and Class
14
1 Notice. Mot. to Stay Arbitration of Released Claims ("Motion to
2 Stay") at 2, Bowker Decl. Exh. 7, In re AEFA, No. 04 Civ. 1773
3 (S.D.N.Y. Mar. 9, 2010), ECF No. 193-8. In the Motion to Stay,
4 the FINRA Defendants listed eighteen separate Ameriprise account
5 numbers as to which, they contended, the Belands' allegations
6 were barred by the Class Settlement.7 The FINRA Defendants
7 stated in their motion that "[u]nless Claimants withdraw their
8 Released Claims in this action, Respondents will be forced to
9 protect their rights by filing a Motion to Enforce Class Action
10 Settlement as to the Released Claims," and that, therefore, "a
11 stay of th[e FINRA] action as it pertains to the released claims
12 is appropriate." Id. at 4. On October 27, 2009, the Belands
13 filed an opposition to the FINRA Defendants' Motion to Stay,
14 arguing that the "class action specifically excluded the causes
15 of action the Belands assert" in the FINRA arbitration.
16 Claimants' Opp'n to Resp'ts' Mot. to Stay Arbitration at 2,
17 Bowker Decl. Exh. 4, In re AEFA, No. 04 Civ. 1773 (S.D.N.Y. Mar.
18 9, 2010), ECF No. 193-5.
19 A three-member FINRA arbitration panel held a
20 telephonic hearing regarding the Motion to Stay on January 5,
7
In a July 28, 2009 letter, the FINRA Defendants requested
that the Belands "withdraw their claims related to" the eighteen
accounts listed. Letter from Ameriprise Counsel to Belands at 2,
Mem. in Supp. of Mot. for Reconsideration ("Mot. for
Reconsideration") Exh. D, In re AEFA, No. 04 Civ. 1773 (S.D.N.Y.
Aug. 17, 2010), ECF No. 209-5. The Belands have identified seven
of their Ameriprise accounts that were not listed in the July 28
letter or the Motion to Stay.
15
1 2010. After the hearing, the panel issued an order denying the
2 Motion to Stay "without prejudice." FINRA Order at 1, Mem. in
3 Supp. of Mot. for Reconsideration ("Mot. for Reconsideration")
4 Exh. F, In re AEFA, No. 04 Civ. 1773 (S.D.N.Y. Aug. 17, 2010),
5 ECF No. 209-5. The panel then scheduled an arbitration hearing
6 for March 20108 to try the issues raised in the Belands' FINRA
7 Complaint and the FINRA Defendants' answer.
8 Ameriprise's Motion to Enforce the Class Settlement in
9 the S.D.N.Y. and Belands' Cross-Motion to Clear
10 Technical Defaults and for Limited Discovery
11 Before the scheduled arbitration hearing could be held,
12 however, the FINRA Defendants filed a "Motion to Enforce"9 the In
13 re AEFA Settlement Agreement before the district court, which had
8
The Belands represent that the FINRA arbitrators
originally set the arbitration hearing for March 2010; however,
the hearing was eventually rescheduled to take place in August
2010. [Blue 14; A329.] It was thereafter postponed indefinitely
pending the resolution of the parties' litigation before the
district court.
9
In Martens v. Thomann, 273 F.3d 159 (2d Cir. 2001), we
noted that "there is nothing in the Federal Rules of Civil
Procedure styled a 'motion to enforce.' Nor is there approval
for such a motion to be found in this Circuit's case law, except
in situations inapposite to the case before us." Id. at 172. In
Martens, we did "not ourselves define the nature of this motion
because the district court's failure to state its reasons for
denying it [wa]s sufficient to warrant reversal." Id.From time to time, however, we have reviewed district-
court judgments that ruled on purported motions to enforce. See,
e.g., Vemics, Inc. v. Meade, 371 F. App'x 181 (2d Cir. 2010)
(summary order); Surac v. Cavalry Portfolio Servs., LLC, 357 F.
App'x 344 (2d Cir. 2009) (summary order). Because we conclude
that the district court's judgment in this case presents an
appealable question to this Court, we choose to ignore any
potential error of terminology here.
16
1 retained jurisdiction over the In re AEFA class litigation. In
2 their March 9, 2010 Motion to Enforce, the FINRA Defendants
3 requested that the court "order[] the Belands to dismiss with
4 prejudice their pending FINRA action against Ameriprise."10 Mem.
5 in Supp. of Ameriprise's Mot. to Enforce In re AEFA Settlement
6 and Inj. ("Motion to Enforce") at 2, In re AEFA, No. 04 Civ. 1773
7 (S.D.N.Y. Mar. 9, 2010), ECF No. 192. The Belands did not, in
8 response, file a direct opposition to the motion. Instead, they
9 filed a cross-motion, styled as a "Motion to Clear Technical
10 Defaults [and] for Limited Discovery," seeking to litigate the
11 issue of whether the Class Settlement's definition of Released
12 Claims covered all of the claims that the Belands asserted in
13 their FINRA Complaint. Specifically, the Belands argued that
14 depositions should be taken to determine whether evidence
15 supported their assertion that "Miller's conduct . . . deprived
16 them of any meaningful opportunity to opt out of the class
17 action," as well as to determine which of their investments did
10
The Belands argue that the FINRA Defendants qualitatively
altered their position in the Motion to Enforce vis-à-vis the In
re AEFA Class Settlement's effect on the Belands' FINRA Complaint
because that document represented "the first time" that
Ameriprise had argued "that all claims and facts alleged in the
Illinois Arbitration were of the same 'course of conduct' alleged
in the New York Class Action." Appellants' Br. at 15 (emphasis
in original). The Belands also characterize the Motion to
Enforce as misleading because it argued that the Belands sought a
"double recovery" despite the fact that they had not received any
payments from the Class Settlement, and because it did not
indicate that the FINRA panel had denied the FINRA Defendants'
Motion to Stay. Id. (internal quotation marks omitted).
17
1 "not fall within the ambit of the" Class Settlement. Mot. to
2 Clear Technical Defaults, for Ltd. Disc. and to Set Briefing
3 Schedule at 2, In re AEFA, No. 04 Civ. 1773 (S.D.N.Y. Mar. 30,
4 2010), ECF No. 196. The Belands proposed a deposition and
5 briefing schedule that would culminate in an evidentiary hearing
6 before the district court. The FINRA Defendants opposed the
7 cross-motion by arguing, principally, that even the facts as
8 alleged by the Belands would not, under the "excusable neglect"
9 standard, justify their failure to opt out of the Class
10 Settlement.
11 The Belands filed a reply, arguing that the district
12 court
13 should allow the arbitration to proceed for
14 two reasons: first, because the issues of
15 Miller's breach of fiduciary duty and
16 misrepresentation go well beyond any issue
17 that was or could have been raised in the
18 Class Action; and second, because the
19 arbitration panel is uniquely positioned to
20 make factual determinations as to which
21 accounts may or may not be encompassed within
22 this Court's Confirmation Order.
23 Reply in Supp. of Mot. for Ltd. Disc. at 1–2, In re AEFA, No. 04
24 Civ. 1773 (S.D.N.Y. June 22, 2010), ECF No. 204. Finally, the
25 FINRA Defendants filed, together, a reply in support of their
26 Motion to Enforce and a sur-reply in opposition to the Belands'
27 cross-motion.
18
1 The District Court's Order Enforcing the Settlement
2 In a seven-page order dated August 11, 2010 (the
3 "Enforcement Order"), the district court granted the FINRA
4 Defendants' Motion to Enforce and ordered the Belands to dismiss
5 with prejudice their pending FINRA Complaint against Ameriprise
6 and Miller. The court concluded that the Belands' claims "f[ell]
7 within the definition of 'Released Claims' barred by the Court's
8 July 18, 2007 Order." Enforcement Order at 1–2, In re AEFA, No.
9 04 Civ. 1773 (S.D.N.Y. Aug. 11, 2010), ECF No. 206. The court
10 characterized the Belands' FINRA Claims thus:
11 Here, the Belands claim that rather than
12 managing their accounts in a conservative,
13 minimal risk manner as promised, Miller and
14 Ameriprise invested in many house American
15 Express mutual funds including various high
16 yield junk bond funds, as well as risky small
17 cap or start-up funds in order to generate
18 fees for Ameriprise and promote in-house
19 mutual funds of American Express.
20 Id. at 2 (brackets and internal quotation marks omitted). The
21 court concluded that those "allegations arise from the same
22 transactions, facts, matters, occurrences, and representations as
23 the claims of the [Class Complaint]." Id.
24 The district court further determined that the Belands
25 could not "satisfy the standard for 'excusable neglect'" to
26 excuse their failure to opt out of the Class Settlement. Id. at
27 3. In arriving at that conclusion, the court stated that "while
28 Miller's advice may have played a role in the Belands' decision
29 not to opt out of the class, the Belands should have known from
19
1 the plain English of the [Class] Notice that Miller's
2 recommendation that they 'do nothing' would lead to no payment
3 from the settlement and the release of future claims." Id. at 5.
4 The court also found that "not until after Ameriprise moved to
5 enjoin [the Belands'] FINRA claims on March 9, 2010" did the
6 Belands "argue before this Court that they should be excused from
7 failing to opt out of the settlement" -- a delay that was, in the
8 court's view, "inexcusably long." Id. at 6.
9 After the district court issued the Enforcement Order,
10 the Belands filed a Motion for Reconsideration, making several
11 arguments. First, they contended that the Enforcement Order
12 "simply overlooked material language in the Release which exempts
13 claims like the Belands['] which do not relate to the allegations
14 of the Class Action . . . but instead raise independent
15 suitability claims."11 Second, the Belands argued that the
16 Federal Arbitration Act ("FAA") required that the FINRA
17 Defendants arbitrate the coverage of the Class Settlement before
18 the arbitrators. Third, the Belands further elaborated a theory
19 of "excusable neglect" that would free their claims from the
20 Class Settlement even if those claims were Released Claims. The
21 district court denied the Motion for Reconsideration in a two-
22 sentence order dated August 20, 2010.
11
Ameriprise contends that this argument, and others in the
Belands' Motion for Reconsideration, were made "[f]or the first
time" in that motion. Appellee's Br. at 17.
20
1 The Belands' Appeal
2 The Belands filed a Notice of Appeal on August 23,
3 2010. The same day, the district court granted a stay of its
4 Enforcement Order pending the appeal to this Court. The stay
5 remains in effect.
6 DISCUSSION
7 I. Overview
8 On appeal, the Belands argue that the district court
9 erred in several respects. Principally, they assert that the
10 court "failed to compare" the substance of the claims alleged in
11 their FINRA Complaint -- "which feature unsuitability, lack of
12 asset allocation and speculative 'tech' stock investing" -- with
13 the Released Claims in the Class Settlement. Appellants' Br. at
14 19. In the Belands' view, the Class Settlement only released
15 claims regarding "the sale of fee-based, 'standardized'
16 investment adviser plans which steered customers to 'proprietary'
17 or 'preferred' mutual funds for which Ameriprise received
18 'kickbacks.'" Id. They also point to a "carve[]-out" in the
19 Class Settlement that they contend exempts at least some of their
20 FINRA Claims. Id. For these reasons, the Belands contend that
21 at least some of their arbitration claims are not Released
22 Claims, and that the district court erred in requiring the
23 Belands to dismiss those unreleased claims.
24 Alternatively, the Belands argue: (1) that Ameriprise
25 chose to defend the Belands' claims before FINRA arbitrators and,
21
1 therefore, the district court erred in "derail[ing]" the pending
2 FINRA arbitration; (2) that questions concerning the scope of the
3 Settlement Agreement were for the FINRA arbitrators to decide,
4 and that the arbitrators indicated their intent to decide them;
5 (3) that the Release contained in the Class Settlement should not
6 be applied against the Belands because their failure to opt out
7 of the class action was the product of "excusable neglect"; and
8 (4) that the district court erroneously denied their motion for
9 reconsideration. Id. at 19–22.
10 The FINRA Defendants (also collectively "Ameriprise")
11 argue that the Class Settlement's release of "'suitability
12 claims' arising out of the common course of conduct alleged in In
13 re AEFA" precludes the entirety of the Belands' arbitration
14 claims. Appellee's Br. at 18. Ameriprise also responds that the
15 district court properly rejected the Belands' "excusable neglect"
16 argument, and that "the district court ha[d] exclusive
17 jurisdiction to enforce the [Class] Settlement." Id. at 18–19.
18 The FINRA Defendants therefore contend that the district court
19 acted properly in directing the Belands to dismiss all of their
20 arbitral claims.
21 This appeal presents at least one unresolved legal
22 issue about which the parties are in agreement. Neither the
23 Belands nor Ameriprise appear to dispute the general principle
24 that federal courts are vested with power under the FAA to enjoin
25 a pending arbitration where appropriate. But this question has
22
1 never been explicitly resolved by this Court,12 and we,
2 therefore, address it in the course of our analysis. We also
3 reiterate this Court's recent holding that FINRA-membership
4 constitutes an agreement to arbitrate disputes under FINRA's
5 rules, see UBS Fin. Servs., Inc. v. W. Va. Univ. Hosps., --- F.3d
6 ----, 2011 WL 4389991, at *5, 2011 U.S. App. LEXIS 19420, at *15
7 (2d Cir. Sept. 22, 2011), a proposition neither of the parties
8 contests.
9 II. Arbitrability of the Belands' Claims
10 A. Background Arbitration Law
11 The FAA creates a "body of federal substantive law of
12 arbitrability, applicable to any arbitration agreement within the
13 coverage of the Act." Moses H. Cone Mem'l Hosp. v. Mercury
14 Constr. Corp., 460 U.S. 1, 24 (1983). The FAA provides that an
15 arbitration provision in "a contract evidencing a transaction
16 involving commerce . . . shall be valid, irrevocable, and
17 enforceable, save upon such grounds as exist at law or in equity
18 for the revocation of any contract." 9 U.S.C. § 2. Further, the
19 FAA "establishes a national policy favoring arbitration when the
20 parties contract for that mode of dispute resolution" and
12
Recently, in Wachovia Bank, Nat'l Ass'n v. VCG Special
Opportunities Fund, --- F.3d ----, 2011 WL 5110122, 2011 U.S.
App. LEXIS 21885 (2d Cir. Oct. 28, 2011), in a dispute involving
FINRA arbitrability, we remanded for the district court to
"enjoin[ the defendant] from proceeding with its FINRA
arbitration," but we did not address the procedural propriety of
such an order. Id. at *9, 2011 U.S. App. LEXIS 21885, at *25.
23
1 "supplies not simply a procedural framework applicable in federal
2 courts" but "also calls for the application, in state as well as
3 federal courts, of federal substantive law regarding
4 arbitration." Preston v. Ferrer, 552 U.S. 346, 349 (2008).
5 "[T]he FAA's primary purpose [is to] ensur[e] that
6 private agreements to arbitrate are enforced according to their
7 terms." Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford
8 Jr. Univ., 489 U.S. 468, 479 (1989). Despite the "liberal
9 federal policy favoring arbitration agreements," Moses H. Cone,
10 460 U.S. at 24, "arbitration is a matter of contract and a party
11 cannot be required to submit to arbitration any dispute which he
12 has not agreed so to submit," Howsam v. Dean Witter Reynolds,
13 Inc., 537 U.S. 79, 83 (2002) (quoting Steelworkers v. Warrior &
14 Gulf Navigation Co., 363 U.S. 574, 582 (1960)) (internal
15 quotation marks omitted); see also Volt, 489 U.S. at 479
16 ("Arbitration under the [FAA] is a matter of consent, not
17 coercion, and parties are generally free to structure their
18 arbitration agreements as they see fit."). "[A]s with any other
19 contract, the parties' intentions control." Stolt-Nielsen S.A.
20 v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758, 1774 (2010)
21 (internal quotation marks omitted).
22 However, "any doubts concerning the scope of arbitrable
23 issues should be resolved in favor of arbitration." Moses H.
24 Cone, 460 U.S. at 24–25. "Accordingly, federal policy requires
25 us to construe arbitration clauses as broadly as possible."
24
1 Collins & Aikman Prods. Co. v. Bldg. Sys., Inc., 58 F.3d 16, 19
2 (2d Cir. 1995) (brackets and internal quotation marks omitted).
3 Therefore, we will compel arbitration "unless it may be said with
4 positive assurance that the arbitration clause is not susceptible
5 of an interpretation that covers the asserted dispute." AT & T
6 Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 650
7 (1986).
8 In this Circuit, courts follow a two-part test to
9 determine the arbitrability of claims. In deciding whether
10 claims are subject to arbitration, a court must consider (1)
11 whether the parties have entered into a valid agreement to
12 arbitrate, and, if so, (2) whether the dispute at issue comes
13 within the scope of the arbitration agreement. ACE Capital Re
14 Overseas Ltd. v. Cent. United Life Ins. Co., 307 F.3d 24, 28 (2d
15 Cir. 2002); accord John Hancock Mut. Life Ins. Co. v. Olick, 151
16 F.3d 132, 137 (3d Cir. 1998). Before addressing the second
17 inquiry, we must also determine who -- the court or the
18 arbitrator -- properly decides the issue. See Republic of
19 Ecuador v. Chevron Corp., 638 F.3d 384, 393 (2d Cir. 2011).
20 B. Existence and Scope of Ameriprise's Consent to Arbitrate
21 Because our review of the district court's Enforcement
22 Order requires that we evaluate not only the existence but also
23 the scope of any such agreement, we must identify first that
24 agreement's form, and then its contours.
25
1 Ameriprise does not dispute that, by virtue of its
2 membership in FINRA, it has consented to arbitrate with its
3 customers.13 See FINRA Code of Arbitration Procedure for
4 Customer Disputes ("FINRA Code") § 12200 ("Parties must arbitrate
5 a dispute under the [FINRA] Code if" arbitration is "[r]equested
6 by the customer; [t]he dispute is between a customer and a
7 [FINRA] member or associated person of a member; and [t]he
8 dispute arises in connection with the business activities of the
9 member or the associated person . . . ."); cf. John Hancock Life
10 Ins. Co. v. Wilson, 254 F.3d 48, 58 (2d Cir. 2001) (explaining
11 that the defendant "concede[d] that it agreed by virtue of its
12 membership in the NASD[, the predecessor to FINRA,] to arbitrate
13 all disputes contemplated under" a rule analogous to FINRA Rule
14 12200). Nor does Ameriprise dispute that all of the Belands'
15 claims constitute claims "aris[ing] in connection with [its]
16 business activities" within the meaning of FINRA Rule 12200.
17 This Court has recently stated that FINRA membership constitutes
18 an agreement to "adhere to FINRA's rules and regulations,
19 including its Code and relevant arbitration provisions contained
20 therein." UBS Fin. Servs., 2011 WL 438991, at *5; see also
13
We note that such consent may not be reciprocal. Though
the FINRA Rules bind Ameriprise to arbitrate disputes with its
customers upon request, it does not appear that Ameriprise can
require its customers to arbitrate disputes with it on the basis
of its FINRA membership alone. Hence, for example, the In re
AEFA litigation, which proceeded in federal court, not in FINRA
arbitration.
26
1 Wachovia Bank, 2011 WL 5110122, at *6-7, 2011 U.S. App. LEXIS
2 19420, at *15 (stating that "interpretation of arbitration rules
3 of an industry self-regulatory organization. . . such as FINRA is
4 similar to contract interpretation" and concluding, in that case,
5 that the matter was not arbitrable under FINRA's rules). We
6 therefore conclude that all of the Belands' FINRA Claims against
7 Ameriprise are arbitrable in the absence of any subsequent
8 agreement revoking or otherwise limiting the scope of
9 Ameriprise's consent to arbitrate.
10 III. Binding Nature of the Class Settlement on the
11 Belands
12 We next turn to the parties' relationship to the Class
13 Settlement. Absent a violation of due process or excusable
14 neglect for failure to timely opt out, a class-action settlement
15 agreement binds all class members who did not do so. See, e.g.,
16 Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 115 (2d
17 Cir. 2005) (stating that a class member "was required to opt out
18 at the class notice stage if it did not wish to be bound" by a
19 class settlement agreement), cert. denied, 544 U.S. 1044 (2005);
20 County of Suffolk v. Long Island Lighting Co., 907 F.2d 1295,
21 1302 (2d Cir. 1990) (stating that if a party "could not have
22 properly opted out of the mandatory class, it is bound by the
23 class settlement if it is upheld, as are all other members of the
24 class"); see also Phillips Petroleum Co. v. Shutts, 472 U.S. 797,
25 811–13 (1985); In re: PaineWebber Ltd. P'ships Litig., 147 F.3d
271 132, 138–39 (2d Cir. 1998). And a "settlement agreement is a
2 contract that is interpreted according to general principles of
3 contract law." Omega Eng'g, Inc. v. Omega, S.A., 432 F.3d 437,
4 443 (2d Cir. 2005).
5 Rule 6 of the Federal Rules of Civil Procedure permits
6 a court to extend the time during which an act must be done "on
7 motion made after the time has expired if the party failed to act
8 because of excusable neglect." Fed. R. Civ. P. 6(b)(1)(B). In
9 Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507
10 U.S. 380 (1993), the Supreme Court set forth four factors to be
11 considered in connection with an assertion of "excusable neglect"
12 as justification for a missed judicial deadline: (1) "the danger
13 of prejudice" to the party opposing the extension; (2) "the
14 length of the delay and its potential impact on judicial
15 proceedings"; (3) "the reason for the delay, including whether it
16 was within the reasonable control" of the party seeking the
17 extension; and (4) whether the party seeking the extension "acted
18 in good faith." Id. at 395. While those factors are the central
19 focus of the inquiry, the ultimate determination depends upon a
20 careful review of "all relevant circumstances." Id.; accord In
21 re: PaineWebber Ltd. P'ships Litig., 147 F.3d at 135 ("To
22 establish excusable neglect, . . . a movant must show good faith
23 and a reasonable basis for noncompliance.").
24 Because the Belands have not argued that due process
25 was denied them with respect to the Class Settlement, we turn to
28
1 whether the district court erred when it rejected their
2 "excusable neglect" argument. On review of the district court's
3 ruling for abuse of discretion, see id. at 135, we will reverse
4 only if we have "a definite and firm conviction that the court
5 below committed a clear error of judgment in the conclusion that
6 it reached upon a weighing of the relevant factors," Silivanch v.
7 Celebrity Cruises, Inc., 333 F.3d 355, 362 (2d Cir. 2003), cert.
8 denied, 540 U.S. 1105 (2004). Because we have no such clear
9 conviction here, we do not disturb the district court's
10 conclusion that the Belands failed to demonstrate "excusable
11 neglect."
12 In analyzing the issue, the district court relied on
13 admonitions and warnings under boldface, capitalized headings in
14 the Class Notice -- which the Belands received -- about the
15 consequences of taking no action. The court concluded that "the
16 Belands should have known from the plain English of the Notice
17 that Miller's recommendation that they 'do nothing' would lead to
18 no payment from the settlement and the release of future claims."
19 Enforcement Order at 5. It also determined that if the Belands
20 failed to read the notice, even after Miller's alleged advice,
21 they did so unreasonably. The court further noted a significant
22 delay on the Belands' part in seeking relief under the "excusable
23 neglect" standard, even after they became aware of their possible
24 error in failing to opt out of the Class Settlement.
29
1 We conclude that the court's decision in this regard
2 did not constitute an abuse of its discretion. The Class Notice
3 is a reasonably straightforward document that contains a list of
4 readable questions and answers discussing the content of the
5 Class Action and the consequences of taking, or not taking,
6 action in response. See Wal-Mart, 396 F.3d at 114 (stating that
7 a class "[n]otice is adequate if it may be understood by the
8 average class member" (internal quotation marks omitted)). And
9 the Class Notice itself offered advice from class counsel,
10 providing lawyers' contact information and instructing class
11 members to contact them should the content of the Class Notice be
12 unclear. There is, moreover, little doubt that Ameriprise would
13 suffer prejudice if the Belands were permitted to opt out of the
14 Class Settlement three years late, as it would be exposed to
15 liability that it had every reason to think had been foreclosed
16 by the entry of the Settlement Agreement in federal court.
17 Neither the length of, nor the reasons for, the
18 Belands' delay counsel otherwise. Even if John Beland's lack of
19 an extended formal education rendered the Class Notice
20 incomprehensible to him, the fact that he brought the document to
21 Miller -- the representative of Ameriprise -- for advice suggests
22 that he had some level of awareness of the Notice's importance.
23 And while the Belands explain their delay by asserting that they
24 had relied on advice from Miller that the Belands should take no
25 action with respect to the class-action lawsuit against
30
1 Ameriprise, we agree with the district court's implicit
2 conclusion that any such reliance was unreasonable. Applying the
3 reasoning of a district court in another circuit, "[o]nce [the
4 Belands] knew that there was a legal proceeding pending, it was
5 no longer reasonable [for them] to continue taking legal or
6 investment advice from [Ameriprise] or any of its agents." In re
7 VMS Sec. Litig., 156 F.R.D. 635, 640 (N.D. Ill. 1994) (internal
8 quotation marks omitted); see also id. ("[R]elying on one's
9 adversaries rather than one's attorney for advice is an error
10 that is to be laid at the feet of the one who made it; such
11 reliance is not reasonable, particularly when the notice
12 instructed class members to consult with their own counsel or
13 class counsel if they had questions." (internal quotation marks
14 omitted)). Finally, the Belands do not contend that Miller took
15 any action to limit their ability to consult with a lawyer or ask
16 for outside advice.
17 We therefore reject the Belands' contention that the
18 district court abused its discretion as to its application of the
19 "excusable neglect" standard to their factual circumstances. It
20 follows from that conclusion that the Belands were bound as class
21 members by the In re AEFA Class Settlement.
31
1 IV. Effect of the Class Settlement on the Agreement to
2 Arbitrate
3 A. Question of Arbitrability
4 The Supreme Court has distinguished between
5 "question[s] of arbitrability," which are "issue[s] for judicial
6 determination[, u]nless the parties clearly and unmistakably
7 provide otherwise," AT & T Techs., 475 U.S. at 649; see also
8 First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944–45
9 (1995); PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1198–99 (2d Cir.
10 1996), and "other gateway matters, which are presumptively
11 reserved for the arbitrator's resolution," Republic of Ecuador,
12 638 F.3d at 393 (internal quotation marks omitted). Among
13 "questions of arbitrability" presumptively reserved for a court,
14 the Supreme Court has identified "dispute[s] about whether the
15 parties are bound by a given arbitration clause" and
16 "disagreement[s] about whether an arbitration clause in a
17 concededly binding contract applies to a particular type of
18 controversy."14 Howsam, 537 U.S. at 84.
14
On the other hand, "'"procedural" questions which grow
out of the dispute and bear on its final disposition' are
presumptively not for the judge, but for an arbitrator, to
decide." Howsam, 537 U.S. at 84 (emphasis in original) (quoting
John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557 (1964)).
Likewise, "the presumption is that the arbitrator should decide
'allegation[s] of waiver, delay, or a like defense to
arbitrability.'" Id. (alteration in original) (quoting Moses H.
Cone, 460 U.S. at 24–25).
32
1 The principal issue in this case is whether any of the
2 Belands' FINRA Claims survived the Class Settlement and are thus
3 still subject to arbitration. As a preliminary matter, however,
4 we must first determine whether the court or the arbitrator
5 should answer that question. We conclude that such an inquiry is
6 a "question of arbitrability" that is reserved to the court.
7 First, the Class Settlement did not merely resolve
8 certain claims that class members might have had, thus estopping
9 these class members from arbitrating these claims at a later
10 date. As discussed further below, the Class Settlement revoked
11 Ameriprise's consent to arbitrate certain claims. The question
12 therefore is not whether those claims had been settled, thus
13 precluding arbitration, but whether there was a surviving
14 agreement, following the settlement, to arbitrate those claims at
15 all. That question, "[u]nless the parties clearly and
16 unmistakably provide otherwise. . . is to be decided by the
17 court, not the arbitrator." AT & T Techs., 475 U.S. at 649. But
18 cf. Republic of Ecuador, 638 F.3d at 393 (observing that "waiver
19 and estoppel generally fall into [the] group of issues
20 presumptively for the arbitrator").
21 Second, Ameriprise's FINRA membership cannot serve as
22 such "clear[] and unmistakabl[e]" evidence of the parties' intent
23 that all future questions of arbitrability be submitted to
24 arbitrators. See Wilson, 254 F.3d at 57 ("[O]ne party's
33
1 membership in an exchange[] is insufficient, in and of itself, to
2 evidence the parties' clear and unmistakable intent to submit the
3 'arbitrability' question to the arbitrators.").
4 Third, the district court explicitly retained
5 jurisdiction over the In re AEFA class action. See Order and
6 Final Judgment at 10 (providing that "[e]xclusive jurisdiction is
7 hereby retained over the Parties and the Class Members for all
8 matters relating to this Action and the Settlement" (emphasis
9 added)).
10 For those reasons, we conclude that determining the
11 scope of the Belands' entitlement to arbitrate (by virtue of
12 Ameriprise's consent through its FINRA membership) is a question
13 for judicial resolution. As such, the district court properly
34
1 undertook it on Ameriprise's motion.15 The question remains
15
The Belands also argue on appeal that Ameriprise
"submitted the question of the Class Action Settlement Release to
the FINRA arbitrators to decide" by filing an answer in the FINRA
arbitration and propounding discovery to the Belands while
proceedings were pending in that venue. Appellants' Br. at 36;
see also Appellants' Reply Br. at 13. They argue that
Ameriprise's participation in the FINRA proceedings definitively
precluded it from later resorting to federal court to seek an
order of dismissal as to the Belands' FINRA arbitration. In
short, the Belands argue waiver.
But the actual conduct of Ameriprise in the FINRA
proceedings fails to support either the Belands' characterization
or their conclusion. In a letter to the Belands' counsel dated
July 28, 2009 -- after the Belands filed their FINRA Complaint
but before the FINRA Defendants took any action before the
arbitrators -- Ameriprise's attorney identified the In re AEFA
Settlement and argued that the Belands, as Class Members, had
"released Ameriprise . . . and its agents and affiliates for
claims relating to the" Belands' Ameriprise investment accounts.
Letter from Ameriprise Counsel to Belands at 1, Mem. in Sup. of
Mot. for Reconsideration Exh. D, In re AEFA, No. 04 Civ. 1773
(S.D.N.Y. Aug. 17, 2010), ECF No. 209-5. When the Belands
refused to withdraw their FINRA Claims, Ameriprise sought
principally to stay the FINRA proceedings while simultaneously
filing an Answer to the Belands' FINRA Complaint. See Motion to
Stay at 1–4. The Motion to Stay explicitly reserved Ameriprise's
right to seek relief in the federal district court pursuant to
the In re AEFA Settlement, requesting a stay of the FINRA
proceedings in order to avoid "a waste of time and other
resources." Id. at 4. In the same document, Ameriprise warned
that "[u]nless Claimants withdraw their Released Claims in this
action, Respondents will be forced to protect their rights by
filing a Motion to Enforce Class Action Settlement as to the
Released Claims" in federal court. Id.
By simultaneously filing a motion to stay the FINRA
proceedings with its answer to the Belands' FINRA Complaint,
Ameriprise unambiguously expressed its intention to seek judicial
relief and thereby preserved its right to proceed accordingly,
notwithstanding its filing of a substantive answer in the FINRA
arbitration. See Opals on Ice Lingerie v. Body Lines Inc., 320
F.3d 362, 369 (2d Cir. 2003) (where a party's correspondence with
its adversary demonstrates "that it continuously objected to
35
1 whether its ultimate conclusion was correct.
2 B. Scope of Ameriprise's Agreement to Arbitrate
3 We have said that "there is nothing irrevocable about
4 an agreement to arbitrate." Baker & Taylor, Inc. v.
5 AlphaCraze.com Corp., 602 F.3d 486, 490 (2d Cir. 2010) (per
6 curiam) (brackets, ellipsis, and internal quotation marks
7 omitted). Parties may "limit the issues they choose to
8 arbitrate," Stolt-Nielsen, 130 S. Ct. at 1774, and "[n]othing"
9 prevents parties to an agreement "from excluding . . . claims
10 from the scope of an agreement to arbitrate," Mitsubishi Motors
11 Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985).
12 Such limitations and exclusions need not be specified by the
13 initial agreement to arbitrate. "Both of the parties may abandon
14 this method of settling their differences, and under a variety of
15 circumstances one party may waive or destroy by his conduct his
16 right to insist upon arbitration." Baker & Taylor, 602 F.3d at17 490 (internal quotation marks omitted). In particular, as
18 relevant here, "different or additional contractual arrangements
19 for arbitration can supersede the rights conferred on [a]
20 customer by virtue of [a] broker's membership in a
21 self-regulating organization such as [FINRA]." Kidder, Peabody &
22 Co. v. Zinsmeyer Trusts P'ship, 41 F.3d 861, 864 (2d Cir. 1994)
arbitration," those "objections prevent a finding of waiver").
The Belands' waiver argument therefore fails.
36
1 (citing Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
2 Georgiadis, 903 F.2d 109, 113 (2d Cir. 1990)).
3 The Class Settlement in this case -- by which, as
4 discussed above, the Belands are bound -- is one such "different
5 or additional contractual arrangement[]." Id. "[A]n arbitrator
6 derives his or her powers from the parties' agreement to forgo
7 the legal process and submit their disputes to private dispute
8 resolution." Stolt-Nielsen, 130 S. Ct. at 1774. It follows that
9 where a party initially consents (in this case, by dint of
10 Ameriprise's FINRA membership) to arbitrate certain types of
11 claims, but later enters into a settlement agreement that
12 releases claims that had been subject to the initial consent to
13 arbitrate, the claims that have been released by such a
14 settlement are no longer subject to arbitration.
15 In the case before us, the Belands failed to opt out of
16 the class, and (as explained above) have not demonstrated
17 "excusable neglect" for that failure. Therefore, bound by the
18 Class Settlement and Release, the Belands may not pursue any
19 Released Claims against Ameriprise and its employees. And the
20 Class Settlement "supersedes all prior understandings,
21 communications, and agreements with respect to the subject of
22 this Settlement," Settlement Agreement at 34, including the
23 parties' implicit agreement that the Belands had a right to
24 arbitrate certain claims against Ameriprise by virtue of the
37
1 latter's FINRA membership. In other words, the Class Settlement
2 extinguished not only the ability of Class Members to bring
3 Released Claims against Ameriprise as a matter of substance, but
4 also the Class Members' right to arbitrate those claims.
5 We find support for this conclusion in the Tenth
6 Circuit's opinion in Riley Manufacturing Co. v. Anchor Glass
7 Container Corp., 157 F.3d 775 (10th Cir. 1998). There, a "merger
8 clause" in a settlement agreement purported to "cancel[],
9 terminate[] and supersede[] any and all prior representations and
10 agreements relating to the subject matter" of the agreement. Id.11 at 778. The court concluded that the merger clause "revoked the
12 prior right of the parties to demand arbitration on the[]
13 specific topics" that the court concluded were within the bounds
14 of the settlement agreement. Id. at 784; see id. at 782
15 (concluding that "the specific releases in" the settlement
16 agreement "waive[d the plaintiff's] right to demand arbitration
17 on the five topics explicitly listed" in the agreement); see also
18 Miller v. Runyon, 77 F.3d 189, 194 (7th Cir. 1996) ("Given the
19 contractual nature of arbitration, it can be argued that the
20 preclusive effect of either a judicial judgment or an arbitration
21 award on a subsequent arbitration should depend on what the
22 parties agreed to. And then the court will decide as a matter of
23 interpretation of the parties' [agreement to arbitrate] whether
38
1 the arbitrators can ignore a prior judicial judgment." (citations
2 omitted)), cert. denied, 519 U.S. 937 (1996).
3 We agree with the Tenth Circuit's approach. We
4 conclude that the Belands' entitlement to arbitrate disputes with
5 Ameriprise, arising out of Ameriprise's FINRA membership and
6 defined by Rule 12200, does not extend to the Released Claims
7 defined by the Settlement Agreement because the Settlement
8 Agreement amended the contours of the parties' agreement to
9 arbitrate all disputes between them before FINRA arbitrators.
10 C. District Court's Retention of Jurisdiction over In re AEFA
11 We do not suggest, however, that in all cases, a
12 settlement agreement revokes a prior agreement or consent to
13 arbitrate by releasing claims that would have been subject to
14 arbitration under the earlier agreement or consent. Indeed,
15 "[u]nder our cases, if there is a reading of the various
16 agreements that permits the [a]rbitration [c]lause to remain in
17 effect, we must choose it." Bank Julius Baer & Co. v. Waxfield
18 Ltd., 424 F.3d 278, 284 (2d Cir. 2005).16 However, no such
19 reading is possible here because the Settlement Agreement
16
In Bank Julius, we concluded that a forum-selection
clause could "be read, consistent with the [a]rbitration
[a]greement, in such a way that the [parties] are required to
arbitrate their disputes," with limitations as to available
challenges regarding jurisdiction and venue. Bank Julius, 424
F.3d at 285. In short, we found no irremediable conflict between
the clauses under analysis in that case.
39
1 explicitly vests the district court with exclusive jurisdiction
2 to enforce its terms.
3 A federal court does not automatically retain
4 jurisdiction to hear a motion to enforce or otherwise apply a
5 settlement in a case that it has previously dismissed. See
6 Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 380–82
7 (1994). Such motions are essentially state-law contract claims
8 to be litigated in the state courts. See id. at 382. However,
9 where, in a federal court, the court makes "the parties'
10 obligation to comply with the terms of the settlement
11 agreement . . . part of the order of dismissal -- either by
12 separate provision (such as a provision 'retaining jurisdiction'
13 over the settlement agreement) or by incorporating the terms of
14 the settlement agreement in the order" -- the proper forum for
15 litigating a breach is that same federal court. Id. at 381;
16 accord Perez v. Westchester County Dep't of Corr., 587 F.3d 143,
17 151–53 (2d Cir. 2009). In cases over which "the district court
18 retain[s] jurisdiction, it necessarily ma[kes] compliance with
19 the terms of the [settlement] agreement a part of its order so
20 that 'a breach of the agreement would be a violation of the
21 order.'" Roberson v. Giuliani, 346 F.3d 75, 82 (2d Cir. 2003)
22 (quoting Kokkonen, 511 U.S. at 381). Further, this Court has
23 said that where "there is ample evidence. . .that the District
24 Court 'intended to place its "judicial imprimatur" on [a]
40
1 settlement,'" the court retains jurisdiction to oversee the
2 enforcement of the agreement. Perez, 587 F.3d at 152 (quoting
3 Torres v. Walker, 356 F.3d 238, 244 n.6 (2d Cir. 2004) (dicta)).
4 That policy interest takes on particular importance in
5 the context of class actions, which are complicated, expensive
6 proceedings involving a multitude of different parties and
7 potential parties but intended ultimately to make enforcement of
8 the rights of all the parties more efficient and less expensive.
9 As a general matter, the more loose ends that remain after the
10 litigation has been resolved, the less successful the process has
11 been. A district court therefore "has the power to enforce an
12 ongoing order against relitigation so as to protect the integrity
13 of a complex class settlement over which it retained
14 jurisdiction." In re Prudential Ins. Co. of Am. Sales Practice
15 Litig., 261 F.3d 355, 367–68 (3d Cir. 2001); see also In re Gen.
16 Am. Life Ins. Co. Sales Practices Litig., 357 F.3d 800, 803 (8th
17 Cir. 2004) (recognizing "the authority of district courts to
18 enforce by injunction a final judgment embodying the terms
19 settling a class action").
20 In the Enforcement Order requiring the Belands to
21 dismiss their arbitration complaint in its entirety, the district
22 court did not advert to any specific source of its jurisdiction
23 to issue the Enforcement Order. In approving the Settlement
24 Agreement and dismissing the In re AEFA litigation, though, the
41
1 district court had explicitly stated that "[e]xclusive
2 jurisdiction is hereby retained over the Parties and the Class
3 Members for all matters relating to this Action and the
4 Settlement." Order and Final Judgment at 10. Therefore, despite
5 the fact that the district court did officially "'close[]' and
6 dismiss[] with prejudice" the In re AEFA litigation, Endorsed
7 Letter at 1, In re AEFA, No. 04 Civ. 1773 (S.D.N.Y. Feb. 2,
8 2009), ECF No. 190, the court properly retained jurisdiction to
9 hear the kind of issues relating to the Settlement Agreement's
10 Released Claims raised by the Belands in this case. See Perez,
11 587 F.3d at 151–52.
12 We have found no "reading of the various agreements" at
13 issue in this case that would permit Ameriprise's preexisting and
14 broad consent to arbitrate "to remain in effect," Bank Julius,
15 424 F.3d at 284, in its entirety. Unlike the integrated reading
16 we afforded the forum-selection clause and anterior arbitration
17 agreement in Bank Julius, an interpretation of the Settlement
18 Agreement that would permit the Belands to arbitrate Released
19 Claims would run afoul of the district court's Order and Final
20 Judgment. We arrive at this conclusion even though we approach
21 it "with a healthy regard for the federal policy favoring
22 arbitration." Moses H. Cone, 460 U.S. at 24. Though we must
23 resolve "any doubts concerning the scope of arbitrable
24 issues . . . in favor of arbitration," including when "the
42
1 problem at hand is the construction of the contract language
2 itself," id. at 24–25; accord WorldCrisa Corp. v. Armstrong, 129
3 F.3d 71, 74 (2d Cir. 1997), we are satisfied that no such doubt
4 exists here. In other words, "it may be said with positive
5 assurance" that Ameriprise's consent to arbitrate as reflected in
6 FINRA Rule 12200 -- subsequent to amendment by the Settlement
7 Agreement -- "is not susceptible of an interpretation that covers
8 the asserted dispute" surrounding the Released Claims. AT & T
9 Techs., 475 U.S. at 650.
10 V. Settlement Agreement & Released Claims
11 A. Standard of Review
12 In reviewing a district court's interpretation of the
13 terms of a settlement agreement, we review conclusions of law de
14 novo and findings of fact for clear error. See Ciaramella v.
15 Reader's Digest Ass'n, Inc., 131 F.3d 320, 322 (2d Cir. 1997).
16 B. Interpreting Class-Action Settlement Agreements
17 It is elementary that a settlement agreement cannot
18 release claims that the parties were not authorized to release.
19 See Nat'l Super Spuds, Inc. v. N.Y. Mercantile Exch., 660 F.2d 9,
20 19 (2d Cir. 1981). At the same time, "[t]he law is well
21 established in this Circuit and others that class action releases
22 may include claims not presented and even those which could not
23 have been presented as long as the released conduct arises out of
24 the 'identical factual predicate' as the settled conduct." Wal-
43
1 Mart, 396 F.3d at 107 (quoting TBK Partners, Ltd. v. W. Union
2 Corp., 675 F.2d 456, 460 (2d Cir. 1982)); cf. TBK Partners, 675
3 F.2d at 461 ("[W]here there is a realistic identity of issues
4 between the settled class action and the subsequent suit, and
5 where the relationship between the suits is at the time of the
6 class action foreseeably obvious to notified class members, the
7 situation is analogous to the barring of claims that could have
8 been asserted in the class action. Under such circumstances the
9 paramount policy of encouraging settlements takes precedence.").
10 Indeed, "[c]lass actions may release claims, even if
11 not pled, when such claims arise out of the same factual
12 predicate as settled class claims." Wal-Mart, 396 F.3d at 108.
13 And "in order to achieve a comprehensive settlement that would
14 prevent relitigation of settled questions at the core of a class
15 action, a court may permit the release of a claim based on the
16 identical factual predicate as that underlying the claims in the
17 settled class action even though the claim was not presented and
18 might not have been presentable in the class action." TBK
19 Partners, 675 F.2d at 460.
20 C. Overlap of Claims
21 We begin by noting that the starting point for
22 interpreting settlement agreements is general contract-law
23 principles. See, e.g., Omega Eng'g, 432 F.3d at 443.
24 Here, the Class Settlement stated that the definition
25 of Released Claims included, inter alia,
44
1 any and all claims, debts, demands, rights or
2 causes of action or liabilities
3 whatsoever . . . , whether based on federal,
4 state, local, statutory or common law or any
5 other law, rule or regulation, . . .
6 including both known claims and Unknown
7 Claims . . . that (i) have been asserted in
8 this Action by the Plaintiffs . . . or (ii)
9 could have been asserted in any forum by the
10 Plaintiffs or Class Members . . . against any
11 of the Released Persons; including claims
12 that arise out of or are based upon (a) the
13 allegations, transactions, facts, matters or
14 occurrences, representations or omissions
15 alleged, involved, set forth, or referred to
16 in the [Class Complaint] . . . , [and] (b)
17 the offer and sale of financial advice,
18 financial planning, and/or financial advisory
19 services pursuant to a Financial Advisory
20 Service Agreement, or the SPS, WMS or SMA
21 programs[17] . . . .
22 Settlement Agreement at 7-8. That definition is expansive, but
23 the Settlement Agreement goes on to exclude certain claims from
24 the definition's purview. The Settlement Agreement states that
25 "'Released Claims' shall not include suitability claims unless
26 such claims are alleged to arise out of the common course of
27 conduct that was alleged, or could have been alleged, in the
28 Action, as more fully described herein." Id. at 8 (emphases
29 added).
17
The SPS ("Strategic Portfolio Service"), SMS ("Separately
Managed Account"), and WMS ("Wealth Management Service") programs
"encompassed all of Ameriprise's managed, fee-for-service
accounts or programs in which clients paid a percentage fee for
services that included financial advice, financial planning, or
other financial advisory services." Appellee's Br. at 21 n.3
(internal quotation marks omitted).
45
1 As we explain above, supra note 3, suitability claims
2 are often brought "as a distinct subset" of section 10(b) claims
3 under the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b).
4 See Dodds, 12 F.3d at 351. Ameriprise argues that the Belands do
5 not advert to any specific federal statute, or even the term
6 "suitability," in their FINRA Complaint. And indeed, before the
7 district court, the Belands explicitly disavowed any reliance on
8 federal securities law. Therefore, says Ameriprise, the Belands
9 did not "actually assert[] suitability claims before FINRA."
10 Appellee's Br. at 26 (emphasis in original) (internal quotation
11 marks omitted). However, particularly because of the lack of a
12 definition of the term in the Class Settlement, for the purposes
13 of this appeal we consider "suitability" to serve more as a
14 general description of the character of potential common-law
15 claims (such as breach of fiduciary duty, breach of contract,
16 fraud, and negligent misrepresentation -- all of which the
17 Belands did allege in the FINRA proceedings), rather than a
18 technical term denoting a specific type of section 10(b) claim.
19 See also infra note 17. Furthermore, we note that although the
20 Belands also disclaim reliance on state securities laws,
21 regulations issued by the State of Illinois -- the state where
22 the Belands filed their FINRA Complaint -- define
23 "unsuitab[ility]" with reference to "fraud[], decepti[on,] [and]
24 manipulati[on]." Ill. Admin. Code tit. 14, § 130.853.
46
1 The Belands point to several aspects of their FINRA
2 Claims that demonstrate that not all of them are Released Claims
3 barred by the Class Settlement. First, they argue that their
4 claims span a time period matching that of the existence of their
5 trusts -- from 1995 to 2009 -- while the Release covers only
6 claims between 1999 and 2006. Second, the Belands argue that
7 while the Class Settlement "plainly relate[s] to [claims
8 involving the] sale and promotion of proprietary and affiliated
9 mutual funds for which [Ameriprise] was receiving kickbacks or
10 promoting in-house," Appellants' Reply Br. at 3, the Settlement
11 Agreement's express exclusion of "suitability claims" covers the
12 substance of many of their FINRA Claims, which allege that "the
13 conservative goal of both the Charitable Remainder and Revocable
14 Trusts was not followed" and "individual speculative 'tech'
15 securities were bought and sold," Appellants' Br. at 27; see also
16 Appellants' Reply Br. at 6 (arguing that the Belands' FINRA
17 Claims include "suitability claims unique to the recommendations
18 of Ameriprise broker Ron Miller -- claims related both to
19 misrepresentation and recommendations having nothing to do with
20 American Express mutual funds and shelf space proprietary
21 products").
22 Ameriprise counters that the Belands' FINRA Claims
23 "fall squarely within the definition of 'Released Claims.'"
24 Appellee's Br. at 20. Regardless of any minor differences,
25 Ameriprise contends, the FINRA Claims "plainly 'arise from the
47
1 same transactions, facts, matters, occurrences, and
2 representations as the claims of the [Class Complaint].'" Id. at
3 21 (quoting Order and Final Judgment at 2). Ameriprise also
4 rejects the Belands' attempt to rely upon the "suitability
5 claims" carve-out in the Class Settlement, inasmuch as the
6 Belands' FINRA Complaint did not explicitly label or otherwise
7 characterize any of their claims as being "suitability" claims.18
8 We agree with the Belands, however, that their FINRA
9 Claims and the Released Claims do not -- indeed, cannot --
10 entirely overlap. First, the Belands' FINRA Complaint
11 unequivocally alleges that Ameriprise and Miller agreed to invest
12 the Belands' funds "in a conservative fashion, preserving capital
13 and obtaining income from which the life beneficiaries could
14 receive a return," FINRA Complaint ¶ 9, but that "[a]
15 conservative asset allocation approach was not taken," id. ¶ 13.
16 That seems to us to be a quintessential suitability claim. See
17 Kearney v. Prudential-Bache Sec., Inc., 701 F. Supp. 416, 429
18
Ameriprise also contends that the Belands' suitability-
claim argument has been forfeited because they did not raise it
until they filed their Motion for Reconsideration before the
district court. However, though the Belands do not appear to
have specifically referred to the "suitability" carve-out clause
before that time, the Belands consistently contended that their
FINRA Claims went well beyond any issue that was or could have
been raised in the Class Action. We therefore decline to accept
Ameriprise's waiver argument regarding the "suitability" carve-
out clause in the definition of Released Claims. In any event,
"[w]e retain 'broad discretion' to consider issues not timely
raised below." Official Comm. of Unsecured Creditors of Color
Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d 147, 159 (2d Cir.
2003).
48
1 (S.D.N.Y. 1988) (describing a typical suitability claim as a
2 broker's "invest[ment] in risky transactions contrary either to
3 [an investor's] explicit directions or to her interests").
4 Second, although the definition of Released Claims does
5 include suitability claims "aris[ing] out of the common course of
6 conduct that was alleged, or could have been alleged, in the [In
7 re AEFA litigation]," Settlement Agreement at 8, we read the
8 "common course of conduct" alleged in the In re AEFA litigation
9 to be, as described by the Belands, Ameriprise's routine practice
10 of "steering American Express clients into Proprietary or Shelf
11 Space funds through one or more of the managed programs at
12 American Express," Appellants' Reply Br. at 4. Indeed, the Class
13 consisted only of persons who purchased financial plans that
14 invested in the Proprietary or Shelf Space Funds (as well as
15 others who otherwise invested in those Funds). See Class
16 Complaint ¶ 85. As the Class Notice explains, the class action
17 involved investors who "were sold financial plans and/or advice
18 that, instead of being tailored to their individual
19 circumstances, contained standardized recommendations designed to
20 steer them into investing in Defendants' proprietary mutual funds
21 and other proprietary investment products and certain non-
22 proprietary 'Preferred' or 'Select' mutual funds." Class Notice
23 at 1. The Class Notice further explained that the basis of the
24 class action was the notion that "conflicts of interest inherent
25 in Defendants' financial plans and/or financial advisory
49
1 services, and the compensation arrangements between Defendants
2 and the Preferred Funds, were inadequately disclosed to
3 investors." Id. The Belands' claims that Miller mismanaged
4 their trusts contrary to their instructions and investment goals
5 do not fall within that "common course of conduct."
6 Third, the Belands' FINRA Complaint is also devoted in
7 part to the allegation that once they confronted Miller about the
8 accounts' declining assets, "Miller set a course of cover-up,
9 lies and deceit in order to obscure the mishandling in the"
10 accounts, providing false justifications for investment decisions
11 and shielding the truth about Ameriprise's motives and conflicts
12 of interest. FINRA Complaint ¶ 20; see also id. ¶¶ 25–27. Among
13 those allegedly false reasons were the September 11 terrorist
14 attacks and that the charitable trust was set to diminish "by
15 design." Id. ¶¶ 21–24 (internal quotation marks omitted).
16 Claims dependent upon allegations of this sort were plainly not
17 Released Claims under the In re AEFA Class Settlement.
18 Fourth, there can be no question that the Belands'
19 claims, to the extent that they involve conduct occurring after
20 the Class Period, cannot be Released Claims.19
19
That said, we do have some doubts about the time period
allegedly at issue in the Belands' FINRA Complaint. While they
represent that their claims against Ameriprise span from 1995 to
2009, John and Elaine did not become trustees or beneficiaries of
the accounts until 2004. While claims predating their inherited
interest in the Ameriprise accounts might not be Released Claims,
we note that they still might not be valid if the Belands did not
acquire an interest in the accounts prior to that time. However,
50
1 To be sure, some -- if not many -- of the allegations
2 in the Belands' FINRA Complaint constitute Released Claims. For
3 example, they allege that "[a]lmost from the start, rather than
4 invest in conservative large cap stocks, paying good dividends as
5 well as substantial bond portfolios, Miller and Ameriprise
6 invested in many house American Express mutual funds including
7 various high yield junk bond funds." FINRA Complaint ¶ 14
8 (emphasis added). Similarly, they allege that Ameriprise "has
9 managed [the Belands' accounts] in a fashion . . . designed
10 primarily to generate fees and income for Ameriprise. . . [and]
11 to promote in-house mutual funds of American Express." Id. ¶ 13.
12 To the extent the FINRA Complaint contains similar claims, the
13 claims are conclusively Released Claims and are, as such, barred.
14 However, the Belands also clearly allege in their FINRA
15 Complaint that Ameriprise invested in "risky small cap or start-
16 up funds" that "exposed" the Belands' accounts "to tremendous
17 market risk which was unsuitable for the[ir] account objectives."
18 Id. ¶¶ 13–14 (emphasis added). And while the In re AEFA Class
19 Period lasted from March 10, 1999 to April 1, 2006, the Belands'
20 complaint stretches all the way into 2009. Those claims, we
21 conclude, are not Released Claims and therefore are not barred by
22 the In re AEFA Class Settlement.
23 D. Conclusion
that is a determination we leave for further factfinding by the
arbitrators.
51
1 To summarize: Ameriprise consented to arbitrate
2 disputes with the Belands -- its customers -- by virtue of its
3 membership in FINRA. FINRA Rule 12200 is a broad provision that
4 clearly encompasses the Belands' FINRA Claims, as they
5 indisputably "arise[] in connection with the business activities
6 of" Ameriprise and Miller. FINRA Code § 12200. Even if it were
7 a closer question, because the issue would be one of "the
8 construction of the contract language itself," we would "resolve
9 'any doubts concerning the scope of arbitrable issues . . . in
10 favor of arbitration. . . .'" Republic of Ecuador, 638 F.3d at11 393 (quoting Moses H. Cone, 460 U.S. at 24–25) .
12 The scope of an agreement to arbitrate is a "question
13 of arbitrability" within the purview of the court, and therefore
14 we can properly undertake the task of determining the breadth of
15 Ameriprise's consent to arbitrate. In our view, the Settlement
16 Agreement "modif[ied]" Ameriprise's "fundamental and broad
17 commitment," through its FINRA membership, "to arbitrate any
18 dispute," Bechtel do Brasil Construções Ltda. v. UEG Araucária
19 Ltda., 638 F.3d 150, 155 (2d Cir. 2011) (emphasis in original),
20 with the Belands. Specifically, the Settlement Agreement altered
21 Ameriprise's prior expansive commitment to arbitrate by removing
22 the Released Claims from the scope of that commitment.
23 We therefore conclude that Ameriprise (1) has not
24 agreed to arbitrate the Released Claims as defined in the
52
1 Settlement Agreement, but (2) that it has agreed to arbitrate any
2 non-Released Claims asserted in the Belands' FINRA Complaint.
3 VI. District Court's Remedial Power
4 A. Power to Enjoin Arbitration
5 The question "of whether federal courts have the power
6 to stay arbitration under the FAA (or any other authority) in an
7 appropriate case" is an open one in this Circuit. Republic of
8 Ecuador, 638 F.3d at 391 (citing Westmoreland Capital Corp. v.
9 Findlay, 100 F.3d 263, 266 n.3 (2d Cir. 1996), abrogated on other
10 grounds by Vaden v. Discover Bank, 556 U.S. 49 (2009)). But see
11 In re U.S. Lines, Inc., 197 F.3d 631, 639 (2d Cir. 1999) ("In the
12 bankruptcy setting, congressional intent to permit a bankruptcy
13 court to enjoin arbitration is sufficiently clear to override
14 even international arbitration agreements."); Video Tutorial
15 Servs., Inc. v. MCI Telecomms. Corp., 79 F.3d 3, 5 (2d Cir. 1996)
16 (per curiam) (failing to reach the issue but noting that "[w]e
17 would be hard-pressed to say that a district court cannot stay
18 arbitration for a short time while familiarizing itself with the
19 issues underlying a proposed motion to stay a suit pending
20 arbitration, or a proposed motion to stay an arbitration"). But
21 we find no indication that this issue was contested in the
22 district court proceedings, and it was left unaddressed in both
23 briefing to and oral argument before us. However, it is not one
24 we think we can ignore simply because the parties have not
25 squarely presented it to the Court. Although it is not a
53
1 question upon the answer to which our jurisdiction depends, we
2 view it as one we ought to address inasmuch as it implicates "the
3 remedial powers of the court," Steel Co. v. Citizens for a Better
4 Env't, 523 U.S. 83, 90 (1998) (emphasis in original), to issue
5 the Enforcement Order. See AEP Energy Servs. Gas Holding Co. v.
6 Bank of Am., N.A., 626 F.3d 699, 719 (2d Cir. 2010). In the
7 words of another court, the issue represents "a high order
8 challenge":
9 On the one hand, a realistic concern for the
10 finality and integrity of judgments would
11 arise if parties were free to ignore federal
12 court decisions that have conclusively
13 settled claims or issues now sought to be
14 arbitrated. Yet, arbitration is a matter of
15 contract and the FAA only authorizes a
16 limited review of the parties' intent before
17 compelling or enjoining arbitration.
18 Olick, 151 F.3d at 138(internal quotation marks omitted).
19 While the FAA's terms explicitly authorize a district
20 court to stay litigation pending arbitration, see 9 U.S.C. § 3,
21 and to compel arbitration, see id. § 4, nowhere does it
22 explicitly confer on the judiciary the authority to do what the
23 district court's Enforcement Order purported to do here: enjoin a
24 private arbitration.
25 Our decisions do suggest, however, that, at least where
26 the court determines -- pursuant to the first step outlined in
27 ACE Capital, 307 F.3d at 28, discussed above -- that the parties
28 have not entered into a valid and binding arbitration agreement,
29 the court has the authority to enjoin the arbitration
54
1 proceedings. See United States v. Eberhard, No. 03 Cr. 562, 2004
2 WL 616122, at *3, 2004 U.S. Dist. LEXIS 5029, at *10 (S.D.N.Y.
3 Mar. 30, 2004) ("[W]here courts in this Circuit have concluded
4 that § 4 of the FAA permits the issuance of a stay [of a private
5 arbitration], . . . they appear to have done so only in those
6 circumstances where a stay would be incidental to the court's
7 power under the FAA to enforce contractual agreements calling for
8 arbitration . . . ."). In Citigroup Global Mkts., Inc. v. VCG
9 Special Opportunities Master Fund Ltd., 598 F.3d 30 (2d Cir.
10 2010), we affirmed a district court's order preliminarily
11 enjoining a FINRA arbitration from proceeding. Id. at 40. In
12 that case, the district court had "serious questions" as to
13 whether one party was in fact a "customer" of a FINRA member
14 (which status, as we observed above, would bind the other party
15 to arbitrate). Id. at 33–34 (internal quotation marks omitted).
16 We concurred with that assessment, concluding that the "customer"
17 status of the party was an "issue . . . in sharp dispute." Id.18 at 39 (internal quotation marks omitted). In other words, we
19 doubted the existence of a binding agreement to arbitrate in that
20 case.
21 We have also affirmed a district court's stay of
22 arbitration after determining that the initiation of judicial
23 proceedings in a foreign country constituted a waiver of a
24 plaintiff's right to arbitration, see Zwitserse Maatschappij van
25 Levensverzekering en Lijfrente v. ABN Int'l Capital Mkts. Corp.,
55
1 996 F.2d 1478, 1480-81 (2d Cir. 1993) (per curiam), as we have a
2 stay of arbitration over various claims that we held were not
3 within the scope of an arbitration agreement, even while
4 affirming an order compelling arbitration of related validly
5 arbitrable claims, see Collins & Aikman, 58 F.3d at 23. Both of
6 those cases, in addition to Citigroup Global Markets, suggest
7 that a federal court may enjoin an arbitration that the court
8 determines is not otherwise valid. See also SATCOM Int'l Grp.
9 PLC v. ORBCOMM Int'l Partners, L.P., 49 F. Supp. 2d 331, 341–42
10 (S.D.N.Y. 1999) (enjoining an arbitration in a case arising under
11 the New York Convention, 9 U.S.C. §§ 201-208, after finding that
12 such arbitration was "inappropriate" because the plaintiff had
13 "waived any right it previously had to arbitrate the issues in
14 th[e] case").
15 The First Circuit's opinion in Societe Generale de
16 Surveillance, S.A. v. Raytheon European Mgmt. & Sys. Co., 643
17 F.2d 863 (1st Cir. 1981), is instructive. There, the court
18 considered a party's argument that the FAA "removes the district
19 court's power to enjoin [an] arbitration." Id. at 867. The
20 court first noted that the FAA "expressly provides federal courts
21 with the power to order parties to a dispute to proceed to
22 arbitration where arbitration is called for by the contract."
23 Id. at 868 (citing 9 U.S.C. § 3). It inferred that "to enjoin a
24 party from arbitrating where an agreement to arbitrate is absent
25 is the concomitant of the power to compel arbitration where it is
56
1 present." Id. The court concluded that "[t]o allow a federal
2 court to enjoin an arbitration proceeding which is not called for
3 by the contract interferes with neither the letter nor the spirit
4 of" the FAA. Id.; see also PaineWebber Inc. v. Hartmann, 921
5 F.2d 507, 511 (3d Cir. 1990) ("If a court determines that a valid
6 arbitration agreement does not exist or that the matter at issue
7 clearly falls outside of the substantive scope of the agreement,
8 it is obliged to enjoin arbitration."), overruled by implication
9 on other grounds by Howsam, 537 U.S. 79.
10 We confirm and apply those principles here. If the
11 parties to this appeal have not consented to arbitrate a claim,
12 the district court was not powerless to prevent one party from
13 foisting upon the other an arbitration process to which the first
14 party had no contractual right. As is clear from the Supreme
15 Court's and this Circuit's cases, "[a]rbitration under the [FAA]
16 is a matter of consent, not coercion." Volt, 489 U.S. at 479;
17 see also Howsam, 537 U.S. at 83 ("[A]rbitration is a matter of
18 contract and a party cannot be required to submit to arbitration
19 any dispute which he has not agreed so to submit." (internal
20 quotation marks omitted)). It makes little sense to us to
21 conclude that district courts lack the authority to order the
22 cessation of an arbitration by parties within its jurisdiction
23 where such authority appears necessary in order for a court to
57
1 enforce the terms of the parties' own agreement, as reflected in
2 a settlement agreement. We decline to do so here.20
20
We pause to note that we are relying on a reading of the
FAA, FINRA Rule 12200, and the Settlement Agreement. The
particular circumstances presented in this appeal -- with
emphasis on the exclusive nature of the In re AEFA district
court's retention of jurisdiction over the Settlement Agreement -
- persuades us that the district court here could properly enjoin
the private arbitration of claims already settled and released by
class members such as the Belands.
However, the All Writs Act, 28 U.S.C. § 1651(a), authorizes
federal courts to issue "all writs necessary or appropriate in
aid of their respective jurisdictions." See Klay v. United
Healthgroup, Inc., 376 F.3d 1092, 1099 (11th Cir. 2004) ("In
allowing courts to protect their 'respective jurisdictions,' the
[All Writs] Act allows them to safeguard not only ongoing
proceedings, but potential future proceedings, as well as
already-issued orders and judgments." (footnotes omitted)). Some
courts have explicitly relied upon the All Writs Act in enjoining
arbitrations in similar circumstances to those before us in this
appeal. See, e.g., In re Y & A Grp. Sec. Litig., 38 F.3d 380,
382, 382–83 (8th Cir. 1994) (relying in part on the All Writs Act
in concluding that "[n]o matter what, courts have the power to
defend their judgments as res judicata, including the power to
enjoin or stay subsequent arbitrations"); Hartley v. Stamford
Towers Ltd. P'ship, Nos. 92-16802 & 92-56528, 1994 WL 463497, at
*3–*4, 1994 U.S. App. LEXIS 23543, at *12 (9th Cir. Aug. 26,
1994) (unpublished opinion) (noting that the All Writs Act's
"grant of authority includes jurisdiction to enforce a class
action judgment" by enjoining an arbitration, and one party's
"participation in the arbitration process cannot affect the
District Court's authority to enforce its judgments"); see also,
e.g., Eberhard, 2004 WL 616122, at *3 n.6, 2004 U.S. Dist. LEXIS
5029, at *12 n.6 ("If this Court does not choose to exercise
[its] power here, it is not for lack of such power but because
the NASD arbitrations have not been shown to interfere with the
Court's jurisdiction."). But see Klay, 376 F.3d at 1102–03 ("The
simple fact that litigation involving the same issues is
occurring concurrently in another forum does not sufficiently
threaten the court's jurisdiction as to warrant an injunction
under the" All Writs Act.).
We thus do not decide whether the dictates of the All Writs
Act might, in another case without the type of jurisdictional
retention present here, give a district court "the authority to
58
1 B. Application to Enforcement Order
2 The Supreme Court has made clear that "[t]he preeminent
3 concern of Congress in passing the [FAA] was to enforce private
4 agreements into which parties had entered, and that concern
5 requires that we rigorously enforce agreements to arbitrate, even
6 if the result is 'piecemeal' litigation." Dean Witter Reynolds,
7 Inc. v. Byrd, 470 U.S. 213, 221 (1985) (emphasis added); see
8 Moses H. Cone, 460 U.S. at 20 ("[F]ederal law requires piecemeal
9 resolution when necessary to give effect to an arbitration
10 agreement." (emphasis in original)); Collins & Aikman, 58 F.3d at11 20; see also Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529,
12 532 (3d Cir. 2005) ("When a dispute consists of several claims,
13 the court must determine on an issue-by-issue basis whether a
14 party bears a duty to arbitrate."). It is therefore appropriate
15 for us -- and the district court -- to treat the Belands'
16 Released and non-Released FINRA Claims differently.
17 Because we have concluded that a district court may
18 properly enjoin arbitration proceedings that are not covered by a
19 valid and binding arbitration agreement, and because we have
20 further determined that no such agreement exists in this case as
21 to the Released Claims, we find no error in, and therefore
22 affirm, that portion of the district court's Enforcement Order
enjoin arbitration to prevent re-litigation," Kelly v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 985 F.2d 1067, 1069 (11th
Cir. 1993), rev'd in part on other grounds by Howsam, 537 U.S.
79.
59
1 that enjoined the Belands' FINRA Arbitration as to the Released
2 Claims.
3 However, as we have also discussed, the Belands' FINRA
4 Complaint contains various claims not encompassed by -- indeed,
5 in certain cases specifically excluded by -- the Release. Those
6 non-Released Claims include claims based on, inter alia,
7 unsuitable investment in technology stocks, misrepresentations
8 and omissions regarding those investments, and claims involving
9 alleged conduct falling outside the Class Period. Because
10 Ameriprise's consent to arbitrate, even as amended (i.e.,
11 limited) by the Settlement Agreement, continues to embrace the
12 non-Released Claims, the district court -- to that extent only --
13 lacked the authority to enjoin the arbitration of the Belands'
14 FINRA Claims. Therefore, we vacate the portion of the
15 Enforcement Order that purported to enjoin the Belands from
16 presenting those claims to the FINRA arbitrators. We remand this
17 matter to the district court for entry of an appropriately
18 limited order enjoining only the arbitration of the Released
19 Claims.
20 CONCLUSION
21 For the foregoing reasons, we affirm that portion of
22 the district court's judgment enjoining the Belands from
23 arbitrating their Released Claims before FINRA arbitrators, and
24 we vacate that portion of the court's judgment enjoining
25 arbitration of any non-Released Claims. In light of our
60
1 disposition of this appeal, we dismiss as moot the Belands'
2 appeal from the district court's denial of their motion for
3 reconsideration. We remand for further proceedings.
4 Each party shall bear his, her, or its own costs.
61