Ninth Circuit: Forum Selection Clause Supersedes Right to FINRA Arbitration (with Lofchie Comment)

In Goldman Sachs Co. v. City of Reno, the United States Court of Appeals for the Ninth Circuit held that the forum selection clauses in the parties' contracts superseded any obligation to submit to FINRA arbitration. The Court noted that other courts had split on the issue of whether a broker-dealer could contract out of FINRA arbitration.

Lofchie Comment: The FINRA rules should be expressly amended so that arbitration is not mandated, unless agreed by the parties, in a situation where a broker-dealer is acting as an underwriter. The purpose of imposing a mandatory arbitration requirement on broker-dealers is to protect customers in an ordinary brokerage dispute where the costs of going to court are either excessive in light of the matter at hand or are beyond the wherewithal of the customer. That logic does not apply in the case of an issuer that has hired a firm to act as its underwriter. If an issuer wants the right to compel FINRA arbitration, then it is perfectly able to negotiate for that right in the underwriting agreement. On the other hand, if the parties have not previously agreed to arbitration, then it seems inappropriate for FINRA to force arbitration on an unwilling party who will, thereby, lose substantial rights of due process.

See: Goldman Sachs Co. v. City of Reno Ninth Circuit Court Decision; Goldman Sachs Co. v. City of Reno Statement of Claim Parts A, B and C; Goldman Sachs Co. v. City of Reno District Court Order 11-26-12; Goldman Sachs Co. v. City of Reno District Order 3-06-13; U.S. District Court District of Nevada Civil Docket.