Federal Court Stays Foreign Litigation Pending Arbitration
Posted on Categories Arbitration, Arbitration Agreements, Fed Arbitration Act, InternationalTags , , , ,

By Harry Jacobowitz, Esq.**

A U.S. District Court granted a rare permanent injunction against a Mexican lawsuit and even ordered the plaintiff to dismiss some claims without prejudice because those claims were arguably subject to an arbitration agreement.

The injunction, issued in Citigroup Inc. v. Sayeg Saede, No. 21 Civ. 10413 (S.D.N.Y. Jan. 20, 2022) (“U.S. Action”), stayed a lawsuit (“the Mexican action”) brought in December 2020 by Luis Sebastian Sayeg Saede (“Sayeg”) against Citigroup’s wholly-owned Mexican subsidiary, Banamex, until the conclusion of an arbitration filed by Citigroup against Sayeg in December 2021.

Factual and Procedural History

Sayeg, while a Banamex employee, entered into agreements with Citigroup that entitled him to deferred stock and cash awards offered under certain benefit plans (the “Plans”). These agreements (the “Award Agreements”) contained clauses that stated, in part: “Any disputes related to the Awards will be resolved by arbitration in accordance with the Company’s arbitration policies … in accordance with the rules of the American Arbitration Association. To the maximum extent permitted by law, and except where expressly prohibited by law, arbitration on an individual basis will be the exclusive remedy for any claims that might otherwise be brought on a class, representative or collective basis.” When Sayeg’s employment ended, he received a severance package worth about U.S. $3.5 million in exchange for a release of any claims he had against Banamex and Citigroup. This agreement (the “Termination and Release”) also incorporated the prior arbitration clauses. Later, Sayeg filed the Mexican action, seeking, among other things, additional compensation under the Plans. When Banamex raised the arbitration agreements, Sayeg’s lawyers denied their validity and asserted their intention to proceed with the Mexican action. Citigroup then filed the arbitration and the U.S. action, seeking to compel Sayeg to arbitrate and to stay the Mexican action. Sayeg ignored the U.S. action, in which the Court issued a preliminary injunction ordering Sayeg and his agents to stop prosecuting the Mexican Action, and is now deciding whether to compel arbitration and maintain or even expand the injunctive relief.

Sayeg Must Arbitrate

The easier question is whether to compel the arbitration, which the Court decides in the affirmative. The issue of contract formation, it points out, is not one that may be delegated to the arbitrator, and, taken together, the Award Agreements and the Termination and Release: “show a broad agreement to arbitrate questions involving the benefits afforded to Sayeg.” However, the issue of arbitrability is delegable, and the Court finds an intent to delegate that question to the arbitrator, because: “the broad and express arbitration language in the Termination and Release and the Award Agreements, ‘coupled with incorporation of rules that expressly empower an arbitrator to decide issues of arbitrability, constitutes clear and unmistakable evidence of the parties’ intent to delegate the question of arbitrability to the arbitrator.’” Finally, the Court also has no trouble finding that Sayeg: “has refused to arbitrate by bringing the Mexican Action and failing to appear in the Arbitration.”

A Question of Comity

The more difficult issue is whether to enjoin a foreign proceeding, the Mexican Action, since “principles of comity counsel that courts should use that power ‘sparingly.’” To resolve this question, the Court follows the Second Circuit’s precedent in China Trade & Dev. Corp. v. M.V. Choong Yong, 837 F.2d 33 (2nd Cir. 1987), which the Court summarizes as follows: “Under China Trade, the moving party must first show that ‘(A) the parties are the same in both matters, and (B) resolution of the case before the enjoining court is dispositive of the action to be enjoined.’… If those threshold requirements are met, courts consider other factors, including ‘whether the parallel litigation would: (1) frustrate a policy in the enjoining forum; (2) be vexatious; (3) threaten the issuing court’s in rem or quasi in rem jurisdiction; (4) prejudice other equitable considerations; or (5) result in delay, inconvenience, expense, inconsistency, or a race to judgment’” (emphasis added).

Applying China Trade

Here, these principles not only favor continuing the preliminary injunction, but expanding its scope to require withdrawing any arbitrable claims. First, because Banamex is a wholly-owned subsidiary of Citigroup, the parties are essentially the same. Secondly, because some of the claims brought in the Mexican action involve deferred compensation subject to the Award Agreements: “it seems highly probable that the arbitrator will conclude that at least some claims in the Mexican Action can be brought only in Arbitration….” The Court also finds that one other factor beyond the threshold requirements favors injunctive relief: “The Mexican Action also ‘creates a serious risk of inconsistency and a race to judgment.’… Without an anti-suit injunction, the Mexican Action could proceed with a disposition despite the likelihood that the arbitrator will later determine that arbitration is mandatory as to some of the claims brought in the Mexican Action.”

Expanding the Injunction

Next, the Court holds that the case before it meets the standards for a preliminary injunction, as: 1) Citigroup will suffer irreparable harm if it must litigate rather than arbitrate; and 2) “given the broad scope of the relevant arbitration agreements, there is a likelihood that the arbitrator will agree that certain claims brought by Sayeg in the Mexican Action must be submitted to arbitration.” Finally, although recognizing that “an injunction ‘should be narrowly tailored to fit specific legal violations,’” the Court decides to expand the scope of the preliminary injunction to require Sayeg and his agents to dismiss without prejudice any claims arising out of or related to the Plans by February 3, 2022.

(ed: *We agree, but an interesting question is: what happens if the Mexican Court refuses to comply? **This Squib was prepared by Harry A. Jacobowitz, President of HAJ Research and Writing LLC. Mr. Jacobowitz, a member of the Pennsylvania bar, and his firm perform legal research and writing for attorneys and handle substantive searches of SAC’s Award database. He can be contacted at harryjacobowitz@optimum.net.)