Wilko v. Swan
Decision Date | 23 May 1952 |
Citation | 107 F. Supp. 75 |
Parties | WILKO v. SWAN et al. |
Court | U.S. District Court — Southern District of New York |
Henry E. Mills, Washington, D. C., for plaintiff, by Richard H. Wels, New York City, of counsel.
Chadbourne, Parke, Whiteside, Wolff & Brophy, New York City, for defendants, by Leonard P. Moore, Edwin C. Hoyt, Jr., New York City, of counsel.
Roger S. Foster, Gen. Counsel, Alexander Cohen, Sp. Counsel, George H. Jaffin, Attorney, Washington, D. C. for Securities and Exchange Commission, amicus curiae.
Motion by defendants, Hayden, Stone & Co. to stay the trial of this action pursuant to Title 9 U.S.C.A. § 3, and all further proceedings herein until an arbitration has been had in accordance with the terms of the margin agreements entered into between plaintiff and defendants. Defendants, Hayden, Stone & Co. have not yet answered the complaint. The Securities and Exchange Commission has filed a brief amicus curiae opposing the stay of proceedings pending arbitration.
The suit is under the Securities Act of May 27, 1933 as amended, 15 U.S.C.A. § 77a et seq., and seeks to recover damages in the amount of $3,888.88.
The plaintiff alleges that on or about January 17, 1951, defendants sold to the plaintiff 1600 shares of the common stock of Air Associates, Inc., a New Jersey corporation, and that plaintiff paid $29,517.54 therefor; that "Said sale of securities by the defendants to the plaintiff was made by the use of the means and instrumentalities of transportation and communication in interstate commerce, to wit: the facilities of the New York Curb Exchange, a registered national securities exchange, the telephone and telegraph lines of the New York Telephone Company and the Western Union Company, and by the use of the United States mails, and said sale was made by means of communications by the defendants to the plaintiff which were and, which included untrue statements of material facts and omitted to state material facts necessary in order to make the statements made in the light of the circumstances under which they were made, not misleading." Plaintiff charges that defendants represented to the plaintiff that Air Associates, Inc. had concluded a merger with the Borg Warner Corporation which would increase the value of the stock and that banks and large financial interests were buying the stock as a result. Plaintiff asserts that these representations were in fact untrue and plaintiff did not know them to be untrue at the time of his purchase. He also charges that the defendant Haven B. Page, a director, counsel and owner of record of a large block of the stock of Air Associates, Inc. was at that time selling his stock or some of it on the New York Curb Exchange, including some or all of the stock sold to the plaintiff.
Hayden, Stone & Co. assert that the relationship between plaintiff and defendants Hayden, Stone & Co. was established by, based upon, and controlled by the terms and conditions of Margin Agreements dated May 2, 1950 and January 18, 1951, respectively, duly executed by the plaintiff.
The Margin Agreements, in small-type printed form, contain 16 separate paragraphs, and provide in part:
The contract for the sale of the stock was a separate agreement.
The Federal Arbitration Statute, Section 3, Title 9 U.S.C.A. § 3 reads:
"If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration." Emphasis added.
But this action is brought under the Securities Act of 1933, Title 15 U.S.C.A., and Section 77l of that Act provides that:
Section 77n of the Securities Act of 1933 provides:
"Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission shall be void."
It would therefore seem that this controversy is not "referable to arbitration".
Section 77l provides a relatively simple court remedy for the aggrieved purchaser. It shifts some of the burden of proof to the seller. The purchaser is also given a choice of forum.
It is very clear that the intent of the Congress was to require that the provisions of the Securities Act should be strictly complied with so that the purchaser of securities would be protected as fully as reasonably possible. Although the Congress in 1934 enacted some alleviating amendments in respect to Section 77k, which imposes liabilities for misrepresentation in a registration statement, it made no change in Section 77l.
As the Securities and Exchange Commission suggests, many purchasers of securities would not hesitate to sign the printed form in small type which includes a provision for arbitration, thereby waiving the remedies provided by the Securities Act, particularly as few purchasers are aware of the provisions of the Securities Act. A collateral agreement of this nature would nullify the Act's basic purposes and allow the purposes of the Congress to be circumvented.
In the Senate Report on the bill it was said:
"It is now imperative that the Federal Government shall adopt measures looking to the protection of the purchasers of securities in interstate commerce." Emphasis added. Sen. Rept.No.47, 73rd Cong. 1st Sess. (1933) p. 2.
The House Committee Report stated:
Emphasis added. H.R.Rep.No.85, 73rd Cong. 1st Sess. (1933) pp. 9-10.
In Otis & Co. v. Securities and Exchange Commission, 6 Cir., 106 F.2d 579, at page 583 the court declared:
See also Oklahoma-Texas Trust v. S.E.C., 10 Cir., 100 F.2d 888, 891.
In the light of this background of Congressional purpose, the liabilities provision of Section 77l and the antiwaiver provision of ...
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Wilko v. Swan
...the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.' 4 Wilko v. Swan, D.C.N.Y., 107 F.Supp. 75. 5 Wilko v. Swan, 2 Cir., 201 F.2d 439. 6 48 Stat. 84, 15 U.S.C. § 77n, 15 U.S.C.A. § 77n. Section 14 provides: 'Any condition, ......
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Pacific Dunlop Holdings Inc. v. Allen & Co. Inc., 91-2346
...The district court denied the motion, concluding that arbitration was contrary to the remedies afforded by the 1933 Act. Wilko v. Swan, 107 F.Supp. 75, 79 (1952). The Second Circuit reversed, holding that the congressional policies under the United States Arbitration Act permitted arbitrati......
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Shearson, Hammill & Co. v. Vouis, s. 70--1194
...conclusive, and we adopt the reasoning therein. The cases and theory upon which petitioner relies were distinguished in Wilko v. Swan, 107 F.Supp. 75, 79 (S.D.N.Y., 1952), affirmed 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. As to the second basis for our decision, the case of Cruger v. Allstate I......
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Expanded grounds for judicial review of employment arbitration awards.
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