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Citigroup Global Markets Inc. v. Preis

United States District Court, S.D. New York

April 14, 2015

CITIGROUP GLOBAL MARKETS INC., BLAIR NELSON, CHRISTOPHER ALEXIS, ROBERT PAPALEO, AND AVI JANKELOVITS, Petitioners,
v.
ILAN PREIS, Respondent.

OPINION AND ORDER

LORNA G. SCHOFIELD, District Judge.

This dispute arises out of the discharge of Respondent Ilan Preis as an employee and registered representative of Petitioner Citigroup Global Markets Inc. ("CGMI"). CGMI and certain of its employees - Blair Nelson, Christopher Alexis, Robert Papaleo, and Avi Jankelovits (collectively, "CGMI Petitioners") - commenced this action seeking to enjoin an arbitration proceeding initiated by Respondent Preis on the ground that a prior arbitration award in favor of CGMI, which was confirmed by this Court, precludes the new arbitration. Preis cross-moves to dismiss this action and to compel arbitration.

For the reasons below, the Petition is granted in part and denied in part. Preis' motion is also granted in part and denied in part.

I. BACKGROUND

A. The Parties' Prior Proceeding

Petitioner CGMI is a registered broker-dealer with the Financial Industry Regulatory Authority, Inc. ("FINRA"). On or around December 25, 2012, Preis commenced a FINRA arbitration against CGMI alleging that he had been unlawfully discharged from his employment at CGMI (the "First Arbitration"). On January 17, 2013, he filed an amended statement of claim. Broadly summarized, Preis asserted that, after he had internally reported violations of Securities and Exchange Commission rules and regulations, CGMI retaliated by soliciting customer complaints against him, and then discharged him. He also claimed that CGMI had filed a false Form U5 with FINRA about his discharge. Preis alleged nine claims and theories of liability: (1) retaliation under the Sarbanes-Oxley Act, (2) prima facie tort, (3) tortious interference with prospective business relationships, (4) breach of contract, (5) breach of implied covenant of good faith and fair dealing, (6) quantum meruit, (7) unjust enrichment, (8) negligence and failure to supervise, and (9) breach of industry rules. He sought compensatory and punitive damages, attorneys' fees and costs, and expungement of the Form U5. After a nine-day hearing, the arbitration panel denied Preis' claims.

On or around July 17, 2014, Preis initiated an action in New York state court to vacate or modify the award in the First Arbitration. CGMI removed the action on August 8, 2014, and cross-petitioned to confirm the arbitration award. That action is a separate but related action with case number 14 Civ. 6327 (LGS). By Order and Opinion dated April 8, 2015, this Court confirmed the arbitration award in the First Arbitration.

B. The Second Arbitration, the Current Proceeding and the FINRA Denial of Forum Petition

On May 3, 2014, Preis commenced a second FINRA arbitration against CGMI and added the individual Petitioners who had not been parties to the First Arbitration (the "Second Arbitration"). In the Second Arbitration, Preis alleged essentially the same facts, added additional facts, and asserted the same nine claims and theories of liability that he had raised in the First Arbitration and again sought compensatory and punitive damages, as well as expungement of his Form U5.

On August 8, 2014, CGMI requested that FINRA deny the use of the FINRA arbitral forum to hear the Second Arbitration. On August 12, 2014, Preis responded to FINRA arguing that the Second Arbitration should go forward and advising that he was no longer acting pro se and was represented by counsel. CGMI argued in further support of denial of the forum by letters dated August 28, 2014, and September 9, 2014.

On October 23, 2014, CGMI Petitioners commenced the present action. On December 5, 2014, Preis moved to dismiss the Petition and compel arbitration. In support of his opposition and cross-motion, Preis submitted a declaration stating that the Second Arbitration, in contrast to the First Arbitration, would focus on events that occurred in or around September 2013. On December 31, 2014, Preis filed an Amended Demand for Arbitration in the Second Arbitration against the CGMI Petitioners ("Amended Demand"). The Amended Demand focused on events that post-date Preis' January 2013 amended statement of claim in the First Arbitration, but repeated in substance the factual allegation that, in October and November 2012, some of the CGMI Petitioners in this action solicited complaints from Preis' former clients. The Amended Demand asserted causes of actions for retaliation under the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"), tortious interference, and prima facie tort. Preis seeks compensatory and punitive damages, as well as expungement of two customer complaints.

On September 23, 2014, FINRA ruled that (1) it would not arbitrate claims against CGMI "that were previously decided by award, " (2) it would arbitrate "new claims that were not previously adjudicated, " and (3) "[a]ny issues in connection with the claims that may proceed in this forum will be decided by the arbitration panel." FINRA also ruled that it would arbitrate Preis' claims against the individual Petitioners because they were not named in the First Arbitration.

II. DISCUSSION

CGMI Petitioners seek declaratory and injunctive relief barring Preis from pursuing the Second Arbitration, citing the Federal Arbitration Act (the "FAA"), 9 U.S.C. § 1 et seq., the All Writs Act, 28 U.S.C. § 1651(a), and the Court's general equity powers. CGMI Petitioners also seek a declaratory judgment and injunctive relief preventing Preis from arbitrating his Sarbanes-Oxley Act and Dodd-Frank Act claims based on the Dodd-Frank Act. Preis cross-moves to dismiss and ...


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