Citigroup, Inc. v. Abu Dhabi Inv. Auth.

776 F.3d 126

CITIGROUP, INC., Plaintiff–Appellant

v.ABU DHABI INVESTMENT AUTHORITY, Defendant–Appellee.

Docket No. 13–4825–cv.

United States Court of Appeals, Second Circuit.

Submitted: Dec. 9, 2014.

Decided: Jan. 14, 2015.

Leslie Gordon Fagen (Brad S. Karp and Gregory F. Laufer, on the brief), Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, for Plaintiff–Appellant Citigroup, Inc.Sanford I. Weisburst (Peter E. Calamari and Tai–Heng Cheng, on the brief), Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY, for Defendant–Appellee Abu Dhabi Investment Authority.

Before: WESLEY, HALL, and LYNCH, Circuit Judges.

Opinion

HALL, Circuit Judge:

This case presents the question of whether the All Writs Act, 28 U.S.C. § 1651(a), permits a federal district court to enjoin a second arbitration between parties to a contractual arbitration agreement based on what one party asserts is the claim-preclusive effect of a prior federal judgment confirming the result of the parties' earlier arbitration. We hold that the “extraordinary remedies” authorized by the All Writs Act cannot be used to enjoin an arbitration based on whatever claim-preclusive effect may result from the district court's prior judgment when that judgment merely confirmed the result of the parties' earlier arbitration without considering the merits of the underlying claims at issue in that arbitration. We concur with the district court that Appellant Citigroup, Inc. has not demonstrated an adequate basis for an extraordinary injunction pursuant to the All Writs Act and affirm the judgment dismissing Citigroup's complaint and compelling arbitration.

BACKGROUND

The facts are straightforward. Citigroup, Inc. and the Abu Dhabi Investment Authority (“ADIA”) were parties to an Investment Agreement under which ADIA invested billions of dollars in Citigroup. The Agreement contained an arbitration clause providing that “any dispute that arises out of or relates to the [Agreement], or the breach thereof, ... will be decided through arbitration administered by the American Arbitration Association.” J.A. 163. In 2009, ADIA commenced arbitration proceedings pursuant to this clause, alleging that Citigroup had diluted the value of its investment by issuing preferred shares to other investors. See Abu Dhabi Inv. Auth. v. Citigroup, Inc., No. 12–cv–283, 2013 WL 789642, at *1 (S.D.N.Y. Mar. 4, 2013). It asserted claims of fraud, securities fraud, negligent misrepresentation, breach of fiduciary duty, breach of contract, and breach of the implied covenant of good faith and fair dealing. Id. The arbitrators rejected ADIA's claims and returned an award in favor of Citigroup after a lengthy and hard-fought proceeding that included extensive discovery and a multi-day hearing. Id. Citigroup moved in the United States District Court for the Southern District of New York for entry of an order confirming the award. The district court (Daniels, J. ) granted Citigroup's motion, rejecting ADIA's arguments that the award should be vacated on the grounds that the arbitrators' choice-of-law ruling and two evidentiary rulings were made in manifest disregard of the law and prevented ADIA from presenting its case. See id. at *1, 9. ADIA appealed, and this Court affirmed, holding that the arbitrators did not act in manifest disregard of the law or exceed their authority. Abu Dhabi Inv. Auth. v. Citigroup, Inc., 557 Fed.Appx. 66, 67–68 (2d Cir.2014).

In August 2013, while the district court's confirmation judgment remained pending before this Court on appeal, ADIA served Citigroup with a new notice of arbitration pursuant to the Investment Agreement, again asserting claims of breach of contract and breach of the implied covenant of good faith and fair dealing. Shortly thereafter, Citigroup instituted this action pursuant to the Declaratory Judgment Act, the All Writs Act, the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1, et seq., and the district court's “inherent authority to protect its proceedings and judgments.” By way of relief, Citigroup sought to enjoin the second arbitration on the ground that ADIA's new claims were barred by the doctrine of claim preclusion, or res judicata, because they were or could have been raised in the first arbitration.¹ Citigroup maintained that the second arbitration constituted an “assault” on the district court's March 2013 judgment confirming the first award, and that applying the All Writs Act to enjoin the second arbitration was necessary to protect the integrity of that judgment. ADIA moved to dismiss Citigroup's complaint and to compel arbitration.

The district court (Castel, J. ) granted ADIA's motions. After first flagging the strong federal policy favoring arbitration, the district court then pointed to our decision in National Union Fire Insurance Co. of Pittsburgh, PA v. Belco Petroleum Corp. (“Belco ”), 88 F.3d 129 (2d Cir.1996), in which we held that the preclusive effect of a prior arbitration that had been confirmed by a state court was to be decided by the arbitrators, not the court. Given our holding in Belco, other similar decisions, and the parties' “broad arbitration clause” governing “any dispute that arises out of the” Investment Agreement, the district court held that Citigroup's preclusion defense was properly resolved in arbitration. See Citigroup, Inc. v. Abu Dhabi Inv. Auth., No. 13–cv–6073, 2013 WL 6171315, at *3–5 (S.D.N.Y. Nov. 25, 2013).

Regarding Citigroup's request to enjoin the second arbitration pursuant to the All Writs Act, the district court first observed that our decision in In re American Express Financial Advisors Securities Litigation, 672 F.3d 113 (2d Cir.2011), “allow[ed] the possibility that, in certain circumstances, the All Writs Act could permit a court to enjoin an arbitration.” Citigroup, Inc., 2013 WL 6171315, at *5. The court noted, however, that we had previously sanctioned the use of the Act to enjoin arbitration only when the arbitration threatened to undermine a longstanding federal consent judgment that encompassed extensive equitable relief. See Local 1814 Int'l Longshoremen's Ass'n, AFL–CIO v. N.Y. Shipping Ass'n, Inc., 965 F.2d 1224, 1237–38 (2d Cir.1992). Citigroup's case, by contrast, presented only “garden-variety res judicata concerns” because there was “no separate, ongoing proceeding at risk of being undermined” by the second arbitration. Citigroup, Inc., 2013 WL 6171315, at *5. Accepting the argument that application of the All Writs Act was necessary in the circumstances of Citigroup's case, the district court reasoned, would “swallow the Belco rule” because it “would apply to virtually any instance where a second arbitration is purportedly precluded by a federal court judgment confirming the first arbitration award.” Id. Accordingly, the court held that there was “no basis for an extraordinary remedy to issue under the All Writs Act.” Id. at *6.

Citigroup timely appealed the resulting judgment.

DISCUSSION

Here, it is undisputed that two sophisticated parties voluntarily contracted to arbitrate “any dispute” arising from or relating to their Investment Agreement. As provided for under the FAA, the district court's March 2013 judgment merely confirmed the result of the parties' earlier arbitration through a limited procedure that did not require consideration of the merits of the underlying claims. The sole issue in this appeal is whether the district court erred when it refused to enjoin the second arbitration pursuant to the All Writs Act based on what Citigroup asserts is the claim-preclusive effect of the March 2013 judgment and instead compelled the parties to arbitrate ADIA's second set of claims.²

The resolution of this issue implicates competing considerations. On the one hand, the FAA expresses “a national policy favoring arbitration when the parties contract for that mode of dispute resolution.” Preston v. Ferrer, 552 U.S. 346, 349, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008). The FAA's framework, moreover, authorizes the federal courts to conduct only a limited review of discrete issues before compelling arbitration, leaving the resolution of all other disputes to the arbitrators. See Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83–84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002). Set against these considerations, on the other hand, is the weighty practical concern for the integrity of federal judgments that could arise if parties felt free to relitigate in arbitration proceedings claims previously resolved by a federal court. See In re Am. Express Fin. Advisors Sec. Litig. (“American Express ”), 672 F.3d 113, 140 (2d Cir.2011). In recognition of this concern, several of our sister circuits have held that the All Writs Act, which empowers the federal courts to “issue all writs necessary or appropriate in aid of their respective jurisdictions,” 28 U.S.C. § 1651(a), permits district courts to enjoin arbitrations that threaten to undermine federal judgments. See, e.g., In re Y & A Grp. Sec. Litig., 38 F.3d 380, 382–83 (8th Cir.1994). Borrowing language from the Third Circuit, we have characterized these competing considerations as presenting “ ‘a high order challenge.’ ” American Express, 672 F.3d at 140, 141 n. 20 (quoting John Hancock Mut. Life Ins. Co. v. Olick, 151 F.3d 132, 138 (3d Cir.1998) ). We now must decide the proper balance that should be struck between them in this case.

In addition to manifesting a policy strongly favoring arbitration when contracted for by parties to a dispute, the FAA establishes a “body of federal substantive law of arbitrability[ ] applicable to any arbitration agreement within coverage of the Act,” Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), and also “supplies ... a procedural framework applicable in federal courts,” Preston, 552 U.S. at 349, 128 S.Ct. 978. Under this framework, most disputes between parties to a binding arbitration agreement are “arbitrable,” meaning that they are to be decided...