Close X
Attorney Spotlight

Learn about Richard Arnholt's diverse government contracts practice and why he chose to pursue a career in the legal field. Read more>

Search

Close X

Experience

Search our Experience

Experience Spotlight

In June 2017, Pinnacle Financial Partners, Inc. (NASDAQ: PNFP) closed a $1.9 billion merger with BNC Bancorp (NASDAQ: BNCN) pursuant to which BNC merged with and into Pinnacle. With the completion of the transaction, Pinnacle becomes a Top 50 U.S. Bank. The merger will create a four state footprint concentrated in 12 of the largest urban markets in the Southeast. 

Bass, Berry & Sims has served Pinnacle as primary corporate and securities counsel for more than 15 years and served as counsel on the transaction. Our attorneys were involved in all aspects related to the agreement, including tax, employee benefits and litigation. 

Read more details about the transaction here.

Pinnacle Financial Partners logo

Close X

Thought Leadership

Enter your search terms in the relevant box(es) below to search for specific Thought Leadership.
To see a recent listing of Thought Leadership, click the blue Search button below.

Thought Leadership Spotlight

Regulation A+

It seems that lately there has been a noticeable uptick in Regulation A+ activity, including several recent Reg A+ securities offerings where the stock now successfully trades on national exchanges. In light of this activity, we have published a set of FAQs about Regulation A+ securities offerings to help companies better understand this "mini-IPO" offering process, as well as pros and cons compared to a traditional underwritten IPO.

Read now

Second Circuit Provides a Clear Definition of "Customer" for Purposes of Mandatory FINRA Arbitration

Publications

August 6, 2014

Providing some much needed clarity to an often litigated issue regarding who may initiate arbitrations pursuant to the rules of the Financial Industry Regulatory Authority ("FINRA"), the Second Circuit recently adopted a bright line definition of "customer" in rejecting an investor's attempt to arbitrate his claims.  In Citigroup Global Markets, Inc. v. Abbar, No. 13-2172 (2d Cir. Aug. 1, 2014), the court held that a "customer" under FINRA's rules is "one who, while not a broker or dealer, either (1) purchases a good or service from a FINRA member, or (2) has an account with a FINRA member." The court's holding establishes an efficient framework for determining if an investor is a "customer," whether that determination is made by a court presented with the threshold arbitrability question, or by an arbitration panel presented with a motion to dismiss. See FINRA Rule 12504(a)(6)(B) (allowing a motion to dismiss to be filed by a respondent claiming to be "not associated with the account(s), security(ies), or conduct at issue"). 

FINRA members are required to arbitrate claims if (1) there is a written agreement requiring arbitration, or (2) the claims involve disputes with their "customers."  FINRA Rule 12200. The FINRA rules, however, do not specifically define "customer," and FINRA Rule 12100(i) raises more uncertainty as it merely states that a "customer shall not include a broker or dealer." This has given rise to a host of questions: Does the giving of financial advice or the underwriting of a security (without more) amount to a brokerage or investment relationship? Do investors become "customers" if they receive services without paying for same?  Is maintaining an account with the broker-dealer required to establish a customer relationship? The court decisions have provided no consistent guidance, which has been problematic given the preference of many claimants to seek the resolution of their investment-related disputes in arbitration, rather than through the court system. 

These types of questions were presented to the court in Citigroup, a case filed by Citigroup Global Markets, Inc. ("Citi NY"), a FINRA member, seeking to enjoin a FINRA arbitration filed against it by a Saudi businessman and related parties ("Abbar") who lost $383 million through investments made through Citi NY's United Kingdom affiliate ("Citi UK"). The United States District Court for the Southern District of New York enjoined the arbitration, finding that Abbar was not a customer of Citi NY because he did not purchase any goods or services from it, nor did he hold an account there. In making its decision, the district court delved deeply into the facts surrounding the investments, the parties' interactions and the tasks involved with the investment transactions. Ultimately, after a nine-day trial and almost two years after the case was filed, the district court determined that Citi NY's involvement was only "ancillary and collateral to those central core transactions" that Abbar entered into with Citi UK.

In affirming the district court's injunction, the Second Circuit established "precise boundaries of the FINRA meaning of 'customer,'" noting the necessity of a definition to prevent the type of "sprawling litigation" that occurred in the Citigroup case. By defining "customer" as one who purchases goods or services from, or has an account with, a FINRA member, the Second Circuit reasoned that its definition could "be readily applied to undisputed facts." In situations where there may be a dispute as to the facts, the court recognized that discovery and even a trial may be necessary; but reasoned that there would be no need to undergo a detailed, costly and time consuming examination of the facts. The relevant inquiry is more simply:  "whether an account was opened or a purchase made."  

In an environment where investors frequently make arbitration demands in the absence of an agreement to arbitrate, the Second Circuit has created a framework that provides more certainty, and less of a prospect of expensive litigation, in determining if the investor is a "customer" with the right to demand arbitration against a FINRA member.


Related Professionals

Related Services

Notice

Visiting, or interacting with, this website does not constitute an attorney-client relationship. Although we are always interested in hearing from visitors to our website, we cannot accept representation on a new matter from either existing clients or new clients until we know that we do not have a conflict of interest that would prevent us from doing so. Therefore, please do not send us any information about any new matter that may involve a potential legal representation until we have confirmed that a conflict of interest does not exist and we have expressly agreed in writing to the representation. Until there is such an agreement, we will not be deemed to have given you any advice, any information you send may not be deemed privileged and confidential, and we may be able to represent adverse parties.