NATHANIEL GORTON, District Judge
Before the Court is plaintiffs' motion for clarification or modification of this Court's November 4, 2009 Memorandum and Order compelling arbitration.
I. Background
Plaintiffs Braintree Laboratories, Inc., Braintree Holdings and Braintree Real Estate Management Company, LLC (together, "plaintiffs") brought suit against defendant Citigroup Global Markets Inc. ("CGMI") for violation of federal and state securities laws in connection with the sale of auction-rate securities ("ARS") to plaintiffs. Plaintiffs allege that representatives of defendant made fraudulent statements and omissions and assert claims for 1) rescission and restitution under the Massachusetts Uniform Securities Act, M.G.L. c. 110A, § 410(a), 2) violation of federal securities laws and 3) various common law causes of action.
Plaintiffs have also named Citi Smith Barney as a defendant but CGMI has satisfied the Court that Smith Barney is simply a division of CGMI and therefore not a judicially cognizable entity.
Plaintiffs maintain brokerage accounts with defendant CGMI, a broker-dealer, through which they bought $41,550,000 in ARS between June and August, 2008. Broadly, plaintiffs have alleged that CGMI misled them when they made those ARS purchases and that, because the ARS market has since become illiquid, they have been deprived of desired liquidity from their ARS investment.
In May and June, 2009, shortly after suit was filed, both parties filed motions for relief. On November 4, 2009, this Court issued a Memorandum and Order allowing CGMI's motion to compel arbitration and denying plaintiffs' motion for a mandatory preliminary injunction ordering rescission of their ARS sales pursuant to M.G.L. c. 110A, § 410(a) ("the November M O"). On November 18, 2009, plaintiffs filed a motion for clarification or modification of the November M O to which CGMI filed its opposition on December 2, 2009.
II. Analysis
The arbitration agreement in question states that disputes "shall be determined by arbitration before, and only before, any self-regulatory organization or exchange of which [CGMI] is a member." Following the issuance of the November M O, CGMI's counsel apparently took the position that under that provision, arbitration should take place before the Financial Industry Regulatory Authority ("FINRA"). It is unclear whether FINRA is the only forum that can be so-described. In any case, plaintiffs would prefer to avoid FINRA and therefore request that this Court 1) permit them to pursue arbitration in a "commercially reasonable forum other than FINRA" or, in the alternative, 2) "order FINRA to consider claims under the Massachusetts Securities Act and effectively resolve those claims".
CGMI responds that 1) because plaintiffs' motion seeks substantive changes to the November M O, it is actually a motion to reconsider and, as such, fails to meet the requisite standard, 2) plaintiffs have not shown that arbitration before FINRA is unconscionable and 3) there is no authority for this Court to issue a mandatory injunction or order against FINRA.
Notwithstanding the vigorous arguments of plaintiffs, CGMI is correct and the Court will deny the motion. Plaintiffs' requests are further considered in turn.
A. Allowing Arbitration in a Non-FINRA Forum
As with their motion for a preliminary injunction, plaintiffs limit their argument to one of the thirteen claims brought: rescission pursuant to the Massachusetts Uniform Securities Act, M.G.L. c. 110A, § 410(a). Citing First Circuit authority, they begin with the uncontroversial proposition that where substantive statutory rights are at stake, an alternative forum must protect those rights and allow for their vindication absent an express, knowing waiver of such rights. Then, plaintiffs continue, because FINRA "does not adequately protect and effectively resolve state statutory remedies" in the ARS context and because they have not voluntarily waived such rights, arbitration before FINRA is inappropriate.
To support the contention that FINRA will not protect their statutory rights, plaintiffs make several claims. First, they assert that FINRA explicitly admits in its manual that it is not strictly bound by case or statutory law. Second, plaintiffs cite a recent FINRA decision in the ARS context ("the McCutchin decision") where, according to plaintiffs, the panel ignored a state statute analogous to § 410(a)(2), thereby demonstrating the forum's "routine practice" of ignoring state securities claims. Moreover, plaintiffs contend that this practice is compounded by a bias against ARS-based claims because FINRA owned and sold ARS about six months before the ARS market collapsed. In light of these assertions, plaintiffs maintain that requiring them to proceed before FINRA is equivalent to finding that they have waived their state statutory right to seek rescission and that such a waiver is barred by the text of § 410 and by case law.
CGMI's response is twofold. First, refuting plaintiffs' reference to arbitration before FINRA as "unconscionable", CGMI contends that the agreement should not be set aside as unconscionable because plaintiffs are sophisticated, experienced entities which cannot claim coercion or ignorance of the agreement's terms when it was executed.
Second, CGMI labels as "absurd" plaintiffs' contention that FINRA will not adequately protect their § 410(a) rights and that therefore arbitration before FINRA would amount to an involuntary waiver of those rights. Taking each of plaintiffs' arguments in turn, CGMI responds that, as an initial matter, FINRA has ample experience and expertise with ARS cases and has awarded damages arising out of state statutory claims in the past. Moreover, FINRA's statement that it is not strictly bound by statutory law does not render it an unconscionable forum. CGMI notes that the alternative forum cited by plaintiffs (the American Arbitration Association) has articulated similar principles and that other courts have rejected this very argument. See Koveleskie v. SBC Capital Markets, Inc., 167 F.3d 361, 365 (7th Cir. 1999); Collings v. D.R. Horton, Inc., 361 F. Supp. 2d 1085, 1098-99 (D. Ariz. 2005). Next, CGMI asserts that plaintiffs' citation to the McCutchin decision is unavailing because the arbitrators actually did consider the state statute at issue and, in any event, one decision is not illustrative of a routine policy or practice. Finally, CGMI dismisses as irrelevant plaintiffs' contention that FINRA is a biased panel because its investment fund owned and sold ARS. Because "there is no basis for concluding that a FINRA panel will not consider and adjudicate state statutory claims," therefore, CGMI concludes that plaintiffs' assertion that requiring arbitration before FINRA is effectively a waiver of those claims is also without merit.
CGMI is correct and the Court has little to add. Various premises underlying plaintiffs' motion are unpersuasive but the Court need highlight only one. Specifically, the Court declines to engage in the speculative forecasting necessary to hold that FINRA is sure to ignore plaintiffs' state statutory claim for rescission whenever this dispute finally makes its way to arbitration. Nothing in plaintiffs' memorandum convincingly demonstrates that such a result is certain ex ante and CGMI's response casts considerable doubt on the possibility. In any event, the parties here entered into an arbitration agreement the terms of which are clear. When the Court allowed CGMI's motion to compel arbitration under that agreement, it was up to the parties to enter arbitration in accordance with those terms and to submit to "any self-regulatory organization or exchange of which [CGMI] is a member". The Court has nothing to add to this provision and discerns no valid reason to "clarify or modify" its prior ruling to effectuate a different result.
B. Ordering FINRA to Consider Plaintiffs' State Statutory Claims and to Resolve Them Effectively
In the alternative, plaintiffs ask this Court to require FINRA to apply the Massachusetts Securities Act and to resolve claims under it effectively. Not surprisingly, plaintiffs cite no authority for such a request. Defendant responds that this proposition invites the Court to exceed its authority because, in effect, it seeks a mandatory preliminary injunction imposed against an entity (FINRA) which is not a party to this dispute. Moreover, the scheme envisioned under the Federal Arbitration Act allows for limited judicial review of arbitration decisions after an award, not before when facts, arguments and dispositions are unknown.
The Court agrees. Plaintiffs have provided the Court with no authority for their request because, in all likelihood, there is none. See, e.g.,Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 232 (1987) ("[W]e have indicated that there is no reason to assume at the outset that arbitrators will not follow the law. . . ."). Accordingly, plaintiffs' motion will be denied.
ORDER
In accordance with the foregoing, plaintiffs' motion for clarification or modification (Docket No. 54) is DENIED.
So ordered.