Goldman, Sachs & Co. v. City of Reno, No. 13–15445.

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Writing for the CourtBYBEE
Citation747 F.3d 733
PartiesGOLDMAN, SACHS & CO., Plaintiff–Appellant, v. CITY OF RENO, Defendant–Appellee.
Docket NumberNo. 13–15445.
Decision Date31 March 2014

747 F.3d 733

GOLDMAN, SACHS & CO., Plaintiff–Appellant,
v.
CITY OF RENO, Defendant–Appellee.

No. 13–15445.

United States Court of Appeals,
Ninth Circuit.

Argued and Submitted Sept. 9, 2013.
Filed March 31, 2014.


[747 F.3d 735]


Matthew A. Schwartz (argued), David H. Braff, and Andrew H. Reynard, Sullivan & Cromwell LLP, New York, New York; Stanley W. Parry and Jon T. Pearson, Ballard Spahr LLP, Las Vegas, NV, for Plaintiff–Appellant.

James R. Swanson (argued) and Alysson L. Mills, Fishman Haygood Phelps Walmsley Willis & Swanson, LLP, New Orleans, LA; Robert A. Winner, Winner & Carson, PC, Las Vegas, NV, for Defendant–Appellee.


Appeal from the United States District Court for the District of Nevada, Robert Clive Jones, Chief District Judge, Presiding. D.C. No. 3:12–cv–00327–RCJ–WGC.
Before: MARY M. SCHROEDER and JAY S. BYBEE, Circuit Judges, and ANTHONY J. BATTAGLIA, District Judge.*

OPINION

BYBEE, Circuit Judge:

In 2005 and 2006, the City of Reno issued approximately $211 million in complex securities and employed Goldman, Sachs & Co. (“Goldman”) as its sole underwriter and broker-dealer. Years after Reno's financing collapsed, Reno initiated an arbitration before the Financial Industry Regulatory Authority (“FINRA”) to resolve its claims against Goldman arising out of their contractual relationship. Goldman then filed this action to enjoin the FINRA arbitration, arguing that (1) Reno was not a “customer” entitled to arbitrate under FINRA Rule 12200 and (2), at any rate, Reno had disclaimed any right to arbitrate by agreeing to forum selection clauses in the contracts between the parties. Reno responded that FINRA had the right in the first instance to determine

[747 F.3d 736]

arbitrability. The district court agreed with Reno and disagreed with Goldman. It therefore denied Goldman's motion for injunctive relief and entered final judgment in favor of Reno.

We have little difficulty determining that Reno was Goldman's “customer” under the FINRA Rules. However, the second question—whether the forum selection clauses superseded Goldman's obligation to arbitrate under FINRA Rule 12200—has been the subject of litigation in multiple circuits, with decidedly mixed results. The Fourth Circuit and the District of Minnesota have held that an identical forum selection clause does not supersede a FINRA member's obligation to arbitrate under the FINRA Rules, see UBS Fin. Servs., Inc. v. Carilion Clinic, 706 F.3d 319 (4th Cir.2013); UBS Sec. LLC v. Allina Health Sys., No. 12–2090, 2013 WL 500373 (D.Minn. Feb. 11, 2013), while two judges within the Southern District of New York have held that materially identical forum selection clauses trump FINRA Rule 12200 such that the customer must bring its claims in federal court, see Goldman, Sachs & Co v. N.C. Mun. Power Agency No. One, No. 13–CV–1319, 2013 WL 6409348, at *7 (S.D.N.Y. Dec. 9, 2013); Goldman, Sachs & Co. v. Golden Empire Schools Fin. Auth., 922 F.Supp.2d 435 (S.D.N.Y.2013). Because we find that the forum selection clauses in the parties' contracts superseded any right to FINRA arbitration, we reverse the district court's order and final judgment, and remand for further proceedings consistent with this opinion.

I. BACKGROUND

In 2005, Reno undertook a series of city projects. To finance these projects, Reno chose to issue municipal bonds. Reno approached Goldman to discuss financing options, and Goldman advised Reno to issue the debt in the form of auction rate securities (“ARS”).

ARS are long-term, variable-rate instruments with interest rates that reset at periodic auctions. At each auction, ARS investors submit a bid setting forth the number of ARS that they wish to purchase, hold, or sell, and the lowest interest rate that they will accept. The lowest interest rate at which the entire issue can be sold at par establishes the new interest rate to be paid until the next auction. This new interest rate is known as the “clearing rate.” If there are insufficient bids to cover the bonds available for sale at the auction, however, the auction “fails,” and the interest rate is set at a contractual “maximum rate” until the next auction.

With Goldman's assistance, Reno issued $73.45 million in ARS in October 2005 (the “2005 Bonds”). At that time, Reno and Goldman entered into two written agreements that governed their relationship: (1) an underwriter agreement that outlined Goldman's duty to purchase and offer the 2005 Bonds (the “2005 Underwriter Agreement”) and (2) a separate, but contemporaneously executed, broker-dealer agreement that outlined Goldman's duty to manage the auctions for the 2005 Bonds (the “2005 Broker–Dealer Agreement”). The contracts were entered into after arm's-length negotiations in which both parties were represented by counsel.

For purposes of our analysis, the 2005 Broker–Dealer Agreement contains two significant clauses. First, it contains a forum selection clause providing that:

The parties agree that all actions and proceedings arising out of this Broker–Dealer Agreement or any of the transactions contemplated hereby shall be brought in the United States District Court for the District of Nevada and that, in connection with any such action or proceeding, the parties shall submit

[747 F.3d 737]

to the jurisdiction of, and venue in, such court.

Second, the 2005 Broker–Dealer Agreement contains a merger clause providing that:


This Broker–Dealer Agreement, and the other agreements and instruments executed and delivered in connection with the issuance of the ARS, contain the entire agreement between the parties relating to the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or inferred, between the parties relating to the subject matter hereof.

Reno and Goldman entered into substantially identical contracts in 2006 (the “2006 Underwriter Agreement” and the “2006 Broker–Dealer Agreement”) when Reno financed a new city project by issuing $137.43 million in ARS (the “2006 Bonds”).


Reno compensated Goldman for its services under each of these four agreements. Pursuant to the 2005 and 2006 Underwriter Agreements, Goldman received an underwriter's discount by purchasing the 2005 and 2006 Bonds for less than their face value. In addition, pursuant to the 2005 and 2006 Broker–Dealer Agreements, Goldman received annual broker-dealer fees in exchange for its management of the ARS auctions.

In 2008, the ARS market collapsed, and Reno's ARS auctions began to fail. As a result, Reno was forced to refinance the 2005 and 2006 Bonds at considerable cost. According to Reno, these costs should be attributed to Goldman's conduct. Specifically, Reno alleges that, where Goldman served as underwriter, it had a general practice of placing support bids in ARS auctions to ensure that these auctions did not fail; that Goldman did not disclose this general practice to Reno before Reno issued the 2005 and 2006 Bonds; that, consistent with Goldman's general practice, it placed support bids in Reno's ARS auctions until 2008; that Goldman's decision to stop placing support bids in 2008 caused Reno's ARS auctions to fail; and that, if Goldman had told Reno about this general practice, Reno would not have issued ARS to finance its city projects. Based on these allegations, Reno claims that Goldman's conduct breached its fiduciary duty, amounted to fraud and negligent misrepresentation, violated the Securities Exchange Act of 1934, violated the Nevada Securities Act, and violated Municipal Securities Rulemaking Board and FINRA Rules.

In order to resolve these claims through arbitration, Reno filed a Statement of Claim against Goldman before FINRA on February 10, 2012. FINRA is a self-regulatory organization that has “the authority to exercise comprehensive oversight over ‘all securities firms that do business with the public.’ ” UBS Fin. Servs., Inc. v. W. Va. Univ. Hosps., Inc., 660 F.3d 643, 648 (2d Cir.2011) (quoting 72 Fed.Reg. 42169, 42170 (Aug. 1, 2007)). To exercise this oversight, FINRA has instituted rules with which its members, including Goldman, agree to comply. See FINRA Bylaws, art. IV, § 1(a). And one of these rules provides that FINRA members and their customers “must arbitrate a dispute ... [i]f [a]rbitration ... [is] [r]equested by the customer; [t]he dispute is between a customer and a member ...; and [t]he dispute arises in connection with the business activities of the member....” FINRA Rule 12200.

In response to Reno's Statement of Claim, Goldman filed this action in the United States District Court for the District of Nevada, seeking a declaratory judgment that FINRA lacks jurisdiction over the dispute and an injunction against the arbitration proceedings. In Goldman's motion for preliminary injunction, filed

[747 F.3d 738]

shortly after its complaint, Goldman argued that Reno was not a “customer” entitled to arbitrate under FINRA Rule 12200 and that, at any rate, Reno had disclaimed any right to arbitrate by agreeing to the forum selection clauses in the 2005 and 2006 Broker–Dealer Agreements.

The district court denied Goldman's motion for preliminary injunction. Goldman, Sachs & Co. v. City of Reno, No. 3:12–CV–00327, 2012 WL 5944966 (D.Nev. Nov. 26, 2012). In so doing, the district court reached three legal conclusions that are at issue on appeal. First, the district court found that FINRA had jurisdiction to decide the arbitrability of Reno's claims. Second, the district court determined that Reno was a “customer” under FINRA Rule 12200. And third, the district court found that the forum selection clauses in the 2005 and 2006 Broker–Dealer Agreements did not supersede Reno's right to FINRA arbitration. Accordingly, the district court ruled that Goldman was not likely to succeed on the merits.

Following the district court's ruling, the parties agreed that there was nothing further to litigate, and the district court entered final judgment in favor of Reno. Goldman then filed...

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123 practice notes
  • Morgan Stanley & Co. v. Couch, No. 1:15–cv–1291–LJO–JLT.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
    • 24 Septiembre 2015
    ...party moves in federal court to compel the opposing party's participation in the arbitration.In Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 735 (9th Cir.2014), the City of Reno initiated FINRA arbitration "to resolve its claims against Goldman arising out of their contractual relati......
  • Presbyterian Healthcare Servs. v. Goldman, Sachs & Co., No. CIV 14–0181 JB/SCY.
    • United States
    • United States District Courts. 10th Circuit. District of New Mexico
    • 14 Agosto 2015
    ...auction "fails," and the interest rate is set at a contractual "maximum rate" until the next auction.Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 736 (9th Cir.2014). Ideally, ARS bonds allow the issuer to offer long-term debt while paying interest rates comparable to short-term debt.......
  • Houston Ref., L.P. v. United Steel, No. 13–20384.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • 25 Agosto 2014
    ...approaches, we are in the good company of the First, Second, Fourth, Seventh, and Ninth Circuits. Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 742 (9th Cir.2014) (undertaking independent review only after determining that parties did not clearly and mistakably agree to arbitrate arbi......
  • Intl Fcstone Fin. Inc. v. Jacobson, Nos. 19-2111
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • 24 Febrero 2020
    ...clause—and whether it operated to waive a customer's right to arbitrate under FINRA Rule 12200); Goldman, Sachs & Co. v. City of Reno , 747 F.3d 733, 741 (9th Cir. 2014) ("As a threshold matter, ... a contract between the parties can supersede the default obligation to arbitrate under the F......
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130 cases
  • Intl Fcstone Fin. Inc. v. Jacobson, Nos. 19-2111
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • 24 Febrero 2020
    ...clause—and whether it operated to waive a customer's right to arbitrate under FINRA Rule 12200); Goldman, Sachs & Co. v. City of Reno , 747 F.3d 733, 741 (9th Cir. 2014) ("As a threshold matter, ... a contract between the parties can supersede the default obligation to arbitrate under the F......
  • Jones v. Bonta, 20-56174
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • 11 Mayo 2022
    ...the district court to consider the remaining [three] Winter factors consistent with this opinion." Goldman, Sachs & Co. v. City of Reno , 747 F.3d 733, 747 (9th Cir. 2014) (citing Evans v. Shoshone-Bannock Land Use Pol'y Comm'n , 736 F.3d 1298, 1307 (9th Cir. 2013) ).We note for the distric......
  • Morgan Stanley & Co. v. Couch, 1:15–cv–1291–LJO–JLT.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
    • 24 Septiembre 2015
    ...party moves in federal court to compel the opposing party's participation in the arbitration.In Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 735 (9th Cir.2014), the City of Reno initiated FINRA arbitration "to resolve its claims against Goldman arising out of their contractual relati......
  • Houston Ref., L.P. v. United Steel, 13–20384.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • 25 Agosto 2014
    ...approaches, we are in the good company of the First, Second, Fourth, Seventh, and Ninth Circuits. Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 742 (9th Cir.2014) (undertaking independent review only after determining that parties did not clearly and mistakably agree to arbitrate arbi......
  • Request a trial to view additional results
1 books & journal articles
  • ARBITRATION AND RULE PRODUCTION.
    • United States
    • Case Western Reserve Law Review Vol. 72 Nbr. 1, September 2021
    • 22 Septiembre 2021
    ...of an arbitration clause, the general presumption in favor of arbitration does not apply."); Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 743 (9th Cir.), cert, denied, 574 U.S. 991 (2014) ("Goldman thus contests the existence, rather than the scope, of an arbitration agreement, a......

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