United States District Court, E.D. Virginia, Norfolk Division
OPINION AND ORDER
G. Doumar Senior United States Judge.
matter comes before the Court on Defendant Interactive
Brokers LLC's Motions to Compel Arbitration
("Motions to Compel") filed in the above-captioned
cases on August 23, 2016. See Civil No. 2:16cv276
("Singh Case"), ECF No. 5; Civil No. 2:16cv277
("BFP Case"), ECF No. 6. In these motions,
Interactive Brokers LLC ("IB") requests that,
pursuant to the Federal Arbitration Act, 9 U.S.C.
§§ 3 and 4, the Court compel arbitration of all
claims brought against IB in each case and stay the actions
pending completion of arbitration. For the reasons stated
herein, IB's Motions to Compel are
GRANTED, and the instant action (Lead Case
No. 2:16cv276) is STAYED for the shorter of
five (5) months or when arbitration is completed.
PROCEDURAL AND FACTUAL BACKGROUND
8, 2016, Charanjit and Parbhur Singh ("the Singhs")
and Brar Family Partnership L.P.
("BFP") (collectively, "Plaintiffs"),
filed lawsuits against the Singhs' nephew, Vikas Brar;
his financial advising firm, Brar Capital LLC (collectively,
"Brar Defendants"); and IB, a broker-dealer and
securities investment firm. Singh Case, ECF No. 1; BFP Case,
ECF No. 1. These lawsuits stem from two IB investment
accounts held by Plaintiffs: the Singhs' joint account
established in August 2011 ("Joint Account") and
BFP's account established in March 2012
("Partnership Account"). See Amended Compl., Singh
Case, ECF No. 2 ¶ 21; BFP Case, ECF No. 3 ¶ 21. The
Joint Account was created by means of a document entitled
"Interactive Brokers LLC Account Application for
Financial Advisor Clients for Individual or Joint Account
Holders" (hereinafter "Joint Account
Application"), and the Partnership Account was created
by means of a document entitled "Interactive Brokers LLC
Account Application for Financial Advisor Clients for Trust
Accounts" (hereinafter "Partnership Account
Application"). Id. Both applications name Vikas
Brar as the "Financial Advisor" for the accounts
and Brar Capital LLC as the "Name of Advisor's
Firm." Id., While the Singhs admit that the Joint
Account Application contains signatures bearing their names,
they claim that these signatures were not authored by either
Charanjit or Parbhur Singh. Singh Case, ECF No. 2 ¶ 21.
The Singhs do not deny that they signed the Partnership
Account Application. BFP Case, ECF No. 3.
to the Amended Complaints, by August 2015, both the Joint
Account and the Partnership Account consisted almost entirely
of options on the VXX, which is an exchange-traded note
designed to expose options positions to the CBOE Volatility
Index ("VIX"). See Singh Case, ECF No. 2 ¶ 30;
BFP Case, ECF No. 3 ¶ 31. On August 20, 2015, the Joint
Account was worth $406, 794.04 and the Partnership Account
was worth $1.8M. See Singh Case, ECF No. 2 ¶ 30; BFP
Case, ECF No. 3 ¶ 33. Shortly thereafter, the stock
market plunged, and by August 21, 2015, the value of the
Joint Account dropped to a value of -$409, 565.95, with a
margin deficit of approximately $1.2M. Singh Case, ECF No. 2
¶ 32. By August 24, 2015, the value of the Partnership
Account dropped to a value of $651, 811.26, with a margin
deficit of approximately $1.79M. BFP Case, ECF No. 3
¶¶ 35-38. To cover these significant margin
deficits, IB liquidated the positions in both accounts using
what Plaintiffs refer to as IB's "proprietary
'autoliquidation' program." See Singh Case, ECF
No. 2 ¶¶ 32-33; BFP Case, ECF No. 3 ¶¶
39, 42. After liquidation, both the Joint Account and the
Partnership Account had insufficient funds to satisfy their
margin debts, so IB demanded approximately $461, 000 from the
Singhs and $1.72M from BFP to cover their respective debts.
See Singh Case, ECF No. 2 ¶¶ 32-33; BFP Case, ECF
No. 3 ¶¶ 39, 42. When Plaintiffs failed to pay, IB
commenced arbitration proceedings against Plaintiffs at the
Financial Industry Regulatory Authority ("FINRA")
in November 2015. See Mem. in Support of Mot. to Compel
("IB Mem."), Singh Case, ECF No. 6 at 8; BFP Case,
ECF No. 7 at 8; see also Declaration of John
Nielands ("Nielands Declaration" or "Nielands
Decl"), Singh Case, ECF No. 7, Exs. G & H; BFP Case,
ECF No. 8, Exs. G & H.
14, 2016, the Singhs and BFP filed Amended Complaints, both
of which bring the following six counts against IB:
"Violations of § 10(b) of the Securities Exchange
Act, 15 U.S.C. 78j, and Rule 10b-5 promulgated
thereunder" for unlawful liquidation of Plaintiffs'
accounts (Count I); "Registration Violations of Florida
Blue Sky Laws, " Fla. Stat. §§ 517.12 &
517.211, and "Registration Violations of Virginia Blue
Sky Laws, " Va. Code §§ 13.1-501, 522, for
facilitating and aiding unregistered investment activity by
the Brar Defendants (Counts II and III); "Wrongful
Liquidation Under Contract" for breach of IB's
"standard form of contract" governing its
liquidation procedures (Count IV); "Failure to Liquidate
in a Commercially Reasonable Manner" relating to
IB's liquidation of Plaintiffs' accounts (Count V);
and "Negligence" relating to IB's facilitation
of unregistered investment activity by the Brar Defendants
(Count VI). See Singh Case, ECF No. 2 at 8-11; BFP Case, ECF
No. 3 at 9-12.
August 23, 2016, IB filed the instant Motions to Compel
Arbitration and supporting memoranda. See Singh Case, ECF No.
5 and 6; BFP Case, ECF No. 6 and 7. On September 6, 2016,
Plaintiffs filed their respective memoranda in opposition
("Resp.") to IB's Motions to Compel. See Singh
Case, ECF No. 11; BFP Case, ECF No. 12. On September 9, 2016,
IB filed reply briefs. See Singh Case, ECF No. 14; BFP Case,
ECF No. 16. On October 24, 2016, counsel for Plaintiffs and
IB appeared before the Court and presented oral argument on
IB's Motions to Compel. See Singh Case, ECF No. 22; BFP
Case, ECF No. 23.
argues that the Singhs and BFP entered into mandatory
arbitration agreements with IB when they opened the Joint
Account and Partnership Account, respectively, and that the
Federal Arbitration Act ("FAA"), 9 U.S.C. § 1,
et seq., requires the Court to enforce these
agreements as written and compel Plaintiffs to arbitrate.
A written provision in any . . . contract evidencing a
transaction involving commerce to settle by arbitration a
controversy thereafter 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.
9 U.S.C. § 2. The FAA further mandates that, in the
event of an alleged failure, neglect, or refusal to
arbitrate, the court must compel arbitration if it is
satisfied that "the making of the agreement for
arbitration ... is not in issue." Id. § 4.
If, however, the court determines that the making of the
agreement is at issue, the court must proceed to trial on
that issue. Id.; Gibbs v. PFS Investments.
Inc.. 209 F.Supp.2d 620, 624 (E.D. Va. 2002) (citing
A/S Custodia v. Lessin Intern. Inc., 503 F.2d 318
(2d Cir. 1974)).
applies to contracts "evidencing a transaction involving
commerce, " 9 U.S.C. § 2, and it defines
"commerce" as "commerce among the several
States, " Id. § 1. A sufficient interstate
nexus is established for purposes of this section where
"the contracting parties were located in different
states and performance was to occur across state lines."
Gibbs. 209 F.Supp.2d at 625. It is well-established
that transactions involving the purchase and sale of
securities on a national exchange involve
"commerce" under this definition. See, e.g..
Shearson/Am. Exp. Inc. v. McMahon, 482 U.S. 220, 226
(1987) (customer agreement between customer and securities
broker was a transaction involving commerce under the FAA).
court determines that the contract containing the arbitration
agreement falls under the FAA, "arbitration may only be
judicially compelled when the parties have agreed to it, and
then only for those kinds of disputes that the parties have
agreed to submit to arbitration." Zandford v.
Prudential-Bache Sec. Inc., 112 F.3d 723, 727 (4th Cir.
1997). In other words, there is a two-step inquiry when
deciding whether to compel arbitration under the FAA: the
court must (1) determine whether a binding arbitration
agreement exists between the parties and then (2) determine
whether the dispute falls within the parameters of the
arbitration agreement. Hightower v. GMRI. Inc., 272
F.3d 239, 242 (4th Cir. 2001).
PLAINTIFFS ENTERED INTO VALID AND BINDING ARBITRATION
AGREEMENTS WITH IB.
Joint Account Application and the Partnership Account
Application Contain a Mandatory Arbitration Clause.
conduct the first stage of this inquiry, the Court reviewed
the relevant documents in the case. In support of its Motions
to Compel, IB filed the Nielands Declaration, which attaches
several documents as exhibits. See Singh Case, ECF No. 7; BFP
Case, ECF No. 8. In the Singh Case, Exhibit B purports to be
a copy of the Joint Account Application that was used to set
up the Singh's Joint Account in August 2011. ECF No. 7
¶ 12. The Singhs do not dispute this. See Singh Case,
ECF No. 2 ¶ 21; Resp., ECF No. 11 at 3-4. In the BFP
Case, Exhibit B purports to be a copy of the Partnership
Account Application that was used to set up the Partnership
Account in March 2012. ECF No. 8 ¶ 12. It contains the
signatures of Parbhur and Charanjit Singh, BFP's general
partners, throughout the document. Id. Ex. B at 26,
28, 29, 32, 33, 39, 40, 45. BFP does not dispute that Exhibit
B is the Partnership Account Application or that it was
signed by the Singhs. See BFP Case, Resp., ECF No. 12 at 4,
IV of both the Joint Account Application and the Partnership
Account Application incorporates by reference a document
entitled "The Interactive Brokers Customer
The Interactive Brokers Customer Agreement governs the
relationship between Customer and Interactive Brokers and
sets forth the terms and conditions governing Customer's
IB account. The Customer Agreement has been provided
separately to Customer as a part of a package of documents
labeled: Interactive Brokers LLC Agreements and
Case, Nielands Decl., Ex. B at 17; BFP Case, Nielands Decl.,
Ex. B at 27. In both the Singh Case and the BFP Case, the
Interactive Brokers Customer Agreement ("Customer
Agreement") is purportedly attached to the Nieland's
Declaration as Exhibit F. While Plaintiffs do not admit
either the authenticity of this document or the fact that
they received it, both the Joint Account Application and the
Partnership Account Application specifically identify the
Customer Agreement and clearly state above the signature line
that the "CUSTOMER REPRESENTS THAT CUSTOMER HAS RECEIVED
[THE CUSTOMER AGREEMENT) . . . AND HAS READ AND UNDERSTOOD
AND INTENDS TO BE BOUND BY THE . . . CUSTOMER
AGREEMENT." Singh Case, Nielands Decl., Ex. B at 20
(emphasis in original); BFP Case, Nielands Decl., Ex. B at 31
(emphasis in original).
33 of the Customer Agreement is entitled "Mandatory
Arbitration, " which states in bold, all-capitalized
• ALL PARTIES TO THIS AGREEMENT ARE GIVING UP THE RIGHT
TO SUE EACH OTHER IN COURT, INCLUDING THE RIGHT TO A TRIAL BY
JURY, EXCEPT AS PROVIDED BY THE RULES OF THE ARBITRATION
FORUM IN WHICH A CLAIM IS FILED...
Singh and BFP Cases, Nielands Decl., Ex. F § 33. Section
Customer agrees that any controversy, dispute, claim or
grievance between IB .. . and Customer . .. arising out of,
relating to, this Agreement, or any account(s) established
hereunder in which securities may be traded; any transactions
therein; any transactions between IB and Customer; any
provision of the Customer Agreement or any other agreement
between IB and Customer; or any breach of such transactions
or agreements, shall be resolved by arbitration...
Id. Section 33 also includes various other warnings
related to arbitration, and subsection B contains a
class-action exception to ...