United States District Court, N.D. Illinois, Eastern Division
OPINION AND ORDER
B. GOTTSCHALL UNITED STATES DISTRICT JUDGE.
DV Trading, LLC (“DV”) has filed a Motion to
Compel Arbitration of the claims in plaintiffs'
four-count complaint. The arbitration clause DV is attempting
to enforce appears in the operating agreement of its parent
company, RCG Holdings, LLC (“RCG”).
on the briefing before this court, it appears that
plaintiffs' Count I, seeking a declaration that DV may
not seek indemnification or contribution from plaintiffs'
RCG trading accounts for fines imposed on DV by the
Commodities Futures Trading Commission (“CFTC”),
falls within the broad scope of the RCG Operating
Agreement's (“Operating Agreement”)
arbitration clause. The subject of the Operating Agreement
encompasses membership in RCG Holdings, the rights and duties
of members, the establishment of trading accounts, and
members' capital contributions. The issue of the
circumstances under which DV can seek funds from members'
capital accounts is clearly related to the subject of the
Operating Agreement and is hence arbitrable. But in related
arbitration proceedings, plaintiffs raise an issue not
mentioned in their briefing here. They dispute whether they
are bound by the Operating Agreement, given that they did not
sign it. Ruling on Respondents' Rule 11(b) Mot. at 6, ECF
No. 15. As part of their supplemental briefing, plaintiffs
will have the opportunity to clarify what exactly their
position is on the arbitrability of Count I.
court has no difficulty concluding that plaintiffs' Count
IV, claiming whistleblower retaliation, is not subject to
arbitration. As amended by the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010, Pub. L. No. 111-203, 124
Stat. 1376, the Commodities Exchange Act (“CEA”)
provides clearly that pre-dispute arbitration agreements are
not valid or enforceable if they require arbitration of a
dispute arising under the whistleblower section. 7 U.S.C.
§ 26(n) (West 2018); Santoro v. Accenture Fed.
Servs., LLC, 748 F.3d 217, 222 n.8 (4th Cir. 2014)
(collecting cases). There is a great deal of law finding
arbitration agreements severable in the sense that the
arbitrability is analyzed claim by claim, see, e.g.,
Kawasaki Heavy Indus., Ltd. v. Bombardier Recreational
Prods., Inc., 660 F.3d 988, 997 (7th Cir. 2011)
(district court has jurisdiction over nonarbitrable claims);
Volkswagen of Am., Inc. v. Sud's of Peoria,
Inc., 474 F.3d 966, 970-72 (7th Cir. 2007) (discussing
discretion to stay nonarbitrable claims); so the court does
not find it necessary to invalidate the entire Operating
Agreement as long as it is not read to cover plaintiffs'
whistleblower claim. See Santoro, 748 F.3d at
223-24. Defendant's contention that this claim is
frivolous is of no moment. The issue is who gets to decide
whether the claim is frivolous, and the CEA makes plain that
it cannot be decided by an arbitrator pursuant to a
pre-dispute arbitration agreement. § 26(n).
leaves Counts II and III. In Count II, plaintiffs seek
damages from DV for the effect on their trading activities
caused by DV's illegal wash trading. Count III seeks
similar damages based on DV's withholding of information
from plaintiffs relating to DV's wash-trading activities.
as the court can tell, DV advances only one argument for the
arbitration of these claims. It relies on two cases,
Kiefer Specialty Flooring, Inc. v. Tarkett, Inc.,
174 F.3d 907, 910 (7th Cir. 1999) and Abinanti v. Leggett
& Platt, Inc., 2001 WL 40806, at *4 (N.D. Ill. Jan.
16, 2016), advancing the contention that since the Operating
Agreement made it possible for plaintiffs to become DV
traders, the Operating Agreement is the but-for cause of any
subsequent disputes with DV. Reply 7, ECF No. 14.
does not go this far. In Kiefer, Kiefer and Tarkett
were parties to two distributorship agreements, both of which
contained arbitration agreements with “arising from or
relating to the distributorship agreements” language
such as the Operating Agreement here contains.
Compare Operating Agreement 9, ECF No. 13-1,
with Kiefer, 174 F.3d at 908. The second
distributorship agreement came about when Tarkett agreed to
give Kiefer a distributorship for the Kansas City market on
the condition that Kiefer employ Rollins to manage the office
serving that market. Id. Kiefer did so, but a couple
of years later, Rollins left Kiefer to work for Tarkett, and
Tarkett terminated its distributorship agreements with
Kiefer. Id. Kiefer sued, alleging that Tarkett
tortiously interfered with Rollins' employment contract.
Id. at 909. Over Kiefer's objection, the
district court compelled arbitration, and when Tarkett
prevailed, Kiefer argued that the claim of tortious
interference was beyond the scope of the arbitration clause
of the second distributorship agreement. Id. The
court of appeals noted that in one sentence of Kiefer's
pleading, Kiefer alleged that Tarkett's solicitation
constituted an interference with the employment contract
between Kiefer and Rollins. Id. at 910. In the next
sentence, Kiefer asserted that the same solicitation
constituted a breach of Tarkett's duty not to interfere
with Kiefer's performance of the distributorship
agreement. Id. Since it was clear that the latter
claim was arbitrable, it made no sense to treat differently
the alleged fact that Rollins was solicited from the
underlying arbitrable claim that soliciting Rollins breached
the parties' duties under the distributorship agreement.
See Id. But put more simply, the claim of breach of
the distributorship agreement, which clearly fell within the
scope of the arbitration clause, was factually based on the
alleged tortious interference with Rollins' employment
contract. The employment agreement which was the subject of
the tortious interference claim was inseparable from the
alleged breach of the distributorship agreement. See
Id. It is not a stretch to find the tortious
interference claim “related to” the breach of the
distributorship claim, and rather than apply a but-for test,
the Seventh Circuit concluded that a “significant
relationship” existed between Kiefer's claims and
the distributorship agreement. Id. at 910-11.
Abinanti, plaintiffs were former shareholders and
employees of Met Displays, Inc. (“Met”), a
manufacturer of store fixtures. 2001 WL 40806, at *1.
Defendant Leggett & Platt acquired Met through a stock
purchase agreement (“SPA”). Id. The SPA
provided that each plaintiff would become an employee of
defendant through an individual employment agreement.
Id. The SPA contained a broad arbitration clause
which exempted disputes relating to the purchase price of the
stock, prior to the closing date of the stock purchase
agreement. See Id. Shareholders were to have thirty
days after the preparation of the Closing Balance Sheet to
give written notice of any disagreement. If they did not do
so, the Closing Balance Sheet was to become final and
binding, pursuant to which the purchase price would be set.
future time, plaintiffs were terminated by defendant and
filed a lawsuit alleging that defendant breached the SPA as
well as each plaintiff's employment agreement; that
defendant tortiously interfered with Met and the terminated
employees, by directing Met to terminate the employees; that
defendant took these actions in bad faith; and that defendant
slandered plaintiffs when it published untrue statements
involving plaintiffs' purported misconduct. Id.
At *2. Plaintiffs argued, in resisting arbitration, that
their claims related to the calculation of the stock purchase
price and thus fell within the exemption. They claimed that
they were terminated so defendant could avoid paying $6.1
million of the $48 million purchase price that was guaranteed
to them, as minority shareholders, via a performance-based
bonus pool. Id. at *3. Thus, plaintiffs argued,
their claims involved the purchase price and fell within the
arbitration clause's exemption.
district court disagreed. The exemption provision dealt with
the calculation of the purchase price, which had already been
calculated and to which all parties had agreed. Id.
at *4. The bonus pool was not mentioned in the exemption
provision but was governed by another portion of the SPA.
Id. Insofar as plaintiffs claimed that their
employment agreements were breached, the employment
agreements were contemplated by the SPA, which mentioned the
employment agreements and the bonus pool, and were thus
subject to arbitration. Relying on Kiefer, the court
ruled that if the factual allegations underlying the slander,
tortious interference and bad faith claims fell within the
arbitration provision, then those claims would be arbitrable.
Id. Finding that the factual allegations fell within
the arbitration clause, the court held those claims
arbitrable. It then said, in the language upon which
defendant here relies, “But for the SPA and the
Employment Agreements, Plaintiffs' claims would never
have arisen. They arise from the very heart of their
relationship with Defendant.” Id. Citing
Kiefer, the district court held that those claims
were, for that reason, “logically
‘contemplated' by the SPA ” and were thus
subject to arbitration. Id.
but-for test DV derives from Abinanti is not, as far
as this court can tell, based on Kiefer. If taken
literally, its scope would be essentially limitless: any
agreement setting up a company which contains an arbitration
clause requires arbitration of any dispute relating to that
company even if the dispute involves a separate (but related)
corporation, whether or not the dispute involved was
contemplated by that agreement. Notably, the
Abinanti court set out the Kiefer
“significant relationship” test for the
clause's scope. 2001 WL 40806, at *4 (citing
Kiefer, 174 F.3d at 910). In any event, it is the
Kiefer standard that this court is bound to apply
regardless of what Abinanti holds. See Gore v.
Alltel Commc'ns, LLC, 666 F.3d 1027, 1033-34 (7th
Cir. 2012) (citing and applying Kiefer's
“significant relationship” language).
case at bar, D V, the company whose actions allegedly
precipitated Counts II and III, is nowhere discussed in the
Operating Agreement or in its arbitration clause. While it is
clear that if there had been no Operating Agreement,
plaintiffs would never have worked for D V, does that mean
that any dispute arising out of the relationship between
plaintiffs and DV is arbitrable? That is what
Abinanti, applied literally, seems to suggest.
problem with Abinanti's but-for analysis, as
applied to the instant case, is that it does not deal with
the contractual scope of the Operating Agreement's
arbitration clause. The arbitration clause is contained in
the Operating Agreement, which covers the structure of RCG
Holdings, LLC: its membership classes; admission to
membership; member accounts and repayment rights of
dissociating members; restrictions on transfers of
memberships; voting rights; distributions from accounts;
conflicts of interest; the effect of bankruptcy or insolvency
of members; limitation of liability; dissolution and
liquidation; members' capital contributions; management
of RCG; and the maintenance of company books and records: all
issues relating to the structure and management of RCG
Holdings. DV has taken the position in related arbitration
proceedings that it, along with related entities, initiated
that an “unwritten agreement to allocate profits,
losses, business expenses and costs” existed. ECF No.
15 at 3. Does that separate alleged agreement bear a
significant relationship to the operating agreement DV wants
to enforce here? It is not clear to this court how an
agreement setting up the structure and management of RCG
Holdings covers damage actions by RCG Class C members
alleging illegal conduct by DV, which again is nowhere
mentioned in the Operating Agreement. See generally
Gore, 666 F.3d at 1034-35.
parties' briefs make short shrift of the issue of the
arbitrability of Counts II and III. In its opening
memorandum, defendant emphasizes the “baseless”
nature of these claims. Mem. Supp. Mot. to Stay 6, 9 &
n.2, ECF No. 10. Baseless or not, the issue is who makes that
decision. If the parties have anything more to say directed
to these counts, they may do so in ...