Second Circuit Holds Subsequent Forum-Selection Clause Trumps FINRA Arbitration Requirement


The Second Circuit joined the Ninth in holding that a subsequent contractual forum-selection clause requiring federal-court litigation trumps the base requirement that FINRA member firms must arbitrate upon a customer’s request.

FINRA Rule 12200 provides member firms “must arbitrate a dispute [“between a customer and a member” “arising in connection with the business activities of the member”] under the Code if: … Requested by the customer….”  Public-financing authorities brought FINRA arbitrations against Goldman, Sachs and Citigroup Global Markets over Auction Rate Securities transactions.  The FINRA-member Respondents each obtained federal-court orders enjoining the FINRA arbitrations based upon forum-selection clauses in the customer ARS agreements requiring “all actions and proceedings” to be brought in the Southern District of New York.  The Second Circuit affirmed, holding the ARS forum-selection clauses superseded FINRA Rule 12200.

The Second Circuit holding aligns it with the Ninth Circuit.  Goldman, Sachs & Co. v. City of Reno, 747 F. 3d 733, 743-47 (9th Cir. 2014).  But the Fourth Circuit has held that the FINRA Rule prevails instead.  UBS Fin. Servs., Inc. v. Carilion Clinic, 706 F. 3d 319 (4th Cir. 2013); see also UBS Sec. LLC v. Allina Health Sys., No. 12-2090, 2013 WL 500373 (D. Minn. Feb. 11, 2013).

Goldman, Sachs & Co., v. Golden Empire Schools Financing Auth., Nos. 13-797-cv, 13-2247-cv (2nd Cir. Aug. 21, 2014), here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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