Fiorilla v. Citigroup Global Markets , Incorporated et al
Filing
41
OPINION AND ORDER re: 27 MOTION to Dismiss the Second Amended Complaint. filed by Edward James Mulcahy, Jr., Citigroup Global Markets, Inc.. Defendants' motion to dismiss pursuant to Rule 12(b)(1) is GRANTED. (Docket # 27.) The Clerk is directed to terminate the motion, enter judgment for defendants and close the case. (Signed by Judge P. Kevin Castel on 6/25/2018) (kgo)
Case 1:17-cv-05123-PKC Document 41 Filed 06/26/18 Page 1 of 11
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------------------------------x
JOHN LEOPOLDO FIORILLA, Individually and
as Trustee FBO John Leopoldo Fiorilla Trust
U/A/D 06-25-2003,
Plaintiff,
-against-
17-cv-5123 (PKC)
OPINION
AND ORDER
CITIGROUP GLOBAL MARKETS, INC. and
EDWARD JAMES MULCAHY, JR.,
Defendants.
-----------------------------------------------------------x
CASTEL, U.S.D.J.
Plaintiff John Leopoldo Fiorilla brings this action individually and in his capacity
as trustee of the John Leopoldo Fiorilla Trust. In 2010, Fiorilla commenced arbitration
proceedings against defendants Citigroup Global Markets, Inc. and one of its employees, Edward
James Mulcahy, Jr. (collectively, “CGMI”), asserting that their mismanagement and malfeasance
“eviscerated” an investment account that he opened with them in 2006.
An arbitration panel issued an award in Fiorilla’s favor (the “Award”), but upon
application from CGMI, the New York Supreme Court, New York County, vacated the Award
on grounds of manifest disregard for the law. It concluded that the parties had agreed to a final
settlement prior to the arbitration hearing, which the arbitrators disregarded without explanation.
Fiorilla then brought an ex parte proceeding before a tribunal in France, which recognized the
Award. On CGMI’s motion, the New York Supreme Court issued a worldwide anti-suit
injunction against the Award’s enforcement, indicating that Fiorilla’s action before the French
tribunal was inconsistent with “respect for law.”
Case 1:17-cv-05123-PKC Document 41 Filed 06/26/18 Page 2 of 11
The Second Amended Complaint (the “Complaint”) bring two counts of
declaratory judgment and asserts a claim of “Fraud/Fraud on Courts.” Fiorilla seeks a
declaration that the state court’s rulings were beyond its jurisdiction and to lift the anti-suit
injunction that the state court issued against enforcement of the Award.
CGMI has moved to dismiss this action pursuant to Rules 12(b)(1) and 12(b)(6),
Fed. R. Civ. P. For reasons that will be explained, this Court concludes that it does not have
subject-matter jurisdiction over Fiorilla’s claims, which fall squarely within the Rooker-Feldman
doctrine. See generally Sykes v. Mel S. Harris & Assocs. LLC, 780 F.3d 70, 94 (2d Cir. 2015).
CGMI’s motion to dismiss pursuant to Rule 12(b)(1), Fed. R. Civ. P., is therefore granted.
Because the Court does not have subject matter jurisdiction, it does not reach the other
arguments raised by CGMI.
BACKGROUND.
A. The Parties’ Arbitration Proceedings.
Fiorilla describes himself as an “unsophisticated” investor who, in 2006, retained
CGMI to manage his life savings, which were estimated to be worth as much as $19,500,000.
(Compl’t ¶ 39.) Fiorilla alleges that through mismanagement and malfeasance, CGMI
“eviscerated” his savings, resulting in their value dropping to just $20,000. (Compl’t ¶ 41.)
The parties had entered into an arbitration agreement governed by FINRA rules
and procedures. 1 (Compl’t ¶ 40.) In August 2010, Fiorilla commenced a FINRA arbitration
against CGMI. (Compl’t ¶¶ 6, 42.)
In April 2012, shortly before arbitration proceedings were scheduled to
commence, Fiorilla’s attorney agreed to a settlement offer from CGMI in the amount of
FINRA stands for the Financial Industry Regulation Authority. It is a non-governmental organization that sets
certain rules for broker-dealers. See https://www.finra.org/about
1
-2-
Case 1:17-cv-05123-PKC Document 41 Filed 06/26/18 Page 3 of 11
$800,000, subject to agreement on additional terms and a written agreement. (Compl’t ¶ 44.)
Fiorilla alleges that, at that time, the parties had no more than an agreement in principle.
(Compl’t ¶ 45.) He alleges that the parties had not agreed to all material terms and that the
agreement had not been reduced to writing. (Compl’t ¶ 50.) Counsel to CGMI notified the
arbitration panel in writing that a settlement had been reached, but on May 9, 2012, Fiorilla
instructed his attorneys that the claim had not settled and should proceed to arbitration. (Compl’t
¶¶ 46-48.)
CGMI made an application to the arbitration panel to enforce the purported
settlement agreement, which the panel denied, and arbitration proceedings began in October
2012. (Compl’t ¶¶ 51-54.) In February 2013, CGMI made a motion to terminate the arbitration
proceedings based on the settlement agreement, which the arbitration panel denied. (Compl’t ¶¶
55-56.) On July 30, 2013, the arbitration panel issued the Award, which awarded Fiorilla
$10,750,000 against CGMI and $250,000 against Mulcahy, plus interest. (Compl’t ¶¶ 14, 60;
Docket # 29-2 at 8-15.)
B. CGMI’s Successful Motion to Vacate.
On August 28, 2013, CGMI filed a petition to vacate the Award in the New York
Supreme Court, New York County. (Compl’t ¶ 61.) Among other things, it argued that the
arbitrators acted in manifest disregard of the law when they held hearings and issued an Award
despite the parties’ agreement to a valid and enforceable final settlement. (Docket # 29-2 at 76100.) It argued that Fiorilla had unambiguously agreed to the settlement, which “terminated
FINRA’s powers to decide the case,” and that his subsequent change of heart did not invalidate
the agreement. (Id. at 97-100.)
-3-
Case 1:17-cv-05123-PKC Document 41 Filed 06/26/18 Page 4 of 11
Justice Charles E. Ramos of the Commercial Division of the Supreme Court of
the State of New York, New York County, vacated the Award in a two-page written order.
(Docket # 29-1 at 29-30.) He concluded that the dispute had settled, and that the parties had
informed the panel and FINRA of the settlement in writing. (Id.) Justice Ramos concluded that
by going forward with the proceedings and issuing the Award, the panel failed to follow FINRA
rules and acted in manifest disregard of the law. (Id.)
The New York Appellate Division, First Department, affirmed, and concluded
that the arbitration panel had acted in manifest disregard of the law by failing to enforce the
parties’ settlement agreement without explanation. Citigroup Global Markets Inc. v. Fiorilla,
127 A.D.3d 491 (1st Dep’t 2015), leave to appeal denied, 26 N.Y.3d 908 (2015).
The Complaint explains at length the purported infirmities of the state court’s
decision, which, Fiorilla alleges, disregarded FINRA’s authority. (Compl’t ¶¶ 31-35.)
C. Fiorilla’s Legal Proceeding in France.
After the initial proceedings in the New York Supreme Court, Fiorilla
successfully brought an ex parte application to confirm the Award before the Tribunal de Grande
Instance de Paris (the “Tribunal”) in France. (Compl’t ¶¶ 36, 75.) Fiorilla explains that he is a
dual citizen of the United States and the European Union. (Compl’t ¶ 36.) In March 2016, the
Tribunal “recognized and enforced the award,” based on French law and the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards. (Compl’t ¶¶ 36, 76.)
Fiorilla then brought a motion in the New York Supreme Court to vacate the prior
judgment against him, and CGMI moved for an anti-suit injunction as to the Award’s
enforcement. (Compl’t ¶ 77.) Justice Ramos denied Fiorilla’s motion to vacate as “frivolous.”
(Docket # 29-1 at 13.) At a hearing, he characterized Fiorilla’s applications before the French
-4-
Case 1:17-cv-05123-PKC Document 41 Filed 06/26/18 Page 5 of 11
Tribunal as “seeking to make a mockery out of our court system” and indicated that Fiorilla’s
conduct was contrary to “respect for law . . . .” (Id. at 16-17.) He granted CGMI’s application
for a worldwide anti-suit injunction against Fiorella, as directed toward any attempt to enforce
the Award. (Id. at 22.)
The First Department affirmed, noting that Fiorilla’s motion to vacate judgment
was untimely. Citigroup Global Markets v. Fiorilla, 151 A.D.3d 665, 666 (1st Dep’t 2017). It
also affirmed the anti-suit injunction against Fiorilla as consistent with the interest of protecting
the New York judgment. Id. The First Department also concluded that Fiorilla brought the
French proceedings in bad faith, noting that he never informed the Tribunal of the Award’s
vacatur in New York and that the French proceedings had been brought ex parte. Id. at 665-66.
Hence, the Supreme Court “properly declined to apply the doctrine of comity to the French
court’s recognition of the vacated award.” Id. at 666.
The New York Court of Appeals denied Fiorilla’s application for leave to appeal.
30 N.Y.3d 86 (2017).
D. The Current Action.
Fiorilla commenced this action on April 19, 2017. (Docket # 1.) The Complaint
invokes federal question jurisdiction under the Federal Arbitration Act and alleges complete
diversity. (Compl’t ¶¶ 26.) Count One seeks “a declaratory judgment holding that the New
York Supreme Court’s decision and order regarding the existence and terms of a settlement are
ultra vires, untimely, and preempted by the FAA . . . .” (Compl’t ¶ 84.) Count Two seeks a
declaratory judgment that would lift the Supreme Court’s anti-suit injunction against enforcing
the Award and “recogniz[e] the enforceability” of the French Tribunal’s order. (Compl’t ¶ 92.)
Count Three is labeled as a claim of “Fraud/Fraud on the Courts.” (Compl’t ¶¶ 93-102.) Fiorillo
-5-
Case 1:17-cv-05123-PKC Document 41 Filed 06/26/18 Page 6 of 11
alleges a “fraudulent scheme” by defendants to belatedly challenge the arbitrators’ jurisdiction
and make factual misrepresentations to the New York Supreme Court. (Compl’t ¶¶ 93-102.)
RULE 12(b)(1) STANDARD.
Dismissal of a suit under Rule 12(b)(1) is proper “when the district court lacks the
statutory or constitutional power to adjudicate it.” Makarova v. United States, 201 F.3d 110, 113
(2d Cir. 2000). In adjudicating a Rule 12(b)(1) motion, a court may look to evidence outside the
pleadings. McKithen v. Brown, 481 F.3d 89, 95-96 (2d Cir. 2007). The Court construes the
Complaint in favor of the plaintiff and accepts all factual allegations as true. Donoghue v.
Bulldog Inv’rs Gen. P’ship, 696 F.3d 170, 173 (2d Cir. 2012). A district court has the obligation
to determine whether it has subject matter jurisdiction before considering any Rule 12(b)(6)
arguments that a defendant has raised. United States v. Bond, 762 F.3d 255, 263 (2d Cir.2014)
THE ROOKER-FELDMAN DOCTRINE BARS FIORILLA’S CLAIMS.
The Rooker-Feldman doctrine bars claims “‘brought by state-court losers
complaining of injuries caused by state-court judgments rendered before the district court
proceedings commenced and inviting district court review and rejection of those judgments.’”
Sykes, 780 F.3d at 94 (quoting Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280,
284 (2005)). A defendant invoking the Rooker-Feldman bar “must satisfy the following four
requirements: First, the federal-court plaintiff must have lost in state court. Second, the plaintiff
must complain of injuries caused by a state-court judgment. Third, the plaintiff must invite
district court review and rejection of that judgment. Fourth, the state-court judgment must have
been rendered before the district court proceedings commenced.” Id. (quotation marks omitted).
A federal district court does not have subject matter jurisdiction over a claim that
falls within Rooker-Feldman. See, e.g., Vossbrinck v. Accredited Home Lenders, Inc., 773 F.3d
-6-
Case 1:17-cv-05123-PKC Document 41 Filed 06/26/18 Page 7 of 11
423, 427 (2d Cir. 2014) (“The Rooker-Feldman doctrine pertains not to the validity of the suit
but to the federal court’s subject matter jurisdiction to hear it.”). “Underlying the RookerFeldman doctrine is the principle, expressed by Congress in 28 U.S.C. § 1257, that within the
federal judicial system, only the Supreme Court may review state-court decisions.” Hoblock v.
Albany Cty. Bd. of Elections, 422 F.3d 77, 85 (2d Cir. 2005).
Fiorilla’s claims fall squarely within the Rooker-Feldman doctrine, and this Court
does not have subject matter jurisdiction over them. The Complaint expressly invites this Court
to review and reject the judgments of the New York Supreme Court, and, on its face, makes
allegations that comfortably meet the four-prong Rooker-Feldman test. Sykes, 780 F.3d at 94.
First, the Complaint identifies Fiorilla as the loser in state court. Id. The state
court vacated the Award, and, after the decision of the French Tribunal, granted CGMI’s motion
for a global anti-suit inunction to enjoin further actions enforcing the Award. (Compl’t ¶¶ 19,
72, 78.)
Second, the Complaint is premised on injuries caused by the state court’s
judgments. Sykes, 780 F.3d at 94. It alleges that when the state court vacated the Award instead
of adopting the “legitimate and proper remedy” of remanding to the arbitrators, its order
deprived Fiorilla of $11 million. (Compl’t ¶¶ 3, 21, 72.) It alleges that by issuing an anti-suit
injunction against enforcement of the Award, the state court “deprive[d] Plaintiff of his right to
the FINRA award . . . .” (Compl’t ¶ 77.) It alleges that through its “fraudulent scheme,” CGMI
launched a collateral attack on the Award in state court, and misled Justice Ramos into vacating
the Award. (Compl’t ¶¶ 93-102.) All injuries described in the Complaint are derived from the
state court’s judgments.
-7-
Case 1:17-cv-05123-PKC Document 41 Filed 06/26/18 Page 8 of 11
Third, the relief that Fiorilla seeks is directed entirely toward this Court’s “review
and rejection” of the state court’s judgments. Sykes, 780 F.3d at 94. Count One “seeks a
declaratory judgment holding that the New York Supreme Court’s decision and order regarding
the existence and terms of a settlement are ultra vires, untimely, and preempted by the FAA
because the New York Supreme Court did not have jurisdiction or authority to (i) vacate a
FINRA arbitration award on the basis of a purported settlement agreement during FINRA
arbitration, or (ii) decide the existence and terms of a purported settlement agreement that is
subject to FINA’s arbitral jurisdiction.” (Compl’t ¶ 84.) It also seeks “an order lifting the
vacatur and enforcing the FINRA award” and requiring any further matters to “be remanded to
FINRA . . . .” (Compl’t ¶ 85.)
Count Two seeks “a declaratory judgment (1) lifting the New York Supreme
Court’s world-wide anti-suit injunction, and (2) recognizing the enforceability of the Judgment
of the Tribunal de Grande Instance de Paris.” (Compl’t ¶ 92.)
Count Three, labeled “Fraud/Fraud on the Courts,” argues that CGMI made false
representations and omissions to Justice Ramos, including misrepresentations about the terms of
the parties’ purported pre-arbitration settlement and the effect of a Florida disciplinary
proceeding that Fiorilla brought against his counsel at arbitration. (Compl’t ¶¶ 94-98.) Justice
Ramos considered and rejected these arguments when Fiorella moved to vacate judgment after
the decision of the French Tribunal. (Docket # 29-1 at 4-22.)
The relief sought in all three claims requires the “review and rejection” of the
state court judgment. Sykes, 780 F.3d at 94. Rooker-Feldman precludes a federal court from
reviewing state proceedings and determining whether a judgment was issued in error.
Vossbrinck v. Accredited Home Lenders, Inc., 773 F.3d 423, 427 (2d Cir. 2014). This is true
-8-
Case 1:17-cv-05123-PKC Document 41 Filed 06/26/18 Page 9 of 11
even when a plaintiff invokes the specter of fraud in the state court judgment. See id.; accord
Brown v. Wells Fargo Bank, N.A., 605 Fed. App’x 58, 59 (2d Cir. 2015) (“To the extent that
Brown requests the federal court to return his property to him because the foreclosure judgment
was obtained fraudulently, Rooker-Feldman bars his claim.”). Based on the text of the
Complaint, Fiorilla’s action necessarily requires review and rejection of the state court’s
judgment.
Fourth, the state-court judgments at issue were filed prior to the commencement
of this action. Sykes, 780 F.3d at 94. This action was commenced on July 7, 2017. (Docket #
1.) The state court vacated the Award in an Order dated January 2, 2014 and final judgment was
entered on May 12, 2014. (Docket # 29-1 at 30; Docket # 29-3 at 78.) It orally denied Fiorilla’s
motion to vacate judgment and granted CGMI’s motion for entry of the anti-suit injunction on
October 11, 2016, and issued a written Order to the same effect on January 19, 2017. (Docket #
29-1 at 3-23, 29-5 at 71.) Fiorilla filed his notice of appeal to the First Department no later than
February 2, 2017. (Docket # 29-5 at 72.)
In arguing that the Rooker-Feldman bar should not apply, Fiorilla argues that
Justice Ramos acted contrary to the FAA and New York law, and “strip[ped]” the arbitrators of
their jurisdiction. (Opp. Mem. at 12-18.) He urges, in effect, that the policy goals of the FAA
create an exemption to Rooker-Feldman if a state court has usurped the arbitrators’ authority. As
support, he cites to portions of the Bankruptcy Code and 28 U.S.C. § 2254, which provide
limited circumstances in which federal district courts may review and alter state court judgments.
See In re Gruntz, 202 F.3d 1074, 1079 (9th Cir. 2000) (observing that Rooker-Feldman does not
limit review of section 2254 petitions and that provisions of the Bankruptcy Code authorize
-9-
Case 1:17-cv-05123-PKC Document 41 Filed 06/26/18 Page 10 of 11
bankruptcy courts to discharge state judgements). There is no such provision in the FAA,
however, and Fiorilla’s disagreement with the state court is not a basis to create one.
He also argues that this Court should recognize a fraud exception to RookerFeldman. He points to a decision that observed in dictum that such an exception might be
recognized where a plaintiff seeks money damages and does not seek to overturn a state court’s
judgment. In re Buckskin Realty Inc., 2016 WL 5360750, at *5 (Bankr. E.D.N.Y. Sept. 23,
2016). Assuming arguendo that such an exception exists – a proposition that Vossbrinck appears
to foreclose – it would not apply here, because Fiorilla seeks to overturn a judgment of the state
court. Further, Fiorilla’s “fraud” claim appears to merely recycle arguments that were
considered and rejected by Justice Ramos when Fiorilla moved to vacate judgment following the
French Tribunal’s ruling. While the Court need not address the merits of the fraud claim, Fiorilla
principally asserts that CGMI misrepresented the effect of a decision in the Florida disciplinary
proceeding that he brought against his arbitration counsel, and that CGMI misleadingly attacked
the arbitrators’ jurisdiction. (Compl’t ¶¶ 93-102.) These arguments were considered and
rejected by Justice Ramos and the First Department. 2 Fiorilla cannot avoid the Rooker-Feldman
bar by repackaging his collateral attack on the decisions of the state court as a claim sounding in
“fraud.”
For the foregoing reasons, the Court concludes that the Rooker-Feldman doctrine
bars Fiorilla’s claims. The motion to dismiss pursuant to Rule 12(b)(1) is therefore granted.
In denying Fiorilla’s application, Justice Ramos stated, among other things, that “you argued those issues in front
of me and you lost. . . . When you litigate a case, you don’t leave something for later to say, ‘Judge, there’s
something more.’ No. You bring everything before the Court. You have one opportunity litigate, and we give you
a shot at it and we give you what we hope is a fair shot. . . . I am really astonished at this application. The
application is denied as frivolous.” (Docket # 29-1 at 8, 11, 13.)
2
- 10 -
Case 1:17-cv-05123-PKC Document 41 Filed 06/26/18 Page 11 of 11
Because the Court does not have subject matter jurisdiction over this case, it does not address
defendants’ remaining arguments.
CONCLUSION.
Defendants’ motion to dismiss pursuant to Rule 12(b)(1) is GRANTED. (Docket
# 27.) The Clerk is directed to terminate the motion, enter judgment for defendants and close the
case.
SO ORDERED.
Dated: New York, New York
June 25, 2018
- 11 -
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?