Jaludi v. Citigroup & Co.

• Citation: 933 F.3d 246
• Decision Date: 06 August 2019
• Docket Number: No. 16-3577,16-3577
• Parties: Abdul A. JALUDI, Appellant v. CITIGROUP and company or one or more of its direct or indirect subsidiaries
• Court: U.S. Court of Appeals — Third Circuit

933 F.3d 246

Abdul A. JALUDI, Appellant

v.

CITIGROUP and company or one or more of its direct or indirect subsidiaries

No. 16-3577

United States Court of Appeals, Third Circuit.

Argued June 4, 2019

Filed: August 6, 2019

Adam Bluestein [ARGUED], Richard H. Frankel, Sydney Melillo [ARGUED], Drexel University, Thomas R. Kline School of Law, 3320 Market Street, Philadelphia, PA 19104, Counsel for Appellant

Christen L. Casale, Morgan Lewis & Bockius, 1701 Market Street, Philadelphia, PA 19103, Thomas A. Linthorst [ARGUED], Morgan Lewis & Bockius, 502 Carnegie Center, Princeton, NJ 08540, Counsel for Appellee

Karla Gilbride, Public Justice, 1620 L Street, N.W., Suite 630, Washington, DC 20036, Counsel for Amici Appellants

Before: SMITH, Chief Judge, JORDAN, and MATEY, Circuit Judges

OPINION OF THE COURT

SMITH, Chief Judge.

Abdul A. Jaludi, a longtime Citigroup employee, was laid off and terminated in 2013 after reporting certain improprieties in Citigroup’s internal complaint monitoring system. Jaludi, believing Citigroup had fired him in retaliation for his reporting, sued Citigroup under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962 ("RICO"), and the Sarbanes–Oxley Act of 2002, 18 U.S.C. § 1514A. Citigroup moved to compel arbitration, relying on two Employee Handbooks that contained arbitration agreements. The first of those Handbooks, the 2009 Employee Handbook, contained an arbitration agreement requiring arbitration of all claims arising out of employment—including Sarbanes–Oxley claims.

In July 2010, Congress passed the Dodd–Frank Wall Street Reform and Consumer Protection Act, which amended Sarbanes–Oxley to prohibit pre-dispute agreements to arbitrate whistleblower claims. Pub. L. No. 111-203, § 922, 124 Stat. 1376, 1848 (2010) (codified at 18 U.S.C. § 1514A(e) ). In 2011, Citigroup and Jaludi agreed to the 2011 Employee Handbook; the arbitration agreement appended to that Handbook excluded "disputes which by statute are not arbitrable" and deleted Sarbanes–Oxley from the list of arbitrable claims. Suppl. App. 140. Nonetheless, the District Court held that arbitration was required for all of Jaludi’s claims.

We disagree. Although Jaludi’s RICO claim falls within the scope of either Handbook’s arbitration provision, the operative 2011 arbitration agreement supersedes the 2009 arbitration agreement and prohibits the arbitration of Sarbanes–Oxley claims. We will therefore affirm in part, reverse in part, and remand for further proceedings.

I.

A.¹

Jaludi began working for Citigroup Technology, Inc. in 1985.² Throughout his more than two decades with Citigroup, Jaludi rose steadily through the ranks. Starting as an entry-level tape operator, he eventually became a senior vice president who managed a global team. Jaludi’s responsibilities included troubleshooting complaint monitoring systems, merging command centers, and streamlining an application for customer statements.

As part of Jaludi’s role, he was responsible for ensuring that problem tickets were created for system- and application-related problems that could affect customers. Jaludi made sure problems were tracked in the complaint management system, resolved, and prevented from recurring. Citigroup was obligated to report severity level one problem tickets to the Office of the Comptroller of the Currency.³ In early 2010, Jaludi discovered that problem tickets were being mishandled. Jaludi observed that Citigroup was not reporting hundreds of level one tickets; instead, Citigroup was deleting these tickets or reclassifying them to a lower level to avoid reporting obligations. To make matters worse, Citigroup’s help desks refused to even open a level one ticket "unless they absolutely had to." Compl. ¶ 12.

Jaludi repeatedly reported these issues to management, escalating his complaints up the chain of command. In early 2010, Jaludi emailed Citigroup’s then-CEO, Vikram Pandit, to complain. Shortly thereafter, Jaludi was summoned to meet with Tony DiSanto, the head of the North America Data Center. DiSanto expressed his displeasure with Jaludi’s repeated complaints. Citigroup management warned Jaludi to "keep his mouth shut." Id. ¶ 17. One of Jaludi’s former managers told him that DiSanto "hated [Jaludi’s] guts for refusing to keep his mouth shut and wanted him fired." Id.

In the second quarter of 2010, Jaludi was demoted. Jaludi’s then-supervisor told him that he was more qualified than the person who would be supervising him "but that her hands were tied." Id. ¶ 18. Jaludi complained about his demotion. Thereafter, in the third quarter of 2010, Jaludi’s teams were taken away from him. For a period of two months "Jaludi had no staff reporting to him nor was he given any work to do." Id. ¶ 21.

Late in the fourth quarter of 2010, Jaludi was transferred from the division where he had worked for twenty-two years. Jaludi’s new supervisor had been "told to take Jaludi and did not know what to do with him." Id. Two months later, a new manager was added to work between Jaludi and his supervisor. In May 2011, Jaludi was further demoted to an entry-level position.

In the third quarter of 2011, Citigroup held the Citigroup Challenge contest to find the best idea for the future of banking. Jaludi’s idea, Family Banking, was selected as the co-winner out of 2,500 ideas from 65,000 participants. Jaludi, along with others, presented the winning idea to the CEO in New York. Shortly afterwards, Jaludi was given an unsatisfactory performance review for failing to meet the company’s expectations.

In 2012, one of the judges from the Citigroup Challenge sought Jaludi’s assistance in reducing customer problems at one of the bank’s command centers. Jaludi reviewed the command center’s incident management process and discovered that employees were improperly opening and categorizing trouble tickets. Despite Jaludi’s suggestions, the leaders of the command center were not amenable to change. One manager told Jaludi that the command center would not alter its policy because doing so would make metrics look bad and require reporting to federal regulators. In the fourth quarter of 2012, Jaludi told a supervisor about the problem and made suggestions for resolving it. The supervisor ultimately refused to discuss the issue with Jaludi, telling him in December 2012 that he was wasting everyone’s time.

On February 20, 2013, Citigroup told Jaludi that he was being laid off "due to deteriorating business conditions and budget constraints." Id. ¶ 39. Jaludi complained that his layoff was retaliatory. On April 21, 2013, Jaludi was terminated.⁴

B.

Congress enacted Sarbanes–Oxley "[t]o safeguard investors in public companies and restore trust in the financial markets following the collapse of Enron Corporation." Dig. Realty Tr., Inc. v. Somers , ––– U.S. ––––, 138 S. Ct. 767, 773, 200 L.Ed.2d 15 (2018). Sarbanes–Oxley protects whistleblowers of publicly traded companies. See 18 U.S.C. § 1514A(a). Under the Act, companies cannot "discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment" in retaliation for an employee’s protected conduct. Id. Protected conduct includes providing information to a supervisor "regarding any conduct which the employee reasonably believes constitutes a violation" of certain criminal fraud statutes, U.S. Securities and Exchange Commission rules and regulations, or statutes prohibiting fraud against shareholders. Id. § 1514A(a)(1). Prior to Dodd–Frank, employers and employees could agree to arbitrate any future Sarbanes–Oxley claims.

Throughout Jaludi’s time at Citigroup, he received many iterations of the company’s Employee Handbook, which enumerates its policies and guidelines. In late 2008, Citigroup issued the 2009 Employee Handbook, which Jaludi acknowledged receiving in December 2008. The 2009 Handbook contained an arbitration agreement, which was set forth in an appendix. The 2009 arbitration agreement expressly identifies Sarbanes–Oxley claims as arbitrable disputes and requires their referral to arbitration.

On July 21, 2010, Congress enacted Dodd–Frank. "Passed in the wake of the 2008 financial crisis, Dodd–Frank aimed to promote the financial stability of the United States by improving accountability and transparency in the financial system." Dig. Realty Tr., Inc. , 138 S. Ct. at 773 (internal quotation marks omitted). Dodd–Frank amended Sarbanes–Oxley’s whistleblower provision to prohibit pre-dispute arbitration agreements. See 18 U.S.C. § 1514A(e)(2) (providing that "[n]o predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section").

After Dodd–Frank was enacted, Citigroup revised its Employee Handbook. The 2011 Handbook, which Jaludi acknowledged in December 2010, also includes an arbitration agreement, set forth in an appendix, that excludes "disputes which by statute are not arbitrable." Suppl. App. 140. In addition, the 2011 arbitration agreement neither identifies Sarbanes–Oxley claims by name nor mandates, as its predecessor did, the arbitration of such claims. The 2011 Handbook expressly provides that it supersedes any prior, inconsistent policies or Handbooks.

C.

In October 2015, Jaludi filed a pro se complaint in the United States District Court for the Middle District of Pennsylvania asserting claims under RICO and Sarbanes–Oxley. In January 2016, Citigroup moved to compel arbitration of both claims.⁵

In June 2016, the Magistrate Judge to whom the case was referred entered a report and recommendation ("R&R"); the R&R recommended that the District Court compel arbitration of Jaludi’s RICO claim but not of his Sarbanes–Oxley claim. The Magistrate Judge believed that the 2011 arbitration agreement did not supersede the 2009 arbitration agreement; instead, both policies applied. The Magistrate Judge reasoned that Jaludi’s Sarbanes–Oxley claim was not subject to arbitration...