Korovin v. Citigroup Global Markets Holdings Inc.

Background

Eugene Korovin sued Citigroup Global Markets Holdings Inc. (referred to in the opinion as CGMHI), alleging fraud under New York law and a false registration under Section 11 of the Securities Act, 15 U.S.C. § 77k. Citigroup moved to dismiss the state and federal claims. Korovin received extensions of time to respond but did not file a response, so the court treated the motions as unopposed.

State-law claims

Citigroup initially sought dismissal of the state-law claims for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), which concerns the court’s power to hear a case. The court explained that diversity jurisdiction generally requires citizens of different states and more than $75,000 in controversy.

Korovin sought $66,600 in compensatory damages and $378,000 in punitive damages. The court concluded that the complaint did not allege the kind of unusually serious or morally wrongful conduct required to support punitive damages for ordinary fraud. Without those punitive damages, Korovin did not meet the amount-in-controversy requirement. The court therefore found no subject-matter jurisdiction over the state-law claims. Because the federal claims were also being dismissed, the court declined to exercise supplemental jurisdiction over the state-law claims, while stating that it would revisit that issue if Korovin filed a sufficient amended federal complaint.

Federal claim

Citigroup also sought dismissal of the federal claim under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. The court further applied Rule 9(b), which requires fraud allegations to identify the allegedly false statements or omissions, their speaker, where and when they were made, and why they were fraudulent.

The court found Korovin’s allegations too vague. The complaint alleged that Citigroup had “obviously” tampered with notes because their performance was unsatisfactory, but did not provide the specific supporting facts required by Rule 9(b). Because Korovin was proceeding without a lawyer, the court allowed him to amend the complaint to correct the deficiencies.

Disposition

The court granted Citigroup’s motion to dismiss for lack of subject-matter jurisdiction, dismissing Korovin’s state-law claims. It also granted Citigroup’s motion to dismiss the federal claim. The court stated that dismissal of both the federal and state claims was without prejudice. Korovin was required to file an amended complaint by October 31, 2022; the court stated that failure to do so would result in dismissal of the action under Rule 41(b).