Court, Rather Than FINRA, Gets To Determine Arbitrability Of Dispute
Reno, Nevada, issued $211M in complex securities, known as auction rate securities (ARS). After the market for ARS collapsed in 2008, Reno sought FINRA arbitration with Goldman, Reno’s underwriter and broker-dealer. Reno’s theory was that if it had known that ARS were routinely propped up by companies such as Goldman, which withdrew market support during the 2008 financial market meltdown, it would never have made the investment in the first place.
In turn, Goldman sought a preliminary injunction in the federal district court to enjoin the FINRA arbitration. After the district court denied Goldman’s request for injunctive relief, Goldman appealed. Goldman, Sachs & Co. v. City of Reno, No. 13-15445 (9th Cir. March 31, 2014) (Bybee, Schroeder, Battaglia).
First, the Court of Appeals determined that the Court, rather than FINRA, had jurisdiction to determine arbitrability. “[W]hether the court or the arbitrator decides arbitrability is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise.” Oracle Am., Inc. v. Myriad Group A.G.,
724 F.3d 1069, 1072 (9th Cir. 2013).
Second, the Court easily concluded that Reno was a “customer” of Goldman, giving it a right to invoke FINRA arbitration – unless Reno and Goldman contracted around arbitration.
Third, the Court held that through the forum selection clauses, the parties had indeed agreed to litigate claims in the USDC for the District of Nevada, thus contracting around FINRA arbitration.
However, because a preliminary injunction is within the discretion of the trial judge, the matter was remanded for further determination by the district judge.
Dissenting, Judge Battaglia would have affirmed the district court’s denial of Goldman’s motion to preliminarily enjoin FINRA arbitration.
BLAWG BONUS: “I shot a man in Reno just to watch him die.”