Shumate & Co., Inc. v. National Ass'n of Securities Dealers, Inc.
| Decision Date | 05 March 1975 |
| Docket Number | 74--1427,Nos. 74--1426,s. 74--1426 |
| Citation | 509 F.2d 147 |
| Parties | 1975-1 Trade Cases 60,197 SHUMATE & COMPANY, INC., et al., Plaintiffs-Appellants, v. NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., et al., Defendants-Appellees. SHUMATE & COMPANY, INC., et al., Plaintiffs-Appellants, v. AMERICAN STOCK EXCHANGE, et al., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
B. Thomas McElroy, Dallas, Tex., for plaintiffs-appellants.
Morris Harrell, Lyman G. Hughes, Dallas, Tex., Robert A. Bicks, New York City, for Nat. Ass'n of Securities Dealers.
William E. Jackson, New York City, Fletcher Yarbrough, Dallas, Tex., for N.Y. Stock Exchange.
Briscoe R. Smith, New York City, W. Randolph Elliott, William H. Tinsley, Dallas, Tex., for American Stock Exchange.
Robert B. Fiske, Jr., Forsythe, McGovern & Pearson, Davis, Polk & Wardwell, New York City, of counsel for defendants-appellees.
Appeals from the United States District Court for the Northern District of Texas.
Before TUTTLE, RONEY and GEE, Circuit Judges.
Gaston A. Shumate and his solely owned company Shumate & Company, Inc. (Shumate) filed two suits alleging violations of the Sherman Act on the part of the National Association of Security Dealers (NASD) and Shearson, Hammill & Company, Inc., in one suit, and the New York Stock Exchange (NYSE), American Stock Exchange (AMEX) and various named individual defendants in the other. Shumate alleged that all the defendants were parties to two conspiracies in restraint of trade: first, a conspiracy to exclude securities listed on the major stock exchanges from the NASD Automated Quotation System (NASDAQ) at its beginning, and second, a conspiracy to ignore such securities after they were included on NASDAQ. The two suits were consolidated for trial, and after plaintiff had rested his case following five days of trial to a jury, the district court directed a verdict against him in favor of all defendants. As to the first alleged conspiracy, the district court found no evidence of damage to plaintiff. As to the second alleged conspiracy, the district court found no evidence of the conspiracy itself, and no evidence of injury from the conspiracy. As a matter of law, injury to a plaintiff's business or property is a necessary element of a private claim for any relief under the antitrust laws. Without sufficient evidence to present a jury question as to such injury, the court entered judgment against Shumate, from which Shumate appeals. We affirm.
Shumate, a member of NASD but not a member of any major stock exchange In response to a requirement by a 1964 amendment to the Securities Exchange Act of 1934 that NASD provide rules for dissemination of quotations on securities sold otherwise than on national securities exchanges, NASD employed Arthur D. Little, Inc., in 1967, to examine the feasibility of a nationwide automated quotation system for OTC trading. The next year NASD hired Bunker-Ramo Corp. to construct the system which was named the National Association of Securities Dealers Automated Quotations System (NASDAQ). The full membership of NASD approved an amendment to NASD's by-laws authorizing the Board of Governors, within limitations, to adopt, amend, alter, or supplement the rules governing the NASDAQ system. This amendment of the by-laws was filed with the Securities Exchange Commission, as required by law. After consultation with the SEC, from which NASD concluded that the SEC wanted the third market included in NASDAQ, NASD adopted rules for the system which would make third market quotations for listed stocks eligible for NASDAQ.
is a broker-dealer in securities, effectuating the purchases and sales for his clients in the over-the-counter market (OTC). The OTC market, unlike a stock exchange, has no central location in which transactions take place. The trades in OTC securities take place between individual brokers, generally over the telephone. Generally, the stocks traded in OTC are not listed on any stock exchange, and as such are referred to in the trade as 'unlisted stocks.' One segment of the OTC market consists, however, of trades, outside of the exchanges, of stocks which are listed on an exchange. This is commonly called the 'third market.' It is in reference to this third market in listed securities that Shumate has alleged antitrust violations on the part of the various defendants.
During a visit with Gordon Macklin, President of NASD, in August 1970, Ralph Saul, President of the American Stock Exchange (AMEX), expressed his opposition to the plan to include listed stocks on NASDAQ. Macklin told Saul that NASD's NASDAQ Committee felt that listed securities should not be included, but that the SEC wanted them in the system, so they had been included. After Macklin refused Saul's offer to approach the SEC jointly, Saul visited the SEC where he expressed his dissatisfaction to Hamer Budge, Chairman of the SEC. Chairman Budge suggested that Saul place his objections in writing, which was done in a letter to the SEC dated October 9, 1970. Saul's basic concern was the possible adverse impact of such inclusion upon the stock exchanges and the public. Saul did not discuss his letter with anyone connected with NASD or NYSE either before or after writing it.
Robert Haack, President of the New York Stock Exchange (NYSE), also wrote a letter to the SEC in October of 1970, expressing his concern over the possible ramifications of the inclusion of the third market in NASDAQ. While Haack sent a copy of his letter to Macklin, he did not send one to Saul. He had never seen a copy of Saul's letter to Chairman Budge.
A week after Haack sent his letter to the SEC, Macklin visited Chairman Budge to discuss the question of whether or not the SEC would approve a start-up of NASDAQ without the listed stocks. Chairman Budge again requested a letter, but two days later called Macklin to notify him that the SEC would approve the system without the third market at start-up. Following that call, the NASD Executive Committee and the NASD Board of Governors voted to start NASDAQ with only OTC stocks.
NASDAQ began operation on February 8, 1971, with quotations for only nonlisted OTC securities. Eight weeks later, NASD began a test period with the inclusion of 32 listed stocks, each having at least two interested market makers in the third market. The test securities included two for which Shumate had requested listing. After expiration of the test period, NASD, with
SEC approval, made all listed stocks eligible for inclusion on NASDAQ. Any such security is included when, as with an unlisted security, the requisite number of market makers have properly requested its inclusion. Thus, it is the interest of individual market makers in the security which determines whether or not that security will be listed on NASDAQ. None of the defendants have any control over that interest.
On this appeal Shumate has argued that the district court erred in directing a verdict against him on the two alleged antitrust violations. The first violation was a combination or conspiracy to exclude listed stocks from NASDAQ at the time the system commenced operation. The results of this conspiracy could only last the eight weeks between start-up of the system and the inclusion of the quotations on the system. The second was a conspiracy to ignore the listed securities once they had in fact become eligible for listing on NASDAQ and listed. To succeed in his lawsuit, Shumate must show injury from defendant's activities. The burden of Shumate's appeal is to show that there is sufficient evidence of injury in the record to present a jury question.
SHEARSON, HAMMILL & COMPANY, INC.
The district court found no evidence to associate Shearson, Hammill & Company, Inc. with the alleged conspiracy. The only connection Shearson, Hammill had with the activities from which these suits arose was that one of its officers, Gordon L. Teach, an individual defendant here, was Chairman of the Board of Governors of NASD during the period involved. His actions were taken as Chairman of NASD and not as an officer of Shearson, Hammill. In order for Shearson, Hammill to be liable for Teach's actions, it would have been necessary for him, in furtherance of the alleged conspiracy, to have been acting within the scope of his authority as a Shearson, Hammill officer. See Household Goods Carriers' Bureau v. Terrell, 417 F.2d 47, 54 (5 Cir. 1969), modified, 452 F.2d 152 (5 Cir. 1971) (en banc), appeal after remand, 494 F.2d 16 (5th Cir. 1974); United States v. Hilton Hotel Corp.,467 F.2d 1000, 1004--1007 (9th Cir. 1972), cert. denied, 409 U.S. 1125, 93 S.Ct. 938, 35 L.Ed.2d 256 (1973). Shumate offered no credible evidence from which the jury could have imputed Teach's activities to Shearson, Hammill, and the district court was correct in directing a verdict against Shumate as to Shearson, Hammill, and in rejecting Shumate's factually unsupported respondeat superior argument to hold Shearson, Hammill liable for any of Teach's acts.
Except as to Shearson, Hammill, the district court concluded that there was enough evidence presented by Shumate at the trial to make a jury question as to the existence of a conspiracy to exclude the listed securities. Assuming there to be a violation of the antitrust laws, however, the plaintiff concededly must show that he has been injured in his business or property as a prerequisite to a private suit:
'Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee.'
15 U.S.C.A. § 15; see ...
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