PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

________________

No. 16-4234

________________

READING HEALTH SYSTEM

v.

BEAR STEARNS & CO., n/k/a 

J.P. MORGAN SECURITIES LLC,

 Appellant

________________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D. C. Civil Action No. 5-15-cv-01412)

District Judge: Honorable Lawrence F. Stengel

________________

Argued on October 10, 2017

Before: SHWARTZ and ROTH, Circuit Judges and 

PAPPERT, District Judge

 

 The Honorable Gerald J. Pappert, United States District 

Judge for the Eastern District of Pennsylvania, sitting by 

designation. 
2

(Opinion filed August 7, 2018)

Jonathan K. Youngwood, Esq. (ARGUED)

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017

Counsel for Appellant

Mark A. Strauss, Esq. (ARGUED)

Thomas W. Elrod, Esq.

Peter S. Linden, Esq.

Kirby McInerney LLP

825 Third Avenue, 16th Floor

New York, NY 10022

Counsel for Appellee

Robert C. Port, Esq.

Gaslowitz Frankel LLC

303 Peachtree Street, N.E.

Suite 4500

Atlanta, GA 30308

Counsel for Amicus Appellee 

Public Investors Arbitration Bar Association

________________

OPINION

_______________
3

ROTH, Circuit Judge.

INTRODUCTION

 In this case, we address an emerging trend in the 

brokerage industry. Ordinarily, broker-dealers, as members 

of the Financial Industry Regulatory Authority (FINRA),

1

are 

required by FINRA Rule 12200 to arbitrate all claims brought 

against them by a customer. Seeking to avoid this obligation 

to arbitrate, broker-dealers have begun inserting forumselection clauses in their customer agreements, without

mentioning the customer’s right to arbitrate. This practice, 

which has been condoned by several of our sister circuits, 

deprives investors of the benefits associated with using 

FINRA’s arbitral forum to resolve brokerage-related disputes. 

 

This case concerns such a forum-selection clause. 

Over the course of several years, Bear Stearns & Co., now 

known as J.P. Morgan Securities LLC (hereinafter J.P. 

Morgan), a broker-dealer and FINRA member, executed 

several broker-dealer agreements with Reading Health

System. The agreements were executed in connection with 

four separate offerings of auction rate securities (ARS), 

through which Reading issued more than $500 million in 

debt.

2 Two of those contracts included forum-selection 

 

1 FINRA is a self-regulatory organization (SRO) that is 

statutorily authorized “to exercise comprehensive oversight 

over all securities firms that do business with the public.” 

Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 737 

(9th Cir. 2014) (internal quotation marks omitted).

2

In simplified terms, ARS are long-term bonds (or 

preferred securities) that pay either interest or dividends to the 

bondholders at rates set by periodically held “Dutch” 
4

clauses providing that “all actions and proceedings arising out 

of” the agreements or underlying ARS transactions had to be 

filed in the District Court for the Southern District of New 

York. 

After the ARS market collapsed, Reading filed a 

statement of claim with FINRA, alleging that J.P. Morgan 

engaged in unlawful conduct in connection with the ARS 

offerings and demanding that those claims be resolved 

through FINRA arbitration. J.P. Morgan refused to arbitrate, 

however, contending that Reading had waived its right to 

arbitrate by agreeing to the forum-selection clauses. To 

resolve this standoff, Reading filed a declaratory judgment 

action to compel FINRA arbitration in the District Court for 

the Eastern District of Pennsylvania. In response, J.P. 

Morgan moved to transfer the action to New York, based on 

the forum-selection clauses in some (but not all) of the 

broker-dealer agreements. The District Court denied the 

motion to transfer the action and ordered J.P. Morgan to 

submit to FINRA arbitration. We will affirm both rulings. 

BACKGROUND

I. Factual Background

Reading is a not-for-profit health system located in 

Berks County, Pennsylvania. Reading issued ARSs on four 

occasions in 2001, 2003, 2005, and 2007, offering a total of 

more than $500 million in debt to finance capital projects 

relating to the Reading Hospital and Medical Center Project. 

 

auctions. See Anschutz Corp. v. Merrill Lynch & Co., 690 

F.3d 98, 102 (2d Cir. 2012).
5

J.P. Morgan served as the underwriter and broker-dealer for 

each offering. The parties executed separate broker-dealer 

agreements in connection with each of the four ARS

offerings.

Over time, the ARS offerings did not go as planned for 

Reading. Reading claims that J.P. Morgan and other brokerdealers artificially propped up the ARS market through 

undisclosed support bidding that created a false appearance of 

market demand for ARSs. Allegedly, when the brokerdealers stopped propping up the market in early 2008, the 

ARS market collapsed. As a result, Reading filed various 

state law claims against J.P. Morgan relating to the ARS 

offerings and demanded that those claims be arbitrated before 

FINRA. 

This appeal does not require us to examine the 

propriety of J.P. Morgan’s handling of the ARS offerings or 

to apportion fault for the collapse of the ARS market. Rather, 

we are asked to resolve only the parties’ threshold disputes

regarding the proper venue in which to adjudicate Reading’s 

action to compel arbitration and the venue for Reading’s 

substantive claims against J.P. Morgan. 

To do so, we must examine the four broker-dealer 

agreements. Each of the agreements included a New York 

choice-of-law clause.3 Both the 2001 and 2002 broker-dealer 

agreements were executed by J.P. Morgan and Bankers Trust 

(as auction agent); Reading did not sign either agreement.4 

 

 

3

J.A. 95, 120, 165, 187.

4

J.A. 154-67 (2001 broker-dealer agreement); 175-88 (2002 

broker-dealer agreement). 
6

Neither agreement includes a forum-selection clause. The 

2005 broker-dealer agreement was executed by Reading 

Health, J.P. Morgan, and Deutsche Bank Trust Company 

Americas.5 The 2007 agreement was executed by the same

three parties, as well as the Berks County Municipal 

Authority.6 Both the 2005 and 2007 agreements contain a 

forum-selection clause that provides, in relevant part, as 

follows: 

The parties agree that all actions and 

proceedings arising out of this Broker-Dealer 

Agreement or any of the transactions 

contemplated hereby shall be brought in the 

United States District Court in the County of 

New York and that, in connection with any such 

action or proceeding, submit to the jurisdiction 

of, and venue in, such court.7

J.P. Morgan asserts that the forum-selection clauses in these 

agreements required Reading to file both its declaratory 

action to compel arbitration and its substantive claims in the 

District Court for the Southern District of New York.

 

5

J.A. 79-96. 

6

J.A. 106-24.

7

J.A. 95, 120. There are distinctions between the two 

clauses that are immaterial to this appeal. For example, the 

2007 agreement, unlike the 2005 agreement, provides that all 

actions and proceedings shall be “brought in the County of 

New York,” without explicitly referring to federal court. 

Both agreements explicitly provide that the parties waive any 

right to a jury trial but do not mention waiver of the right to 

arbitration. Id. 
7

II. Procedural Background 

In February 2014, Reading filed a statement of claim 

with FINRA, asserting claims against J.P. Morgan relating to 

the ARS offerings and demanding that J.P. Morgan arbitrate 

those claims in FINRA’s arbitral forum.8 That demand was 

made pursuant to FINRA Rule 12200, which requires a 

FINRA member, such as J.P. Morgan, to arbitrate any dispute 

with a customer, such as Reading, at the customer’s request. 

J.P. Morgan refused to arbitrate. In J.P. Morgan’s view, the 

forum-selection clauses in the 2005 and 2007 broker-dealer 

agreements constituted a waiver of Reading’s right to 

arbitrate under FINRA Rule 12200.

9

In March 2015, Reading filed a single-count 

declaratory judgment action in the District Court for Eastern 

District of Pennsylvania.10 The following day, Reading 

moved to compel arbitration of the claims it had filed with 

FINRA, arguing that it was entitled to arbitrate those claims 

 

8 Reading’s statement of claim pleaded several state law 

causes of action against J.P. Morgan, including fraud, 

negligent misrepresentation, and breach of fiduciary duty and 

other rule-based duties. J.A. 206-34. 

9 Recognizing that they had reached an impasse, the parties 

agreed to stay the FINRA arbitration pending the Second 

Circuit’s resolution of a near-identical arbitrability issue. J.A. 

235-36. As discussed below, the Second Circuit eventually 

endorsed the view that the forum-selection clauses supersede 

the right to arbitrate under FINRA Rule 12200. See 

Goldman, Sachs & Co. v. Golden Empire Schools Fin. Auth.

(Golden Empire), 764 F.3d 210, 212 (2d Cir. 2014). 

10 J.A. 13-22. 
8

pursuant to FINRA Rule 12200. Invoking the forumselection clauses in the 2005 and 2007 broker-dealer 

agreements, J.P. Morgan filed two motions: a motion to 

transfer the declaratory judgment action to the Southern 

District of New York and, in the event transfer was denied, a 

cross-motion to enjoin the FINRA arbitration. 

In February 2016, the District Court issued a single 

order (i) denying J.P. Morgan’s motion to transfer, (ii) 

granting Reading’s motion to compel, and (iii) denying J.P. 

Morgan’s cross-motion to enjoin.11 The court declined to 

transfer the declaratory judgment action to New York 

because, in its view, the forum-selection clauses did not 

designate the forum in which Reading should seek to compel 

arbitration. The court then required J.P. Morgan to submit to 

arbitration because it concluded that FINRA Rule 12200

granted Reading the right to arbitrate; this right was not 

overridden by the forum-selection clauses.

After we dismissed J.P. Morgan’s initial appeal on 

jurisdictional grounds, the District Court granted J.P. 

Morgan’s motion to certify the following question for 

interlocutory review: 

[W]hether the United States Supreme Court 

decision in Atlantic Marine Construction 

Company, Inc. v. United States District Court 

for the Western District of Texas, 134 S. Ct. 568 

(2013), requires a district court to enforce a 

forum selection clause by transferring a 

declaratory action seeking to compel arbitration, 

 

11 J.A. 3-4. 
9

even if the district court determines that the 

forum selection clause does not cover the 

underlying arbitration that the plaintiff seeks to 

compel.12

We then granted J.P. Morgan’s petition for permission to 

appeal under 28 U.S.C. § 1292(b).

III. Regulatory Background

Reading bases its right to arbitrate its disputes with J.P. 

Morgan on FINRA’s compulsory arbitration rule. 

FINRA is an independent, self-regulatory organization 

(SRO) established pursuant to Section 15A of the Securities 

Exchange Act, which “created a system of supervised selfregulation in the securities industry.”

13

 FINRA is authorized 

to “exercise comprehensive oversight over ‘all securities 

firms that do business with the public,’”14 including J.P. 

Morgan and other broker-dealers that participated in the nowdefunct ARS market. In its capacity as a securities regulator, 

FINRA has promulgated various rules governing the 

brokerage industry, many of which are designed to protect 

investors who conduct business with FINRA-regulated 

 

12 J.A. 5, 348, 350; see 28 U.S.C. § 1292(b).

13 Credit Suisse First Boston Corp. v. Grunwald, 400 F.3d 

1119, 1128 (9th Cir. 2005). 

14 City of Reno, 747 F.3d at 737 (quoting UBS Fin. Servs., 

Inc. v. W. Va. Univ. Hosps., Inc., 660 F.3d 643, 648 (2d Cir. 

2011); 72 Fed. Reg. 42,169, 42,170 (Aug. 1, 2007)); see 15 

U.S.C. § 78o(b)(8) (requiring broker-dealers to be FINRA 

members). 
10

firms.15 The Securities and Exchange Commission (SEC), 

which is statutorily authorized to oversee FINRA, must 

approve all such rules.16 A FINRA member agrees to comply 

with all of FINRA’s rules and is thus bound to adhere to 

FINRA’s Code and its relevant arbitration provisions.17

FINRA’s authority includes regulatory oversight over

securities arbitration.18 Indeed, “[t]he SEC has long viewed 

the option of securities arbitration for investors as an 

 

15 See 15 U.S.C. § 78o-3(b)(6) (requiring FINRA to adopt 

rules designed, inter alia, to “prevent fraudulent and 

manipulative acts and practices, to promote just and equitable 

principles of trade, . . . and, in general, to protect investors 

and the public interest”). 

16 15 U.S.C. § 78s(b)(1)-(2); 17 C.F.R. § 200.30-3(a)(12); 

see Amicus Brief of Pub. Invests. Arb. Bar Assoc. (PIABA 

Br.), at 9-10 (outlining FINRA rulemaking process). 

17 FINRA Rule 140 (Applicability); FINRA Bylaws, art IV, 

§ 1 (Membership); see, e.g., W. Va. Univ. Hosps., Inc., 660 

F.3d at 648-49; Birkelbach v. S.E.C., 751 F.3d 472, 475 n.2 

(7th Cir. 2014); cf. Patten Sec. Corp. v. Diamond Greyhound 

& Genetics, Inc. (Patten), 819 F.2d 400, 402 (3d Cir. 1987), 

abrogated on other grounds.

18 See 72 Fed. Reg. at 42,170. FINRA’s predecessor 

SRO—i.e., the National Association of Securities Dealers, 

Inc. (NASD)—gained SEC approval of its revamped 

arbitration procedures decades ago. Grunwald, 400 F.3d at 

1132; see Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 

220, 234 (1987). NASD exercised this oversight role in 

conjunction with the regulatory arm of the New York Stock 

Exchange until July 2007, at which point they merged to form 

FINRA. See 72 Fed. Reg. at 42,170. 
11

important component of its investor protection mandate” and, 

since its inception, “has urged the SROs it regulates to 

provide an alternative dispute resolution forum for 

customers.”19 In furtherance of that mandate, FINRA now

hosts the largest arbitration forum in the United States for 

resolving such disputes,

20 which, according to FINRA and 

amicus, provides investors with a “fair, efficient and 

economical alternative to litigation.”

21

 To ensure that 

customers can benefit from arbitration, FINRA has

promulgated numerous arbitration-related rules,22 including 

FINRA Rule 12200, which requires FINRA members to 

submit customer disputes to FINRA arbitration whenever a 

customer demands arbitration.

23 Given the compulsory 

 

19 Jill I. Gross, The Customer’s Nonwaivable Right to 

Choose Arbitration in the Securities Industry, 10 BROOK. J.

CORP. FIN. & COM. L. 383, 394 (2016) (detailing SEC’s 

support for securities arbitration); see McMahon, 482 U.S. at 

233 (recognizing SEC’s “expansive power to ensure the 

adequacy of arbitration procedures employed” by SROs). 

20 FIN. INDUS. REG. AUTH. (FINRA), Final Report and 

Recommendations of the FINRA Dispute Resolution Task 

Force, at 1 (Dec. 7, 2015), http://www.finra.org/sites/default

/files/Final-DR-task-force-report.pdf.

21 FINRA, Reg. Notice 16-25, at 1 (July 2016); PIABA Br. 

at 12.

22 These rules are set out in the FINRA Code of Arbitration 

Procedure for Customer Disputes (FINRA Arbitration Code). 

See FINRA Rules 12000-12905.

23 FINRA Rule 12200 provides, in relevant part, that a 

FINRA member “must arbitrate a dispute” with one of its 

customers if (i) FINRA arbitration is “requested by the 

customer” or “required by written agreement,” and (ii) the 
12

nature of the Rule, courts have held that, even in the absence 

of a written arbitration agreement, Rule 12200 constitutes a 

binding arbitration agreement between a FINRA member and 

customer.

24

 

A customer can initiate FINRA arbitration and invoke 

its arbitration rights under Rule 12200 by filing a “statement 

of claim” with the FINRA Director.

25 Although Reading 

 

dispute “arises in connection with the business activities of 

the member.” FINRA Rule 12200; see S.E.C., Reg. Notice 

08-57 (2008) (approving Rule 12200); see also Gross, supra 

note 19, at 396 (noting that brokerages have had a duty to 

arbitrate upon the demand of a customer since the 1800s).

In July 2016, FINRA issued a regulatory notice, 

reminding its members “that customers have a right to request 

arbitration at FINRA’s arbitration forum at any time and do 

not forfeit that right under FINRA rules by signing any 

agreement with a forum selection provision specifying 

another dispute resolution process or an arbitration venue 

other than the FINRA arbitration forum.” FINRA, Reg. 

Notice 16-25, at 1. 

24 See, e.g., Golden Empire, 764 F.3d at 214; Waterford Inv. 

Servs., Inc. v. Bosco, 682 F.3d 348, 353 (4th Cir. 2012). J.P. 

Morgan concedes that Reading is a “customer” within the 

meaning of FINRA Rule 12200. 

25 FINRA Rule 12302(a). Once initiated, the arbitration is 

comprehensively governed by the FINRA Arbitration Code, 

which contemplates that the parties will submit to arbitration 

and comply with the Code. Indeed, Rule 12212 permits an 

arbitration panel to “sanction a party for failure to comply 

with any provision of the Code,” and FINRA IM-12200 

provides that “[i]t may be deemed conduct inconsistent with 
13

properly invoked its right to arbitrate by filing its statement of 

claim with FINRA, J.P. Morgan contends that it had no duty 

to arbitrate because Reading waived its rights under Rule 

12200 by agreeing to the forum-selection clauses. It is 

against this backdrop that we consider the merits of the 

District Court’s order.

DISCUSSION26

In this appeal, we must answer two questions: 

(i) whether J.P. Morgan, as a FINRA member, is obligated to

resolve Reading’s substantive claims through FINRA 

arbitration; and (ii) which court decides that question of 

arbitrability. To answer those questions we must resolve the

inherent tension between Reading’s right to arbitrate its 

claims pursuant to FINRA Rule 12200 and J.P. Morgan’s 

purported contractual right to litigate those same claims 

pursuant to the forum-selection clauses in the broker-dealer 

agreements. Complicating this inquiry, the parties do not 

agree which of these questions must be resolved first; each

side argues that the District Court lacked authority to resolve 

one of the two disputes at issue. 

We agree with J.P. Morgan that the transfer dispute, as 

a threshold question of venue, was properly resolved before 

the arbitrability dispute. We thus begin by discussing

 

just and equitable principles of trade . . . for a member . . . to: 

(a) fail to submit a dispute to arbitration under the Code as 

required by the Code.”

26 The District Court had subject matter jurisdiction under 

28 U.S.C. § 1332. We have jurisdiction over this 

interlocutory appeal under 28 U.S.C. § 1292(b). 
14

whether the District Court was required to transfer Reading’s

declaratory judgment action to the District Court for the 

Southern District of New York. 

I. The District Court Properly Resolved the Transfer 

Dispute Before the Arbitrability Dispute

When Reading filed its single-count, declaratory 

judgment action in the District Court, the only merits issue

before the court was whether FINRA Rule 12200 required 

J.P. Morgan to submit to FINRA arbitration. However, once

J.P. Morgan moved to transfer that action, the District Court

was presented with a threshold issue regarding the propriety 

of the venue in which Reading filed its action to compel 

arbitration—namely, whether the declaratory judgment action 

should be transferred to New York in light of the forumselection clauses. The parties spill much ink on which of 

these two issues should be resolved first. In J.P. Morgan’s 

view, the transfer dispute must be resolved first and, since the 

District Court was required to transfer the action, it lacked 

authority to resolve the arbitrability dispute. By contrast, 

Reading argues that the Federal Arbitration Act (FAA) 

required the District Court to enforce FINRA Rule 12200 by

compelling arbitration and, therefore, the court was divested

of its discretion to transfer. The District Court declined to 

transfer the case before turning to the question of arbitrability. 

We agree that threshold disputes over venue and jurisdiction 

should be resolved before merits disputes. Thus, we conclude 

that the District Court’s sequence of decision-making was not 

only permissible, but also preferable.

In In re: Howmedica Osteonics Corp, we endorsed the 

view that district courts have “discretion to address 
15

convenience-based venue issues” in the first instance and that 

they “should suspend concerns about other threshold issues” 

while doing so.27 That view is supported by the principle that

federal courts have flexibility to choose among alternate

“grounds for denying audience to a case on the merits.”

28

 For 

instance, the Supreme Court has upheld the authority of a 

district court to dismiss an action under the doctrine of forum 

non conveniens, without first determining whether the action 

should be dismissed on jurisdictional grounds.

29

 The Court 

granted such leeway to district courts because a forum non 

conveniens dismissal—much like the parties’ dispute over 

transfer30—is a “nonmerits issue” that “does not entail any 

assumption by the court of substantive law-declaring 

power.”31 Venue disputes involve only a threshold 

determination “that the merits should [or should not] be 

 

27 867 F.3d 390, 404 n.8 (3d Cir. 2017); see In re 

LimitNone, LLC, 551 F.3d 572, 576-78 (7th Cir. 2008). 

28 Sinochem Int’l Co. v. Malaysia Int’l Shipping Corp., 549 

U.S. 422, 431 (2007) (quoting Ruhrgas AG v. Marathon Oil 

Co., 526 U.S. 574, 585 (1999)). 

29 Id. at 436; see Leroy v. Great W. United Corp., 443 U.S. 

173, 180 (1979) (permitting courts to address venue before 

personal jurisdiction).

30 See Atl. Marine Constr. Co., Inc. v. U.S. Dist. Ct. for the 

W. Dist. of Texas (Alt. Marine), 571 U.S. 49, 60 (2013)

(explaining federal transfer statute “is merely a codification 

of the doctrine of forum non conveniens for the subset of 

cases in which the transferee forum is within the federal court 

system”). 

31 Sinochem Int’l Co., 549 U.S. at 433 (citation and internal 

quotation marks omitted). 
16

adjudicated elsewhere.”

32 By contrast, resolving a dispute 

over arbitrability requires a district court to apply its lawdeclaring power regarding the parties’ right to arbitrate. This 

determination may be frustrated if the threshold issue of 

venue is not decided first. 

Moreover, resolving merits disputes at the outset, 

without first ensuring that venue is proper, would in certain 

cases nullify the very right afforded by the forum-section 

clause—i.e., the right to resolve the merits in a contractually 

designated forum.

33

 In addition, ensuring venue is proper 

before turning to the merits promotes finality interests and 

judicial economy by ensuring the facial validity of any 

subsequent order compelling (or denying) arbitration.

34 Such 

concerns are alleviated, however, by resolving threshold 

challenges to venue before secondary disputes over 

arbitrability. 

The District Court, confronted with a plaintiff seeking 

to compel arbitration and a defendant moving to transfer the 

action to compel arbitration based on a forum-selection 

clause, properly addressed the transfer question before the 

question of arbitrability. We will turn then to the propriety of 

the denial of the motion to transfer.

 

32 Id. at 432. 

33 See Atl. Marine, 571 U.S. at 63-64; see also Puleo v. 

Chase Bank USA, N.A., 605 F.3d 172, 178 (3d Cir. 2010) (en 

banc). 

34 See, e.g., Jumara v. State Farm Ins. Co., 55 F.3d 873, 883 

(3d Cir. 1995) (vacating a district court’s order denying a 

motion to compel arbitration after concluding that the court 

erred by failing to transfer the action to another district).
17

II. The District Court Properly Declined to Transfer 

Reading’s Action to Compel Arbitration

A. The Supreme Court’s decision in Atlantic 

Marine does not require transfer.

J.P. Morgan moved to transfer Reading’s declaratory 

judgment action, arguing that the Supreme Court’s transfer 

framework announced in Atlantic Marine required the District 

Court to enforce the forum-selection clause by transferring 

the action to the Southern District of New York. The court 

disagreed that the forum-selection clause required transfer 

because, in its view, the clause does “not establish the judicial 

forum” in which Reading “must compel arbitration.”35 In 

response to that ruling, J.P. Morgan asked us to determine, on 

interlocutory review, whether Atlantic Marine requires a 

district court to enforce a forum-selection clause by 

transferring a declaratory judgment action to compel 

arbitration, even if the district court concludes that the clause 

does not encompass the underlying arbitration.

36 In other 

words, the question instructs us to assume that even if 

Reading’s declaratory judgment action and statement of claim 

filed with FINRA fall outside the scope of the forumselection clause, nevertheless Atlantic Marine required 

transfer. 

Absent a forum-selection clause, a district court 

ordinarily assesses whether to transfer a case to another 

federal district by considering the factors set out in 28 U.S.C. 

§ 1404(a), including “various public-interest considerations” 

 

35 J.A. 3. 

36 J.A. 5, 348, 350; see supra note 12 and corresponding 

text for certified question. 
18

and the private interests of the parties to the litigation.37 In 

Atlantic Marine, however, the Supreme Court explained that 

the presence of a forum-selection clause alters the traditional 

analysis in several respects.38 Most significantly, a court 

considering a “motion to transfer based on a forum-selection 

clause should not consider arguments about the parties’ 

private interests,” since forum-selection provisions 

“represent[] the parties’ agreement as to the most proper 

forum.”

39 As a result, when a court is confronted with a valid

forum-selection clause that covers the dispute, it must 

consider only the public-interest factors and “deem the 

private-interest factors to weigh entirely in favor the 

preselected forum.”40 For these reasons, the Atlantic Marine 

Court held that when a party invokes a forum-selection clause 

to transfer an action under § 1404(a), “a district court should 

transfer the case unless extraordinary circumstances unrelated 

to the convenience of the parties clearly disfavor transfer.”41

Focusing on these words, J.P. Morgan contends that 

the District Court had to transfer this action because no 

extraordinary circumstances are present. But a central 

 

37 28 U.S.C. § 1404(a) (allowing a district court to transfer a 

civil action to another district—in which the case could have 

been brought or to which the parties have consented—“[f]or 

the convenience of parties and witnesses” and “in the interest 

of justice”); see Atl. Marine, 571 U.S. at 62-63; Jumara, 55 

F.3d at 879. 

38 Atl. Marine, 571 U.S. at 62-63 (internal quotation marks 

omitted). 

39 Id. at 63-64 (internal citation omitted). 

40 Id. at 64. 

41 Id. at 52. 
19

premise of J.P. Morgan’s reliance on Atlantic Marine—and 

the requirement that district courts honor the parties’ 

contractual choice of forum in all but extraordinary 

circumstances—is that Reading’s action to compel arbitration 

falls within the scope of the forum-selection clauses. Nothing 

in Atlantic Marine disturbs the long-standing body of law 

clarifying that a court need not transfer an action based on a 

forum-selection clause if the clause is invalid (i.e., an 

enforceability challenge) or if it does not cover the action or 

claims that the defendant is seeking to transfer (i.e., a scope 

challenge).42 Rather, the transfer framework announced in 

Atlantic Marine presupposes the existence of an action that 

falls within the scope of a valid forum-selection clause.

43

 

 

42 See, e.g., Collins v. Mary Kay, Inc., 874 F.3d 176, 181 

(3d Cir. 2017) (explaining that questions regarding the scope 

of a forum-selection clause are “analytically distinct” from 

questions regarding that clause’s enforceability); Cottman 

Transmission Sys., Inc. v. Martino, 36 F.3d 291, 293 (3d Cir. 

1994); see also John Wyeth & Bro. Ltd. v. CIGNA Int’l Corp.

(John Wyeth), 119 F.3d 1070, 1075 (3d Cir. 1997). 

43 Atl. Marine, 571 U.S. at 62 n.5; see, e.g., Mary Kay, Inc., 

874 F.3d at 186 (applying the forum non convenience 

framework only after “[h]aving concluded that [the 

plaintiff’s] claim falls within the scope of the . . . enforceable 

forum selection clauses”). The forum-selection clause at 

issue in Atlantic Marine provided that “all disputes between 

the parties shall be litigated” in a specific forum. 571 U.S. at 

53 (internal quotation marks omitted). By the time the case 

reached the Supreme Court, it was undisputed that the 

litigation between the parties fell within the scope of the 

forum-selection clauses. See Br. for Resp., Atl. Marine, 571 

U.S. 49 (No. 12-929), 2013 WL 4495148, at *6 (conceding 
20

This conclusion answers the question we certified for

interlocutory review: 

[Does] . . . Atlantic Marine . . . require[] a 

district court to enforce a forum selection clause 

by transferring a declaratory action seeking to 

compel arbitration, even if the district court 

determines that the forum selection clause does 

not cover the underlying arbitration that the 

plaintiff seeks to compel. 

The answer is, “No, it does not.” If a party invokes a forumselection clause to transfer an action—here, Reading’s action 

to compel arbitration—but the district court concludes that 

the action does not fall within the scope of the clause, the 

traditional § 1404(a) framework applies, not the framework 

set forth in Atlantic Marine.

Accordingly, the District Court was required to apply 

Atlantic Marine and transfer the action to New York only if 

Reading’s declaratory judgment action fell within the scope 

of the forum-selection clause.

 

that the parties’ agreement favored transferring the case); Br. 

for Pet., Atl. Marine, 571 U.S. 49 (No. 12-929), 2013 WL 

3166391, at *4 (noting that the party resisting transfer “does 

not dispute that its claims against Atlantic Marine fall within 

the scope of the mandatory forum selection clause”).
21

B. Reading’s action to compel arbitration does not 

fall within the scope of the forum-selection 

clause.

A scope-based challenge to the applicability of a 

forum-selection clause presents a quintessential question of 

contract interpretation.44 We have stressed that “whether or 

not a forum selection clause applies” to a particular dispute

“depends on what the specific clause at issue says.”45 The 

forum-selection clause in the 2005 and 2007 broker-dealer 

agreements provides that “all actions and proceedings arising 

out of this Broker-Dealer Agreement or any of the 

transactions contemplated hereby shall be brought in the 

United States District Court in the County of New York.”46 

J.P. Morgan maintains that the District Court was required to 

transfer the case because Reading’s petition to compel 

arbitration is an “action . . . arising out of” the broker-dealer 

agreements and the related ARS offerings. Reading counters 

that the action “arise[s] out of” FINRA Rule 12200—not the 

broker-dealer agreements or related transactions—and 

therefore the District Court appropriately denied the motion 

to transfer. We agree with Reading. 

 

44 We exercise plenary review over legal questions relating 

to “[t]he interpretation and enforcement of a forum selection 

clause,” which includes the District Court’s order denying 

J.P. Morgan’s motion to transfer. Salovaara v. Jackson Nat. 

Life Ins. Co., 246 F.3d 289, 295 (3d Cir. 2001); Jumara, 55 

F.3d at 880-81.

45 John Wyeth, 119 F.3d at 1075; Mary Kay, Inc., 874 F.3d 

at 180-81.

46 J.A. 95, 120. 
22

We begin with the meaning of the phrase “arising out 

of” in the forum-selection clauses. Because we have 

admonished that “[d]rawing analogy to other cases is useful 

only to the extent those other cases address contract language 

that is the same or substantially similar to that at issue,”47 we 

look to the decisions of our sister circuit courts of appeals that 

have construed the phrase “arising out of” in a forumselection clause.

48 In Coregis Insurance Co. v. American 

Health Foundation, Inc., the Second Circuit Court of Appeals 

defined the phrase in accordance with its ordinary meaning: 

“To ‘arise’ out of means ‘to originate from a specified 

source.’”

49

 In a subsequent decision, Phillips v. Audio Active 

Ltd., the Second Circuit rejected the overbroad contention

that the phrase arising out of “encompass[es] all claims that 

have some possible relationship with the contract, including 

claims that may only ‘relate to,’ be ‘associated with,’ or ‘arise 

 

47 John Wyeth, 119 F.3d at 1075. 

48 Although we have held that state law governs the 

interpretation of a forum-selection clause in a diversity suit, 

see Mary Kay, Inc., 874 F.3d at 181-83, the parties have 

waived any choice-of-law issue by failing to address it in 

their briefs and by relying on cases that apply different bodies 

of law than that designated in the broker-dealer agreements’

New York choice-of-law clauses. See Williams v. BASF 

Catalysts LLC, 765 F.3d 306, 316-17 (3d Cir. 2014); see also 

John Wyeth, 119 F.3d at 1074.

49 241 F.3d 123, 128 (2d Cir. 2001) (quoting Webster’s 

Third New Int’l Dictionary 117 (1986)); see, e.g., United 

States v. Husmann, 765 F.3d 169, 173 (3d Cir. 2014) (“We 

look to dictionary definitions to determine the ordinary 

meaning of a word.”). 
23

in connection with’ the contract.”50 Likewise, the Seventh 

Circuit Court of Appeals has observed that “courts have 

resisted the siren call of” equating the term “arising out of” 

with the concept of but-for causation.51 We agree that 

“arising out of” in a forum-selection clause should be 

interpreted in accordance with the ordinary meaning of that 

phrase—i.e., to originate from a specified source. 

Interpreting a forum-selection clause in accordance with its 

 

50 494 F.3d 378, 389-91 (2d Cir. 2007) (“[W]e approve of 

the approach outlined by the Third Circuit, which highlights 

the language-specific nature of this inquiry and discounts the 

precedential weight of cases that deal with dissimilarly 

worded clauses.” (citing John Wyeth, 119 F.3d at 1075)). We 

agree that the phrase “arising out of” is narrower in scope 

than other clauses we have addressed, such as those 

encompassing all actions “arising in connection with,” 

“relating to,” or “with respect to” an agreement. See, e.g., 

John Wyeth, 119 F.3d at 1075 (observing that “the phrase 

‘arising in relation to’ is broader than ‘arising under’”); see

Carlyle Inv. Mgmt. LLC v. Moonmouth Co. SA, 779 F.3d 214, 

217-20 (3d Cir. 2015) (construing broadly forum-selection 

clause covering all disputes arising “with respect” to an 

agreement); Mary Kay, Inc., 874 F.3d at 179 (addressing 

clause covering any “dispute or controversy [that] arises 

between [the parties] concerning any matter relating to this 

Agreement”). 

51 Omron Healthcare, Inc. v. Maclaren Exports Ltd., 28 

F.3d 600, 602 (7th Cir. 1994) (“[B]ut for the existence of 

federal drug safety standards, it would not be possible to 

contend that noncompliance with the standards is tortious, but 

it does not follow that a tort suit ‘arises under’ those standards 

and thus activates federal jurisdiction.”).
24

plain meaning comports with well-established principles of 

interpretation.

52

 And, as in Phillips, we see “no reason to 

presume the parties meant anything other than the dictionary 

definition of the term.”53 

The propriety of transfer thus turns on the following 

inquiry: Is Reading’s declaratory judgment action to compel 

arbitration—not to be mistaken with the separate action it

filed with FINRA—an action or proceeding that originates 

from the broker-dealer agreements or the related ARS 

offerings? In answering that question, we are again guided by 

Phillips. There, the court held that a plaintiff’s federal 

copyright “claims d[id] not arise out of” a recording contract

because those claims did not involve an assertion of the 

plaintiff’s “rights or duties under that contract.”54 Instead, the 

claims arose out of the Copyright Act. Likewise, here, 

Reading’s action to compel FINRA arbitration does not “arise 

out of” the broker-dealer agreements because Reading’s sole 

claim for declaratory relief does not involve an assertion of 

Reading’s contractual “rights or duties.”55 The only right 

Reading seeks to enforce in its complaint is its right to 

arbitrate its claims against J.P. Morgan. That right does not 

originate from the broker-dealer agreements, but rather from 

FINRA Rule 12200, which gives Reading the right to demand 

 

52 See, e.g., Illinois Nat. Ins. Co. v. Wyndham Worldwide 

Operations, Inc., 653 F.3d 225, 231 (3d Cir. 2011); Great 

Am. Ins. Co. v. Norwin Sch. Dist., 544 F.3d 229, 243 (3d Cir. 

2008); RESTATEMENT (SECOND) OF CONTRACTS § 202 

(1981).

53 494 F.3d at 390.

54 Phillips, 494 F.3d at 390-92. 

55 See, e.g., J.A. 14, ¶ 3; J.A. 15 ¶¶ 5, 10; J.A. 21, ¶¶ 36-40. 
25

FINRA arbitration and imposes a corresponding duty on J.P. 

Morgan to arbitrate.

56 Because the sole source for Reading’s 

right to arbitrate is FINRA Rule 12200—without which 

Reading would not be entitled to compel arbitration, and J.P. 

Morgan would not have a duty to arbitrate—Reading’s 

declaratory judgment action does not “arise out of” the 

broker-dealer agreements. 

The broker-dealer agreements come into play only

because J.P. Morgan has invoked the forum-selection clauses 

in those agreements as a defense to Reading’s declaratory 

judgment action. “The answer to the question whether a 

‘defense’ based on a contract that contains a forum selection 

clause implicates that clause depends on the language of the 

clause.”57 Where, as here, the clause encompasses only 

disputes “arising out of” the contract, courts have rejected the 

argument that a contractual defense alone is sufficient to 

bring the dispute within the scope of the clause.

58

 We

therefore decline J.P. Morgan’s invitation to expand the scope 

 

56 J.P. Morgan urges that Reading’s declaratory judgment 

action falls within the scope of the forum-selection clauses 

because Reading’s complaint explicitly refers to the brokerdealer agreements. But those references alone, which merely 

contextualize the parties’ dispute over arbitrability, do not 

establish that the petition to compel arbitration “aris[es] out 

of” those agreements. See, e.g., Phillips, 494 F.3d at 390-91. 

57 John Wyeth, 119 F.3d at 1076.

58 See, e.g., Phillips, 494 F.3d at 391; Omron Healthcare, 

Inc., 28 F.3d at 601-02; Rovi Guides, Inc. v. Comcast Corp., 

2016 WL 6217201, at *3 (E.D. Tex. Oct. 25, 2016) (citing 

cases); see also John Wyeth, 119 F.3d at 1076 n.5. 
26

of the forum-selection clause, under the guise of interpreting

it, to encompass a contractual defense.

59

Because Reading’s declaratory judgment action to 

compel arbitration is not one “arising out of” the brokerdealer agreements, it does not fall within the scope of the 

forum-selection clause. We will therefore affirm the District 

Court’s order denying J.P. Morgan’s motion to transfer the 

action to the Southern District of New York.

60

 

 

59 J.P. Morgan argues for the first time in its reply brief that 

the agreements are not relevant only as a defense “because 

they create the customer relationship between” the parties and 

are therefore the “source” of Reading’s arbitration demand. 

Reply. Br. at 6. J.P. Morgan waived this argument, however, 

by failing to present it in the District Court and by presenting 

it to this court only in passing. See, e.g., John Wyeth, 119 

F.3d at 1076 n.6 (citing Commonwealth of Pa. v. HHS, 101 

F.3d 939, 945 (3d Cir. 1996)). And, in any event, we decline 

to accept this argument—i.e., the view that but-for the 

customer relationship created by the agreements Reading 

would have no right to arbitrate—because it improperly 

equates the meaning of “arising out of” with the concept of 

but-for causation. See Omron Healthcare, Inc., 28 F.3d at 

602. 

60 We note, however, our disagreement with certain aspects 

of the District Court’s rationale for declining to transfer the 

action. Instead of examining the language of the forumselection clauses and asking whether Reading’s action fell 

within their scope, as required by our case law, John Wyeth, 

119 F.3d at 1075-76, the District Court denied transfer based 

entirely on our decision in Patten Securities Corporation v. 

Diamond Greyhound & Genetics, Inc., 819 F.2d 400 (3d Cir. 
27

III. The District Court Properly Required J.P. Morgan 

to Submit to FINRA Arbitration Because the 

Forum-Selection Clause Did Not Waive Reading’s 

Right to Arbitrate Under FINRA Rule 12200

Having concluded that the Eastern District of 

Pennsylvania was an appropriate venue in which to resolve 

the arbitrability dispute, we must decide whether to affirm the 

court’s order requiring J.P. Morgan to submit to FINRA 

arbitration.

61 This question requires us to reconcile the two 

competing rights at stake. On the one hand, FINRA Rule 

12200 grants Reading the right to resolve its substantive 

claims against J.P. Morgan through FINRA arbitration.62 On 

the other hand, the forum-selection clause grants to J.P. 

Morgan the contractual right to litigate those claims. Unlike 

Reading’s petition to compel arbitration, the statement of 

 

1987). See J.A. 3 (Dist. Ct. Op.). But the forum-selection 

clause at issue in Patten is materially different than the 

clauses at issue here. Patten, 819 F.2d at 407 n.3. And, 

unlike here, Patten did not involve any threshold question of 

transfer, since the petition to enjoin arbitration at issue in 

Patten had been filed in the contractually designated forum. 

61 We review the court’s order compelling arbitration de 

novo, as it presents a question of law. See Century Indem. 

Co. v. Certain Underwriters at Lloyd’s, London, 584 F.3d 

513, 521 (3d Cir. 2009); Gay v. CreditInform, 511 F.3d 369, 

376 (3d Cir. 2007).

62 Numerous courts have held that FINRA Rule 12200 

constitutes an enforceable arbitration agreement within the 

meaning of the FAA. See, e.g., Golden Empire, 764 F.3d at 

214; Bosco, 682 F.3d at 353; Berthel Fisher & Co. Fin. 

Servs., Inc. v. Larmon, 695 F.3d 749, 752 (8th Cir. 2012).
28

claim Reading filed with FINRA qualifies as an “action [or] 

proceeding . . . arising out of” the broker-dealer agreements 

and related ARS transactions.63 

Attempts to reconcile the tension between a brokerdealer’s right to litigate pursuant to a forum-selection clause 

and a customer’s corresponding right to arbitrate under 

FINRA Rule 12200 have divided our sister circuit courts.

The Second and Ninth Circuit Courts of Appeals have held

that a materially identical forum-selection clause requires the 

parties to litigate in federal court,64 while the Fourth Circuit 

Court of Appeals has held that Rule 12200 requires the 

parties to arbitrate, notwithstanding the presence of a forumselection clause.

65 We agree with the Fourth Circuit that the 

forum-selection clauses in the broker-dealer agreements are 

insufficient to waive Reading’s right to arbitrate under 

FINRA Rule 12200. 

 

63 Although several courts have read the phrase “all actions 

and proceedings” as limited to judicial proceedings, not 

arbitrations, see, e.g., UBS Fin. Servs., Inc. v. Carilion Clinic, 

706 F.3d 319, 329-30 (4th Cir. 2013), Reading does not press 

that argument here. And that narrow interpretation of the 

terms “actions” and “proceedings” conflicts with the ordinary 

meaning of those terms. See Golden Empire, 764 F.3d at 216. 

64 Golden Empire, 764 F.3d at 214-17; City of Reno, 747 

F.3d at 741-47; see also Presbyterian Healthcare Servs. v. 

Goldman, Sachs & Co., 122 F. Supp. 3d 1157 (D.N.M. 2015). 

65 Carilion Clinic, 706 F.3d at 329-30; see also COR 

Clearing, LLC v. Jarvis, 2014 WL 98799, at *7 (D. Neb. Jan. 

9, 2014); UBS Sec. LLC v. Allina Health Sys., 2013 WL 

500373, at *4 (D. Minn. Feb. 11, 2013). 
29

On one side of the divide, both the Second Circuit (in 

Golden Empire) and the Ninth Circuit (in City of Reno) have 

held that “a forum selection clause requiring ‘all actions and 

proceedings’ to be brought in federal court supersedes an 

earlier agreement to arbitrate” embodied in FINRA Rule 

12200.66 Treating Rule 12200 as a mere “default obligation” 

to arbitrate, the Ninth Circuit reasoned (over a dissent) that 

the customer “clearly and unambiguously disclaimed any 

right it might otherwise have had to FINRA arbitration” when 

it assented to the forum-selection clause.67 The Second 

Circuit likewise viewed the issue as “whether an arbitration 

agreement remains in force in light of a later-executed 

agreement,”

68 concluding that the forum-selection clause in 

 

66 Golden Empire, 764 F.3d at 215; see City of Reno, 747 

F.3d at 747. This rationale presumes that FINRA Rule 12200 

imposes a mere contractual duty on J.P. Morgan to arbitrate. 

Conflating a duty imposed by regulation with one imposed by 

contract, however, overlooks that FINRA Rule 12200 was 

adopted pursuant to authority delegated by Congress under 

the Exchange Act and approved by the SEC. Because FINRA 

Rule 12200 imposes on broker-dealers a federal regulatory 

duty to arbitrate and confers on customers a regulatory right 

to arbitrate, it differs significantly in kind from private 

contractual arbitration agreements. See FINRA, Reg. Notice 

16-25, at 5. 

67 City of Reno, 747 F.3d at 743. But see id. at 748-49 

(Battaglia, J., concurring in part, dissenting in part) (rejecting 

view that the forum-selection clause was sufficiently specific 

to supersede, displace, or waive the right to arbitrate under 

FINRA Rule 12200). 

68 Even if Rule 12200 is the functional equivalent of a 

private contract, this analysis presumes that the “agreement to 
30

that agreement “supersede[d] the background FINRA 

arbitration rule.”69 These courts accordingly concluded that 

the forum-selection clauses were controlling and the parties 

were required to litigate their dispute. 

On the other side of the divide, the Fourth Circuit (in 

Carilion Clinic) rejected the contention that the forumselection clause operated to waive a customer’s right to 

arbitrate under FINRA Rule 12200.70 The court began with 

the principle that an agreement waives the right to arbitrate 

only if it is “sufficiently specific to impute to the contracting 

parties the reasonable expectation that they are superseding, 

displacing, or waiving the arbitration obligation created by 

 

arbitrate” embodied in FINRA Rule 12200 predates the 

execution of the broker-dealer agreements. That position is 

hard to reconcile with the fact that an investor’s right to 

demand arbitration under FINRA Rule 12200 stems from its 

status as a “customer,” a status that J.P. Morgan contends is 

created by the broker-dealer agreements. Reply Br. at 6. J.P. 

Morgan’s position in that regard implies that the agreement to 

arbitrate under Rule 12200 comes into existence only after

the parties executed the broker-dealer agreements, not 

beforehand, which contradicts the notion that the agreements 

are somehow later-in-time agreements that “superseded” or 

“displaced” Rule 12200. See Gross, supra note 19, at 400-

401. 

69 Golden Empire, 764 F.3d at 216. 

70 Carilion Clinic, 706 F.3d at 328-30; see also City of 

Reno, 747 F.3d at 754 (Battaglia, J., dissenting); UBS Sec. 

LLC v. Allina Health Sys., 2013 WL 500373, at *1 (D. Minn. 

Feb. 11, 2013).
31

FINRA Rule 12200.”71 Although the court acknowledged 

that “the obligation to arbitrate under FINRA Rule 12200 can 

be superseded and displaced by a more specific agreement 

between the parties,” it still concluded that the forumselection clause was not such an agreement, as it was entirely

silent on the issue of arbitration.72 Thus, the court held that 

the customer had not waived its right to arbitrate and that the 

broker-dealer had to submit to FINRA arbitration.73

 

71 Carilion Clinic, 706 F.3d at 328-29 (citing cases). This 

principle generally aligns with our waiver precedent. See 

Patten, 819 F.2d at 406-07.

72 Carilion Clinic, 706 F.3d at 328. But see Golden Empire, 

764 F.3d at 215 (agreeing that the forum selection clause 

must “specifically preclude[]” arbitration, but disagreeing that 

the clause must actually mention arbitration to do so).

73 In July 2016, FINRA issued a regulatory notice, 

disagreeing with the reasoning of Golden Empire and City of 

Reno and reminding its members “that customers have a right 

to request arbitration at FINRA’s arbitration forum at any 

time and do not forfeit that right under FINRA rules by 

signing any agreement with a forum selection provision 

specifying another dispute resolution process or an arbitration

venue other than the FINRA arbitration forum.” FINRA, 

Reg. Notice 16-25, at 1. FINRA concluded that “any member 

firm’s denial, limitation or attempt to deny or limit a 

customer’s right to request FINRA arbitration, even if the 

customer seeks to exercise that right after having agreed to a 

forum selection clause specifying a venue other than a 

FINRA arbitration forum, would violate FINRA Rules 2268 

and 12200.” Id. Nothing in this Opinion precludes FINRA 

from sanctioning one of its members for attempting to avoid 

its duty to arbitrate via contract. See FINRA Rule 12212 
32

We agree with the Fourth Circuit that the question is 

one of waiver, and that the forum-selection clauses did not 

implicitly waive Reading’s right to FINRA arbitration. This 

conclusion stems in part from our decision in Patten, where 

we had to determine whether a broker-dealer agreement 

containing a provision in which the parties consented to the 

jurisdiction of the New Jersey courts implicitly waived the

customer’s right to arbitration under NASD’s compulsory 

arbitration rule (i.e., the progenitor of Rule 12200).

74 We 

rejected such an expansive view of waiver by relying on two 

well-established principles. First, we explained that a “party 

signing a waiver must know what rights it is waiving.”75 

Second, we invoked the strong federal policy, embodied in

the FAA, favoring arbitration whenever doubts arise as to 

whether a dispute is arbitrable.76 Because the forum-

 

(permitting an arbitration panel to “sanction a party for failure 

to comply with any provision of the Code”); FINRA IM12200 (providing that “[i]t may be deemed conduct 

inconsistent with just and equitable principles of trade and a 

violation of Rule 2010 for a member . . . to: (a) fail to submit 

a dispute to arbitration under the Code as required by the 

Code”); see also FINRA, Reg. Notice 16-25, at 5 (“FINRA 

Rules. . . . are not default rules that may be overridden by 

more specific or separate contractual terms without 

consequences under FINRA rules.”). 

74 Patten, 819 F.2d at 406-07 (characterizing the issue as 

“whether a forum selection clause is a waiver of NASD 

arbitration”). NASD is FINRA’s predecessor SRO.

75 Id. at 407.

76 Id. (quoting Moses H. Cone Mem’l Hosp. v. Mercury 

Constr. Corp., 460 U.S. 1, 24-25 (1983)); see Ehleiter v. 
33

selection clause in Patten was silent as to the issue of 

arbitration, raising doubts about whether the parties’ had 

waived arbitration and whether the dispute was arbitrable, we 

held that it was insufficient to waive the customer’s right to 

arbitrate under NASD rules.

77

 

Although Patten involved a forum-selection clause 

with permissive language,

78 its reasoning leads us to the same 

conclusion here: Reading did not waive its right to arbitrate 

by agreeing to the broker-dealer agreements. As in Patten, 

we begin by noting that any reference to arbitration is 

“[c]onspicuously absent from” the forum-selection clauses. 

Without a specific reference to arbitration, the forumselection clause requiring parties to litigate actions “arising 

out of” the contract and related transactions lacks the 

specificity required to advise Reading that it was waiving its

affirmative right to arbitrate under FINRA 12200.79 Indeed, 

the Fourth Circuit stressed in Carilion Clinic that “[n]o word 

even suggesting supersedence, waiver, or preclusion [of the 

 

Grapetree Shores, Inc., 482 F.3d 207, 216 (3d Cir. 2007); 

Gay, 511 F.3d at 394.

77 Id.; see Personal Sec. & Safety Sys. Inc. v. Motorola Inc., 

297 F.3d 388, 395 (5th Cir. 2002) (similar).

78 Patten, 819 F.2d at 406-07. The provision provided that 

“the Company hereby consents and will submit to the 

jurisdiction of the courts of the State of New Jersey and of 

any federal court sitting in the State of New Jersey with 

respect to controversies arising under this Agreement.” Id. at 

407 n.3. 

79 Id. at 407 (“A party signing a waiver must know what 

rights it is waiving.”). 
34

right to arbitrate] exists” in the forum-selection clause.

80 As 

we explained in Patten, had J.P. Morgan wanted Reading to 

waive its right to arbitrate, it should “have made a reference 

to arbitration” in either the waiver provision or forumselection provisions of the broker-dealer agreements.81

Finally, we are reluctant to find an implied waiver 

here. Reading’s right to arbitrate is not contractual in nature, 

but rather arises out of a binding, regulatory rule that has been 

adopted by FINRA and approved by the SEC. By condoning 

an implicit waiver of Reading’s regulatory right to arbitrate, 

we would erode investors’ ability to use an efficient and costeffective means of resolving allegations of misconduct in the 

brokerage industry and thus undermine FINRA’s ability to 

regulate, oversee, and remedy any such misconduct.82 In so 

holding, we split with some of our sister circuits, but begin 

 

80 706 F.3d at 330. 

81 See Patten, 819 F.2d at 406-07.

82 As FINRA has observed, enforcing purported contractual 

waivers of the right to arbitrate under FINRA rules would 

impermissibly permit “FINRA member firms to deny 

investors the benefits of FINRA’s arbitration program, which 

may, as a practical matter, foreclose customers from asserting 

their claims, particularly small claims.” FINRA, Reg. Notice 

16-25, at 4. And as amicus explains in its brief, if “brokerage 

firms are allowed to selectively and unilaterally force certain 

customers into court, the increased time and cost of going to 

court will most certainly result in brokerage firms avoiding 

otherwise meritorious claims.” PIABA Br. at 23.
35

the process of closing this contractual loophole to FINRA’s 

compulsory arbitration rule.

83

The District Court properly concluded that, under 

FINRA Rule 12200, J.P. Morgan is required to arbitrate

Reading’s claims regarding the ARS offerings.

84

 

83 Given this conclusion, we need not address whether an 

explicit waiver of the right to arbitrate would be invalid and 

unenforceable under Section 29(a) of the Exchange Act, as 

amicus and Reading argue. See 15 U.S.C. § 78cc(a) 

(providing that any contractual “provision binding any person 

to waive compliance with any provision of this chapter or of 

any rule or regulation thereunder, or of any rule of a selfregulatory organization, shall be void” (emphasis added)); S.

REP. NO. 111-176, at 114 (2010) (amending the Act to ensure 

“equal treatment for the rules of all SROs under Section 

29(a)”); see also McMahon, 482 U.S. at 228-30; Gross, supra

note 19, at 388. 

84 J.P. Morgan also argues that the District Court lacked 

authority to compel arbitration because Section 4 of the FAA 

limits the power of district courts “to order arbitration outside 

of the district,” Econo-Car Intern., Inc. v. Antilles Car 

Rentals, Inc., 499 F.2d 1391, 1394 (3d Cir. 1974); but FINRA 

has not yet selected the location of the arbitration hearing. 

J.A. 199. In fact, courts have read those geographical 

limitations into the FAA in cases “where the arbitration 

agreement contains a forum selection clause.” Merrill Lynch, 

Pierce, Fenner & Smith, Inc. v. Lauer, 49 F.3d 323, 327 (7th 

Cir. 1995); see Econo-Car Intern., Inc., 499 F.2d at 1394. 

J.P. Morgan provides no support for the proposition that those 

limitations apply here where the “arbitration agreement” at 

issue is a regulatory rule, not a contract containing a forum-
36

CONCLUSION

For these reasons, we will affirm the District Court’s 

order, declining to transfer Reading’s declaratory judgment

action and compelling J.P. Morgan to submit to FINRA 

arbitration. 

 

selection clause. Moreover, we have no reason to believe that 

the District Court would compel the parties to arbitration 

outside of the Eastern District of Pennsylvania. FINRA Rule 

12213(a)(1) provides that the arbitration hearing generally 

will be held at “the hearing location closest to the customer’s 

residence at the time of the events giving rise to the 

dispute”—i.e., FINRA District 9 in Philadelphia, PA. Given 

the substantial likelihood that the hearing will be held within 

the Eastern District of Pennsylvania, the District Court did 

not exceed its authority by issuing an order that merely

“directed [the parties] to arbitrate their dispute under the 

provisions of [the FINRA Arbitration Code].” J.A. 4.