Land v. Rokah

Background

Nathaniel Land moved for a preliminary injunction, which is a temporary court order intended to prevent harm while a case continues. He asked the court to stop arbitration pending before the Financial Industry Regulatory Authority, or FINRA. Defendants Nir Rokah and BINA-N.R. Consulting Ltd. cross-moved to require Land to proceed with that arbitration.

The dispute arose from a potential transaction involving ARIDO brand jewelry. Defendants transferred $2 million on six occasions to Clear Landing Capital, LLC, a business operated by Land. The parties disputed the terms of their arrangement and Land’s role in the transaction. The opinion states that the case did not involve securities. Defendants later initiated FINRA arbitration against Land and Brooks, Houghton Securities, Inc., where Land had been a registered FINRA representative and associated person.

Arbitration analysis

The court stated that arbitration generally depends on an agreement between the parties. It found that the parties undisputedly had no formal agreement to arbitrate, so the court—not the arbitrator—had to determine whether FINRA Rule 12200 nevertheless required arbitration.

That rule can require a FINRA member or associated person to arbitrate a dispute requested by a customer when the dispute arises from the member’s or associated person’s business activities. The court explained that a customer, for this purpose, is generally someone who is not a broker or dealer and who either purchases goods or services from a FINRA member or has an account with one.

The court found that Defendants did not have an account with Land or Brooks, Houghton Securities, and did not purchase goods from Land. Whether Defendants purchased services from Land was disputed. The record did not show that Land advised Defendants to make the initial transaction, that the parties had a brokerage-services agreement, or that Land provided financial or specialized investment services. The court also found uncertainty about whether the transaction involved FINRA-regulated investment banking or securities activities.

Because the factual record was unclear, the court concluded that Land had raised serious questions about both whether Defendants were FINRA customers and whether the dispute arose from FINRA-related business activities. The court stated that these factual issues could be developed further at the summary-judgment stage.

Harm and disposition

The court found that forcing Land to arbitrate a dispute that might not be subject to arbitration would cause irreparable harm. It also found that Defendants could pursue arbitration later if they ultimately prevailed on the arbitrability issue, so the balance of hardships favored Land.

Judge Paul A. Crotty granted Land’s motion for a preliminary injunction. The injunction stopped the FINRA arbitration while the arbitrability issues remained unresolved. The court denied Defendants’ cross-motion to compel arbitration without prejudice as to renewal at a later stage in the litigation. The opinion did not make a final determination that the dispute was or was not arbitrable.