In MoneyGram Payment Sys. v. Citigroup, Inc., No. 27-CV-11-21348, 2013 WL 491527 (Minn. Ct. App. Feb. 11, 2013), the Minnesota Court of Appeals reversed judgment denying Citigroup, Inc.’s (“Citigroup”) motion to compel arbitration of claims brought by MoneyGram Payment Systems, Inc. (“MoneyGram”).
According to the allegations, MoneyGram operated its payment-services business by providing clients with money orders and check services. In addition, MoneyGram managed a large investment portfolio that holds several billion dollars in mortgage-related securities (“MBS”) and collateralized debt obligations (“CDOs”). From 2005 to 2007, MoneyGram purchased over $180 million in MBS and CDO investments via telephone and e-mail through its account with Citigroup’s broker-dealer subsidiary, Smith Barney. In 2011, after the financial crisis led to a substantial decrease in MoneyGram’s investment value, MoneyGram brought fraud charges against Citigroup for purported fraud relating to the MBS and CDO investments.
However, in 2008, subsequent to the security purchases at issue, MoneyGram executed a Client Services Agreement (“CSA”) that contained an arbitration agreement as part of the terms and conditions set to guide its continued relationship with Smith Barney. Specifically, the agreement detailed that “all claims and controversies, including those prior to the execution of the CSA, concerning or arising from . . . any transaction involving Smith Barney or related business entities, must be resolved through arbitration.”
The district court determined that language in the first paragraph of the CSA excluded transactions entered through “proprietary online order entry . . . or other systems,” and that MoneyGram’s orders were made through Smith Barney’s “other systems.” The Appellate Court, however, held that such an interpretation would make the arbitration agreement unenforceable in every situation and would produce absurd results. The Court reasoned that if an order was not made through the proprietary online system then the order would have to have been made through an “other system,” rendering the arbitration provision pointless. As a result, the Court reversed the trial court’s refusal to grant Citigroup’s motion to compel arbitration.
The primary materials for this case may be found on the DU Corporate Governance website.