Goldman, Sachs & Co. v. Golden Empire Schools Financing Authority
922 F. Supp. 2d 435
S.D.N.Y.2013Background
- Golden Empire issued approximately $125 million of ARS from 2004 to 2007 with Goldman as sole underwriter/broker-dealer.
- Two contracts governed the relationship: a 2004 Underwriter Agreement and a contemporaneous 2004 Broker-Dealer Agreement; both 2006 and 2007 agreements followed for subsequent ARS issuances.
- The 2004 Broker-Dealer Agreement contained a Forum Selection Clause requiring actions to be brought in the U.S. District Court for the County of New York and included a merger clause.
- In 2008, the ARS market collapsed, causing Golden Empire’s auctions to fail and prompting refinancing needs; Goldman faced allegations in FINRA arbitration filed February 11, 2012 by Golden Empire.
- Goldman filed suit to enjoin the FINRA arbitration and obtain declaratory relief on August 8, 2012; the court granted a preliminary injunction in January 2013.
- The court held the Forum Selection Clause in the Broker-Dealer Agreement trumped FINRA Rule 12200 arbitration, directing disputes to be heard in the Southern District of New York.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Forum Selection Clause overrides FINRA arbitration. | Goldman: clause precludes arbitration and binds to NY federal court. | Golden Empire: clause insufficiently explicit to override arbitration and must be read to complement arbitration. | Clause overrides arbitration; arbitration not required. |
| Whether 'actions and proceedings' includes arbitration. | Goldman: phrase includes arbitral proceedings. | Golden Empire: phrase limits to judicial actions. | Includes arbitration; broad language covers arbitral proceedings. |
| Whether merger clauses foreclose arbitration of all claims. | Goldman: merger clause displaced earlier arbitration by the Broker-Dealer Agreement. | Golden Empire: merger clause does not bar FINRA arbitration. | Merger clauses prevail; broker-dealer merger clause supports enforcing forum clause. |
| Whether the dispute arises from Broker-Dealer or Underwriter Agreements. | Goldman: the dispute centers on broker-dealer conduct (cover bids) and is governed by the forum clause. | Golden Empire: underwriter conduct is separate and should be arbitrable. | Dispute rooted in broker-dealer conduct; forum clause applies. |
| Public policy and balance of hardships in enforcing the clause. | Goldman: enforcing contract serves equities and public interest; arbitration would be improper. | Golden Empire: arbitration policy favors arbitration where possible. | Public interest and equities support enforcing the forum clause. |
Key Cases Cited
- Bank Julius Baer & Co., Ltd. v. Waxfield Ltd., 424 F.3d 278 (2d Cir. 2005) (explicit waiver not required; later clause may preclude arbitration)
- Applied Energetics, Inc. v. NewOak Capital Markets, LLC, 645 F.3d 522 (2d Cir. 2011) (forum selection clause can revoke arbitration when expressly precluded)
- UBS Fin. Servs., Inc. v. Carilion Clinic, 706 F.3d 319 (4th Cir. 2013) (noting implied waiver without explicit language (Fourth Circuit))
- 14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (Supreme Court 2009) (arbitration agreements are valid and enforceable under Federal Arbitration Act)
- Greenfield v. Philles Records, Inc., 98 N.Y.2d 562 (N.Y. 2002) (state law interpretation of contractual arbitration clauses)
- City of New York v. Uniformed Fire Officers Ass’n, Local 854, 263 A.D.2d 3 (App.Div. 1999) (arb clause interpretation in context of arbitration disputes)