United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
JORGE ALONSO, UNITED STATES DISTRICT JUDGE
August of 2007, plaintiff Vega Asset Recovery, LLC
(“Vega”) sustained substantial losses while
trading on the Russell 2000 Index. Years later, Vega
initiated arbitration proceedings with the Financial Industry
Regulatory Authority (“FINRA”) against defendant
Newedge USA, LLC n/k/a SG Americas Securities, LLC
(“Newedge”). Following a four-day arbitration
hearing, the arbitration panel denied Vega's claim and
Newedge's counterclaims. Dissatisfied with the result,
Vega filed an application to vacate the arbitration award
with this Court. Newedge responded and filed a motion to
confirm the award.
the Court is Vega's application to vacate arbitration
award of FINRA , as well as defendant Newedge's motion
to confirm arbitration award . For the reasons set forth
below, the Court denies Vega's application, grants
Newedge's motion, and confirms the arbitration award.
August of 2007, the trading market was experiencing a
historic period of extreme volatility. On August 16, 2007,
Vega lost approximately $26 million (75% of its trading
capital) while trading options based on the Russell 2000
25, 2013, pursuant to an Account Agreement,  Vega initiated a
claim with FINRA, alleging that Newedge had caused Vega to
incur those losses. Newedge filed a counterclaim, alleging
that it was entitled to indemnification and requested an
award of costs and attorneys' fees.
after the initiation of the arbitration process and after the
parties had submitted their rankings from a list of
arbitrators, FINRA appointed a panel of three arbitrators
(the “Panel”). The Panel consisted of three FINRA
members: Daniel R. Formeller (an attorney licensed since
1976, who was designated as the Chairperson), Jeffrey W.
Finke (an attorney licensed since 1977), and Henry G.
Nothnagel (a former broker and trader with 37 years of
experience). Arbitrators in FINRA cases are classified as
either “non-public” or “public.”
See FINRA Rule 12100. Formeller and Finke were
classified as “public” arbitrators, and Nothnagel
was classified as a “non-public” arbitrator.
2015, during the pendency of the underlying arbitration
proceedings, the SEC amended the definitions for
“non-public” and “public”
arbitrators. The amendment became effective on June 26, 2015
and was not retroactive. See FINRA Reg. Notice 15-18
(“for cases in which FINRA sent lists prior to June 26,
2015, FINRA will not change the classification status of
non-public and public arbitrators based on the new
definitions, and will not grant challenges for cause based
solely on an arbitrator's reclassification.”).
September 2016, the parties participated in a four-day
arbitration hearing before the Panel in Chicago, Illinois. On
October 3, 2016, the Panel ordered the parties to submit
post-hearing briefing on certain issues by October 31, 2016.
On October 18, 2016, a FINRA case administrator notified the
parties that Arbitrator Finke was no longer classified as a
“public arbitrator” under FINRA's revised
arbitrator definition because Finke's firm derived $50,
000 or more, or at least 10 percent of its annual revenue
from entities associated with the financial industry. (Dkt.
13-1, Ex. 18.) On November 8, 2016, the Panel formally closed
the arbitration hearing.
December 21, 2016,  the Panel entered the Award of Arbitrators
(the “Award”). The Award states that the claim
involved a public customer dispute and that a majority-public
panel decided the case. The Award notes that Vega asserted
several causes of action and that Newedge claimed
indemnification. In issuing the Award, the Panel denied
Vega's claims, denied Newedge's counterclaim, and
ordered the parties to bear their own costs and expenses
(other than forum fees) incurred in the matter. (Dkt. 1-1,
timely filed suit in the Circuit Court of Cook County,
Illinois, seeking to vacate the Award pursuant to Section 12
of the Illinois Uniform Arbitration Act (“IUAA”),
710 ILCS 5/12 et seq. Vega alleges that the Award is
invalid because (1) it was procured by fraud, corruption, or
other undue means; (2) of evident partiality exhibited by
Arbitrators Jeffrey W. Fink and Daniel R. Formeller; (3) the
Arbitrators exceeded their powers; (4) the Arbitrators
refused to hear evidence material to the controversy; (5) it
is against the manifest weight of the law; and (6) the
Arbitrators failed to render a decision on one of the claims.
Newedge timely removed the action to this Court and filed an
opposition to Vega's application to vacate the award as
well as a motion to confirm the Award pursuant to Section 9
of the Federal Arbitration Act (“FAA”), 9 U.S.C.
§ 9, and 710 ILCS 5/12(d).
language under both the FAA and the IUAA is essentially the
same. See Gillispie v. Vill. of Franklin Park, 405
F.Supp.2d 905, 909 (N.D. Ill.Dec. 13, 2005). “When a
plaintiff's claim is covered by an arbitration agreement,
the relevant body of law is the [FAA].” Vazquez v.
Central States Joint Bd., 547 F.Supp.2d 833, 865 (N.D.
Ill. 2008). The FAA “governs the enforcement, validity,
and interpretation of arbitration clauses in commercial
contracts in both state and federal courts.” Jain
v. de Méré, 51 F.3d 686, 688 (7th Cir.
1995). “If there is an agreement to arbitrate, and the
issues presented to the arbitrator fell within that
agreement, courts may overturn the arbitrator's award
only on very narrow grounds.” Flexible Mfg. Systems
Pty. Ltd. v. Super Products Corp., 86 F.3d 96, 99 (7th
Cir. 1996). Judicial review of arbitral awards is very
limited. Courts may vacate an arbitral award in only four
(1) where the award was procured by corruption, fraud, or
(2) where there was evident partiality or corruption in the
arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in
refusing to postpone the hearing, upon sufficient cause
shown, or in refusing to hear evidence pertinent and material
to the controversy; or of any other misbehavior by which the
rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and definite
award upon the ...