Second Circuit Defines "Customer" For Mandatory FINRA Arbitration

In a case of first impression, the United States Court of Appeals for the Second Circuit in Citigroup Global Markets, Inc. v. Abbar, No. 13-2172, 2014 WL 3765867 (2d Cir. Aug. 1, 2014), established a bright-line definition of "customer" under FINRA's mandatory arbitration provision. Absent a written agreement to arbitrate, FINRA Rule 12200 compels FINRA members to arbitrate disputes with "customers," but the rule does not define "customer." It states only that a "customer shall not include a broker or dealer." In Abbar, the Second Circuit held that a "customer" is "one who, while not a broker or dealer, either (1) purchases a good or service from a FINRA member, or (2) has an account with a FINRA member." Whether an investor is a "customer" is a threshold arbitrability question, the resolution of which can entail protracted and costly litigation. But in establishing a clear definition of "customer," Abbar provides a reliable framework for making this determination,