Opinion ID: 2426471
Heading Depth: 1
Heading Rank: 5

Heading: In Connection with UBS's Business Activities

Text: Having determined that WVUH was UBS's customer by virtue of its undertaking to pay for UBS's auction services, we turn to whether its dispute with UBS arises in connection with the business activities of UBS, as Rule 12200 requires. UBS argues, and the dissent asserts, that there is no nexus between the auction service transactions, which establish customer status, and the alleged fraud involving the bond issuances, which both UBS and the dissent regard as forming the basis of WVUH's arbitration demand. More particularly, the dissent declares that our decision permits arbitration of the dispute between UBS and WVUH based on the provision of ancillary services (namely, the auction services) rather than the gravamen of the claim (that is, according to the dissent, the dispute concerning UBS's role as underwriter). Dissent at [656]. We are not persuaded. The auction services transactions that establish WVUH's customer status are integrally related to and of a piece with the underwriting services UBS provided. For example, all three purchase agreements between the parties termed WVUH's bonds auction rate certificates, clearly envisioning that the bonds WVUH issued would be auctioned. J.A. 260, 938, 953. The Official Statements publicly announcing and providing information about each bond issuance simultaneously detailed the terms of the issuance and underwriting arrangement and the auction procedures and UBS's role as auction broker-dealer. WVUH's Statement of Claim similarly characterizes UBS's underwriting and auction services as part of an integrated whole, alleging that [t]he misrepresentations and omissions made by UBS ... induced [WVUH] to enter into the recommended component transactionsincluding underwriting, auction services and swap transactionsusing the structure proposed by UBS, J.A. 1090, and WVUH accordingly asserts claims for intentional misrepresentation, negligent misrepresentation, and fraud. Nor are we persuaded by the dissent's suggestion that WVUH's claims relate to the underwriting arrangement alone, without reference to UBS's auction services. WVUH's Statement of Claim specifically asserts that UBS fraudulently induced WVUH to purchase auction services by misrepresenting the structure of the ARS market and UBS's role therein. The Statement of Claim variously alleges that UBS represented that the ARS market was stable and would provide sufficient liquidity for WVUH's bonds, that UBS did not inform WVUH that UBS had a policy of placing support bids in every auction to prevent auction failures, and that UBS ultimately recommended that WVUH issue the majority of its 2003 ARS using a `synthetic fixed rate structure.' J.A. 1067-68. Furthermore, it demands [r]estitution and disgorgement of all fees and costs associated with issuing the ARS, conducting the auctions, and any and all other associated fees and costs. J.A. 1098 (emphasis added). Under any conceivable interpretation of Rule 12200's nexus requirement that the dispute arises in connection with the business activities of the member, the allegations here satisfy the requirement for purposes of defeating a motion for preliminary injunction and link the grievance WVUH asserts in arbitration to the transaction that established its customer status. Lastly, the dissent endorses a foreseeable consequences test to assert that the dispute relating to the underwriting services is not arbitrable, even if the claims relating to auction services may be. While acknowledging that, [i]f anything, the broker-dealer transaction flows from the underwriting transaction, the dissent states that the underwriting transaction does not flow from the broker-dealer transaction and is therefore not a foreseeable consequence[] of the transaction for which arbitration is available. Dissent at [664]. The dissent's test has no apparent basis in the text of Rule 12200 or any other provision of the FINRA Code relating to arbitration. Even if we were to employ that test, moreover, arbitration of the underwriting services would be appropriate, as both the underwriting and auction services transactions were foreseeable when the purchase and broker-dealer agreements were executed. Indeed, the purchase agreements in 2003 and 2005 were entered over three weeks after the respective broker-dealer agreements, and the 2006 purchase agreement was entered within two days of the 2006 broker-dealer agreement. [6]