Plaintiffs Wachovia Bank, N.A. ("Wachovia Bank") and Wachovia Capital Markets, LLC ("WCM") (collectively, "Plaintiffs") commenced this action against defendant VCG Special Opportunities Master Fund, Ltd. (f/k/a CDO Plus Master Fund, Ltd.) ("VCG" or "Defendant") to enjoin an arbitration proceeding initiated by Defendant before the Financial Industry Regulatory Authority ("FINRA") (the "FINRA Arbitration").*fn1 The Court has jurisdiction of the action pursuant to 28 U.S.C. § 1332.
Plaintiffs seek an order enjoining the FINRA Arbitration and declaring that VCG's claims are not subject to arbitration; Defendant counterclaims, seeking an order compelling arbitration pursuant to Section 4 of the Federal Arbitration Act.*fn2 The parties' cross-motions for summary judgment are before the Court. The Court has considered thoroughly the parties' submissions. For the following reasons, Plaintiffs' motion for summary judgment is denied, Defendant's motion for summary judgment is granted, and WCM is directed to arbitrate its dispute with VCG in the FINRA Arbitration.
The following material facts are undisputed unless otherwise indicated. VCG, formerly known as CDO Plus Master Fund Ltd., is an Isle of Jersey hedge fund that, before the initiation of this litigation, had $58 million of assets under management. (Def. 56.1 St. ¶¶ 7, 8.)*fn3
VCG is controlled by a Board of Directors comprised of Donald Uderitz, Jorge Rodriguez Lugo, George Lorraine, and Nigel Parker. (Def. 56.1 St. ¶¶ 8-9.) VCG has no employees of its own but, rather, operates through employees of Vanquish Capital Group LLC ("Vanquish Capital"), an entity that is also owned by Uderitz, who serves as its Chief Executive Officer and Chief Investment Officer. (Def. 56.1 St. ¶¶ 9-12.) Jonathan Wong was an employee of Vanquish Capital who worked on behalf of VCG. (Def. 56.1 St. ¶ 15.)
Wachovia Bank and WCM are both wholly-owned subsidiaries of Wachovia Corporation. (Def. 56.1 St. ¶ 1.) Wachovia Bank is a national banking association and WCM is a registered broker-dealer and FINRA member. (Def. 56.1 St. ¶ 1.) Thomas Edwards and Scott Williams were employed by WCM as directors on the collateralized debt obligation ("CDO") trading desk. (Def. 56.1 St. ¶¶ 3-4.) According to Edwards, their responsibility was to facilitate trades by being "market makers." (Edwards Dep. 123:2-10; 125:13; 126:16-23; 127:9-15.)
In May 2007, Wong approached Williams about entering into a credit default swap with VCG. (Def. 56.1 St. ¶ 19.) Wong negotiated the terms of the swap with WCM employees Williams and Edwards (Def. 56.1 St. ¶ 20), and VCG and Wachovia Bank ultimately entered into a credit default swap transaction in which the Forge Collateralized Debt Obligation was the reference obligation (the "Trade"). (Def. 56.1 St. ¶¶ 18, 21.) The documents governing the parties' rights and obligations in the Trade are: the Master Agreement of the International Swap Dealers Association ("ISDA"), dated May 4, 2007; the Schedule to the ISDA Master Agreement, dated May 4, 2007; the 1994 ISDA Credit Support Annex, dated May 4, 2007; and the Confirmation Letter, dated May 30, 2007. WCM is not a party to any of these agreements. (Def. 56.1 St. ¶ 23.)
The terms of the Trade provide that Wachovia Bank must pay VCG regular premium payments in exchange for VCG's assumption of the credit risk of the underlying reference obligation. The Trade also provides that Wachovia Bank can demand additional collateral support from VCG under certain conditions. Wachovia Bank made various collateral support demands throughout 2007, which VCG alleges were improper. The parties' dispute surrounding those demands is the factual predicate of both the FINRA Arbitration and a lawsuit initiated by VCG against Wachovia Bank that is currently before this Court, CDO Plus Master Fund Ltd. v. Wachovia Bank, N.A., Case No. 07 Civ. 11078 (the "S.D.N.Y. Litigation").
VCG commenced the S.D.N.Y. Litigation on November 28, 2007, asserting claims against Wachovia Bank under New York law for fraud, mistake, breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, specific performance, and conversion. (Def. 56.1 St. ¶ 32.) On May 1, 2008, VCG initiated the FINRA Arbitration against WCM, asserting claims under the FINRA Regulatory Code for breach of fiduciary duty, negligence, negligent supervision, violations of customer agreements, violation of the implied covenant of good faith and fair dealing, fraud, constructive fraud, and violations of FINRA Conduct Rules. (Def. 56.1 St. ¶ 40.) There is no written or oral arbitration agreement between VCG and WCM. (Def. 56.1 St. ¶ 40.) Rather, VCG asserts that WCM, as a FINRA member, is required to submit to arbitration of VCG's claims because FINRA members are required to engage in arbitration at the request of a "customer" when the dispute arises "in connection with the business activities of the member." See FINRA Code of Arbitration Procedure, Rule 12200 ("FINRA Rule 12200").
Wachovia Bank is not named as a Respondent in VCG's Statement of Claim before FINRA (Def. 56.1 St. ¶ 40) and WCM is not named as a defendant in the S.D.N.Y. Litigation. The parties agreed to stay the FINRA Arbitration pending resolution of this case. (Def. 56.1 St. ¶ 47.)
Plaintiffs seek summary judgment on the following three alternative theories: (i) that Defendant is not a customer of WCM for the purposes of FINRA Rule 12200, and therefore there is no basis to compel WCM to arbitrate the parties' dispute; (ii) that the FINRA Arbitration is vexatious and duplicative of the S.D.N.Y. Litigation and should be enjoined under the All Writs Act, 28 U.S.C. § 1651; and (iii) that VCG waived its right to arbitrate by commencing and pursuing the S.D.N.Y. Litigation. VCG, on the other hand, cross-moves for summary judgment dismissing Plaintiffs' complaint and compelling arbitration on the ground that FINRA Rule 12200 requires WCM to arbitrate its dispute.
The Parties' Cross-Motions for Summary Judgment
Summary judgment is to be granted in favor of a moving party where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party bears the burden of establishing that there is no genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). A fact is considered material to summary judgment "if it 'might affect the outcome of the suit under the governing law,'" and an issue of fact is a genuine one where "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Holtz v. Rockefeller & Co. Inc., 258 F.3d 62, 69 (2d Cir. 2001) (quoting Anderson, 477 U.S. at 248). The Second Circuit has explained, however, that "[t]he party against whom summary judgment is sought... 'must do more than simply show that there is some metaphysical doubt as to the material facts... ...