Presbyterian Healthcare Servs. v. Goldman, Sachs & Co.

122 F.Supp.3d 1157

PRESBYTERIAN HEALTHCARE SERVICES and New Mexico Hospital Equipment Loan Council, Plaintiffs,

v.GOLDMAN, SACHS & CO., Defendants.

No. CIV 14–0181 JB/SCY.

United States District Court, D. New Mexico.

Signed Aug. 14, 2015.

James P. Lyle, Law Offices of James P. Lyle P.C., Albuquerque, NM, Maryellen Duprel, Duprel Law Firm, Tempe, AZ, Samuel B. Edwards, Sheperd Smith Edwards & Kantas, LLP, Houston, TX, for the Plaintiffs.

James S. Rubin, Patricia Salazar Ives, Cuddy & McCarthy LLC, Albuquerque, NM David H. Braff, Andrew H. Reynard, Matthew A. Schwartz, Sullivan & Cromwell LLP, New York, NY, for the Defendant.

MEMORANDUM OPINION AND ORDER

JAMES O. BROWNING, District Judge.

THIS MATTER comes before the Court on Defendant Goldman, Sachs & Co.'s Motion to Transfer Pursuant to 28 U.S.C. § 1404(a), filed September 30, 2014 (Doc. 27)("Motion"). The Court held a hearing on March 5, 2015. The primary issue are: (i) whether Plaintiff Presbyterian Healthcare Services' claims ‘arise out of’ its broker-dealer agreement with Defendant Goldman, Sachs & Co., Broker–Dealer Agreement, filed September 30, 2014 (Doc. 29–1); and (ii) whether Presbyterian Healthcare Services' claims "arise out of" its Broker–Dealer Agreement, Presbyterian Healthcare would be bound by the Broker–Dealer Agreement's forum-selection clause, requiring that Presbyterian Healthcare bring its case in the United States District Court for the Southern District of New York. The Court concludes that Presbyterian Healthcare's claims ‘arise out of’ the Broker–Dealer Agreement, because the claims concern Goldman Sachs' actions pursuant to that agreement. The Court therefore grants Goldman Sachs' Motion and will transfer this case to the United States District Court for the Southern District of New York.

FACTUAL BACKGROUND

Presbyterian Healthcare is a private, non-profit healthcare system based in Albuquerque, New Mexico. See Complaint for Declaratory Relief and Injunctive Relief ¶ 4, at 2, filed February 25, 2014 (Doc. 1) ("Complaint"). The New Mexico Hospital Equipment Loan Council ("NMHELC") is a state-created, see N.M. Stat. Ann. § 58–23–5 NMSA, but independently-run instrumentality, Complaint ¶ 5, at 2, that assists New Mexico hospitals in issuing bonds, see Transcript of Defendant Goldman, Sachs & Co.'s Motion to Transfer at 38:17–19 (taken Mar. 5, 2015) ("Tr.") (Edwards). Goldman Sachs is a multinational investment banking firm based in New York City, New York. See About Goldman Sachs, Goldman Sachs, http://www.goldmansachs.com/who-we-are/at-a-glance/index.html (last visited July 7, 2015).

From 2004 to 2009, Goldman Sachs provided financial services to Presbyterian Healthcare. See Complaint ¶ 11, at 4. In 2004, Goldman Sachs helped Presbyterian Healthcare issue roughly $147.5 million in Auction Rate Security ("ARS") bonds. Memorandum of Law in Support of Goldman, Sachs & Co.'s Motion to Transfer Pursuant to 28 U.S.C. § 1404(a) at 2, filed September 30, 2014 (Doc 28)("Motion Memo."). ARS bonds are

long-term, variable-rate instruments with interest rates that reset at periodic auctions. At each auction, ARS investors submit a bid setting forth the number of ARS that they wish to purchase, hold, or sell, and the lowest interest rate that they will accept. The lowest interest rate at which the entire issue can be sold at par establishes the new interest rate to be paid until the next auction. This new interest rate is known as the "clearing rate." If there are insufficient bids to cover the bonds available for sale at the auction, however, the auction "fails," and the interest rate is set at a contractual "maximum rate" until the next auction.

Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 736 (9th Cir.2014). Ideally, ARS bonds allow the issuer to offer long-term debt while paying interest rates comparable to short-term debt. See Complaint ¶ 12, at 4. The ARS market is vulnerable, however, to auction failure: when there are more ARS bonds than bidders, the issuer is penalized by having to pay a set maximum interest rate. See Motion Memo. at 3.

In 2006, Presbyterian Healthcare wished to capitalize on a favorable shift in long-term municipal debt interest rates, and Goldman Sachs arranged to "synthetically fix" the ARS bond rate by having Presbyterian Healthcare enter into interest rate swaps with a Goldman Sachs affiliate. Complaint ¶ 13, at 4–5. Under these swaps, Presbyterian Healthcare paid the affiliate a fixed rate in exchange for variable rate payments based on the monthly London Interbank Offer Rate ("LIBOR"). Complaint ¶ 13, at 5. The parties expected the LIBOR rate to mirror the rates Presbyterian Healthcare would have had to pay on its ARS bonds, allowing Presbyterian Healthcare to continue to pay a fixed rate while continuing to send its ARS bonds to auction. See Complaint ¶ 13, at 5. In early 2008, demand for ARS bonds dropped, and auctions across the country began to fail. See Motion Memo. at 5. Presbyterian Healthcare had to restructure many of its ARS bonds, terminate some of its interest rate swaps, and pay higher rates. See Complaint ¶ 17, at 6.

1. The Parties' Agreements and Relevant Documents.

Presbyterian Healthcare and Goldman Sachs began discussing investment banking services in late 2003, see Plaintiffs' Opposition to Defendant's Motion to Transfer Pursuant to 28 U.S.C. § 1404(a) at 15, filed November 24, 2014 (Doc. 35)("Response"), culminating in the issuance of ARS bonds in mid–2004, Response at 3. The parties now contest the legal implications of several documents and agreements created during that time.

a. Goldman Sachs' Proposal.

In late 2003, Goldman Sachs sent Presbyterian Healthcare a proposal pitching its banking and underwriting services. See Proposal to Provide Investment Banking Services, filed November 24, 2014 (Doc. 35–2)("Proposal"); Edwards Decl. ¶ 3, at 1. The Proposal touts Goldman Sachs' experience working with health care providers, see Proposal at 3, asserting that it "is a leader and innovator in ... capital formation, underwriting[,] remarketing[,] auction agent/broker-dealer services[,] derivative product development and execution [,] strategic advisory services[,] and use of credit enhancement," Proposal at 4. Goldman Sachs also underscores its long-term commitment to clients:

Goldman Sachs prides itself on providing complete, broad based, intensive coverage for our clients, regardless of where they are in their capital cycle. While we have recently added a number of new clients, many of our relationships span decades. We maintain these relationships by providing a complete and varied range of services, by being a product innovator and market leader, and by focusing on what is best for the client rather than what produces the next trade.

Proposal at 3.

b. The Purchase Contract.

On May 7, 2004, Goldman Sachs entered into an agreement with the NMHELC to purchase Presbyterian Healthcare's ARS Bonds and serve as the underwriter. See Purchase Contract at 1,¹ dated May 7, 2004, filed September 30, 2014 (Doc. 29–4). The Purchase Contract contains no forum-selection clause, but stipulates that New Mexico law governs the contract. See Answer ¶ 23, at 17.

c. The Broker–Dealer Agreement.

On May 12, 2004, Presbyterian Healthcare, Goldman Sachs, and Wells Fargo Bank entered into the Broker–Dealer Agreement, which setting terms for issuing four categories of ARS bonds.² See Broker–Dealer Agreement at 2.³ The Broker–Dealer Agreement stipulates to the parties' procedures and expectations in executing the ARS bonds, see Broker–Dealer Agreement at 3–6, 8, and sets compensation terms, see Broker–Dealer Agreement at 7–8. The Broker–Dealer Agreement includes a merger clause, titled "Entire Agreement," which reads:

This Broker–Dealer Agreement, and the other agreements and instruments executed and delivered in connection with the issuance of the Series 2004 Auction Bonds, contain the entire agreement between the parties relating to the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or inferred, between the parties relating to the subject matter hereof.

Broker–Dealer Agreement at 14 (emphasis added). A page later comes a forum-selection clause, titled "Governing Law; Jurisdiction; Waiver of Trial by Jury":

This Broker–Dealer Agreement shall be governed by and construed in accordance with the laws of the State of New York (including, without limitation, Section 5–1401 of the New York General Obligations Law or any successor to such statute). The parties agree that all actions and proceedings arising out of this Broker–Dealer Agreement or any of the transactions contemplated hereby shall be brought in the United States District Court in the County of New York and that, in connection with any such action or proceeding, submit to the jurisdiction of, and venue in, such court. Each of the parties hereto also irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of this Broker–Dealer Agreement or the transactions contemplated hereby.

Broker–Dealer Agreement at 14 (emphasis added).

d. FINRA Agreement.

FINRA members must ostensibly adhere to its Code of Arbitration Procedure for Customer Disputes ("FINRA Code"), Rule 12200 of which provides:

Parties must arbitrate the dispute under the Code if:

• Arbitration under the Code is either:

(1) Requested by a written agreement, or

(2) Requested by the customer

• The dispute is between a customer and a member or associated person of a member; and

• The dispute arises in connection with the business activities of the member or the associated person, except disputes involving the insurance business activities of a member that is also an insurance company.

FINRA Code Arb. Proc. 12200.

PROCEDURAL BACKGROUND

On February 10, 2014, Presbyterian Healthcare filed a claim against Goldman Sachs with the Financial Industry Regulatory Authority ("FINRA")⁴ Division of Arbitration in New Mexico. See ...