In a report and recommendation issued today, Magistrate Judge Gorenstein recommended that SunTrust’s motion to enjoin a FINRA arbitration based on claims related to the settled Lehman Brothers class action should be denied. SunTrust had argued that the plaintiffs, who were members of the class, were barred from bringing claims arising out of the same facts as the settled class action. Judge Gorenstein, applying the Second Circuit’s “identical factual predicate” test, disagreed:
As the Second Circuit has put it, “[a]ny released claims not presented directly in [a class action] complaint . . . must be based on the identical factual predicate as that underlying the claims in the settled class action.” In re Literary Works in Elec. Databases Copyright Litig., 654 F.3d 242, 248 (2d Cir. 2011). . . . In this case, there are some common factual elements to the class action claims and the FINRA claims: specifically, both involve claims concerning losses from Series J Shares of Lehman and both are brought against SunTrust. But the overlap begins and ends there. As was already described in detail, the class action consisted of claims that SunTrust bore responsibility (along with others) for material misstatements and omissions in the offering materials for the Series J Shares. The class action complaint relied on allegations regarding the alleged misstatements and omissions of the offering materials. None of these factual allegations, however, are involved in the FINRA claims. . . . The “identical factual predicate” limitation is certainly an elusive concept and is obviously – indeed, tautologically – fact-dependent. But, as stated in TBK Partners, the case that first articulated the test, it rests on the notion there is a value in achieving “a comprehensive settlement that will prevent relitigation of settled questions at the core of a class action.” 675 F.2d at 460. The “core” of the class action here is the plaintiffs’ contention that the “offering materials” of the stock at issue “contained untrue statements and omitted materials facts.” Compl. ¶ 1. As already described, this “core” has nothing to do with the claims in the FINRA arbitration.