Court Grants Temporary Restraining Order Enjoining FINRA Arbitration From Proceeding Pending a Decision on Arbitrability

A court recently granted a temporary restraining order enjoining a FINRA arbitration from proceeding after the court concluded that there was a serious question regarding arbitrability.

Barry Horowitz, an estate planning attorney who had a relationship with Lincoln Financial Securities Corporation, allegedly referred some clients to Thomas D. Renison, an insurance agent.

Renison was charged with federal crimes (though those charges were later dropped). Renison nevertheless was barred from the securities industry. Horowitz ultimately terminated his relationship with Renison as a result of these alleged improprieties.

Several of Horowitz’s clients whom he had referred to Renison claimed that Horowitz and Lincoln Financial were liable for damages caused by Renison’s alleged fraud.

The clients sought to arbitrate the dispute under FINRA’s arbitration rules. Horowitz and Lincoln Financial sought to stay those proceedings, but when those requests were denied, filed a declaratory judgment action seeking a declaration that the clients did not have a right to compel arbitration because there was no written arbitration agreement between the parties, and FINRA did not apply. Horowitz and Lincoln Financial sought a temporary restraining order enjoining the FINRA arbitration from proceeding until a court could rule on the question of arbitrability.

The United States District Court for the District of Connecticut granted the temporary restraining order requested by Horowitz and Lincoln Financial. The court noted that, under Second Circuit precedent, Horowitz and Lincoln Financial would be irreparably harmed if they were forced to expend time and resources arbitrating an issue that was not arbitrable. The court also concluded that Horowitz and Lincoln Financial had raised a serious question as to whether FINRA applied because there was an open question as to whether the clients were their “customers” within the meaning of FINRA Rule 12200. Finally, the court found that the hardships tipped decidedly in favor of Horowitz and Lincoln Financial because a temporary restraining order maintained the status quo, and because arbitrability rested on a binary legal question.

Lincoln Fin. Sec. Corp. v. Foster et al., No. 3:20-cv-01132-VLB (D. Conn. Oct. 20, 2020).