Goldman v. Gallant Securities, Inc.

• Citation: 878 F.2d 71
• Decision Date: 22 June 1989
• Docket Number: No. 1209,D,1209
• Parties: Bobby GOLDMAN, Plaintiff-Appellant, v. GALLANT SECURITIES, INC.; Paine Webber, Inc.; Alvin Gallant and Donald Kanterman, Defendants, Donald Kanterman, Defendant-Appellee. ocket 89-7210.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 71

878 F.2d 71

Bobby GOLDMAN, Plaintiff-Appellant, v. GALLANT SECURITIES, INC.; Paine Webber, Inc.; Alvin

Gallant and Donald Kanterman, Defendants,

Donald Kanterman, Defendant-Appellee.

No. 1209, Docket 89-7210.

United States Court of Appeals, Second Circuit.

Argued June 9, 1989.

Decided June 22, 1989.

Gary Trachten, New York City (Kudman & Trachten, of counsel), for plaintiff-appellant.

Before FEINBERG and KEARSE, Circuit Judges and BARTELS, District Judge. ^*

PER CURIAM:

Bobby Goldman appeals from a judgment of the United States District Court for the Southern District of New York, dismissing his complaint. The district court found that "plaintiff does not have a claim upon which relief can be granted for violations of the Exchange Act," and dismissed the complaint for lack of federal jurisdiction. For reasons given below, we vacate and remand.

In 1985 and 1986, Gallant Securities, Inc. (Gallant) underwrote and marketed a new issue of stock. Appellee Donald Kanterman solicited appellant to buy this new issue, and appellant purchased 15,000 units in January 1986. After the purchase, Gallant initially booked appellant's units by mistake to another customer's account and then to its own "error" account. Appellant repeatedly attempted to have the error rectified and allegedly was met with evasive answers and deceptive assurances. Appellant claims that between March and September 1986 Gallant was trading his stock for its own benefit through its "error" account.

In December 1987, appellant filed a complaint naming, among others, Gallant and Kanterman as defendants. The complaint, as amended, sought relief for alleged violations of Sec. 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j(b), and for various violations of state law. Appellant predicated jurisdiction on 15 U.S.C. Sec. 78aa, 28 U.S.C. Sec. 1331, and on the doctrine of pendent jurisdiction.

In April 1988, the district court entered a default judgment against Gallant and Kanterman for failing to appear, answer, or make any other motion with respect to the complaint within the required time period. The district court then referred the case to Magistrate James C. Francis IV for a calculation of damages. In the absence of the defaulting defendants, the magistrate conducted an inquest. In September 1988, Magistrate Francis issued his Report and Recommendation, finding that the court had subject matter jurisdiction pursuant to 15 U.S.C. Sec. 78aa and pendent jurisdiction over appellant's state law claims, and that Gallant and Kanterman should be assessed damages in the sum of $138,750, with interest accruing at nine percent from May 9, 1986.

In November 1988, Kanterman moved the district court pursuant to Fed.R.Civ.P. 12(b)(1) to dismiss the complaint against him for lack of subject matter jurisdiction. Kanterman also apparently incorporated by reference in his motion additional papers that had been submitted earlier with an order to show cause why the default judgment against him should not be vacated. In its papers in opposition, appellant recognized the incorporation of these papers and argued "in opposition to all of defendant Kanterman's applications." In January 1989, the district court granted appellee Kanterman's Rule 12(b)(1) motion, finding that appellant "does not have a claim upon which relief can be granted for violations of the Exchange Act." It further stated that "[i]n the absence of a basis for federal jurisdiction," the state claims should also be dismissed. Accordingly, the district court dismissed the complaint.

Appellant argues that the district court erred in dismissing the complaint for lack of subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1). He claims that the dismissal in fact was based on a determination that the complaint failed to state a claim and was a premature holding on the merits.

In determining whether the federal courts have subject matter jurisdiction over a cause of action, a district court must look to the way the complaint is drawn to see if it claims a right to recover under the laws of the United States. Bell v. Hood, 327 U.S. 678, 681, 66 S.Ct. 773, 775, 90 L.Ed. 939 (1946). If the complaint alleges a violation of federal law and the claim is "neither immaterial nor insubstantial, the proper course of action is for the district court to accept jurisdiction and address [an] objection as an attack on the merits." Rivanna Trawlers Unlimited v. Thompson Trawlers, Inc., 840 F.2d 236, 239 (4th Cir.1988) (Powell, J., sitting by designation) (citing Bell v. Hood, 327 U.S. at 682, 66 S.Ct. at 776).

In the case at hand, appellant unmistakably alleges violations of the federal securities laws in his complaint. Specifically, the complaint seeks...