Jacobson v. Citigroup Global Markets Holdings Inc.

Background

Bret W. Jacobson, described in the opinion as an individual broker, sued Citigroup Global Market Holdings Inc. He alleged fraud under New York law and false registration under Section 11 of the Securities Act, 15 U.S.C. § 77k. Jacobson alleged that UWT notes issued by Citigroup, which track the S&P GSCI Crude Oil Index ER New, undertracked that index by more than 50 percentage points on March 19, 2020. He attributed the shortfall to intentional human interference with the software used to track the index and alleged that the notes’ registration statement contained untrue factual statements.

Citigroup moved to dismiss for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). Jacobson’s complaint sought $36,663.55 in compensatory damages and $329,971.95 in punitive damages.

Diversity Jurisdiction

The court explained that diversity jurisdiction generally requires opposing parties to be citizens of different states and an amount in controversy greater than $75,000. Jacobson’s compensatory-damages demand was below that threshold. The court considered whether the claimed punitive damages could satisfy the amount requirement, but stated that New York law ordinarily does not allow punitive damages in an ordinary fraud-and-deceit case. It found that Jacobson had not alleged facts showing the morally reprehensible conduct required to support punitive damages. The court therefore concluded that Jacobson could not invoke diversity jurisdiction under 28 U.S.C. § 1332(a).

Federal-Question Jurisdiction

Federal-question jurisdiction covers civil actions arising under federal law. Citigroup argued that Jacobson could not seriously pursue a Section 11 claim because he had not alleged that his UWT notes were covered by the prospectus identified in the complaint. The court held that this argument concerned the validity of Jacobson’s claim rather than the court’s subject-matter jurisdiction. The court also explained that whether a federal statute provides a valid claim for relief is not itself a jurisdictional question.

The court declined to convert Citigroup’s Rule 12(b)(1) motion into a Rule 12(b)(6) motion, which would have addressed whether the complaint stated a legally valid claim. The court noted that Jacobson was proceeding without a lawyer and should have an opportunity to address Citigroup’s arguments fully.

Ruling

The court denied Citigroup’s motion to dismiss for lack of subject-matter jurisdiction. It directed the clerk to terminate the motion and ordered the parties to file a joint status report by February 11, 2022, concerning proposed next steps. The opinion did not decide whether Jacobson’s fraud or Section 11 allegations were legally sufficient or substantively correct.