UBS Financial Services, Inc. v. West Virginia University Hospitals, Inc.
2011 U.S. App. LEXIS 19420
| 2d Cir. | 2011Background
- UBS appeals district court dismissal and denial of a preliminary injunction to halt FINRA arbitration between UBS and WVUH.
- WVUH issued ARS as part of three bond offerings (2003, 2005, 2006) under UBS advisement and broker-dealer roles; UB S facilitated auctions and underwrote WVUH’s ARS.
- Parties executed broker-dealer and purchase agreements for each offering; 2006 broker-dealer agreement included a New York forum clause.
- WVUH sought FINRA arbitration asserting misrepresentation, market manipulation, and related claims; UBS moved to enjoin arbitration and to apply New York forum.
- District Court held WVUH was UBS’s customer and that FINRA arbitration applied; court rejected injunction outside New York County and determined forum-location issue for arbitrators.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether WVUH was UBS’s customer under FINRA Rule 12200. | UBS contends WVUH was not a customer in underwriting. | WVUH was a customer via underwriter relationship and/or by purchasing auction services. | WVUH was UBS's customer through undertaking to pay for auction services. |
| Whether the dispute arises in connection with SBA’s business activities under Rule 12200. | UBS argues no nexus between underwriting and auction services. | WVUH’s fraud claims relate to the ARS structure and UBS’s role in underwriting and auctions. | Yes, dispute arises in connection with UBS’s business activities. |
| Whether the 2006 forum-selection clause governs venue vs FINRA arbitration rules. | Clause should set venue; district court should enforce it. | FINRA rules govern arbitrability; venue is a procedural issue for arbitrators. | Forum clause is a procedural question for arbitrators; district court lacked subject-matter jurisdiction. |
| Whether the district court had subject-matter jurisdiction to enjoin arbitration outside NY County. | Arbitration outside NY County violates forum clause. | Arbitration location should be determined by FINRA arbitrators under Rule 12213(a)(1). | District court’s injunction denial affirmed; remanded for lack of subject-matter jurisdiction on the forum issue. |
| Whether UBS is entitled to preliminary relief given the unsettled question of arbitrability. | Arbitration should be enjoined pending resolution of arbitrability. | Arbitrability should be decided by arbitrators under FINRA rules; wholesale injunction unwarranted. | UBS failed to show likelihood of success on merits; majority affirming denial of injunction. |
Key Cases Cited
- Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468 (1989) (courts enforce arbitration agreements and their terms)
- Bear, Stearns & Co. v. Bennett, 938 F.2d 31 (2d Cir. 1991) (enforce arbitration where there is a valid arbitration agreement)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) (arbitrability questions are presumptively for arbitrators)
- Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003) (forum regarding class arbitration is a procedural matter for arbitrators)
- Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662 (2010) (cannot infer class arbitration from silent arbitration agreement; requires contract-based basis for arbitration)
- First Options of Chicago v. Kaplan, 514 U.S. 938 (1995) (arbitration decisions must reflect the parties’ intent and contract)
- Granite Rock Co. v. International Bhd. of Teamsters, 563 U.S. 116 (2010) (arbitration enforceability governed by contract; court resolves gateway questions when necessary)
- Bensadoun v. Jobe-Riat, 316 F.3d 171 (2d Cir. 2003) (FINRA rules interpreted as contract terms, including customer status)
- Subaru Distribs. Corp. v. Subaru of Am., Inc., 425 F.3d 119 (2d Cir. 2005) (third-party beneficiary principles apply to arbitration rights)