In re Am. Express Fin. Advisors Sec. Litig.

Issue Discussed: Res Judicata / Collateral Estoppel

Submitted by Aluyah I. Imoisili, Jamie E. Sutton*

Date Promulgated: November 3, 2011

In re Am. Express Fin. Advisors Sec. Litig., 672 F.3d 113 (2d Cir. 2011)

Court: United States Court of Appeals, Second Circuit

Issues Decided: Whether a district court may enjoin arbitration and determine which issues may be arbitrated where the court retained exclusive jurisdiction to enforce a related settlement agreement among the parties.

Key Holding

Investors demanded arbitration proceeding against a financial services company for alleged breach of fiduciary duty, breach of contract, fraud, and negligent misrepresentation based on an alleged failure to adhere to investment guidelines and improper diversion of assets into particular funds so that the company could collect excessive fees.  The company moved in the district court to enforce a settlement agreement from a prior class action in which the investors had been class members, seeking an order requiring the investors to withdraw the arbitration.  The district court retained jurisdiction over disputes from the class action litigation.  The district court concluded that the settlement agreement barred all of the investors’ arbitration claims and ordered them to dismiss the arbitration with prejudice.

The Second Circuit held that the district court had the power to enjoin arbitration of the investors’ claims that were settled and released by class members in the prior class action.  The Second Circuit explained that, by explicitly stating that it retained exclusive jurisdiction over the parties and class members for all matters related to the class action and its settlement, the district court properly retained jurisdiction to hear issues relating to arbitration and the release of claims subsequently raised by investors, who were bound by the settlement agreement.  However, the Second Circuit held that certain claims were not covered by the settlement and allowed those claims to proceed to arbitration.

Key Takeaways

A court may enjoin arbitration, and determine which claims may be arbitrated, where the court retains exclusive jurisdiction over the parties for all related matters in a prior agreement.

* Aluyah I. Imoisili is a Partner and Jamie E. Sutton is an Associate at Greenberg Gross LLP, where they specialize in commercial litigation and arbitration.