144 F.4th 122
2d Cir.2025Background
- Trustees of the Peter and Elizabeth C. Tower Foundation sued UBS Financial Services, Inc. and Jay S. Blair, alleging breach of fiduciary duty under the Investment Advisers Act and New York law in managing the Foundation's investment accounts.
- Defendant John Blair, father of Jay Blair, was the Foundation’s Attorney Trustee and allegedly arranged for the assets to be placed under his son’s management at Arthurs Malof Group, which affiliated with UBS in 2015.
- When the Foundation’s accounts moved to UBS, John Blair signed a client agreement including an arbitration clause on the Foundation’s behalf.
- Plaintiffs alleged they were denied information about the accounts and that the UBS Defendants engaged in self-dealing and mismanagement.
- Defendants first moved to dismiss/stay the action on Colorado River abstention grounds, not mentioning arbitration. Only after this failed did they move to compel arbitration under the Federal Arbitration Act.
- The District Court denied the motion to compel arbitration, and the Second Circuit affirmed on the alternative ground that UBS had waived its right to arbitrate by seeking court resolution first.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether UBS Defendants waived right to arbitrate by seeking litigation first | UBS acted inconsistently with arbitration right; joined motion to dismiss rather than move to compel arbitration at outset | Motion to dismiss under abstention doctrine was not inconsistent with arbitration rights | Court: UBS knowingly relinquished arbitration right by first seeking dismissal in federal court |
| Standard for waiver of arbitration post-Morgan | Waiver does not require showing of prejudice, only inconsistency with arbitration right | Pre-Morgan cut-off required showing of prejudice; mere delay or litigation insufficient without prejudice | Court: Morgan abrogates prejudice test; focus is on defendants’ conduct, not prejudice |
| Effect of moving to dismiss on arbitration right | Dismissal motion invoked judicial remedies and sought substantive relief; inconsistent with arbitration | Motion to dismiss based on abstention (not merits); arbitration still available | Court: Engaging district court on abstention is inconsistent with arbitration right, so waiver occurs |
| Whether district court’s rationale for denying arbitration must be the sole basis for affirmance | Appellate court may affirm on any record-supported ground | Appellate review limited to district court’s reasoning | Court: May affirm denial of motion to compel arbitration based on waiver, even if not relied on below |
Key Cases Cited
- Morgan v. Sundance, Inc., 596 U.S. 411 (2022) (prejudice not required for waiver of arbitration; focus on party’s inconsistent conduct)
- Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976) (sets standard for federal court abstention in favor of parallel state proceedings)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (outlines consequences of Colorado River abstention; arbitration cannot be compelled if court abstains)
- Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20 (2d Cir. 1995) (standard for waiver of arbitration by litigation conduct prior to Morgan)
- PPG Indus., Inc. v. Webster Auto Parts, Inc., 128 F.3d 103 (2d Cir. 1997) (litigation conduct can be inconsistent with arbitration right)