Goldman, Sachs & Co. v. North Carolina Municipal Power Agency Number One
OPINION AND ORDER re: 27 MOTION to Dismiss or, Alternatively, to Transfer for Improper Venue filed by North Carolina Municipal Power Agency Number One. Goldman has established that it is entitled to a preliminary injunction, see Winter, 555 u.s. at 20, and this Court accordingly GRANTS the motion. Since Goldman established a likelihood of success on the merits, NCMPAI's motion to dismiss or, alternatively, to transfer for improper venue is DENIED. (Signed by Judge Paul A. Crotty on 12/9/2013) (rsh)
DOC #: _________________
DATE FILED: December 9, 2013
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
GOLDMAN, SACHS & CO.,
13 Civ. 1319 (PAC)
-againstOPINION AND ORDER
NORTH CAROLINA MUNICIPAL
POWER AGENCY NUMBER ONE,
HONORABLE PAUL A. CROTTY, United States District Judge:
This case involves a dispute over what forum is appropriate to resolve an underlying
dispute concerning the issuance by Defendant North Carolina Municipal Power Agency NW11ber
One ("NCMPAI") of$149.7 million in auction rate securities ("ARS") in which Goldman, Sachs
& Co. ("Goldman") acted as the Wlderwriter and broker-dealer for the issuance. Goldman argues
that this Court has exclusive jurisdiction under an applicable forum selection clause; NCMP AI
argues that arbitration before the Financial Industry Regulatory Authority ("FINRA") is the
appropriate forum to settle the parties' dispute. On December 12, 2012, NCMPAI initiated an
arbitration in North Carolina against Goldman before FINRA to settle disputes arising from the
issuance. On February 27,2013, Goldman filed a complaint against NCMPAI in this Court
seeking a declaration that the FINRA arbitration was an inappropriate forum for the dispute and
an enjoinment of the arbitration. Before this Court is Goldman's motion for a preliminary
injunction and NCMP AI's motion to dismiss the complaint or, alternatively, to transfer for
Very similar issues, indeed identical issues, were recently litigated before U.S. District
Judge Richard J. Sullivan (Goldman, Sachs & Co. v. Golden Empire Sehs. Fin. Auth., 922 F.
Supp. 2d 435, 440-4 1 (S.D.N.Y. 2013)) and U.S. District Judge Jesse Furman (Citigroup Global
Mkts., Inc. v. Ne. E. Mun. Power Ageney, No. 13 CV 1703 (S.D.N.Y. May 3, 20 13), Dkt. No.
30). Both judges enjoined the FlNRA arbitrations and held that under the Forum Selection
Clause in the broker-dealer agreements, this Court had exclusive jurisdiction over any dispute.
The Court agrees with their analysis and reasoning; and applies them here. Accordingly, the
Court GRANTS Goldman's motion for a preliminary injunction; and DENIES NCMPAI's
motion to dismiss the complaint or, alternatively, to transfer the case to the Eastern District of
North Caro lina.
On April 11, 2003, NCMPAI issued $149.7 million in ARS in order to raise funds to
refinance existing debt. ARS are "Iong-tenn bonds and stocks whose interest rates or dividend
yields are periodically reset through auction." Ashland Inc. v. Morgan Stanley & Co., 652 F.3d
333,335 (2d Cir. 2011). The concept is to finance long term debt at short term rates. At each
periodic auction, ARS investors submit bids for the number of ARS they wish to purchase, hold,
or sell at an auction and the lowest rate they will accept. !d. If the buy/hold orders meet or
exceed sell orders, then the auction succeeds. Id. Alternatively, if the supply exceeds demand,
the auction fails and "the issuer is forced to pay a higher rate of interest in order to penalize it
and to increase investor demand." !d. The concept appeared to work well until the recession
began in 2007-2008.
NCMPAI selected Goldman as the sole underwriter and broker-dealer for the ARS.
Compl. '114. Goldman and NCMPAI signed an underwriter agreement (the "Underwriter
Agreement") describing Goldman's duties to purchase NCMPAI's ARS and to distribute them to
interested investors as bona fide securities. Compl.
14; see id., Ex. 5. The Underwriter
Agreement did not contain an arbitration clause and provided that North Carolina law govern its
validity, interpretation, and performance. Compo '117; see id., Ex. 5, at 19. Contemporaneously,
the parties also signed a broker-dealer agreement (the "Broker-Dealer Agreement") setting forth
Goldman's duties regarding management of the auctions and oversight of the bidding process.
15; see id., Ex. 3. The Broker-Dealer Agreement provided that New York law would
govern, waived jury trial, and specified the following forum selection clause ("Forum Selection
The parties agree that all actions and proceedings arising out of this BrokerDealer 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.
16; id., Ex. 3, at 14. The Broker-Dealer Agreement also contained a merger clause (the
"Merger Clause") providing as follows:
This Broker-Dealer Agreement, and the other agreements and instruments
executed and delivered in cOlmection with the issuance of the (JARS, contain the
entire agreement between the parties relating to the subject matter hereof, and
there are no other representations, endorsements, promises, agreements or
understandings ... between the parties relating to the subject matter hereof.
19; id., Ex. 3, at 13.
The market for ARS collapsed in the recession that started in 2007-2008. See UBS Fin.
Servs., Inc. v. W Va. Univ. Hasps ., Inc., 660 F.3d 643, 646 (2d Cir. 2011). On December 21,
2012, NCMPAI instituted a FINRA arbitration in Raleigh, North Carolina against Goldman by
filing a Statement of Claim ("SOC"), pursuant to FINRA Rule 12200. Compl.
20; see id., Ex.
2. FINRA Rule 12200 requires that FINRA members arbitrate a dispute when a customer
requests arbitration and the dispute arose in connection with the business activities of a FINRA
member. In its SOC, NCMPAI alleged that Goldman created the artificial appearance of an
efficient market for ARS by placing its own bids in every auction in which it was lead brokerdealer. Compl. -,r 21-23; see id., Ex. 2. Further, NCMAPI claims that Goldman did not disclose
its full use ofthese bids, known as "cover bids," and therefore made material misrepresentations
andlor omissions. Compl. -,r'121-23; see id., Ex. 2. On February 27,2013, Goldman filed a
complaint in this Court seeking declaratory relief and an injunction against the FINRA
On April 26, 2013, NCMPAI moved to dismiss Goldman's complaint or, alternatively, to
transfer the case to the U.S. District Court for the Eastern District of North Carolina pursuant to
Federal Rule of Civil Procedure 12(b)(3). ! NCMPAI argues that this Court lacks the authority to
enjoin an arbitration pending in a different district. On the same day, Goldman moved for an
order preliminarily enjoining NCMP AI from pursuing its claims against Goldman in the FINRA
arbitration 2 Goldman alleges that the parties agreed to bring all disputes relating to the ARS
issuance to this Court pursuant to the Forum Selection Clause in the Broker-Dealer Agreement.
"A preliminary injunction is an extraordinary remedy never awarded as of right." Winter
Natural Res. De! Council, Inc., 555 U.S. 7, 24 (2008). A party seeking a preliminary
1 NCMPAI's Memorandum in Support ofIts Motion to Dismiss or, Alternatively, to Transfer for Improper Venue
will be referred to as "Def.'s Mot. to Dismiss." Goldman's Memorandum of Law in Opposition to Defendant's
Motion to Dismiss or, Alternatively, to Transfer for Improper Venue will be referred to as "Pl.'s Opp'n to Mot. to
Dismiss." NCMPAI's Reply Memorandum in Support of Its Motion to Dismiss or, Alternatively, to Transfer for
Improper Venue will be referred to as "Def.'s Reply Mot. to Dismiss."
2 Goldman's Memorandum of Law in Support ofIts Motion for a Preliminary Injunction will be referred to as "Pl. 's
Mot. for Prelim. !oj." NCMPAI 's Memorandum in Opposition to Goldman's Motion for Preliminary Injunction will
be referred to as "DeCs Opp'n to Prelim. Inj ." Goldman 's Reply Memorandum of Law in Further Support of Its
Motion for a Preliminary Injunction will be referred to as "Pl. 's Reply Mot. for Prelim. lnj."
injunction must establish: "(a) irreparable hann and (b) either (I) likelihood of success on the
merits or (2) sufficiently serious questions going to the merits to make them a fair ground for
litigation and a balance of hardships tipping decidedly toward the party requesting the
preliminary relief." Citigroup Global Mkts., Inc. v. VCG Special Opportunities Master Fund
Ltd., 598 F.3d 30, 35 (2d Cir. 2010). The moving party carries the burden of persuasion to
demonstrate "by a clear showing" that the necessary elements are satisfied. See Sussman v.
Crawford, 488 F.3d 136, 139-40 (2d Cir. 2007) (quoting Mazurek v. Armstrong, 520 U.S. 968,
972 (1997» (empbasis omitted).
Whether Goldman is likely to succeed on the merits depends, in part, on the outcome of
NCMPAI's Rule 12(b)(3) motion. On a motion to dismiss for improper venue under Rule
12(b)(3), "the plaintiffbears the burden of establishing that venue is proper." French Transit,
Ltd. v. Modern Coupon Sys. , Inc., 858 F. Supp. 22, 25 (S.D.N.Y. 1994); see also Gulf Ins. Co. v.
Glasbrenner, 417 F.3d 353, 355 (2d Cir. 2005). "The court must take all allegations in the
complaint as true, unless contradicted by the defendants ' affidavits." McKeown v. Port Authority
of NY and NJ., 162 F. Supp. 2d 173, 183 (S.D.NY 2001).
Likelihood of Success on the Merits
This Court Has the Authority to Enjoin an Arbitration in Other
It is well established that a "federal court sitting as a court of equity having personal
jurisdiction over a party has power to enjoin him from committing acts elsewhere." NML
Capital, Ltd. v. Republic of Argentina, 699 F.3d 246, 263 (2d Cir. 2012) (internal quotations
omitted); see Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633, 647 (2d Cir. 1956). Only
"the clearest command from Congress" may strip a district court of this power. Califano v.
Yamasaki, 442 U.S. 682, 705 (1979). NCMPAI claims that this Court lacks the authority to
enjoin the FINRA Arbitration pursuant to the Federal Arbitration Act (the "FAA"), 9 U.S.C. § I
et seq. See Def.'s Mot. to Dismiss at 7-13. The FAA, however, is silent on a court's authority to
Instead, NCMPAI asks this Court to convert the FAA's provision for a court's power to
compel arbitration to a court's power to stay arbitration. Section 4 ofthe FAA provides that an
aggrieved party "may petition any United States district court" with subject-matter jurisdiction
over the action for an order compelling arbitration pursuant to the terms of an arbitration
agreement. See 9 U.S.C. § 4 (emphasis added) . The text continues and provides that the
"hearing and proceedings, under such [arbitration1agreement, shall be within the district in
which the petition for an order directing such arbitration is filed." See id. (emphasis added) .
Despite the conflicting language in the statute, NCMP AI urges that a district court may only
compel arbitration within its own district under § 4. See Def.'s Mot. to Dismiss at 9-10. Since a
motion to enjoin arbitration "is simply the inverse of the motion to compel under § 4 of the
FAA," the argument runs, a court may only stay an arbitration occUlTing within its own district.
See id. at 10-14. NCMPAI cites numerous cases, but none are binding on this Court. Id. Rather,
this Court agrees with Judge Furman's rejection of this argUlllent. See Transcript of Oral
Argument at 56:24-59:14, Citigroup Global Mkts., Inc., No. 13 CV 1703, Dkt. No. 30.
Section 4 of the FAA does not inhibit or prevent a district court from enjoining an
arbitration pending in another district. Prior to the FAA's enactment, a civil suit could generally
be brought only in the district in which the defendant resided . See Cortez Byrd Chips, Inc. v. Bill
Harbert Canst. Co., 529 U.S. 193, 199 (2000). The FAA 's venue provisions were intended to
have a "liberalizing effect" by both expanding the choice of venue; and providing for the
enforcement of forum selection agreements. Id. at 199-200. Section 4 embodies both ofthese
policies by providing pennissive venue rules, 9 U.S.C. § 4 (stating that a party "may petition any
United States district court"), restricted by the parties' contractual choice of forum, id. (requiring
that the "hearing and proceedings, under [an arbitration] agreement, ... be within the district in
which the petition for an order directing such arbitration is filed"). Read together, Section 4
provides that any district court with jurisdiction may compel arbitration, unless the parties have
agreed otherwise. See Maronian v. Am. Comme'ns Network, Inc., No. 07-CV-6314, 2008 WL
141753, at *4 (W.D.N.Y. Jan. 14,2008). When a plaintiff seeks to enjoin arbitration, however,
that party is contesting the very existence of an arbitration agreement, including any contractual
choice of forum. Since Section 4's restrictions do not apply if the parties did not agree to
arbitrate in a specific forum, a party seeking to enjoin arbitration is only subject to Section 4's
permissive venue rules.
NCMPAI argues that the venue standard for motions to compel arbitration must apply to
motions to enjoin because "it is inconceivable that Congress intended the rule to differ depending
upon which party to the arbitration agreement first invokes the assistance of a federal court." See
Def.'s Mot. to Dismiss at 11-12 (internal quotations omitted). But the two motions are
fundamentally different. Unlike a motion to compel, a motion to enjoin arbitration questions the
very validity of an arbitration agreement and therefore implicates the central concern of
arbitration- whether a party is being forced to arbitrate a dispute when that party has not
consented to arbitration. See In re Am. Express Fin. Advisors Sees. Litig., 672 F.3d 113 (2d Cir.
2011) «"As is clear from the Supreme Court's and this Circuit's cases, arbitration under the
FAA is a matter of consent, not coercion." (internal quotations omitted)); see also Howsam v.
Dean Witter Reynolds, Inc. , 537 U.S. 79, 83 (2002) ("[A]rbitration is a matter of contract and a
party cannot be required to submit to arbitration any dispute which he has not agreed so to
submit."). Here, NCMPAI claims that only the Eastern District of North Carolina can enjoin the
FINRA Arbitration. Yet NCMPAI agreed to bring "all actions and proceedings arising out of
[the] Broker-Dealer Agreement" in this Court. See Compl.
15-16. Goldman cannot be
expected to bring its claims in a venue dictated by FINRA Rule 12200 when it asserts that this
rule has no bearing on its claims.
NCMP AI cites to In re American Express Financial Advisors Securities Litigation, 672
F.3d 113 (2d Cir. 2011), holding that district courts may enjoin an arbitration when a valid and
binding agreement to arbitrate is absent. Id. at 141. NCMPAI claims that the court 's use of the
phrase "within its jurisdiction" prohibits a court from enjoining arbitrations outside of its own
district. See Def.'s Mot. to Dismiss at 10 (quoting In re Am. Express, 672 F.3d at 141). Yet
nothing in the decision limits a district court's authority. It is equally likely that the term
')urisdiction" related to personal jurisdiction, which, if absent, prevents a court from enjoining a
defendant' s conduct in other districts. See Transcript of Oral Argument at 57:15-58:4, Citigroup
Global Mkts., Inc., No. 13 CY 1703, ECF No. 30; cf Califano, 442 U.S. at 705 ("Absent the
clearest command to the contrary from Congress, federal courts retain their equitable power to
issue injunctions in suits over which they have [personal] jurisdiction."). Furthermore, the
Second Circuit neither relied on § 4 directly nor suggested that it limits a court 's ability to stay
arbitration. Instead, the court merely confirmed that a court may stay arbitration without
violating the FAA.
NCMP AI also claims that application of the same standard for motions to compel
arbitration and to enjoin it is necessary to promote three policy goals. First, according to
NCMP AI, restricting injunctions to the district in which the arbitration was brought would
"eliminate the expense and delay of extended court proceedings" and "streamline judicial
proceedings" prior to arbitration. See Def.'s Mot. to Dismiss at 8,12. This saves no time,
however, because, by NCMPAI's own admission, it is only implicated after a court has decided
that arbitration is proper. Second, NCMP AI argues that its position would prevent forum
shopping, the potential for which is "particularly acute where, as here, the substantive law of
arbitrability differs in the two districts." See Def. 's Mot. to Dismiss at 12-14. But who is forum
shopping? NCMP AI's sole purpose in moving for dismissal or transfer is to arbitrate and/or
litigate in the presumptively more favorable forum of the Eastern District of North Carolina. In
situations like the present case, venue is proper where the arbitration is held or where the parties
specified in the forum selection clause. Although this may lead to minimal forum shopping, this
policy goal alone does not compel a different result. Third, NCMP AI claims that allowing a
district court to enjoin arbitrations outside its district would "encourage duplicative litigation"
because a plaintiff could ignore an unfavorable ruling and then force the opposing party to move
to compel in the district where arbitration would occur. Id. at 13-14. Yet where a party seeks to
enjoin an ongoing arbitration, as here, this risk cannot materialize. As a result, NCMPAI's
policy concerns must be rejected.
Accordingly, this Court holds that FAA § 4 does not limit a di strict court's ability to
enjoin an arbitration outside of its district. Without a "clear command from Congress"
otherwise, see Califano, 442 U.S. at 705, this Court may enjoin the FINRA Arbitration, if
Goldman establishes that the Forum Selection Clause waived NCMP AI's right to arbitration and
that the present dispute falls within the scope of that clause.
The Forum Selection Clause in the Broker-Dealer Agreement
Superseded the Arbitratiou Agreement
This Court now considers whether NCMPAI and Goldman waived the right to arbitration
under FINRA Rule 12200 by signing the Broker-Dealer Agreement. If an agreement neither
"specifically precludes" nor provides "positive assurance" that a dispute is no longer subject to
arbitration, then the agreement must be read as maintaining the right to arbitrate. See Applied
Energetics, Inc. v. NewOak Capital Mkts. , LLC, 645 F.3d 522, 525 (2d Cir. 2011); Bank Julius
Baer & Co., Ltd. v. Waxfield Ltd., 424 F.3d 278, 284 (2d Cir. 2005). For example, in Bank
Julius Baer, the Second Circuit held that a broad agreement to arbitrate was not overridden by a
later-executed, non-exclusive forum selection clause because the clause did not mention
arbitration and could be read as waiving objection to "jurisdiction" in New York over ancillary
proceedings. 424 F.3d at 282. Alternatively, in Applied Energetics, the Second Circuit held that
the contracting parties specifically precluded arbitration by executing an agreement that "[a]ny
dispute" between the parties "shall be adjudicated" in New York, even though the agreement did
not explicitly mention arbitration. 645 F.3d at 525.
Here, the Broker-Dealer Agreement provides "positive assurance" that the parties
intended to preclude arbitration. The Forum Selection Clause requires that "all actions and
proceedings arising out of [the] 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." The clause plainly references judicial action by specifying the "United States District
Court." See Applied Energetics, Inc., 645 F.3d at 525 (stating that the word "adjudicate" is a
"clear and unmistakable reference to judicial action"). Its use of the mandatory language "all
actions and proceedings" and "shall" preclude resolution of disputes anywhere other than within
this district. See id. (holding that the use of "shall" demonstrated that the clause precluded
arbitration); see also Phillips v. Audio Active Ltd., 494 F.3d 378, 387-88 (2d Cir. 2007) (holding
that the forum selection clause was "mandatory" when it used the phrase "are to be brought").
Furthermore, the parties included a merger clause providing that "there are no other
representations, endorsements, promises, agreements or understandings ... between the parties
relating to the subject matter hereof." See Applied Energetics, 645 F.3d at 525-26 & n.2 (holding
that an identical merger clause displaced a prior arbitration agreement). Read together, the
Forum Selection Clause and the Merger Clause demonstrate that the parties intended the BrokerDealer Agreement to prevail over FINRA Rule 12200.
Two ofNCMPAI's arguments fail from the start, based on contrary Second Circuit
holdings. NCMPAI claims that FINRA Rule 12200 must be construed liberally to effectuate the
purposes of the FAA. See Def.'s Opp 'n to Mot. for Prelim. Inj. at 9. But the presumption in
favor of arbitration applies only when there are "doubts concerning the scope of an arbitration
clause," not when, as here, there are "disputes concerning whether an agreement to arbitrate has
been made." See Applied Energetics, 645 F.3d at 526. Next, NCMP AI argues that "the waiver
of arbitration must be explicit for this later agreement to revoke an earlier agreement." Def.'s
Opp'n to Mot. for Prelim. Inj. at 17-20. Again, NCMPAI misconstrues Applied Energetics.
There, the court explained that a forum selection clause need not mention arbitration to revoke an
earlier arbitration agreement. 645 F.3d at 525. Instead, the clause may simply substantively
exclude it. Golden Empire Schs. Fin. Auth., 922 F. Supp. 2d at 440-41; see Applied Energetics,
645 F.3d at 525.
NCMPAI marshals two arguments in support of its position that arbitration is neither an
"action" nor a "proceeding" under the Forum Selection Clause. See Def.'s Opp 'n to Mot. for
Prelim. Inj. at 10-13. NCMPAI first relies on New York State statutes that use the words
"actions" and "proceedings" to discuss judicial proceedings. See N.Y. C.P.L.R. § 103 (defming
civil j udicial disputes as "actions" or "proceedings"), N.Y. C.P.L.R. § 304 ("An action is
commenced by filing a summons and complaint or summons with notice . .. . A special
proceeding is commenced by filing a petition . .. ."). Yet neither statute limits the terms to
judicial actions and the Forum Selection Clause suggests no such limitation. Furthermore, courts
commonly refer to arbitrations as "actions" or "proceedings." See, e.g., Citigroup Global Mkts.,
Inc., 598 F.3d at 32 ("[Defendant) began arbitration proceedings against [plaintiff] before the
FINRA pursuant to FINRA Rule 12200."); Wachovia, N.A. v. VCG Special Opportunities Master
Fund, Ltd., 888 F. Supp. 2d 380, 382 (S.D.NY. 20 12) ("Plaintiffs ... commenced this action
against defendant . . . to enjoin an arbitration proceeding .... "). In fact, NCMPAI's own
pleading in the FINRA Arbitration uses these terms, see, e.g., Comp l. , Ex. 2, at 37 ("NCMPAI
prays that . . . after dne proceedings had, there be an award in its favor .. . ."), and FINRA rules
do too, see, e.g., FINRA Rule § 12208 ("At any stage of an arbitration proceeding ... ."). To
limit "actions" and "proceedings" to judicial actions would run contrary to the plain and
commonly accepted meaning of these tenns.
NCMPAI also claims that the Broker-Dealer Agreement's waiver ofa trial by jury in
any "action or proceeding" provides further support. See Def. 's Opp'n to Prelim. Inj. at 10. The
Forum Selection Clause states that each party "IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIMS ARISING OUT
OF THIS BROKER-DEALER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY." Compl., Ex. 3, at 14. But this provision immediately follows the statement that "all
actions and proceedings ... [must be brought in) the United States DistTict Court in the County
of New York." Id. Because the term "proceeding" is already limited to proceedings before this
Court, there is no inherent tension between the two sentences, as NCMP AI claims. The first
sentence simply requires that all actions or proceedings be brought in the Southern District of
New York and the second states that no jury trial is available for those proceedings. As a result,
NCMPAI's interpretation of the terms "actions" and "proceedings" must be rejected.
Nor does this Court's holding create an "unnecessary conflict," as NCMPAI asserts. See
Def.'s Opp'n to Prelim. Inj. at 20-2l. The Forum Selection Clause and FINRA Rule 12200
cannot be read as complementary. Instead, "this case falls within the alternative scenario ... ,
where contracting parties are free to revoke an earlier agreement to arbitrate by executing a
subsequent agreement the terms of which plainly preclude arbitration." See Applied Energetics,
Inc., 645 F.3d at 524-25 . As a result, this Court holds that the Broker-Dealer Agreement
precludes arbitration under FINRA Rule 12200.
The Present Dispute Falls Within the Scope of the Forum Selection
The FOl1lm Selection Clause in the Broker-Dealer Agreement governs the parties' entire
contractual relationship relating to the ARS transaction. Despite NCMPAI's arguments to the
contrary, see Def. 's Opp'n to Prelim. Inj. at 14, the clause's language supports its application to
the present dispute. The Forum Selection Clause controls "all actions and proceedings arising
out of [the] Broker-Dealer Agreement or any of the transactions contemplated hereby." Compl.,
Ex. 3, at 14. NCMPAI asserts that the ARS issuance arose out of the Underwriter Agreement,
but that is not so. The Broker-Dealer Agreement was clearly predicated on the ARS issuance
occurring. In fact, the first paragraph of the Agreement's preamble explicitly references the
transaction. See Compl., Ex. 3 at 1 ("WHEREAS, the Issuer is issuing $149,700,000 in
aggregate principal amount of its Catawba Electric Revenue Bonds, Refunding Series 2003C ...
.") The ARS issuance therefore constitutes a "transaction contemplated" by the Broker-Dealer
Agreement and, as such, falls within the scope of the Forum Selection Clause.
NCMPAI's FINRA claims are also tied to the Broker-Dealer Agreement. The claims
focus on whether Goldman failed to disclose its use of "cover bids" to support the ARS auctions
in its role as broker-dealer. In particular, Goldman purportedly failed to disclose that it "always
placed a bid in every auction in which it was lead broker-dealer to prevent auction failure, and
that Goldman was aware at all times that if it fai led to place a bid for its own account in the
auctions it managed, a large number ... of the actions would fail and the market for ARS would
collapse." Compl., Ex. 2, "11 49; see Def.'s Opp'n to Mot. for Prelim. Inj. at 4. NCMPAI brought
its action to recover damages it sustained due to these claimed misrepresentations and omissions,
which were made "during the structuring process and during the 5 years that Go ldman ... served
as [aJ broker-dealer for NCMPAI's bonds." Compl., Ex. 2, "11 4. In fact, throughout the SOC,
NCMPAI references Goldman's role as a "broker-dealer" and describes Goldman's failure to
fulfill its responsibilities as such. See, e.g., SOC "II 2 ("For the next five years, Goldman served
as broker-dealer for NCMP AI's ARS, eaming hundreds of thousands of dollars in periodic
broker-dealer fees while continuing to fail to disclose [the use of cover bids.]"). NCMP AI
cannot wish away the terms of the Broker-Dealer Agreement when its claims are based on
Goldman's actions as a broker-dealer.
Any conflict between the governing law provisions in the Broker-Dealer Agreement and
the Bond Contract of Purchase is not dispositive on whether the Forum Selection Clause applies
to the overall ARS issuance. New York law governs the Broker-Dealer Agreement, see Compl.,
Ex . 3, at 14, while North Carolina law governs the Bond Contract of Purchase, see Compl., Ex.
5, at 19. But different governing law can control different pieces of a transaction without
creating any conflict. Furthermore, even if the clauses are "irreconcilable," see Def. 's Opp'n to
Prelim. Jnj. at 14-15, a conflict between governing law provisions does not overcome a nonconflicting forum selection clanse that, by its terms, encompasses the present dispute.
Accordingly, Goldman has established that the Forum Selection Clause applies to the
present dispute. This Court therefore holds that Goldman is likely to succeed on the merits of its
action for declaratory and permanent injunctive relief.
Goldman will suffer irreparable hann absent a preliminary injunction in this case. "As a
matter oflaw, there is irreparable harm when a party is 'compelled to arbitrate ... without
having agreed to arbitration' because that party is 'forced to expend time and resources
arbitrating an issue that is not arbitrable.'" NASDAQ OMX Group, Inc. v. UBS Secs. LLC, No. 13
Civ. 2244, 2013 WL 3942948, at *12 (S.D.N.Y. June 18,2013) (quoting UBS Sec. LLCv.
Voegeli, 684 F. Supp. 2d 351, 354 (S.D.N.Y. 2010)). NCMP AI does not dispute that Goldman
will suffer irreparable harm, see Def.'s Opp'n to Prelim. Jnj. at 21-22, and this Court holds that
this requirement is satisfied.
Balance of the Equities
Goldman has also established that the balance of the equities decidedly tips in its favor.
"The balance of hardships inquiry asks which of the two parties would suffer most grievously if
the preliminary injunction motion were wrongly decided." Golden Empire Schs. Financing
Auth., 922 F. Supp. 2d at 444 (quoting Tradescape.com v. Shivaram , 77 F. Supp. 2d 408, 411
(S.D.N.Y. 1999)) (internal quotations omitted). Here, Goldman would be "forced to expend time
and resources arbitrating an issue that is not arbitrable." Merrill Lynch Inv. Managers v.
Optibase, Ltd., 337 F.3d 125,129 (2d Cir. 2003). On the other hand, NCMPAI argues that a
preliminary injunction would frustrate its right to a speedy arbitration of its claims. See Def.'s
Opp'n to Prelim. Inj. at 21-22. But NCMPAI's argument is based entirely on UBS v. W Va.
Univ. Hasps., Inc., 760 F. Supp. 2d 373 (S.D.N.Y. 2011), aff'd in part, vacated in part on other
grounds, 660 F.3d 643 (2d Cir. 2011), where the court held that plaintiffs failed to establish a
likelihood of success on the merits. Id. at 379. Any potential hardship on NCMP AI's right to
arbitration is minimal because Goldman will likely demonstrate that NCMPAI is not entitled to
arbitration. Furthermore, NCMPAI's four-year delay in bringing its claims suggests that the
alleged need for a speedy arbitration process is hollow. See Goldman Empire, 922 F. Supp. 2d at
444. As a result, the balance of the equities decidedly tips in Goldman's favor.
The Public Interest
NCMP AI argues that an injunction would not be in the public interest because there is a
federal policy favoring arbitration. See Def.'s Opp'n to Prelim. Inj. at 22. But this presumption
only applies when the parties have agreed to arbitration, see Applied Energetics, 645 F.3d at 526,
and here they did not. Instead, an injunction would favor the public interest because it would
enforce the terms of a valid and enforceable contract between the parties.
Goldman has established that it is entitled to a preliminary injunction, see Winter, 555
u.s. at 20, and this Court accordingly GRANTS the motion.
Since Goldman established a
likelihood of success on the merits, NCMPAI's motion to dismiss or, alternatively, to transfer for
improper venue is DENIED.
Dated: New York, New York
December 9, 2013
PAUL A. CROTTY
United States District Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?