## Facts

- VCG Special Opportunities Master Fund Ltd., a hedge fund, entered into a $10 million credit-default swap with Citibank referencing a collateralized debt obligation.
- As market conditions worsened, VCG posted margin; the reference obligation later defaulted and VCG owed Citibank $10 million under the swap.
- VCG alleged misconduct connected to the transaction (including fraud- and negligence-based theories) and commenced a FINRA arbitration against Citigroup Global Markets, Inc. (CGMI), a Citibank affiliate and FINRA member.
- CGMI denied that VCG was its “customer” for FINRA arbitration purposes and asserted the swap was solely a Citibank–VCG contract.
- CGMI filed suit in federal court seeking declaratory relief and an injunction preventing the FINRA arbitration from proceeding.

## Issues

1. Whether, in the Second Circuit, a preliminary injunction may issue upon a showing of irreparable harm plus “serious questions going to the merits” and a balance of hardships tipping decidedly toward the movant, even absent a showing of likelihood of success on the merits.
2. Whether CGMI, at the preliminary-injunction stage, raised sufficiently serious questions about whether VCG was CGMI’s “customer” under FINRA rules to justify enjoining the FINRA arbitration pending final resolution of arbitrability.

## Decision

- The Second Circuit affirmed the preliminary injunction enjoining the FINRA arbitration pending resolution of arbitrability in court.
- The court held that the Second Circuit’s alternative preliminary-injunction standard—irreparable harm plus either likelihood of success or serious questions with hardships tipping decidedly toward the movant—remained valid and was not displaced by Supreme Court precedent.
- The court agreed that CGMI showed irreparable harm from being compelled to arbitrate a dispute it plausibly had not agreed to arbitrate.
- The court concluded that CGMI raised serious questions about whether VCG qualified as a CGMI “customer” and that the balance of hardships favored CGMI because VCG faced delay rather than loss of a forum.

## Legal Principles

- In the Second Circuit, a party seeking a preliminary injunction must show irreparable harm and either:
  - a likelihood of success on the merits, or
  - sufficiently serious questions going to the merits to make them a fair ground for litigation, with the balance of hardships tipping decidedly in the movant’s favor.
- Supreme Court preliminary-injunction decisions requiring consideration of traditional equitable factors do not, without more, eliminate the Second Circuit’s “serious questions” alternative formulation.
- Being forced to arbitrate where there is a substantial dispute over whether an agreement to arbitrate exists may constitute irreparable harm supporting preliminary injunctive relief.
- For FINRA Rule 12200 purposes, disputes over whether a claimant is a member’s “customer” can present an arbitrability question appropriate for judicial resolution, and uncertainty on that question may support interim relief when hardships strongly favor the movant.

## Conclusion

The Second Circuit affirmed an injunction halting a FINRA arbitration against a FINRA member where arbitrability turned on disputed “customer” status, holding that the circuit’s “serious questions plus hardships” preliminary-injunction standard remains available and that compelled arbitration in the face of a substantial arbitrability dispute can constitute irreparable harm.


Citigroup Global Markets, Inc. v. VCG Special Opportunities Master Fund Ltd., 598 F.3d 30 (2d Cir. 2010)