A federal court in Connecticut held that Financial Industry Regulatory Authority (FINRA) rules do not prohibit parties to customer arbitrations from seeking to attach an adverse party's assets in court while the arbitration is pending.

In Arnold Chase Family, LLC v. UBS AG, No. 3:08cv00581 (MRK), 2008 WL 3089484 (D. Conn. Aug. 4, 2008), the Arnold Chase Family (Arnold) commenced a FINRA arbitration against UBS. At about the same time, Arnold filed an action in court seeking to attach UBS assets to secure any arbitration award that Arnold might receive.

UBS moved to dismiss Arnold's attachment action, arguing that the broad language of FINRA Rule 12209 prohibits judicial proceedings concerning matters pending in arbitration. In addition, UBS argued that prejudgment remedies are unnecessary in connection with FINRA arbitrations because FINRA rules require that payment of all awards are certified in writing and made within thirty days, and also allow FINRA to sanction a member that fails to pay an arbitration award. In this regard, UBS noted that the SEC approved FINRA's arbitration rules as adequate to protect securities customers.

The Court rejected UBS's arguments for several reasons. First, the Court held that the desire for prompt decisions in arbitration, as manifested by the Federal Arbitration Act (FAA), "is entirely consistent with a desire to make as effective as possible recovery upon awards . . . which is what provisional remedies do." Thus, the Court held that requests for provisional remedies during the pendency of arbitrations are consistent with, and not contrary to, the spirit of the FAA.

Second, the Court held that while parties may certainly contract away their right to seek provisional remedies in aid of arbitration in courts, they should be clear and specific if that is what they intend. In this case, the Court held that Rule 12209 did not clearly and specifically evidence an intention that the parties were contracting away such a right, noting that even UBS conceded that a party could go to court to compel arbitration.

Third, the Court held that its holding was not inconsistent with Rule 12209 because "[a] prejudgment remedy does not interfere with the arbitral process but merely ensures that there will be assets available to satisfy any judgment the arbitrators themselves may render." Accordingly, the Court held that prejudgment remedy proceedings do not address the merits of an action, and thus do not concern matters pending in arbitration.

Finally, in response to UBS's argument that FINRA's rules and the role of the SEC preclude the need for provisional remedies in securities arbitrations, the Court held that "[w]hile UBS undoubtedly has sufficient assets to respond to any arbitration award in this case, that is not necessarily true of every member broker . . . one only has to recall what happened recently with Bear Stearns to understand why some customers might like to have the security of knowing that if they prevail in arbitration, assets will be available to satisfy any award." Thus, the Court denied UBS's motion to dismiss.