PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

UBS FINANCIAL SERVICES, 

INCORPORATED; CITIGROUP GLOBAL

MARKETS, INCORPORATED,

Plaintiffs-Appellants,  No. 12-2066

v.

CARILION CLINIC,

Defendant-Appellee. 

Appeal from the United States District Court

for the Eastern District of Virginia, at Richmond.

John A. Gibney, Jr., District Judge.

(3:12-cv-00424-JAG)

Argued: December 4, 2012

Decided: January 23, 2013

Before NIEMEYER, KEENAN, and DIAZ, Circuit Judges.

Affirmed by published opinion. Judge Niemeyer wrote the

opinion, in which Judge Keenan and Judge Diaz joined.

COUNSEL

ARGUED: Jonathan K. Youngwood, SIMPSON THACHER

& BARTLETT, LLP, New York, New York, for Appellants.

James R. Swanson, FISHMAN HAYGOOD PHELPS
WALMSLEY & SWANSON LLP, New Orleans, Louisiana,

for Appellee. ON BRIEF: Hugh McCoy Fain, III, Edward E.

Bagnell, Jr., SPOTTS FAIN PC, Richmond, Virginia, for

Appellants; Jay Cohen, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLC, New York, New York, for Appellant Citigroup Global Markets, Inc. Jason W. Burge, Alysson

L. Mills, FISHMAN HAYGOOD PHELPS WALMSLEY &

SWANSON LLP, New Orleans, Louisiana; Patrick T. Fennell, CRANDALL & KATT, Roanoke, Virginia, for Appellee.

OPINION

NIEMEYER, Circuit Judge:

This case presents the question of whether UBS Financial

Services, Inc. ("UBS") and Citigroup Global Markets, Inc.

("Citi") are required, as members of the Financial Industry

Regulatory Authority, Inc. ("FINRA"), to arbitrate disputes

arising out of the services they provided to Carilion Corporation in connection with its multi-million dollar bond issues.

Carilion claimed that during the course of providing those services, UBS and Citi made numerous misrepresentations to it

and breached numerous duties. To resolve its claims, Carilion

initiated an arbitration proceeding against UBS and Citi under

FINRA Rule 12200 (which requires FINRA members to arbitrate disputes with a customer at the customer’s request).

UBS and Citi commenced this action to enjoin the arbitration proceedings, contending that Carilion was not a "customer" as that term is used in FINRA Rule 12200 and that, in

any event, Carilion waived any right to arbitrate by agreeing

to the forum selection clause contained in written agreements

with UBS and Citi. The district court rejected these arguments

and denied UBS and Citi’s motion for injunctive relief.

2 UBS FINANCIAL SERVICES v. CARILION CLINIC
We affirm. As explained herein, we conclude that Carilion,

by purchasing UBS and Citi’s services, was indeed a "customer" entitled to arbitration under FINRA Rule 12200 and

that the forum selection clause relied on by UBS and Citi did

not have the effect of superseding or waiving Carilion’s right

to arbitrate.

I

Carilion is a not-for-profit healthcare organization that

operates hospitals and clinics in Virginia. In 2005, it decided

to issue municipal bonds to finance the renovation and expansion of one of its hospitals and to refinance existing debt. Carilion retained UBS and Citi to advise it on the structure of the

bond issues and to assist it in implementing the financing

plan.

As Carilion alleges in its statement of claim filed with

FINRA, UBS and Citi recommended that Carilion issue a

large percentage of its bonds as "auction-rate bonds" and purchase interest rate swaps to hedge against interest rate fluctuations on those bonds. Auction-rate bonds are long-term,

variable-rate instruments for which the interest rates are reset

periodically through an auction process. During the process,

bidders place purchase and sell orders for the bonds through

broker-dealers who have contracted with the issuer. The

bonds are then sold at the lowest rate at which they can be

sold at par. If there are insufficient orders to purchase all of

the bonds being sold at auction, the auction "fails," and the

interest rate jumps to a contractual maximum rate until the

next auction.

Carilion followed UBS and Citi’s advice and accordingly,

in December 2005, issued $234,225,000 in face value of

auction-rate bonds and $74,240,000 in face value of daily-rate

bonds (which are not at issue in this case).

In addition to providing Carilion with advice on the structure of the bond issues, Carilion claims that UBS and Citi also

UBS FINANCIAL SERVICES v. CARILION CLINIC 3
(1) served as underwriters for the auction-rate bonds, purchasing the bonds from Carilion and reselling them to investors;

(2) served as lead broker-dealers for Carilion’s auction-rate

bond auctions; (3) sold to Carilion, through their affiliates,

interest rate swaps that they had recommended to protect Carilion from fluctuations in the bonds’ interest rates; (4) acted

as Carilion’s agents in dealing with the rating agencies; (5)

conducted discussions with bond insurers on Carilion’s

behalf; and (6) provided monitoring and advisory services on

the bonds and the swaps. For their services, UBS and Citi

earned an underwriter’s discount, part of which constituted a

management fee for their assistance in structuring and managing the transaction, and annual broker-dealer fees of 25 basis

points in exchange for managing the auction-rate bond auctions.

The parties documented their business arrangements in two

types of contracts—broker-dealer agreements and underwriting agreements. The broker-dealer agreements, executed on

December 1, 2005—two with UBS and two with Citi—

provided that UBS and Citi would run the periodic auctions.

The underwriting agreements, executed on December 13,

2005—one with UBS and one with Citi—provided that UBS

and Citi would purchase the auction-rate bonds from Carilion

and resell them to the public.

As Carilion alleges in its arbitration claim, in February

2008, the auction-rate bond market for Carilion’s bonds collapsed when UBS and Citi stopped submitting support bids

for the bonds at the auctions. Carilion’s interest payments

skyrocketed, and the swaps did not provide the designed protection. Consequently, Carilion was forced to refinance, losing millions of dollars in the process. Carilion claimed that

UBS and Citi misled it on the true nature of the auction-rate

bond market by failing to disclose that they had a practice of

placing support bids to prevent failure at every auction for

which they were the lead broker-dealer. Carilion claimed that

UBS and Citi’s conduct violated their fiduciary duty,

4 UBS FINANCIAL SERVICES v. CARILION CLINIC
amounted to fraud and negligent misrepresentation, violated

the Securities Exchange Act of 1934, violated the Virginia

Securities Act, and violated Municipal Securities Rulemaking

Board ("MSRB") and FINRA duties. To resolve these claims,

Carilion initiated the arbitration proceedings with FINRA on

February 11, 2012, naming UBS and Citi as respondents.

FINRA is a private self-regulatory organization, formed in

2007, that has "the authority to exercise comprehensive oversight over ‘all securities firms that do business with the public.’" UBS Fin. Servs., Inc. v. W. Va. Univ. Hosps., Inc., 660

F.3d 643, 648 (2d Cir. 2011) (quoting 72 Fed. Reg. 42169,

42170 (Aug. 1, 2007)). Both UBS and Citi are FINRA members and, when becoming FINRA members, agreed to comply

with its rules. See FINRA Bylaws, art. IV, § 1(a). FINRA

Rule 12200 provides that when customers so request, FINRA

members must participate in arbitration under the FINRA

Code of Arbitration Procedures, so long as "[t]he dispute is

between a customer and a member or associated person of a

member; and [t]he dispute arises in connection with the business activities of the member or the associated person."

After Carilion initiated arbitration proceedings, UBS and

Citi commenced this action, seeking a declaratory judgment

that FINRA lacks jurisdiction over the arbitration and an

injunction against the arbitration proceedings. In a motion for

a preliminary injunction, UBS and Citi contended (1) that

Carilion was not a "customer" entitled to arbitration under the

FINRA Rules; and (2) that Carilion, in any event, agreed, in

the forum selection clause of the broker-dealer agreements, to

litigate, rather than arbitrate, all disputes in a federal court in

New York County.

The district court denied UBS and Citi’s motion for a preliminary injunction, focusing primarily on why UBS and Citi

were unlikely to succeed on the merits. UBS Fin. Servs., Inc.

v. Carilion Clinic, No. 3:12CV424-JAG, 2012 WL 3112010

(E.D. Va. July 30, 2012). The court concluded that Carilion

UBS FINANCIAL SERVICES v. CARILION CLINIC 5
was a "customer" under the FINRA Rules because (1) there

is a federal policy favoring arbitration; (2) Carilion was

within the plain meaning of the term "customer"; (3) "other

courts have consistently held that an issuer of municipal

securities who purchased financial services from a FINRA

member is a customer under FINRA rules"; and (4) "FINRA

itself seems to have rejected the plaintiffs’ argument." Id. at

*3-6. The court also concluded that the forum selection clause

in the broker-dealer agreements did not displace UBS and

Citi’s arbitration obligation, concluding that (1) there is a federal policy favoring arbitration; (2) "the language of the forum

selection clause is susceptible to an interpretation favoring

arbitration" because it only requires "actions and proceedings"

to be brought in federal court and does not mention arbitration; and (3) UBS and Citi’s interpretation "conflicts with

FINRA’s practices with respect to scheduling arbitration." Id.

at *6-7.

When, following the district court’s ruling, the parties

agreed that there was nothing further to litigate, the court

entered final judgment on August 24, 2012, dismissing the

action. This appeal followed.

II

UBS and Citi, as FINRA members, are generally required

by the FINRA Rules to arbitrate disputes with customers

when (1) arbitration is "requested" by the customer and (2)

the dispute "arises in connection with the business activities

of the member." FINRA Rule 12200.1 Carilion, claiming to be

1FINRA Rule 12200 provides: 

Parties must arbitrate a dispute under the Code if: 

-Arbitration under the Code is either: 

(1) Required by a written agreement, or 

(2) Requested by the customer; 

6 UBS FINANCIAL SERVICES v. CARILION CLINIC
a "customer" of UBS and Citi, requested arbitration of its

claims that UBS and Citi breached duties in connection with

services they provided to Carilion on its auction-rate bond

issues. The parties agree that if Carilion was indeed a "customer" of UBS and Citi, UBS and Citi became contractually

obligated to proceed with arbitration on Carilion’s request

(unless, of course, Carilion waived its right to arbitration, as

claimed by UBS and Citi and as is addressed in Part III,

below). But UBS and Citi claim that Carilion was not a "customer," as that term is used in the FINRA Rules, and that

therefore they have no contractual obligation to arbitrate.

They maintain that Carilion’s claims did not "relate to a brokerage account or investment relationship with UBS or Citi"

and that the term customer under the FINRA Rules is limited

to persons who received investment or brokerage services, citing Fleet Boston Robertson Stephens, Inc. v. Innovex, Inc.,

264 F.3d 770 (8th Cir. 2001) (holding that a party receiving

banking and financial advice was not a "customer" under the

National Association of Securities Dealers ("NASD") Rules

and therefore could not invoke members’ arbitration obligations).

Carilion argues that "customer," as used in the FINRA

Rules, is a broad term that is not limited to only investors. It

contends that the scope of FINRA’s regulation is broader than

just protecting investors and that courts have not so limited

the term "customer" in construing the FINRA Rules. Relying

on a dictionary definition, Carilion claims that a customer is

anyone "who purchases some commodity or service."2

-The dispute is between a customer and a member or associated person of a member; and 

-The dispute arises in connection with the business activities

of the member or the associated person, except disputes

involving the insurance business activities of a member that

is also an insurance company. 

2Carilion also argues that the federal policy favoring arbitration, see

AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1745 (2011), weighs

UBS FINANCIAL SERVICES v. CARILION CLINIC 7
In becoming members of FINRA, UBS and Citi agreed to

mandatory arbitration of specified disputes with customers

when the customer "requests" such arbitration. Thus, when

Carilion initiated arbitration proceedings, it invoked UBS and

Citi’s obligation under the FINRA Rules, giving rise to a contractual obligation to arbitrate if in fact Carilion qualified as

a "customer," as that term is used in the FINRA Rules. See

Wash. Square Sec., Inc. v. Aune, 385 F.3d 432, 435 (4th Cir.

2004). Thus, what constitutes a "customer" lies at the heart of

whether UBS and Citi have an obligation to arbitrate.

The FINRA Rules do not define "customer." They do limit

the term to exclude from its scope any "broker or dealer."

in favor of a ruling that it is a "customer" of UBS and Citi. That federal

policy creating a presumption in favor of arbitration, however, applies

only where a validly formed and enforceable arbitration agreement exists

and its scope is ambiguous. See Granite Rock Co. v. Int’l Bhd. of Teamsters, 130 S. Ct. 2847, 2858–59 (2010). The Supreme Court "has never

held that the presumption overrides the principle that a court may submit

to arbitration ‘only those disputes . . . the parties have agreed to submit.’"

Id. (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943

(1995)). 

Here, an agreement to arbitrate exists only if a customer requests arbitration from a member. The question of whether a person requesting arbitration is a customer must be resolved to determine the existence of a

contract to arbitrate, not the scope of an arbitration agreement. Carilion’s

reliance on Washington Square Securities, Inc. v. Aune, 385 F.3d 432 (4th

Cir. 2004), where the court applied a presumption of arbitration in somewhat similar circumstances is not useful here because in Washington

Square, the investors were concededly customers of an associated person.

See id. at 436 (noting that it was "undisputed that the Investors were customers of [the broker], and that [the broker] was an associated person of

the member"). 

Consequently, in this case we address whether Carilion was a customer

as a question of contract law and without considering the presumption in

favor of arbitration. See Concepcion, 131 S. Ct. at 1745 (noting that the

Federal Arbitration Act reflects the "fundamental principle that arbitration

is a matter of contract" (quoting Rent-A-Center, West, Inc. v. Jackson, 130

S. Ct. 2772, 2776 (2010)). 

8 UBS FINANCIAL SERVICES v. CARILION CLINIC
FINRA Rule 12100(i).3

 But as to non-brokers and nondealers, the term is left undefined. Nonetheless, the FINRA

Rules do give an informing context by providing that arbitrable disputes must arise in connection with the "business activities" of the FINRA member, thus suggesting that for a person

to obtain arbitration, the person must be a customer with

respect to a FINRA member’s business activities. See FINRA

Rule 12200. The FINRA Rules give further context by suggesting that the business activities of a FINRA member

involve "investment banking or securities business." See

FINRA Rule 12100(r).4 Finally, the scope of FINRA’s regulatory interest similarly indicates the scope of relevant business

activities. FINRA’s mission, among other things, is "[t]o promote through cooperative effort the investment banking and

securities business, to standardize its principles and practices,

to promote therein high standards of commercial honor, and

to encourage and promote among members observance of federal and state securities laws;" "[t]o adopt, administer, and

enforce rules of fair practice and rules to prevent fraudulent

and manipulative acts in practices"; and "[t]o promote selfdiscipline among members, and to investigate and adjust

grievances between the public and members and between

members." Restated Certificate of Incorporation of Financial

3FINRA Rule 12100(i) provides, "A customer shall not include a broker

or dealer." 

4FINRA Rule 12100(r) provides: 

The term "person associated with a member" means: 

(1) A natural person who is registered or has applied for registration under the Rules of FINRA; or 

(2) A sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar

status or performing similar functions, or a natural person

engaged in the investment banking or securities business who is

directly or indirectly controlling or controlled by a member,

whether or not any such person is registered or exempt from registration with FINRA under the By-Laws or the Rules of FINRA.

(Emphasis added). 

UBS FINANCIAL SERVICES v. CARILION CLINIC 9
Industry Regulatory Authority, Inc. § 3 (July 2, 2010)

(emphasis added); see also W. Va. Univ. Hosps., 660 F.3d at

652 (using FINRA’s Restated Certificate of Incorporation to

"reject UBS’s contention that FINRA has a narrow ‘investorprotection mandate’").

But subject to the scope indicated by its context in the

FINRA Rules, the term "customer" in Rule 12200 still retains

its generally accepted meaning—"one that purchases a commodity or service." Merriam-Webster’s Collegiate Dictionary

308 (11th ed. 2007).

Coupling the contextual indicators from FINRA and the

dictionary definition of "customer," we thus conclude that

when FINRA uses "customer" in Rule 12200, it refers to one,

not a broker or dealer, who purchases commodities or services

from a FINRA member in the course of the member’s business activities insofar as those activities are covered by

FINRA’s regulation, namely the activities of investment

banking and the securities business. To construe "customer"

in a manner that is consistent with the context of the FINRA

Rules serves not only to provide customers of FINRA members the opportunity to arbitrate disputes arising in connection

with FINRA members’ business activities, but also to fulfill

FINRA’s charter "to investigate and adjust grievances

between the public and members."

Our definition is also fully supported by the decisions of

other courts that have faced analogous questions of who is a

"customer" within the meaning of FINRA Rule 12200. See W.

Va. Univ. Hosps., 660 F.3d at 648-53; UBS Fin. Servs. Inc. v.

City of Pasadena, No. CV 12-05019-RGK (JCx), 2012 WL

3132949, at *4-5 (C.D. Cal. July 31, 2012); J.P. Morgan Sec.

Inc. v. La. Citizens Prop. Ins. Corp., 712 F. Supp. 2d 70, 77-

79 (S.D.N.Y. 2010).

In West Virginia University Hospitals, UBS sought to

enjoin arbitration under the FINRA Rules, as it did here, con10 UBS FINANCIAL SERVICES v. CARILION CLINIC
tending that West Virginia University Hospitals was not a

"customer." 660 F.3d at 647-48. Just as here, UBS had provided services to West Virginia University Hospitals in connection with the Hospitals’ issuance of auction-rate bonds.

The court observed that UBS served West Virginia University

Hospitals "as both the lead underwriter and the main brokerdealer responsible for facilitating the Dutch auctions in which

[the Hospitals’] bonds were resold and their interest rates set."

Id. at 646. In concluding that West Virginia University Hospitals was a "customer" of UBS entitled to FINRA arbitration,

the Second Circuit held that the term "customer" in FINRA

Rule 12200 "includes at least a non-broker or non-dealer who

purchases, or undertakes to purchase, a good or service from

a FINRA member." Id. at 650. Thus, because West Virginia

University Hospitals "purchased a service, specifically auction services, from UBS," it was UBS’s customer. Id.

In reaching its conclusion, the court rejected the same arguments that UBS and Citi make here—that the term "customer"

is restricted by FINRA’s investor-protection mandate to those

persons receiving investment or brokerage services. The court

explained that while FINRA’s mission does indeed include

investor protection, its role and scope of authority is clearly

broader:

FINRA’s purposes are not limited to investor protection. Rather, as previously noted, FINRA serves as

the sole self-regulatory organization chartered under

the Exchange Act and exercises comprehensive

oversight of the securities industry. Among its stated

purposes are to "encourage and promote among

members observance of federal and state securities

laws"; "[t]o investigate and adjust grievances

between the public and members and between members"; and "[t]o adopt, administer, and enforce rules

of fair practice." UBS does not explain why "customer" should be limited to investors in light of

FINRA’s purposes, its other broad definitions of

UBS FINANCIAL SERVICES v. CARILION CLINIC 11
"customer" applicable to other provisions, and the

ordinary usage of the term.

W. Va. Univ. Hosps., 660 F.3d at 652 (citations omitted). We

find the court’s reasoning persuasive and equally applicable

to the circumstances here. 

UBS and Citi rely heavily on the Eighth Circuit’s decision

in Fleet Boston to support their more limited definition of

"customer" as referring to investors. In Fleet Boston, the court

construed language in the NASD Rules, a predecessor to the

FINRA Rules, and rejected a claim that "customer" means

broadly "everyone who is not a broker or dealer." 264 F.3d at

772. The court explained, "We do not believe that the NASD

Rules were meant to apply to every sort of financial service

an NASD member might provide, regardless of how remote

that service might be from the investing or brokerage activities, which the NASD oversees." Id. It then found that the

NASD Rules support a general definition of "customer" as

"one who receives investment and brokerage services or otherwise deals more directly with securities than what occurred

here." Id. (emphasis added). The court, however, did not

explain its definition further by describing what relationship

might deal "more directly with securities than what occurred

here." For this reason and because the court was faced with

a purported customer who had merely received financial

advice, we cannot take its holding to limit the scope of "customer" to "one who receives investment and brokerage services," as UBS and Citi argue.

UBS and Citi also contend that finding Carilion to be a customer "creates an unnecessary conflict between FINRA and

MSRB rules" because Carilion, as a new issuer of securities,

would be a "customer" under the FINRA Rules but not under

the MSRB Rules. The MSRB (Municipal Securities Rulemaking Board) is a self-regulatory organization that, similar to

FINRA, regulates the municipal securities market.

12 UBS FINANCIAL SERVICES v. CARILION CLINIC
MSRB Rule D-9 defines a customer as "any person other

than a broker, dealer, or municipal securities dealer acting in

its capacity as such or an issuer in transactions involving the

sale by the issuer of a new issue of its securities." Thus, while

Carilion is a customer under the FINRA Rules, as we hold, it

might not be a customer under the MSRB Rules. But being

subject to two different regulatory schemes, each of which

defines customer differently, does not necessarily create any

tension. To be sure, Carilion was a new issuer of municipal

securities and therefore might not have been a customer under

the MSRB Rules. But it also purchased underwriting and auction services from UBS and Citi and therefore was a customer

of those entities for purposes of arbitrating disputes arising

out of the business activities of those FINRA members. UBS

and Citi have not demonstrated how these regulatory differences create irreconcilable conflicts.

UBS and Citi further contend that the broker-dealer agreements they entered into with Carilion used "customer" to refer

to investors purchasing Carilion’s bonds and thus indicate that

Carilion is not a customer of UBS or Citi. The broker-dealer

agreements, however, were written to serve the purposes of

those agreements such that their labeling the purchasers of

bond securities from Carilion as customers does not foreclose

reaching the conclusion that Carilion itself was also a customer of UBS or Citi with respect to their services. Moreover,

even though parties are free to exempt themselves from Rule

12200, their private agreements do not alter the definition of

"customer" in the FINRA Rules.

Finally, UBS and Citi argue that our holding is inconsistent

with FINRA’s stated purpose of "protecting investors." As we

have already pointed out, however, even though FINRA

undertakes in its mission to protect investors, it also serves a

broader purpose, that of serving as "the sole self-regulatory

organization chartered under the Exchange Act to exercise

comprehensive oversight of the securities industry." W. Va.

Univ. Hosps., 660 F.3d at 652. Its mission includes the speUBS FINANCIAL SERVICES v. CARILION CLINIC 13
cific purpose of promoting observance of federal and state

securities laws and investigating and adjusting grievances

between the public and FINRA members under those laws.

See Restated Certificate of Incorporation of Financial Industry

Regulatory Authority, Inc. § 3 (July 2, 2010). FINRA Rule

12200 serves that mission.

In short, we conclude that "customer," as that term is used

in the FINRA Rules, refers to one, not a broker or a dealer,

who purchases commodities or services from a FINRA member in the course of the member’s business activities insofar

as those activities are regulated by FINRA—namely investment banking and securities business activities.

We have little difficulty concluding that Carilion is such a

"customer." To finance the renovation and expansion of its

hospital and refinance debt, Carilion issued over $308 million

in bonds, some $234 million of which were auction-rate

bonds. To assist it in structuring and underwriting the financing, Carilion retained UBS and Citi, entering into brokerdealer and underwriting agreements with them. Pursuant to

these agreements, UBS and Citi advised Carilion on the structure of its financing; served as the underwriters for the

auction-rate bonds, meaning that they purchased the bonds

from Carilion and resold them to investors; served as the lead

broker-dealers for Carilion’s auction-rate bond auctions; sold

to Carilion, through affiliates, interest rate swaps, which they

recommended to protect the financing structure; acted as Carilion’s agents in dealing with the rating agencies; conducted

discussions with bond insurers on Carilion’s behalf; and provided monitoring and advisory services on the bonds and the

swaps. For their services, UBS and Citi earned an underwriter’s discount, part of which constituted a management fee for

their assistance in structuring and managing the transaction,

and annual broker-dealer fees of 25 basis points in exchange

for managing the auction-rate bond auctions.

Because Carilion, as a customer of UBS and Citi, has

requested arbitration, UBS and Citi as FINRA members are

14 UBS FINANCIAL SERVICES v. CARILION CLINIC
obligated to participate in the arbitration pursuant to the

FINRA Rules.

III

As a separate and distinct argument, UBS and Citi contend

that the broker-dealer agreements signed by the parties specifically provide that all disputes between the parties, including

those disputes at issue in the FINRA arbitration commenced

by Carilion, "must be litigated in federal court," thus displacing UBS and Citi’s more general obligation to arbitrate under

FINRA Rule 12200. They rely on the forum selection clause

which provides at its core, "all actions and proceedings arising out of this Agreement . . . shall be brought in the United

States District Court the County of New York."5 While the

clause appears only in the broker-dealer agreements and not

in the underwriting agreements, UBS and Citi argue that by

its language, the clause also applies to any of the transactions

"contemplated" by the parties, including the transactions covered by the underwriting agreements.

At the outset, we agree with UBS and Citi that the obligation to arbitrate under FINRA Rule 12200 can be superseded

and displaced by a more specific agreement between the parties. See In re Am. Express Fin. Advisors Sec. Litig., 672 F.3d

113, 132 (2d Cir. 2011) (explaining that "different or additional contractual arrangements for arbitration can supersede

the rights conferred on [a] customer by virtue of [a] broker’s

membership in a self-regulating organization such as

[FINRA]" (quoting Kidder, Peabody & Co. v. Zinsmeyer

Trusts P’ship, 41 F.3d 861, 864 (2d Cir. 1994) (alterations in

original)); see also Smith Barney, Inc. v. Critical Health Sys.

of N.C., Inc., 212 F.3d 858, 862 (4th Cir. 2000) ("We join the

Second and Eleventh Circuits in holding that the [provision in

the American Stock Exchange Constitution allowing for the

5The County of New York is coterminous with the Borough of Manhattan within the City of New York. 

UBS FINANCIAL SERVICES v. CARILION CLINIC 15
customer to elect to arbitrate before the American Arbitration

Association] can be superseded by a more specific agreement"). Any such provision, however, must be sufficiently

specific to impute to the contracting parties the reasonable

expectation that they are superseding, displacing, or waiving

the arbitration obligation created by FINRA Rule 12200. Cf.

Smith Barney, 212 F.3d at 861 (interpreting whether a client

agreement prevented arbitration in the defendant’s desired

forum based on the plain language of the agreement); Applied

Energetics, Inc. v. NewOak Capital Mkts., LLC, 645 F.3d 522,

525 (2d Cir. 2011) (finding that an adjudication clause displaced an arbitration clause because "[b]oth provisions are allinclusive, both are mandatory, and neither admits the possibility of the other").

Therefore, the question presented is whether the forum

selection clause in the broker-dealer agreements provides that

Carilion’s right to arbitrate under FINRA Rule 12200 is

superseded, displaced, or waived. This comes down to a

straightforward issue of contract interpretation. 

The forum selection clause in the broker-dealer agreements,

on which UBS and Citi rely, provides:

The parties agree that all actions and proceedings

arising out of this Agreement or any of the transactions contemplated hereby shall be brought in the

United States District Court in the County of New

York. To the extent permitted by law, each of the

parties hereto also irrevocably waives all right to

trial by jury in any action, proceeding or counterclaim arising out of this Agreement or the transactions contemplated hereby.

(Emphasis added). UBS and Citi argue that this clause means

that all disputes must be resolved by litigation in the United

States District Court in New York County and thus, by implication, supersedes and displaces their obligation to arbitrate

16 UBS FINANCIAL SERVICES v. CARILION CLINIC
disputes. From the premises that (1) arbitration is an "action

or proceeding"; (2) all actions or proceedings must be brought

in the United States District Court; and (3) FINRA arbitration

cannot take place in the district court, they reason to the conclusion that FINRA arbitration therefore is precluded.

There are several problems inherent in this logical construct. First, if the term "actions and proceedings" as used in

the agreements includes arbitration (for indeed an arbitration

is a proceeding), then the sentence would have to be read to

recognize that arbitration remains available but must be

"brought" in court. Under this proposal, the sentence would

state that "all proceedings, including arbitration . . . shall be

brought in" court. In whatever way that sentence could be

read, it could not be read to preclude arbitration; to the contrary, it presumes its availability but localizes it, albeit to a

forum where it could not be pursued. But even that proposition could be questioned because a court plays a role in arbitration proceedings by compelling the arbitration and

enforcing any arbitration award. Regardless of how one might

explain the commitment of an arbitration proceeding to a

court, the sentence surely cannot be read to preclude or waive

arbitration.

Second, one would reasonably expect that a clause

designed to supersede, displace, or waive arbitration would

mention arbitration. To be sure, the sentence might be found

to refer to arbitration through use of the word "proceedings,"

but then again the sentence does not suggest that such arbitration is superseded, displaced, or waived.

Third, if UBS and Citi are correct in construing "actions

and proceedings" with sufficient breadth to include an arbitration proceeding, then the remaining portion of the paragraph

becomes nonsensical. Under this construction, an arbitration

proceeding would be "brought in the United States District

Court" and as to any such action or proceeding, "all right to

trial by jury" would be waived. The more reasonable conUBS FINANCIAL SERVICES v. CARILION CLINIC 17
struction would take the references to "court" and "jury trials"

as limiting what is meant by "actions and proceedings." Thus,

read in the context of courts and jury trials, the term "actions

and proceedings" would be understood as a term of art, as

used, for example, in Federal Rule of Civil Procedure 1 (providing in part, "These rules govern the procedure in all civil

actions and proceedings in the United States district courts"

(emphasis added)). Similarly, the New York Civil Practice

Law and Rules primarily use "action" and "proceeding" to

refer to judicial disputes, not to arbitration. See Int’l Union

of Operating Eng’rs, Local No. 463 v. City of Niagara Falls,

743 N.Y.S.2d 236, 238 (N.Y. Sup. Ct. 2002) ("An arbitration

is not considered an action or a proceeding"), aff’d sub nom.

Bathurst v. City of Niagara Falls, 298 A.D.2d 1010 (N.Y.

App. Div. 2002). The approach of construing "actions and

proceedings" when used in the context of courts and jury trials to refer to judicial actions is the approach generally followed by other courts. See, e.g., Pers. Sec. & Safety Sys. Inc.

v. Motorola Inc., 297 F.3d 388, 395-96 (5th Cir. 2002) (interpreting agreement requiring "any suit or proceeding" to be

subject to the exclusive jurisdiction of the Texas courts not to

include arbitration).

We find it a more natural reading of the forum selection

clause to require that any litigation arising out of the agreement would have to be brought in the United States District

Court in New York County and that as to any such action or

proceeding, a jury trial would be waived. And we believe that

it would never cross a reader’s mind that the clause provides

that the right to FINRA arbitration was being superseded or

waived. No word even suggesting supersedence, waiver, or

preclusion exists in the sentence.

For these reasons, we reject UBS and Citi’s suggestion that

the forum selection clause in the broker-dealer agreements

supersedes, displaces, or waives the arbitration otherwise provided by FINRA Rule 12200.

18 UBS FINANCIAL SERVICES v. CARILION CLINIC
The judgment of the district court is accordingly 

AFFIRMED.

UBS FINANCIAL SERVICES v. CARILION CLINIC 19