132172

CitigroupGlobalMarketsInc.v.Abbar
UNITEDSTATESCOURTOFAPPEALS 1
2
FORTHESECONDCIRCUIT 3
4
AugustTerm,2013 5
6
7
(Argued:May16,2014Decided:August1,2014) 8
9
DocketNo.132172 10
11
x 12
13
CITIGROUPGLOBALMARKETSINC., 14
15
PlaintiffCounter 16
DefendantAppellee, 17
18
v. 19
20
GHAZIABDULLAHABBAR,astemporary 21
administratoroftheestateofAbdullahMahmoud 22
Abbar,shallbesubstitutedforDecedent,AJIAL 23
LEVERAGEDFEEDERHOLDINGSLIMITED, 24
AMATRALEVERAGEDFEEDERHOLDINGS, 25
LIMITED,AMAVESTHOLDINGSLIMITED,GAMA 26
INVESTMENTHOLDINGSLIMITED,CHRISTINE 27
WOODHOUSE,astemporaryadministratorofthe 28
estateofAbdullahMahmoudAbbar,shallbe 29
substitutedforDecedent, 30
31
DefendantsCounter 32
ClaimantsAppellants, 33
34
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ABDULLAHMAHMOUDABBAR, 1
2
DefendantCounter 3
Claimant.
*
4
5
x 6
7
Before: JACOBS,CABRANES,andLIVINGSTON, 8
CircuitJudges. 9
10
GhaziAbbarappealsfromajudgmentoftheUnitedStatesDistrictCourt 11
fortheSouthernDistrictofNewYork(Stanton,J.),permanentlyenjoiningFINRA 12
arbitrationagainstaNewYorksubsidiaryofCitigroup,Inc.Intheabsenceofan 13
agreementtoarbitrate,FINRAarbitrationisavailableonlytocustomersof 14
FINRAmembers.AbbarheldhisinvestmentswithaforeignCitigroupentity;he 15
purchasednogoodsorservicesfromtheNewYorksubsidiary;heistherefore 16
notacustomeroftheNewYorkentityandcannotcompelFINRAarbitration 17
againstit.Weaffirm. 18
WILLIAMB.ADAMS,QuinnEmanuel 19
Urquhart&Sullivan,LLP,NewYork,New 20
York(ClelandB.WeltonII,QuinnEmanuel 21
Urquhart&Sullivan,LLP,NewYork,New 22
York;JohnG.Rich,RossB.Intelisano,Rich, 23
Intelisano&Katz,LLP,NewYork,New 24
York,onthebrief),forAppellants. 25

*
TheClerkofCourtisdirectedtoamendthecaptiontoconformwiththe
above.
2
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SCOTTA.EDELMAN(DanielM.Perry, 1
JedM.Schwartz,KatherineRhodes 2
Janofsky,onthebrief),Milbank,Tweed, 3
Hadley&McCloyLLP,NewYork,New 4
York,forAppellees. 5
6
JeniceMalecki,MaleckiLaw,NewYork, 7
NewYork,foramicuscuriaePublic 8
InvestorsArbitrationBarAssociation. 9
10
BrentJ.McIntosh,Sullivan&Cromwell 11
LLP,Washington,DC,foramicuscuriae 12
SecuritiesIndustryandFinancialMarkets 13
Association. 14
15
16
DENNISJACOBS,CircuitJudge: 17
18
GhaziAbbar,aSaudibusinessmanwhomanagedAbbarfamilytrusts,lost 19
$383millioninvestedwithaUnitedKingdomaffiliateofCitigroup,Inc.He 20
seekstoarbitratehisgrievancesundertherulesoftheFinancialIndustry 21
RegulatoryAuthority(FINRA)againstaNewYorkaffiliate,whichisaFINRA 22
member.TheUnitedStatesDistrictCourtfortheSouthernDistrictofNewYork 23
(Stanton,J.)permanentlyenjoinedthearbitrationonthegroundthatAbbarisnot 24
acustomeroftheNewYorkaffiliate. 25
TheAbbarfamilytrustswereadministeredthroughtwowhollyowned 26
investmentvehicles(defendantsAmatraLeveragedFeederHoldings,Limited 27
3
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andAjialLeveragedFeederHoldings,Limited)thatheldthefamilyportfolio. 1
Abbarpursuedariskyleveragedinvestmentbypurchasingoptionsfrom 2
CitigroupGlobalMarketsLtd.(CitiUK),whichisincorporatedintheUnited 3
KingdomunderthelawsofEnglandandWales.TheoptionsentitledAbbarto 4
thevalueofcertainassetsinafundheldbyCitiUK.Someoftheinvestment 5
bankerswhohelpeddevelopAbbarstradingstrategy,andsomeofthe 6
personnelwhoworkedontheinvestments,wereemployedatanotherCitigroup 7
affiliate,CitigroupGlobalMarketsInc.(CitiNY),whichisincorporatedunder 8
thelawsofNewYork.Whentheinvestmentslostallvalue,Abbarcommenceda 9
FINRAarbitrationinNewYorkagainstCitiNY,aFINRAmember. 10
CitiNYbroughtanactionintheSouthernDistrictofNewYorktoenjoin 11
thearbitration,citingtheFINRACodeofArbitrationProcedureforCustomer 12
Disputes(FINRACode),whichprovidesthataFINRAmemberconsentsto 13
arbitrationwithitscustomers.Afterabenchtrial,thedistrictcourtruledthat 14
Abbar,whopurchasednogoodsorservicesfromCitiNYandhadnoaccount 15
withit,thereforelackedtheindiciaofacustomer.Accordingly,theinjunction 16
wasissued.Weaffirm. 17
18
4
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BACKGROUND 1
Thefollowingfactsaredrawnfromthedistrictcourtopinionandthe 2
undisputedportionsofthepartiespleadingsandfilings. 3
Inlate2005toearly2006,GhaziAbbarsprivatebanker,MohannedNoor, 4
leftDeutscheBankandjoinedCitigroupPrivateBankinGeneva,bringingwith 5
himthebusinessoftheAbbarfamily.Inthefollowingmonths,Abbarfamily 6
trusts(throughthedefendantinvestmentvehicles)purchasedcomplexoptions 7
inLondonfromCitiUK. 8
Thestructureoftheoptiontransactionswasasfollows(withsomeblessed 9
simplification).CitiUKsetuptworeferencefundstoholdtheinvestment 10
assets.Abbarcontributed$198million
1
tothereferencefundsandCitiUK 11
agreedtocontributebetween$300and$900millioninleveragefunds.
2
Citi 12
UKheldownershipofalltheassetsinthereferencefunds,includingAbbars 13
contribution.InexchangeforAbbarscontributionandcertainfees,CitiUK 14

1
Abbarcontributed$343millioninassetsencumberedby$145millionin
debt,anetcontributionof$198million.

2
TheexactamountofleveragecontributedbyCitiUKwouldvarybased
ontherisklevelofeachindividualinvestmentselectedbyAbbar.Thetotal
leveragethatcouldbeprovidedwascappedat$900million.
5
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issuedoptionstotheAbbarfamilytruststhatentitledthemtothevalueofthe 1
assetsheldinthereferencefunds,lesstheleveragefunds.Underthis 2
arrangement,theAbbarfamilytrustswereallowedtokeep100percentofany 3
upside,buthadtobearthefirst$198millioninlosses.Ifthereferencefundslost 4
morethanthe$198million,theadditionallosswasbornebyCitiUK.
3
5
WhileCitiUKownedthereferencefunds,theyweremanagedbyAbbar 6
withoversightfromNewYorkbyCitiNY.AbbarservedastheInvestment 7
Advisorandselectedthefundsinvestments,subjecttoreviewandapprovalby 8
CitiNY.ThevotingrightsinthereferencefundswereheldbyCitiNY,which 9
retainedtherighttoremoveAbbarasInvestmentAdvisor(andeventuallydid). 10
Theworkofstructuringandnegotiatingtheoptionswasdonemainlyby 11
CitiNYpersonnelworkinginaCitigroupdivisionknownastheHybrids 12
Group.Suchfundderivativeswerewithinthatdivisionsareaofspecialty, 13
whereasLondontradersatCitiUKtypicallyarrangedinvestmentsindifferent 14
financialproducts. 15

3
AbbarpaidaninterestchargetoCitiUKonanyleveragefundsextended
tothereferencefunds.Inthissense,althoughCitiUKretainedeconomic
ownershipofthereferencefunds,theleveragefundsarecomparabletoanon
recourseloantoAbbar.Ifthevalueofthisloanwasimpaired,theriskwasborne
byCitiUK,thelender.
6
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ProvidingexpertisetoCitigroupcolleagueselsewherewasroutineforCiti 1
NYpersonnel.ThearrangementwasdesiredbyAbbar,whowantedhisprivate 2
bankerNoortobeabletowalkthecorridorsoftheentireCitigroup,andhave 3
accesstotheentiretyofCitigroupwhereverthebestpeoplewere. 4
CitigroupGlobalMkts.,Inc.v.Abbar,943F.Supp.2d404,406(S.D.N.Y.2013) 5
(CGMIv.Abbar).Abbarhadfrequentcommunicationwiththepersonnelat 6
CitiNY,paidlittleattentiontowhichCitigroupentityemployedthepeoplehe 7
wasworkingwith,andinteractedwithemployeesofCitigroupdivisionsand 8
officesinGenevaaswellasinLondonandNewYork. 9
Underthetwooptionagreements(onewitheachofthedefendant 10
investmentvehicles),theCitigroupcounterpartytotheoptiontransactionswas 11
CitiUK.ThetermsoftheoptionsweresetforthinconfirmationsbetweenCiti 12
UKandAbbarsinvestmentvehicles.ThetransactionswererecordedonCiti 13
UKsbooksofaccount. 14
Theoptionagreementsthemselvesincludednoforumselectionor 15
choiceoflawclause,butCitiUKandAbbarenteredintoanadditional 16
agreementthatdid.TwostructuringservicesletterscontainedAbbars 17
agreementtopayCitiUKforsettinguptheinvestment,andtheseincluded 18
7
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forumselectionandchoiceoflawclausesprovidingthatanydisputeswhich 1
mayariseoutoforinconnectionwiththisletteragreementwouldbe 2
adjudicatedinEnglishcourtsunderEnglishlaw. 3
AfterthetransactionsclosedinMay2006,CitiNYpersonnelcontinuedto 4
monitortherisktoCitiUKandhelpedpreparemonthlyreportsonthestatusof 5
thefunds.CitiNYperformedduediligenceonhedgefundassetstoassessCiti 6
UKsleverageandexposure.Asholderofthefundsvotingrights,CitiNYhad 7
finalsayoverinvestmentdecisions.TheseserviceswereperformedbyCitiNY 8
moreforthebenefitofCitiUKthanforAbbar.ThesetupallowedCitiNYto 9
overrideAbbarsdecisionsasInvestmentAdvisorand,inthatway,protectCiti 10
UKsveryconsiderableinterest. 11
TheinterrelationshipbetweenCitiUKandCitiNYwassetoutininternal 12
Citigroupdocuments,andwasformalizedinpowersofattorney,includingone 13
thatgrantedCitiNYauthoritytosignthetransactionconfirmationsforCitiUK. 14
Accountingadjustmentsreflectedthevalueofserviceseachaffiliateperformed 15
fortheother. 16
Theoptiontransactionscameunderstressin2008.CitiNYremoved 17
AbbarasInvestmentAdvisorearlyin2009.Inthefallof2009,CitiNY 18
8
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employeesparticipatedinworkouteffortswithAbbar.Thoseeffortsfailed,and 1
Abbarlosthisentireinvestment. 2
AbbarfiledastatementofclaimwithFINRAinAugust2011onbehalfof 3
himself,hisfather(AbdullahMahmoudAbbar),andtheirinvestmentvehicles. 4
HerequestedarbitrationagainstCitiNY. 5
Thestatementofclaim,whichallegedlossesfromtheoptiontransactions, 6
alsocomplainedofafailed$100millionprivateequityloanfacilityextendedto 7
AbbarbyCitibankSwitzerlandSAandtheGenevabranchofCitibankNA.The 8
March2007loansuppliedAbbarwithfundsheneededtomeetcapitalcallson 9
hisheavilyleveragedhedgefundinvestments.Pursuanttotheloanagreement, 10
Abbartransferredcontrolof$147millionworthofhedgefundinvestmentstothe 11
SwissCitigroupentities.Thefinancialcrisiswipedoutthehedgefund 12
investments,andAbbarblamedthelossesontheSwissbanksmismanagement 13
ofthefunds.AlthoughCitiNYpersonnelplayednoroleinnegotiatingtheloan, 14
Abbartestifiedthattheloanfacilityandtheoptiontransactionswereapackage 15
deal,andthattheworkoutdiscussionsproposedconsolidationofthetwo 16
transactions.AbbarthereforeclaimedthatCitiNYwasresponsibleforthe$147 17
millionloss,andsoughtrecoveryintheFINRAarbitration. 18
9
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Abbarlost$198millionontheoptiontransactions,$147milliononthe 1
privateequityloanfacility,andanadditional$38millionthatheinjectedinto 2
thesetransactionsatvariouspoints.Alltold,Abbarlost$383million. 3
CitiNYbroughtthisactionintheSouthernDistrictofNewYorktoenjoin 4
theFINRAarbitration,andnamedasdefendantsAbbar,Abbarsfather,and 5
theirinvestmentvehicles.BecauseCitiNYhadnowrittenarbitrationagreement 6
withAbbar,theFINRArulesmandatearbitrationonlyifAbbarisacustomer 7
ofCitiNY.CitiNYarguedthatAbbarwasacustomerofCitiUK,butnotofCiti 8
NY. 9
JudgeStantongrantedtheinjunctionfollowingalmosttwoyearsofpre 10
trialmotionsandaninedaytrial(withthousandsofpagesofdocumentsand 11
scoresofexhibitsadmittedinevidence).Theopinionexplainshowthis 12
thresholdquestionbecamesoramified: 13
ThatisbecausethequestionwhetherMr.Abbarwasacustomerof[Citi 14
NY]wasseentorequireexaminingandevaluatingthesubstance,nature, 15
andfrequencyofeachinteractionandtaskperformedbythevarious 16
personswhodealtwithMr.Abbar,theircontemporaneous 17
understandingsofwhosebehalfthepersonwasacting[for],andtheextent 18
towhichthepersonsactivitiesshapedorcausedthetransaction,inthe 19
hopethatsuchfactswouldcoalesceintoafunctionalconceptofthe 20
customerrelationshipcapableofsupportingajudicialdetermination. 21
22
10
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CGMIv.Abbar,943F.Supp.2dat407.Considerationofallthisevidenceasa 1
wholecompelledtheconclusionthatAbbarwasnotacustomerofCitiNY 2
becauseoftheoverwhelmingsignificanceoftheexecutionofthetransactions 3
with[CitiUK]andbecausetheplanning,structuring,andotherservices 4
performedby[CitiNY]inNewYorkwereancillaryandcollateraltothose 5
centralcoretransactions.Id.at408. 6
However,JudgeStantonultimatelyreliedonadifferent,morecategorical 7
holding: 8
However,Idonotrest[my]decisiononthosegroundswhichrequire,as 9
theyhaveinthiscase,suchanexpenditureoftime,expenseandeffortto 10
establishastomakeamockeryofthestatutoryconceptthatwhetherthere 11
isanagreementtoarbitratebedecidedbythecourtattheoutset,and 12
promptly.Thereisabetterway.... 13
14
Themoredirect,available,reliable,andpredictablegroundfor 15
decisionis...[that]theinvestoristhecustomerofthepartywithwhichhe 16
hastheaccountandconsummatesthetransaction. 17
18
Theentityinwhichtheinvestorhashisaccount,andfromwhomthe 19
investorpurchaseshisdesiredproduct,definesthelegalandbusiness 20
locusofhisstatusasacustomer,andisthecoreoftherelationshipasa 21
customer. 22
23
Id.Thedistrictcourtnotedthatthisdefinitionofcustomercomportswiththe 24
ordinarymeaningoftheterm:onethatpurchasessomecommodityorservice. 25
11
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Id.at409(internalquotationmarksomitted)(citingUBSFin.Servs.,Inc.v.W. 1
Va.Univ.Hosps.,Inc.,660F.3d643,650(2dCir.2011)).Thatsolution,Judge 2
Stantonobserved,isbothsensibleandefficient: 3
Theelementsofanaccountandapurchasearevisibletoallattheoutsetof 4
thedisputeresolutionprocess.Theiruseasaruleofdecisionallowsready 5
determinationofthearbitrabilityofdisputes,andavoidstheneedfor 6
lengthyproceedingsoverwhetherarbitrationisavailable.Itgivesthe 7
financialcommunityreasonableexpectationswithrespecttotherulethat 8
willapply.Thatisthegroundofdecisioninthiscase,anditshouldbe 9
appliedinothersuchcases,withappropriateexceptionstoavoidinjustice. 10
11
Id.at410. 12
Thisappealfollowed. 13
14
DISCUSSION 15
Followingacivilbenchtrial,wereviewadistrictcourtsfindingsoffact 16
forclearerror,anditsconclusionsoflawdenovo;resolutionsofmixedquestions 17
offactandlawarerevieweddenovototheextentthattheallegederrorisbased 18
onthemisunderstandingofalegalstandard,andforclearerrortotheextentthat 19
theallegederrorisbasedonafactualdetermination.DieboldFound.,Inc.v. 20
Commr,736F.3d172,182(2dCir.2013). 21
22
12
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Intheabsenceofanagreementbythepartiestosubmitthematterof 1
arbitrabilitytothearbitrator,thequestionofwhetherornotadisputeis 2
arbitrableisoneforthecourt.WachoviaBank,NatlAssnv.VCGSpecial 3
OpportunitiesMasterFund,Ltd.,661F.3d164,171(2dCir.2011).The 4
arbitrationrulesofanindustryselfregulatoryorganizationsuchasFINRA
4
are 5
interpretedlikecontractterms;theorganizationsarbitrationprovisionshould 6
thusbeinterpretedtogiveeffecttothepartiesintentasexpressedbytheplain 7
languageoftheprovision.Id.(quotingBensadounv.JobeRiat,316F.3d171, 8
176(2dCir.2003))(internalquotationmarksomitted). 9
TheFINRACodemandatesthatmemberssubmittoFINRAarbitrationof 10
adisputeif: 11
12
ArbitrationundertheCodeiseither: 13
(1)Requiredbyawrittenagreement,or 14
(2)Requestedbythecustomer; 15
16
Thedisputeisbetweenacustomerandamemberorassociated 17
personofamember;and 18
19

4
FINRAisaregisteredselfregulatoryorganizationundertheSecurities
ExchangeActof1934,see15U.S.C.78c(a)(26),78s(b),andhastheauthorityto
regulateitssecuritiesfirmmembersbycreatingandenforcingrules.See
SecuritiesandExchangeCommissionReleaseNo.3456145,72Fed.Reg.42169,
42170(Aug.1,2007).
13
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Thedisputearisesinconnectionwiththebusinessactivitiesofthe 1
memberortheassociatedperson,exceptdisputesinvolvingthe 2
insurancebusinessactivitiesofamemberthatisalsoaninsurance 3
company. 4
5
FINRARule12200(emphasisadded).Inshort,therulerequiresaFINRA 6
membertoarbitratedisputeswithitscustomers,orthecustomersofits 7
associatedpersons(whoaredefinedasnaturalpersons,seeFINRARule 8
12100(r)).SinceCitiNYisaFINRAmember,seeFINRARule12100(o),andthere 9
isnowrittenagreementtoarbitrate,thedecisiveissueiswhetherAbbarwasa 10
customerofCitiNY.SeeUBS,660F.3dat64849(notingthatFINRAmembers 11
areboundtoadheretothearbitrationprovisionsoftheCode). 12
TheFINRACodedoesnotdefinecustomer,excepttosaythata 13
customershallnotincludeabrokerordealer.FINRARule12100(i).Atthe 14
outset,wecanrejectAbbarscontentionthat,underJohnHancockLifeInsurance 15
Companyv.Wilson,254F.3d48(2dCir.2001),wemustresolveanyambiguity 16
infavorofarbitration.Thisargumenthasbeenrejectedmorethanonce.See 17
Wachovia,661F.3dat17071;CitigroupGlobalMkts.,Inc.v.VCGSpecial 18
OpportunitiesMasterFundLtd.,598F.3d30,39(2dCir.2010)(Citigroupv. 19
VCG);cf.Bensadoun,316F.3dat176(classifyingJohnHancockssuggestion 20
14
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thatpresumptioninfavorofarbitrationappliesasdicta).Becausetheparties 1
herearedisputingtheexistenceofanobligationtoarbitrate,notthescopeofan 2
arbitrationclause,thegeneralpresumptioninfavorofarbitrationdoesnotapply. 3
SeeAppliedEnergetics,Inc.v.NewOakCapitalMkts.,LLC,645F.3d522,526(2d 4
Cir.2011)(Whiledoubtsconcerningthescopeofanarbitrationclauseshouldbe 5
resolvedinfavorofarbitration,thepresumptiondoesnotapplytodisputes 6
concerningwhetheranagreementtoarbitratehasbeenmade.);seealsoUBS, 7
660F.3dat663(Preska,J.,dissenting)(citingAppliedEnergeticstoreject 8
applicationofpresumptiontodefinitionofcustomerinFINRARule12200). 9
Therefore,thewordcustomermustbeconstruedinamannerconsistentwith 10
thereasonableexpectationsofFINRAmembers.Wachovia,661F.3dat171 11
(internalquotationmarksomitted). 12
ThepurchaseofagoodorservicefromaFINRAmembercreatesa 13
customerrelationship.SeeUBS,660F.3dat650.Whensuchapurchaseis 14
undisputed,thereisnoneedforfurthercourtproceedingsconcerningthe 15
existenceofacustomerrelationship.Wachovia,661F.3dat173.Likewise,when 16
itisclearthatnogoodsorserviceswereprovidedbytheFINRAmember,there 17
isnoneedtograpplewiththepreciseboundariesoftheFINRAmeaningof 18
15
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customerbecausenorationalfactfindercouldinferacustomerrelationship 1
onsuchfacts.Wachovia,661F.3dat17374(holdingthatnocustomer 2
relationshipexistedwhereFINRAmemberprovidednoagency,brokerage, 3
advisoryorfiduciaryservicesforopposingparty,andnobrokerageservices 4
agreementexisted). 5
Ourcaseliesinbetween.CitiNYemployeescertainlyprovidedservicesto 6
Abbar:theyhelpedstructureandmanagetheoptiontransactions.However, 7
AbbardidnotpurchasethoseservicesfromCitiNY.Hisinvestmentagreements 8
werewithCitiUK,andthefeeforallservicesrenderedbyCitigrouppersonnel 9
andofficeswaspaidtoCitiUK.CitiUKnotCitiNYwasthecounterpartyto 10
theoptionagreementsandthestructuringservicesletters.WhileAbbarwas 11
certainlyacustomerofCitiUK,thatrelationshipdoesnotallowAbbarto 12
compelarbitrationagainstitscorporateaffiliate.SeeWachovia,661F.3dat171 13
(holdingthatapurchaserofacreditdefaultswapfromWachoviaBank,N.A. 14
wasnotacustomerofaffiliateWachoviaCapitalMarkets,LLC).Thedistrict 15
courtfoundasfactthatwhenCitiNYprovidedmanagementservicestoAbbar, 16
itactedprimarilyforCitiUKinconnectionwiththeservicesCitiUKwas 17
18
16
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providingtoAbbar.CGMIv.Abbar,943F.Supp.2dat40607.Thatfindingof 1
factisnotclearerror,andiswellsupportedbytherecord. 2
Wearethuspresentedwithanissuethat,untilnow,thisCourthasbeen 3
abletoavoid:thepreciseboundariesoftheFINRAmeaningofcustomer. 4
Wachovia,661F.3dat17374.WeholdthatacustomerunderFINRARule 5
12200isonewho,whilenotabrokerordealer,either(1)purchasesagoodor 6
servicefromaFINRAmember,or(2)hasanaccountwithaFINRAmember. 7
Theordinarymeaningofthewordcustomer(nospecialmeaningseems 8
intended)issomeonewhobuysgoodsorservices.UBS,660F.3dat650 9
(internalquotationmarksomitted)(citingmultipledictionarydefinitions).By 10
agreeingtoacceptafeeforitsservicesorbysellingsecuritiestoanentity,a 11
FINRAmemberunderstandsthatitmaybecompelledtoarbitrateifadispute 12
ariseswiththatentity.Id.Thismaynotbeacomprehensivedefinitionofthe 13
term,seeid.,butitcapturesvirtuallyallcustomerrelationships. 14
Acustomerrelationshipcanalsocomeintobeingbyopeninganaccount 15
withtheFINRAmember.SeeOppenheimer&Co.,Inc.v.Neidhardt,56F.3d 16
352,357(2dCir.1995)(findingthatplacingfundswithOppenheimerfor 17
investmentcreatedacustomerrelationshipunderthepredecessorruleto 18
17
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FINRARule12200).Anaccountholderhasareasonableexpectationtobe 1
treatedasacustomer,whetherornotgoodsorservicesarepurchaseddirectly 2
fromtheFINRAmember.Likewise,theFINRAmembershouldanticipatethat 3
accountholdersmayavailthemselvesofthearbitrationforumtodispute 4
transactionsarisingfromtheaccount.SoeveniftheFINRAmemberexecutesall 5
securitiestransactionsthroughanaffiliateorprovidesserviceswithoutfee,the 6
accountholdercancompelarbitrationunderRule12200.
5
7
Inmostcases,thisdefinitionofcustomercanbereadilyappliedto 8
undisputedfacts.Thatissointhiscase:Abbarneverheldanaccountwiththe 9
FINRAmemberand(notwithstandinghisargumenttothecontrary)never 10
purchasedanygoodsorservicesfromit.Whenitisunclearwhethergoodsor 11
serviceswereinfactpurchasedfromtheFINRAmember,discovery(and 12

5
OurconclusionisbolsteredbyFINRARegulatoryNotice1255,which
definesthetermcustomerasitisusedinFINRAssuitabilityruletoincludea
personwhoisnotabrokerordealerwhoopensabrokerageaccountata
brokerdealerorpurchasesasecurityforwhichthebrokerdealerreceivesorwill
receive,directlyorindirectly,compensation.FINRARegulatoryNotice1255at
Q&A6(b)(Dec.2012).WhileapplicationofRegulatoryNotice1255islimitedto
thesuitabilitycontext,itsrecognitionthateitherapurchaseoraccountmaygive
risetoacustomerrelationshipfurthercounselsagainstlimitingRule12200suse
ofthetermcustomertothosewhopurchaseagoodorservicefromaFINRA
member.SeeUBS,660F.3dat651(relyingonotherprovisionsintheFINRA
CodetodefinecustomerinRule12200).
18
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possiblyatrial)mayberequired.SeeWachovia,661F.3dat173(citingCitigroup 1
v.VCG,598F.3dat3233,39).Buteventhen,itwillnotbenecessarytomakea 2
detailedexamination(asthedistrictcourtfeltcompelledtodohere)ofthe 3
substance,nature,andfrequencyofeachinteractionandtaskperformedbythe 4
variouspersons...,theircontemporaneousunderstandings...,andtheextent 5
towhichthepersonsactivitiesshapedorcausedthetransaction.CGMIv. 6
Abbar,943F.Supp.2dat407. 7
Theonlyrelevantinquiryinassessingtheexistenceofacustomer 8
relationshipiswhetheranaccountwasopenedorapurchasemade;partiesand 9
courtsneednotwonderwhethermyriadfactswillcoalesceintoafunctional 10
conceptofthecustomerrelationship.Id.Totheextentandintheeventsucha 11
brightlineruleallowsforevasionandabuse,wethinkthatsufficientreliefcan 12
beaffordedbyFINRAspowertodisciplineitsmembersandadjustitsrules,and 13
byJudgeStantonscaveatthatexceptionsmaybecompelledinrareinstancesof 14
injustice.SeeOppenheimer,56F.3dat357(findingcustomerrelationshipwith 15
FINRAmember,despitetheclaimantslackofanaccountwiththemember, 16
becausetheclaimantwouldhavehadanaccountwiththememberbutforthe 17
fraudassertedintheFINRAarbitration);cf.UBS,660F.3dat650(notingthata 18
19
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customermayalsobeonewhoundertakestopurchaseagoodorservicefrom 1
aFINRAmember). 2
Asthiscaseillustrates,financenowadaysofteninvolvesworldwide 3
sources,networksofinformation,talentandtechnology.Butmultipleinputsdo 4
notnecessarilycreatecustomerrelationshipsindifferentplacessimultaneously. 5
Theproceedingsconductedinthiscaseamounttoacontrolledexperimentin 6
whathappenswhencustomerstatusentailsinquiringintoeachcommunication, 7
agreement,sideagreement,understanding,andrenderingofadvice,andwhen 8
biggunsaredrawnincontentiousdiscoverydisputesandattrial.Thesprawling 9
litigationthatcan(anddid)resultdefeatstheexpressgoalsofarbitrationtoyield 10
economicalandswiftoutcomes. 11
Asimple,predictable,andsuitablybroaddefinitionofcustomeris 12
thereforenecessary.SeeUBSFin.Servs.,Inc.v.CarilionClinic,706F.3d319,325 13
(4thCir.2013)(definingcustomerasone,notabrokerordealer,who 14
purchasescommoditiesorservicesfromaFINRAmemberinthecourseofthe 15
membersbusinessactivities....).True,thedefinitionclosestheFINRAforum 16
tosomeforeigntransactionswithlittleconnectiontotheUnitedStates.Buta 17
foreignbusinessthatwantstoassureaccesstoFINRAarbitrationforits 18
20
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grievancesneedonlytransactbusinesswithaFINRAmemberorholdan 1
accountwithone. 2
3
Thejudgmentofthedistrictcourtisaffirmed. 4
21
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