Anderson v. Beland (In re America Express Fin. Advisors Sec. Litig.)

Decision Date03 November 2011
Docket NumberDocket No. 10–3399.
Citation672 F.3d 113
PartiesIn re AMERICAN EXPRESS FINANCIAL ADVISORS SECURITIES LITIGATION.Carol M. Anderson, Leonard D. Caldwell, Donald G. Dobbs, Kathie Kerr, Susan M. Rangeley, Patrick J. Wollmering, Naresh Chand, on behalf of himself and all others similarly situated, John B. Perkins, Elizabeth Flenner, Gale D. Caldwell, Richard T. Allen, individually and on behalf of all others similarly situated, Plaintiffs,American Express Company, American Express Financial Corporation, American Express Financial Advisors, Inc., James M. Cracchiolo, Defendants,Ameriprise Financial Services, Inc., Defendant–Appellee, v. John Beland, Elaine Beland, Class Members–Appellants.*
CourtU.S. Court of Appeals — Second Circuit

OPINION TEXT STARTS HERE

David A. Genelly, Vanasco Genelly & Miller (James E. Judge, of counsel), Chicago, IL, for Appellants.

David W. Bowker, Wilmer Cutler Pickering Hale and Dorr LLP (Sue–Yun Ahn, of counsel), Washington, D.C., for Appellee.

Before: POOLER, SACK, and LYNCH, Circuit Judges.

SACK, Circuit Judge:

This appeal requires us to address several unsettled issues concerning the effect of a class-action settlement on an individual class member's preexisting right to arbitrate certain claims. The appellants, John and Elaine Beland (the Belands), brought various claims before Financial Industry Regulatory Authority (“FINRA”) arbitrators against Ameriprise Financial Services, Inc. (Ameriprise), a financial-services company, for, inter alia, breach of fiduciary duty, breach of contract, fraud, and negligent misrepresentation related to the decline in value of various financial assets owned by the Belands and managed by Ameriprise. The claims are based on Ameriprise's alleged failure to adhere to the Belands' conservative investment strategy and its “steering” of the Belands' assets into mutual funds that allowed Ameriprise to collect excessive fees.

Ameriprise answered the Belands' FINRA complaint by asserting, principally, that the Belands released their claims by operation of a settlement agreement in a class-action suit that had proceeded between 2004 and 2007 in the United States District Court for the Southern District of New York. The Belands were class members in the class action, but—in part, they allege, on the advice of an Ameriprise financial advisor—they took no action at the time of the settlement, failing to either opt out of the class or submit a claim to share in the settlement funds. By the terms of the settlement agreement, the district court (Deborah A. Batts, Judge ) had retained exclusive jurisdiction over disputes arising from the class litigation.

After FINRA arbitrators denied Ameriprise's motion to stay the Belands' arbitration, Ameriprise moved in the United States District Court for the Southern District of New York, in which the class action had been litigated and settled, for an order to enforce the settlement agreement that would enjoin the Belands from pressing any of their claims before FINRA arbitrators. The district court concluded that the class settlement barred all of the Belands' arbitration claims, and therefore granted Ameriprise's motion and ordered the Belands to dismiss their FINRA complaint with prejudice.

We conclude that the district court had the power to enter such an order and that several of the Belands' arbitration claims were barred by the 2007 class-action settlement. We therefore affirm in part. But because we conclude that the Belands' arbitration complaint pleads claims—including so-called “suitability claims”—that were not, and could not have been, released by the class settlement, we vacate in part the district court's judgment, and we remand the case for the entry of an order permitting the non-Released claims to proceed in FINRA arbitration. In light of our disposition of this appeal, we dismiss as moot the Belands' appeal from the district court's denial of their motion for reconsideration.

BACKGROUND
The In re AEFA Class–Action Complaint

Between March 4, 2004, and May 4, 2004, various persons who had had dealings with Ameriprise 1 (the “Class Plaintiffs) brought a total of five separate class-action lawsuits before the United States District Court for the Southern District of New York against several Ameriprise affiliates. The Class Plaintiffs asserted various federal- and common-law claims based on Ameriprise's alleged conflicts of interest, misrepresentations and omissions, biased and “canned” financial advice and advisory services, failure to disclose financial incentives and fees, and so-called “steering” of clients' money into investments that benefited the defendants without regard to their clients' best interests. On June 25, 2004, the district court consolidated the five class actions into In re American Express Financial Advisors Securities Litigation (“ In re AEFA), No. 04 Civ. 1773 (S.D.N.Y., consolidated June 25, 2004).

The Second Consolidated Amended Class Action Complaint (the “Class Complaint”), dated September 29, 2005, described the class action as “arising out of the failure of American Express to disclose an unlawful and deceitful course of conduct they engaged in that was designed to improperly financially advantage Defendants to the detriment of [Class] Plaintiffs and other members of the Class.” Class Complaint ¶ 1, In re AEFA, No. 04 Civ. 1773 (S.D.N.Y. Sept. 29, 2005), ECF No. 119. The Class Plaintiffs alleged that “instead of offering fair, honest and unbiased recommendations to Plaintiffs and other investors, American Express ‘financial advisors' gave pre-determined recommendations, pushing clients into a pre-selected, limited number of mutual funds in order to reap millions of dollars in secret kickbacks from the Shelf Space Funds and millions more from sales of American Express Proprietary Funds.” 2 Id. ¶ 2. They alleged further that the defendants “had an undisclosed, material conflict of interest that made it impossible for them to render impartial advice.” Id. ¶ 10. Based on those allegations, the Class Plaintiffs brought claims for violations of the Securities Act of 1933, the Securities Exchange Act of 1934 and various Rules promulgated thereunder, the Investment Advisers Act of 1940, and assorted state-law claims including for breach of fiduciary duty, deceptive trade practices, and unjust enrichment. The Class Period was defined as March 10, 1999, to April 1, 2004, and was later extended to April 1, 2006.

In January 2007, the lead plaintiffs in In re AEFA moved for provisional certification of a settlement class and preliminary approval of a settlement agreement pursuant to Federal Rule of Civil Procedure 23. See Stipulation of Settlement (“Class Settlement” or “Settlement Agreement”), Lead Pls.' Notice of Mot. for Prelim. Approval of Settlement Exh. 2, In re AEFA, No. 04 Civ. 1773 (S.D.N.Y. Jan. 18, 2007), ECF No. 135–3. They simultaneously submitted a draft Notice of Proposed Settlement of Class Action (the “Class Notice”) to the court. On February 15, 2007, the district court provisionally certified the class and approved the Class Notice. In February and March 2007, the parties mailed the Class Notice to roughly 2.8 million potential class members.

The Class Notice served several functions. First, it described the lawsuit in general terms:

In their lawsuits, the investors complain that they were sold financial plans and/or advice that, instead of being tailored to their individual circumstances, contained standardized recommendations designed to steer them into investing in Defendants' proprietary mutual funds and other proprietary investment products [ (the Proprietary Funds) ] and certain non-proprietary “Preferred” or “Select” mutual funds [ (the Shelf Space Funds) ].

... Plaintiffs claim that the conflicts of interest inherent in Defendants' financial plans and/or financial advisory services, and the compensation arrangements between Defendants and the Preferred Funds, were inadequately disclosed to investors....

Class Notice at 1, Decl. of Jennifer M. Keough in Supp. of Final Approval of Settlement Exh. 1, In re AEFA, No. 04 Civ. 1773 (S.D.N.Y. May 29, 2007), ECF No. 143–2.

Second, the Class Notice explained the options available to potential class members in acting on the Class Settlement. In particular, as relevant here, the Class Notice stated: “Unless you exclude yourself, you will continue to be a member of the class, and that means that if the settlement is approved, you will release all ‘Released Claims' against the ‘Released Persons,’ and you will be prohibited from bringing or participating in any other cases concerning the ‘Released Claims' against the ‘Released Persons.’ '' Id. at 7. The Class Notice also included a description of “Released Claims” and “Released Persons” taken from the Settlement Agreement. The definition of Released Claims included, inter alia,

any and all claims, debts, demands, rights or causes of action or liabilities whatsoever ..., whether based on federal, state, local, statutory or common law or any other law, rule or regulation, ... including both known claims and Unknown Claims ... that (i) have been asserted in this Action by the Plaintiffs ... or (ii) could have been asserted in any forum by the Plaintiffs or Class Members ... against any of the Released Persons; including claims that arise out of or are based upon (a) the allegations, transactions, facts, matters or occurrences, representations or omissions alleged, involved, set forth, or referred to in the [Class Complaint]....

Id. at 8. Importantly for present purposes, the Class Notice stated that ‘Released Claims' shall not include suitability claims unless such claims are alleged to arise out of the common course of conduct that was alleged, or could have been alleged, in the Action, as more fully described herein.” 3 Id.

The Class Notice further explains that releasing claims “will prevent you from suing Defendants over claims that arise from...

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