## Facts

- Carilion Clinic, a nonprofit healthcare system, sought to finance hospital expansion and refinance debt through municipal bond offerings.
- In 2005, Carilion retained UBS Financial Services, Inc. and Citigroup Global Markets, Inc., both FINRA member broker-dealers, to advise on and implement the financing plan.
- UBS and Citi structured the financing using auction rate securities (ARS) and related interest-rate swaps.
- Under underwriting and broker-dealer agreements, UBS and Citi purchased bonds from Carilion for resale, conducted periodic ARS auctions, and earned underwriting discounts and annual broker-dealer fees.
- After the ARS market failed and supporting bids ceased, Carilion alleged UBS and Citi misrepresented ARS risks and breached duties, causing Carilion losses.
- Carilion demanded FINRA arbitration under FINRA Rule 12200; UBS and Citi filed in federal court to enjoin arbitration, asserting Carilion was not a “customer” and that forum-selection clauses required court litigation.

## Issues

1. Whether Carilion qualified as a “customer” under FINRA Rule 12200 based on its purchase of underwriting and broker-dealer services for municipal bond financings.
2. Whether forum-selection clauses requiring that “all actions and proceedings” be brought in specified courts superseded or waived Carilion’s right to demand FINRA arbitration under Rule 12200.

## Decision

- The Fourth Circuit affirmed dismissal of the injunction action and denied relief blocking arbitration.
- Carilion was a “customer” under FINRA Rule 12200 because it purchased underwriting and broker-dealer services from FINRA members (and was not a broker or dealer).
- The forum-selection clauses did not waive or displace FINRA arbitration because they did not expressly address arbitration or clearly negate the Rule 12200 obligation.

## Legal Principles

- For FINRA Rule 12200, “customer” is given its ordinary meaning—one who purchases goods or services from a FINRA member—subject to the rule’s express exclusion of brokers and dealers.
- A FINRA member’s obligation to arbitrate qualifying disputes under Rule 12200 functions as an enforceable commitment arising from FINRA membership and may be invoked by an eligible customer.
- A contractual forum-selection clause will not be read to waive or supersede the Rule 12200 arbitration obligation without clear language indicating an intent to exclude arbitration or FINRA proceedings.

## Conclusion

The court held that an issuer that hires FINRA members for underwriting and auction services is a FINRA “customer” entitled to compel Rule 12200 arbitration, and that generic forum-selection clauses designating courts for “actions and proceedings” do not, without explicit arbitration-waiver language, eliminate that right.


UBS Fin. Servs., Inc. v. Carilion Clinic, 706 F.3d 319 (4th Cir. 2013)