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Ikon Global Markets, Inc v. Commodity Futures Trading

May 15, 2012

IKON GLOBAL MARKETS, INC., PLAINTIFF,
v.
COMMODITY FUTURES TRADING COMMISSION, DEFENDANT.



The opinion of the court was delivered by: Rudolph Contreras United States District Judge

MEMORANDUM OPINION

After losing an arbitration to one of its customers,IKON Global Markets, Inc. brought this suit. IKON is a futures commission merchant-essentially, a broker of futures contracts-registered with the National Futures Association ("NFA"), which is regulated by the Commodity Futures Trading Commission ("CFTC"). The arbitration was conducted by an NFA panel. IKON alleges that the panel erred, and asks this court to nullify its decision and ensure that no such error is committed again. The CFTC has moved to dismiss the case for lack of subject matter jurisdiction. Although the court has jurisdiction, it will dismiss the complaint sua sponte for failure to state a claim on which relief can be granted.

I. BACKGROUND

The CFTC is "an independent agency vested with broad authority to adopt rules that, in its judgment, are necessary to carry out the purposes of the Commodity Exchange Act" ("CEA"). Belom v. Nat'l Futures Ass'n, 284 F.3d 795, 797 (7th Cir. 2002) (abbreviation expanded). The CEA requires registered futures associations such as the NFA to "provide a fair, equitable, and expeditious procedure through arbitration or otherwise for the settlement of customers' claims and grievances against any member" of the association. 7 U.S.C. § 21(b)(10). The NFA-a statutorily-authorized self-regulatory organization for the futures industry, see Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 365 n.28 (1982)-has accordingly established a code of arbitration and member arbitration rules which, like all NFA rules, are subject to CFTC approval. See 7 U.S.C. § 21(j). The code and rules both provide that there is no right of appeal from the decision of an NFA arbitration panel. National Futures Association, NFA Manual, Code of Arbitration, § 10(d); (2012) ("There shall be no right of appeal of the award."); id., Member Arbitration Rules, § 10(d) (same).*fn1 Parties can request that the panel modify its decision on certain limited grounds, but they are explicitly barred from rearguing the merits of the controversy. Id., Code of Arbitration, § 10(c); id., Member Arbitration Rules, § 10(c) (both allowing the modification of an award that is "imperfect in matter of form not affecting the merits of the controversy"). And the CFTC does not review the decisions of NFA arbitration panels. 17 C.F.R. § 171.1(b)(2). Of course, the losing party can challenge the award under the Federal Arbitration Act, but "judicial review of arbitral awards is extremely limited" and does not encompass "claims of factual or legal error by an arbitrator." Kurke v. Oscar Gruss & Son, Inc., 454 F.3d 350, 354 (D.C. Cir. 2006) (internal quotation marks omitted).

In 2009, two IKON customers brought claims against the company before NFA arbitrators. Compl. ¶ 11. Both claims involved IKON's decision to close out offsetting currency positions in a customer's foreign exchange account.*fn2 The NFA had recently adopted a rule forbidding members from maintaining such positions for their customers.*fn3 IKON prevailed in one arbitration; its customer prevailed in the other. Compl. ¶¶ 11--12. IKON challenged the decision against it in the Western District of Washington but failed to serve timely notice of its motion to vacate, as the Federal Arbitration Act requires. 9 U.S.C. § 12. IKON's motion was therefore dismissed, and the award against it confirmed. Ikon Global Markets, Inc. v. Appert, No. 11-53, slip op. at 9 (W.D. Wash. July 28, 2011).

The day before filing its complaint in that case, IKON brought this suit against the CFTC. IKON alleges here that it has been subject to inconsistent decisions by NFA arbitration panels, and asks the court to nullify the award against the company and order the CFTC to ensure that the NFA does not allow such arbitral inconsistencies in the future.

II. JURISDICTION

This is a court of limited jurisdiction, possessing "only that power authorized by Constitution and statute." Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994). The CFTC has moved under Federal Rule of Civil Procedure 12(b)(1) to dismiss the complaint for lack of jurisdiction. The plaintiff bears the burden of establishing the court's jurisdiction. Shuler v. United States, 531 F.3d 930, 932 (D.C. Cir. 2008); Moms Against Mercury v. FDA, 483 F.3d 824, 828 (D.C. Cir. 2007). In evaluating a motion to dismiss for lack of jurisdiction, the court must take the plaintiff's factual allegations as true, see El-Shifa Pharm. Indus. Co. v. United States, 607 F.3d 836, 839 (D.C. Cir. 2010) (en banc), although cases seeking judicial review of agency action do not generally present issues of fact. See Rempfer v. Sharfstein, 583 F.3d 860, 865 (D.C. Cir. 2009); Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077, 1083 (D.C. Cir. 2001) ("[W]hen a party seeks review of agency action under the APA, the district judge sits as an appellate tribunal. The 'entire case' on review is a question of law."); Marshall Cnty. Health Care Auth. v. Shalala, 988 F.2d 1221, 1226 (D.C. Cir. 1993) (In an APA case, the "complaint, properly read, actually presents no factual allegations, but rather only arguments about the legal conclusion to be drawn about the agency action.").

The CFTC argues that the court lacks subject matter jurisdiction to hear this case because IKON lacks both constitutional and prudential standing and no statute confers jurisdiction. The court will consider each argument in turn.

A. Constitutional Standing

Article III of the Constitution grants the federal judiciary power over "Cases" and "Controversies." This grant is also a limitation: without a case or controversy, the court lacks jurisdiction. This limitation "gives rise to the doctrine[] of standing." Foretich v. United States, 351 F.3d 1198, 1210 (D.C. Cir. 2003). To establish constitutional standing, "a plaintiff must show (1) it has suffered an 'injury in fact' that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision." Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., 528 U.S. 167, 180--81 (2000) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560--61 (1992)).

IKON alleges that it is being deprived of the benefit of CFTC oversight of NFA arbitration decisions. The company argues that the CFTC must ensure that NFA arbitrators apply and enforce the applicable rules and regulations and that, because the CFTC has not done so, IKON is exposed to the risk of inconsistent arbitration decisions and cannot safely enforce the rules and regulations in question. At bottom, IKON is concerned that if it continues to cancel its customers' offsetting positions, as it understands NFA Rule 2-43 and 17 C.F.R. § 1.46 to require it to do, it could lose another arbitration to a customer that objects to the cancellation. Such a hypothetical injury is not sufficient to give IKON standing to prosecute this action. Public Citizen, Inc. v. Nat'l Highway Traffic Safety Admin., 489 F.3d 1279, 1294 (D.C. Cir. 2007) ("Allegations of possible future injury do not satisfy the requirements of Article III.") (quoting Whitmore v. Arkansas, 495 U.S. 149, 158 (1990)) (emphasis and brackets deleted).

But IKON also asks the court to order the CFTC to nullify the arbitration decision against it. Although there may be other problems with that request-for instance, IKON's suit under the Federal Arbitration Act may preclude it from seeking identical relief here-those defects do not deprive the company of standing. The arbitration award against IKON is an actual, concrete, and particularized injury that is fairly traceable to the CFTC's alleged action-failing to oversee NFA arbitrations-and that would be redressed by an order requiring the CFTC to nullify the award. Whether the CFTC in fact has an obligation to oversee NFA ...


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