73 F. Supp. 3d 405
S.D.N.Y.2014Background
- Christensen sues KCCI and officers Nauman and Gollner in a diversity action alleging both direct and derivative claims arising from management of KCCI.
- Defendants move to compel arbitration under FINRA based on Christensen’s Form U-4 arbitration agreement.
- KCCI is a New York corporation; Christensen is its founder; Nauman and Gollner are directors/officers and associated persons with FINRA.
- Historical corporate events include NYSE seat leasing (1996–2006), a 2011 attempt to sell Christensen’s stake, a 2013 sale of KCCI to Lampert, and termination of FINRA registration in 2013.
- Christensen’s 2009 Form U-4 contains a broad arbitration clause requiring arbitration of disputes under FINRA rules; the case was filed July 16, 2014; the court must decide arbitration scope, with some derivative claims potentially non-arbitrable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Christensen’s claims arise under FINRA business activities. | Christensen argues governance issues fall outside FINRA’s business activities. | KCCI and FINRA-related parties contend claims arise from business activities of a FINRA member. | Claims arise in FINRA business activities; direct claims arbitrable. |
| Are shareholder derivative claims arbitrable under Code 13205? | Derivative claims are not arbitrable under FINRA rules. | Some derivative claims may be arbitrable; others not. | Derivative claims are not arbitrable; they must be reserved for court after arbitration. |
| Should the court stay or dismiss the action pending arbitration? | A stay preserves proceedings for unified resolution. | Dismissal is appropriate when all issues are referable to arbitration. | Stay the action pending arbitration to preserve judicial economy. |
| Does Form U-4 arbitration clause compel arbitration of these disputes? | The clause broadly compels arbitration for direct claims arising from the FINRA member’s business. |
Key Cases Cited
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (Supreme Court, 1985) (FAA governs substantive arbitrability and cross-border disputes)
- Southland Corp. v. Keating, 465 U.S. 1 (Supreme Court, 1984) (Arbitration policy; broad federal policy in favor of arbitration)
- First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 (Supreme Court, 1995) (Arbitration agreements; state-law contract formation in arbitration scope)
- Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287 (Supreme Court, 2010) (Arbitration scope; presumption of arbitrability in favor of arbitration)
- Applied Energetics, Inc. v. NewOak Capital Mkts., LLC, 645 F.3d 522 (2d Cir. 2011) (Arbitration threshold and contract formation under FAA; scope determinations)
- Oldroyd v. Elmira Sav. Bank, FSB, 134 F.3d 72 (2d Cir. 1998) (Arbitration presumptions; broad interpretation of arbitration clauses)
- John Hancock Life Ins. Co. v. Wilson, 254 F.3d 48 (2d Cir. 2001) (Ambiguities in FINRA arbitration language resolved in favor of arbitration)
- Valentine Capital Asset Management Inc. v. Agahi, 174 Cal.App.4th 606 (Cal. App. 2009) (Derivative actions not necessarily arbitrable under NASD/FINRA regime (California appellate))