The Court broadly interprets “customer” and disputes “arising in connection with the business activities” of a member firm in deciding arbitrability.
Independent broker-dealer, H. Beck, seeks to enjoin a FINRA arbitration brought against it by Defendant. The arbitration claims concern “transactional marketing documents” Defendant used to raise debt and equity capital and Defendant’s purchase of “Golf Courses.” An H. Beck representative (“Valentine”), who was also a CPA, had some involvement in the transactions. H. Beck argued Defendant was not its “customer” and the claims “did not arise in connection with the business activities of an associated person” as required by FINRA Rule 12200.
Conducting a traditional injunction analysis, the Court denies H. Beck’s motion for a temporary restraining order, finding it has no strong likelihood of success on the merits. The Court states Defendant presented “credible evidence” that it was making investment decisions based on information received from Valentine. The Court also rejects narrow interpretations of “customer” and “business activities,” referencing Valentine’s email signature identifying herself as an H. Beck representative. Finally, citing Sixth Circuit authority, the Court states a dispute involving a failure to supervise claim is one arising “in connection with” the business activities of a member firm.
H. Beck fares no better with the other injunction factors. On irreparable injury, the Court finds H. Beck presented no evidence it would be harmed if it participated in the arbitration. In contrast, the Court finds granting injunctive relief might cause substantial harm to others and is against the public interest, given the costs involved “if nearly every arbitration were delayed by ancillary federal litigation,” and because injunctive relief is contrary to the strong federal policy favoring arbitration.
(C. Lazarini: The Court heard oral argument on H. Beck’s motion via Zoom and scheduled another Zoom hearing on the pending motion for preliminary injunction. In a related case, Valentine also seeks to enjoin the arbitration.)
(SOLA Ref. No. 2020-28-01)
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