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Keywords

arbitrationinjunctionappealmotion
plaintiffinjunctiontrialmotion

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Citigroup Global Markets, Inc. v. VCG Special Opportunities Master Fund Ltd., 598 F.3d 30

Facts

VCG, a hedge fund, entered into a brokerage services agreement with CGMI, which was to provide prime brokerage services. VCG subsequently entered into a credit default swap agreement with Citibank, a sister-affiliate of CGMI. After Citibank declared a writedown on the assets covered by the swap, VCG was obligated to pay Citibank $10,000,000. VCG then initiated arbitration against CGMI before FINRA, prompting CGMI to seek a preliminary injunction to prevent the arbitration, arguing that it was not a party to the swap and that VCG was not its customer.

On July 17, 2006, VCG, a hedge fund based on the Isle of Jersey, entered into a brokerage services agreement with CGMI. Under the agreement, CGMI was obligated to provide prime brokerage services by clearing and settling trades in fixed income securities for VCG.

Issue

Did the district court err in granting CGMI's motion for a preliminary injunction to enjoin VCG from proceeding with arbitration before FINRA?

VCG first contends that the district court abused its discretion by applying the wrong legal standard to CGMI's request for a preliminary injunction.

Rule

The standard for granting a preliminary injunction requires the movant to show irreparable harm and either a likelihood of success on the merits or sufficiently serious questions going to the merits, with a balance of hardships tipping decidedly in favor of the movant.

The district court held that CGMI had demonstrated a likelihood of irreparable harm, but had failed to make a showing of “probable success” on the merits based on its claim that there was no customer relationship between CGMI and VCG with respect to the credit default swap transactions.

Analysis

The district court applied the established standard for preliminary injunctions, determining that CGMI had demonstrated a likelihood of irreparable harm and raised serious questions regarding whether VCG was a customer of CGMI for the purposes of the credit default swap. The court found that the balance of hardships favored CGMI, as the injunction would merely freeze the arbitration without preventing VCG from pursuing its claims if the court ultimately determined that arbitration was appropriate.

The district court applied this circuit's long-established standard for the entry of a preliminary injunction, under which the movant is required to show “irreparable harm absent injunctive relief, and either a likelihood of success on the merits, or a serious question going to the merits to make them a fair ground for trial, with a balance of hardships tipping decidedly in plaintiff's favor.”

Conclusion

The Court of Appeals affirmed the district court's decision, concluding that the district court did not abuse its discretion in granting the preliminary injunction.

For the foregoing reasons, we AFFIRM the district court's orders granting CGMI's motion for a preliminary injunction and denying VCG's motion for reconsideration.

Who won?

Citigroup Global Markets, Inc. prevailed in the case because the court found that it had raised serious questions regarding its obligation to arbitrate and demonstrated a likelihood of irreparable harm.

Because we conclude that the “serious questions” standard for assessing a movant's likelihood of success on the merits remains valid in the wake of recent Supreme Court cases, and because neither the district court's assessment of the facts nor its application of the law supports a finding of abuse of discretion, we AFFIRM as to both orders.

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