United States District Court, S.D. New York
J.P. MORGAN SECURITIES LLC Plaintiff,
QUINNIPIAC UNIVERSITY, Defendant.
OPINION & ORDER
PAUL A. ENGELMAYER, District Judge.
On December 3, 2013, defendant Quinnipiac University ("Quinnipiac") initiated an arbitration against plaintiff J.P. Morgan Securities LLC ("JPMS") before the Financial Industry Regulatory Authority ("FINRA"). Quinnipiac brought claims arising out of financial losses it claimed to have sustained as a result of its 2007 issuance of auction rate securities ("ARS"), with respect to which JPMS served as underwriter and broker-dealer. Before the Court now is JPMS's motion to preliminarily and permanently enjoin the FINRA arbitration. For the reasons that follow, the Court grants that motion.
A. Factual Background
In December 2007, Quinnipiac, a university located in Hamden, Connecticut, sought to issue bonds to refinance its prior debt. Quinnipiac Br. 2. Quinnipiac retained JPMS to serve as its underwriter on the bond issuance and to provide advice on how to structure the refinancing. Id. JPMS recommended that Quinnipiac issue its bonds as ARS. ARS are:
long-term bonds and stocks whose interest rates or dividend yields are periodically reset through auction. At each auction, holders and buyers of the securities specify the minimum interest rate at which they want to hold or buy. If buy/hold orders meet or exceed sell orders, the auction succeeds. If supply exceeds demand, however, the auction fails and the issuer is forced to pay a higher rate of interest in order to penalize it and to increase investor demand.
Ashland Inc. v. Morgan Stanley & Co., 652 F.3d 333, 335 (2d Cir. 2011).
On December 1, 2007, Quinnipiac and JPMS signed a Broker-Dealer Agreement, under which JPMS agreed to serve as the broker-dealer for Quinnipiac's ARS. Compl. ¶ 12. The Broker-Dealer Agreement included the following forum-selection clause:
The parties agree that all actions and proceedings arising out of this Broker-Dealer Agreement or any of the transactions contemplated hereby shall be brought in a New York State Court or United States District Court, in each case, in the County of New York and, in connection with any such actions or proceeding, submit to the jurisdiction of, and venue in, such County.
Id., Ex. 5, at 14. The Broker-Dealer Agreement also contained a merger clause:
This Broker-Dealer Agreement, and the other agreements and instruments executed and delivered in connection with the issuance of the Bonds, contain the entire agreement between the parties relating to the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or inferred, between the parties relating to the subject matter hereof.
Id., Ex. 5, at 13.
On December 20, 2007, Quinnipiac issued $116.35 million in ARS debt, pursuant to an underwriting agreement (the "Purchase Contract") between Quinnipiac and JPMS. Id. ¶ 11. Under the Purchase Contract, JPMS agreed to buy a portion of the bonds and resell them to interested investors. Id., Ex. 6.
Quinnipiac claims that JPMS failed to disclose to Quinnipiac that JPMS, for the bonds for which it served as lead underwriter, had a practice of placing supporting bids in auctions, and that without these supporting bids, the auctions would fail, and the ARS market would collapse, thereby injuring Quinnipiac. Id., Ex. 1, at 11. On February 12, 2008, Quinnipiac alleges, JPMS and other broker-dealers stopped placing supporting bids in municipal ARS auctions, revealing insufficient investor demand for ARS, and that, as a result, the ...