United States District Court, E.D. North Carolina, Western Division
UBS FINANCIAL SERVICES, INC., UBS SECURITIES, LLC, UBS AG, and UBS GROUP AG, Plaintiffs,
ROBERT ZIMMERMAN, Defendant.
W. FLANAGAN United States District Judge.
matter is before the court on plaintiffs' motion for
permanent injunction. (DE 75). Also pending before the court
are plaintiffs' motion for pre-filing injunction (DE 66)
and defendant's motion to dismiss. (DE 77). The issues
raised are ripe for ruling. For the reasons that follow, the
court grants plaintiffs' motion for permanent injunction
and denies defendant's motion to dismiss. The court also
denies as moot plaintiffs' motion for pre-filing
OF THE CASE
case has a lengthy history that is summarized more fully in
the court's prior orders. As pertinent here, defendant
initiated an arbitration proceeding against plaintiff UBS
Financial Services, LLC, (“UBS Financial”) and
Charles Schwab & Company (“Schwab”), before
the Financial Industry Regulatory Authority
(“FINRA”) (the “FINRA arbitration”)
on January 6, 2016. On April 7, 2016, plaintiff UBS Financial
initiated this action and moved for preliminary injunction,
seeking to enjoin defendant from pursuing arbitration against
it pursuant to the Federal Arbitration Act
(“FAA”), 9 U.S.C. § 4. Defendant then filed
a motion to dismiss, or in the alternative, motion to compel
arbitration. Pending resolution of plaintiff UBS
Financial's motion, the court issued a temporary
restraining order, which prohibited defendant from proceeding
with the FINRA arbitration. Thereafter, defendant answered
plaintiff UBS Financial's complaint, asserting several
counterclaims against it On June 17, 2016, the court held
hearing on plaintiff UBS Financial's motion for
preliminary injunction and defendant's motion to dismiss
and compel arbitration. At hearing, the court granted
plaintiff's motion and denied defendant's motion,
which rulings were later memorialized by order dated June 21,
2016. On December 1, 2016, on motion by plaintiff UBS
Financial, the court dismissed defendant's counterclaim,
November 9, 2016, plaintiff UBS Financial filed a motion to
enforce preliminary injunction, or in the alternative to
enjoin defendant from pursuing FINRA arbitration against UBS
Securities, LLC (“UBS Securities”), UBS AG and
UBS Group AG (“UBS Group”). While its motion to
enforce preliminary injunction was still pending, plaintiff
UBS Financial, together with UBS Securities, UBS AG and UBS
Group, filed the instant motion for pre-filing injunction. By
order dated March 28, 2017, the court denied plaintiff UBS
Financial's motion to enforce the court's prior
preliminary injunction order, granted its alternative motion
to expand the court's prior preliminary injunction, and
added UBS Securities, UBS AG, and UBS Group as plaintiffs to
the action. The March 28, 2017, order also denied
defendant's various motions to strike.
April 18, 2017, plaintiffs filed the instant motion for
permanent injunction. Thereafter, defendant filed the instant
motion to dismiss. Plaintiffs filed opposition to
defendant's motion on May 19, 2017.
undisputed facts are summarized as follows. Plaintiffs are
FINRA members. Plaintiff UBS Financial underwrote and issued
an electronically traded note known as the “Monthly
2xLeveraged Exchange Traded Access Security, ” referred
to by the parties by its call sign, “CEFL” (the
“ CEFL security ”) . (See Prod.
Supplement, DE 31 at 1). The CEFL security is a leveraged debt
security which allows investors to experience twice the rate
of return of a certain index. (Id. at 5-6). The
leveraged aspect of the CEFL security is essentially a loan
made by plaintiff to investors in the amount of the
security's face value, or $25.00. (See id.). In
exchange for the loan's benefits, investors pay monthly
fees. (Id. at 6). To collect those fees, plaintiffs
garnish them from the monthly distributions provided to
investors, known as “coupons.” (See id.
at 23-24, 27, and 37).
purchased a number of shares of the CEFL security from
Schwab. Defendant does not own an account with any plaintiff.
After defendant purchased shares of the CEFL security, the
security declined in value approximately 40%, from $25.00 to
$15.00. As a result, defendant lost at least $85, 000.00.
Motion for Permanent Injunction
plaintiff seeking a permanent injunction must satisfy a
four-factor test before a court may grant such relief. A
plaintiff must demonstrate: (1) that it has suffered an
irreparable injury; (2) that remedies available at law, such
as monetary damages, are inadequate to compensate for that
injury; (3) that, considering the balance of hardships
between the plaintiff and defendant, a remedy in equity is
warranted; and (4) that the public interest would not be
disserved by a permanent injunction.” Monsanto Co.
v. Geertson Seed Farms, 561 U.S. 139, 156-57 (2010)
(quoting eBay Inc., v. MercExchange, L.L.C., 547
U.S. 388, 391 (2006)); see also Christopher Phelps &
Assocs. L.L.C. v. Galloway, 492 F.3d 532, 543 (4th Cir.
2007). Even if a plaintiff satisfies the four-factor test,
the court retains “equitable discretion” whether
to grant an injunction. Christopher Phelps &
Assocs., 492 F.3d at 543. “An injunction is a
drastic and extraordinary remedy, which should not be granted
as a matter of course.” Monsanto Co., 561 U.S.
at 165 (citing Weinberger v. Romero-Barcelo, 456
U.S. 305, 311-12 (1982)). “An injunction should issue
only where the intervention of a court of equity ‘is
essential in order effectually to protect property rights
against injuries otherwise irremediable.'”
Weinberger, 456 U.S. at 312 (quoting Cavanaugh
v. Looney, 248 U.S. 453, 456 (1919)).
injunction must be narrowly tailored to the facts of the
case. PBM Prods., LLC v. Mead Johnson & Co., 639
F.3d 111, 128 (4th Cir. 2011). An injunction is
“narrowly tailored” when it is “no more
burdensome to the defendant than necessary to provide
complete relief to the plaintiff.” Id.
(citing Kentuckians for Commonwealth, Inc. v.
Rivenburgh, 317 F.3d 425, 436 (4th Cir. 2006)).
circumstances presented here, injunction is appropriate.
First, plaintiffs have demonstrated that they have suffered
irreparable injury for which there is no adequate remedy at
law. Specifically, plaintiffs are being forced to participate
in arbitration, despite absence of an arbitration agreement
or requirement under FINRA rules. This injury is irreparable
because plaintiffs are being forced to expend resources they
cannot later recover. See Morgan Keegan & Co. v.
Louise Silverman Trust, No. 11-2533, 2012 WL 113400, *5
(D. Md. Jan. 12, 2012), aff'd sub nom., 706 F.3d
563 (4th Cir. 2013) (collecting cases) (“[T]he harm
suffered by an [entity] who is forced to arbitrate claims it
did not agree to arbitrate is per se irreparable because it
forces an individual to expend resources it cannot later
recover.”)); see also Merrill Lynch Inv. Managers
v. Optibase, Ltd.,337 F.3d 125, 129 (2d Cir. 2003)
(internal citations omitted) (“[A] [party] would be
irreparably harmed by ...