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Jian "Jeffrey" Yuan v. Getco

August 12, 2011

JIAN "JEFFREY" YUAN, PLAINTIFF,
v.
GETCO, LLC, GETCO HOLDING COMPANY, LLC, STEPHEN SCHULER, AND DANIEL TIERNEY, DEFENDANTS.



The opinion of the court was delivered by: Judge James B. Zagel

MEMORANDUM OPINION AND ORDER

Plaintiff filed his Complaint in Cook County Circuit Court on March 9, 2011 alleging claims under the Illinois Wage Payment and Collection Act ("the Act"). The Complaint alleges that Defendants violated the Act by failing to pay Plaintiff several million dollars worth of bonuses and commissions owing from his work as a securities trader. Defendants removed the case based on federal subject matter jurisdiction, and now move to compel arbitration. For the following reasons, Defendants' motion to compel arbitration is granted.

I. FACTS

GETCO, LLC is a registered electronic market maker whose primary business involves buying and selling securities to provide two-sided liquid markets on exchanges around the world. GETCO, LLC is a wholly owned subsidiary of GETCO Holding Company ("GHC") (collectively "GETCO"). OCTEG, LLC is a wholly owned subsidiary of GETCO, LLC, and is a registered Broker-Dealer under Section 15 of the Securities Exchange Act of 1934. OCTEG holds an Equity and Options Trading Permit issued by NYSE Arca. Plaintiff worked as a securities trader for GETCO from 2000 until early 2010, and actively traded on exchanges including NYSE Arca and NASDAQ. NYSE Arca, NASDAQ and NYSE are Self-Regulatory Organizations ("SROs") pursuant to the Securities Exchange Act of 1934.

As a securities trader, Plaintiff was required to register with the exchanges where he traded. Accordingly, on five occasions, Plaintiff executed Form U-4s, Uniform Application for Securities Industry Registration or Transfer. On each Form U-4, Plaintiff listed his firm as OCTEG. Plaintiff registered as a "GS-Full Registration/General Securities Representative." Defendants Schuler and Tierney are managing members of GETCO, LLC, which wholly owns and controls OCTEG. Defendants Schuler and Tierney each completed Form U-4s and registered with exchanges, including NYSE Arca.

Two of Plaintiff's Form U-4s include the following arbitration provision: I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions or by-laws of the SROs indicated in Section 4 [which includes NYSE Arca, NASDAQ and NYSE] (SRO REGISTRATION) as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.

The NYSE Arca is OCTEG and Plaintiff's primary regulator. NYSE Arca Equities Rule 12(a) states that (i) any dispute, claim or controversy between or among ETP Holders and/or associated persons shall be arbitrated pursuant to the FINRA Dispute Resolution, Inc. Codes of Arbitration Procedure; and, (ii) any dispute, claim or controversy between a customer or non-member and an ETP Holder and/or associated person arising in connection with the business of such ETP Holder and/or in connection with the activities of an associated person shall be arbitrated. . .

In the course of his employment with the GETCO entities, Plaintiff signed two employment agreements. First, he signed an employment agreement that did not include a dispute resolution provision. Then, in 2007, he executed a second employment agreement with GETCO agreeing that the term "GETCO" means "GETCO, LLC, an Illinois limited liability company, or its parent, subsidiary or affiliated entities, including GETCO Holding Company, LLC, OCTEG, LLC, Blink Trading, LLC, GETCO Europe Limited, Lowtech Solutions, LLC and GETCO Securities, LLC." This employment Agreement also included a section governing dispute resolution, which provides that disputes between Plaintiff and GETCO subject to mandatory arbitration under SRO regulations must be arbitrated.

II. DISCUSSION

Defendants allege that all of Plaintiff's claims are subject to the arbitration agreement in his securities registration Form U-4, which incorporates the mandatory arbitration provisions of the securities exchanges with which Plaintiff was registered, including NYSE Arca, NASDAQ and NYSE. The parties focus on NYSE Arca's mandatory arbitration provisions because it is the Designated Examination Authority, or primary regulator, of Plaintiff and OCTEG, LLC. The provisions of NASDAQ and NYSE are equally applicable as well, however.

Plaintiff argues that he is not required to arbitrate because: (1) Plaintiff is not an "associated person" of the SROs; (2) even if Plaintiff was an associated person, Defendants are neither associated persons nor third party beneficiaries; (3) Plaintiff is no longer required to arbitrate because of the filing of Form U-5; and (4) certain claims are not subject to arbitration because FINRA Rule 13206 provides "no claim shall be eligible for submission to arbitration where six years have elapsed from the occurrence or event giving rise to the claim."

A. All Parties Are Associated Persons

Defendants argue that Plaintiff's Form U-4 arbitration agreements are enforceable under the Federal Arbitration Act ("FAA") and require him to pursue his claims in arbitration. Courts, including the U.S. Supreme Court and the Seventh Circuit have held that Form U-4 arbitration agreements are enforceable to require arbitration. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, n.2 (1991); Koveleskie v. SBC Capital Markets, Inc., 167 F.3d 361, 365 (7th Cir. 1999).

In his Form U-4s, Plaintiff expressly agreed to arbitrate "any claim that may arise between [Plaintiff] and [his] firm, or a customer or any other person that is required to be arbitrated under the rules, constitutions, or ...


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