United States District Court, N.D. Texas, Dallas Division
MEMORANDUM OPINION AND ORDER
A. FITZWATER, UNITED STATES DISTRICT JUDGE
Jefferies LLC (“Jefferies”) brings this action
seeking a declaratory judgment and permanent injunction
enjoining defendants from pursuing claims against Jefferies
in an arbitration pending before the Financial Industry
Regulatory Authority (“FINRA”). Both sides have
filed motions for summary judgment, and the court has heard
oral argument. The court grants Jefferies' motion and
denies defendants' motion.
considered the parties' briefs and oral argument, the
court is persuaded that Jefferies has established that
defendants were not its “customers” as is
required for mandatory arbitration under Rule 12200 of the
FINRA Code of Arbitration Procedure for Customer Disputes.
Jefferies prepared the offering materials that defendants
relied on in purchasing the securities of Palmaz Scientific
Inc. (“PSI”), but defendants purchased the PSI
securities from WFG Investments, Inc., also a FINRA member
firm, or from PSI directly. It is undisputed that defendants
did not purchase PSI securities from Jefferies or purchase
any other services from Jefferies related to their
acquisition of PSI securities. Defendants therefore were not
customers of Jefferies or of an associated person of
court agrees with cases such as Citigroup Global Markets
Inc. v. Abbar, 761 F.3d 268 (2d Cir. 2014), that FINRA
Rule 12200 “requires a FINRA member to arbitrate
disputes with its ‘customers' or the
‘customers' of its ‘associated
persons (who are defined as natural persons[)].”
Id. at 274 (emphasis added)). See also Raymond
James Fin. Servs., Inc. v. Cary, 709 F.3d 382, 386-88
(4th Cir. 2013) (“When it accepted FINRA Rule 12200,
RJFS agreed to arbitrate disputes with its
customers, not with those who fall outside that
category.” (emphasis added)); Pershing LLC v.
Bevis, 2014 WL 1818098, at *2 (M.D. La. May 7, 2014)
(“While FINRA has not specifically defined the term
‘customer, ' Courts have defined it as ‘one,
not a broker or dealer, who purchases commodities or services
from a FINRA member.' This definition appears to require
a direct relationship, contractual or otherwise.”
(internal citation omitted) (quoting UBS Fin. Servs. Inc.
v. Carilion Clinic, 706 F.3d 319, 325 (4th Cir. 2013))),
aff'd, 606 Fed.Appx. 754 (5th Cir.
2015). Defendants are not customers of Jefferies or
of an associated person of
court has approved defendants' position that
Chevron deference should be given to SEC Release No.
34-55158, 72 Fed. Reg. 4574, 4579 (Jan. 31, 2007), and that
such deference (if given) supports defendants' position
that the scope of mandatory arbitration extends beyond direct
the court grants Jefferies' March 10, 2017 cross-motion
for summary judgment and holds that Jefferies is entitled to
a declaratory judgment holding that it is not required to
arbitrate defendants' claims related to their purchase of
PSI securities, and is entitled to a permanent injunction
enjoining defendants from proceeding against Jefferies in the
arbitration captioned Toby Wilson, Paula Turnbull Knox,
William Stanton, Janet Stanton, et al v. WFG Investments,
Inc. and Jefferies LLC, FINRA Office of Dispute
Resolution, Arbitration No. 16-03688. Defendants'
February 17, 2017 motion for summary judgment is denied. The
court is entering a Fed.R.Civ.P. 54(b) final judgment today.
Defendants' April 14, 2017 counterclaims, which are
contingent on the court's declaration that they may not
maintain their arbitration against Jefferies, remain to be
Under § 205(a)(5) of the
E-Government Act of 2002 and the definition of “written
opinion” adopted by the Judicial Conference of the
United States, this is a “written opinion issued by
the court” because it “sets forth a reasoned
explanation for [the] court's decision.” It has
been written, however, primarily for the parties, to decide
issues presented in this case, and not in an official
reporter, and should be understood accordingly.
The Fifth Circuit's decision in
California Fina Group, Inc. v. Herrin, 379 F.3d 311
(5th Cir. 2004), which addressed the predecessor of FINRA
Rule 12200, is not to the contrary. Herrin addressed
whether being a customer of an associated person was enough.
Id. at 317. In the present case, it is undisputed
that defendants were not customers of an associated person of
Jefferies. Defendants in fact recognize that Herrin
is factually distinguishable. See ...