Community Nat. Bank & Trust Co. v. Vigman

• Decision Date: 06 April 1976
• Docket Number: Nos. 75--1543,75--1558,s. 75--1543
• Citation: 330 So.2d 211
• Court: Florida District Court of Appeals
• Parties: COMMUNITY NATIONAL BANK & TRUST CO., and Bache & Co., Inc., Appellants, v. Joseph VIGMAN et al., Appellees.

Page 211

330 So.2d 211

COMMUNITY NATIONAL BANK & TRUST CO., and Bache & Co., Inc., Appellants, v. Joseph VIGMAN et al., Appellees.

Nos. 75--1543, 75--1558.

District Court of Appeal of Florida, Third District.

April 6, 1976.

Rehearing Denied April 26, 1976.

Mershon, Sawyer, Johnston, Dunwody & Cole and H. Michael Madsen, Fowler, White, Burnett, Hurley, Banick & Knight and Thomas E. Ashe, Miami, for appellants.

Horton, Perse & Ginsberg, Dunn & Johnson, Miami, for appellees.

Before PEARSON and NATHAN, JJ., and CHARLES CARROLL (Ret.), Associate Judge.

CHARLES CARROLL, Associate Judge.

These interlocutory appeals by the defendants are from an order denying their motions to dismiss the second amended complaint for want of jurisdiction. The ground urged in the trial court by the defendants, and reasserted by them here is that the action is predicated on a liability or duty created by the Securities Exchange Act of 1934, and therefore would be maintainable only in a United States district court. We find merit therein, and reverse.

An initial complaint filed by the appellees on January 12, 1973, against Community National Bank & Trust Company, herein referred to as the bank, and Bache & Co., Inc., herein referred to as the broker, was dismissed with leave to amend, by a consent order.

The first amended complaint alleged that a meeting of the plaintiff Joseph Vigman and representatives of the bank and the broker resulted in an arrangement whereby the bank lent large sums of money to Vigman on certain designated dates in 1968 and 1969 to be used for the purchase of securities through the broker; that the loans were evidenced by demand notes; that the amounts loaned by the bank to Vigman were so used, and the securities thus purchased were delivered to and held by the bank as collateral for the loans. It was alleged that the loans made for such purpose and the purchases of securities therewith were, and were known by defendants to be in violation of the margin limitations or credit restrictions imposed by the Securities Exchange Act of 1934 and regulations promulgated thereunder, citing 15 U.S.C.A., § 78a, and regulations T and U, 12 C.F.R. 220--221; that some of the securities purchased through the broker with said loan monies had been acquired in the names of the other plaintiffs, relatives of Joseph Vigman; and that 'due to fluctuations in the market' losses were sustained which the plaintiff sought to recover from the defendants.

The defendants answered, and each filed a motion to dismiss for want of jurisdiction, on the ground mentioned at the outset of this opinion. The defendants motions to dismiss were granted, and an order was entered dismissing the amended complaint with leave to file a second amended complaint.

The subsequently filed second amended complaint repeated the allegations as to the meeting, and the arrangement by which registered securities were purchased through the broker with sums loaned by the bank to Vigman for that purpose, with the purchased securities pledged to the bank as collateral for the loans. ¹

In place of the allegation in the first amended complaint that the activities of the bank and the broker incident to the purchase of the securities were in violation of the Securities Exchange Act of 1934 and regulations thereunder, it was alleged in the second amended complaint that such activities were not 'customary and ordinary', and that because of a decline in value of the securities purchased losses were sustained by plaintiff.

Additionally it was alleged that such activity of the bank constituted a fraud on plaintiffs, and that the loans by the bank were made for the purpose of increasing the bank's business and to gain the profit to be derived therefrom. Regarding the defendant broker it was alleged the broker stood in a fiduciary relationship to the customer and was negligent by recommending purchases of securities on that risky basis, and did so for the purpose of promoting increased trading to create commissions. Included was a count by which the plaintiffs sought to rescind the bank loans as having been made in violation of Chapter 517, Fla.Stat., F.S.A. relating to Sale of Securities. In connection therewith no offer was made by the plaintiffs to return the parties to the status quo.

Although not expressly so alleged, the complaint furnishes basis to infer that after the purchased securities which were held as collateral for the loans declined in value, the loans were called, the devalued collateral was sold and proceeds thereof applied in part payment of the bank loans, leaving certain balances on the loans owed to the bank, which represented the losses sustained by the plaintiffs on their investments, for which plaintiffs sought recovery from the defendants. The defendants moved to dismiss the second amended complaint for want of jurisdiction in the state court to entertain the action. Their motions to dismiss were denied and these interlocutory appeals by the defendants ensued. ²

In the Securities Exchange Act of 1934 (15 U.S.C.A., § 78g), for the 'purpose of preventing the excessive use of credit for purchase or carrying of securities', a limit was placed on the percentage of the cost or value of securities for which credit could be extended to a customer dealing in registered securities on margin (fixed by the Act at 55% With some exceptions, and with authority conferred on the Board of Governors of the Federal Reserve system to vary the same from time to time, by promulgated regulations). Violation thereof by a broker was made unlawful by subsection (c) of § 78g, and by subsection (d) of § 78g it was made unlawful for a bank to extend or mainain credit to one in excess of such limitation, for the purchase or carrying of any security.

Section 78aa of Title 15 U.S.C.A., relating to 'Jurisdiction of Offenses and Suits', provides that the United States district courts have exclusive jurisdiction of violations of the chapter or the rules and regulations thereunder, and of 'all suits in equity and actions at law brought to enforce any liability or duty created by this chapter or the rules and regulations thereunder'.

Section 78bb of Title 15 U.S.C.A. states that 'The rights and remedies provided by this chapter shall be in addition to any and all other rights and remedies that may exist at law or in equity'.

The procedure in which the parties participated in the security purchases by the plaintiffs avoided and circumvented the excessive credit and margin limitation provisions of the Securities Exchange Act of 1934 applicable to the bank and the broker, and served to enable the customer to purchase securities on a basis equivalent to 100% Margin. Plaintiffs chose to invest in the securities on that high risk basis, rather than by a safer...