United States Court of Appeals

For the Eighth Circuit

___________________________

No. 20-3312

___________________________

Principal Securities, Inc.

lllllllllllllllllllllPlaintiff - Appellee

v.

Sanjeev Agarwal; Rajshri Agarwal; Technochem International, Inc.

lllllllllllllllllllllDefendants - Appellants

____________

Appeal from United States District Court 

for the Southern District of Iowa - Central

____________

Submitted: April 14, 2021

Filed: January 31, 2022

____________

Before SMITH, Chief Judge, COLLOTON and ERICKSON, Circuit Judges. 

____________

ERICKSON, Circuit Judge.

Principal Securities, Inc. (“PSI”) commenced this action in the Southern

District of Iowa to enjoin an arbitration proceeding filed with the Financial Industry

Regulatory Authority (“FINRA”). The claimants in the underlying arbitration are Dr.

Sanjeev Agarwal and his wife Rajshri Agarwal, individually and on behalf of their

company Technochem International, Inc. (collectively “the Agarwals”). The district
court1

 found that the Agarwals were involved in joint business ventures with PSI’s

former registered representative, not securities transactions governed by FINRA, and

thus there was no basis to compel PSI to participate in a FINRA arbitration

proceeding. The Agarwals appeal the grant of injunctive relief enjoining them from

proceeding with arbitration. We affirm.

I. BACKGROUND

According to the Agarwals’ Statement of Claim filed with FINRA, Dr. and

Mrs. Agarwal reside in Ames, Iowa. They are the sole owners of a nearly 50-year-old

company, Technochem, International, Inc., that builds plants for the extraction and

refining of essential oils, vegetable oils, and animal fats as well as the distillation of

glycerin and fermentation. Technochem’s principal place of business is Boone, Iowa.

Dr. Agarwal is the president of Technochem and has a Bachelor of Science degree in

chemical engineering, a Master of Business Administration degree, and a Ph.D. in

International Business and Marketing. 

PSI is a member of FINRA and registered with the Securities and Exchange

Commission. John Krohn previously worked as a financial advisor who was

associated with PSI from March 1996 through December 31, 2016. In 2014, Krohn,

Dr. Agarwal, and two other business partners formed Glycerin Group LLC d/b/a

KemX Global (“KemX”). The purpose of KemX was to build and operate industrial

glycerin and biofuel refining plants. Dr. Agarwal was KemX’s president and co-chief

executive officer. 

1The Honorable Charles R. Wolle, United States District Judge for the Southern

District of Iowa, now retired.

-2-
Pursuant to an operating agreement for KemX executed in 2015, K4

Enterprises, LLC (“K4”) owned 50 percent of KemX, Dr. and Mrs. Agarwal owned

25 percent through Technochem, and a third business partner, Mark Merritt, owned

the remaining 25 percent. K4 was an investment company owned by Krohn and a

business partner. 

On February 2, 2016, Dr. Agarwal and Merritt, acting on behalf of KemX,

offered Krohn the position of chief financial officer for KemX. In the written offer,

Dr. Agarwal and Merritt recognized that Krohn was fiercely loyal to his employer,

Principal Financial Group, which was one of the traits they admired most. In addition

to proposing a salary, Dr. Agarwal and Merritt told Krohn that Krohn would have the

ability to acquire ownership interests in KemX and any other related operations that

Dr. Agarwal and Merritt developed. Krohn declined the employment offer. 

KemX completed construction of its first biofuel refinery in 2017. In 2015 and

2016, while the plant was being constructed, Technochem lent KemX over $4.8

million worth of equipment and construction costs. The sum was recognized as debt

on KemX’s balance sheet. Due to construction cost overruns, Technochem provided

an additional $1.7 million in cash that was also recognized as debt on KemX’s books. 

In June 2019 when KemX was sold, KemX was indebted to Technochem in an

approximate amount of $9.3 million. The Agarwals purportedly lost the money they

lent to KemX, but have not identified the purchase of any securities in connection

with this project. 

In 2016, Dr. Agarwal began investing in a different venture—Spotlight

Innovation, Inc. (“Spotlight”), a company in which Krohn held an approximate 38%

ownership. In August 2016, the Agarwals invested $250,000 in Spotlight stock; in

December 2016, they invested another $100,000; and in April 2017 (after Krohn had

left PSI), the Agarwals loaned Spotlight $400,000. Spotlight was a development

stage company purportedly involved in identifying, validating, and financing

-3-
healthcare-focused companies founded for the purpose of commercializing

intellectual property. The parties dispute the worth of Spotlight. The Agarwals

contend that after it became apparent Spotlight lacked any legitimate business

prospects, Krohn continued to facilitate acquisitions, used K4 to provide debt

financing and make loans to Spotlight, and continued to solicit investors to fund his

dubious venture. PSI, in contrast, asserts the Spotlight entities are not sham entities

and all appear to be active going concerns with research agreements with universities

and a hospital, a product registered with the Food and Drug Administration, and, at

least one, commercially available product. This dispute, however, is immaterial to

our analysis of the dispositive issue before us.

 

The Agarwals’ principle claim is that PSI failed to supervise the outside

business activities of Krohn. PSI has denied the allegations, contending it acted

consistent with its policies and FINRA Rules that required Krohn to disclose private

securities transactions and outside business activities. See FINRA Rules 3270 &

3280. PSI asserts that during the 20 years Krohn was associated with PSI, PSI

audited Krohn’s activities 14 times in an effort to ensure compliance with securities

regulations and PSI’s policies. There is evidence in the record demonstrating that

Krohn requested approval for the initial Spotlight purchase and he notified PSI when

he was appointed a member of the Spotlight Board. PSI maintains that its approval

and oversight with regard to Spotlight as well as Krohn’s other business activities was

appropriate based on Krohn’s representations. Again, resolution of this dispute is

immaterial and unnecessary for us to resolve.

Krohn consented to the imposition of sanctions related to private securities

transactions and outside business activities that are the subject of this litigation and

underlying FINRA arbitration. With the advice of counsel, on April 16, 2018, Krohn

signed a letter of acceptance, waiver, and consent (“AWC”) that settled a number of

alleged violations of FINRA Rules 2010, 3270 & 3280. R. Doc. 13-9. The violations

included: (1) engaging in four outside business activities without giving PSI prior

-4-
written notice, and (2) conducting more than two dozen purchases of ten companies’

securities outside the scope of his employment with PSI and without notifying PSI

of these transactions, his role in them, and whether he received or expected to receive

selling compensation. Id. at p. 2. FINRA accepted the AWC on May 29, 2018. Id.

at p. 5. 

The Agarwals contend that for nearly a decade Krohn controlled the finances

and operations of various companies and ventures. In this capacity Krohn allegedly

solicited approximately $40 million from dozens of investors and then shuffled the

investors’ money from venture to venture to satisfy other investors, banks, and other

creditors until the ventures ultimately all collapsed. In their Statement of Claim, the

Agarwals allege FINRA has jurisdiction because PSI knew about Krohn’s activities

but failed to supervise or place reasonable controls on his other business activities,

including KemX and Spotlight. The Agarwals seek compensatory damages in the

amount of $10 million, as well as interest, attorneys’ fees, expert fees, forum fees,

punitive damages, and treble damages. 

The Agarwals appeal the district court’s decision granting a preliminary and

permanent injunction and enjoining their FINRA arbitration proceeding.

II. ANALYSIS

“We review a district court’s ultimate ruling on a preliminary injunction for

abuse of discretion, though we review its underlying legal conclusions de novo.” 

Home Instead, Inc. v. Forance, 721 F.3d 494, 497 (8th Cir. 2013). A district court

abuses its discretion if it applies an incorrect legal standard, follows improper

procedures in making the determination, or makes findings of fact that are clearly

erroneous. See Laredo Ridge Wind, LLC v. Neb. Pub. Power Dist., 11 F.4th 645, 649

(8th Cir. 2021). We find no abuse of discretion here. 

-5-
The Federal Arbitration Act, 9 U.S.C. § 4, “permits a federal court to compel

arbitration based on an arbitration clause in a written contract, but does not permit a

court to enjoin arbitration based on an issue’s nonarbitrability.” Klay v. United

Healthgroup, Inc., 376 F.3d 1092, 1099 n.8 (11th Cir. 2004). In other words,

“‘wrongful arbitration,’ is not a cause of action for which a party may sue.” 

Meierhenry Sargent LLP v. Williams, 992 F.3d 661, 665 (8th Cir. 2021) (Colloton,

J., concurring) (quoting Klay, 376 F.3d at 1098, 1112). The Agarwals have not raised

an issue regarding the district court’s authority to enter an injunction enjoining

arbitration. Because the issue is not jurisdictional or in the nature of a jurisdictional

bar, the Agarwals have waived the cause-of-action issue and we decline to address

it. Steel Co. v. Citizens for Better Env’t, 523 U.S. 83, 89 (1998) (“It is firmly

established in our cases that the absence of a valid . . . cause of action does not

implicate subject-matter jurisdiction.”); see Brnovich v. Democratic Nat’l Comm., 

594 U.S. __, 141 S. Ct. 2321, 2350 (2021) (“Because no party argues that the

plaintiffs lack a cause of action here, and because the existence (or not) of a cause of

action does not go to a court’s subject-matter jurisdiction, this Court need not and

does not address that issue today.”) (citation omitted)

“[A]rbitration is a matter of contract and a party cannot be required to submit

to arbitration any dispute which he has not agreed so to submit.” Howsam v. Dean

Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (cleaned up). Lacking an explicit

agreement to arbitrate, the Agarwals contend that they have the right to compel PSI

to arbitrate their claims under the rules promulgated by FINRA.

“FINRA, a self-regulatory organization created under the Securities and

Exchange Act, regulates the financial industry with approval by the Securities and

Exchange Commission.” Luis v. RBC Cap. Mkts, LLC, 984 F.3d 575, 577 (8th Cir.

2020). FINRA enforces its rules through administrative proceedings and arbitration. 

See FINRA Rule 8310 (providing FINRA the authority to impose sanctions on

broker-

-6-
members for violating FINRA rules); FINRA Rule 12200 (providing a client the

authority to compel arbitration for disputes between the client and broker-member).2

While PSI is a member of FINRA, it contends that the Agarwals are not

“customers” entitled to compel arbitration under FINRA’s Code of Arbitration

Procedure for Customer Disputes, FINRA Rule 12000, et seq. In particular, Rule

12200 states:

Parties must arbitrate a dispute under the Code if:

• Arbitration under the Code is either:

(1) Required by a written agreement, or

(2) Requested by the customer;

• The dispute is between a customer and a member or associated

person of a member; and

• The dispute arises in connection with the business activities of

the member or the associated person, except disputes involving

the insurance business activities of a member that is also an

insurance company.

Resolution turns on the second prong, which requires arbitration if requested by “the

customer.” The FINRA Code defines “customer” in the negative, stating only that

“[a] customer shall not include a broker or dealer.” FINRA Rule 12100(k). In Fleet

Boston Robertson Stephens, Inc. v. Innovex, Inc., 264 F.3d 770, 773 (8th Cir. 2001),

the Court declined to interpret “customer” as everyone who is not a broker or a dealer,

explaining: “[W]e do not believe that the [FINRA Code]3 requires a member to

2FINRA Rules are available on FINRA’s website, https://www.finra.org

3Fleet Boston, 264 F.3d 770, cites to NASD Rule 10301(a), which also required

arbitration upon the demand of the customer and is the predecessor of, FINRA Rule

12200.

-7-
submit to arbitration in every dispute that involves its business dealings with a nonmember.” Specifically, the Court construed “customer” to encompass “one involved

in a business relationship with [a FINRA] member that is related directly to

investment or brokerage services.” Id. at 772.

The information in the record makes plain that the Agarwals were business

partners with Krohn (and others). In particular, Dr. Agarwal had an active role in

KemX, serving as president as well as chief executive officer (along with Merritt). 

Dr. Agarwal participated in hiring decisions, specifically extending an offer to Krohn

to serve as chief financial officer of KemX. When Dr. Agarwal and Merritt sought

to recruit Krohn to be KemX’s chief financial officer, they recognized the position

would be separate and apart from Krohn’s practice with PSI. In short, the Agarwals

were involved in funding and operating KemX in arms-length business decisions. 

There is a dispute about the evidence, or lack thereof, regarding Dr. Agarwal’s

purchase of a convertible note in 2016 for Spotlight—a company associated with

Krohn. Even assuming the facts in a light favorable to the Agarwals, this transaction

is insufficient to convert what was an ongoing business partnership in various

ventures into a business relationship “related directly to investment or brokerage

services,” which our precedent requires. See Fleet Boston, 264 F.3d at 772. In

particular, the Agarwals have not pointed to evidence demonstrating Krohn provided

investment advice or brokerage services during the Spotlight transaction. Nor has Dr.

Agarwal pointed to evidence suggesting his decisions were influenced because he

thought Krohn was advising him as a result of Krohn’s association with PSI. Upon

careful review of the record, Dr. Agarwal’s purchase of Spotlight debt did not convert

his business partnership with Krohn into a customer relationship. The Agarwals and

Krohn were, and remained throughout the relevant period, business partners who

relied on their own independent expertise when making investment decisions. 

-8-
III. CONCLUSION

FINRA’s purpose is not to make a brokerage firm the insurer of failed business

ventures. The Agarwals, relying on their own knowledge and expertise, engaged in

arms-length business transactions outside of Krohn’s association with PSI that led

purportedly to the loss of millions of dollars. The Agarwals cannot compel

arbitration under FINRA Rule 12200 because they have failed to demonstrate that

they were Krohn’s customers—that is, in a relationship with Krohn that was related

directly to investment or brokerage services.

We affirm the district court’s decision granting injunctive relief and enjoining

the FINRA arbitration proceeding.

______________________________

-9-