Can a financial institution deny a cardholder dispute for a dispute related to recurring transactions and inform the customer to contact the merchant?

In other words, we have a customer that has a recurring debit from the same company that posts to their account on the middle of each month for varying dollar amounts. The customer has not disputed any previous recurring debits from this company that have posted to their account on a regular basis for the past 6-months, and their dispute form does not indicated that they tried to stop the charges.

Can the FI deny or must we still issue provisional credit and send the dispute for charge-back rights.

No, you have to play the game according to the rules. Under Reg E you have to take the error claim, investigate it, and determine whether the transaction(s) in question were authorized. You can ask the customer if he has revoked an earlier authorization (for the recurring charges), and when he did that. You can ask whether the customer wants to block future recurring transfers. But you cannot assume that, because earlier transactions were authorized, the disputed transactions were, too.