UBS Financial Services Inc. v. Carilion Clinic
880 F. Supp. 2d 724
E.D. Va.2012Background
- Carilion not-for-profit healthcare system sues UBS and Citi over ARS financing that collapsed in 2008.
- UBS and Citi provided multiple services: underwriting ARS, auction administration, structuring advice, and swaps facilitation, for a fee.
- Two series of documents (Underwriter and Broker-Dealer Agreements) governed the transaction; neither contained an arbitration clause, but the Broker-Dealer Agreements included a New York forum selection clause.
- ARS issuance involved ARS and VDRO with complex fee and propping-up practices by UBS and Citi prior to market collapse.
- Carilion seeks to enforce FINRA arbitration in Richmond, Virginia, arguing they are a FINRA customer; UBS and Citi seek to enjoin arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Carilion is a FINRA ‘customer’ of UBS and Citi | Carilion paid for multiple services; thus a customer under FINRA rules. | Carilion was an issuer, not a customer; relationships are arms-length. | Carilion is a customer; FINRA arbitration appropriate. |
| Whether the forum-selection clause waives arbitration | Clause is ambiguous and does not explicitly waive arbitration; arbitration preferred. | Clause operates as a waiver to litigate in New York courts. | Clause not a waiver; arbitration remains possible. |
| Irreparable harm if arbitration is barred | Preserving arbitration avoids unnecessary costs and delays; enforcement needed to prevent harm. | Arbitration should be allowed only if appropriate forum; harm to enforceability is speculative. | No irreparable harm shown; harms arise from FINRA obligations, not irreparable injury. |
| Balance of equities | Arbitration is preferred; denying it would impose higher costs and delay. | Enjoining arbitration benefits those who did not consent to it. | Equities do not favor injunction; arbitration should proceed. |
| Public interest in enforcing arbitration | Policy favoring arbitration supports proceeding in FINRA. | Public interest supports respecting forum-selection clause and consent to arbitration via FINRA. | Public policy favors arbitration; no basis to enjoin. |
Key Cases Cited
- Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7 (U.S. 2008) (establishes four-factor test for preliminary injunction)
- Real Truth About Obama, Inc. v. Fed. Election Comm’n, 575 F.3d 342 (4th Cir. 2009) (requires likelihood of success on the merits and a clear showing for relief)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (U.S. 2002) (arb. questions governed by arbitrability and gateway issues)
- Washington Square Secs., Inc. v. Aune, 385 F.3d 432 (4th Cir. 2004) (resolve ambiguities in arbitration clauses in favor of arbitration)
- Royal Alliance Assocs. v. Branch Ave. Plaza, L.P., 587 F.Supp.2d 729 (E.D. Va. 2008) (enjoining arbitration where direct customer relationship uncertain)
- J.P. Morgan Secs. Inc. v. La. Citizens Prop. Ins. Corp., 712 F.Supp.2d 70 (S.D.N.Y. 2010) (issuers of ARS can be customers for FINRA arbitration under similar facts)
- UBS Fin. Servs., Inc. v. W. Va. Univ. Hosp., Inc., 760 F.Supp.2d 373 (S.D.N.Y. 2011) (courts recognize broad scope of ‘customer’ concept in FINRA arbitrations)
- Patten Sec. Corp. v. Diamond Greyhound & Genetics, Inc., 819 F.2d 400 (3d Cir. 1987) ( NASD policy indicating issuer should be considered a public customer for underwriting disputes)