Smith v. SMITH, BARNEY, ETC., Civ. A. No. 80-0590-CV-W-2.

• Decision Date: 16 January 1981
• Docket Number: Civ. A. No. 80-0590-CV-W-2.
• Citation: 505 F. Supp. 1380
• Court: U.S. District Court — Western District of Missouri
• Parties: Geraldine Edens SMITH et al., Plaintiffs, v. SMITH, BARNEY, HARRIS, UPHAM & CO., INC., et al., Defendants.

505 F. Supp. 1380

Geraldine Edens SMITH et al., Plaintiffs, v. SMITH, BARNEY, HARRIS, UPHAM & CO., INC., et al., Defendants.

Civ. A. No. 80-0590-CV-W-2.

United States District Court, W. D. Missouri, W. D.

January 16, 1981.

COPYRIGHT MATERIAL OMITTED

Ronald C. Spradley, Spradley & Wirken, Kansas City, Mo., for plaintiffs.

Daniel M. Dibble, Lathrop, Koontz, Righter, Clagett, Parker & Norquist, Kansas City, Mo., for defendant, Smith, Barney, Harris, Upham & Co., Inc.

Gordon R. Gaebler, Svoboda & Gaebler P. C., Kansas City, Mo., for defendants F. Stuart and Alice Barnes.

Stephen G. Scholl, Linde, Thomson, Fairchild, Langworthy & Kohn, Kansas City, Mo., for defendants Bernard W. and A. J. Balow.

Bill E. Bracey, Jr., Davis, Bracey & Heuer, Springdale, Ark., for defendant Beryl Beckman.

ORDER DENYING MOTIONS TO DISMISS

INTRODUCTION

COLLINSON, Senior District Judge.

This matter pends before the Court upon various defendants' Motions to Dismiss. Plaintiffs are partners in the partnership "Glen Arbor Projects" and have named as defendants, Smith, Barney, Harris, Upham & Company, Inc. (hereinafter referred to as "Smith, Barney") and all other persons who were members of the partnership during the time period involved in this action and who declined to join as plaintiffs.

Defendant Smith, Barney is a securities brokerage firm. Plaintiffs complaint alleges that on or about May 20, 1960, defendant Smith, Barney entered into an agreement under which defendant F. Stuart Barnes opened cash and margin accounts with defendant Smith, Barney under a fictitious name "Glen Arbor Projects," and F. Stuart Barnes executed an agreement purporting to be the sole owner of Glen Arbor Projects. The complaint further alleges that thereafter and prior to 1965, Glen Arbor Projects became the name of a partnership which was an investment club for which F. Stuart Barnes acted as the managing partner.

Plaintiffs allege that F. Stuart Barnes, as managing partner, made unauthorized transactions in behalf of the partnership and maintained an unauthorized margin account with defendant Smith, Barney (¶ 11, 19). Plaintiffs further allege that after Glen Arbor Projects became a partnership, they informed defendant Smith, Barney that the Glen Arbor Projects account was no longer the account of an individual but one of a partnership (¶ 9, 19, 31), but that defendant Smith, Barney continued to transact business on a margin account basis without making any inquiry as to F. Stuart Barnes' authority to make such transactions (¶ 10, 20, 33).

Count I of plaintiffs' complaint sets out a claim against Smith, Barney for damages sustained by plaintiffs as a result of defendants' continual failure to comply with Rule 405 of the New York Stock Exchange (NYSE). Rule 405 requires all brokers to use due diligence to learn essential facts relative to every customer, every order and every cash or margin account. The Rule requires brokers who are members of the New York Stock Exchange to, in effect, "know their customer."¹ Counts II and III of plaintiffs' complaint allege the common law torts of conversion and negligence, respectively.

On August 11, 1980, defendant Beryl Lee Beckman, a member of the Glen Arbor Projects partnership, filed her motion to dismiss. One day later, defendants F. Stuart and Alice Barnes filed their motion to dismiss. On September 19, 1980, defendant, Smith, Barney moved that plaintiffs' complaint be dismissed and stated seven grounds therefor. The Court will first address the motions of the individual defendants.

INDIVIDUAL DEFENDANTS' MOTIONS TO DISMISS

Defendants Beryl Lee Beckman, F. Stuart Barnes and Alice Barnes move to dismiss on the grounds that they are merely nominal parties and plaintiffs' complaint seeks no relief against them individually. While no relief is specifically sought against these individual defendants, they are proper parties to this action and this Court has jurisdiction over them as they are parties necessary for a just adjudication of plaintiffs' claims. The cause of action against Smith, Barney is in favor of the partnership Glen Arbor Projects and therefore all partners of the partnership at the time of the transactions are necessary and indispensable parties to any action brought to enforce any claim of the partnership. See, for example, Harrell Sumner Contracting Co., Inc. v. Peabody Peterson Co., 546 F.2d 1227, 1229 (5th Cir. 1977); Bry-Man's, Inc. v. Stute, 312 F.2d 585, 587 (5th Cir. 1963); Rosen v. Texas Co., 161 F.Supp. 55 (S.D.N. Y.1958); Charne v. Essex Chair Co., 92 F.Supp. 164 (D.C.N.J.1950).

Additionally, Rule 19(a) of the Federal Rules of Civil Procedure states:

(a) Persons to be Joined if Feasible. A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. If he has not been so joined, the court shall order that he be made a party. If he should join as a plaintiff but refuses to do so, he may be made a defendant, or, in a proper case, an involuntary plaintiff. If the joined party objects to venue and his joinder would render the venue of the action improper, he shall be dismissed from the action.

All partners of Glen Arbor Projects during the period of time which defendant Smith, Barney handled the Glen Arbor Projects account are parties needed for a just adjudication and are parties who will not deprive the Court of jurisdiction of this matter. Failure to join all parties could subject defendant Smith, Barney to multiple liability should all parties not be made a party to this action.

Based upon the authorities cited, supra, and Rule 19(a) of the Federal Rules of Civil Procedure, it is the opinion of this Court that all partners of the partnership at the time of the transaction complained of are necessary and indispensable parties. Accordingly, defendants Beckman, F. Stuart and Alice Barnes' motions to dismiss are denied.

DEFENDANT SMITH, BARNEY'S MOTION TO DISMISS

On September 19, 1980, defendant Smith, Barney moved for an order dismissing plaintiffs' complaint on the grounds that (1) Count I states no actionable claim for relief because Rule 405 of the New York Stock Exchange does not give rise to a private cause of action for damages by the plaintiffs; (2) Counts II and III are unsupported by any independent jurisdictional basis and this Court should decline to exercise pendent jurisdiction over the claims advanced therein; (3) Count II states no actual claim for conversion under Missouri law; (4) Count III states no actionable claim for negligence or other breach of duty under Missouri law; (5) the matters pleaded in Counts II and III are res judicata and should be dismissed in view of the dismissal in the case of Geraldine Smith, et al. v. F. Stuart Barnes, et al., Case No. CV77-0043, in the Circuit Court of Jackson County, Missouri; (6) plaintiffs' claims for relief are barred by the pertinent five-year statutes of limitations, RSMo. Sections 516.120 and 516.100; and (7) prosecution of plaintiffs' claims under Counts I, II, and III are barred because an accounting and settlement between the copartners of Glen Arbor Projects is a condition precedent to the instant action for damages against the defendant.

Before addressing the merits of defendants' motion, the Court chooses to set out the standards which bind the Court when considering a motion to dismiss. For purposes of a motion to dismiss under the Federal Rules of Civil Procedure, the well pleaded material allegations of the complaint are taken as admitted. Springfield Television, Inc. v. City of Springfield, Missouri, 428 F.2d 1375 (8th Cir. 1970); Seven-Up Bottling Company v. Seven-Up Company, 420 F.Supp. 1246 (E.D.Mo.1976), aff'd 561 F.2d 1275 (8th Cir. 1977). The complaint, moreover is to be liberally construed in favor of the plaintiff. Jenkins v. McKeithen, 395 U.S. 411, 89 S.Ct. 1843, 23 L.Ed.2d 404 (1969).

It is well settled that a complaint should not be dismissed under Rule 12(b)(6) for failure to state a claim upon which relief can be granted "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957) (emphasis added); Thomason v. Hospital TV Rentals, Inc., 272 F.2d 263 (8th Cir. 1959). In Bramlet v. Wilson, 495 F.2d 714, 716 (8th Cir. 1975), the Court stated:

As a practical matter dismissal under Rule 12(b)(6) is likely to be granted only in the unusual case in which plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief.

With these standards in mind, the Court chooses to address defendant Smith, Barney's contentions in the order in which they were presented.

New York Stock Exchange Rule 405

The question of whether a violation of a New York Stock Exchange or National Association of Security Dealers (NASD) rule, required or promulgated by federal law, gives rise to a private right of action in favor of the customer damaged as a result of the violation is a "troublesome one." Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Goldman, 593 F.2d 129 (8th Cir. 1979), citing Shull v. Dain, Calman & Quail, Inc., 561 F.2d 152, 160 (8th Cir. 1977). The Second Circuit in Colonial Realty v. Bache & Co., 358 F.2d 178 (2nd Cir. 1966), indicated that in considering the question of whether violation of a...