Gilman v. Shearson/American Exp., Inc.
Decision Date | 09 December 1983 |
Docket Number | Civ. No. 83-64-D. |
Citation | 577 F. Supp. 492 |
Parties | Richard GILMAN and Jonathan Gilman, Co-Executors of the Will of Patricia Alice Gilman, a/k/a Patricia A. Gilman v. SHEARSON/AMERICAN EXPRESS, INC.; Vernon Farnsworth, Jr. |
Court | U.S. District Court — District of New Hampshire |
Patrick T. Hayes, Lebanon, N.H., for plaintiff.
Wilbur A. Glahn, III, Manchester, N.H., for defendant.
Plaintiffs allege various violations surrounding defendants' dealings in securities. Defendants earlier moved to dismiss, and the Court found that the complaint was not adequate but granted leave to amend. Plaintiffs amended their complaint, and defendants again moved to dismiss.
On a motion to dismiss, the Court construes the material facts alleged in the complaint in the light most favorable to the nonmoving party. DeRosa v. Chicago Title Insurance Company, 681 F.2d 66, 68 (1st Cir.1982). The facts in the complaint are taken as admitted, and dismissal shall be ordered only if the nonmoving party is not entitled to relief under any set of facts it could prove. Dunlap v. Aulson Corporation, 90 F.R.D. 647, 654 (D.N.H.1981).
Defendants move to dismiss and argue that because plaintiffs have not moved to amend Count II, plaintiffs have not adequately pled fraud with particularity against defendant Shearson/American Express, Inc. This argument is specious. Plaintiffs amended paragraph 15 of the Complaint, Count I, to comply with the Court's Order. Paragraph 19 of Count II and paragraph 25 of Count III of the Complaint incorporate by reference all earlier paragraphs. Consequently, the adequacy of plaintiffs' pleadings in Count I extends to Counts II and III.
Defendants also move to dismiss for the reasons set forth in their earlier motion. Plaintiff asserts a private cause of action under New York Stock Exchange ("NYSE") Rules 405 and 435 and the National Association of Securities Dealers ("NASD") Rules of Fair Practice, Article III, Section 2.
NYSE Rule 405 provides:
Colman v. D.H. Blair & Co., Inc., 521 F.Supp. 646, 648, n. 1 (S.D.N.Y.1981).
NYSE Rule 435 provides, in pertinent part:
Defendants' Memorandum of Law, p. 12, n. 3.
Article III, Sec. 2, of the NASD Rules states:
Section 2: In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.
Colman v. D.H. Blair & Co., Inc., supra, 521 F.Supp. at 648, n. 1.
Defendants move to dismiss for plaintiffs' failure to state a claim and argue that no cause of action is stated under these rules as they provide no express individual remedy to a customer, but rather provide remedies for the NYSE and NASD against members.
Implied securities regulation actions first exhibited in J.I. Case Co. v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964), and later elaborated by Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), have been limited more recently by Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979), Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979), and Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982). Thus, while some courts have found an implied private cause of action under these and similar rules, the more recent and persuasive trend is away from implied private causes of action. Compare, Buttrey v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 410 F.2d 135 (7th Cir.), cert. denied, 396 U.S. 838, 90 S.Ct. 98, 24 L.Ed.2d 88 (1969); Wolfson v. Baker, 444 F.Supp. 1124, 1133-34 (M.D.Fla.1978), aff'd 623 F.2d 1074 (5th Cir.1980), cert. denied, 450 U.S. 966, 101 S.Ct. 1483, 67 L.Ed.2d 615 (1981); Faturik v. Woodmere Securities, Inc., 431 F.Supp. 894, 897 (S.D. N.Y.1977); Rolf v. Blyth Eastman Dillon & Co., Inc., 424 F.Supp. 1021, 1041 (S.D.N. Y.1977), modified on other grounds, 570 F.2d 38 (2d Cir.), cert. denied, 439 U.S. 1039, 99 S.Ct. 642, 58 L.Ed.2d 698 (1978); Van Alen v. Dominick & Dominick, Inc., 441 F.Supp. 389, 403-04 (S.D.N.Y.1976), aff'd 560 F.2d 547 (2d Cir.1977); McMillan v. E.F. Hutton & Company, Inc., 399 F.Supp. 1153, 1155 (N.D.Cal.1975); and Starkman v. Seroussi, 377 F.Supp. 518, 524 (S.D.N.Y.1974) ( ); with Thompson v. Smith Barney, Harris Upham & Co., Incorporated, 709 F.2d 1413, 1419 (11th Cir.1983); Walck v. American Stock Exchange, Inc., 687 F.2d 778, 788 (3d Cir.1982); Miley v. Oppenheimer & Company, Inc., 637 F.2d 318, 333 (5th Cir.1981); Jablon v. Dean Witter & Co., 614 F.2d 677 (9th Cir.1980);1Verrecchia v. Paine, Webber, Jackson & Curtis, 563 F.Supp. 360, 365 (D.P.R.1982); Holtzman v. Proctor, Cook & Co., Inc., 528 F.Supp. 9, 16 (D.Mass.1981); Kirkland v. E.F. Hutton and Company, Inc., 564 F.Supp. 427, 443 (E.D.Mich.1983); Juster v. Rothschild Unterberg, Towbin, 554 F.Supp. 331, 333 (S.D.N.Y.1983); Colman v. D.H. Blair & Co., Inc., 521 F.Supp. 646, 653-55 (S.D.N.Y.1981); Baselski v. Paine, Webber, Jackson & Curtis, Inc., 514 F.Supp. 535, 542 (N.D.Ill.1981); Birotte v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 468 F.Supp. 1172, 1174-80 (D.N.J. 1979); Plunkett v. Dominick & Dominick, Inc., 414 F.Supp. 885, 889-90 (D.Conn. 1976); Architectural League of New York v. Bartos, 404 F.Supp. 304, 314 (S.D.N.Y. 1975); Piper, Jaffray & Hopwood Incorporated v. Ladin, 399 F.Supp. 292, 295-97 (S.D.Iowa 1975) ( ). Consequently, the court dismisses plaintiffs' claims brought under NYSE Rules 405 and 435, and NASD Rules of Fair Practice, Article III, Section 2.
Plaintiffs also allege violations of Sections 15(c)(1) and 15(c)(2), SEC Rules 15c1-2 and 15c1-7(a), 17 C.F.R. §§ 240.15c1-2, 240.15c1-7(a). The statute upon which this claim is grounded, 15 U.S.C. § 78o, provides:
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