Newburger, Loeb & Co., Inc. v. Gross

• Citation: 365 F. Supp. 1364
• Decision Date: 23 November 1973
• Docket Number: No. 71 Civ. 685.,71 Civ. 685.
• Parties: NEWBURGER, LOEB & CO., INC., as Assignee of Claims of David Buckley and Mary Buckley, Plaintiff, v. Charles GROSS et al., Defendants, Newburger, Loeb & Co., a New York Limited Partnership et al., Additional Defendants on Counterclaims.
• Court: U.S. District Court — Southern District of New York

365 F. Supp. 1364

NEWBURGER, LOEB & CO., INC., as Assignee of Claims of David Buckley and Mary Buckley, Plaintiff, v. Charles GROSS et al., Defendants, Newburger, Loeb & Co., a New York Limited Partnership et al., Additional Defendants on Counterclaims.

No. 71 Civ. 685.

United States District Court, S. D. New York.

October 16, 1973.

Rehearing Denied November 23, 1973.

COPYRIGHT MATERIAL OMITTED

Finley, Kumble, Underberg, Persky, Roth & Grutman, New York City, for plaintiff; Herbert Roth, New York City, of counsel.

Golden, Wienshienk & Mandel, New York City, for defendants; Philip Mandel, Bernard Rothman, New York City, of counsel.

Richenthal, Abrams & Moss, Hart & Hume, New York City, for defendants on Counterclaim; David Abrams, Charles Acker, New York City, of counsel.

ROBERT J. WARD, District Judge.

There are presently before the Court a motion by defendants for summary judgment dismissing the complaint and for partial summary judgment with regard to certain counterclaims, a motion by plaintiff and additional defendants on the counterclaims to dismiss the counterclaims, a separate motion by additional counterclaim defendant Alex Aixala seeking summary judgment in his favor, and a motion by certain of the additional defendants on the counterclaims for a stay of this action pending arbitration.

Plaintiff as assignee asserts a churning claim arising from transactions in a brokerage account maintained by David Buckley with defendant Gross & Co., a partnership, from 1962 to 1966. Defendant Gross was a general partner and defendant Bleich a limited partner of Gross & Co. throughout that period. Jean Donoghue who has appeared as a defendant and counterclaimant was also a limited partner of Gross & Co. Gross subsequently became a general partner and Bleich and Donoghue limited partners of Newburger, Loeb & Co. ("the Partnership") which was the predecessor in interest of the plaintiff Newburger, Loeb & Co., Inc. ("the Corporation").

A controversy arising in 1970 between the defendants herein and the other members of the Partnership regarding the sale of the Partnership assets and liabilities to the Corporation has become inextricably intertwined with the comparatively simple churning claim. As the facts have been presented, the Partnership was in dire financial straits and threatened with imminent suspension from the New York Stock Exchange and dissolution. The decision of the other partners to sell the assets and liabilities of the firm to a newly-formed corporation which would bring an infusion of new capital was hotly contested by Gross, Bleich, and Donoghue. These three refused to sign the agreement consummating the sale (hereinafter referred to as the Transfer Agreement).

In addition to defending this suit on the ground that there was no churning of the Buckley account, the defendants also assert other defenses and nine counterclaims.

A. Plaintiff's and Additional Defendants' Motion to Dismiss the Counterclaims

Plaintiff and all additional defendants on the counterclaims move to dismiss the First through Eighth counterclaims for lack of subject matter jurisdiction and the Ninth counterclaim for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(1) and (6).

The First and Second counterclaims which are also raised as defenses to plaintiff's action are compulsory counterclaims, as they are concerned with "the same transaction or occurrence" that is the subject matter of plaintiff's claim. Fed.R.Civ.P. 13(a). They are so closely linked to defenses to the plaintiff's claim that they must be considered "logically related to the claim the opposing party is suing on." C. Wright, Law of Federal Courts 346 (2d Ed. 1970). This conclusion is consistent with the general trend toward expansion of the concept of compulsory counterclaims. See United States v. Heyward-Robinson Company, 430 F.2d 1077 (2d Cir. 1970), cert. denied, 400 U.S. 1021, 91 S.Ct. 582, 27 L.Ed.2d 632 (1971). The Fourth counterclaim asserts the same allegedly wrongful acts pleaded as defenses; therefore, it, too, is a compulsory counterclaim. As to these claims no independent basis of federal jurisdiction is necessary as they are viewed as ancillary to the claim asserted in the complaint. Id. at 1081.

The Third, Fifth, Sixth, Seventh, and Eighth counterclaims are not logically related to the plaintiff's cause of action; therefore, they are not compulsory counterclaims. Since there is no independent basis for federal jurisdiction, these counterclaims may be maintained only to the extent that they constitute a set-off; they may not be asserted as a basis for affirmative relief. Id. at 1080-1081.

The Ninth counterclaim, asserted only by defendant Gross, alleges that the sale of the business of the Partnership and the alleged interference with an employment opportunity offered to Gross constitute a violation of the Sherman Act and the Clayton Act, 15 U.S.C. § 1 et seq. Since there is no special pleading requirement in anti-trust actions, Nagler v. Admiral Corporation, 248 F.2d 319 (2d Cir. 1957), the allegation, skeletal though it may be, sufficiently states a claim to withstand a motion to dismiss.

B. Additional Defendants' Motion for a Stay Pending Arbitration

Certain additional defendants on the counterclaims, former partners of Newburger, Loeb & Co., the Partnership, have moved alternatively for a stay pending arbitration. Although the Court recognizes the validity of the New York Stock Exchange arbitration rules and the provisions of the Partnership Agreement as well as the federal policy in favor of arbitration, it finds that given the combination of circumstances present in this case, retaining and continuing the litigation in this Court will best serve sound judicial administration and further the interests of justice.

A review of the record indicates that the moving counterclaim defendants waited an inordinately long time before bringing this motion. During this period opposing counsel consented to numerous extensions of time for counterclaim defendants to answer or move; and extensive discovery, both formal and informal, in which the moving parties participated has taken place. At no time while this activity, clearly pointing toward a judicial determination, was taking place and not until the bringing of the instant motion did these counterclaim defendants indicate that this action should be referred to arbitration. If this action were now to proceed to arbitration, it undoubtedly would result in another delay. It, therefore, seems clear that arbitration in this case would not serve to produce the speedy settlement of this dispute which is a primary reason for resorting to arbitration. Although these factors standing alone might not constitute a sufficient showing of prejudice to bar a stay, they are sufficient when combined with the fact that not all parties to this litigation are subject to arbitration.

Since this litigation would continue in this Court in any event, it makes little sense to splinter this action with portions going to arbitration and the balance remaining in this Court. Such a solution seems especially ill-advised here, since it appears that the moving parties are not those primarily concerned and the same issues would have to be tried in two different places with the possibility of conflicting decisions.

The aforementioned combination of factors requires the denial of this motion.

C. Additional Defendant Alex Aixala's Motion for Summary Judgment

Additional defendant Aixala moves for summary judgment on the ground that he was merely an investor in the Corporation who played no role in any wrongful acts which might have occurred. Defendants' Rule 9(g) statement and affidavits in opposition sufficiently raise issues of fact concerning Aixala's liability for the acts of additional defendant Persky, allegedly Aixala's agent, and with regard to the nature and extent of Aixala's personal involvement in the events leading up to the execution of the Transfer Agreement to defeat a motion for summary judgment. This motion is denied.

D. Defendants' Motion for Summary Judgment

Defendants have moved for summary judgment dismissing the complaint and in their favor on their counterclaims. They contend that the sale of the Partnership was in violation of N.Y. Partnership Law § 98(1)(b) (McKinney's Consol.Laws, c. 39, 1948) and that it was fraudulent so that the Corporation does not have good title to the Buckley claim which it received from the Partnership; that the Partnership received the assignment of the churning claim in violation of the fiduciary duty owed to Gross, Bleich, and Donoghue; that the assignment was champertous; and that assuming the Buckley account was churned, the Partnership was a joint tortfeasor with Gross & Co. which, therefore, could not take an assignment of the claim. In addition to asserting these grounds as defenses, defendants also seek affirmative relief on those claims relating to the alleged illegality of the Transfer Agreement and the alleged fraudulent inducement by the Partnership of the assignment of the Buckley claim. Defendants also seek additional relief in their Third, Fifth, Sixth, Seventh and Eighth counterclaims which the Court cannot determine until such time as plaintiff establishes its claim so as to give defendants a right of set-off. See Section A, supra at pp. 1367-1368.

The Transfer Agreement in question was actually executed on February 11, 1971, although for reasons which do not concern the Court, it was dated December 30, 1970. Gross had given notice, effective September 30, 1970, of his withdrawal from the Partnership. On December 31, 1970, Bleich and Donoghue gave notices of withdrawal from the Partnership. Under the terms of § 7.1(a) of the "Restated Articles of Limited Partnership of Newburger, Loeb & Co. As Amended," Gross ceased to be a partner for all purposes as of the effective date of his withdrawal. Bleich and Donoghue,...