Goldman, Sachs & Co. v. Golden Empire Sch. Fin. Auth.

• Decision Date: 21 August 2014
• Docket Number: Nos. 13–797–cv, 13–2247–cv.,s. 13–797–cv, 13–2247–cv.
• Citation: 764 F.3d 210
• Parties: GOLDMAN, SACHS & CO., Plaintiff–Appellee, v. GOLDEN EMPIRE SCHOOLS FINANCING AUTHORITY, Kern High School District, Defendants–Appellants. Citigroup Global Markets Inc., Plaintiff–Appellee, v. North Carolina Eastern Municipal Power Agency, Defendant–Appellant.
• Court: U.S. Court of Appeals — Second Circuit

764 F.3d 210

GOLDMAN, SACHS & CO., Plaintiff–Appellee,

v.GOLDEN EMPIRE SCHOOLS FINANCING AUTHORITY, Kern High School District, Defendants–Appellants.

Citigroup Global Markets Inc., Plaintiff–Appellee,

v.North Carolina Eastern Municipal Power Agency, Defendant–Appellant.

Nos. 13–797–cv, 13–2247–cv.

United States Court of Appeals,

Second Circuit.

Argued: April 4, 2014.

Decided: Aug. 21, 2014.

Matthew A. Schwartz (David H. Braff, Andrew H. Reynard, on the brief), Sullivan & Cromwell LLP, New York, N.Y., for Plaintiff–Appellee Goldman, Sachs & Co.

Audra J. Soloway (Brad S. Karp, Andrew J. Ehrlich, on the brief), Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, N.Y., for Plaintiff–Appellee Citigroup Global Markets Inc.

James R. Swanson (Alysson L. Mills, on the briefs), Fishman Haygood Phelps Walmsley Willis & Swanson, LLP, New Orleans, LA, for Defendants–Appellants Golden Empire Schools Financing Authority, Kern High School District, and North Carolina Eastern Municipal Power Agency.

Before: KATZMANN, Chief Judge, WALKER and DRONEY, Circuit Judges.

JOHN M. WALKER, JR., Circuit Judge:

Because these appeals raise the same legal issue, we dispose of them in a single opinion. In each case, the district court granted a financial services firm's motion to enjoin a Financial Industry Regulatory Authority (“FINRA”) arbitration brought against the firm by a public financing authority. Goldman, Sachs & Co. v. Golden Empire Sch. Fin. Auth., 922 F.Supp.2d 435 (S.D.N.Y.2013); Citigroup Global Mkts. Inc. v. N.C. E. Mun. Power Agency, No. 13 CV 1703 (S.D.N.Y. May 10, 2013), ECF No. 29. We agree that in each case, the FINRA arbitration rules have been superseded by forum selection clauses requiring “all actions and proceedings” related to the transactions between the parties to be brought in court. We thus AFFIRM in both appeals.

BACKGROUND

I. Goldman v. Golden Empire

Defendants-appellants Golden Empire Schools Financing Authority and Kern High School District (collectively, “Golden Empire”) issued approximately $125 million of auction rate securities (“ARS”) ¹ in 2004, 2006, and 2007, for which Golden Empire retained plaintiff-appellee Goldman, Sachs & Co. (“Goldman”) as an underwriter and broker-dealer. For each ARS issuance, the parties executed both an underwriter agreement, which was silent as to dispute resolution, and a broker-dealer agreement. The 2004 and 2006 broker-dealer agreements included the following forum selection clause:

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 in the County of New York and that, in connection with any such action or proceeding, submit to the jurisdiction of, and venue in, such court.

The forum selection clause in the 2007 agreement was the same in all material respects. Each broker-dealer agreement also contained a merger clause stating that it and any other agreements executed in connection with that ARS issuance “contain the entire agreement between the parties relating to the subject matter hereof.”

In February 2012, Golden Empire commenced a FINRA arbitration, alleging that Goldman fraudulently induced it to issue the ARS. In June 2012, Goldman brought this action, seeking declaratory and injunctive relief against arbitration. On February 8, 2013, after briefing and argument, the district court (Sullivan, J.) granted Goldman's motion for a preliminary injunction. Goldman v. Golden Empire, 922 F.Supp.2d at 445. The district court concluded that the forum selection clause in the broker-dealer agreements overrode the FINRA rule governing arbitration, and that Goldman was thus likely to succeed on the merits. Id. at 439–44. Golden Empire timely appealed from this interlocutory order.

II. Citigroup v. NCEMPA

The procedural history of the second appeal closely parallels the first. Defendant-appellantNorth Carolina Eastern Municipal Power Agency (“NCEMPA”) retained plaintiff-appellee Citigroup Global Markets Inc. (“Citigroup”) to underwrite approximately $223 million of ARS issued in 2004. The parties' broker-dealer agreement contained a forum selection clause and a merger clause identical to those in Goldman v. Golden Empire, and the parties' underwriting agreement was similarly silent on dispute resolution.

In December 2012, NCEMPA began a FINRA arbitration in North Carolina, asserting claims against Citigroup in connection with the ARS. In March 2013, Citigroup brought this action seeking declaratory relief and an injunction against arbitration. In May 2013, the district court (Furman, J.) granted Citigroup's motion for a preliminary injunction from the bench, noting that the issue was identical to the one raised in Goldman v. Golden Empire. Transcript of Oral Argument at 55–68, Citigroup v. NCEMPA, No. 13 CV 1703 24 (S.D.N.Y. May 3, 2013), ECF No. 30. With the parties' consent, the preliminary injunction was made permanent and final judgment was entered on May 10, 2013. Citigroup v. NCEMPA, No. 13 CV 1703 (S.D.N.Y. May 10, 2013), ECF No. 29. NCEMPA timely appealed, and we heard argument in both appeals on April 4, 2014.

DISCUSSION

I. Jurisdiction and Remedial Authority

In light of our “obligation to satisfy ourselves that we have jurisdiction,” Palmieri v. Allstate Ins. Co., 445 F.3d 179, 184 (2d Cir.2006), we first note that this case involves arbitrability under the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1–16, which requires an independent basis for subject-matter jurisdiction. See Vaden v. Discover Bank, 556 U.S. 49, 59, 129 S.Ct. 1262, 173 L.Ed.2d 206 (2009). In a suit to compel arbitration, we evaluate jurisdiction “by ‘looking through’ ... to the parties' underlying substantive controversy.” Id. at 62, 129 S.Ct. 1262. We discern no reason not to apply the logic of Vaden equally to actions to enjoin arbitration, so we conclude that subject-matter jurisdiction exists both under 28 U.S.C. § 1331, because the arbitrations involve claims under the Securities Exchange Act of 1934, and under 28 U.S.C. § 1332, because the parties in each case are diverse and over $75,000 is at issue in the underlying arbitrations. Cf. Webb v. Investacorp, Inc., 89 F.3d 252, 256 (5th Cir.1996) (same jurisdictional standards apply in suits to enjoin or compel arbitration); A.F.A. Tours, Inc. v. Whitchurch, 937 F.2d 82, 87 (2d Cir.1991) (value of claim for injunction is “impairment to be prevented”). We have appellate jurisdiction in Goldman v. Golden Empire under 9 U.S.C. § 16(a)(2) and 28 U.S.C. § 1292(a)(1), and in Citigroup v. NCEMPA under 9 U.S.C. § 16(a)(3) and 28 U.S.C. § 1291.

We also conclude that the District Court for the Southern District of New York had authority to enjoin arbitration in both appeals. Federal courts generally have remedial power to stay arbitration. See In re Am. Exp. Fin. Advisors Sec. Litig., 672 F.3d 113, 139–41 (2d Cir.2011). NCEMPA argues, however, that the district court below lacked authority to enjoin its arbitration in North Carolina because the FAA states that compelled arbitration “shall be within the district in which the petition for an order directing such arbitration is filed,” 9 U.S.C. § 4, which some district courts have construed to restrict their power to enjoin arbitrations outside that district, see, e.g., UAL Corp. v. Mesa Airlines, Inc., 88 F.Supp.2d 910, 912–14 (N.D.Ill.2000). However, the FAA does not restrict the venue for an action to enjoin arbitration, and it is well established that a “court of equity having personal jurisdiction over a party has power to enjoin him from committing acts elsewhere.” Bano v. Union Carbide Corp., 361 F.3d 696, 716 (2d Cir.2004) (quoting Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633, 647 (2d Cir.1956)). Moreover, we routinely enjoin out-of-state arbitrations. See, e.g., In re Am. Exp., 672 F.3d at 124 n. 10, 139–43 (expressly enjoining arbitration in Illinois); see also Wachovia Bank, N.A. v. VCG Special Opportunities Master Fund, Ltd., 661 F.3d 164, 174 (2d Cir.2011) (enjoining FINRA arbitration which was pending in Florida); Citigroup Global Mkts., Inc. v. VCG Special Opportunities Master Fund Ltd., 598 F.3d 30, 40 (2d Cir.2010) (same). Furthermore, the Ninth Circuit has expressly held that a district court may enjoin an arbitration pending outside its own district. See Textile Unlimited, Inc. v. A..BMH & Co., 240 F.3d 781, 784–86 (9th Cir.2001). We thus proceed to the merits.

II. Arbitrability

When reviewing an order granting either a preliminary or a permanent injunction, we review the district court's legal holdings de novo and its ultimate decision for abuse of discretion. See UBS Fin. Servs., Inc. v. W. Va. Univ. Hosps., Inc., 660 F.3d 643, 648 (2d Cir.2011); ACORN v. United States, 618 F.3d 125, 133 (2d Cir.2010). The issue on appeal is the arbitrability of these disputes under the FAA in light of the all-inclusive forum selection clause signed by the parties, which is a legal question reviewed de novo. See Gold v. Deutsche Aktiengesellschaft, 365 F.3d 144, 147 (2d Cir.2004).

Golden Empire and NCEMPA argue that their disputes are subject to mandatory arbitration before FINRA, a self-regulatory organization with authority to oversee securities firms. See UBS Fin. Servs., 660 F.3d at 648. As FINRA members, Goldman and Citigroup are bound by its rules. See id. at 649. FINRA Rule 12200 states that members “must arbitrate a dispute” if arbitration is “[r]equested by the customer” and “[t]he dispute arises in connection with the business activities of the member.” FINRA Rule 12200, available at http:// finra. complinet. com/ en/ display/ display_ main. html? rbid= 2403 & element_id=4106 (last visited Aug. 20, 2014).

Goldman and Citigroup do not dispute that FINRA Rule 12200 is a written agreement to arbitrate with customers such as Golden Empire and NCEMPA that is “enforceable, save upon such grounds as exist at law or in equity for the...