Securities Litigation

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 The Second Circuit affirmed, holding the ARS forum-selection clauses superseded FINRA Rule 12200.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 (9^th 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 (4^th 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 (2^nd Cir. Aug. 21, 2014), here. Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Managing Partner of the Nashville office, Tom is licensed in Tennessee, Texas and Louisiana. He has over 28 years' experience representing financial institutions in litigation, regulatory and compliance matters. © 2014 by Thomas K. Potter, III (all rights reserved)