UBS Financial Services Inc. has lost its bid to go to arbitration in a dispute over the handling of a charitable foundation’s funds, according to Investment News.
The United States Court of Appeals for the Second Circuit affirmed a lower court ruling denying a motion by UBS to compel arbitration in the case. The matter involves trustees of the Peter and Elizabeth C. Tower Foundation, who filed a lawsuit against UBS and Jay S. Blair in April 2022.
The plaintiffs alleged that Blair’s father John N. Blair improperly used his position and influence to place the foundation’s assets with Jay’s investment firm, which later became affiliated with UBS. The suit, brought under the Investment Advisers Act and New York state law, contends that the UBS defendants breached their fiduciary duties in managing the foundation’s investment advisory accounts. John Blair is accused of aiding and abetting these breaches. The foundation also alleged that Jay Blair was negligent in managing the foundation’s brokerage accounts.
The lawsuit claimed that John Blair “insinuated himself into a position of trust and confidence” with the foundation’s creators, which led to the assets being managed by his son and UBS. The foundation further claimed that it was unable to obtain information regarding its investments after the move to UBS, and that it did not receive regular statements.
UBS initially moved to dismiss the case and send it to arbitration. In denying that motion, the U.S. District Court for the Western District of New York ruled the plaintiffs had presented sufficient evidence to question the validity of the arbitration agreement. The appeals court upheld that decision last month, finding that UBS waived its right to arbitrate the dispute by first moving to dismiss the lawsuit in federal court, thus acting inconsistently with the right to arbitrate.
In its ruling, the court applied the Supreme Court’s 2022 decision in Morgan v. Sundance, Inc. In that case, it was noted that courts may not impose a prejudice requirement when evaluating whether a party has waived enforcement of an arbitration agreement.
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