Presbyterian Healthcare Services v. Goldman, Sachs & Co.
122 F. Supp. 3d 1157
D.N.M.2015Background
- Presbyterian Healthcare (New Mexico hospital system) issued $147.5M in auction rate securities (ARS) in 2004; Goldman Sachs acted as underwriter and broker-dealer and later arranged interest-rate swaps tied to the ARS.
- ARS auctions began failing in 2008; Presbyterian filed a FINRA arbitration claim alleging Goldman misrepresented/support‑bid practices and concealed ARS market risk, seeking rescission, damages, and related relief.
- Presbyterian filed a federal declaratory-judgment action in D.N.M. asking the court to compel Goldman to submit to FINRA arbitration; Goldman moved to transfer under 28 U.S.C. § 1404(a) based on a Broker-Dealer Agreement forum-selection clause requiring litigation in the S.D.N.Y.
- The Broker-Dealer Agreement (May 12, 2004) contains a merger clause and a mandatory forum-selection clause: “all actions and proceedings arising out of this Broker-Dealer Agreement or any of the transactions contemplated hereby shall be brought in the United States District Court in the County of New York.”
- Plaintiff argued its claims arise from a broader advisory relationship and that FINRA Rule 12200 (and FINRA’s written membership rules) require arbitration in New Mexico; defendant argued the forum clause covers all claims that arise from its broker-dealer role (including the swaps) and thus transfer is required.
- Court concluded plaintiffs’ claims "arise out of" the Broker-Dealer Agreement (including claims tied to the 2006 swaps) and granted Goldman’s motion, transferring the case to the S.D.N.Y.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether PHS’s claims "arise out of" the Broker-Dealer Agreement | Claims stem from a long-term advisory relationship and 2006 swaps not contemplated by the 2004 Broker-Dealer Agreement; FINRA arbitration right governs | Claims concern Goldman’s acts as broker-dealer for the ARS issuance (including support-bid practices and related swaps) and therefore fall within the Agreement’s broad "arising out of" language | Court: Claims originate from and bear a causal connection to the ARS issuance and Broker-Dealer Agreement; they "arise out of" the Agreement |
| Whether the Broker-Dealer forum-selection clause supersedes or precludes FINRA arbitration | Forum clause cannot displace the FINRA arbitration obligation; arbitration must be compelled in the district where arbitration is pending (New Mexico) | Forum clause requires judicial resolution in S.D.N.Y. for "actions and proceedings" arising out of the Agreement; identical clauses have been enforced to preclude FINRA proceedings elsewhere | Court: Carilion reasoning (forum clause doesn't nullify arbitration right) is distinguishable — here PHS brought a court action (not arbitration) and that action must be brought in S.D.N.Y.; transfer granted |
| Whether the forum-selection clause is mandatory (exclusive) | Clause is narrow/ancillary and should not be read to reach all disputes between the parties | Clause uses mandatory language (“shall be brought”) and specifies venue — indicates exclusivity | Court: Clause is mandatory and enforceable; no extraordinary circumstances to defeat it |
| Whether the non-signatory New Mexico Hospital Equipment Loan Council (NMHELC) can be bound by clause or whether entire case should transfer | NMHELC is not a signatory and has not agreed to New York forum; transfer would improperly bind a public body | NMHELC is closely related to dispute and efficiency favors transferring the entire case to avoid duplicative litigation | Court: Declines to apply clause directly to NMHELC as non‑signatory, but transfers entire case under § 1404(a) in interest of convenience and judicial efficiency |
Key Cases Cited
- Atlantic Marine Constr. Co. v. U.S. Dist. Ct., 134 S. Ct. 568 (U.S. 2013) (governs § 1404(a) analysis when a valid forum-selection clause exists)
- Goldman Sachs & Co. v. Golden Empire Sch. Fin. Auth., 764 F.3d 210 (2d Cir. 2014) (forum-selection clause in broker-dealer agreement covers FINRA claims tied to ARS issuance)
- Goldman Sachs & Co. v. City of Reno, 747 F.3d 733 (9th Cir. 2014) (similar conclusion: ARS issuer’s claims arise out of broker-dealer agreements and fall within forum clause)
- UBS Fin. Servs., Inc. v. Carilion Clinic, 706 F.3d 319 (4th Cir. 2013) (forum clause does not automatically supersede FINRA arbitration; distinguishes arbitration vs. judicial actions)
- K & V Scientific Co. v. BMW, 314 F.3d 494 (10th Cir. 2002) (framework for determining whether forum-selection clauses are mandatory or permissive)
- Milk ‘N’ More, Inc. v. Beavert, 963 F.2d 1342 (10th Cir. 1992) (forum-selection clauses are prima facie valid and use of "shall" often indicates mandatory intent)
- Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63 (2010) (principles on separability and enforcement of arbitration-related contractual provisions)