Goldman, Sachs & Co. v. City of Reno
2014 U.S. App. LEXIS 5894
| 9th Cir. | 2014Background
- In 2005–06 the City of Reno issued about $211 million in auction rate securities (ARS); Goldman Sachs served as sole underwriter and broker‑dealer under negotiated Underwriter and Broker‑Dealer Agreements.
- The Broker‑Dealer Agreements (2005 & 2006) contained identical forum‑selection clauses: all "actions and proceedings" arising from the agreement "shall be brought in the United States District Court for the District of Nevada," plus merger clauses.
- After the ARS market collapsed in 2008, Reno filed a FINRA arbitration (2012) alleging fiduciary breach, fraud, securities law violations, and related claims against Goldman.
- Goldman sued in federal court seeking to enjoin the FINRA arbitration, arguing Reno was not a FINRA "customer" and that the forum clauses displaced FINRA Rule 12200 arbitration.
- The district court held FINRA should decide arbitrability, found Reno a FINRA "customer," and denied injunctive relief; the Ninth Circuit reversed as to arbitrability and forum‑clause effect and remanded.
Issues
| Issue | Plaintiff's Argument (Reno) | Defendant's Argument (Goldman) | Held |
|---|---|---|---|
| Who decides arbitrability (court or FINRA)? | FINRA has authority to decide arbitrability under its rules. | FINRA Rule 12203(a) does not clearly and unmistakably assign arbitrability to FINRA; court should decide. | Court decides arbitrability; FINRA did not have clear delegation. |
| Was Reno a FINRA "customer" under Rule 12200? | Reno is a customer because it purchased investment banking/securities services from Goldman in its regulated activities. | Reno was not a customer because its relationship was not sufficiently tied to brokerage/investment services. | Reno is a "customer": non‑broker/non‑dealer who purchased services in the member's FINRA‑regulated securities business. |
| Did forum‑selection clauses displace FINRA arbitration? | "Actions and proceedings" refers to judicial proceedings only and does not waive FINRA arbitration; clauses do not clearly supersede arbitration. | The broad mandatory clause requiring all "actions and proceedings" in the D. Nev. supersedes the default FINRA arbitration obligation. | Forum‑selection clauses superseded FINRA Rule 12200; parties disclaimed the right to FINRA arbitration. |
| Do merger clauses / underwriter agreements without forum clauses remain arbitrable? | Claims arising under Underwriter Agreements (which lack forum clauses) may still be arbitrated. | Broker‑Dealer Agreements’ merger clauses incorporate the Underwriter Agreements, so forum clause covers all related claims. | Merger clauses incorporate the Underwriter Agreements; all claims are subject to the forum‑selection clauses. |
Key Cases Cited
- First Options of Chicago, 514 U.S. 938 (1995) (party agreement governs who decides arbitrability; delegation requires clear and unmistakable evidence)
- Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287 (2010) (arbitration is a matter of consent; courts enforce only disputes parties agreed to arbitrate)
- UBS Fin. Servs., Inc. v. Carilion Clinic, 706 F.3d 319 (4th Cir. 2013) (forum clause similar to this case did not supersede FINRA arbitration)
- West Virginia Univ. Hospitals, Inc. v. UBS Fin. Servs., Inc., 660 F.3d 643 (2d Cir. 2011) (customer definition includes one who purchases services from a FINRA member in its securities business)
- Applied Energetics, Inc. v. New‑Oak Capital Mkts., LLC, 645 F.3d 522 (2d Cir. 2011) (subsequent forum clause can displace a prior arbitration agreement where terms plainly preclude arbitration)
- Bank Julius Baer & Co. v. Waxfield Ltd., 424 F.3d 278 (2d Cir. 2005) (if a reading permits both arbitration and a forum clause, courts should favor arbitration)
- Kidder, Peabody & Co. v. Zinsmeyer Trusts P’ship, 41 F.3d 861 (2d Cir. 1994) (FINRA/NASD rules may constitute an arbitration agreement enforceable under the FAA)