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UBS Securities LLC v. Voegeli

January 26, 2010


The opinion of the court was delivered by: Denise Cote, District Judge


Plaintiff UBS Securities LLC ("UBS Securities") brings this action for declaratory and injunctive relief to enjoin defendants from pursuing claims against UBS Securities in a Financial Industry Regulatory Authority ("FINRA") arbitration proceeding. For the following reasons, UBS Securities is granted a declaratory judgment and permanent injunction restraining defendants from prosecuting their claims against UBS Securities in the FINRA arbitration proceeding.


Defendants are Swiss citizens who were seed investors in a company called HealtheTech, Inc. ("HealtheTech"). UBS Securities -- in whom UBS AG, a Swiss corporation, holds a minority membership interest -- served as a financial advisor and underwriter to HealtheTech in connection with its initial public offering ("IPO") in 2002.*fn1 At some point during the process leading up to the IPO, HealtheTech's chairman provided defendant Fridolin Voegeli a copy of a January 2002 presentation that UBS Securities had given to HealtheTech's Board of Directors.*fn2 The January 2002 presentation included estimates of the projected value of HealtheTech's common stock after the completion of the IPO. Defendant Voegeli shared the presentation with the other defendants. As a condition of serving as underwriters for the IPO, the underwriters, including UBS Securities, required all insiders, including defendants, to execute "lockup" agreements promising that they would not sell any securities that they held in HealtheTech for 180 days following the IPO. All of the defendants signed such lockup agreements with UBS Securities. HealtheTech's IPO was completed on July 8, 2002. Defendants allege that HealtheTech's common stock did not perform as well as the projections indicated in the January 2002 presentation. Defendants do not allege that they purchased any shares in HealthTech from or through UBS Securities at any time.

Almost seven years later, on February 28, 2009, defendants filed a Statement of Claim to commence a FINRA arbitration proceeding against UBS Securities, titled Voegeli et al. v. UBS Warburg, L.L.C., FINRA No. 09-01501.*fn3 In the Statement of Claim, defendants allege that UBS Securities is liable for, inter alia, breach of fiduciary duty, fraudulent inducement, negligent misrepresentation, and purported violations of § 10b of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection with its role in HealtheTech's IPO in 2002. The Statement of Claim seeks approximately $13 million in compensatory damages and more than $27 million in punitive damages. Defendants allege that their claims are subject to FINRA arbitration because defendants were purportedly customers of UBS Securities.

On June 25, 2009, UBS Securities filed a response to the Statement of Claim in which it refused to submit to arbitration and denied the arbitrability of defendants' claims. UBS Securities contends that the defendants have never been customers of UBS Securities and, in fact, have no other direct relationship with UBS Securities whatsoever. During the parties' first conference with the FINRA arbitral panel on September 14, UBS Securities requested that the arbitration be halted unless defendants could demonstrate that they were customers of UBS Securities. The arbitral panel declined UBS Securities' request and issued scheduling order setting January 15, 2010 as the date by which UBS Securities had to file any dispositive motion in the arbitration.

On October 20, 2009, UBS Securities filed a complaint seeking a preliminary and permanent injunction restraining defendants from prosecuting their claims in arbitration.*fn4 On October 21, UBS Securities filed a motion for a preliminary injunction pursuant to Rule 65(a), Fed. R. Civ. P. At a pretrial conference held on November 5, the parties agreed to jointly seek a stay of all proceedings in the underlying FINRA arbitration pending the outcome of the instant litigation, including any appeal. The motion for a preliminary injunction became fully submitted on December 14. Following a conference on January 11, 2010, both parties consented to the consolidation of the preliminary injunction hearing with a trial on the merits pursuant to Rule 65(a)(2), Fed. R. Civ. P. The parties further agreed that the merits of this dispute present only legal questions that may be resolved on the basis of the papers submitted in connection with UBS Securities' motion for a preliminary injunction.


1. Subject Matter Jurisdiction

Although defendants do not dispute the existence of subject matter jurisdiction over this action, a federal court has an independent obligation to determine whether subject matter jurisdiction exists. Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006). Given that UBS Securities and the defendants are all citizens of Switzerland, complete diversity is lacking.*fn5 In Vaden v. Discover Bank, 129 S.Ct. 1262, 1273 (2009), the Supreme Court recently held that under § 4 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 4, federal courts have jurisdiction to hear a petition to compel arbitration so long as the underlying dispute between the parties "arises under" federal law.*fn6 See Vaden, 129 S.Ct. at 1273. In so holding, the Court noted that the FAA "bestows no federal jurisdiction but rather requires for access to a federal forum an independent jurisdictional basis over the parties' dispute." Id. at 1271 (citation omitted). Accordingly, in cases where the parties are not diverse, a federal court may "look through" a petition under § 4 of the FAA to determine whether it is predicated on an action that "arises under" federal law. Id. at 1273.

Although Vaden concerned a federal court's jurisdiction to compel arbitration pursuant to § 4 of the FAA, its reasoning applies to situations where, as here, a party seeks to stay or enjoin an arbitration. See, e.g., Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003) (diversity jurisdiction); Merrill Lynch Inv. Managers v. Optibase, Ltd., 337 F.3d 125, 132 (2d Cir. 2003) (per curiam) (diversity jurisdiction).

In this case, the underlying dispute between UBS Securities and the defendants include purported violations of § 10b of the Securities Exchange Act of 1934 and Rule 10b-5. Federal courts have jurisdiction over claims arising under the Securities Exchange Act. See 15 U.S.C. § 78aa; 28 U.S.C. § 1331. Because the substantive controversy between UBS Securities and the defendants "arises under" federal law, subject matter jurisdiction exists over UBS Securities' claims for declaratory and injunctive relief.

2. Claims for Declaratory and Injunctive Relief

"To obtain a permanent injunction, a plaintiff must succeed on the merits and show the absence of an adequate remedy at law and irreparable harm if the relief is not granted." Roach v. Morse, 440 F.3d 53, 56 (2d Cir. 2006) (citation omitted). The existence of irreparable ...

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