Berthel Fisher & Company Financial Services Incorporated v. Frandino

Filing 34

ORDER granting Plaintiff's 6 Motion for Preliminary Injunction. Defendant Frandino and those in active concert or participation with him, including his attorneys, are preliminarily enjoined from proceeding against Berthel Fisher & Company Fi nancial Services, Inc. in the arbitration filed by Defendant before FINRA as Frandino v. Kardaras, et al., Case No. 12-01084. ORDERED that this preliminary injunction will become effective upon the posting of a bond in the amount of $1,000 by Plaintiff pursuant to Federal Rule of Civil Procedure 65(c). Signed by Judge Neil V Wake on 5/14/2013.(LFIG)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Berthel Fisher & Company Financial
Services, Inc.,

No. CV-12-02165-PHX-NVW
ORDER

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Plaintiff,

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v.
Gary S. Frandino,
Defendant.

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Before the Court are Plaintiff’s Motion for Preliminary Injunction (Doc. 6), the

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Response, and the Reply. Plaintiff’s Motion will be granted.
I.

FACTUAL BACKGROUND

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The relevant alleged facts of this action are straightforward and generally

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undisputed. Defendant Gary Frandino (“Defendant”) had been investing in blue chip

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stocks for decades when he moved to Arizona and decided to move funds away from his

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prior investment firm. In late 2007, he met George Kardaras; Kardaras was a registered

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representative of independent broker-dealer J.P. Turner & Company. (Doc. 20 at 2.)

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Starting in February 2008, Defendant acted on Kardaras’ investment advice and began

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investing in Echo Canyon, LLC (“Echo Canyon”), a company purportedly involved in

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wholesale vehicle exporting and resale. The sole member of Echo Canyon was Mr. Brian

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Borakowski (“Borakowski”), who had been Kardaras’ colleague from April 2003 through

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June 2006. By the time Defendant began investing with Borakowski, Borakowski had

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become a registered representative of American Capital Partners, LLC.

Defendant’s investment in Echo Canyon involved the loan of money by Defendant

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in exchange for promissory notes from Echo Canyon.

(Doc. 9-1 at 36-37.)

The

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promissory notes committed Echo Canyon to providing Defendant with interest payments

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and to repaying the principal of the loan at the close of the note term. (Id.) The

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promissory notes bore Defendant’s signature, as well as that of Borakowski acting for

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Echo Canyon. Further, communications between Defendant and Borakowski were sent

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to or from Borakowski’s personal email address, not one associated with any broker-

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dealer. (Doc. 9-1 at 39-40.) Defendant does not mention any communication with

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Borakowski before the promissory notes were signed.

Defendant asserts that, by

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November 2009, he had invested approximately $211,500 in Echo Canyon. (Doc. 20 at

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3.)

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On March 28, 2012, Defendant commenced an arbitration action with the

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Financial Industry Regulatory Authority (“FINRA”), an independent regulator for

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securities firms conducting business in the United States, against Kardaras, Borakowski,

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J.P. Turner & Company, and others. (See Doc. 9-1 at 2-34.) He sought to recover for

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losses allegedly exceeding $525,000 associated with investments made pursuant to

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Kardaras’ advice (id. at 32), as Defendant claimed Kardaras had recommended or placed

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money in “numerous unsuitable, illiquid and risky investments.” (Id. at 7.) Defendant

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alleged in particular that Echo Canyon “may [have been] an entirely fraudulent

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investment” (id.), and that his investment in Echo Canyon, made “again on the advice of

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Respondent George Kardaras, as a registered representative of Respondent J. P. Turner”

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was “at the very least highly unsuitable . . . as it came with a high level of risk . . . .” (Id.

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at 10.) Defendant’s claims in the Statement of Claim range from negligence and breach

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of fiduciary duty to violations of state and federal securities law. (Id. at 14-30.)

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Among the parties from which Defendant sought relief through arbitration is

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Plaintiff Berthel Fisher & Company Financial Services, Inc. (“Plaintiff” or “Berthel

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Fisher”). Plaintiff is an independent broker-dealer incorporated in Iowa and is a licensed

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member of FINRA. (Doc. 7 at 2.) As a member of FINRA, Plaintiff is required to

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arbitrate disputes that fall within the guidelines provided by FINRA’s Code of Arbitration

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Procedure governing arbitrations between investors and brokers and/or brokerage firms.

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Borakowski became a registered representative of Plaintiff starting in August 2009 (see

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Doc. 20-1 at 7), after Defendant had begun investing in Echo Canyon. As Defendant

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continued to invest money with Borakowski for Echo Canyon after Borakowski became

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associated with Plaintiff, Defendant sought to make Plaintiff subject to arbitration. (Doc.

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20 at 3-4.) Plaintiff, however, never approved, recommended, or sold investments in or

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loans to Echo Canyon, and Defendant never had an account with, made an investment

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through, or sought investment advice from Plaintiff. (Doc. 7 at 3-4.) Further, Defendant

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does not allege and offers no evidence that he was aware of or relied on any perceived

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affiliation between Borakowski and Plaintiff. (Cf. Doc. 10-1 at 10.) Plaintiff seeks a

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preliminary injunction against arbitration on the grounds that Defendant does not have a

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relationship with Plaintiff or any person associated with Plaintiff that would require

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Plaintiff to participate in the arbitration of Defendant’s claims. (See Doc. 7 at 1.)1
II.

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LEGAL STANDARD AND ANALYSIS

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A.

Preliminary Injunction

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In order to obtain a preliminary injunction, a plaintiff must show: (1) a likelihood

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of success on the merits; (2) likely irreparable harm in the absence of the preliminary

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injunction; (3) that the injunction serves the public interest; and (4) that the balance of

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equities favors the plaintiff. Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20

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(2008).

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established when the plaintiff demonstrates that “serious questions going to the merits” of

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the dispute exist. Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131-32 (9th

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Cir. 2011).

The first prong of the test—the likelihood of success on the merits—is

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B.

Arbitrability

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Arbitrability is the “question [of] whether the parties have submitted a particular

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Plaintiff filed a Motion to Dismiss before a FINRA arbitration panel on the same
grounds on which it seeks a preliminary injunction. The arbitration panel denied that
motion without explanation. (See Doc. 32-1).
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dispute to arbitration,” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002),

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and the issue of arbitrability is for the court to decide unless the parties “clearly and

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unmistakably provide otherwise.”

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Workers, 475 U.S. 643, 649 (1986)); see also John Hancock Life Ins. Co. v. Wilson, 254

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F.3d 48, 57 (2d Cir. 2001) (holding one party’s membership in a regulatory exchange

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insufficient to establish parties’ clear and unmistakable intent to have arbitrator decide

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issue of arbitrability). The basic principle at play in the determination of arbitrability is

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that an arbitrator has authority because the parties agreed in advance to resolve such

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disputes through arbitration. AT & T, 475 U.S. at 648-49. “[A] party cannot be required

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to submit to arbitration any dispute which he has not agreed so to submit.” Id. at 648

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(internal quotation marks and citations omitted).

Id. (quoting AT & T Techs., Inc. v. Commc’ns

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When determining whether to compel arbitration, the first inquiry is whether the

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parties have agreed to arbitrate the underlying dispute. Mitsubishi Motors Corp. v. Soler

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Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985). A written arbitration agreement

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between the parties is generally valid and enforceable. See Volt Info. Sciences, Inc. v. Bd.

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of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 474 (1989) (discussing Federal

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Arbitration Act, 9 U.S.C. § 2). Absent a written agreement, the dispute between Plaintiff

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and Defendant is still arbitrable if as a member of FINRA, Plaintiff is obligated by the

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FINRA Code of Arbitration Procedure for Customer Disputes (“FINRA Customer Code”

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or “Code”) to arbitrate its dispute with Defendant. See Herbert J. Sims & Co., Inc. v.

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Roven, 548 F. Supp. 2d 759, 763 (N.D. Cal. 2008) (noting that under the Code,

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“customers can compel registered members of FINRA to arbitrate certain disputes even

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when no written arbitration agreement exists”).2 Rule 12200 of the FINRA Customer

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Code provides as follows:

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Parties must arbitrate a dispute under the Code if:
 Arbitration under the Code is either:
(1) Required by a written agreement, or

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2

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Herbert J. Sims & Company, Inc. v. Roven, 548 F. Supp. 2d 759 (N.D. Cal. 2008),
discusses the arbitration code under the National Association of Securities Dealers
(“NASD”), the predecessor to FINRA’s arbitration code.
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(2) Requested by the customer;
 The dispute is between a customer and a member or associated
person of a member; and
 The dispute arises in connection with the business activities of
the member or the associated person, except disputes involving
the insurance business activities of a member that is also an
insurance company.

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Rule 12200 - Arbitration Under an Arbitration Agreement or the Rules of FINRA, Code

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of Arbitration Procedure for Customer Disputes.3 Rule 12100 in turn defines “customer”

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by clarifying that “[a] customer shall not include a broker or dealer,” and an “associated

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person” as “a natural person engaged in the investment banking or securities business

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who is directly or indirectly controlling or controlled by a member . . . .” Rule 12100 -

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Definitions, Code of Arbitration Procedure for Customer Disputes.

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between Plaintiff and Defendant falls within the purview of the FINRA Customer Code

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Rule 12200, then it is subject to arbitration. “[A]ny doubts concerning the scope of

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arbitrable issues should be resolved in favor of arbitration.” John Hancock, 254 F.3d at

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58 (internal quotation marks and citations omitted).

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III.

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ANALYSIS
A.

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If the dispute

Likelihood of Success on the Merits
1.

Legal question

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The parties have not clearly and unmistakably committed to having the issue of

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arbitrability decided by an arbitrator, and therefore it is an issue for the court to decide.

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At least for the purposes of the pending motion, the parties do not dispute that:

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(1) Plaintiff Berthel Fisher is a member of FINRA; (2) no written arbitration agreement

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(apart from the FINRA Customer Code at issue) exists between Plaintiff and Defendant;

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(3) Brian Borakowski became a registered representative of Plaintiff and thus an

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associated person of Plaintiff; (4) some transaction involving the exchange of funds for

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promissory notes happened between Echo Canyon and Defendant; (5) Defendant has

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The FINRA Code of Arbitration Procedure for Customer Disputes is available at
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=4096.
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requested an arbitration under the FINRA Customer Code; and (6) Plaintiff has not

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previously agreed to and presently objects to any arbitration. It is further undisputed that

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Defendant never sought investment advice from Plaintiff, never opened an account with

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Plaintiff, and never received investment or brokerage services from Plaintiff. (See Doc. 7

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at 3-4.) Accordingly, Plaintiff asserts that there is no “direct customer” relationship—a

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customer relationship that does not involve an associated person—between it and

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Defendant, and Defendant does not argue otherwise. (See Doc. 20 at 5-10.)

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As Defendant is not a “direct customer” of Plaintiff, the parties agree that the only

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remaining question is whether Defendant qualifies as a customer of Brian Borakowski,

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Plaintiff’s associated member, and therefore as a customer of Plaintiff.

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contends that it is such a customer under the Code; Plaintiff disagrees. If Defendant is a

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customer of Borakowski and thereby of Plaintiff under the FINRA Customer Code, then

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Plaintiff cannot establish serious questions as to the issue of arbitrability.

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2.

Defendant

Customers of associated persons

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Case law as to the definition of “customer” for FINRA purposes is unsettled;

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courts have embraced a range of approaches to clarifying the meaning of the term, and

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consequently a variety of definitions.

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ambiguity inherent in the FINRA Customer Code. In its section on definitions, the

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FINRA Customer Code’s says only that a “customer” is not a broker or a dealer. Rule

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12100 - Definitions, Code of Arbitration Procedure for Customer Disputes. The Ninth

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Circuit has not spoken on the matter, but other courts have consistently recognized that

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“customer” cannot embrace the universe of non-brokers and non-dealers and have

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therefore rejected the expansive contention that anyone who is not a broker or dealer

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qualifies as a FINRA customer. See, e.g., Fleet Boston Robertson Stephens, Inc. v.

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Innovex, Inc., 264 F.3d 770, 772 (8th Cir. 2001); Morgan Keegan & Co., Inc. v. Jindra,

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No. C11-5704BHS, 2011 WL 5869586, at *3 (W.D. Wash. Nov. 22, 2011) (“In the past,

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courts generally have construed the term ‘customer’ broadly, but not so broadly as to

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include everyone who is not considered a broker or a dealer.”). Instead, in keeping with

The lack of clarity stems in part from the

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the sense that “customer” has a broad but not unconstrained sweep, it is frequently

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defined in a manner that does not upset the reasonable expectations of FINRA members.

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See, e.g., Wheat, First Sec., Inc. v. Green, 993 F.2d 814, 820 (11th Cir. 1993) (rejecting

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rule regarding customer status that “would do significant injustice to the reasonable

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expectations” of FINRA members).

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Also contributing to the uncertainty in the definition of “customer” is the conflict

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between principles underpinning investment activity in the world of FINRA. On the one

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hand is FINRA’s stated mission: “to protect investors by maintaining the fairness of the

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U.S. capital markets.” FINRA, http://www.finra.org (last visited May 1, 2013). Coupled

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with this is investors’ broad sense that they have access to FINRA arbitration should

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investment-related disputes arise. On the other hand is the common-sense principle that

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there must be some limits to FINRA’s reach: broker-dealers have agreed to certain

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conditions, including arbitration in particular circumstances, in exchange for FINRA

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membership, but they cannot be compelled to do more than they agreed to do. Further,

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an overly-expansive approach to FINRA arbitration would extend to every business deal

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or transaction entered into by the members’ associated persons. Such a system would not

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reconcile with the “reasonable expectations” of FINRA members. Accordingly, the state

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of case law on the meaning of “customer” reflects the tug-of-war between competing

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understandings of how broad-reaching FINRA’s authority is.

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That said, some things are clear.

First, even without a direct connection to

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Plaintiff, Defendant may still be Plaintiff’s customer. A customer of an associated person

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of the member is a customer of the member. See, e.g., MONY Sec. Corp. v. Bornstein,

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390 F.3d 1340, 1344 (11th Cir. 2004); John Hancock Life Ins. Co. v. Wilson, 254 F.3d

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48, 59 (2d Cir. 2001); Waveland Capital Partners, LLC v. Tommerup, 840 F. Supp. 2d

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1243, 1250 (D. Mont. 2012) (noting that the addition of words “of a member” after

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“customer” was explicitly rejected because it would “narrow the scope of claims that are

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required to be arbitrated under the Customer Code”) (quoting Order Approving Proposed

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Rule Change to Amend NASD Arbitration Rules for Customer Disputes, 72 Fed. Reg.

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4574, 4579 (2007)). Plaintiff does not dispute the allegation that Brian Borakowski was

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its registered representative and therefore a person associated with Plaintiff.

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Accordingly, if Defendant was a customer of Borakowski, then Defendant was a

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customer of Plaintiff.

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In addition, although assessing customer status is a fact-specific inquiry, two

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considerations are fairly consistently relevant. The first is the nature of the dealings or

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services between the associated person and the investor. The second consideration, again

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relevant though not necessarily dispositive, is whether the associated person represented

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that he was acting on behalf of a FINRA member, or the investor perceived as much. An

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investor is most likely a customer of the associated person if the latter acts as a broker,

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providing advice regarding investments and facilitating the sale of securities to the

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investor, and if the associated person acted as a representative of the FINRA member.

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3.

Defendant does not qualify as Borakowski’s customer
a.

Nature of dealings

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In assessing the nature of the dealings between the parties, the Eighth Circuit has

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concluded that the definition of customer “does not include an entity . . . [that] only

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received financial advice, without receiving investment or brokerage related

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services . . . .” Fleet Boston, 264 F.3d at 773. If an associated person of a FINRA

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member “induces, or shepherds, the investment, then the investor is . . . likely a customer

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of that firm.” Herbert J. Sims & Co., Inc. v. Roven, 548 F. Supp. 2d 759, 764 (N. D. Cal.

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2008) (citing Oppenheimer & Company, Inc. v. Neidhardt, 56 F.3d 352, 357 (2d Cir.

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1995)). Investors are not customers when they “[can]not show that the FINRA member

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[or associated person] provided any financial services related to the buying or selling of

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securities directly to those investors.” Ross Sinclaire & Assocs. v. Premier Sr. Living,

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LLC, No. 11-CV-5104 YGR, 2012 WL 2501115, at *7 (N.D. Cal. June 27, 2012); cf.

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Citigroup Global Mkts. v. Abbar, No. 11 Civ 6993(LLS), 2013 WL 1855733, at *4

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(noting that it is “increasingly adopted by the courts and by FINRA” that “the investor is

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the customer of the party with which he has the account and consummates the

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transaction”).

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That the associated person acts as a broker—provides investment or brokerage

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services—for the investor means that the investor is a customer. In Oppenheimer, the

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Vice President of broker-dealer Oppenheimer & Co., Inc. (“Oppenheimer”) solicited

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investments through Oppenheimer; in response an investor and his trustee arranged for

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the Vice President to place over $3 million with Oppenheimer for investment. 56 F.3d at

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354. When the Vice President lost or stole the invested funds, the investor and the trustee

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sought to arbitrate their claim with Oppenheimer. The Second Circuit affirmed the

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holding that the investor and trustee were customers because: (1) the Vice President had

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solicited investments and acted as a broker on Oppenheimer’s behalf; and (2) the investor

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had given funds to the Vice President, a representative of Oppenheimer, with the

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intention of establishing an account with Oppenheimer.

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Waveland Capital Partners, LLC v. Tommerup, the investors relied on the advice and

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recommendations of Waveland Capital Partners’ registered agent when making their

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investment decisions, making the investors customers of the registered agent and thereby

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of Waveland Capital Partners. 840 F. Supp. 2d 1243, 1250 (D. Mont. 2012). See also,

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e.g., O.N. Equity Sales Co. v. Stephens, No. 4:07cv269-RH/WCS, 2008 WL 835808, at

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*1, *5 (N.D. Fla. Mar. 28, 2008) (investor was customer of registered representative

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because representative participated in sale of shares of third-party business trust to the

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investor and helped her execute new documents confirming her subscription

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participation).

Id. at 357.

Similarly, in

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The common thread in these cases and others is that the associated person of the

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FINRA member served as a broker or investment advisor for the investor. While even

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informal business relationships between investors and registered representatives of

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FINRA members can give rise to customer status, the registered representatives in those

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cases still functioned as brokers in advisory roles. See Vestax Sec. Corp. v. McWood, 116

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F. Supp. 2d 865, 866 (E.D. Mich. 2000); WMA Sec., Inc. v. Ruppert, 80 F. Supp. 2d 786,

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788-89 (S.D. Ohio 1999). Further, evidence that the investor purchased a good or service

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from the associated person can be dispositive of customer status. See Citigroup, 2013

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WL 1855733, at *5 (finding that “courts have taken a purchase transaction as the defining

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proof” of customer status); see also, e.g., UBS Fin. Servs., Inc. v. W. Va. Univ. Hosps.,

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Inc., 660 F.3d 643, 650 (2d Cir. 2011) (holding that “‘customer’ includes at least a non-

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broker or non-dealer who purchases, or undertakes to purchase, a good or service from a

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FINRA member”).

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When the associated person does not act as a broker, it is less likely that an

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investor is a customer. In Herbert J. Sims, investors who had accounts with brokerage

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Muriel Seibert & Co., Inc. communicated with investment advisor James Darden III

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(“Darden”).

548 F. Supp. 2d at 760.

Darden conferred with broker Scott Drayer

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(“Drayer”), a registered representative of broker-dealer and FINRA member Herbert J.

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Sims & Co, Inc. as to the broker-dealer’s bond offerings. Id. at 761. Darden’s investors

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participated in approximately forty bond offerings by Herbert J. Sims & Co., Inc. over the

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years, including—based on Drayer’s representations—one offering that was allegedly an

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unsuitable investment for the investors. Id. The relevant facts included that: (1) the

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investors did not invest directly through Herbert J. Sims & Co., Inc. or through a

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representative thereof; (2) the investors had accounts with Muriel Seibert & Co., Inc. and

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were clients of Darden; (3) Darden was not an agent or representative of Herbert J. Sims

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& Co., Inc.; and (4) no evidence existed of communications between the investors and

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Drayer or Herbert J. Sims & Co., Inc. Id. at 764-65. The court then concluded that the

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relationship between the investors and Herbert J. Sims & Co., Inc. was likely too tenuous

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to qualify as a customer relationship that could be the basis of compelled arbitration, id.

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at 766, as the investors were not customers of Drayer.

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Here, as in Herbert J. Sims, the investor (Defendant) did not invest directly

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through Plaintiff or Borakowski (as distinguished from investing in Borakowski’s LLC).

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Defendant’s interactions with Borakowski amounted to investing in Echo Canyon, LLC,

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of which Borakowski was the sole member.

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Plaintiff, advised Defendant to invest his money in—meaning lend his money to—the

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Kardaras, a broker unaffiliated with

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LLC, which was to repay the loan with interest. Kardaras, not Borakowski, provided

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Defendant with the investment and brokerage services that led to the transaction in

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question; as Defendant notes, he was Kardaras’ customer (Doc. 10 ¶ 2). Borakowski’s

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LLC was a third-party beneficiary of Defendant’s customer relationship with Kardaras,

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and Borakowski simply received the funds on behalf of Echo Canyon. Receiving funds

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invested in an LLC does not constitute the type of “investment or brokerage services”

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contemplated by FINRA, Borakowski did not act as a broker for Defendant, and

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Defendant purchased neither any good nor any service from Borakowski. Thus, the first

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consideration suggests that Defendant is not Borakowski’s customer.

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b.

Representation of FINRA member

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The second important consideration in assessing the presence of a customer

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relationship is whether the associated person held himself out as a representative of the

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FINRA member or the investor relied upon his understanding that such an affiliation

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existed. Cases often emphasize or at least note that the associated person held himself

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out as representing a FINRA member or that the investor believed that the associated

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person was acting in his representative capacity when deeming the investor a customer.

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See, e.g., Cal. Fina Grp., Inc. v. Herrin, 379 F.3d 311, 313, 318 (5th Cir. 2004) (noting

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that investors knew the broker was a registered representative of the broker-dealer and

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that “they made their investments based on his representations that he worked for his

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firm” before holding that investors were “customers” of broker-dealer); Vestax, 116 F.

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Supp. 2d at 868, 871; WMA Sec., 80 F. Supp. 2d at 789. In Herbert J. Sims, the court in

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finding no customer relationship noted in particular that, “[w]hile the record shows that

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[the associated person] was employed by Plaintiff, the record does not even establish that

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[he] was acting in his capacity as an employee of [Plaintiff] when he solicited” funds

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through the investment advisor. 548 F. Supp. 2d at 766. But see John Hancock, 254 F.3d

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at 51 (investors were “customer” of investment broker affiliated with broker-dealer, even

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though they had no knowledge of association between broker and broker-dealer).

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In this action, the associated person did not hold himself out as a representative of

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the FINRA member, and there is no evidence that Defendant believed there to be any

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affiliation between the associated person and the FINRA member.

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communicated with Defendant using a personal email address, and he signed the

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promissory notes in his capacity as the sole member of Echo Canyon, LLC. At the time

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of the investment, Defendant had no information except that he “believed [Borakowski]

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to be professionally related to [] George Kardaras” and Kardaras’ LLC. (Doc. 10-1 at

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10.) There is no evidence that Defendant knew of any relationship between Borakowski

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and Plaintiff until after the alleged wrongdoing occurred. There is not even evidence that

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Defendant knew while funding Echo Canyon that Borakowski was a broker or that he

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was associated with any FINRA member. Moreover, Borakowski was not associated

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with Plaintiff when Defendant’s involvement with Echo Canyon began; it was only later

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that he became a registered representative of the broker-dealer. That Borakowski was not

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acting in a representative capacity, and that Defendant did not believe otherwise, suggests

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that Defendant was not Borakowski’s—or Plaintiff’s—customer.

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c.

Borakowski

Absence of a customer relationship with Borakowski

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Here, Defendant became a creditor of a sole member of an LLC and broker who

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then became associated with a member of FINRA. Plaintiff’s success on the merits

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ultimately hinges on whether, if an individual invests in an LLC owned by an associated

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person, the individual is that associated person’s customer under FINRA rules.

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Borakowski did not provide investment or brokerage services to Defendant; Defendant

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purchased neither any good nor any service from Borakowski. Borakowski further did

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not represent that he was acting on behalf of Plaintiff or any other FINRA member, and

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there is no evidence that Defendant believed otherwise.

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“customer” is broad, it is not broad enough to encompass Defendant in his relationship

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with Borakowski. To find otherwise would unreasonably make Plaintiff Berthel Fisher

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and other FINRA members the guarantors of all of their registered representatives’

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business dealings, however unrelated to investment or brokerage services such dealings

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may be. Accordingly, Plaintiff has shown it likely that it will succeed on its claim against

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While the definition of

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arbitrability under FINRA rules and has satisfied the first requirement for a preliminary

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injunction.

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B.

Likelihood of Irreparable Harm

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Plaintiff asserts that it faces irreparable harm if forced to arbitrate a dispute that it

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did not agree to arbitrate. (Doc. 7 at 12-13.) Defendant does not argue that Plaintiff will

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not suffer irreparable harm if Plaintiff is likely to succeed on the merits of its case. (See

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Doc. 20 at 11.)

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recovered, see Maryland Cas. Co. v. Realty Advisory Bd. on Labor Rels., 107 F.3d 979,

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(2d Cir. 1997), and “[m]any courts have held that forcing a party to arbitrate a dispute

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that it did not agree to arbitrate constitutes per se irreparable harm.” Morgan Keegan &

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Co., Inc. v. Drzayick, No. 1:11-CV-00126-EJL, 2011 WL 5403031, at *4 (D. Idaho Nov.

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8, 2011) (quoting Chicago Sch. Reform Bd. of Trs. v. Diversified Pharm. Servs., Inc., 40

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F. Supp. 2d 987, 996 (N.D. Ill. 1999)); see also Morgan Keegan & Co., Inc. v. Jindra,

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No. C11-5704BHS, 2011 WL 5869586, at *4 (W.D. Wash Nov. 22, 2011) (citing Merrill

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Lynch Inv. Managers v. Optibase, Ltd., 337 F.3d 125, 129 (2d Cir. 2003)). Similarly,

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“forcing a party to arbitrate a matter that the party never agreed to arbitrate[] unalterably

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deprives the party of its right to select the forum in which it wishes to resolve disputes.”

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Drzayick, 2011 WL 5403031, at *4 (citing Sokol Holdings, Inc. v. BMB Munai, Inc., 542

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F.3d 354, 358 (2d Cir. 2008)). As such, Plaintiff will suffer irreparable harm if the

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arbitration to which it did not consent proceeds.

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C.

Plaintiff’s time and resources expended for arbitration cannot be

Public Interest and Balance of Equities

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While there does exist a federal policy in favor of arbitration, see UBS Fin. Servs.,

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Inc. v. W. Va. Univ. Hosps., Inc., 660 F.3d 643, 655 (2d Cir. 2011) (citing Green Tree

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Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003)), that policy holds no sway when a party

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has not agreed to arbitrate in the first place. Comer v. Micor, Inc., 436 F.3d 1098, 1104

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n.11 (deeming federal policy favoring arbitration “inapposite” when issue is whether

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particular party is bound by arbitration agreement); see also McCarthy v. Azure, 22 F.3d

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351, 355 (1st Cir. 1994). Allowing an arbitration to proceed without an agreement to

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arbitrate does not serve the public interest. See Drzayick, 2011 WL 5403031, at *5.

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Further, denial of the preliminary injunction would lead to an expenditure of resources to

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obtain an arbitration resolution that would ultimately have to be set aside. Charles

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Schwab & Co., Inc. v. Reaves, No. CV-09-2590-PHX-MHM, 2010 WL 447370, at *8 (D.

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Ariz. Feb. 4, 2010). The balance of equities thus favors the Plaintiff. Accordingly,

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Plaintiff has satisfied all four elements required to establish the need for a preliminary

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injunction.

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IT IS THEREFORE ORDERED granting Plaintiff’s Motion for Preliminary

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Injunction (Doc. 6). Defendant Frandino and those in active concert or participation with

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him, including his attorneys, are preliminarily enjoined from proceeding against Berthel

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Fisher & Company Financial Services, Inc. in the arbitration filed by Defendant before

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FINRA as Frandino v. Kardaras, et al., Case No. 12-01084.

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IT IS FURTHER ORDERED that this preliminary injunction will become

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effective upon the posting of a bond in the amount of $1,000 by Plaintiff pursuant to

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Federal Rule of Civil Procedure 65(c).

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Dated this 14th day of May, 2013.

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