Loomis Sayles Trust Co., LLC v. Citigroup Global Markets, Inc.

Background

Loomis Sayles Trust Co., LLC sued Citigroup Global Markets, Inc. over Citigroup’s execution of two securities trades on March 18, 2022. Loomis Sayles and its affiliated investment advisory firm, Loomis, Sayles & Company, L.P., had engaged Citigroup as a broker to execute trades for their clients. The trades involved Shopify, Inc. and Colgate-Palmolive Company. Citigroup placed the orders as market-on-close orders, which had to trade regardless of price. Loomis Sayles alleged that Citigroup breached its contract by using those orders rather than following Loomis Sayles’s broader instructions. The opinion states that the resulting losses were approximately $70 million to Loomis Sayles and its investment clients.

Loomis Sayles sought certification under Rule 23(b)(3) of a class consisting of the owners of 232 identified accounts and the owners of more than 3,000 subaccounts in wrap fee program omnibus accounts. The proposed class members were investors whose accounts received shares in the Shopify and/or Colgate-Palmolive trades and suffered damage. Loomis Sayles also sought appointment as class representative, and appointment of its counsel as class counsel.

Legal standard

A class representative must satisfy Rule 23(a)’s requirements of numerosity, common questions, typicality, and adequacy. For a Rule 23(b)(3) class, common questions also must predominate over individual questions, and a class action must be superior to other methods of resolving the dispute. The court also described an implied requirement that the class be sufficiently definite to determine who belongs in it. The party seeking certification bears the burden of proving these requirements by a preponderance of the evidence.

The court may consider issues related to the merits when they are relevant to the class-certification requirements, but it need not decide the merits of the claims merely to determine whether a class should be certified.

Discussion

Adequacy

The court held that Loomis Sayles was not an adequate class representative because it had a fundamental conflict with the other proposed class members. Loomis Sayles was the investment adviser that placed the trades at issue and had its own duties to the investors. The court reasoned that Loomis Sayles would pursue claims against Citigroup in a way that minimized Loomis Sayles’s own responsibility and would not pursue claims against itself.

The court identified factual issues concerning the timing and clarity of Loomis Sayles’s instructions to Citigroup, as well as Loomis Sayles’s responsiveness before the market closed. The court concluded that Loomis Sayles’s interest in avoiding liability conflicted with the other investors’ interest in obtaining the maximum recovery. It held that this conflict went to the heart of the litigation and that changing the class definition would not cure the problem.

Typicality

The court separately held that Loomis Sayles’s claims were not typical of the other proposed class members’ claims. Loomis Sayles occupied a unique position because it acted as the investors’ adviser and therefore potentially faced claims alongside Citigroup. The other investors might seek recovery from both Loomis Sayles and Citigroup, while Loomis Sayles sought recovery only from Citigroup.

The court also found Loomis Sayles atypical because it had a direct contractual relationship with Citigroup. More than 90 percent of the proposed class consisted of participants in wrap fee programs sponsored by five other financial institutions. Those institutions retained Loomis as an investment adviser, and Loomis then retained Citigroup as a broker. The court described these investors as two steps removed from a direct contractual relationship with Citigroup.

The court noted that whether those wrap fee program participants had contractual privity—meaning a direct contractual relationship sufficient to enforce the contract—was disputed and had not been adjudicated. The court expressly treated that issue as a merits question that did not need to be decided for class certification. The court also noted Citigroup’s argument that individual privity questions could prevent certification under the predominance and superiority requirements, but did not resolve that argument.

Disposition

The court denied the motion to certify the class because Loomis Sayles did not satisfy the adequacy and typicality requirements. It also denied the requests to appoint Loomis Sayles as class representative and its counsel as class counsel. The court did not address class counsel because the proposed class was not certified. The Clerk was directed to close the motions at Docket No. 163, and the court stated that a separate order scheduling trial would issue.