Legg, Mason & Company, Inc. v. Mackall & Coe, Inc., Civ. A. No. 2340-72.

CourtUnited States District Courts. United States District Court (Columbia)
Writing for the CourtJohn A. Beck, Lee Ellis, Washington, D. C., for defendants
Citation351 F. Supp. 1367
PartiesLEGG, MASON & COMPANY, INC., Plaintiff, v. MACKALL & COE, INC., et al., Defendants.
Docket NumberCiv. A. No. 2340-72.
Decision Date13 December 1972

351 F. Supp. 1367

LEGG, MASON & COMPANY, INC., Plaintiff,
v.
MACKALL & COE, INC., et al., Defendants.

Civ. A. No. 2340-72.

United States District Court, District of Columbia.

December 13, 1972.


351 F. Supp. 1368

Jeremiah C. Collins, Washington, D.C., John Connally, New York City, for plaintiff.

John A. Beck, Lee Ellis, Washington, D. C., for defendants.

MEMORANDUM OPINION

RICHEY, District Judge.

This case came before the Court for hearing on the Motion of plaintiff, Legg, Mason & Company, Inc., for a Temporary Restraining Order and the Motion of the defendants to Dismiss or in the Alternative to Stay the Present Action Pending Arbitration pursuant to the Constitution and Rules of the New York Stock Exchange. The Court denied the plaintiff's Motion for a Temporary Restraining Order, finding that the plaintiff had not made the requisite showing of irreparable injury necessary to justify the relief requested, and granted the defendants' Motion to Stay the Present Action Pending Arbitration provided that such arbitration could be had within sixty days from the date of the Court's Order.

351 F. Supp. 1369

The suit seeks injunctive relief and damages arising out of the alleged improper conduct of four former employees of Legg, Mason in concert with Mackall & Coe in establishing a service reporting and advising investment clients on Washington affairs in competition with a service previously offered by Legg, Mason. It is alleged that the former employees in concert with Mackall & Coe stole a unique business idea belonging to Legg, Mason and took certain documents belonging to Legg, Mason with them to set up the competing business. It is further alleged that the former employees in concert with Mackall & Coe are attempting to take clients away from Legg, Mason by improper use of the stolen materials and by disparaging and defaming the service provided by Legg, Mason.

The defendants deny plaintiff's allegations, but their main contention was that this controversy must be resolved by the arbitration procedures of the New York Stock Exchange to which both Legg, Mason and Mackall & Coe are members and signatories. Mackall & Coe and the individual defendants each requested arbitration by Affidavit.

I. Issues Presented

While this action sounds in tort, the issue presented by the defendants' Motion to Stay Pending Arbitration is basically one of contract law—that is, whether there is a binding agreement to arbitrate between the parties. The defendants contend that the arbitration provisions of the New York Stock Exchange Constitution and Rules constitute such a binding agreement.

Article VIII, Section 1 of the New York Stock Exchange Constitution provides in pertinent part:

"Any controversy between parties who are member firms or member corporations shall, at the instance of any such party, and any controversy between a non-member and a member or allied member or member firm or member corporation arising out of the business of such member, allied member, member firm or member corporation, . . . shall at the instance of such nonmember, be submitted for arbitration. . . ."

Rule 345, paragraph J, of the New York Stock Exchange provides that member firms and registered representatives sign the following agreement:

"I agree that any controversy between me and any member organization or affiliate or subsidiary thereof arising out of my employment or the termination of my employment shall be settled by arbitration at the instance of any such party in accordance with the arbitration procedure prescribed in the Constitution and the rules then obtaining of the New York Stock Exchange."

It is undisputed that the plaintiff, defendant Mackall & Coe, Inc. and the individual defendants are all members, signatories or beneficiaries of the arbitration procedures of the New York Stock Exchange Constitution.

A. Whether the Constitution and Rules of the New York Stock Exchange Constitute a Binding Contract Between Its Members

This Court is not aware of any District of Columbia decisions dealing with the question of whether the Constitution and Rules of the New York Stock Exchange constitute a binding contract.1 However, the Court may appropriately look for guidance to the decisions of the Federal and state courts sitting in New York, a jurisdiction which has many, if not the most significant contacts with parties who are members, signatories or beneficiaries of the provisions of the New York Stock Exchange Constitution

351 F. Supp. 1370
and Rules.2 There are many such decisions holding that the constitution and rules of a stock exchange constitute a contract between all members of the exchange with each other and with the exchange itself. See Brown v. Gilligan, Will & Co., 287 F.Supp. 766 (S.D.N.Y. 1968); Franklin v. Dick, 262 App.Div. 299, 28 N.Y.S.2d 426, aff'd, 287 N.Y. 656, 39 N.E.2d 282 (1941); Cohen v. Thomas, 209 N.Y. 407, 103 N.E. 708 (1913). In Brown v. Gilligan & Will Co., supra 287 F.Supp. at 769, the court stated
"Every member, by virtue of his admission, contracts to be governed by the conditions of membership which the exchange has imposed. These conditions are, therefore, binding on the members, and constitute virtually a body of law by which the members are
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37 practice notes
  • General Warehousemen and Helpers Local 767 v. Standard Brands, Inc., Nos. 75-3797
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • September 15, 1978
    ...1971, 443 F.2d 783; Tullis v. Kohlmeyer & Co., 5 Cir. 1977, 551 F.2d 632; Legg, Mason & Co., Inc. v. Mackall & Coe, Inc., 351 F.Supp. 1367 (D.D.C.1972). The Third Circuit seems to have developed a conflict on the issue. Compare Newark Stereotypers' Union No. 18 v. Newark Morning......
  • Austin Mun. Securities, Inc. v. National Ass'n of Securities Dealers, Inc., No. 84-1237
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • April 15, 1985
    ...v. Shearson, Hammill & Co., Inc., 384 F.Supp. 21 (E.D.Cal.1974); Legg, Mason & Co., Inc. v. Mackall & Coe, Inc., 351 F.Supp. 1367, 1370 (D.D.C.1972). The district court, therefore, lacks discretion to decide whether to stay the proceedings, despite the presence of any intertwini......
  • Brandon v. Hines, No. 79-1174.
    • United States
    • District of Columbia Court of Appeals of Columbia District
    • December 21, 1981
    ...D. Mayhew, Inc. v. Mabro Construction, Inc., 383 F.Supp. 192, 193, 195 (D.D.C.1974); Legg, Mason & Co. v. Mackall & Coe, Inc., 351 F.Supp. 1367, 1370, 1372 (D.D.C.1972); cf. Rubewa Products Co., supra at 613 (appellee waived any Page 501 to compel arbitration under U.S. Arbitration ......
  • Gilmer v. Interstate Johnson Lane Corporation, No. 90-18
    • United States
    • United States Supreme Court
    • May 13, 1991
    ...1971); Malison v. Prudential-Bache Securities, Inc., 654 F.Supp. 101, 104 (WDNC 1987); Legg, Mason & Co. v. Mackall & Coe, Inc., 351 F.Supp. 1367 (DC 1972); Tonetti v. Shirley, 219 Cal.Rptr. 616, 618, 173 Cal.App.3d 1144 (1985); see also Stokes v. Merrill Lynch, Pierce, Fenner &......
  • Request a trial to view additional results
37 cases
  • General Warehousemen and Helpers Local 767 v. Standard Brands, Inc., Nos. 75-3797
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • September 15, 1978
    ...duPont, 1 Cir. 1971, 443 F.2d 783; Tullis v. Kohlmeyer & Co., 5 Cir. 1977, 551 F.2d 632; Legg, Mason & Co., Inc. v. Mackall & Coe, Inc., 351 F.Supp. 1367 (D.D.C.1972). The Third Circuit seems to have developed a conflict on the issue. Compare Newark Stereotypers' Union No. 18 v. Newark Morn......
  • Austin Mun. Securities, Inc. v. National Ass'n of Securities Dealers, Inc., No. 84-1237
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • April 15, 1985
    ...Macchiavelli v. Shearson, Hammill & Co., Inc., 384 F.Supp. 21 (E.D.Cal.1974); Legg, Mason & Co., Inc. v. Mackall & Coe, Inc., 351 F.Supp. 1367, 1370 (D.D.C.1972). The district court, therefore, lacks discretion to decide whether to stay the proceedings, despite the presence of any intertwin......
  • Brandon v. Hines, No. 79-1174.
    • United States
    • District of Columbia Court of Appeals of Columbia District
    • December 21, 1981
    ...Clifton D. Mayhew, Inc. v. Mabro Construction, Inc., 383 F.Supp. 192, 193, 195 (D.D.C.1974); Legg, Mason & Co. v. Mackall & Coe, Inc., 351 F.Supp. 1367, 1370, 1372 (D.D.C.1972); cf. Rubewa Products Co., supra at 613 (appellee waived any Page 501 to compel arbitration under U.S. Arbitration ......
  • Gilmer v. Interstate Johnson Lane Corporation, No. 90-18
    • United States
    • United States Supreme Court
    • May 13, 1991
    ...(CA1 1971); Malison v. Prudential-Bache Securities, Inc., 654 F.Supp. 101, 104 (WDNC 1987); Legg, Mason & Co. v. Mackall & Coe, Inc., 351 F.Supp. 1367 (DC 1972); Tonetti v. Shirley, 219 Cal.Rptr. 616, 618, 173 Cal.App.3d 1144 (1985); see also Stokes v. Merrill Lynch, Pierce, Fenner & Smith,......
  • Request a trial to view additional results

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