R.J. O'Brien & Assoc., Inc. v. Thomas D. Pipkin

ESCHBACH, Circuit Judge. Pipkin appeals Thomas from the district court’s decision in diversity action to con- firm an arbitration against award entered him favor of R.J. O’Brien & Associ- ates, (“O’Brien”) Inc., by the National Fu- (“NFA”). tures Association mo- award, he contended that against Pipkin tion to vacate mand for arbitration in June mandatory imposed 1992 under the NFA’s Member Arbitration Congressional authori- require without contractual or Rules which persons associated ty appointed panel in a manner disputes arbitrate members. contrary to own rules. For the reasons challenging filed an juris- answer the NFA’s below, affirm. we diction to conduct the but the proceed. matter was allowed to ensuing The

I. $82,000 arbitration in resulted an award of in O’Brien’s favor. (the “Act”), Commodity Exchange The Act 1-25, regulates §§ 7 U.S.C. the conduct of 26,1993, May On petition O’Brien filed a in involving in participants transactions com- the district court for an confirming order modity actively partic- futures. Persons who Pipkin arbitration award. responded by ipate industry, in the such as futures com- moving award, to vacate the arguing that the merchants, brokers, introducing mission and authority impose NFA had no to arbitration therewith, persons obligated associated are upon him and its in doing actions so violated 6f(a) register §§ to under the Act. 7 U.S.C. process the due clause of the Fifth Amend- 6k(l). regulatory and To oversee the re- argued ment. He also panel- that one of the gime, Congress Commodity created the Fu- ists was not selected in accordance with the (“CFTC”), Trading in- tures Commission an NFA’s rules. The district court confirmed dependent agency which is also vested with award, finding the arbitration that the NFA authority register persons to under the performed proceeding the arbitration as au- 21(o), Act. Under 7 U.S.C. the CFTC is rules, thorized and in accordance with its and permitted delegate registration this func- it was not a actor and registered tion to a futures association to be deprived therefore Pipkin could not have performed in accordance with the associa- rights by requiring his constitutional arbitra- approved pursu- tion’s rules as the CFTC Pipkin timely appeal.1 tion. filed a notice of 21(j). private ant to 7 U.S.C. The jurisdiction pursuant We have to 28 U.S.C. corporation registered as a futures associa- § 1291. Act, delegated tion under the has been registration function the CFTC. II. 1985, O’Brien, corporation an Illinois merchant, registered appeal requires legal as a futures commission This tous decide two (1) clearing questions: Pipkin entered into a with the whether consented to Inc., Sage Group, independent introducing dispute an submit his with O’Brien to the NFA and, Pipkin, signed broker under the Act. a California when he form if resident, so, president principal was the and whether that consent was obtained (2) Sage registered through process; stockholder of and as an a denial of due person. According agree- panel associated to the whether NFA’s arbitration was ment, in O’Brien cleared the trades all cus- selected accordance with its own rules. by Sage. interpretation tomers introduced to it That ar- This decision involves Act, rangement Sage regulations, in terminated June 1990 and CFTC and NFA re- bankruptcy quirements. declared December 1990. our standard of review is O’Brien, however, Sage’s Moseley, claimed that after the same as the district court. Ellis, $172,000 bankruptcy paid approximately Hallgarten, it Estabrook & Weeden v. satisfy complaints against customers see Pritzker Pierce, Smith, by Sage. Lynch, It introduced asserted that Merrill Fenner & (3d Cir.1993). personally responsible indemnify F.3d We will va- O’Brien for this amount. arbitration award if “the Since O’Brien cate the arbitrators registered powers” deciding were both wdth the NFA exceeded their this case. 10(a)(4); Eljer Mfg., to its O’Brien filed a de- 9 U.S.C. Inc. v. Kow- granted participated adopt 1. We O'Brien's motion to NFA also in the oral appeal. NFA's brief as amicus curiae on this case. Cir.), Corp., protests language in Dev. — —, ambiguous provide the Form 8-R is too (1994). Unlike L.Ed.2d 810 consent. forms in field,

the securities see Gilmer Inter Corp., Lane 500 U.S. state/Johnson authority impose A. NFA’s (1991), 111 S.Ct. 114 L.Ed.2d 26 consent to submit to arbitra- specifically the NFA and CFTC forms do contract, however, mention arbitration. A contain explicit need not arbitration clause argues that he did not consent validly incorporates by if it arbi disputes to arbitrate all member-associate tration clause in another document. See Gel when before the NFA he be an dermann, CFTC, 310, Inc. v. F.2d 836 318 “[Ajrbi- person” “associated under the Act. (7th Cir.1987), denied, 816, 109 cert. 488 U.S. party of a tration is a matter contract and 54, (1988); 102 Progressive S.Ct. L.Ed.2d 33 required cannot be to submit to arbitration Casualty Reaseguradora Ins. Co. v. C.A. Na any dispute agreed he has not so to which (2d cional, Cir.1993); 991 F.2d 48 United T Technologies, submit.” AT v. Com & Inc. Fidelity States & Guar. v. West Co. Point Workers, 643, 648, munications 475 U.S. Co., Inc., Constr. 837 F.2d 1415, 1418, (1986); 89 L.Ed.2d 648 Mi Foundations, Maxum Inc. v. Sa Co., ron Constr. Inc. v. Union International (4th Cir.1985). Corp., lus Operating Eng’rs, of Cir.), Geldermann, — In we held that “a- written U.S. —, 115 S.Ct. agreement to by observe and bound the (1995). 1824, 131 L.Ed.2d Charter, Regulations Rules and of the Asso application registration The Form 8-R for ciation, and all subsequently amendments person as an associated under the Act and as made thereto” constituted consent to be Associate the which by bound procedures arbitration later signed, delivery states that “execution and of Id., adopted by the Association. F.2d at application shall this ... an constitute ex- press by that, me if as Associate, I shall become and remain phrase counters that “all the NFA by requirements bound all NFA then requirements” as and vague incorporate was too to thereafter in effect.” Under Article XVI- the Member argues Arbitration Rules. He II(u) Incorporation that, of the NFA’s Articles of while it would members of the (q) Compliance and Rule 1-1 of the requirements, NFA’s NFA such associates could Rules, “Requirements” “any only is defined as expect by to be require- bound those restriction, duty, procedure, or im- standard NFA specifically ments the was authorized to charter, posed by bylaw, rule, regulation, by Act, impose the proficiency such as resolution, provision.” or similar One compliance requirements of by authorized requirements, adopted May these 21(p). phrase Even if such a broad as “all is the requirements” NFA’s “Member construed, Arbitration Rules.” NFA so could be 2(a) 12a(10) Under of “disputes these be- Pipkin’s ignores §§ 21(o )’s among tween and Members delegation and Associates authority blanket of to the shall be arbitrated under upon perform these Rules NFA the function in filing of a Demand approved Member with accordance its rules as Thus, 8-R, in signing Associate.” the Form CFTC. an associated could not to mandatory consented of arbitration requirements assume the NFA’s dispute with O’Brien any way before the NFA.2 specified limited in those in ¶ 13(b) er, Pipkin's Fully Clearing pursued of Disclosed O’Brien never a demand for arbitra- O’Brien, Agreement parties agreed did consent that forum. arbitra- any disputes arising arbitration of dispute from the contrary tion of was thus agreement, 2(1) stipulated the forum but to be of the Member Arbitration Rules which the American Arbitration Since mandatory disputes Association. this from excludes arbitration dispute allegations parties involved of misconduct which which the have committed themselves to beyond scope agreement, went howev- forum. another accept Chicago person take Board of Trade’s Nor can an associated Act.3 (“CBOT”) Pipkin’s suggestion that the word refuge regulations, including rules and “requirements” in the Form 8-R is distin- Id., rules. 836 F.2d at 317. We “Require- term guished from the defined impact held that this dilemma “has no on the Incorporation in the Articles of ments” question of Geldermann’s consent to follow capital absence of a Compliance Rules CBOT, including all of the rules a distinction without a differ- “R.” This is arbitration rules.” Id. at 318. Geldermann’s in the text of the Articles of ence. Nowhere choice become a member of the CBOT was Bylaws Incorporation, or other rules does the Pip- sufficient alone to evidence its consent. “requirements” with a NFA use the word distinguishes by arguing kin Geldermann require- capital phrase “R.” The “all NFA voluntary the CBOT is a association sufficiently comprehensive pre- ments” is registering mandatory while with the NFA is complaining that he could vent from ignores holding under the Act. This actually which NFA mandates not discern Agricultural Thomas v. Union Carbide applied to him. Co., Products 473 U.S. 105 S.Ct. Moreover, clearly the Form 8-R indicated (1985), 87 L.Ed.2d 409 as inter- application to obtain that the Geldermann, preted by this court in 836 F.2d ap- person also constituted an an associated data-sharing at 317. Thomas involved the registration as an NFA Associ- plication for Insecticide, provisions Fungi- of the Federal According to the definition of “Associ- ate. (“FIFRA”). cide, and Rodenticide Act As a Rules, “every in Member Arbitration ate” the precondition registration pesticide, to of a a person who is associated with Member required manufacturers were to submit their meaning of the term ‘associated within the duplication research data to avoid of efforts. 4k person’ as used in Section of the Commod- A scheme was established to share the costs Act, required ity Exchange and who is to compiling of this research. When conflicts Commission, register such with the must as developed compensation, over the amount of Thus, register an Associate.” with NFA as Congress imposed system mandatory of a Pipkin requirement applies to the arbitration participate arbitration. A refusal to could independent the Form was of whether 8-R result in the denial or cancellation of the incorporate to the rules. sufficient registration pesticide. for a As this court Finally, Pipkin argues that the Form 8-R Geldermann, FIFRA, “under summarized him to submit to arbi- could not have bound applicant option participating in has the of “nonnegotiable” tration because it was going the arbitration scheme or out of busi- therefore, argument implies, a contract of the despite compulsion, ness. Yet this economic In to continue in adhesion. order for Supreme the Court held that ‘the follow-on position president Sage of he had to registrant explicitly ... consents to have his register as an associated under the ” Id., by rights determined arbitration.’ 836 Act and therefore himself to the Thomas, (quoting at F.2d at 318 requirements. argument, NFA’s Such 3339). Thus, 592,105 mandatory at the S.Ct. however, already has been addressed and Pipkin’s registration of with the NFA nature rejected by court in this Geldermann. to does not obviate his consent submit to its as a com- order to continue its business firm, procedures. modity brokerage had to Geldermann Commission, argues significance, by as determined the also that the CFTC’sissuance publish regulation explicitly the Commission shall a notice of such a which authorized member- Register.” require- justifies No such arbitration in contract markets rules in the Federal member 21(j), procedures § refusing recognize ment is included in 7 U.S.C. which out- to such arbitration procedure approval regis- regulation of a case where no such was lines the CFTC the instant Indeed, ignores tered futures association's rules. the issued. See 17 C.F.R. 180.5. This the explicit approval ar- special CFTC’s of member-member status accorded to contract markets 7a(12)(A), only strengthens Congress. markets U.S.C. which outlines bitration in contract Rules procedure the NFA's case that its Member Arbitration for CFTC review of contract provisions thirty days the other “[a]t market's states that least are consistent with any major approving economic Act. before rules of registration same fashion as claims function process 2. Due requirement applicant that an reveal cer- Pipkin’s complaint is not that real or her criminal tain information about his registration form was insufficient to NFA 12a(2) Although history of the Act. under to indicate his consent to submit may government actor the NFA instead that this consent was obtained but proceeding, when it conducts the arbitration unconstitutionally. argues that the NFA He certainly requires applicant when it it is process his Fifth Amendment due restricted agree arbitration rules in to submit occupation. right pursue his chosen register the Act. order to under 474, 491-92, McElroy, v. 360 U.S. Greene 1400, 1410-11, (1959); 3 L.Ed.2d 1377 stumbles, process due claim (7th Cooper, v. 56 F.3d see Nowicki however, question on the of whether Township Bernard v. United actually rights NFA has violated his con High No. School District ditioning registration upon (7th Cir.1993). The district court re requirements. argues abide He jected ground this on the that the adoption the NFA’s of the Member Arbitra government NFA is not a actor. attempt tion Rules is an unauthorized agree impose private agenda regis its own on the

We performing actor in tration function. Even if we assume that enough is a violation of due function. The NFA admits this constitute delegated process, Bigby City Chicago, func see has been Cir.1985), the Federal Government. this distinguishable is from the case relied 474 U.S. 106 S.Ct. 88 L.Ed.2d 771 case court, (1986), upon by has not the district Bernstein established that Co., 179, imposition F.2d NFA’s of its unau Lind-Waldock & 738 186 own rules was Cir.1984), Act, Congress anticipat where we concluded that the Chi thorized. Under the cago Exchange, although heavily registra Mercantile ed that the NFA would conduct the regulated, government not a actor tion function in be accordance with its own 21(o)(l) performed provides no function on of cause behalf rules. Section that the government agent. perform “any portion regis the as its The NFA ar NFA will of the however, gues, agency capacity that ... chapter its is tration functions under this with respect limited to the function while its to each associated of such member, requirement applicants that in submit to NFA accordance with notwith law, regulations capacity standing any provision in a adopted rules and is other of private association. See United States v. such futures association and submitted Solomon, (2d Cir.1975) 863, pursuant (j) 509 F.2d 867-69 the Commission to subsection of (NASD performing 21(j), Congress provided was not a this section.” investigated function when it its members for a method which all of the NFA’s rules rules); Weinberg approval violations of its own v. would be submitted to it for or CFTC, 808, (C.D.Cal.1988), section, F.Supp. 699 814 review. Under this an addition to a (9th Cir.1989) (NFA may 884 F.2d 1396 not futures rules association’s aff'd. privilege to the Fifth Amendment submitted to the CFTC. If the CFTC “does against approve disapproval proceed self-incrimination when it conducts or institute investigation any an ings respect for a violation of its own rule "within one rules). eases, government’s reg eighty days In these receipt hundred and after ... merely private may regis ulations serve to bolster the such rule be made effective According association’s enforcement of its own rules. tered futures association.” to a contrast, By imposes the NFA its own rules from Declaration its Member Arbi precondition approved by as a under the tration Rules were the CFTC on Thus, February Act. part These rules have become a 1992.4 the NFA’s re- Thus, waived) Pipkin's argument that the CFTC could was not is without merit. approved Congress specifically provided procedure not have the Member Arbitration Rules in issuing regulation (assuming (j) whereby effectively ap- §21 without order CFTC could quirement registrants say that under the Act dures.5 cannot we that it had mandatory arbitration was not an part submit to become a of the Member Arbitration arbitrary parties’ act which agreement unauthorized and consti- Rules or the to arbitrate. Fifth Amendment tuted denial Since the selection of fully the arbitrators 3(a), right process. to due conformed with the arbitrators did powers settling not exceed their in this dis- appointment B. The NFA’s of the arbitra- pute. panel

tion III. 10(a)(4), are

Under U.S.C. we obligated to above, vacate award where arbi For the reasons the decision of the powers deciding trators exceeded their district court is Affirmed. powers

case. The arbitrators’ are derived ROVNER, Judge, dissenting. Circuit parties’ agreement. from AT T & Tech Inc., nologies, at 106 S.Ct. at agree I majority with the if Pipkin Thus, in order enforce an arbitra arbitration, consented to his consent was not award, the arbitrator must be chosen in through obtained process. denial of due procedure specified conformance with the agree majority And I with the that if parties’ agreement to arbitrate. Tamari consented to the members of the Conrad, (7th Cir.1977). v. 552 F.2d panel properly selected. Cargill Empresa Accord Rice v. Nicar But never consented to arbitration. Dealimentos, 25 F.3d auense agreement Pipkin signed did not Cir.1994); Reynolds, Szuts Dean Witter unambiguous constitute a clear and consent Inc., Avis arbitrate, incorporate by and it did not System Garage Employees A Rent Car any other containing document Union, (2d Cir.1986). A parties arbitration clause. All of agree departure” parties’ agree “trivial from the courts will not find an ment, however, may not bar enforcement arbitrate the absence of a clear and unam Id., an award. 791 F.2d at 25. biguous consent to arbitration. See Brief of (“NFA dispute Amicus Curiae at 5 does not Pipkin contends that one of the arbi general principle that courts will not find trators was not chosen conformance with a contract to in arbitrate the absence of a procedure the selection outlined in the Mem unambiguous clear and consent to arbitra 3(a) ber Arbitration Rules. Section of the tion”). Country v. See also Flood Mutual provides proceedings Rules that arbitration Co., Ins. Ill.2d N.E.2d “shall be conducted before (1968) (“parties only are bound to arbitrate panel consisting of three NFA Members or by language they which those issues clear individuals connected therewith.” One of the arbitrate”). agreed parties All have arbitrators selected for agree signed by also that the Form 8-R Weiss, Member, Donald was not an NFA but Pipkin contained no But arbitration clause. performed than more 50% of his work on majority today phrase decides that “if behalf of charges NFA Members. Associate, I shall become as.'an that this does not conform with the NFA’s by requirements and remain bound all NFA previous interpretation of the “connected incorporates as in then and thereafter effect” language required therewith” which 50% of in arbitration clause another performed the work to be on behalf one document. prior interpretation, NFA member. This however, merely any for the benefit of staff Yet the Form not 8-R does mention document, published and was neither nor incorporate made with other such much less however, anything proce- majority, akin to notice and comment it reference. The fact, NFA, prove taking any Kathryn Camp, rule without counsel NFA action In for the argument interpreta- admitted at oral that these whatsoever. usually made and tions were her committed to paper without further discussion. (7th Cir.1987), a case by referring NFA’s 836 F.2d 310 where conclusion reaches its voluntary Compli- membership in a association con- Incorporation and NFA’s Articles of Rules, disputes. obligation of which are mentioned to arbitrate ance neither fers However, anywhere on the Form 8-R. From these is not a member of the documents, majority NFA, a definition apply extracts and this case does not to him. “Requirements,” applies that merely the word He is associated with the “requirements” such, subject the word on the definition to he is not as NFA admits 8-R, if it a defined term. The Form as requirements as members. He the same Incorporation Compliance and the dues, Articles of example. im- pay need not NFA “any duty, “Requirements” as Rules define admits, therefore, plicitly that the word “re- restriction, imposed procedure, or standard quirements” is to more than one charter, rule, bylaw, regulation, by a resolu- meaning. “requirements” word definition, tion, provision.” This similar ambig- Form is at best appears 8-R states, majority encompasses the then Ambiguities uous. in a contract are to be NFA’s Member Arbitration Rules. And drafter, against the in this ease the construed turn, these, require Associates and Associ- Yoder, Epstein Ill.App.3d NFA. See like to submit to arbitra- ated Persons 29 Ill.Dec. 391 N.E.2d Dist.1979). tion. Three documents which are even short, (Ill.App. 1st hardly Form 8-R can mentioned clearly unambiguously never consented incorporated respectfully I to arbitration. dissent. reference. majority’s especially as- conclusion is tonishing light of the fact that the NFA nothing at oral that

conceded “requirements” that

the Form 8-R indicates term, “requirements” is not

is defined itself, on the Form 8-R and that the

defined any

Form 8-R does not mention of the docu- incorporated. In-

ments the NFA claims are stead, THELEN, Plaintiff-Appellant, argued person A. when John highly regulated business in a wants do industry, “understands” that CORP., MARC’S BIG BOY Marcus there are other documents he needs to read Stephen Marcus, Corp., and H. registers. general understanding A when he Defendants-Appellees. may that other is no substi- documents exist unambiguous tute for the clear and consent No. 94-3421. required by to arbitrate the ease law. The Appeals, Court of United States majority’s reasoning constitutes substantial Seventh Circuit. departure from established rule. Furthermore, every case which the Argued Feb. relies, majority incorporation by refer- Aug. Decided just signed ence is that —the document con- explicit tains reference to another docu-

ment that contains the arbitration clause. explicit

There is no here. There is implicit Nothing even reference. signatory

the Form 8-R even clues meaning “require-

the defined of the word above,

ments.” As noted concedes

that the definition is in a contained document is not even mentioned the Form 8-R. Geldermcmn, majority also relies on Com’n, Commodity Trading

Inc. v. Futures

Case Details

Case Name: R.J. O'Brien & Assoc., Inc. v. Thomas D. Pipkin

Court Name: Court of Appeals for the Seventh Circuit

Date Published: Aug 15, 1995

Citation: 64 F.3d 257

Docket Number: 94-1763

Court Abbreviation: 7th Cir.