Wachovia Bank, National Ass'n v. VCG Special Opportunities Master Fund, Ltd.
2011 U.S. App. LEXIS 21885
2d Cir.2011Background
- VCG sues Wachovia Bank and Wachovia Capital Markets (WCM) seeking to enjoin FINRA arbitration over a Forge CDS; Wachovia Bank is not FINRA itself, while WCM is a FINRA member.
- The dispute centers on whether VCG was a FINRA 'customer' of WCM, which would obligate arbitration under FINRA Code 12200.
- The Forge CDS交易 was memorialized in four documents (ISDA Master, ISDA Schedule with Section 3(g) non-reliance, Credit Support Annex, and Trade Confirmation) executed May 2007.
- WCM employees on the CDO desk negotiated the Trade Confirmation; Vanquish Capital negotiated the ISDA documents; Vanquish and WCM interacted with VCG, but neither WCM nor Wachovia Bank was a party to the CDS per se.
- VCG acknowledged arm's-length nature in the ISDA Schedule, disavowing advisory or fiduciary services from Wachovia/WCM, with a merger clause stating the four documents comprise the entire agreement.
- The district court granted summary judgment for VCG’s opponents, holding VCG was a WCM customer and thus arbitration was mandatory; the appellate court reverses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is VCG a FINRA 'customer' of WCM? | No FINRA relationship; no advisory services by WCM; VCG denied reliance. | Williams/Edwards acted for Wachovia/WCM; VCG engaged in trade via WCM; VCG is WCM's customer. | VCG is not a customer; no genuine dispute on material facts; summary judgment for plaintiffs. |
| Whether arbitrability should be decided by the court as a matter of law. | Arbitration should be enjoined because no agreement or customer status; law controls. | Ambiguities in status should lead to arbitration under John Hancock sense. | Court deem arbitrability resolvable as a matter of law; reversal of district court on summary judgment. |
| Does the FINRA Code's 'customer' definition require an advisory relationship to trigger arbitration? | Lacks advisory/employer relationship; no customer. | Undisputed facts show business activity implicates WCM; broad FINRA scope. | Undisputed facts show no customer relationship; arbitration not mandatory. |
Key Cases Cited
- Citigroup Global Markets, Inc. v. VCG Special Opportunities Master Fund Ltd., 598 F.3d 30 (2d Cir. 2010) (fact-specific, requires trial where dispute over customer status exists)
- John Hancock Life Ins. Co. v. Wilson, 254 F.3d 48 (2d Cir. 2001) (ambiguity in arbitrability resolved in favor of arbitration where applicable)
- UBS Financial Services Inc. v. West Virginia University Hospitals, Inc., 660 F.3d 643 (2d Cir. 2011) (undisputed facts may establish 'customer' status as a matter of law)
- Bensadoun v. Jobe-Riat, 316 F.3d 171 (2d Cir. 2003) (arbitrability standards; doubts resolved in favor of arbitration)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1985) (arbitrability is a contract defense; court decides absent agreement to arbitrate)