Citigroup Global Markets, Inc. v. VCG Special Opportunities Master Fund, No. 08-6090 (2d Cir. 2010)
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08-6090-cv Citigroup Global Markets, Inc. v. VCG Special Opportunities Master Fund Ltd. UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term 2009 (Argued: November 24, 2009 Decided: March 10, 2010) Docket No. 08-6090-cv ----------------------------------------------------x Citigroup Global Markets, Inc., Plaintiff-Appellee, -- v. -VCG Special Opportunities Master Fund Limited, f/k/a CDO Plus Master Fund Limited, Defendant-Appellant. -----------------------------------------------------x B e f o r e : 1 FEINBERG, WALKER, KATZMANN, Circuit Judges. VCG Special Opportunities Master Fund Limited ( VCG ) 2 appeals from an order of the United States District Court for the 3 Southern District of New York (Barbara S. Jones, Judge) granting 4 plaintiff-appellee Citigroup Global Markets, Inc. s ( CGMI ) 5 motion for a preliminary injunction and enjoining VCG from 6 proceeding with an arbitration initiated against CGMI before the 7 Financial Industry Regulatory Authority. 8 district court s order denying its motion for reconsideration. 9 We hold that this circuit s serious questions standard for the VCG also appeals the 10 consideration of a motion for a preliminary injunction remains 11 valid in the wake of recent Supreme Court opinions clarifying the -1- 1 requirements and burdens placed on a party seeking a preliminary 2 injunction. 3 CGMI s motion, the district court did not abuse its discretion in 4 granting the requested injunction. 5 district court s orders granting the preliminary injunction and 6 denying VCG s motion for reconsideration. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 We further hold that, in applying that standard to We therefore AFFIRM the AFFIRMED. STEVEN G. MINTZ (Terence W. McCormick and Joshua H. Epstein, on the brief), Mintz & Gold LLP, New York, NY, for Defendant-Appellant. ALLAN J. ARFFA (Karen R. King, on the brief), Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, for Plaintiff-Appellee. JOHN M. WALKER, JR., Circuit Judge: VCG Special Opportunities Master Fund Limited ( VCG ) 22 appeals from the November 12, 2008 order of the United States 23 District Court for the Southern District of New York (Barbara S. 24 Jones, Judge) granting the plaintiff-appellee Citigroup Global 25 Markets, Inc. s ( CGMI ) motion for a preliminary injunction and 26 enjoining VCG from proceeding with an arbitration initiated 27 against CGMI before the Financial Industry Regulatory Authority 28 ( FINRA ). 29 2009 order denying its motion for reconsideration of the 30 preliminary injunction. VCG also appeals from the district court s May 29, Because we conclude that the serious -2- 1 questions standard for assessing a movant s likelihood of 2 success on the merits remains valid in the wake of recent Supreme 3 Court cases, and because neither the district court s assessment 4 of the facts nor its application of the law supports a finding of 5 abuse of discretion, we AFFIRM as to both orders. BACKGROUND 6 7 On July 17, 2006, VCG, a hedge fund based on the Isle of 8 Jersey, entered into a brokerage services agreement with CGMI. 9 Under the agreement, CGMI was obligated to provide prime 10 brokerage services by clearing and settling trades in fixed 11 income securities for VCG. 12 default swap agreement with Citibank, N.A. (Citibank) (a sister- 13 affiliate of appellee CGMI under the corporate umbrella of 14 Citigroup, Inc.). 15 which allegedly acted as the middleman with respect to the series 16 of transactions culminating in the credit default swap agreement 17 with Citibank. 18 declared a writedown of the assets covered in its credit default 19 swap agreement with VCG, triggering VCG s obligation to pay 20 Citibank a total of $10,000,000. 21 VCG then entered into a credit VCG alleges that it was a customer of CGMI, After entering into the swap, Citibank eventually VCG sued Citibank, seeking a declaration that, by declaring 22 the writedown, Citibank had violated the terms of the parties 23 credit default swap agreement. 24 Citibank s favor and also found that VCG was in breach of the The district court found in -3- 1 agreement by failing to fulfill its payment obligation. 2 Special Opportunities Master Fund Ltd. v. Citibank, N.A., 594 F. 3 Supp. 2d 334 (S.D.N.Y. 2008), aff d, No. 08-5707, 2009 WL 4576542 4 (2d Cir. Dec. 8, 2009). 5 VCG In addition to litigating its claims against Citibank, VCG 6 began arbitration proceedings against CGMI before the FINRA 7 pursuant to FINRA Rule 12200.1 8 complaint in the district court to permanently enjoin the 9 arbitration and for a declaration that CGMI had no obligation to In response, CGMI filed a 10 arbitrate with VCG regarding the claims submitted to the FINRA 11 arbitrators. 12 restraining order and preliminary injunction against the FINRA 13 arbitration pending a final resolution of CGMI s claims. 14 asserted that it was not a party to, and did not broker, the VCG- 15 Citibank credit default swap. 16 argued that VCG was not a customer of CGMI for purposes of 17 those transactions and, therefore, CGMI was under no obligation 18 to arbitrate VCG s claims under the FINRA rules. 19 20 On June 20, 2008, CGMI moved for a temporary Compl. ¶ 3. CGMI Specifically, CGMI In opposition to the preliminary injunction motion, VCG submitted a declaration stating that CGMI recommended and set 1 In relevant part, FINRA Rule 12200 requires members of the FINRA to arbitrate the disputes pursuant to the FINRA Code of Arbitration Procedure if arbitration is requested by [a] customer, [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. -4- 1 the terms for the credit default swap and that VCG s employees 2 had dealt with several CGMI representatives in connection with 3 the transaction, but most often with Jeff Gapusan, Donald 4 Qu[i]ntin, and Jaime Aldama. 5 further stated that [t]he terms of the contract were negotiated 6 directly with [a] CGMI employee, Jeff Gapusan, who acted as 7 liaison for the trading desk at CGMI. 8 Gruber Decl., Ex. B (FINRA records listing the three men 9 identified by Wong as the go-betweens on the Citibank deal as 10 Wong Decl. ¶ 7.2 The declaration Id. at ¶ 19; see also employees of CGMI). 11 In arguing that it had not acted as a middleman for the VCG- 12 Citibank credit default swap and that VCG was not its customer, 13 CGMI contended that the people identified by VCG as its CGMI 14 contacts were acting as agents of Citibank rather than CGMI, 15 though they were formally employed by CGMI at the time of the 16 VCG-Citibank negotiations. 17 submitted a copy of VCG s initial disclosures, from VCG s action Vogeli Decl. ¶ 6. 2 CGMI also The declaration stated that the fee to be paid to CGMI was 5.5% per annum, calculated on the notional amount of $10,000,000 of the collateralized debt obligation, Millstone. . . . In return, VCG agreed to pay CGMI only upon the occurrence of a credit event. Wong Decl. ¶ 19. The declaration misstates the parties to, and obligations provided in, the credit default swap agreement. As each of the documents underlying the swap agreement demonstrates, and contrary to the statements in Wong s declaration, Citibank, not CGMI, was the party with whom VCG contracted, and VCG, not CGMI, was to be paid 5.5% per annum. See Arffa Decl., Exs. 1-5. -5- 1 against Citibank, in which VCG had listed Jeff Gapusan and Donald 2 Quintin as trading personnel employed by Citibank, not CGMI. 3 Arffa Decl., Ex. 6.3 4 On November 12, 2008, the district court granted CGMI s 5 motion for a preliminary injunction. In granting the injunction, 6 the district court applied this circuit s long-established 7 standard for the entry of a preliminary injunction, under which 8 the movant is required to show irreparable harm absent 9 injunctive relief, and either a likelihood of success on the 10 merits, or a serious question going to the merits to make them a 11 fair ground for trial, with a balance of hardships tipping 12 decidedly in plaintiff s favor. 13 VCG Special Opportunities Master Fund Ltd., No. 08-cv-5520, 2008 14 WL 4891229, at *2 (S.D.N.Y. Nov. 12, 2008) (quoting Almontaser v. 15 N.Y. City Dep t of Educ., 519 F.3d 505, 508 (2d Cir. 2008)). 16 The district court held that CGMI had demonstrated a likelihood 17 of irreparable harm, but had failed to make a showing of 3 Citigroup Global Mkts. Inc. v. Following oral argument on CGMI s motion for a preliminary injunction, VCG filed a supplemental initial disclosure in its case against Citibank and submitted the new disclosure to the district court in this case. The supplemental disclosure lists Gapusan and Quintin as employees of CGMI. VCG Sur-Reply in Opp n to Mot. for Prelim. Inj., Ex. A. The district court noted that the original disclosures were not judicial admissions demonstrating that VCG knew that it was dealing with Citibank [and not CGMI], but also that the disclosures gave the court reason to pause when considering VCG s understanding of the three relevant employees roles at the time VCG interacted with them. Citigroup Global Mkts. Inc. v. VCG Special Opportunities Master Fund Ltd., No. 08-cv-5520, 2008 WL 4891229, at *5 (S.D.N.Y. Nov. 12, 2008). -6- 1 probable success on the merits based on its claim that there 2 was no customer relationship between CGMI and VCG with respect to 3 the credit default swap transactions. 4 district court found, however, that CGMI had provided evidence 5 that raised serious questions as to whether VCG was in fact a 6 customer of CGMI with respect to the swap transaction and granted 7 the preliminary injunction on that basis. 8 9 Id. at *2, *4. The Id. at *5-*6. The district court further noted that, while some prior cases have required arbitration under the FINRA rules for claims 10 involving non-securities, those cases dealt in large part with 11 individual brokers fraudulent conveyances or investments, where 12 there is a strong policy argument favoring arbitration. 13 The district court concluded that, in light of the undefined 14 scope of Rule [12200's business activities prerequisite and its 15 application to cases not involving securities transactions,] and 16 the unique set of facts before the Court, CGMI had presented 17 legal and factual issues that made its assertions a fair ground 18 for litigation. 19 that the balance of hardships tipped decidedly in CGMI s favor 20 given that an injunction would simply freeze the arbitration 21 without destroying VCG s ability to continue that arbitration in 22 the event that the district court determined that the dispute 23 fell within the scope of the FINRA rules. 24 Id. at *6. Id. Finally, the district court found Id. On May 29, 2009, the district court denied VCG s motion for -7- 1 reconsideration, rejecting VCG s argument that Winter v. Natural 2 Resources Defense Council, Inc., 129 S. Ct. 365 (2008), had 3 eliminated the serious questions prong of this circuit s 4 preliminary injunction standard. 5 This appeal followed. DISCUSSION 6 7 This Court reviews the grant of a preliminary injunction for 8 abuse of discretion. See Almontaser, 519 F.3d at 508; Grand 9 River Enter. Six Nations, Ltd. v. Pryor, 481 F.3d 60, 66 (2d Cir. 10 2007). 11 decision on a clearly erroneous finding of fact or makes an error 12 of law. 13 A district court abuses its discretion when it rests its Almontaser, 519 F.3d at 508. VCG first contends that the district court abused its 14 discretion by applying the wrong legal standard to CGMI s request 15 for a preliminary injunction. 16 decisions of the Supreme Court Munaf v. Geren, 128 S. Ct. 2207 17 (2008); Winter, 129 S. Ct. 365; and Nken v. Holder, 129 S. Ct. 18 1749 (2009) have eliminated this circuit s serious questions 19 standard for the entry of a preliminary injunction, and that, in 20 light of the district court s finding that CGMI failed to 21 demonstrate its likelihood of success on the merits, the entry of 22 a preliminary injunction in this case must be reversed. 23 alternative, VCG argues that even if this circuit s standard for 24 a preliminary injunction remains intact, the district court VCG argues that three recent -8- In the 1 committed several legal errors in determining that CGMI had 2 presented serious questions as to the arbitrability of VCG s 3 claims. Winter articulates the following standard for issuing a 4 5 preliminary injunction: A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest. 6 7 8 9 10 11 12 Winter, 129 S. Ct. at 374; see also Munaf, 128 S. Ct. at 2219; 13 Nken, 129 S. Ct. at 1761. 14 briefs, we take VCG s position to be that the standard 15 articulated by these three Supreme Court cases requires a 16 preliminary injunction movant to demonstrate that it is more 17 likely than not to succeed on its underlying claims, or in other 18 words, that a movant must show a greater than fifty percent 19 probability of success on the merits. 20 showing of serious questions that are a fair ground for 21 litigation will not suffice. 22 required showing as a probability of success, as opposed to a 23 possibility ). 24 I. 25 Although not stated explicitly in its Thus, according to VCG, a See VCG Br. 23-25 (describing the The Continued Viability of the Serious Questions Standard For the last five decades, this circuit has required a party 26 seeking a preliminary injunction to show (a) irreparable harm 27 and (b) either (1) likelihood of success on the merits or (2) -9- 1 sufficiently serious questions going to the merits to make them a 2 fair ground for litigation and a balance of hardships tipping 3 decidedly toward the party requesting the preliminary relief. 4 Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 5 (2d Cir. 1979); accord Almontaser, 519 F.3d at 508; Checker 6 Motors Corp. v. Chrysler Corp., 405 F.2d 319, 323 (2d Cir. 1969); 7 Hamilton Watch Co. v. Benrus Watch Co., 206 F.2d 738, 740 (2d 8 Cir. 1953).4 The serious questions standard permits a district 4 We have recognized three limited exceptions to this general standard, none of which is relevant here. First, [W]here the moving party seeks to stay government action taken in the public interest pursuant to a statutory or regulatory scheme, the district court should not apply the less rigorous [ serious questions ] standard and should not grant the injunction unless the moving party establishes, along with irreparable injury, a likelihood that he will succeed on the merits of his claim. Able v. United States, 44 F.3d 128, 131 (2d Cir. 1995) (first alteration in original) (quoting Plaza Health Labs., Inc. v. Perales, 878 F.2d 577, 580 (2d Cir. 1989)). Second, [a] heightened substantial likelihood standard may also be required when the requested injunction (1) would provide the plaintiff with all the relief that is sought and (2) could not be undone by a judgment favorable to defendants on the merits at trial. Mastrovincenzo v. City of New York, 435 F.3d 78, 90 (2d Cir. 2006) (quoting Tom Doherty Assocs., Inc. v. Saban Entm t, Inc., 60 F.3d 27, 34-35 (2d Cir. 1995)). Third, a mandatory preliminary injunction that alter[s] the status quo by commanding some positive act, as opposed to a prohibitory injunction seeking only to maintain the status quo, should issue only upon a clear showing that the moving party is entitled to the relief requested, or where extreme or very serious damage will result from a denial of preliminary relief. Tom Doherty Assocs., 60 F.3d at 34 (quoting Abdul Wali v. -10- 1 court to grant a preliminary injunction in situations where it 2 cannot determine with certainty that the moving party is more 3 likely than not to prevail on the merits of the underlying 4 claims, but where the costs outweigh the benefits of not granting 5 the injunction. 6 Sons, Inc., 597 F.2d 814, 815-19 (2d Cir. 1979). 7 moving party must not only show that there are serious 8 questions going to the merits, but must additionally establish 9 that the balance of hardships tips decidedly in its favor, See, e.g., F.& M. Shaefer Corp. v. C. Schmidt & Because the 10 Jackson Dairy, 596 F.2d at 72 (emphasis added), its overall 11 burden is no lighter than the one it bears under the likelihood 12 of success standard. 13 The value of this circuit s approach to assessing the merits 14 of a claim at the preliminary injunction stage lies in its 15 flexibility in the face of varying factual scenarios and the 16 greater uncertainties inherent at the outset of particularly 17 complex litigation. 18 mechanically confined to cases that are simple or easy. 19 Requiring in every case a showing that ultimate success on the 20 merits is more likely than not is unacceptable as a general 21 rule. 22 temporary relief based on a preliminary estimate of the strength Preliminary injunctions should not be The very purpose of an injunction . . . is to give Coughlin, 754 F.2d 1015, 1025 (2d Cir. 1985)). -11- 1 of plaintiff's suit, prior to the resolution at trial of the 2 factual disputes and difficulties presented by the case. 3 Limiting the preliminary injunction to cases that do not present 4 significant difficulties would deprive the remedy of much of its 5 utility. 6 Kane, Federal Practice and Procedure § 2948.3 (2d ed. 2009); see 7 also Dataphase Sys., Inc. v. CL Sys., Inc., 640 F.2d 109, 113 8 (8th Cir. 1981) (en banc) ( The very nature of the inquiry on 9 petition for preliminary relief militates against a wooden 11A Charles Alan Wright, Arthur R. Miller & Mary Kay 10 application of the probability test. . . . 11 of the proceeding mandates that the court's approach be flexible 12 enough to encompass the particular circumstances of each case. 13 Thus, an effort to apply the probability language to all cases 14 with mathematical precision is misplaced. ).5 5 The equitable nature We note that, prior to Winter, seven of the twelve regional Courts of Appeals, including this circuit and the Eighth Circuit in Dataphase, applied a preliminary injunction standard that permitted flexibility when confronting some probability of success on the merits that falls short of a strict fifty-one percent. See Lands Council v. Martin, 479 F.3d 636, 639 (9th Cir. 2007), overruled in part by Am. Trucking Ass ns v. City of Los Angeles, 559 F.3d 1046, 1052 & n.10 (9th Cir. 2009) (recognizing that the Ninth Circuit s previous standard as articulated in Lands Council was overruled at least with respect to the formerly permissible showing of a possibility of irreparable harm); Oklahoma ex rel. Okla. Tax Comm n v. Int l Registration Plan, Inc., 455 F.3d 1107, 1112-13 (10th Cir. 2006); Mich. Bell Tel. Co. v. Engler, 257 F.3d 587, 592 (6th Cir. 2001); Davenport v. Int l Broth. of Teamsters, AFL-CIO, 166 F.3d 356, 361 (D.C. Cir. 1999); Duct-O-Wire Co. v. U.S. Crane, Inc., 31 F.3d 506, 509 (7th Cir. 1994); Gen. Mills, Inc. v. Kellogg Co., 824 F.2d 622, 624-25 (8th Cir. 1987); Blackwelder Furniture Co. of Statesville v. Seilig Mfg. Co., 550 F.2d 189, 195 (4th Cir. -12- 1 Indeed, the Supreme Court, prior to the trilogy of cases 2 cited by VCG, has counseled in favor of a preliminary injunction 3 standard that permits the entry of an injunction in cases where a 4 factual dispute renders a fully reliable assessment of the merits 5 impossible. 6 Court dealt with a factual dispute, relating to the effect on the 7 plaintiff of a state tax on oil revenues, which had to be 8 resolved before the constitutional validity of [a] statute In Ohio Oil Co. v. Conway, 279 U.S. 813 (1929), the 1977), overruled by Real Truth About Obama, Inc. v. Fed. Election Comm n, 575 F.3d 342, 346-47 (4th Cir. 2009). On the other hand, three of our sister circuits have traditionally limited their preliminary injunction standards to the four factors cited in Winter, without reference to the possibility of obtaining an injunction based on a showing of serious questions going to the merits. See Snook v. Trust Co. of Ga. Bank of Savannah, N.A., 909 F.2d 480, 483 n.3 (11th Cir. 1990) (noting that the serious questions standard had not been recognized in the Eleventh Circuit); Concerned Women for Am., Inc. v. Lafayette County, 883 F.2d 32, 34 (5th Cir. 1989); In re Arthur Treacher s Franchisee Litig., 689 F.2d 1137, 1147 n.14 (3d Cir. 1982) (rejecting the Second Circuit s serious questions standard as articulated in Hamilton Watch). The First Circuit does not generally provide for the possibility of a flexible showing as to the merits, see Weaver v. Henderson, 984 F.2d 11, 12 (1st Cir. 1993) ( In the ordinary course, plaintiffs who are unable to convince the trial court that they will probably succeed on the merits will not obtain interim injunctive relief. ), but has in the past recognized a potentially more flexible approach, see Tuxworth v. Froehlke, 449 F.2d 763, 764 (1st Cir. 1971) ( No preliminary injunction should be granted in any case unless there appears to be a reasonable possibility of success on the merits. Granted that the necessary degree of likelihood of success depends upon various considerations, we must perceive at least some substantial possibility. (internal citation omitted)). -13- 1 [could] be determined. 2 the Court instructed that [w]here the questions presented by an 3 application for an interlocutory injunction are grave, and the 4 injury to the moving party [in the absence of such an injunction] 5 will be certain and irreparable . . . the injunction usually will 6 be granted. 7 975-76 (1997) (reversing the Ninth Circuit s finding that movants 8 had shown a fair chance of success on the merits, while 9 recognizing the fair chance standard and its potential 10 11 Id. at 814. Faced with this situation, Id.; see also Mazurek v. Armstrong, 520 U.S. 968, application in future cases). The Supreme Court s recent opinions in Munaf, Winter, and 12 Nken have not undermined its approval of the more flexible 13 approach signaled in Ohio Oil. 14 at all, much less negatively, upon the application of a 15 preliminary injunction standard that softens a strict 16 likelihood requirement in cases that warrant it. 17 involved a preliminary injunction barring the transfer to Iraqi 18 custody of an individual captured in Iraq by the Multinational 19 Force-Iraq. 20 premised on jurisdictional issues . . . so serious, substantial, 21 difficult and doubtful, as to make them fair ground for 22 litigation and thus for more deliberative investigation. 23 2219 (emphasis and internal quotation marks omitted). 24 Supreme Court vacated that injunction on the grounds that a None of the three cases comments Munaf, 128 S. Ct. at 2214-15. -14- Munaf That injunction was The Id. at 1 likelihood of jurisdiction was irrelevant to the preliminary 2 injunction consideration and could not substitute for a 3 consideration of the merits. 4 that a question as to a court s jurisdiction over a claim says 5 nothing about the likelihood of success on the merits, id., 6 but provided nothing in the way of a definition of the phrase a 7 likelihood of success. 8 9 The Court in Munaf simply stated See id. Nor does Winter address the requisite probability of success of the movant s underlying claims. While Winter rejected the 10 Ninth Circuit s conceptually separate possibility of irreparable 11 harm standard, 129 S. Ct. at 375-76, it expressly withheld any 12 consideration of the merits of the parties underlying claims, 13 id. at 376, 381. 14 balance of the equities and the public interest. 15 375-76, 381.6 Rather, the Court decided the case upon the 6 129 S. Ct. at To this extent, Winter reiterates the majority position of the circuits, including this one, that a showing of irreparable harm is fundamental to any grant of injunctive relief. See, e.g., Almontaser, 519 F.3d at 508 ( A party seeking a preliminary injunction must show irreparable harm absent injunctive relief. . . . (internal quotation marks omitted and emphasis added)); Rum Creek Coal Sales, Inc. v. Caperton, 926 F.2d 353, 360 (4th Cir. 1991) ( The balance of hardship test does not negate the requirement that the [plaintiff] show some irreparable harm. ), overruled on other grounds by Real Truth About Obama, 575 F.3d 342; Friendship Materials, Inc. v. Mich. Brick, Inc., 679 F.2d 100, 105 (6th Cir. 1982) ( Thus, the alternate test does not remove the irreparable harm requirement. ); Dataphase Sys., Inc., 640 F.2d at 114 n.9 ( This court previously noted that under any test the movant is required to show the threat of irreparable harm. ); Canal Auth. of Fla. v. Callaway, 489 F.2d 567, 574 (5th Cir. 1974) ( [W]here no -15- 1 Finally, Nken likewise did not address the issue of a moving 2 party s likelihood of success on the merits. Nken provides a 3 four factor standard for granting a stay pending appeal, which 4 the Court recognized as overlapping substantially with the 5 preliminary injunction standard. 6 the Court repeated the likely to succeed on the merits 7 phrasing, it did not suggest that this factor requires a showing 8 that the movant is more likely than not to succeed on the 9 merits.7 129 S. Ct. at 1761. Although 10 If the Supreme Court had meant for Munaf, Winter, or Nken to 11 abrogate the more flexible standard for a preliminary injunction, 12 one would expect some reference to the considerable history of 13 the flexible standards applied in this circuit, seven of our 14 sister circuits, and in the Supreme Court itself.8 We have irreparable injury is alleged and proved, denial of a preliminary injunction is appropriate. ). 7 The Supreme Court implies just the opposite in Nken, which contrasts a showing of a likelihood of success with a chance of success that is only better than negligible. 129 S. Ct. at 1761. Because a serious questions showing necessarily requires more than that the chances for success are only better than negligible, this circuit s serious questions standard does not conflict with the Supreme Court s decision in Nken. 8 As the Supreme Court noted in Nken, [t]here is substantial overlap between [the factors governing a motion to stay] and the factors governing preliminary injunctions; not because the two are one and the same, but because similar concerns arise whenever a court order may allow or disallow anticipated action before the legality of that action has been conclusively determined. 129 S. Ct. at 1761 (internal citation omitted). In that light, we note that the Supreme Court followed -16- 1 recognized this flexible standard since at least 1953, see 2 Hamilton Watch, 206 F.2d at 740, and our standard has survived 3 earlier instances in which the Supreme Court described the merits 4 prerequisite to a preliminary injunction as a likelihood of 5 success without specifically addressing the content of such a 6 likelihood, see, e.g., Doran v. Salem Inn, Inc., 422 U.S. 922, 7 932 (1975) ( The other inquiry relevant to preliminary relief is 8 whether respondents made a sufficient showing of the likelihood 9 of ultimate success on the merits. ). We have found no command 10 from the Supreme Court that would foreclose the application of 11 our established serious questions standard as a means of 12 assessing a movant s likelihood of success on the merits. 13 standard accommodates the needs of the district courts in 14 confronting motions for preliminary injunctions in factual 15 situations that vary widely in difficulty and complexity. 16 we hold that our venerable standard for assessing a movant s 17 probability of success on the merits remains valid and that the Our Thus, a flexible approach when, in recently addressing the standard for issuing a stay pending the disposition of a petition for a writ of certiorari, it stated that the grant of such a motion required a likelihood of irreparable harm, but required only a reasonable probability that four Justices will consider the issue sufficiently meritorious to grant certiorari and a fair prospect that a majority of the Court will vote to reverse the judgment below. Hollingsworth v. Perry, 130 S. Ct. 705, 710 (2010) (per curiam). Acknowledging the use of a sliding scale in certain situations, the Court further stated that [i]n close cases the Circuit Justice or the Court will balance the equities and weigh the relative harms to the applicant and to the respondent. Id. -17- 1 district court did not err in applying the serious questions 2 standard to CGMI s motion.9 3 4 5 II. 6 applying the serious questions standard to CGMI s motion for a 7 preliminary injunction, we turn to VCG s contentions that the 8 district court misapplied that standard. 9 district court erred in assessing the issue of arbitrability when 10 it (1) failed to construe the FINRA arbitration rules in favor of 11 arbitration absent positive assurance that VCG s claims in fact 12 fell outside the scope of the arbitration agreement; (2) failed 13 to recognize that VCG was a customer of CGMI as a matter of 14 law; (3) found serious questions regarding whether a party 15 requesting FINRA arbitration over a non-securities transaction 16 must provide a strong policy argument in favor of arbitration; 17 and (4) inappropriately weighed the balance of hardships.10 The District Court s Analysis Having determined that the district court did not err by VCG argues that the 9 We note that two of our sister circuits have retreated from a flexible approach in assessing the merits of a movant s case in light of Winter. See Real Truth About Obama, 575 F.3d at 346-47; Am. Trucking Ass ns, 559 F.3d at 1052. We think the Fourth and Ninth Circuits have misread Winter s import. 10 Neither party contests that arbitrability itself was an issue for the district court to decide. See Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) ( The question whether the parties have submitted a particular dispute to arbitration, i.e., the question of arbitrability, is an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise. (internal quotation marks omitted) (alteration in original)). -18- 1 A. 2 3 4 Positive Assurance as to Non-Arbitrability and the Definition of Customer VCG contends that our decision in John Hancock Life 5 Insurance v. Wilson, 254 F.3d 48 (2d Cir. 2001), requires the 6 district court to order the parties to arbitrate, even in the 7 face of doubts as to the scope of the arbitration provision, 8 "unless it may be said with positive assurance that the 9 arbitration clause is not susceptible of an interpretation that 10 covers the asserted dispute." 11 holding of John Hancock in attacking the district court s 12 decision. 13 Id. at 58. VCG misapplies the John Hancock required a "positive assurance" of 14 non-arbitrability in the face of an ambiguity in the scope of the 15 arbitration provision of the NASD rules. 16 that the term customer in the NASD rules includes the clients 17 of an associated person of the firm against whom arbitration is 18 sought). 19 scope of the FINRA rules defining the term customer ; the only 20 unresolved question is whether, as a factual matter, VCG was 21 CGMI s customer under any definition of that term. 22 credit default swap arrangements were never handled by an agent 23 of CGMI, acting for that purpose, then VCG was not the customer 24 of CGMI under any reasonable construction of that term. 25 argument based on John Hancock is inapposite given the nature of 26 the dispute. Id. at 59-60 (finding In this case, however, there is no ambiguity as to the If VCG s VCG s Because the relevant question, in light of the -19- 1 contradictions in the record, is whether VCG was a customer of 2 CGMI in even the broadest sense of the word, and because this 3 issue is in sharp dispute, the district court committed no error 4 of law or fact in holding that this uncertainty poses a serious 5 question going to the merits of CGMI s claims. 6 B. Arbitrability of Disputes Involving Non-Securities 7 VCG next argues that the preliminary injunction was based in 8 part on too narrow a view of the types of disputes that are 9 arbitrable under FINRA Rule 12200. The district court held that 10 FINRA arbitration was not limited solely to disputes involving 11 business activities related to securities, but stated that non- 12 securities cases have dealt in large part with individual 13 brokers fraudulent conveyances or investments, where there is a 14 strong policy argument favoring arbitration. 15 Mkts., Inc., 2008 WL 4891229, at *6. 16 continued by stating, [i]n light of the undefined scope of Rule 17 12200 and the unique set of facts before the Court, the Court 18 concludes that CGMI has presented legal and factual issues that 19 make its assertions a fair ground for litigation. 20 Citigroup Global The district court Id. Were the application of the FINRA rules to non-securities 21 cases the sole ground on which the district court granted CGMI s 22 motion for preliminary relief, we would be forced to confront the 23 district court s suggested limitation of the definition of the 24 term business activities in non-securities cases. -20- However, 1 because the district court correctly ruled that VCG s customer 2 status was a serious question going to the merits, we affirm the 3 entry of the preliminary injunction even assuming an error of law 4 as to the district court s understanding of the term business 5 activity. 6 7 8 C. Weighing the Balance of Hardships VCG next argues that the district court failed to consider 9 that VCG would be deprived of its right to a speedy resolution 10 of its grievance with a broker-dealer and would have to incur 11 the cost and expend the energy involved in litigating the 12 threshold arbitrability question. 13 court did not neglect these concerns: it expressly considered the 14 impact of delay on VCG and weighed that hardship against those 15 that would be imposed on CGMI in the absence of a preliminary 16 injunction. 17 did not constitute an abuse of discretion. 18 VCG Br. 45. The district The district court s balancing of those hardships CONCLUSION 19 For the foregoing reasons, we AFFIRM the district court s 20 orders granting CGMI s motion for a preliminary injunction and 21 denying VCG s motion for reconsideration. -21-
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