63 F. Supp. 3d 367
S.D.N.Y.2014Background
- SLS Capital filed a FINRA arbitration claim against CRT Capital, McCarty, and Gibson for eleven causes of action related to life settlement bonds.
- CRT Capital sought to enjoin the arbitration and declared SLS Capital’s claims nonarbitrable; McCarty and Gibson joined as plaintiffs seeking similar relief.
- Engagement Letter between SLS Capital and CRT Capital required arbitration under NYSE/NASD (FINRA) rules for disputes arising from the engagement.
- SLS Capital later liquidated, assets were misappropriated by Elias, and Luxembourg liquidation proceedings recognized by the SDNY bankruptcy court.
- SLS Capital filed a Second Amended Complaint asserting jurisdiction under 28 U.S.C. § 1331 and 9 U.S.C. § 203; parallel FINRA proceeding commenced July 15, 2014.
- The court addressed jurisdiction, injunction authority, and whether arbitrability should be decided by the arbitrator or the court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the court has NY Convention jurisdiction | SLS asserts § 203 provides jurisdiction over NY Convention actions. | CRT contends limited remedies under § 206/207; jurisdiction only for compelling, confirming, or staying proceedings. | Court has subject matter jurisdiction under § 203. |
| Whether the court can enjoin the FINRA arbitration | Court should enjoin if arbitrability or validity of arbitration agreement is in question. | Arbitration should proceed; conflict with NY Convention remedies limits injunctions. | Court may enjoin when arbitrability is at issue and agreement is not valid; here arbitrability to be decided by arbitrator. |
| Whether SLS Capital's claims against CRT Capital fall within the scope of the Engagement Letter | Engagement Letter governs disputes between SLS Capital and CRT Capital; arbitrator must decide scope. | SLS Capital’s claims against CRT are not within the scope because bondholders’ claims require standing considerations. | Arbitrability must be determined by arbitrator; scope questions reserved for arbitration. |
| Whether McCarty and Gibson’s claims are arbitrable under FINRA Rule 12200 | McCarty and Gibson, as associated persons, are bound to arbitrate customer disputes; claims fall within FINRA Rule 12200. | McCarty and Gibson did not sign the Engagement Letter; standing issues must be resolved by arbitration. | McCarty and Gibson claims are arbitrable under Rule 12200; arbitrator to resolve standing on behalf of bondholders. |
Key Cases Cited
- Kidder, Peabody & Co. v. Zinsmeyer Trusts Partnership, 41 F.3d 861 (2d Cir.1994) (arbitration duties extend to customers under NASD/FINRA rules)
- UBS Financial Services, Inc. v. West Virginia University Hospitals, Inc., 660 F.3d 643 (2d Cir.2011) (FINRA member bound by FINRA rules to arbitrate; contracts enforceable under FAA)
- Shaw Group Inc. v. Triplefin International Corp., 322 F.3d 115 (2d Cir.2003) (broad arbitration clause may commit questions of arbitrability to arbitrator)
- PaineWebber Inc. v. Bybyk, 81 F.3d 1193 (2d Cir.1996) (‘any and all’ phrase can cover arbitrability questions)
- John Hancock Life Insurance Co. v. Wilson, 254 F.3d 48 (2d Cir.2001) (contracts showing ‘any and all controversies’ evidence intent to arbitrate arbitrability)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) (gateway questions split between court and arbitrator)
- In re American Express Financial Advisors Sec. Litig., 672 F.3d 112 (2d Cir.2011) (federal courts may stay arbitration under NY Convention when appropriate)
- International Shipping Co. v. Hydra Offshore, Inc., 875 F.2d 388 (2d Cir.1989) (limits of § 203 for actions to compel or enforce arbitration; later expanded)
- Republic of Ecuador v. Chevron Corp., 638 F.3d 384 (2d Cir.2011) (NY Convention jurisdiction to stay incompatible arbitral proceedings)
- Scandinavian Reinsurance Co. v. Saint Paul Fire & Marine Ins. Co., 668 F.3d 60 (2d Cir.2012) (jurisdiction to vacate awards under NY Convention)
- Sole Resort, S.A. de C.V. v. Allure Resorts Mgmt., LLC, 450 F.3d 100 (2d Cir.2006) (NY Convention governs stay/recognition; jurisdictional basis varies by context)
- Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468 (1989) (arbitration contracts enforceable under FAA)