J.P. Morgan Chase Bank, N.A. v. Jeffrey McDonald
760 F.3d 646
7th Cir.2014Background
- The McDonalds opened two separate accounts in 2007: an investment account with J.P. Morgan Chase Bank (the Bank) and a brokerage account with J.P. Morgan Securities (JPMS); losses (~$1.5M) occurred in the Bank-managed investment account.
- The JPMS brokerage agreement required FINRA arbitration for disputes arising from that account; the Bank is not a FINRA member and its account contract contained a Cook County, Illinois, exclusive forum-selection clause (federal or state court).
- In August 2011 the McDonalds demanded FINRA arbitration naming JPMS and two Bank employees (Ohlms and Perry), but not the Bank; arbitration asserted vicarious liability and misconduct related to the Bank-managed losses.
- The Bank sued the McDonalds in federal court in Chicago seeking declaratory relief and an injunction to bar the FINRA arbitration as a violation of the Bank’s forum-selection clause; JPMS joined as plaintiff but the employees were not joined (one employee’s joinder would destroy diversity).
- The district court dismissed the Bank for lack of standing to enjoin arbitration to which it was not a party and dismissed the suit for failure to join Ohlms and Perry as required/indispensable parties; the Bank and JPMS appealed.
- The Seventh Circuit reversed: (1) the Bank has Article III standing to enforce its forum-selection clause because the McDonalds’ arbitration arises from losses to the Bank account and breaches the contractual clause, and (2) the employees are not required parties under Rule 19.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Bank has Article III standing to enjoin an arbitration it was not named in by enforcing its forum-selection clause | Bank: The arbitration concerns losses from the Bank account and violates the parties’ contractual forum-selection clause; breach of contract gives standing | McDonalds: Arbitration targets JPMS/employees only; Bank lacks a particularized injury because it is not a party to arbitration | Held: Bank has standing—arbitration "arises out of" the Bank contract; breach of forum clause is an injury cognizable for standing (contractual interests and indemnity exposure strengthen injury) |
| Whether employees Ohlms and Perry are required parties under Rule 19 such that suit must be dismissed for failure to join them | Bank/JPMS: Employees are necessary because the injunction would affect their ability to arbitrate; absence prevents complete relief | McDonalds: Employees are not indispensable and joining one would destroy diversity; employer can litigate its contractual rights without naming employees | Held: Employees are not required under Rule 19(a); court can grant injunction against McDonalds without naming employees; their interests are adequately represented by employer |
Key Cases Cited
- MedImmune, Inc. v. Genentech, 549 U.S. 118 (2007) (clarifies "actual or imminent" controversy for declaratory relief)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (Article III standing requires particularized, actual or imminent injury)
- Atlantic Marine Constr. Co. v. U.S. Dist. Court, 134 S. Ct. 568 (2013) (forum-selection clauses are enforceable and affect parties’ bargain)
- Abbott Labs. v. Takeda Pharm. Co., 476 F.3d 421 (7th Cir. 2007) (disputes that arguably depend on contract construction "arise out of" the agreement for forum clauses)
- American Patriot Ins. Agency v. Mutual Risk Mgmt., 364 F.3d 884 (7th Cir. 2004) (affiliated entities may enforce forum clauses in interconnected contract packages)
- Wachovia Bank, N.A. v. VCG Special Opportunities Master Fund, Ltd., 661 F.3d 164 (2d Cir. 2011) (bank had standing to enforce contract clause though not named in arbitration against subsidiary)