Sunday, November 6, 2011
There have been several interesting decisions recently about the relationship between arbitration proceedings and the courts, of which In re American Express Financial Advisors Securities Litigation (No. 10-3399, 2d Cir. Nov. 3, 2011) is the most recent. The opinion addresses several unsettled issues concerning the effect of a class action settlement on an individual class member's right to arbitrate certain claims. The Bolands brought various claims before the FINRA arbitration forum against Ameriprise Financial Services, based on Ameriprise's alleged failure to adhere to the Bolands' conservative investment strategy and its "steering" of the Bolands' assets into mutual funds that allowed Ameriprise to collect excessive fees. Unfortunately for the Bolands, they were members of a class that had settled claims against Ameriprise, and they had neither opted out nor submitted a claim to share in the settlement funds. After the arbitration panel denied Ameriprise's motion to stay the arbitration, the firm moved in federal district court to enforce the settlement agreement and enjoin the Bolands from pursuing the arbitration. The district court concluded that the class settlement barred all of the Bolands' claims, granted Ameriprise's motion and ordered the Bolands to dismiss their FINRA complaint with prejudice.
Fortunately, however, for the Bolands, the settlement agreement expressly excluded from the definition of "Released Claims" "suitability claims unless such claims are alleged to arise out of the common course of conduct that was alleged ... in the Action." On appeal, the Second Circuit determined that the FINRA claims and the Released Claims do not totally overlap; accordingly, the Bolands remained free to arbitrate some of their claims.
The Second Circuit also addressed the district court's power to enjoin arbitration, an unanswered question in the Second Circuit. It noted that the FAA did not explicitly confer on the judiciary the authority to enjoin a private arbitration. It acknowledged that previous decisions in the Circuit recognized the district court's power to enjoin arbitration in certain circumstances: (1) where the court has determined that the parties have not entered into a valid and binding arbitration agreement, and (2) where the court has determined that the initiation of judicial proceedings in a foreign country constituted a waiver of arbitration. The court confirmed and applied those principles to this situation:"it makes little sense to us to conclude that district courts lack the authority to order the cessation of an arbitration by parties within its jurisdiction where such authority appears necessary in order for a court to enforce the terms of the parties' own agreement, as reflected in a settlement agreement." The court also relied on the fact that the settlement agreement explicitly stated that the federal district court retained jurisdiction over the settlement agreement. The court did not decide whether the All Writs Act, which other federal courts had relied upon to stay arbitration, gave the district court the authority to enjoin arbitration to prevent relitigation of issues.