Firefighters Ret. System v. Citigroup Global Mkt.s Inc.
| Decision Date | 08 October 2010 |
| Docket Number | No. 09-13451.,09-13451. |
| Citation | 622 F.3d 1335 |
| Parties | BOARD OF TRUSTEES OF THE CITY OF DELRAY BEACH POLICE AND FIREFIGHTERS RETIREMENT SYSTEM, Plaintiff-Appellee, v. CITIGROUP GLOBAL MARKETS INC., f.k.a. Salomon Smith Barney, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
OPINION TEXT STARTS HERE
Kerri Lauren McNulty, White & Case, LLP, Brigid F. Cech Samole, Greenberg Traurig, P.A., Miami, FL, Bradford D. Kaufman, Tracy L. Gerber, John D. Perry, Greenberg Traurig, P.A., West Palm Beach, FL, for Defendant-Appellant.
Jerome M. Congress, Todd L. Kammerman, Milberg, LLP, New York City, Stephen H. Cypen, Cypen & Cypen, Miami, Beach, FL, for Plaintiff-Appellee.
Appeal from the United States District Court for the Southern District of Florida.
Before DUBINA, Chief Judge, and PRYOR and MARTIN, Circuit Judges.
This appeal from the denial of a motion to compel arbitration presents the question whether the Board of Trustees of the City of Delray Beach Police and Firefighters' Retirement System agreed to arbitrate a dispute arising under its consulting contract with Citigroup Global Markets, which helped the Board evaluate the performance of several investment managers of pension funds the Board oversees. The Board complained that Citigroup abused its position as pension consultant when it provided erroneous reports about the performance of the investment managers of the fund, recommended investment managers who would agree to place trades through Citigroup, and engaged in self-dealing transactions with assets of the fund. Citigroup moved to compel arbitration on the ground that William Adams, the chairman of the Board, had bound the Board to arbitrate any dispute with Citigroup when he signed several account agreements through which one of the investment managers of the fund could buy and sell securities. Those account agreements required arbitration of disputes under those and “any other agreement between” Citigroup and the Board. The Board argued that Adams had no authority to bind the Board to arbitrate disputes under the consulting contract, and Citigroup responded that Adams had both implied actual authority and apparent authority to bind the Board. The district court agreed with the Board, held that Adams had no authority to bind the Board to arbitrate, and denied the motion to compel arbitration. Because we conclude that Adams had implied actual authority to bind the Board to arbitrate disputes arising under the consulting contract, we reverse and remand with instructions.
We divide our discussion of the background of this appeal into three parts. First, we describe the decisions of the Board to hire Citigroup as its pension consultant and to delegate to Adams the authority to execute the account agreements. Second, we describe the lawsuit that the Board filed against Citigroup. Third, we describe the motion of Citigroup to compel arbitration and the decision of the district court to deny that motion.
The Board manages a pension trust fund for the benefit of the firefighters and police officers of Delray Beach, Florida. See Fla. Stat. §§ 175.071, 185.06; Delray Beach, Fla., Code of Ordinances ch. 33, § 33.66. As the manager of the fund, the Board hires professional investment managers to select investments for the fund. By law, the Board must “retain a professionally qualified independent consultant who shall evaluate the performance of any existing professional money manager and shall make recommendations to the board of trustees regarding the selection of money managers for the next investment term.” Fla. Stat. §§ 175.071(6)(a), 185.06(5)(a).
In October 1995, the Board hired Citigroup (formerly Salomon Smith Barney) as its pension consultant. The parties signed a pension consultant contract, which required Citigroup to report each quarter about the performance of the professional investment managers who made investments on behalf of the fund. The consulting contract required Citigroup to compute quarterly and annually the performance of the total fund and individual managers on no less than a quarterly basis; attend quarterly meetings; attend special meetings; and provide additional services agreed upon. The parties signed a materially similar contract in December 2000. When that contract expired in 2004, the parties, according to the complaint, “continued their relationship without a written contract, orally agreeing to operate on the same terms previously agreed upon.”
The Board approved the consulting contract after consideration by the full Board. The Board discussed key provisions of the consulting contract, submitted the consulting contract to outside counsel Stephen Cypen for review and approval, and approved the consulting contract by a vote of the majority of the Board. The Board contends that, during negotiations of the consulting contract, the Board expressly refused to agree to arbitrate disputes under the consulting contract, but Citigroup denies that allegation. Even so, the final consulting contract did not contain an arbitration clause. The consulting contract provided, “Any changes to this Agreement requested either by the Consultant or the Board may only be effected if mutually agreed upon in writing by duly authorized representatives of the parties hereto.” It continued, “This Agreement shall not be modified or amended or any rights of a party to it waived except by such a writing.”
At a meeting in November 2003, the Board decided to hire NWQ Investments as an investment manager. As the minutes from that meeting reflect, the Board agreed “that once Cypen has approved the NWQ contract, Chief Adams, Chairman, be given the authority to execute the contract on behalf of the Board/Fund.” Cypen approved the NWQ contract and Adams signed an agreement with NWQ. According to Citigroup, the Board needed to open an investment account through which NWQ could invest assets of the fund on behalf of the Board and, although the Board could have opened this account with any institution, the Board chose to open it with Citigroup. On December 19, 2003, Adams executed several documents to open this account. In October 2004, Adams signed several similar documents to open a similar account, also with Citigroup, for another investment manager of the Board.
The account agreements contain a broad arbitration clause. Above the signature block, the account agreements state, “I acknowledge that I have received the Client Agreement which contains a pre-dispute arbitration clause.” The client agreement, in turn, contains a clause that requires arbitration of “all claims or controversies, whether such claims or controversies arose prior, on or subsequent to the date hereof, between me and [Citigroup].” The client agreement requires arbitration of disputes “concerning or arising from ... the construction, performance or breach of this or any other agreement between us.”
In November 2008, the Board sued Citigroup in a Florida court. The complaint stated four claims. Each claim alleged misconduct by Citigroup as pension consultant to the Board.
Count one alleged that Citigroup breached the consulting contract “by failing to provide the services for which it was paid.” Citigroup “computed the performance of the Fund and the investment managers gross of fees, rather than net of fees, and repeatedly submitted false and misleading information to the Board concerning matters relevant to evaluating the Fund's investment performance.” The complaint alleged, “These matters included, without limitation, the actual rate of return on the Fund's investments as compared with a purportedly appropriate benchmark rate of return, and the amount of appreciation in the Fund's securities portfolio.” The complaint requested compensatory damages on the ground that the Board paid for services never performed and that if the Board had been aware of the real performance of the pension fund, it would have terminated Citigroup, hired a new consultant, and achieved a better rate of return. Moreover, the complaint alleged that Citigroup “utilized its position as pension consultant to engage in transactions involving Fund assets through which [it] was able to obtain much larger compensation from its relationship with the Board and the Fund than the amount to which it was entitled under the” consulting contract.
Count two alleged breach of fiduciary duty. It alleged that a fiduciary relationship existed between Citigroup and the Board because Citigroup “induced the Board to place its trust and confidence in [Citigroup], and [Citigroup] assumed a role of superiority in its relationship to the Board with respect to the areas of its purported expertise and exerted influence over the Board.” The Board alleged that Citigroup breached its duties as fiduciary by, among other things, repeatedly misleading the Board about the performance of its investments and recommending that it hire investment managers who Citigroup knew would agree to run securities trades through it as broker so that it could earn commissions. The complaint also alleged that Citigroup breached its fiduciary obligations by “repeatedly entering into fixed income and equity trades with the Fund for its own account without disclosing to the Board that it was trading as a principal, earning undisclosed profits from those trades, and periodically failing to provide these trades to the Fund at current market rates.” Additionally, Citigroup “directed certain of the Fund's investment managers to run all their portfolio trading for the Fund through [Citigroup] without Board approval.” The complaint again requested compensatory damages.
Count three alleged fraud. The complaint alleged that Citigroup made false statements to the Board concerning the performance of the pension fund by, for example, “reporting ... performance gross of fees and overstating the...
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