Belom, John F. v. Nat'l Futures Assoc ( 2002 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 01-3684
JOHN F. BELOM,
Plaintiff-Appellant,
v.
NATIONAL FUTURES ASSOCIATION and JOY JU,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 01 C 3951--Suzanne B. Conlon, Judge.
Argued February 14, 2002--Decided MARCH 28, 2002
Before FLAUM, Chief Judge, and BAUER and
EVANS, Circuit Judges.
EVANS, Circuit Judge. Belom was company
counsel for LFG (we’ve shortened its
name), a registered Futures Commission
Merchant and a member of the National
Futures Association (NFA), an association
registered with the Commodity Futures
Trading Commission (CFTC). Joy Ju, an LFG
customer, filed an arbitration demand
against LFG and Belom for damages
allegedly resulting from the wrongful
termination of Ju’s ability to place
orders directly with LFG’s personnel at
the Chicago Mercantile Exchange. Ju
sought significant damages (about $7.3
million) against LFG and Belom for what
was claimed to be negligence,
recklessness, conversion, constructive
fraud, and the violation of numerous
federal and state statutes and
regulations. Whether any of these claims
have merit, of course, is not before us.
Belom sought to avoid arbitration,
alleging that he had not consented to
resolve Ju’s dispute in that forum. The
NFA denied his request, determining that
its rules required Belom’s participation
in arbitration as an employee of LFG.
Belom then filed a complaint against the
NFA and Ju in federal court seeking
declaratory and injunctive relief
excluding him from the Ju arbitration
proceeding. The district court dismissed
his complaint under Rule 12(b)(6) for
failure to state a claim for which relief
can be granted, a decision that we review
de novo. Antonelli v. Sheahan, 81 F.3d
1422, 1427 (7th Cir. 1996).
NFA rules allow a customer to initiate
arbitration against any NFA member and
its employees for disputes involving
commodity future contracts. Belom argues
that the NFA rules in this regard violate
the Commodity Exchange Act (CEA).
Congress amended the CEA in 1974 to
establish a comprehensive regulatory
structure. To implement this structure,
Congress created the CFTC as an
independent agency vested with broad
authority to adopt rules that, in its
judgment, are necessary to carry out the
purposes of the CEA. See Geldermann, Inc.
v. Commodity Futures Trading Comm’n, 836
F.2d 310, 312 (7th Cir. 1987). The
CEArequires a registered futures
association to provide for arbitration as
a dispute resolution mechanism for its
customers. The NFA enacted its
arbitration rules to comply with this
requirement. Section 2(a) of the NFA code
of arbitration reads:
Mandatory Arbitration.
(1) Claims. Except as provided in
Sections 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 . . . [.]
Belom argues that this provision
violates the CEA and CFTC regulations
because they require a member’s consent
to arbitrate. This argument is undermined
by the plain language of the CEA. The CEA
provides that an association cannot be
registered as a futures association
unless the CFTC finds that
the rules of the association provide a
fair, equitable, and expeditious
procedure through arbitration orotherwise
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[.]
7 U.S.C. sec. 21(b)(10) (emphasis in
original). This language requires the
consent only of the customer, not of the
futures association member or employee.
The plain language of the CFTC regulation
implementing this statutory provision
also indicates that only the customer’s
consent to arbitrate is necessary:
A futures association must be able to
demonstrate its capability to promulgate
rules and to conduct proceedings that
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.
17 C.F.R. sec. 170.8. Belom argues that
the C.F.R. section’s use of the term
"voluntary settlement" applies to both
the customer and the futures association
member or employee. This interpretation,
however, is undermined by the plain
language of the CEA provision that the
C.F.R. regulation was meant to implement.
As noted, the CEA’s plain language makes
it crystal clear that only the customer’s
consent is required.
Our case law dealing with a parallel
provision of the CEA undermines Belom’s
consent argument. In Geldermann, the
plaintiff argued that 7 U.S.C. sec.
7a(11),/1 which required a registered
contract market to provide for customer-
initiated arbitration, required a
member’s consent to arbitrate. In holding
that the statute did not require a
member’s consent to arbitrate, we relied
on the canon that courts should accord
considerable weight to an executive
department’s construction of a statutory
scheme that it has been entrusted to
administer. See Geldermann, 836 F.2d at
315 (citing Chevron U.S.A. v. Natural
Resources Defense Council, Inc., 467 U.S.
837, 844 (1984)). In Geldermann, the CFTC
construed sec. 7a(11) to require
commodity exchange members to submit to
customer-initiated arbitration. See id.
We also relied on the CEA’s legislative
history, noting that Congress amended the
CEA twice without overturning the CFTC’s
position. See id. at 316. Additionally,
we noted that Congress expressly approved
the CFTC’s position when it amended the
CEA in 1978 and stated that it was not
changing the CFTC’s position that
exchange members must participate in
customer-initiated arbitration
proceedings. See id.
Our analysis in Geldermann is persuasive
here because the CEA provision and CFTC
regulation that were at issue there are
nearly identical to the futures market
provisions at issue here./2 We can
assume that Congress intended the same
terms used in different parts of the same
statute to have the same meaning. See
Taracorp v. NL Indus., Inc., 73 F.3d 738,
744 (7th Cir. 1996).
Belom attempts to distinguish his case
from Geldermann by noting that he, unlike
the Geldermann plaintiff, is a "non-
registered individual" who is not a
member of an exchange or futures
association. We did not distinguish
between registered members and
nonregistered employees in Geldermann.
Additionally, the plain language of the
CEA and the CFTC regulations requires
futures markets and their employees to
participate in arbitration. See 7 U.S.C.
sec. 21(b)(10); 17 C.F.R. sec. 170.8.
Belom also argues that the NFA’s
arbitration provision deprives him of his
right to an Article III forum without his
consent. This, however, is a new
argument, one that was not explicitly
before the district court, and as we have
often observed, arguments not raised in
the district court are waived on appeal.
See Pond v. Michelin North America, Inc.,
183 F.3d 592, 597 (7th Cir. 1999)./3
Even had Belom preserved the issue for
appeal, it would not have helped him
because he waived his Article III rights
through his voluntary employment with an
NFA member. Article III of the United
States Constitution safeguards a party’s
right to have claims decided by a judge
who cannot be controlled by other
branches of government. See Commodity
Futures Trading Comm’n v. Schor, 478 U.S.
833, 848 (1986). The right to an Article
III forum is not absolute and may be
waived. See id. Where an individual
consents to arbitration, he waives the
right to an impartial and independent
adjudication. See Geldermann, 836 F.2d at
316.
Here, LFG’s application for membership
in the NFA included "an express agreement
by the Applicant that, if admitted to NFA
membership, the Applicant shall become
and remain bound by all NFA requirements
as then and thereafter in effect." See
NFA Form 7R at para. 8. One of NFA’s
requirements was sec. 2(a) of its code of
arbitration, which explicitly requires
that customer disputes involving
commodity futures contracts against
members and their employees be
arbitrated. Under ordinary principles of
contract and agency, Belom agreed to be
bound by this code provision when he
accepted employment with LFG. See
Pritzker v. Merrill Lynch, Pierce, Fenner
& Smith, Inc., 7 F.3d 1110, 1121-22 (3d
Cir. 1993) (holding that arbitration
agreement of employer bound employee even
though employee did not sign agreement);
Lee v. Chica, 983 F.2d 883, 886-87 (8th
Cir. 1993) (holding same); Arnold v.
Arnold Corp., 920 F.2d 1269, 1281-82 (6th
Cir. 1990) (holding same); Letizia v.
Prudential Bache Sec., Inc., 802 F.2d
1185, 1187-88 (9th Cir. 1986) (holding
same). This rule is an outgrowth of the
strong federal policy favoring
arbitration. See Letizia, 802 F.2d at
1188. Therefore, even if we were to reach
the issue, we would have little trouble
concluding that Belom waived his right to
an Article III forum by accepting
employment with LFG.
The district court’s decision dismissing
Belom’s complaint for failure to state a
claim is AFFIRMED.
FOOTNOTES
/1 7 U.S.C. sec. 7a(11) was later repealed by Pub.
L. 106-554, sec. 1(a)(5) [Title I, sec. 110(2)],
Dec. 21, 2000.
/2 Section 7a(11) required a contract market to
[p]rovide a fair and equitable procedure through
arbitration or otherwise for the settlement of
customers’ claims and grievances against any
member or employee thereof: Provided, that (i)
the use of such procedure by a customer shall be
voluntary . . . [.]
See Geldermann, 836 F.2d at 312. The CFTC regula-
tion implementing 7 U.S.C. sec. 7a(11) required
every contract market to "adopt rules which
provide for a fair and equitable procedure
through arbitration or otherwise for the settle-
ment of customer’s claims and grievances against
any member." See id. at 312-23 (quoting 17 C.F.R.
sec. 180.2 (1976)).
/3 Belom attempts to overcome his waiver by citing
Amcast Indus. Corp. v. Detrex Corp., 2 F.3d 746
(7th Cir. 1993), in which we exercised our power
of lenity to allow the appellee to raise on
appeal a pure question of statutory interpreta-
tion not raised before the district court. See
id. at 749-50. We held in Amcast only that we had
the power, not the obligation, to exercise such
lenity under certain circumstances. Here, Belom
has not presented us with a reason to overlook
his waiver, and we decline to do so.