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08-6090-cv
Citigroup Global Markets, Inc. v. VCG Special Opportunities Master Fund Ltd.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term 2009
(Argued: November 24, 2009 Decided: March 10, 2010)
Docket No. 08-6090-cv
----------------------------------------------------x
Citigroup Global Markets, Inc.,
Plaintiff-Appellee,
-- v. --
VCG Special Opportunities Master Fund Limited, f/k/a CDO Plus
Master Fund Limited,
Defendant-Appellant.
-----------------------------------------------------x
B e f o r e : FEINBERG, WALKER, KATZMANN, Circuit Judges.
1 VCG Special Opportunities Master Fund Limited (âVCGâ)
2 appeals from an order of the United States District Court for the
3 Southern District of New York (Barbara S. Jones, Judge) granting
4 plaintiff-appellee Citigroup Global Markets, Inc.âs (âCGMIâ)
5 motion for a preliminary injunction and enjoining VCG from
6 proceeding with an arbitration initiated against CGMI before the
7 Financial Industry Regulatory Authority. VCG also appeals the
8 district courtâs order denying its motion for reconsideration.
9 We hold that this circuitâs âserious questionsâ standard for the
10 consideration of a motion for a preliminary injunction remains
11 valid in the wake of recent Supreme Court opinions clarifying the
-1-
1 requirements and burdens placed on a party seeking a preliminary
2 injunction. We further hold that, in applying that standard to
3 CGMIâs motion, the district court did not abuse its discretion in
4 granting the requested injunction. We therefore AFFIRM the
5 district courtâs orders granting the preliminary injunction and
6 denying VCGâs motion for reconsideration.
7 AFFIRMED.
8 STEVEN G. MINTZ (Terence W.
9 McCormick and Joshua H.
10 Epstein, on the brief), Mintz
11 & Gold LLP, New York, NY, for
12 Defendant-Appellant.
13
14 ALLAN J. ARFFA (Karen R. King,
15 on the brief), Paul, Weiss,
16 Rifkind, Wharton & Garrison
17 LLP, New York, NY, for
18 Plaintiff-Appellee.
19
20 JOHN M. WALKER, JR., Circuit Judge:
21 VCG Special Opportunities Master Fund Limited (âVCGâ)
22 appeals from the November 12, 2008 order of the United States
23 District Court for the Southern District of New York (Barbara S.
24 Jones, Judge) granting the plaintiff-appellee Citigroup Global
25 Markets, Inc.âs (âCGMIâ) motion for a preliminary injunction and
26 enjoining VCG from proceeding with an arbitration initiated
27 against CGMI before the Financial Industry Regulatory Authority
28 (âFINRAâ). VCG also appeals from the district courtâs May 29,
29 2009 order denying its motion for reconsideration of the
30 preliminary injunction. Because we conclude that the âserious
-2-
1 questionsâ standard for assessing a movantâs likelihood of
2 success on the merits remains valid in the wake of recent Supreme
3 Court cases, and because neither the district courtâs assessment
4 of the facts nor its application of the law supports a finding of
5 abuse of discretion, we AFFIRM as to both orders.
6 BACKGROUND
7 On July 17, 2006, VCG, a hedge fund based on the Isle of
8 Jersey, entered into a brokerage services agreement with CGMI.
9 Under the agreement, CGMI was obligated to provide prime
10 brokerage services by clearing and settling trades in fixed
11 income securities for VCG. VCG then entered into a credit
12 default swap agreement with Citibank, N.A. (Citibank) (a sister-
13 affiliate of appellee CGMI under the corporate umbrella of
14 Citigroup, Inc.). VCG alleges that it was a âcustomerâ of CGMI,
15 which allegedly acted as the middleman with respect to the series
16 of transactions culminating in the credit default swap agreement
17 with Citibank. After entering into the swap, Citibank eventually
18 declared a writedown of the assets covered in its credit default
19 swap agreement with VCG, triggering VCGâs obligation to pay
20 Citibank a total of $10,000,000.
21 VCG sued Citibank, seeking a declaration that, by declaring
22 the writedown, Citibank had violated the terms of the partiesâ
23 credit default swap agreement. The district court found in
24 Citibankâs favor and also found that VCG was in breach of the
-3-
1 agreement by failing to fulfill its payment obligation. VCG
2 Special Opportunities Master Fund Ltd. v. Citibank, N.A., 594 F.
3 Supp. 2d 334 (S.D.N.Y. 2008), affâd, No. 08-5707, 2009 WL 4576542
4 (2d Cir. Dec. 8, 2009).
5 In addition to litigating its claims against Citibank, VCG
6 began arbitration proceedings against CGMI before the FINRA
7 pursuant to FINRA Rule 12200.1 In response, CGMI filed a
8 complaint in the district court to permanently enjoin the
9 arbitration and for a declaration that CGMI had no obligation to
10 arbitrate with VCG regarding the claims submitted to the FINRA
11 arbitrators. On June 20, 2008, CGMI moved for a temporary
12 restraining order and preliminary injunction against the FINRA
13 arbitration pending a final resolution of CGMIâs claims. CGMI
14 asserted that it was not a party to, and did not broker, the VCG-
15 Citibank credit default swap. Compl. ¶ 3. Specifically, CGMI
16 argued that VCG was not a âcustomerâ of CGMI for purposes of
17 those transactions and, therefore, CGMI was under no obligation
18 to arbitrate VCGâs claims under the FINRA rules.
19 In opposition to the preliminary injunction motion, VCG
20 submitted a declaration stating that âCGMI recommended and set
1
In relevant part, FINRA Rule 12200 requires members of the
FINRA to arbitrate the disputes pursuant to the FINRA Code of
Arbitration Procedure if arbitration is ârequested by [a]
customer,â â[t]he dispute is between a customer and a member or
associated person of a member,â and â[t]he dispute arises in
connection with the business activities of the member.â
-4-
1 the terms forâ the credit default swap and that VCGâs employees
2 had âdealt with several CGMI representatives in connection with
3 the transaction, but most often with Jeff Gapusan, Donald
4 Qu[i]ntin, and Jaime Aldama.â Wong Decl. ¶ 7.2 The declaration
5 further stated that â[t]he terms of the contract were negotiated
6 directly with [a] CGMI employee, Jeff Gapusan, who acted as
7 liaison for the trading desk at CGMI.â Id. at ¶ 19; see also
8 Gruber Decl., Ex. B (FINRA records listing the three men
9 identified by Wong as the go-betweens on the Citibank deal as
10 employees of CGMI).
11 In arguing that it had not acted as a middleman for the VCG-
12 Citibank credit default swap and that VCG was not its âcustomer,â
13 CGMI contended that the people identified by VCG as its CGMI
14 contacts were acting as agents of Citibank rather than CGMI,
15 though they were formally employed by CGMI at the time of the
16 VCG-Citibank negotiations. Vogeli Decl. ¶ 6. CGMI also
17 submitted a copy of VCGâs initial disclosures, from VCGâs action
2
The declaration stated that âthe fee to be paid to CGMI
was 5.5% per annum, calculated on the ânotional amountâ of
$10,000,000 of the collateralized debt obligation, Millstone. . .
. In return, VCG agreed to pay CGMI only upon the occurrence of
a credit event.â Wong Decl. ¶ 19. The declaration misstates the
parties to, and obligations provided in, the credit default swap
agreement. As each of the documents underlying the swap
agreement demonstrates, and contrary to the statements in Wongâs
declaration, Citibank, not CGMI, was the party with whom VCG
contracted, and VCG, not CGMI, was to be paid 5.5% per annum.
See Arffa Decl., Exs. 1-5.
-5-
1 against Citibank, in which VCG had listed Jeff Gapusan and Donald
2 Quintin as trading personnel employed by Citibank, not CGMI.
3 Arffa Decl., Ex. 6.3
4 On November 12, 2008, the district court granted CGMIâs
5 motion for a preliminary injunction. In granting the injunction,
6 the district court applied this circuitâs long-established
7 standard for the entry of a preliminary injunction, under which
8 the movant is required to show ââirreparable harm absent
9 injunctive relief, and either a likelihood of success on the
10 merits, or a serious question going to the merits to make them a
11 fair ground for trial, with a balance of hardships tipping
12 decidedly in plaintiffâs favor.ââ Citigroup Global Mkts. Inc. v.
13 VCG Special Opportunities Master Fund Ltd., No. 08-cv-5520, 2008
14 WL 4891229, at *2 (S.D.N.Y. Nov. 12, 2008) (quoting Almontaser v.
15 N.Y. City Depât of Educ., 519 F.3d 505, 508 (2d Cir. 2008)).
16 The district court held that CGMI had demonstrated a likelihood
17 of irreparable harm, but had failed to make a showing of
3
Following oral argument on CGMIâs motion for a preliminary
injunction, VCG filed a supplemental initial disclosure in its case
against Citibank and submitted the new disclosure to the district
court in this case. The supplemental disclosure lists Gapusan and
Quintin as employees of CGMI. VCG Sur-Reply in Oppân to Mot. for
Prelim. Inj., Ex. A. The district court noted that the original
disclosures were ânot judicial admissions demonstrating that VCG
knew that it was dealing with Citibank [and not CGMI],â but also
that the disclosures gave the court reason to pause when
considering VCGâs understanding of the three relevant employeesâ
roles at the time VCG interacted with them. Citigroup Global Mkts.
Inc. v. VCG Special Opportunities Master Fund Ltd., No. 08-cv-5520,
2008 WL 4891229, at *5 (S.D.N.Y. Nov. 12, 2008).
-6-
1 âprobable successâ on the merits based on its claim that there
2 was no customer relationship between CGMI and VCG with respect to
3 the credit default swap transactions. Id. at *2, *4. The
4 district court found, however, that CGMI had provided evidence
5 that raised âserious questionsâ as to whether VCG was in fact a
6 customer of CGMI with respect to the swap transaction and granted
7 the preliminary injunction on that basis. Id. at *5-*6.
8 The district court further noted that, while some prior
9 cases have required arbitration under the FINRA rules for claims
10 involving non-securities, those cases âdealt in large part with
11 individual brokersâ fraudulent conveyances or investments, where
12 there is a strong policy argument favoring arbitration.â Id.
13 The district court concluded that, âin light of the undefined
14 scope of Rule [12200's âbusiness activitiesâ prerequisite and its
15 application to cases not involving securities transactions,] and
16 the unique set of facts before the Court,â CGMI had presented
17 legal and factual issues that made its assertions a âfair ground
18 for litigation.â Id. at *6. Finally, the district court found
19 that the balance of hardships tipped decidedly in CGMIâs favor
20 given that an injunction would simply freeze the arbitration
21 without destroying VCGâs ability to continue that arbitration in
22 the event that the district court determined that the dispute
23 fell within the scope of the FINRA rules. Id.
24 On May 29, 2009, the district court denied VCGâs motion for
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1 reconsideration, rejecting VCGâs argument that Winter v. Natural
2 Resources Defense Council, Inc., 129 S. Ct. 365 (2008), had
3 eliminated the âserious questionsâ prong of this circuitâs
4 preliminary injunction standard.
5 This appeal followed.
6 DISCUSSION
7 This Court reviews the grant of a preliminary injunction for
8 abuse of discretion. See Almontaser, 519 F.3d at 508; Grand
9 River Enter. Six Nations, Ltd. v. Pryor, 481 F.3d 60, 66 (2d Cir.
10 2007). âA district court abuses its discretion when it rests its
11 decision on a clearly erroneous finding of fact or makes an error
12 of law.â Almontaser, 519 F.3d at 508.
13 VCG first contends that the district court abused its
14 discretion by applying the wrong legal standard to CGMIâs request
15 for a preliminary injunction. VCG argues that three recent
16 decisions of the Supreme CourtâMunaf v. Geren, 128 S. Ct. 2207
17 (2008); Winter, 129 S. Ct. 365; and Nken v. Holder, 129 S. Ct.
18 1749 (2009)âhave eliminated this circuitâs âserious questionsâ
19 standard for the entry of a preliminary injunction, and that, in
20 light of the district courtâs finding that CGMI failed to
21 demonstrate its likelihood of success on the merits, the entry of
22 a preliminary injunction in this case must be reversed. In the
23 alternative, VCG argues that even if this circuitâs standard for
24 a preliminary injunction remains intact, the district court
-8-
1 committed several legal errors in determining that CGMI had
2 presented âserious questionsâ as to the arbitrability of VCGâs
3 claims.
4 Winter articulates the following standard for issuing a
5 preliminary injunction:
6 A plaintiff seeking a preliminary injunction must establish
7 that he is likely to succeed on the merits, that he is
8 likely to suffer irreparable harm in the absence of
9 preliminary relief, that the balance of equities tips in his
10 favor, and that an injunction is in the public interest.
11
12 Winter, 129 S. Ct. at 374; see also Munaf, 128 S. Ct. at 2219;
13 Nken, 129 S. Ct. at 1761. Although not stated explicitly in its
14 briefs, we take VCGâs position to be that the standard
15 articulated by these three Supreme Court cases requires a
16 preliminary injunction movant to demonstrate that it is more
17 likely than not to succeed on its underlying claims, or in other
18 words, that a movant must show a greater than fifty percent
19 probability of success on the merits. Thus, according to VCG, a
20 showing of âserious questionsâ that are a fair ground for
21 litigation will not suffice. See VCG Br. 23-25 (describing the
22 required showing as a âprobabilityâ of success, as opposed to a
23 âpossibilityâ).
24 I. The Continued Viability of the âSerious Questionsâ Standard
25 For the last five decades, this circuit has required a party
26 seeking a preliminary injunction to show â(a) irreparable harm
27 and (b) either (1) likelihood of success on the merits or (2)
-9-
1 sufficiently serious questions going to the merits to make them a
2 fair ground for litigation and a balance of hardships tipping
3 decidedly toward the party requesting the preliminary relief.â
4 Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72
5 (2d Cir. 1979); accord Almontaser, 519 F.3d at 508; Checker
6 Motors Corp. v. Chrysler Corp., 405 F.2d 319, 323 (2d Cir. 1969);
7 Hamilton Watch Co. v. Benrus Watch Co., 206 F.2d 738, 740 (2d
8 Cir. 1953).4 The âserious questionsâ standard permits a district
4
We have recognized three limited exceptions to this
general standard, none of which is relevant here. First,
[W]here the moving party seeks to stay government
action taken in the public interest pursuant to a
statutory or regulatory scheme, the district court
should not apply the less rigorous [âserious
questionsâ] standard and should not grant the
injunction unless the moving party establishes, along
with irreparable injury, a likelihood that he will
succeed on the merits of his claim.
Able v. United States, 44 F.3d 128, 131 (2d Cir. 1995) (first
alteration in original) (quoting Plaza Health Labs., Inc. v.
Perales, 878 F.2d 577, 580 (2d Cir. 1989)).
Second, â[a] heightened âsubstantial likelihoodâ standard
may also be required when the requested injunction (1) would
provide the plaintiff with âall the relief that is soughtâ and
(2) could not be undone by a judgment favorable to defendants on
the merits at trial.â Mastrovincenzo v. City of New York, 435
F.3d 78, 90 (2d Cir. 2006) (quoting Tom Doherty Assocs., Inc. v.
Saban Entmât, Inc., 60 F.3d 27, 34-35 (2d Cir. 1995)).
Third, a âmandatoryâ preliminary injunction that âalter[s]
the status quo by commanding some positive act,â as opposed to a
âprohibitoryâ injunction seeking only to maintain the status quo,
âshould issue âonly upon a clear showing that the moving party is
entitled to the relief requested, or where extreme or very
serious damage will result from a denial of preliminary relief.ââ
Tom Doherty Assocs., 60 F.3d at 34 (quoting Abdul Wali v.
-10-
1 court to grant a preliminary injunction in situations where it
2 cannot determine with certainty that the moving party is more
3 likely than not to prevail on the merits of the underlying
4 claims, but where the costs outweigh the benefits of not granting
5 the injunction. See, e.g., F.& M. Shaefer Corp. v. C. Schmidt &
6 Sons, Inc., 597 F.2d 814, 815-19 (2d Cir. 1979). Because the
7 moving party must not only show that there are âserious
8 questionsâ going to the merits, but must additionally establish
9 that âthe balance of hardships tips decidedlyâ in its favor,
10 Jackson Dairy, 596 F.2d at 72 (emphasis added), its overall
11 burden is no lighter than the one it bears under the âlikelihood
12 of successâ standard.
13 The value of this circuitâs approach to assessing the merits
14 of a claim at the preliminary injunction stage lies in its
15 flexibility in the face of varying factual scenarios and the
16 greater uncertainties inherent at the outset of particularly
17 complex litigation. Preliminary injunctions should not be
18 mechanically confined to cases that are simple or easy.
19 Requiring in every case a showing that ultimate success on the
20 merits is more likely than not âis unacceptable as a general
21 rule. The very purpose of an injunction . . . is to give
22 temporary relief based on a preliminary estimate of the strength
Coughlin, 754 F.2d 1015, 1025 (2d Cir. 1985)).
-11-
1 of plaintiff's suit, prior to the resolution at trial of the
2 factual disputes and difficulties presented by the case.
3 Limiting the preliminary injunction to cases that do not present
4 significant difficulties would deprive the remedy of much of its
5 utility.â 11A Charles Alan Wright, Arthur R. Miller & Mary Kay
6 Kane, Federal Practice and Procedure § 2948.3 (2d ed. 2009); see
7 also Dataphase Sys., Inc. v. CL Sys., Inc., 640 F.2d 109, 113
8 (8th Cir. 1981) (en banc) (âThe very nature of the inquiry on
9 petition for preliminary relief militates against a wooden
10 application of the probability test. . . . The equitable nature
11 of the proceeding mandates that the court's approach be flexible
12 enough to encompass the particular circumstances of each case.
13 Thus, an effort to apply the probability language to all cases
14 with mathematical precision is misplaced.â).5
5
We note that, prior to Winter, seven of the twelve
regional Courts of Appeals, including this circuit and the Eighth
Circuit in Dataphase, applied a preliminary injunction standard
that permitted flexibility when confronting some probability of
success on the merits that falls short of a strict fifty-one
percent. See Lands Council v. Martin, 479 F.3d 636, 639 (9th
Cir. 2007), overruled in part by Am. Trucking Assâns v. City of
Los Angeles, 559 F.3d 1046, 1052 & n.10 (9th Cir. 2009)
(recognizing that the Ninth Circuitâs previous standard as
articulated in Lands Council was overruled at least with respect
to the formerly permissible showing of a âpossibilityâ of
irreparable harm); Oklahoma ex rel. Okla. Tax Commân v. Intâl
Registration Plan, Inc., 455 F.3d 1107, 1112-13 (10th Cir. 2006);
Mich. Bell Tel. Co. v. Engler, 257 F.3d 587, 592 (6th Cir. 2001);
Davenport v. Intâl Broth. of Teamsters, AFL-CIO, 166 F.3d 356,
361 (D.C. Cir. 1999); Duct-O-Wire Co. v. U.S. Crane, Inc., 31
F.3d 506, 509 (7th Cir. 1994); Gen. Mills, Inc. v. Kellogg Co.,
824 F.2d 622, 624-25 (8th Cir. 1987); Blackwelder Furniture Co.
of Statesville v. Seilig Mfg. Co., 550 F.2d 189, 195 (4th Cir.
-12-
1 Indeed, the Supreme Court, prior to the trilogy of cases
2 cited by VCG, has counseled in favor of a preliminary injunction
3 standard that permits the entry of an injunction in cases where a
4 factual dispute renders a fully reliable assessment of the merits
5 impossible. In Ohio Oil Co. v. Conway, 279 U.S. 813 (1929), the
6 Court dealt with a factual dispute, relating to the effect on the
7 plaintiff of a state tax on oil revenues, which had to âbe
8 resolved before the constitutional validity of [a] statute
1977), overruled by Real Truth About Obama, Inc. v. Fed. Election
Commân, 575 F.3d 342, 346-47 (4th Cir. 2009).
On the other hand, three of our sister circuits have
traditionally limited their preliminary injunction standards to
the four factors cited in Winter, without reference to the
possibility of obtaining an injunction based on a showing of
serious questions going to the merits. See Snook v. Trust Co. of
Ga. Bank of Savannah, N.A., 909 F.2d 480, 483 n.3 (11th Cir.
1990) (noting that the âserious questionsâ standard had not been
recognized in the Eleventh Circuit); Concerned Women for Am.,
Inc. v. Lafayette County, 883 F.2d 32, 34 (5th Cir. 1989); In re
Arthur Treacherâs Franchisee Litig., 689 F.2d 1137, 1147 n.14 (3d
Cir. 1982) (rejecting the Second Circuitâs âserious questionsâ
standard as articulated in Hamilton Watch). The First Circuit
does not generally provide for the possibility of a flexible
showing as to the merits, see Weaver v. Henderson, 984 F.2d 11,
12 (1st Cir. 1993) (âIn the ordinary course, plaintiffs who are
unable to convince the trial court that they will probably
succeed on the merits will not obtain interim injunctive
relief.â), but has in the past recognized a potentially more
flexible approach, see Tuxworth v. Froehlke, 449 F.2d 763, 764
(1st Cir. 1971) (âNo preliminary injunction should be granted in
any case unless there appears to be a reasonable possibility of
success on the merits. Granted that the necessary degree of
likelihood of success depends upon various considerations, we
must perceive at least some substantial possibility.â (internal
citation omitted)).
-13-
1 [could] be determined.â Id. at 814. Faced with this situation,
2 the Court instructed that â[w]here the questions presented by an
3 application for an interlocutory injunction are grave, and the
4 injury to the moving party [in the absence of such an injunction]
5 will be certain and irreparable . . . the injunction usually will
6 be granted.â Id.; see also Mazurek v. Armstrong, 520 U.S. 968,
7 975-76 (1997) (reversing the Ninth Circuitâs finding that movants
8 had shown a âfair chance of success on the merits,â while
9 recognizing the âfair chanceâ standard and its potential
10 application in future cases).
11 The Supreme Courtâs recent opinions in Munaf, Winter, and
12 Nken have not undermined its approval of the more flexible
13 approach signaled in Ohio Oil. None of the three cases comments
14 at all, much less negatively, upon the application of a
15 preliminary injunction standard that softens a strict
16 âlikelihoodâ requirement in cases that warrant it. Munaf
17 involved a preliminary injunction barring the transfer to Iraqi
18 custody of an individual captured in Iraq by the Multinational
19 Force-Iraq. Munaf, 128 S. Ct. at 2214-15. That injunction was
20 premised on âjurisdictional issues . . . so serious, substantial,
21 difficult and doubtful, as to make them fair ground for
22 litigation and thus for more deliberative investigation.â Id. at
23 2219 (emphasis and internal quotation marks omitted). The
24 Supreme Court vacated that injunction on the grounds that a
-14-
1 âlikelihood of jurisdictionâ was irrelevant to the preliminary
2 injunction consideration and could not substitute for a
3 consideration of the merits. The Court in Munaf simply stated
4 that a question as to a courtâs jurisdiction over a claim âsays
5 nothing about the âlikelihood of success on the merits,ââ id.,
6 but provided nothing in the way of a definition of the phrase âa
7 likelihood of success.â See id.
8 Nor does Winter address the requisite probability of success
9 of the movantâs underlying claims. While Winter rejected the
10 Ninth Circuitâs conceptually separate âpossibility of irreparable
11 harmâ standard, 129 S. Ct. at 375-76, it expressly withheld any
12 consideration of the merits of the partiesâ underlying claims,
13 id. at 376, 381. Rather, the Court decided the case upon the
14 balance of the equities and the public interest. 129 S. Ct. at
15 375-76, 381.6
6
To this extent, Winter reiterates the majority position
of the circuits, including this one, that a showing of
irreparable harm is fundamental to any grant of injunctive
relief. See, e.g., Almontaser, 519 F.3d at 508 (âA party seeking
a preliminary injunction must show irreparable harm absent
injunctive relief. . . .â (internal quotation marks omitted and
emphasis added)); Rum Creek Coal Sales, Inc. v. Caperton, 926
F.2d 353, 360 (4th Cir. 1991) (âThe âbalance of hardshipâ test
does not negate the requirement that the [plaintiff] show some
irreparable harm.â), overruled on other grounds by Real Truth
About Obama, 575 F.3d 342; Friendship Materials, Inc. v. Mich.
Brick, Inc., 679 F.2d 100, 105 (6th Cir. 1982) (âThus, the
alternate test does not remove the irreparable harm
requirement.â); Dataphase Sys., Inc., 640 F.2d at 114 n.9 (âThis
court previously noted that under any test the movant is required
to show the threat of irreparable harm.â); Canal Auth. of Fla. v.
Callaway, 489 F.2d 567, 574 (5th Cir. 1974) (â[W]here no
-15-
1 Finally, Nken likewise did not address the issue of a moving
2 partyâs likelihood of success on the merits. Nken provides a
3 four factor standard for granting a stay pending appeal, which
4 the Court recognized as overlapping substantially with the
5 preliminary injunction standard. 129 S. Ct. at 1761. Although
6 the Court repeated the âlikely to succeed on the meritsâ
7 phrasing, it did not suggest that this factor requires a showing
8 that the movant is âmore likely than notâ to succeed on the
9 merits.7
10 If the Supreme Court had meant for Munaf, Winter, or Nken to
11 abrogate the more flexible standard for a preliminary injunction,
12 one would expect some reference to the considerable history of
13 the flexible standards applied in this circuit, seven of our
14 sister circuits, and in the Supreme Court itself.8 We have
irreparable injury is alleged and proved, denial of a preliminary
injunction is appropriate.â).
7
The Supreme Court implies just the opposite in Nken,
which contrasts a showing of a likelihood of success with a
chance of success that is only âbetter than negligible.â 129 S.
Ct. at 1761. Because a âserious questionsâ showing necessarily
requires more than that the chances for success are only âbetter
than negligible,â this circuitâs âserious questionsâ standard
does not conflict with the Supreme Courtâs decision in Nken.
8
As the Supreme Court noted in Nken, â[t]here is
substantial overlap between [the factors governing a motion to
stay] and the factors governing preliminary injunctions; not
because the two are one and the same, but because similar
concerns arise whenever a court order may allow or disallow
anticipated action before the legality of that action has been
conclusively determined.â 129 S. Ct. at 1761 (internal citation
omitted). In that light, we note that the Supreme Court followed
-16-
1 recognized this flexible standard since at least 1953, see
2 Hamilton Watch, 206 F.2d at 740, and our standard has survived
3 earlier instances in which the Supreme Court described the merits
4 prerequisite to a preliminary injunction as a âlikelihood of
5 successâ without specifically addressing the content of such a
6 âlikelihood,â see, e.g., Doran v. Salem Inn, Inc., 422 U.S. 922,
7 932 (1975) (âThe other inquiry relevant to preliminary relief is
8 whether respondents made a sufficient showing of the likelihood
9 of ultimate success on the merits.â). We have found no command
10 from the Supreme Court that would foreclose the application of
11 our established âserious questionsâ standard as a means of
12 assessing a movantâs likelihood of success on the merits. Our
13 standard accommodates the needs of the district courts in
14 confronting motions for preliminary injunctions in factual
15 situations that vary widely in difficulty and complexity. Thus,
16 we hold that our venerable standard for assessing a movantâs
17 probability of success on the merits remains valid and that the
a flexible approach when, in recently addressing the standard for
issuing a stay pending the disposition of a petition for a writ
of certiorari, it stated that the grant of such a motion required
a likelihood of irreparable harm, but required only a âreasonable
probability that four Justices will consider the issue
sufficiently meritorious to grant certiorariâ and a âfair
prospect that a majority of the Court will vote to reverse the
judgment below.â Hollingsworth v. Perry, 130 S. Ct. 705, 710
(2010) (per curiam). Acknowledging the use of a sliding scale in
certain situations, the Court further stated that â[i]n close
cases the Circuit Justice or the Court will balance the equities
and weigh the relative harms to the applicant and to the
respondent.â Id.
-17-
1 district court did not err in applying the âserious questionsâ
2 standard to CGMIâs motion.9
3 II. The District Courtâs Analysis
4
5 Having determined that the district court did not err by
6 applying the âserious questionsâ standard to CGMIâs motion for a
7 preliminary injunction, we turn to VCGâs contentions that the
8 district court misapplied that standard. VCG argues that the
9 district court erred in assessing the issue of arbitrability when
10 it (1) failed to construe the FINRA arbitration rules in favor of
11 arbitration absent âpositive assuranceâ that VCGâs claims in fact
12 fell outside the scope of the arbitration agreement; (2) failed
13 to recognize that VCG was a âcustomerâ of CGMI as a matter of
14 law; (3) found âserious questionsâ regarding whether a party
15 requesting FINRA arbitration over a non-securities transaction
16 must provide a strong policy argument in favor of arbitration;
17 and (4) inappropriately weighed the balance of hardships.10
9
We note that two of our sister circuits have retreated
from a flexible approach in assessing the merits of a movantâs
case in light of Winter. See Real Truth About Obama, 575 F.3d at
346-47; Am. Trucking Assâns, 559 F.3d at 1052. We think the
Fourth and Ninth Circuits have misread Winterâs import.
10
Neither party contests that arbitrability itself was an
issue for the district court to decide. See Howsam v. Dean
Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (âThe question
whether the parties have submitted a particular dispute to
arbitration, i.e., the question of arbitrability, is an issue for
judicial determination [u]nless the parties clearly and
unmistakably provide otherwise.â (internal quotation marks
omitted) (alteration in original)).
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1 A. âPositive Assuranceâ as to Non-Arbitrability and the
2 Definition of âCustomerâ
3
4 VCG contends that our decision in John Hancock Life
5 Insurance v. Wilson, 254 F.3d 48 (2d Cir. 2001), requires the
6 district court to order the parties to arbitrate, even in the
7 face of doubts as to the scope of the arbitration provision,
8 "unless it may be said with positive assurance that the
9 arbitration clause is not susceptible of an interpretation that
10 covers the asserted dispute." Id. at 58. VCG misapplies the
11 holding of John Hancock in attacking the district courtâs
12 decision.
13 John Hancock required a "positive assurance" of
14 non-arbitrability in the face of an ambiguity in the scope of the
15 arbitration provision of the NASD rules. Id. at 59-60 (finding
16 that the term âcustomerâ in the NASD rules includes the clients
17 of an âassociated personâ of the firm against whom arbitration is
18 sought). In this case, however, there is no ambiguity as to the
19 scope of the FINRA rules defining the term âcustomerâ; the only
20 unresolved question is whether, as a factual matter, VCG was
21 CGMIâs âcustomerâ under any definition of that term. If VCGâs
22 credit default swap arrangements were never handled by an agent
23 of CGMI, acting for that purpose, then VCG was not the âcustomerâ
24 of CGMI under any reasonable construction of that term. VCGâs
25 argument based on John Hancock is inapposite given the nature of
26 the dispute. Because the relevant question, in light of the
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1 contradictions in the record, is whether VCG was a âcustomerâ of
2 CGMI in even the broadest sense of the word, and because this
3 issue is in sharp dispute, the district court committed no error
4 of law or fact in holding that this uncertainty poses a serious
5 question going to the merits of CGMIâs claims.
6 B. Arbitrability of Disputes Involving Non-Securities
7 VCG next argues that the preliminary injunction was based in
8 part on too narrow a view of the types of disputes that are
9 arbitrable under FINRA Rule 12200. The district court held that
10 FINRA arbitration was not limited solely to disputes involving
11 âbusiness activitiesâ related to securities, but stated that non-
12 securities cases âhave dealt in large part with individual
13 brokersâ fraudulent conveyances or investments, where there is a
14 strong policy argument favoring arbitration.â Citigroup Global
15 Mkts., Inc., 2008 WL 4891229, at *6. The district court
16 continued by stating, â[i]n light of the undefined scope of Rule
17 12200 and the unique set of facts before the Court, the Court
18 concludes that CGMI has presented legal and factual issues that
19 make its assertions a fair ground for litigation.â Id.
20 Were the application of the FINRA rules to non-securities
21 cases the sole ground on which the district court granted CGMIâs
22 motion for preliminary relief, we would be forced to confront the
23 district courtâs suggested limitation of the definition of the
24 term âbusiness activitiesâ in non-securities cases. However,
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1 because the district court correctly ruled that VCGâs customer
2 status was a serious question going to the merits, we affirm the
3 entry of the preliminary injunction even assuming an error of law
4 as to the district courtâs understanding of the term âbusiness
5 activity.â
6 C. Weighing the Balance of Hardships
7
8 VCG next argues that the district court failed to consider
9 that VCG would be âdeprived of its right to a speedy resolution
10 of its grievance with a broker-dealerâ and would have âto incur
11 the cost and expend the energy involved in litigating the
12 threshold arbitrability question.â VCG Br. 45. The district
13 court did not neglect these concerns: it expressly considered the
14 impact of delay on VCG and weighed that hardship against those
15 that would be imposed on CGMI in the absence of a preliminary
16 injunction. The district courtâs balancing of those hardships
17 did not constitute an abuse of discretion.
18 CONCLUSION
19 For the foregoing reasons, we AFFIRM the district courtâs
20 orders granting CGMIâs motion for a preliminary injunction and
21 denying VCGâs motion for reconsideration.
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