## Facts

- INTL FCStone Financial Inc. opened futures commission merchant accounts for multiple investors and related trusts between October 2016 and July 2018.
- The accounts were used for exchange-traded futures, commodities, and options trading through FCStone’s futures division, separate from its securities business.
- Most investors signed customer and arbitration agreements requiring disputes “arising out of” the futures accounts to be arbitrated before the National Futures Association (NFA) or the contract market on which the transaction executed.
- In November 2018, investors suffered large losses on natural gas futures during market volatility, leaving some accounts with negative balances allegedly owed to FCStone.
- On December 3, 2018, investors (excluding two non-signatories, the Motleys) filed an arbitration demand at FINRA asserting Commodity Exchange Act-based claims.
- FCStone objected to FINRA and, after an unsuccessful attempt by investors’ counsel to place the matter with the AAA (which declined), FCStone filed an NFA claim in February 2019 to recover negative balances.
- FCStone filed a federal action seeking declaratory relief that FINRA was not the proper forum, an order compelling NFA arbitration, and an injunction against the FINRA arbitration.
- Defendants moved to dismiss and sought sanctions; the Motleys were treated separately because they did not sign an arbitration agreement.

## Issues

1. Whether the parties’ disputes arising from futures accounts must be arbitrated before the NFA (or a futures exchange) as specified in the customer agreements, rather than before FINRA.
2. Whether FINRA Rule 12200 and FCStone’s FINRA membership require FINRA arbitration of disputes involving futures-only transactions notwithstanding the parties’ forum-specific arbitration clauses.
3. Whether the court should (a) compel arbitration in the NFA, (b) enjoin the pending FINRA arbitration, and (c) dismiss the action or impose sanctions.

## Decision

- The court declared that the proper arbitral forum under the parties’ agreements was the NFA (or the relevant contract market), not FINRA.
- The court granted FCStone’s motion to compel arbitration and ordered the signatory defendants to submit their disputes to the NFA by a specified date.
- The court denied without prejudice FCStone’s motion for a preliminary injunction against the FINRA arbitration.
- The court denied defendants’ motion to dismiss and motion for sanctions.
- The court did not compel the Motleys to arbitrate because they had not agreed to arbitration.

## Legal Principles

- Under the Federal Arbitration Act, courts enforce valid arbitration agreements according to their terms, including a contract’s designation of an arbitral forum.
- When a dispute arises from futures trading accounts governed by contracts selecting futures-industry fora (NFA or an exchange), that forum selection controls absent an agreement to arbitrate elsewhere.
- A FINRA member’s general obligation under FINRA Rule 12200 does not require FINRA arbitration of claims outside the member’s securities-related activities when the parties’ contracts specify a different forum for futures-related disputes.
- The identity of the proper arbitral forum is a threshold arbitrability question appropriate for judicial resolution in an action to compel arbitration.
- Sanctions are improper where the requesting party’s legal position and requests for relief are not frivolous or pursued in bad faith.

## Conclusion

The court enforced futures-account arbitration clauses selecting the NFA (or an exchange) and compelled NFA arbitration, holding that FINRA rules and membership did not supply a basis to proceed in FINRA for futures-only disputes, while denying injunctive relief without prejudice and rejecting dismissal and sanctions.


INTL FCStone Fin. Inc. v. Jacobson, No. 19 C 1438, 2019 WL 2356989 (N.D. Ill. June 4, 2019)