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RAY v. BERGEN

September 17, 2003

STEPHEN RAY, WALTER THOMAS PRICE, THE PRICE FUTURES GROUP, AND MAN FINANCIAL GROUP INC., PLAINTIFFS,
v.
MELVIN VON BERGEN, MICHAEL P. VON BERGEN, AND BOBETTE K. VON BERGEN, DEFENDANTS



The opinion of the court was delivered by: Ronald Guzman, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiffs, Stephen Ray, Walter Thomas Price, the Price Futures Group and Man Financial Group Inc., have brought an action to enjoin defendants, Melvin Von Bergen, Michael P. Von Bergen and Bobette K. Von Bergen from pursuing and continuing arbitration proceedings against them before the National Futures Association (the "NFA"). Defendants seek to compel arbitration. For the reasons set forth below, the Court compels arbitration and dismisses this case without prejudice pending arbitration.

FACTS

Plaintiff Price Futures Group ("Price Futures") is an Illinois corporation registered with the Commodities Futures Trading Commission ("CTFC") as an Introducing Broker under § 4(d) of the Commodities Exchange Act, 7 U.S.C. § 6(d). As an introducing broker, Price Futures, inter alia, solicits and accepts orders for futures and option trades and places those trades with a clearing broker. Price Futures' clients, [ Page 2]

including defendants, maintain customer accounts with these clearing brokers. Stephen Ray and Walter Thomas Price are officers and employees of Price Futures. Man Financial Inc. is registered with the CTFC as a Futures Commission Merchant.

In June 2000, defendants were party to a Customer Account Agreement Futures and Options on Futures ("Customer Agreement") for purposes of hedge accounts with Price Futures. (Compl., Ex. 1.) In June 2000, defendants were also party to an Arbitration Agreement with plaintiffs. (Pls.' Reply Defs.' Br. Opp'n Pls.' Mem. Supp. D. Requirement Determine Arbitrability, Ex. B, Arbitration Agreement.) According to defendants, these hedge accounts were to act as insurance policies against price fluctuations of defendants' crops in the market. (Compl., Ex. 2, Arbitration Claim Form.) On or about June 2000, defendants allege that they became aware of unauthorized trades made on their behalf upon receipt of their June 2000 statements.

On December 2, 2002, defendants filed a claim for arbitration with the NFA and alleged in part violations of the Commodities Exchange Act. It is plaintiffs' contention that because defendants admittedly learned of the unauthorized transactions in their June 2000 statement, they are time-barred from bringing such an arbitration claim because the NFA's two-year limitations period would have expired in June 2002. Defendants argue and represented to the NFA that they "first learned that there was a possibility that something could be done sometime after February 21, 2001," when Mr. Von Bergen learned that another farmer had brought a successful demand for arbitration against Mr. Ray, triggering the limitations period. (Compl., Ex. 2, Arbitration Claim Form.)

Plaintiffs argue that they did not agree to arbitrate any matter that did not fall within the rules of the NFA, and thus the defendants should be enjoined from arbitration. [ Page 3]

Defendants seek to compel arbitration and argue that whether their arbitration claims were timely filed is an issue for the arbitrator to decide.

DISCUSSION

Under the Federal Arbitration Act, federal courts must compel arbitration of proceedings if any of the issues are "referable to arbitration under an agreement in writing for such arbitration" so long as the court is "satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement." 9 U.S.C. § 3 (West 2003). When a contract contains an arbitration clause, there is a presumption of arbitrability in the sense that "an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." AT & T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 650 (1986). Further, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration," Moses H. Cone Mem'I Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).

The plaintiffs contend that they did not agree to submit the question of arbitrability to the arbitrator where the claims fall outside the rules of the NFA. (Pls.' Reply Defs.' Br. Opp'n Pls.' Mem. Supp. D. Ct,'s Requirement Determine Arbitrability at 5.) Plaintiffs rely upon a body of case law classifying the issue of timing as a question of arbitrability for the court to decide. Several cases, including Smith Barney Inc. v. Schetl, 53 F.3d 807, 809 (7th Cir. 1995), Edward D. Jones & Co. v. Sorrells, 957 F.2d 509, 512-14 (7th Cir. 1992), and Paine Webber Inc. v. Farnam, 870 F.2d 1286, 1292 (7th Cir. 1989), have held that whether the time limitation of Section 15 of the NASD Code [ Page 4]

bars a claim from arbitration is a question of arbitrability for the court to decide.

However, in Howsam v. Dean Witter Reynolds, Inc., 123 S. Ct, 588, 592 (2002), the Supreme Court apparently disagreed with this line of cases and held that "the phrase `question of arbitrability' has a far more limited scope" and that "the applicability of the NASD time limit rule is a matter presumptively for the arbitrator, not for the judge." The Howsam Court reasoned that "[t]he time limit rule closely resembles the gateway questions that this Court has found not to be `questions of arbitrability.'" Id. (citing to reference of "waiver, delay, or a like defense" in Moses H. Cone Mem l'Hosp., 460 U.S. at 24-25); see Gaming World Int'l, Ltd. v. White Earth Band of Chippewa Indians, 317 F.3d 840, 852 n. 5 (8th Cir. 2003) (citing Howsam, 123 S.Ct. at 592) ("[W]hether grievance procedures have been followed or time limits satisfied are examples of issues to be decided by the ...


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