17 C.F.R. § 170.8.

To register as a futures association, the NFA adopted an arbitration provision to comply with
CFTC regulation §170.2. Section 2(a) states:

Mandatory Arbitration

(1) Claims. Except as provided in Section 5 and 6 of this Code with respect to

timeliness requirements, the following disputes shall be arbitrated under this Code

if the dispute involves commodity futures contracts:

(i) a dispute for which arbitration is sought by a customer against a
member or employee thereof, or Associate ...

Mot. Dismiss, Ex. A. The NFA argues § 2(a) was enacted pursuant to the CEA and the CFTC
regulation that require Belom’s participation in a customer-initiated arbitration as an employee of
a NFA member.

In Geldermann, Inc. v. Commodity Future Trading Commission, 836 F.2d 310 (7th Cir.
1987), the plaintiff, a member of the Chicago Board of Trade (CBOT), refused to arbitrate a
customer-initiated claim. The plaintiff contended the CEA, 7 U.S.C. § 5(a)(11), which required a
registered contract market to provide for customer-initiated arbitration, did not mandate a member’s
participation in that arbitration. Specifically, the plaintiff contended the CEA and CFTC regulation
17 C.F.R. § 180.2 required a member’s consent to arbitrate. The court disagreed. The court relied
on the well-established canon “that considerable weight should be accorded to an executive
department’s construction ofa statutory scheme itis entrusted to administer.” Geldermann, 836 F.2d
at 315 (quoting Chevron U.S.A. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844
(1984)). The court found instructive the CFTC’s position that § 5(a)(11) required commodity
exchange members to submit to customer-initiated arbitration. Furthermore, the court relied on the

legislative history of the Act, which Congress amended twice without overturning the CFTC’s

position. Jd. at 316. Finally, the court noted Congress’ express approval of the CFTC’s position.

4


not enter into any arbitration agreement with Ju. This court lacks subject matter jurisdiction to
address that claim. An issue of substantive arbitrability standing alone does not present a federal
question; some other basis for jurisdiction must be present. Beloit v. Local 643 of the American
Federal of State, 248 F.3d 350 (7th Cir. 2001); Moses H. Cone Mem'l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 25 n. 32 (1983). Diversity jurisdiction is absent because both parties are citizens
of Illinois. Compl. at [3. Belom’s complaint alleges federal question jurisdiction based on the CEA,
the CFTC regulations, and the FAA. Those claims are legally insufficient. The “general rule is that,
when all federal claims are dismissed before trial, the district court should relinquish jurisdiction
over pendent state-law claims rather than resolving them on the merits.” Wright v. Associated Ins.
Cos. Inc., 29 F.3d 1244, 1251 (7th Cir. 1994); see also 28 U.S.C. § 1367(c)(3); Beloit, 248 F.3d at
652-54 (district court could not address the absence of an arbitration agreement when no federal
question or diversity jurisdiction existed).
CONCLUSION
The motion to dismiss is granted. This action is dismissed with prejudice. Belom’s motion

for summary judgment is moot.

September 12, 2001 ENTER:

ra? ¢ Conlon

United States District Judge


No. 7-565(1) at *32, 56, 92 (1982), reprinted in 1982 U.S.C.C.A.N. 387. Similarly, the CFTC has
explicitly stated § 170.8 must be interpreted consistently with § 180.2. See 17 C.F.R. § 170.8 (‘Such
rules shall conform to ... and be consistent with Part 180 of the Commission’s regulations governing
contract market arbitration and dispute procedures”). Thus, Geldermann’s deference to the CFTC’s
construction of its statute is equally applicable here.

Belom contends the term “voluntary” in § 17(b)(10) and § 170.8 applies to both customer
and employee. But Geldermann resolved that issue, holding the customer had the option of
participating in arbitration, not the member or employee. Belom distinguishes Geldermann by
claiming he is a non-registered employee unlike the plaintiffin Geldermann. However, Geldermann
did not distinguish between registered members and non-registered employees. The CEA and CFTC
regulations require futures market members and employees to participate in arbitration. 7 U.S.C. §
21(b)(10); 17 C-F.R § 170.8. Extending Geldermann’s holding to employees is consistent with the
plain language of § 17(b)(10) and § 170.8. Belom argues Geldermann is inapplicable because the
parties entered into an arbitration agreement in that case. However, the arbitration agreement in
Geldermann was crucial to whether the plaintiff had waived his right to an Article III forum.'
Geldermann, 836 F.2d at 317-319. The court did not rely on any agreement when interpreting the
CEA and the CFTC regulations. Instead, the court grounded its decision on the plain language and
legislative history of the statutes, and Chevron’s rule requiring deference to the CFTC’s
interpretation of its regulations. See also R. J. O’Brien Assoc. v. Pipkin, No. 93 C 3154, 1994 WL

96649, at *3 (N.D. IIL. Mar. 23,1994) (NFA had the power to mandate arbitration involving non-

' Belom does not allege § 2(a) violates Article III of the United States Constitution or the
Seventh Amendment.


In amending the Act in 1978, Congress stated it was not changing the Commission’s position that
exchange members must participate in customer-initiated arbitration proceedings. Jd. at 316.
Geldermamn is instructive. The CEA and CFTC regulations governing contract market
registration in Geldermann are identical to the futures market provisions at issue. Section 5(a)(11)
required a contract market entity to “[p]rovide a fair and equitable procedure through arbitration for
the settlement of customers’ claims and grievances ... Provided, that (1) the use of such procedure
by a customer shall be voluntary...” Geldermann, 836 F.2d at 312; 7 U.S.C. § 5a(11) (as amended,
TUS.C. § 7(a)(11)). Similarly, the CFTC regulations promulgating that rule stated “[e]very contract
market shall adopt rules which provide for a fair and equitable procedure through arbitration or
otherwise for the settlement of customer’s claims and grievances against any member or employee
thereof...” Geldermann, 836 F.2d at 312; 17 C.F.R. § 180.2. Both § 21(b)(10) and § 170.8 have
identical arbitration provisions, and use the term “voluntary” only with respect to the customer. See
supra at 3-4. The court can assume Congress intended the same terms used in different parts of the
statute to have the same meaning. Taracorp v. NL Indus., Inc., 73 F.3d 738, 744 (7th Cir. 1996).
Belom has not shown the CFTC has changed its position requiring members and employees
to participate in customer- initiated arbitration. Indeed, the CFTC has maintained the same language
in both contract and futures market regulations since Geldermann. Similarly, Congress amended §
21 in 1992 without changing § 21(b)(10). See Sen. Rep. No. 102-22, at *58, reprinted in 1992
ULS.C.C.A.N. 3103; see also Merill, Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353,
391 n.92 (1982) (courts can assume congressional awareness of judicial decisions). Furthermore,
Congress has construed these two provisions as identical. In 1982, Congress amended the CEA and

described § 5(a)(11) as § 17(b)(10)’s “parallel arbitration provision for contracts markets.” H.R. Rep.


supporting his interpretation of § 2 of the FAA.

Other sections of the FAA are similarly inapplicable. Section 3 requires the court to stay
litigation when there is a valid arbitration clause. 9 U.S.C. § 3; First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 943 (1995). The subject matter of the underlying arbitration is not at issue.
Section 4 allows the court to compel arbitration if there is a written agreement to arbitrate between
the parties. 9 U.S.C. § 4. NFA has not filed an action in this court to compel Belom to arbitrate.

Section 10 of the FAA determines the grounds to vacate an arbitration award. In R. J.
O’Brien, 1994 WL 96649, at *2, the plaintiff sought to vacate an award in a NFA arbitration,
contending the arbitrators exceeded their powers because there was no contractual agreement to
arbitrate. The court held the plaintiff's signing ofan NFA form binding him to all NFA requirements
was sufficient consent to arbitrate. Section 10 only applies when a party brings an arbitral decision
to the court to confirm or vacate the award. It is premature to determine whether a valid arbitration
agreement exists under § 10.

Consequently, NFA code of arbitration § 2(a) is not in conflict with any provision of the
FAA. Indeed, § 21(b)(10) and § 170.8 are consistent with the rationale of the FAA. The FAA
demonstrates the strong “federal policy favoring arbitration.” Moses H. Cone Memorial Hospital v.
Mercury Construction Corp., 460 U.S. 1 (1983). In Geldermann, the court recognized providing
arbitration as an option for contract market customers furthers that policy. Geldermann’s reasoning
is equally applicable to futures market customers. Furthermore, mandatory arbitration schemes are
notuncommon. See e.g. Thomas v. Union Carbide Agricultural Products Co., 437 U.S. 568 (1985);
Circuit City, 532 U.S. at 105.

Finally, Belom argues NFA cannot require his participation in the arbitration because he did


Minate Qrdgfhorm or)

C

United States District Court, Northern District of [inois

ine of Assiputd Judge Sitting Judge if Other
tamed te Suzanne B. Conlon than Assigned Judge
cage NUMBER 01 C3951 DATE 9/12/2001
v CASE JOHN F. BELOM vs. NATIONAL FUTURES ASSOCIATION and JOY JU
TITLE
[In the following box (a) indicate the party filing the motion, c.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
DOCKET ENTRY: Za
63) Oo Filed motion of [ use listing in “Motion” box above.]
(2) im Brief in support of motion due
@) o Answer brief to motion due. . Reply to answer brief due.
(4) im Ruling/Hearing on set for at
(5) o Status hearing[held/continued to] [set for/re-set for] on set for at
(6) Oo Pretrial conference[held/continued to] [set for/re-set for] on set for at
(7) Oo Trial[set for/re-set for] on at
(8) Oo [Bench/Jury trial] [Hearing] held/continued to at
(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
COFRCP4(m) OGeneral Rule2i O FRCP41(a)(1) 0 FRCP41(a)(2).
do) [Other docket entry] | The motion to dismiss [2-1] is granted. This action is dismissed with
prejudice, Belom’s motion for summary judgment [7-1] is moot. ENTER MEMORANDUM OPINION
AND ORDER. Siegen
(i) [For further detail see order attached to the original minute order.]
No notices required, advised in open court.
No notices required. umber of notices
| Notices mailed by judge’s staff.

Notified counsel by telephone.

Docketing to mail notices.

Mail AO 450 form.

Copy to judge/magistrate judge.

courtroom
deputy’s
initials

SB

Date/time received in
central Clerk’s Office

smaifing deputy in}jats



customers; deference should be given to CFTC’s interpretation of the CEA).

In light of the Seventh Circuit’s decision in Geldermann, the similarity in the text between
the contract and futures market arbitration provisions, Congress and the CFTC’s instruction that the
two provisions should be interpreted consistently, and the plain language of § 17(b)(10) and § 170.8,
Belom’s claim must be rejected. Section 17(b)(10) and § 170.8 require Belom, as an employee of
aNFA member, to arbitrate with Ju. Accordingly, NFA code of arbitration § 2(a) is consistent with
§ 17(b)(10) and § 170.8.

B. The Federal Arbitration Act

Belom argues NFA code of arbitration § 2(a) violates § 2 of the FAA, which provides:

A written provision in any maritime transaction or a contract evidencing a

transaction involving commerce to settle by arbitration a controversy thereafter

arising out of such contract ... shall be valid, irrevocable, and enforceable[.]
9US.C. § 2.

Belom asserts § 2 of the FAA requires his consent to arbitrate. The FAA governs
enforcement, validity, and interpretation of arbitration clauses in commercial contracts in both state
and federal courts. Jain v. Mere, 51 F.3d 686, 688 (7th Cir. 1995). The central purpose of the FAA
is to “ensure that private agreements to arbitrate are enforced according to their terms.”
Mastrobouno y, Shearson Lehman Hutton, Inc., 514 U.S. 52, 53-54 (1995).

Contrary to Belom’s assertion, § 2 of the FAA does not require consent between the parties
before arbitration commences. Section 2 only states an agreement to arbitrate is valid, irrevocable,
and enforceable. Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001). The purpose of § 2 is to
place arbitration clauses on the “same footing as other contractual clauses.” Gilmer v.

Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991). Belom has not pointed to any authority


A. The Commodity Exchange Act and the CFTC Regulations

The CEA prohibits fraudulent and manipulative conduct in connection with commodity
futures transactions. In 1983, Congress “overhaul[ed] the Act in order to institute a more
comprehensive regulatory structure to oversee the volatile and esoteric futures trading complex.”
Commodity Futures Trading Commission v. Schor, 478 U.S. 833 (1986) (quoting H.R. Rep. No. 93-
975, 93rd Cong. 2d Sess. at 1 (1974)). To implement this structure, “Congress created the CFTC as
an independent agency vested with sweeping authority to adopt any rules that in its judgment are
necessary to effectuate the purposes of the Act.” Geldermann, Inc. v. Commodity Futures Trading
Commission, 836 F.2d 310, 312 (7th Cir. 1987).

Section 21(b)(1) of the CEA requires a registered futures association to provide for
arbitration as a dispute resolution mechanism for its customers. Specifically, the Act states the
CFTC must find:

the rules of the association provide a fair, equitable, and expeditious procedure through

arbitration or otherwise for the settlement of customers’ claims and grievances against

any member or employee thereof: Provided, That (A) the use of such procedure by a

customer shall be voluntary, (B) the term “customer” as used in this paragraph shall not

include another member of the association ...
7 US.C. § 21(b)(10).

To effectuate the provisions of § 21(b)(10), the CFTC adopted regulations governing the
administration of customer grievances in the futures market. The regulations provide:

A futures association must be able to demonstrate its capability to promulgate rules and to

conduct proceedings which provide a fair, equitable, and expeditious procedure, through

arbitration or otherwise, for the voluntary settlement of a customer’s claim or grievance
brought against any member of the association or any employee of a member of the
association. Such rules shall conform to and be consistent with § 17(b)(10) of the Act

and be consistent with Part 180 of the Commission’s regulations governing contract
market arbitration and dispute settlement procedures.


for damages resulting from the purported wrongful termination of her ability to place orders directly
with LFG’s personnel at the Chicago Mercantile Exchange. Ju seeks recovery of more than
$7,333,000 from Belom for negligence, recklessness, conversion, constructive fraud, violations of
numerous federal and state statutes and regulations, and vicarious liability. Jd. at | 21. Belom
sought dismissal from the arbitration, alleging he had not consented to the proceeding. The NFA
denied his request because NFA code of arbitration § 2(a) required Belom’s participation as an
employee of LFG. Jd. at {{ 24-26.
I. Motion to Dismiss

Inruling on a motion to dismiss, the court considers "whether relief is possible under any set
of facts that could be established consistent with the allegations." Pokuta v. Trans World Airlines,
Inc., 191 F.3d 834, 839 (7th Cir. 1999) (citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). A
claim may be dismissed only if there is no set of facts that would entitle the plaintiff to relief based
on the allegations in the complaint. Conley, 355 U.S. at 45-46. A motion to dismiss tests the
sufficiency of the complaint, not its merits. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir.
1990).
IL. NFA Code of Arbitration

Belom contends NFA code of arbitration § 2(a) violates the Commodity Exchange Act, 7

U.S.C, § 21(b)(10) (“CEA” or “the Act”); the CFTC regulations promulgating the Act, 17 C.F.R.
§170.8; and the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 ef seq. Section 2(a) allows a
customer to initiate arbitration against any NFA member and its employee for disputes involving
commodity futures contracts. Belom alleges § 2(a) violates the CEA, the CFTC regulations, and the

FAA because those statutes do not mandate his participation in a customer-initiated arbitration.


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
JOHN F. BELOM )
Plaintiff, ; No. 01 C 3951
v. ; Suzanne B. Conlon, Judge
NATIONAL FUTURES ASSOCIATION }
and JOY JU )
Defendants. }

MEMORANDUM OPINION AND ORDER

John F. Belom sues National Futures Association (“NFA”) and Joy Ju for declaratory
judgment (“Count I”) and injunctive relief (“Count II”) pursuant to 28 U.S.C. § 2201 and Fed. R.
Civ. P. 65. Belom seeks a declaration that excludes him from an arbitration between LFG, LLC
(“LFG”) and Joy Ju under NFA code of arbitration § 2(a). NFA moves to dismiss the complaint
under Fed. R. Civ. P. 12(b)(6). Belom responded to that motion, and moves for summary judgment
on Count I under Fed. R. Civ. P. 56. NFA’s motion to dismiss is addressed first.

BACKGROUND

For purposes of a motion to dismiss, the court accepts all well-pleaded allegations in the
complaint as true and draws all reasonable inferences in favor of the nonmovant. Stachon v. United
Consumers Club, Inc., 229 F.3d 673, 675 (7th Cir. 2000). Belom was company counsel of LFG, a
registered futures commission merchant. Complaint (“Compl”) at 9. NFA is a registered futures
association with the Commodities Futures Trading Commission (“CFTC”). Jd. at 93. LFGisa
member of NFA. Id. Joy Ju, a LFG customer, filed an arbitration demand against LFG and Belom

1