FINRA Rule 12200 Arbitration superseded by subsequent agreement

In two simultaneous appeals, the Second Circuit addressed whether a forum-selection clause supersedes mandatory FINRA arbitration under FINRA Rule 12200. In Goldman, Sachs & Co. v. Empire Schools Financing Authority (764 F.3d 210), the plaintiff commenced arbitration against underwriter Goldman for claims related to issued securities.  Around the same time, a nearly identical case was brought by North Carolina Eastern Municipal Power Agency against Citigroup Global Markets, Inc (2013 U.S. Dist. LEXIS 188771).  In both situations, the agreements contained both forum selection and merger clauses; the forum selection clauses mandated that “all actions and proceedings” shall be brought in U.S. District Court.  After the plaintiffs initiated arbitration, both Defendants moved to enjoin.  The courts enjoined arbitration, appeals followed, and both were addressed simultaneously by the Second Circuit.

FINRA Rule 12200 states that FINRA members, who the defendants were, must honor arbitration requests from their customers that arise in connection with the member’s business activities.  The defendants did not dispute this, but argued that the forum selection clause superseded the rule.

The Second Circuit held Applied Energetics, Inc. v. NewOak Capital Mkts., LLC (645 F.3d 522) controlling, delineating the differences of Bank Julius Baer & Co. v. Waxfield (424 F.3d 278).  In Applied Energetics, the arbitration agreement was superceded by an agreement stating “[a]ny dispute…” shall be adjudicated in New York courts, and included a merger clause.  Bank Julius, however, stated that “any Action may be heard” in the specific court, without any merger clause.  The Court held the clause at hand indistinguishable from Applied Energetics.  Plaintiff’s attempted to argue that “all actions and proceedings” did not encompass arbitration, citing UBS Fin. Servs., Inc. v. Carilion Clinic (706 F.3d 319).  The court rejected their argument, citing contrary decisions in the Second Circuit, and held the argument a mere linguistic trick.

The district courts' decisions enjoining arbitration were affirmed.