HTG Capital Partners, LLC v. Doe(s)

Filing 62

MEMORANDUM Opinion and Order signed by the Honorable Edmond E. Chang. For the reasons stated in the Opinion, Defendants' joint motion to compel arbitration 47 is granted; the defense motion to proceed anonymously 50 is granted as to this fe deral action and denied without prejudice as to the arbitration; Plaintiff HTG's earlier motion to compel CME Group to comply with its subpoena 12 is denied; Doe 1s earlier motion 19 is granted in part as to the motion to quash subpoena on C ME Group and the defense motion to proceed anonymously is granted for this federal action and denied without prejudice for the arbitration. This action is dismissed without prejudice to a new complaint, if any, after the arbitration decision. A separate AO-450 judgment will be entered. Status hearing of 03/09/2016 is vacated. Civil case terminated. Emailed notice(slb, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
HTG CAPITAL PARTNERS, LLC,
Plaintiff,
v.
JOHN DOE 1, A, B, and C,
Defendants.

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No. 15 C 02129

Judge Edmond E. Chang

MEMORANDUM OPINION AND ORDER
Plaintiff HTG Capital Partners, LLC brings this suit against four John Does,
alleging that they manipulated futures markets on the Chicago Board of Trade
(CBOT or “the Exchange”), in violation of the Commodity Exchange Act (CEA).1 All
four Does—1, A, B, and C—now move to compel arbitration, arguing that because
all parties are CBOT members, the Exchange’s rules require them to arbitrate.
Defendants also move to maintain their anonymity in this litigation, on the basis
that CBOT Rules espouse a heightened concern with the confidentiality of trading
information. For the reasons explained below, Defendants’ motion to compel
arbitration is granted and the motion to proceed anonymously is granted as to this
federal case but denied without prejudice as to the arbitration (the arbitrator must
decide anonymity for the arbitration proceeding). Because HTG’s claims must be

1The

Court has subject matter jurisdiction under 28 U.S.C. § 1331 and the
Commodity Exchange Act, 7 U.S.C. § 1, et seq.

arbitrated, the Court dismisses this action without prejudice, and HTG may file a
new complaint if it later seeks to enforce or challenge the arbitration decision.
I. Background
The only facts set out here are those needed to decide the pending motions;
for a fuller recitation of HTG’s allegations, see the earlier Order in this case, R. 30,
9/22/15 Order at 1-4,2 HTG Capital Partners, LLC v. Doe(s), 2015 WL 5611333 (N.D.
Ill. Sept. 22, 2015). HTG alleges that Defendants violated the CEA by entering
orders (sometimes buy, sometimes sell) that they did not intend to fulfill, canceling
these orders, and then placing real orders on the opposite side of the market. See
generally R. 1, Compl. According to HTG, this three-step practice, which is called
“spoofing,” created artificial price movements that gave Defendants a competitive
advantage and harmed HTG’s economic position. Id. Analyzing publicly available
data for trading patterns, HTG identified thousands of its own trades in which it
believed it was the counterparty to a spoofed transaction. Compl. Exh. A, 2013
Spoofing Transactions; Compl. Exh. B, 2014 Spoofing Transactions.
HTG sued the spoofers but could only name them as unknown John Does,
because trading on the CBOT is anonymous; only CBOT and its parent company,
Chicago Mercantile Exchange Group (CME Group), knew the traders’ identities.
Compl. ¶ 4. So HTG issued a non-party subpoena to CME Group to identify HTG’s
counterparties to the trades listed in its Complaint and moved to compel compliance
with the subpoena. R. 12, Pl.’s Mot. to Compel. One of the Defendants, Doe 1,

2Citations

to the record are noted as “R.” followed by the docket number and the
page or paragraph number.

2

stepped forward as the counterparty to some of HTG’s trades, but he remained
anonymous.3 R. 19, Doe 1’s Mot. to Quash. Doe 1 (joined by CME Group) then
moved to quash HTG’s subpoena on the grounds that the dispute was subject to
mandatory arbitration, so the subpoena was improper. Id. Doe 1 also moved to
proceed anonymously. Id.
But more information was needed to definitively decide the motions. The
Court explained that although CBOT Rules did indeed mandate arbitration of
disputes between Exchange members, there was no record evidence that Doe 1, or
any other Doe, was a CBOT member at the relevant times. 9/22/15 Order at 14. And
the Court could not outright order arbitration because there was no motion to do so
yet. Id. (Remember, Doe 1 had only moved to quash HTG’s subpoena, relying on
mandatory arbitration as the grounds for the motion.) To resolve the motions, the
Court ordered CME Group to file a sealed and ex parte declaration with the
identities of all the Doe Defendants, their membership statuses, and how they were
identified. Id. at 2, 14; R. 31, 9/29/15 Minute Entry. If the information revealed that
the Does were CBOT members, then they could later file motions to compel
arbitration. 9/22/15 Order at 14. The Court explained that these anticipated
motions would likely be granted “absent any surprises.” Id. at 3. On the request to
proceed anonymously, the Court ordered additional briefing, asking the parties to
identify specific CBOT Rules (or the lack thereof) that required confidentiality
protections in arbitration. Id. at 23.

3For

convenience’s sake, this opinion uses the pronoun “he” for each Doe Defendant.

3

In response to the Order, CME Group filed, under seal and ex parte, the
requested information on membership. R. 32, CME Group Decls. (Sealed). The
declarations by Robert Krewer (CME Group’s Director of Memberships) and
Michael Pozzi (CME Group’s Senior Director of Software Engineering) revealed that
there were four John Does,4 all of whom were CBOT members at the time of the
relevant trades and at the time of the declarations’ filing. Id.; R. 34, 11/03/15
Minute Entry. Aside from Doe 1, the three additional Does were designated Does A,
B, and C. The identities of the four Does remain known only to CME Group and the
Court, but the Court instructed CME Group to disclose redacted versions of the
Krewer and Pozzi declarations to HTG and Doe 1’s counsel (for attorneys’ eyes
only), and to post a redacted version of the Krewer declaration on the docket. Id.; R.
36, Krewer Decl. (Redacted).
The four Doe Defendants now collectively move to compel arbitration,
arguing that because they are, and were at all relevant times, CBOT members,
arbitration is mandatory under CBOT Rules. R. 47, Defs.’ Mot. to Compel Br. They
also move to remain anonymous. R. 50, Defs.’ Anonymity Br. For the reasons
explained below, the motion to compel arbitration is granted and the action is
dismissed without prejudice; HTG may re-file if it later seeks to confirm or
challenge the arbitration decision. Because this case must be dismissed,
Defendants’ motion to proceed anonymously is denied without prejudice, and the

4The

parties agreed that CME Group would only disclose entities that were
counterparties to at least 1% of the transactions in HTG’s complaint. R. 32-3 (Sealed),
10/30/15 Letter from CME Group.

4

arbitrator will decide on her own whether to reveal the Doe Defendants’ identities
to HTG during the arbitration. In light of these decisions, the three earlier motions
are resolved as follows: (1) HTG’s motion to compel CME Group to comply with the
subpoena seeking the identities of the John Does, R. 12, is denied; (2) Doe 1’s
motion (joined by CME Group) to quash the subpoena is granted in part, R. 19; and
(3) Doe 1’s motion to proceed anonymously is granted as to this federal action and
denied without prejudice for the arbitration, R. 19.
II. Legal Standard
The Federal Arbitration Act, which applies to “[a] written provision …
evidencing a transaction involving commerce,” 9 U.S.C. § 2, governs this dispute.
Under the FAA, an arbitration agreement “arising out of such contract or
transaction … shall be valid, irrevocable, and enforceable, save upon such grounds
as exist at law or in equity for the revocation of any contract.” Id. “Although it is
often said that there is a federal policy in favor of arbitration, federal law places
arbitration clauses on equal footing with other contracts, not above them.” Janiga v.
Questar Capital Corp., 615 F.3d 735, 740 (7th Cir. 2010) (citing Rent-A-Center,
West, Inc. v. Jackson, 561 U.S. 63, 68 (2010)). That is, the FAA was intended to
respect parties’ agreements to arbitrate and “put arbitration on a par with other
contracts and eliminate any vestige of old rules disfavoring arbitration.” Stone v.
Doerge, 328 F.3d 343, 345 (7th Cir. 2003).
If the parties have a valid arbitration agreement and the asserted claims in a
lawsuit are within its scope, then the arbitration requirement must be enforced. 9
U.S.C. §§ 3-4; Sharif v. Wellness Int’l Network, Ltd., 376 F.3d 720, 726 (7th Cir.
5

2004) (citing Kiefer Specialty Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907, 909 (7th
Cir. 1999)). Whether a binding arbitration agreement exists is determined under
principles of state contract law. Janiga, 615 F.3d at 742 (citing First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 934 (1995)). And “the party seeking to
invalidate or oppose the arbitration agreement bears the burden of demonstrating
that the arbitration agreement is unenforceable and that the claims are unsuitable
for arbitration.” Paragon Micro, Inc. v. Bundy, 22 F. Supp. 3d 880, 887 (N.D. Ill.
2014) (citing Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91-92 (2000)).
The FAA also “establishes that, as a matter of federal law, any doubts concerning
the scope of arbitrable issues should be resolved in favor of arbitration.” Moses H.
Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).
III. Analysis
A. Validity and Scope of Arbitration Agreement
The Court previously determined that arbitration of this dispute would be
required if Defendants were CBOT members at all relevant times, 9/22/15 Order at
9-18, but a recap is helpful. HTG is bound by a valid arbitration agreement with all
other CBOT members. The agreement arises from the CBOT Rules.5 Upon
becoming a member, each member “shall be required to sign a written agreement to
observe and be bound by the Certificate of Incorporation, these Bylaws and the
Rules.” Doe 1’s Mot. to Quash at 13 (citing CBOT Bylaws, Art. I § 2); R. 49-4, CBOT
5In

prior briefing, Doe 1 directed the Court to the CBOT online rulebook, available at
http://www.cmegroup.com/rulebook/CBOT/. Doe 1’s Mot. to Quash at 2, n.2. Defendants also
attached excerpts of the CBOT rulebook as an exhibit to their recent briefing. R. 49-3,
CBOT Rulebook Excerpts. For simplicity, the Court cites directly to the relevant CBOT
Rule rather than to the exhibit or docket number.

6

Bylaws Excerpts. The members must follow CBOT Rules, including the arbitration
requirements in Chapter 6. In particular, “disputes between and among members …
shall be subject to mandatory arbitration in accordance with the rules of this
Chapter.” CBOT Rule 600.A. The Rules drive home the point by warning that “[a]
Member who commences a legal action against … another Member of the Exchange
without first resorting to and exhausting … the mandatory arbitration provisions of
Chapter 6 … shall be deemed to have committed an act detrimental to the interest
or welfare of the Exchange.” CBOT Rule 440.
In other cases involving stock-exchange rules, federal courts recognize “[t]hat
exchange rules create an enforceable arbitration contract … .” Lehman Bros. Inc. v.
Certified Reporting Co., 939 F. Supp. 1333, 1336 (N.D. Ill. 1996) (citing Second
Circuit and Seventh Circuit cases). In Geldermann v. CFTC, the Seventh Circuit
held that because the plaintiff was a CBOT member, the plaintiff had consented to
be bound by CBOT arbitration rules and waived the right to an Article III forum.
Geldermann, Inc. v. CFTC, 836 F.2d 310, 318 (7th Cir. 1987); see also Zechman v.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 742 F. Supp. 1359, 1362 (N.D. Ill. 1990)
(“As members of the Chicago Board of Trade, Zechman and Merrill Lynch are bound
by CBOT Rule 600.00,” the relevant arbitration provision at the time). Just so here:
HTG and the Doe Defendants are CBOT members bound by the Exchange Rules, so
they entered into a valid and enforceable arbitration agreement.
As to the scope of the arbitration agreement, CBOT’s arbitration rules cover
the dispute between HTG and the Doe Defendants. Disputes between members

7

“that are based upon facts and circumstances that occurred at a time when the
parties were members shall be subject to mandatory arbitration … .” CBOT Rule
600.A. So the “when” is satisfied here, because HTG and the Doe Defendants were
members at the time of the facts giving rise to the dispute. The nature of the claim
is also covered, because mandatory arbitration applies to “claims … that relate to or
arise out of any transaction on or subject to the rules of the Exchange.” Id. The
scope of this provision is broad, and indeed HTG does not dispute that the alleged
spoofing involved “transaction[s] on … the Exchange,” which is all that is needed to
bring the claim within the scope of the arbitration agreement.6
To wrap up, CBOT Rule 600.A applies to HTG and each Doe Defendant
because their disputes arise from transactions on the Exchange. Therefore,
Defendants’ motion to compel arbitration, R. 47, is granted. That result dictates the
denial of HTG’s earlier motion to compel disclosure of Defendants’ identities, R. 12,
because “it would be burdensome to mandate discovery for a claim that cannot be
litigated in court.” 9/22/15 Order at 9. For the same reasons, Doe 1’s earlier motion
to quash the subpoena on CME Group, R. 19, is granted to prevent disclosure of the

6Not

only does the transaction-based nature of HTG’s claims make it plain that the
arbitration agreement applies, but even the specific claim asserted by HTG—spoofing—is
the subject of a CBOT Rule. Spoofing is barred by CBOT Rule 575, which says that “[n]o
person shall enter or cause to be entered an order with the intent, at the time of order
entry, to cancel the order before execution or to modify the order to avoid execution.” CBOT
Rule 575.A. CME Group’s Market Regulation Advisory Notice also clarifies that “Rule 575
prohibits the type of activity identified by the Commission as ‘spoofing,’ including
submitting or canceling multiple bids or offers to create a misleading appearance of market
depth and submitting or cancelling bids or offers with intent to create artificial price
movements upwards or downwards.” R. 25-5, Advisory Notice RA1405-5R at 2.

8

Doe Defendants’ identities. (The Court will later address the issue of anonymity,
which is the other relief sought by Doe 1’s earlier motion.)
B. Waiver
HTG does not seriously dispute that CBOT Rules require arbitration of its
claims. Instead, HTG argues that (1) all Defendants waived their right to
arbitration by their conduct in this litigation; and that (2) HTG needs to know
Defendants’ identities in order to make additional Defendant-specific arguments as
to waiver. R. 57, Pl.’s Resp. to Mot. to Compel at 4-6. Neither argument is
persuasive.
1. Threshold Issue
There is a threshold question that must be answered first: should this Court
decide whether there has been waiver, or should the arbitrator? Defendants believe
that Seventh Circuit precedent requires all waiver issues to be resolved in
arbitration. R. 58, Defs.’ Mot. to Compel Reply at 4. In response, HTG argues that
the Court, rather than the arbitrator, must decide waiver. Pl.’s Resp. to Mot. to
Compel at 2-4. The Court holds that it is for the federal courts to determine whether
a party has waived arbitration by litigation conduct.
In support of their position, Defendants rely primarily on this Supreme Court
statement in Howsam v. Dean Witter Reynolds, Inc.: “[T]he arbitrator should decide
‘allegation[s] of waiver, delay, or a like defense to arbitrability.’” 537 U.S. 79, 84
(2002) (quoting Moses H. Cone, 460 U.S. at 24-25). Howsam involved a plaintiff who
attempted to arbitrate a dispute under the rules of the National Association of

9

Securities Dealers (NASD), which allowed arbitration of disputes within a six-year
limitations period. Id. at 81. Because the plaintiff’s dispute was over six-years old,
the defendant asked the district court to decide this “question of arbitrability” and
declare that the dispute was ineligible for arbitration. Id. at 82. But the Supreme
Court thought that labeling a limitations-period defense as a “question of
arbitrability” was too expansive: “one might call any potentially dispositive gateway
question a ‘question of arbitrability.’” Id. at 83. Rather, true questions of
arbitrability were limited to the “narrow circumstance where contracting parties
would likely have expected a court to have decided the gateway matter … and,
consequently, where reference of the gateway dispute to the court avoids the risk of
forcing parties to arbitrate a matter that they may well not have agreed to
arbitrate.” Id. at 83-84. Examples of these true gateway questions, which the
Supreme Court categorized as substantive arbitrability issues, included disputes
about whether an arbitration contract (1) bound parties who did not sign the
agreement; (2) survived a corporate merger and bound the resulting corporation; or
(3) applied to a particular type of controversy. Id. at 84 (citing cases). In contrast,
procedural arbitrability questions such as whether “time limits, notice, laches,
estoppel, and other conditions precedent to an obligation to arbitrate have been met,
are for the arbitrators to decide.” Id. at 85 (quoting Revised Uniform Arbitration Act
§ 6, cmt. 2) (internal quotation marks omitted). An example of a procedural question
in the arbitrators’ domain is whether a party properly complied with a grievance
procedure that is a prerequisite to arbitration. Id. at 84. Applying this framework,

10

the Supreme Court held that the dispute about the NASD six-year time limit was
for the arbitrator to decide, because it “seems an ‘aspec[t] of the [controversy] which
called the grievance procedures into play.’” Id. at 85 (citation omitted).
It is in this specific context—giving examples of substantive versus
procedural arbitrability questions—that the Supreme Court made the general
statement that the Doe Defendants rely on: “waiver, delay, or a like defense to
arbitrability” are examples of procedural questions for the arbitrator to decide.
Howsam, 537 U.S. at 84. The context of the statement makes clear that the
Supreme Court’s reference to “waiver” did not address the specific situation of
whether a party’s conduct during litigation could amount to waiver of arbitration;
Howsam involved a limitations-period defense, not waiver by litigation conduct. Not
surprisingly, then, district courts in this Circuit have held that Howsam’s reference
to waiver, when read in context, does not apply to waiver by litigation conduct. See,
e.g., Cerna v. Prestress Servs. Indus. LLC, 2011 WL 1884547, at *4 (N.D. Ind. May
18, 2011); Banc of Am. Sec. LLC v. Indep. Tube Corp., 2010 WL 1780321, at *5 (N.D.
Ill. May 4, 2010). As one district court put it, Howsam “was referring only to …
defenses arising from non-compliance with contractual conditions precedent to
arbitration, such as the NASD time limit rule … and not to claims of waiver based
on active litigation in court.” Banc of Am., 2010 WL 1780321, at *5 (quoting Ehleiter
v. Grapetree Shores, Inc., 482 F.3d 207, 219 (3d Cir. 2007)) (internal quotation
marks omitted). What’s more, Howsam relied on the NASD’s comparative expertise
in interpreting its own rule, 537 U.S. at 80, but that does not apply to waiver by

11

litigation conduct. Banc of Am., 2010 WL 1780321, at *6. In fact, it makes more
sense for courts to decide this particular category of waiver, because the answer
“typically turn[s] on whether a [party] abused the litigation or pre-litigation process,
and a court is most adept at policing procedure-abusing conduct.” Id. (quoting JPD,
Inc. v. Chronimed Holdings, Inc., 539 F.3d 388, 394 (6th Cir. 2008)) (internal
quotation marks omitted). These are sound reasons for assigning the waiver-bylitigation-conduct question to courts, rather than to arbitrators.
There is no Seventh Circuit authority to the contrary. Indeed, even though no
Seventh Circuit case has explicitly decided who should decide this type of waiver
question, in several instances the Seventh Circuit has reviewed a district-court
decision deciding the waiver issue and has not noted any problem with the district
court being the decision-maker. See, e.g., Kawasaki Heavy Indus., Ltd. v.
Bombardier Recreational Products, Inc., 660 F.3d 988, 996 (7th Cir. 2011) (making a
judicial determination of whether a party waived its right to arbitration); Halim v.
Great Gatsby’s Auction Gallery, Inc., 516 F.3d 557, 562 (7th Cir. 2008) (same);
Sharif, 376 F.3d at 726 (same). Although Defendants point to a case called
Lumbermens, in that case the Seventh Circuit merely recited Howsam’s waiver
language in passing, and the case did not involve waiver by litigation conduct.
Lumbermens Mut. Cas. Co. v. Broadspire Mgmt. Servs., Inc., 623 F.3d 476 (7th Cir.
2010). Lumbermens instead addressed whether the plaintiff had satisfied a notice
requirement. Id. at 481. The Seventh Circuit explained that “determining whether a
Disagreement Notice contains sufficient detail” was a question for an arbitrator,

12

who “will be examining the same documents and assessing the same issues relevant
to the actual substantive resolution of the parties’ price dispute. It would be strange
to divide these largely overlapping tasks between the court and the arbitrator.” Id.
(citation omitted). So the Seventh Circuit held that the notice’s sufficiency was a
procedural issue, and not a substantive question on whether the parties actually
agreed to arbitrate. Id. Lumbermens thus did not answer, and did not have to
answer, the question of who should decide waiver by litigation conduct. Id.7 So this
Court is free to conclude, as discussed above, that federal courts should decide that
issue, not arbitrators.8
2. Defendants’ Litigation Conduct
Having determined that it is the Court’s duty to decide HTG’s waiver
argument, it is time to turn to that question. A waiver of the right to arbitrate can
be express or implied. Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50
F.3d 388, 390 (7th Cir. 1995). There is no contention that Defendants have expressly
waived their right to arbitrate in this case, so the only possibility is an implicit
waiver. The Court must consider the totality of Defendants’ behavior, such as
“whether the allegedly defaulting party participated in litigation, substantially
7Other

circuits are split. See Martinez v. Utilimap Corp., 2015 WL 3932151, at *8
(S.D. Ill. June 25, 2015) (courts decide waiver in the First and Fifth Circuits, while the
arbitrator decides in the Eighth Circuit).
8Defendants

also argue that the arbitrator must decide waiver because CBOT Rule
606 “clearly and unmistakably” requires all arbitrability questions to be decided by the
arbitrator. Defs.’ Mot. to Compel Br. at 13; R. 58, Defs.’ Mot. to Compel Reply at 3. But Rule
606 does not say that. Using permissive (not mandatory) language, it states: “Any party
may file a challenge to the arbitrability of a dispute submitted for arbitration at the
Exchange.” CBOT Rule 606 (emphasis added). The Rule says nothing explicit about waiver
by litigation conduct.

13

delayed its request for arbitration, or participated in discovery.” Kawasaki, 660 F.3d
at 994. Those are signs of implicit waiver because traveling down the litigation
track shows that the party is “electi[ng] to proceed before a nonarbitral tribunal.”
Cabinetree, 50 F.3d at 390 (defendant waived arbitration by moving to compel after
the parties conducted six months of pretrial proceedings, exchanged thousands of
pages in discovery, and set a trial date). The ultimate question is whether “the
alleged defaulting party has acted inconsistently with the right to arbitrate.” St.
Mary’s Med. Ctr. of Evansville, Inc. v. Disco Aluminum Products Co., 969 F.2d 585,
588 (7th Cir. 1992) (citations omitted) (there was waiver when defendant raised
arbitration only after losing a motion to dismiss and after ten months of litigation
had passed).
In this case, Defendants have not done anything that implies a waiver. They
did not delay invoking the arbitration agreement. They did not actively litigate the
case in federal court, and there has been no discovery on the merits at all. To the
contrary, Defendants challenged the propriety of this forum from the outset. After
HTG filed its complaint, Doe 1 immediately moved to quash HTG’s subpoena on
CME Group on the basis that the dispute must be arbitrated. Doe 1’s Mot. to
Quash. Then, after this Court ordered CME Group to confirm that all parties were
CBOT members, the Doe Defendants jointly moved to compel arbitration. Defs.’
Mot. to Compel Br. And Defendants have consistently resisted all discovery efforts
in this case. Doe 1’s Mot. to Quash at 14 (“Because HTG is contractually obligated
to follow the CBOT Rules, and because those Rules do not permit CBOT members

14

like HTG to pursue litigation …, HTG’s efforts to obtain discovery in aid of litigation
must be rejected.”); Defs.’ Mot. to Compel Br. at 14-15 (“Thus, the Court should
refrain from engaging in any further proceedings on HTG’s pending motion to
compel discovery and instead leave those issues for arbitration where the parties
contractually agreed they should be resolved.”). This is the legal equivalent of
Defendants yelling at the top of their lungs that they want to arbitrate, not litigate
in federal court.
HTG, however, makes a nuanced waiver argument: that Defendants have
waived arbitration by arguing that this dispute is subject to the exclusive
jurisdiction of CBOT enforcement proceedings, rather than arbitration. Pl.’s Resp.
to Mot. to Compel at 4. To provide some context for this position: Doe Defendant 1
previously argued (in his motion to quash) that HTG’s spoofing claims may only be
resolved in a CBOT enforcement proceeding, and not through arbitration. Doe 1’s
Mot. to Quash at 14. But this Court rejected the argument because CBOT Rules do
not say that the two procedures—enforcement by the Exchange and arbitration by
its members—are mutually exclusive. 9/22/15 Order at 12-13. HTG argues,
however, that the defense has not let go of this argument, and that equates to
waiver. Specifically, HTG points to a footnote in Defendants’ recent briefing, which
says: “The Doe Defendants recognize that this Court previously found that HTG’s
spoofing claims may be subject to private arbitration, and not solely to CBOT
enforcement procedures … . The Doe Defendants expressly reserve their rights with
respect to that determination, as well as all other arguments and defenses against

15

HTG’s allegations.” Defs.’ Mot. to Compel Br. at 9 n.4. According to HTG, the
footnote is telling, because it proves that Defendants are “seeking to compel this
action to CBOT arbitration, while also maintaining that the matter is not
arbitrable.” Pl.’s Resp. to Mot. to Compel at 4-5. To HTG’s way of thinking,
Defendants are trying to “have it both ways” and thus have waived arbitration. Pl.’s
Resp. to Mot. to Compel at 4-5.
These arguments are unconvincing. In the footnote, the defense laid down a
marker to preserve a defense that they intend to present in arbitration, namely, the
argument that a spoofing claim can only be addressed by the CBOT, and not an
arbitrator. Sure, the Court already rejected that argument, but there is nothing
stopping the defense from re-raising that threshold argument in the forum that
should decide it: arbitration. Saying that a CBOT enforcement action is the
exclusive way to address spoofing is not the same as waiving the arbitration
agreement; the enforcement-action argument is actually consistent with staying out
of federal court.9
Finally, HTG “believes that it may have another defendant-specific waiver
argument” but “will not know whether its waiver argument is relevant to this case
until the Court provides it with the identities of the Doe Defendants.” Pl.’s Mot. to
Compel Resp. at 5. Put another way, HTG wants to know the identities first, and
only then, HTG says, can it determine if there is some other waiver argument to

9Indeed,

the earlier Order in this case invited the defense to preserve other
arguments: “Doe 1 shall file a motion to compel arbitration, and may note that it is
preserving any other arguments it might have for challenging the complaint.” 9/22/15 Order
at 14-15.

16

assert. Id. But remember that the only waiver argument that this Court is assigned
to decide is waiver by litigation conduct, not other forms of waiver; other forms are
reserved for the arbitrator to decide. So HTG is already in a position to assert the
only pertinent waiver argument—waiver by litigation conduct. Defendants’
identities are irrelevant to any defendant-specific waiver argument.
C. “Linking” the Doe Defendants
HTG has a final request: even if arbitration is compelled, the CBOT should
still disclose information that would “link each Doe Defendant with HTG’s orders”
as set forth in the Complaint. Pl.’s Resp. to Mot. to Compel at 6. HTG identified
around 14,000 allegedly spoofed transactions in charts attached to its Complaint.
Compl. Exhs. A-B. Complying with HTG’s request would mean identifying which
Doe Defendant made each of those transactions. According to HTG, the purpose of
this “linking” is “so that HTG can file whatever arbitration claim or claims it deems
appropriate. HTG may elect to pursue the Doe Defendants in separate arbitrations,
or may elect to pursue less than all of the Doe Defendants in arbitration.” Pl.’s Resp.
to Mot. to Compel. at 6.
This request is denied. When a court compels arbitration, it means that the
action should not have been in this forum in the first place, which in turn means
that the court should not be meddling with procedural requests that should be made
in the arbitration. Arbitration, and not this Court, is the proper forum to request
this information and for HTG to narrow its claims (if it wants to). To grant HTG’s
request would mean that every CBOT member could circumvent the Exchange’s

17

arbitration rules and the anonymity of transactions by first filing a federal-court
action to gather information through discovery tools.
D. Dismissal Without Prejudice Versus a Stay
Because HTG’s claims must be assessed in arbitration, the question arises
whether the Court should dismiss the action or instead stay it pending the
arbitration. Defendants argue for dismissal under Federal Rule of Civil Procedure
12(b)(3) for improper venue, Defs.’ Mot. to Compel Br. at 7-9, but HTG contends
that a stay is the right step. Pl.’s Resp. to Mot. to Compel. As explained next,
dismissal is appropriate, but under the Federal Arbitration Act, not Rule 12(b)(3).
The FAA states that when arbitration is required, the district court “shall …
stay the trial of the action until such arbitration has been had in accordance with
the terms of the agreement.” 9 U.S.C. § 3. The Seventh Circuit has interpreted this
provision to mean that “the proper course of action when a party seeks to invoke an
arbitration clause is to stay the proceedings rather than to dismiss outright.”
Halim, 516 F.3d at 561 (citation and internal quotation marks omitted); see also
Cont’l Cas. Co. v. Am. Nat. Ins. Co., 417 F.3d 727, 732 n.7 (7th Cir. 2005) (“We have
noted that the proper course of action when a party seeks to invoke an arbitration
clause is to stay the proceedings pending arbitration rather than to dismiss
outright.”); Kroll v. Doctor’s Associates, Inc., 3 F.3d 1167, 1172 (7th Cir. 1993) (in
granting a motion to compel arbitration, “the proper disposition is a stay rather
than a dismissal”). But that interpretation seems premised on the notion that there

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is an anticipated “trial of the action,” 9 U.S.C. § 3—or at least some remaining
“action”—that is possible after the arbitration.
Some other Circuits have held “that there is a judicially-created exception to
the general rule which indicates district courts may, in their discretion, dismiss an
action rather than stay it where it is clear the entire controversy between the
parties will be resolved by arbitration.” Dental USA, Inc. v. Beak & Bumper, LLC,
2013 WL 3755415, at *2 (N.D. Ill. July 16, 2013) (citing First, Fourth, Fifth, Sixth,
and Eighth Circuit cases) (internal quotation marks omitted). And district courts
within this Circuit have done the same, adding that “the Seventh Circuit has
repeatedly affirmed district courts’ decisions to dismiss suits where all claims are
arbitrable.” Chambers v. Aviva Life & Annuity Co., 2013 WL 1345455, at *5 (N.D.
Ill. Mar. 26, 2013) (citing Baumann v. Finish Line, Inc., 421 F. App’x 632, 636 (7th
Cir. 2011); Am. Int’l Specialty Lines Ins. Co. v. Elec. Data Sys. Corp., 347 F.3d 665,
668 (7th Cir. 2003); McCaskill v. SCI Mgmt. Corp., 298 F.3d 677, 679 (7th Cir.
2002)). Dismissing rather than staying is sensible because there is “nothing for the
court to decide unless and until a party seeks confirmation of or challenges the
arbitrators’ award.” Bryant v. Fulgham, 2012 WL 1802150, at *3 (N.D. Ill. May 17,
2012). In light of the “growing trend … favoring dismissal of a case when all of the
claims are subject to arbitration,” Felland v. Clifton, 2013 WL 3778967, at *11
(W.D. Wis. July 18, 2013), this Court concludes that dismissal of this action is
appropriate because all of HTG’s claims are arbitrable under CBOT Rule 600.A. See
supra Section III.A. Of course, the dismissal is without prejudice to HTG filing a

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challenge to the arbitration decision, but that complaint would look entirely
different from the current Complaint, because the allegations would have to target
the arbitration award.
It is worth noting that this dismissal is under the FAA and not Rule 12(b)(3).
See Defs.’ Mot. to Compel Br. at 7-9 (arguing that Rule 12(b)(3) is the proper vehicle
to dismiss). Rule 12(b)(3), which permits dismissals for improper venue, is reserved
for situations when a federal court is asked to compel arbitration outside of its
district. Interpreting Section 4 of the FAA, which provides that arbitration “shall be
within the district in which the petition for an order directing such arbitration is
filed,” 9 U.S.C. § 4, the Seventh Circuit has concluded that “where the arbitration
agreement contains a forum selection clause, only the district court in that forum
can issue a § 4 order compelling arbitration.” Merrill Lynch, Pierce, Fenner &
Smith, Inc. v. Lauer, 49 F.3d 323, 327 (7th Cir. 1995) (emphasis in original). So
when a court is presented with a motion to compel arbitration that would have to be
held in a different district, the correct relief is to dismiss the complaint for improper
venue under Rule 12(b)(3). See, e.g., Faulkenberg v. CB Tax Franchise Sys., LP, 637
F.3d 801, 808 (7th Cir. 2011) (“[U]nder § 4 of the FAA, a district court cannot
compel arbitration outside the confines of its district.”); Cont’l Cas., 417 F.3d at 733
(dismissal under Rule 12(b)(3) is proper when “the forum selection clauses …
require[s] arbitration in other districts”); Ferenc v. Brenner, 927 F. Supp. 2d 537,
542 (N.D. Ill. 2013) (converting the motion to compel into a motion to dismiss for
improper venue because the contract mandated arbitration in California). In this

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case, however, HTG asserts that any arbitration would take place in this judicial
district, Pl.’s Resp. to Mot. to Compel at 6, which is where the CBOT is located.
Defendants offer no reason to believe otherwise. So, although dismissal is the right
step, the dismissal is under the FAA, not Rule 12(b)(3).
E. Motion to Proceed Anonymously
The last set of motions is Defendants’ more recently filed motion to proceed
anonymously, R. 50, and Doe 1’s earlier motion to proceed anonymously, R. 19.
These motions are granted insofar as proceeding anonymously in this federal action,
but are denied without prejudice as to asserting the anonymity argument in
arbitration. This case must proceed in arbitration and not in federal court, so the
arbitrator, and not the Court, should decide what, if any, confidentiality protections
apply. To be sure, as this Court noted in its earlier order, the Seventh Circuit
“disfavor[s] anonymous litigation.” Doe v. Smith, 429 F.3d 706, 710 (7th Cir. 2005)
(citations omitted). This is because “[t]he public has an interest in knowing what
the judicial system is doing, an interest frustrated when any part of litigation is
conducted in secret.” Id. And as the Court previously explained, “[t]he use of
fictitious names for parties[] [is] a practice generally frowned upon” due to this
strong presumption of public access, K.F.P. v. Dane Cnty., 110 F.3d 516, 519 (7th
Cir. 1997) (citations omitted), not to mention Federal Rule of Civil Procedure 10(a).
See 9/22/15 Order at 21-23. But because this case must be arbitrated, and in view of
the many CBOT Rules that protect the confidentiality of trading data, Defs.’
Anonymity Br. at 2-6, the arbitrator should decide whether to reveal the identities

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to HTG. The arbitrator will be more familiar with the CBOT Rules, and will be
better equipped to determine the import of these confidentiality provisions. So
Defendants may maintain their anonymity in this federal action, but the arbitrator
will decide what to do in the arbitration.
IV. Conclusion
For the reasons discussed above, the Court decides as follows:
1. Defendants’ joint motion to compel arbitration [R. 47] is granted.
2. Defendants’ motion to proceed anonymously [R. 50] is granted as to this
federal action and denied without prejudice as to the arbitration.
3. HTG’s earlier motion to compel CME Group to comply with its subpoena [R.
12] is denied.
4. Doe 1’s earlier motion [R. 19] is granted in part as to the motion to quash
HTG’s subpoena on CME Group. As to the motion to proceed anonymously, it
is granted for this action and denied without prejudice for the arbitration.
5. This action is dismissed without prejudice under the Federal Arbitration Act.

ENTERED:

s/Edmond E. Chang
Honorable Edmond E. Chang
United States District Judge
DATE: February 16, 2016

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