W. KEITH WATKINS, Chief Judge.
Plaintiff Morgan Keegan & Company brings this action under the Federal Arbitration Act, see 9 U.S.C. §§ 1-16, for declaratory and injunctive relief to prevent an arbitration proceeding brought against it by Defendant William Shadburn ("Dr. Shadburn") before the Financial Industry Regulatory Authority ("FINRA"). Before the court is Morgan Keegan's Motion for Preliminary Injunction (Doc. #5), which has been fully briefed (Docs. #13, 21, 25). For the reasons discussed, Morgan Keegan has shown a substantial likelihood of success on its claim that Dr. Shadburn's FINRA claims are not arbitrable, that it would suffer irreparable injury if compelled to arbitrate, and that the balance of the harms and the public interest weigh in its favor. Accordingly, the Motion for Preliminary Injunction is due to be granted.
Personal jurisdiction and venue are not contested, and there are adequate allegations of both. More discussion is required, however, on the issue of subject matter jurisdiction.
Morgan Keegan also contends that this court has federal question jurisdiction pursuant to 28 U.S.C. § 1331 because Dr. Shadburn's claims in the underlying arbitration include alleged violations of the federal securities laws. The court agrees that § 1331 provides an independent jurisdictional basis for subject matter jurisdiction.
In Vaden, the Supreme Court held that, pursuant to 9 U.S.C. § 4, federal courts have subject matter jurisdiction to hear a petition to compel arbitration where the underlying dispute between the parties "arises under" federal law. 129 S.Ct. at 1273. A federal court may "look through" a petition under § 4 of the FAA and assess whether it is predicated on an action that "arises under" federal law. Id. Although Vaden addressed a federal court's subject matter jurisdiction to compel arbitration, district courts have applied Vaden's precepts when the motion is instead one to enjoin an arbitration proceeding, and the court agrees with the reasoning of these courts. See In re Sept. 11 Litig., 765 F.Supp.2d 587, 591 (S.D.N.Y.2011) ("Though Vaden considered the [jurisdictional] issue in the posture of a motion to compel arbitration, that distinction is legally insignificant" where the issue is whether
Here, the underlying dispute between Morgan Keegan and Dr. Shadburn includes alleged violations of the Securities Act of 1933, see 15 U.S.C. §§ 77a-77aa, namely § 11 (governing misleading registration statements), § 12(a)(2) (governing material misstatements or misleading omissions in a prospectus or oral communication), and § 15 (governing liability of persons in a position of control over §§ 11 and 12 violators). See 15 U.S.C. §§ 77k, 77l, 77o. Dr. Shadburn also alleges violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j, and Securities Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5. (Statement of Claim 6-16.) Federal courts have jurisdiction over claims arising under the Securities Act of 1933 and the Securities Exchange Act of 1934. See § 1331 ("The district court shall have original jurisdiction of all civil actions arising under the... laws ... of the United States."). Because the substantive controversy between Morgan Keegan and Dr. Shadburn "arises under" federal law, Vaden establishes that subject matter jurisdiction exists over Morgan Keegan's action filed in this court.
The parties also have assumed, without discussion, that the FAA gives this court the power to grant the relief requested, that is, to enjoin the pending arbitration under the FAA. Section 4 of the FAA permits a party aggrieved by another party's failure to arbitrate according to the terms of a written agreement to petition the court for an order compelling the arbitration to proceed as agreed. 9 U.S.C. § 4. Section 4 does not speak to the converse scenario where a party seeks federal court intervention to halt an arbitration on the ground that there is no written agreement to arbitrate. Notwithstanding this silence, the First Circuit has held that "the power to enjoin an arbitration is `the concomitant of the power to compel arbitration,' and thus the same provision of the FAA, 9 U.S.C. § 4, authorizes both types of orders."
The material facts are undisputed. Morgan Keegan is a licensed broker-dealer in the state of Tennessee and a member of FINRA. Morgan Keegan was the underwriter of the Regions Morgan Keegan High Income Fund ("RMK Fund"), a closed-end, high-yield fund. (Statement of Claim ¶¶ 1-2 (Ex. A to Doc. #2
Dr. Shadburn, an Alabama citizen, is a retired physician. He describes himself as a "moderate investor," with his "investment objectives [being] income and capital preservation." (Statement of Claim 5.) From 2006 to 2007, Dr. Shadburn invested approximately $80,000 in shares of the RMK Fund. (Shadburn Decl. ¶ 2 (Ex. to Answer); Statement of Claim 5-6.) Dr. Shadburn did not purchase the RMK Fund through Morgan Keegan, and he "did not maintain a brokerage account with [Morgan Keegan]."
On June 1, 2011, Dr. Shadburn filed a Statement of Claim initiating arbitration proceedings before FINRA against Morgan Keegan, based upon alleged "material misrepresentations and omissions made by [Morgan Keegan] as underwriters of the [RMK Fund]." (Statement of Claim ¶ 1.) In the FINRA arbitration, Dr. Shadburn seeks approximately $67,000 in damages and asserts violations of the federal securities law, the Alabama Securities Act, and the Tennessee Consumer Protection Act. It is not necessary for this opinion to recount the sixteen pages of details surrounding Dr. Shadburn's underlying claims brought in the FINRA arbitration because the merits of those claims are not
On August 4, 2011, in response to the arbitration proceeding, Morgan Keegan filed this action, seeking declaratory and injunctive relief. It seeks a declaration that it "has no obligation to arbitrate the FINRA Arbitration initiated by [Dr. Shadburn]." (Compl. 9 (Prayer for Relief).) Morgan Keegan also requests a preliminary and permanent injunction to enjoin Dr. Shadburn "from further proceedings against [it] in the FINRA Arbitration." (Compl. 9 (Prayer for Relief).) The next day, Morgan Keegan filed a Motion for Preliminary Injunction and a brief in support. (Pl. Mot. Prelim. Inj. (Doc. #5); Pl. Br. in Support of Mot. Prelim. Inj. (Doc. #1).) Morgan Keegan effected service of a summons and copies of the Complaint and Motion for Preliminary Injunction on Dr. Shadburn. (Docs. #1, 5, 7.) On August 15, 2011, the parties filed a Joint Stipulation as to an agreed-upon briefing schedule for the pending Motion for Preliminary Injunction.
On a motion for a preliminary injunction, the court may consider evidence outside of the pleadings, and a hearing is not required where the facts are undisputed. See McDonald's Corp. v. Robertson, 147 F.3d 1301, 1313 (11th Cir.1998) ("[W]here material facts are not in dispute, or where facts in dispute are not material to the preliminary injunction sought, district courts generally need not hold an evidentiary hearing."); see also Multi-Financial Sec. Corp. v. King, 386 F.3d 1364, 1368 (11th Cir.2004) (An evidentiary hearing was not required on the issue of whether an investor was a "customer" of a NASD member "because the underlying factual circumstances [were] undisputed."). Here, the evidentiary record includes the underlying Statement of Claim by which Dr. Shadburn initiated the FINRA arbitration, a declaration from Dr. Shadburn, a declaration from a Morgan Keegan representative, and correspondence from Morgan Keegan's counsel and FINRA in other FINRA arbitrations. A review of the record reveals that the material facts are uncontested and that no credibility determinations need to be made. Hence, the court finds that a hearing is neither required nor necessary.
A preliminary injunction may be issued, pursuant to Federal Rule of Civil Procedure 65, to preserve the positions of the parties until a full trial can be conducted.
To prevail on a motion for preliminary injunction, the movant bears the burden of demonstrating that
Am. Civil Liberties Union of Fla., Inc. v. Miami-Dade Cnty. Sch. Bd., 557 F.3d 1177, 1198 (11th Cir.2009) (quoting Siegel v. LePore, 234 F.3d 1163, 1176 (11th Cir. 2000)). "`A preliminary injunction is an extraordinary and drastic remedy not to be granted unless the movant clearly establishes the burden of persuasion as to the four requisites.'" Id. (quoting All Care Nursing Serv., Inc. v. Bethesda Mem'l Hosp., Inc., 887 F.2d 1535, 1537 (11th Cir.1989)). Here, Morgan Keegan has demonstrated entitlement to the extraordinary remedy of a preliminary injunction.
Morgan Keegan contends that it is substantially likely to succeed on the merits because it did not agree to arbitrate Dr. Shadburn's FINRA claims. Dr. Shadburn concedes that "[t]here is no written agreement between [Morgan Keegan] and [him]." (Def. Br. in Opp. to Pl. Mot. Prelim. Inj. 8 (Doc. #13).) He argues, however, that Morgan Keegan is obligated to arbitrate on the basis of FINRA Rule 12200 because he is Morgan Keegan's "customer."
Morgan Keegan is a member of FINRA, an industry association that provides an arbitration forum for claims against its members.
The first issue is whether Dr. Shadburn is a "customer" of Morgan Keegan within the meaning of FINRA Rule 12200. Under FINRA, "`customer' is defined simply, but not particularly helpfully, by what it `shall not include' — a broker or dealer.'" AXA Distribs., LLC v. Bullard, No. 1:08cv188, 2008 WL 5411940 (M.D.Ala. Dec. 24, 2008) (finding that investors in variable annuities were not customers of the company that distributed the variable annuities to broker-dealers that acted as retailers of variable annuities); see also UBS Fin. Servs., Inc. v. W. Va. Univ. Hosps., Inc., 660 F.3d 643, 649 (2d Cir. 2011) (observing that "neither FINRA nor the courts have `offer[ed][a] precise definition of "customer'" (quoting Oppenheimer & Co. v. Neidhardt, 56 F.3d 352, 357 (2d Cir.1995))). The parties disagree on the legal parameters of the definition of "customer" and whether the undisputed facts bestow "customer" status on Dr. Shadburn, such that he can compel Morgan Keegan to arbitrate before FINRA.
Morgan Keegan argues that a customer is one who has a broker or investment relationship with the FINRA member. It contends that Dr. Shadburn is not its customer because he never purchased any shares of the RMK Fund through Morgan Keegan, never maintained an account with Morgan Keegan, and never had any direct relationship with Morgan Keegan. In fact, Morgan Keegan's position is that there never was any sort of relationship between it and Dr. Shadburn. Absent any evidence of a broker or investment relationship, Morgan Keegan maintains that Dr. Shadburn does not qualify as its customer. (Pl. Br. in Supp. of Mot. Prelim. Inj. Br. 3-4, 10-11, 13-14; Pl. Reply Br. in Supp. of Mot. Prelim. Inj. 4 (Doc. #21).) To support its argument, Morgan Keegan relies principally upon Wheat, First Sec., Inc. v. Green, 993 F.2d 814 (11th Cir.1993); Fleet Boston Robertson Stephens, Inc. v. Innovex, Inc., 264 F.3d 770, 772 (8th Cir.2001); and Zarecor v. Morgan Keegan & Co., Inc., No. 4:10cv1643-SWW, 2011 WL
Dr. Shadburn argues, on the other hand, that FINRA Rule 12200 is "crystal clear in defining the term `customer'" to exclude only brokers and dealers. (Def. Br. in Opp. to Pl. Mot. Prelim. Inj. 9.) He contends that a "direct customer relationship" is not required, and that because he is neither a broker nor a dealer, he is a "customer" under FINRA's plain meaning. (Def. Br. in Opp. to Pl. Mot. Prelim. Inj. 9.) Dr. Shadburn also contends that Morgan Keegan's marketing activities and valuation services upon which he says he and his broker relied in making and maintaining his investments in the RMK Fund solidify the customer relationship. (Def. Br. in Opp. to Pl. Mot. Prelim. Inj. 5.)
The court turns first to the arguments addressed to the scope of the definition of "customer." In Fleet Boston, which turned on whether business activities outside of investing or brokerage activities fall within the "customer" definition, the Eighth Circuit rejected an argument that "by negative inference ... a `customer' is everyone who is not a broker or dealer." 264 F.3d at 772. That construction is "too broad." Id. Instead, the Eighth Circuit held that a "customer" is one who "receive[s] investment or brokerage related services, from an NASD member," and the "customer" definition does not encompass a business relationship that includes only "financial advice" Id. at 773; see also UBS Fin. Servs., Inc., 660 F.3d at 650 (holding that the requisite business relationship exists where the investor "purchases, or undertakes to purchase, a good or service from a FINRA member"). The Eighth Circuit recognized that other courts arguably had "taken a broad view" of the term "customer," but it explained that "in all of these cases there existed some brokerage or investment relationship between the parties." 264 F.3d at 772 (citing, among other cases, Oppenheimer, 56 F.3d at 358 (holding that investors who had been defrauded by a representative of a NASD firm were customers of that firm under the NASD Code, despite the fact that they never opened formal accounts with the firm)); see also UBS Sec. LLC, 684 F.Supp.2d at 356 (observing that it "would be absurd" to interpret "customer" as everyone who is not a broker or dealer because such an interpretation "would imply that a party seeking to compel arbitration pursuant to the FINRA rules need not have an actual customer relationship with any FINRA member; rather, the party need only not be a broker or dealer"). Moreover, in Wheat First, the Eleventh Circuit addressed the time frame for analyzing "customer" status: "We ... hold that customer status ... must be determined as of the time of the events providing the basis for the allegations of fraud." 993 F.2d at 816 (internal quotation marks omitted).
Under Dr. Shadburn's proposed definition of "customer," the investors in Wheat First would have been "customers" (because they were not brokers or dealers), but that was not the court's holding. There, the investors purchased tainted securities from a firm that ultimately sold its assets to a successor firm. The investors sought to compel the successor firm to arbitrate claims arising out of the investors' transaction with the predecessor firm. Absent any written contract to the contrary, the Eleventh Circuit held that to define "customer" as encompassing the investors would contravene the expectations of NASD members as to the scope of arbitrable claims: "We cannot imagine that any NASD member would have contemplated
It is true, as Dr. Shadburn points out, that there need not always be a "direct customer relationship" between the investor and the member firm. (Def. Br. in Opp. to Pl. Mot. Prelim. Inj. 9.) However, the cases upon which Dr. Shadburn relies for this general proposition are factually distinguishable. See, e.g., John Hancock Life Ins. Co. v. Wilson, 254 F.3d 48 (2d Cir.2001); King, 386 F.3d at 1368. In King and John Hancock, it was undisputed that the investor was a "customer" of the member's "associated person." See King, 386 F.3d at 1368; John Hancock, 254 F.3d at 58-59. The issue turned on whether the customer of a member's associated person was also the customer of the member, even if the member had no knowledge of the transaction or independent relationship with the investor. In both cases, the member was compelled to arbitrate "solely because" the investor was a customer of the associated person. King, 386 F.3d at 1368-69 (Because the investor "dealt directly" with the member's associated person, it was inconsequential that the investor was not a "direct customer" of the member and did not have a "direct transactional relationship" with the member.); see also John Hancock, 254 F.3d at 58-60. Alternatively, King held that arbitration was required because "[w]hen an investor deals with a member's agent or representative, the investor deals with the member." 386 F.3d at 1370. It was in this factual context that King and John Hancock rejected the notion that a direct customer relationship between the customer and the member was required.
Here, unlike in King and John Hancock, the issue is not whether Morgan Keegan and Dr. Shadburn conducted transactions through Morgan Keegan's associated person.
The application of "customer" urged by Dr. Shadburn is inconsistent with Wheat First's reasoning and is not supported by either John Hancock or King. Furthermore, the court finds persuasive Fleet Boston's reasoning for rejecting such a broad construction of the term "customer." See 264 F.3d at 772; see also Contemporary Fin. Solutions, Inc. v. Miller, No. 07cv00793, 2007 WL 4197588, at *4 (D.Colo. Nov. 20, 2007) ("Courts generally have construed the term `customer' broadly, but not so broadly as to include anyone other than a broker or dealer."). Dr. Shadburn's proposed definition could lead
On the other hand, the court also need not adopt the Eighth Circuit's position in Fleet Boston, as urged by Morgan Keegan, that a customer is not one who merely receives financial advice, but is one who is "involved in a business relationship with [the] [FINRA] member that is related directly to investment or brokerage services." 264 F.3d at 772. That is because on this record, not only is Dr. Shadburn and Morgan's relationship void of any investment or brokerage qualities, it is void of any form of business qualities whatsoever. The list of what their relationship is not is telling on the question of whether Dr. Shadburn is a customer of Morgan Keegan. The list of "nots" is long.
Dr. Shadburn did not have any written contract or customer agreement with Morgan Keegan. Dr. Shadburn did not purchase shares in the RMK Fund through Morgan Keegan. Dr. Shadburn did not invest in the RMK Fund in its initial public offering.
Rather, Dr. Shadburn's relationship was with the brokerage firm Synovus Securities. Dr. Shadburn was a brokerage client of Synovus Securities and maintained an account with that firm. Morgan Keegan did not manage or otherwise exercise any
On similar facts, the same conclusion was reached in Morgan Keegan & Co. v. Garrett, No: 4:10cv4308, 816 F.Supp.2d 439, 2011 WL 4716060 (S.D. Texas Sept. 30, 2011) (Order Vacating Arbitration Award).
Dr. Shadburn nonetheless argues that he has a customer relationship with Morgan Keegan for purposes of arbitration because on its public website, Morgan Keegan published materials about the nature and performance of the RMK Fund, to include the prospectus, and that he relied on these materials in making his decision to invest in the RMK Fund. (Def. Br. in Opp. to Pl. Mot. Prelim. Inj. 6; Statement of Claim 5; Shadburn Decl. ¶ 4.) The argument is not convincing, as Dr. Shadburn cites no authority on similar or analogous facts to support his argument. Indeed, at least one court has rejected a similar argument on arguably stronger facts. See Zarecor, No. 4:10cv1643-SWW.
In Zarecor, Morgan Keegan argued that the investors were not customers because they had purchased the RMK Fund from competitor brokerage firms, had maintained the RMK Fund with that firm and "had no dealings with Morgan Keegan." No. 4:10cv1643-SWW, at 3. The investors argued that they were customers, even absent "a direct transactional relationship" with Morgan Keegan, based upon their direct contacts with Morgan Keegan's representatives both before and after investing in the RMK Fund. Id. at 8. Those contacts included two conversations with Morgan Keegan's representatives about how the funds functioned, during which Morgan Keegan represented that "the funds were very liquid," assurances from Morgan Keegan's representatives that "dividends were not in danger" after share prices declined, and the investors' attendance at an annual Morgan Keegan meeting. Id. at 8-9. Notwithstanding these contacts, the court was not persuaded that a customer relationship had been established: "Cases in which courts have found a customer relationship based on interactions between an investor and a FINRA member's representative involve conduct on the part of the representative indicating the existence of a business or investment relationship — such as soliciting a purchase, taking money from an investor, or facilitating investment transactions." Id. at 9-10 (citing Oppenheimer, 56 F.3d at 352 and John Hancock, 254 F.3d at 58). The court noted that it found "no cases to support the proposition that an investor achieves `customer' status under Rule 12200 merely by seeking and receiving information regarding a particular security from a FINRA member representative." Id. at 10. The investors were not customers of Morgan Keegan because they "did not have a business relationship with Morgan Keegan
Here also, as in Zarecor, the suggested relationship between Dr. Shadburn and Morgan Keegan is far too tenuous to equate a "customer" relationship. As already discussed, Dr. Shadburn is not Morgan Keegan's customer within the meaning of Rule 12200. Moreover, no direct communications even resulted out of Dr. Shadburn's review of Morgan Keegan's online materials, as occurred in Zarecor. The mere fact that Morgan Keegan made available to the public on its website materials pertaining to the RMK Fund is insufficient under any of the cases cited above to bestow "customer" status on Dr. Shadburn. While Dr. Shadburn argues that Zarecor is wrongly decided, he fails to present any case law or argument that persuasively supports his attack, or that reached a contrary conclusion on similar or analogous facts. (Def. Br. in Opp. to Pl. Mot. Prelim. Inj. 10.)
Finally, while Dr. Shadburn agrees that "questions of substantive arbitrability are for this court to decide," he argues that decisions of the Director of FINRA on this issue should be given "Auer deference." (Def. Br. in Opp. to Mot. Prelim. Inj. 11-12 (citing Auer v. Robbins, 519 U.S. 452, 461, 117 S.Ct. 905, 137 L.Ed.2d 79 (1977) (holding that the Secretary of Labor's interpretation of his own rules is "controlling unless plainly erroneous or inconsistent with the regulation" (citation and internal quotation marks omitted))).) In particular. Dr. Shadburn cites a letter from a FINRA "Case Administrator," notifying Morgan Keegan (in a different case) that the Director of FINRA Dispute Resolution had denied its "request to decline FINRA's arbitration forum." (FINRA Letter (Ex. E to Doc. #13).) Morgan Keegan disputes that Auer deference applies to a FINRA decision. (See Pl. Reply Br. in Supp. of Mot. Prelim. Inj. 10 ("FINRA is a self-regulatory organization, not a governmental agency, and is therefore not entitled to Auer deference.").) The court need not resolve this dispute. Under any standard, no deference is due here because the decision is unaccompanied by any analysis or supporting rationale. See Royal Alliance Assocs., Inc. v. Branch Ave. Plaza, L.P., 587 F.Supp.2d 729, 735 (E.D.Va.2008) ("[E]ven if the Court were inclined to give some deference to FINRA's decision, via letter, to deny [the member firm's] request for a stay of the arbitration, ... the letter, although noting that FINRA undertook `careful consideration of [the] request,' provides no indication as to whether FINRA considered the question of arbitrability. Indeed, it provides no reason for the denial at all." (citing Goldman Sachs & Co. v. Becker, No. 07-01599, 2007 WL 1982790 (N.D.Cal. July 2, 2007) (finding, in a similar posture, that "[although] [t]he NASD did deny plaintiffs' motion to be excused from arbitration, ... there [was] little indication that the NASD actually took a close look ... to see if there was an agreement or relationship that governed the question of arbitrability"))).
In sum, Morgan Keegan has demonstrated that the relationship between it and Dr. Shadburn is too tenuous to establish a customer relationship. Accordingly, it has demonstrated a substantial likelihood of success on the merits of its claim that Dr. Shadburn cannot compel it to arbitrate.
Morgan Keegan also asserts that its "forced participation in the arbitration of a dispute that [it][has] not agreed to arbitrate will cause it [] irreparable harm." (Pl. Br. in Support of Mot. Prelim. Inj. 15.) It contends that a preliminary injunction is necessary because otherwise it will have to expend resources and effort in participating in the arbitration pending resolution of its claims for permanent injunctive relief, and will lose its right to have Dr. Shadburn's claims decided in a court, rather than through arbitration before FINRA. (Pl. Br. in Support of Mot. Prelim. Inj. 16, 18.)
Courts have concluded that a movant suffers irreparable harm when it is "forced to expend time and resources arbitrating an issue that is not arbitrable, and for which any award would not be enforceable." Merrill Lynch Inv. Managers v. Optibase, Ltd., 337 F.3d 125, 129 (2d Cir. 2003); see also McLaughlin Gormley King Co. v. Terminix Int'l Co., L.P., 105 F.3d 1192, 1194 (8th Cir.1997) (observing that courts "uniformly hold that the party urging arbitration may be enjoined from pursuing what would now be a futile arbitration, even if the threatened irreparable injury to the other party is only the cost of defending the arbitration and having the court set aside any unfavorable award"); Chase Manhattan Bank USA, N.A. v. Nat'l Arbitration Council, Inc., No. 3:04cv1205, 2005 WL 1270504, at *3 (M.D.Fla. May 27, 2005) ("Being compelled to arbitrate a claim in the absence of an agreement to arbitrate that claim constitutes an irreparable injury." (citation and internal quotation marks omitted)). Moreover, Dr. Shadburn "does not dispute the irreparable harm prong" of the preliminary injunction test, presumably based upon the foregoing authority. (Def. Br. in Opp. to Pl. Mot. Prelim. Inj. 7.) Because Morgan Keegan has demonstrated a substantial likelihood of success on its claim that it is not obligated to arbitrate, it has demonstrated that it will suffer irreparable injury without a preliminary injunction.
Morgan Keegan also satisfies the third element of the preliminary injunction standard. To balance the harms, the court weighs the harm to Morgan Keegan if a preliminary injunction is not issued against the harm that granting an injunction will cause Dr. Shadburn. Dr. Shadburn does not articulate any harm that may occur if a preliminary injunction issues. The court recognizes, however, that if the entry of a preliminary injunction is ultimately found to be erroneous, then Dr. Shadburn will have suffered a delay in the FINRA arbitration. However, in light of Morgan Keegan's showing of a substantial likelihood of success that it cannot be forced to arbitrate the underlying dispute and the irreparable injury that flows from that forced arbitration, the harm to Morgan Keegan clearly outweighs the harm to Dr. Shadburn. Accordingly, the balance of harms weighs in favor of entering a preliminary injunction.
The public interest factor also weighs in favor of Morgan Keegan. Arbitration is in the public interest only where "the subject of the arbitration is one that the parties actually agreed to arbitrate." Chi. Sch. Reform Bd. of Trs. v. Diversified Pharm. Servs., Inc., 40 F.Supp.2d 987, 996 (N.D.Ill.1999). Where a party has not agreed to submit a dispute to arbitration, the public has an interest in ensuring that the arbitration does not proceed. See Berthel
For the foregoing reasons, Morgan Keegan has demonstrated a substantial likelihood of success on the merits by showing that Dr. Shadburn is not Morgan Keegan's "customer" within the meaning of FINRA Rule 12200, and, therefore, that Dr. Shadburn cannot require Morgan Keegan to arbitrate any dispute between them. Morgan Keegan also has demonstrated that it would suffer irreparable harm if forced to arbitrate a dispute that it did not agree to arbitrate. The balance of the harms and the public interest also weigh in Morgan Keegan's favor.
Because all four requirements for a preliminary injunction are satisfied, it is ORDERED that Morgan Keegan's Motion for Preliminary Injunction (Doc. #5) is GRANTED, and that Defendant William Shadburn is immediately RESTRAINED and ENJOINED from pursuing his claims against Morgan Keegan in the arbitration proceeding, styled William Shadburn v. Morgan Keegan & Co., Inc., FINRA Case No. 11-02252, pending a trial on this action.
It is further ORDERED that, on or before
Authority arising under the NASD Code governs and guides interpretations of the FINRA Rules to the extent that there is no meaningful change from the NASD Code. FINRA Rule 12200 does not materially differ from NASD Rule 10301. Accord J.P. Morgan Sec. Inc. v. La. Citizens Prop. Ins. Corp., 712 F.Supp.2d 70, 78 n. 45 (S.D.N.Y.2010).
