Citigroup Global Markets Inc. v. Abbar
761 F.3d 268
2d Cir.2014Background
- Ghazi Abbar (on behalf of family trusts held through two feeder vehicles) bought leveraged option transactions in London from Citigroup Global Markets Ltd. (Citi UK); Citi UK was the contractual counterparty and received fees.
- Citigroup Global Markets Inc. (Citi NY), a New York FINRA member, provided significant structuring, risk-monitoring, and oversight services for the transactions; Citi NY held voting rights over the reference funds and could remove Abbar as investment advisor.
- Abbar communicated frequently with Citi NY personnel, who worked alongside Citi UK and Geneva offices; internal Citigroup documents and powers of attorney showed interaffiliate coordination and Citi NY authority to sign confirmations for Citi UK.
- The investments collapsed in 2008–2009; Abbar lost $383 million (including losses tied to a related Swiss loan). Abbar filed a FINRA arbitration claim against Citi NY in New York.
- Citi NY sued in the Southern District of New York to enjoin arbitration, arguing Abbar was not its "customer" under FINRA Rule 12200 because he had no account with Citi NY and purchased services from Citi UK. The district court enjoined arbitration and applied a categorical rule that a FINRA "customer" is the party that has an account with or purchases from the FINRA member.
Issues
| Issue | Abbar's Argument | Citi NY's Argument | Held |
|---|---|---|---|
| Whether Abbar was a FINRA "customer" of Citi NY such that FINRA arbitration applies | Abbar argued his repeated dealings with Citi NY personnel and their role in structuring/monitoring the transactions made him a customer of Citi NY and entitled him to compel FINRA arbitration | Citi NY argued Abbar contracted with and paid Citi UK, had no account with Citi NY, and Citi NY acted for Citi UK, not for Abbar; thus Abbar was not its customer | The court held Abbar was not a customer of Citi NY: FINRA Rule 12200 means a customer either (1) purchases goods/services from a FINRA member or (2) has an account with a FINRA member; Abbar had neither with Citi NY, so arbitration was properly enjoined |
Key Cases Cited
- UBS Fin. Servs., Inc. v. W. Va. Univ. Hosps., Inc., 660 F.3d 643 (2d Cir. 2011) (discusses ordinary meaning of “customer” and customer status under FINRA rules)
- Wachovia Bank, Nat’l Ass’n v. VCG Special Opportunities Master Fund, Ltd., 661 F.3d 164 (2d Cir. 2011) (arbitrability is for courts when parties haven’t delegated that question; interprets FINRA customer requirement)
- Citigroup Global Mkts., Inc. v. VCG Special Opportunities Master Fund Ltd., 598 F.3d 30 (2d Cir. 2010) (addresses FINRA arbitration and customer-status disputes)
- John Hancock Life Ins. Co. v. Wilson, 254 F.3d 48 (2d Cir. 2001) (discusses presumption in favor of arbitration; not applied when arbitrability is disputed)
- Applied Energetics, Inc. v. NewOak Capital Mkts., LLC, 645 F.3d 522 (2d Cir. 2011) (clarifies presumption in favor of arbitration does not apply to formation of arbitration agreement)
- Oppenheimer & Co., Inc. v. Neidhardt, 56 F.3d 352 (2d Cir. 1995) (account-holder can be a FINRA customer even if transactions are executed through affiliate)
- Bensadoun v. Jobe-Riat, 316 F.3d 171 (2d Cir. 2003) (contract-interpretation principles for arbitration provisions)
- UBS Fin. Servs., Inc. v. Garilion Clinic, 706 F.3d 319 (4th Cir. 2013) (adopts definition of customer as one who purchases commodities or services from a FINRA member)