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MORAN v. PAINE

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA


November 16, 1966

Moran
v.
Paine, Webber, Jackson & Curtis

Weber, District Judge.

The opinion of the court was delivered by: WEBER

WEBER, District Judge.

Plaintiff brings this action against a stock brokerage firm claiming jurisdiction under 15 U.S.C.A. § 77v (Securities Act of 1933), 15 U.S.C.A. § 78aa (Securities Exchange Act of 1934, and 28 U.S.C.A. § 1332 (diversity jurisdiction). The causes of action are stated in three counts. Count I avers transactions in violation of 15 U.S.C.A. § 77l, 15 U.S.C.A. § 77q and 15 U.S.C.A. § 78j; Count II alleges unauthorized sales of plaintiff's securities in violation of the laws of the United States and the Commonwealth of Pennsylvania, but with no specification of a statutory or administrative regulation; and Count III alleges general acts of misrepresentation and misconduct in violation of the laws of the United States and the Commonwealth of Pennsylvania with no specifications.

 Defendant moves to dismiss on the grounds that the matter is res judicata. In support of this motion, Defendant has filed the record of arbitration and state court proceedings to which we will refer herein.

 In August 1963, plaintiff entered into an Arbitration Submission Agreement with Defendant under which the parties agreed to submit "the matter in controversy between us and all matters, claims and counterclaims relating thereto" to binding arbitration under rules established by the New York Stock Exchange. Plaintiff submitted a written statement of claim setting forth eight factual matters to be arbitrated, which are essentially the factual bases pleaded in support of the present cause of action. Defendant filed a written reply. A hearing was held before the five arbitrators selected, and on October 30, 1963, the arbitrators issued a decision awarding plaintiff $1,564.05, and costs, in full and final settlement of the matter. No findings of fact and no opinion was issued.

 In January 1964, Plaintiff filed in the Court of Common Pleas of Erie County, Pennsylvania, a "Petition for Modification of Award". The basis for this pleading was that the New York Statute under which the New York Stock Exchange conducted its arbitration procedure provided that a party may present a petition to court within 90 days for modification of an arbitration award if there was a miscalculation of figures by the arbitrators. Plaintiff's petition and four amended petitions were dismissed on the grounds that no miscalculation was shown and no evidence of improper conduct of the arbitrators was presented. The court further held that plaintiff was free to elect to submit her present dispute to arbitration, and that she was bound thereby, although her original margin account agreement to submit all future disputes to arbitration was invalid as contrary to the non-waiver provisions of the Securities Act of 1933 (15 U.S.C.A. § 77n), as decided in Wilko v. Swan, 346 U.S. 427, 74 S. Ct. 182, 98 L. Ed. 168 (1953).

 The matter was appealed to the Supreme Court of Pennsylvania which upheld the dismissal ( Moran v. Paine, Webber, Jackson & Curtis, 422 Pa. 66, 220 A. 2d 624 (1966)). In an extensive opinion that court considered all of the contentions advanced by plaintiff. It found no barrier to the submission of an existing dispute to arbitration in the language of 15 U.S.C.A. § 77n. It determined that the rule of Wilko v. Swan, cit. supra, was limited to agreements to arbitrate future controversies and did not bar submission of an existing controversy. It also found that the same rule should be applied to the parallel non-waiver provisions of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78cc (a), citing Reader v. Hirsch & Co., 197 F. Supp. 111 (S.D.N.Y. 1961). The court also considered and disposed of plaintiff's remaining contentions that the submission to arbitration was not voluntary.

 Plaintiff filed the present suit against Defendant in the United States District Court on February 11, 1966, and Defendant now moves to dismiss on the grounds that the matter is res judicata, involving the same parties and the same basic factual contentions as were set forth in the arbitration claim and the subsequent state court review.

 Plaintiff claims that her present action is not so barred because it is based upon causes of action provided by Federal law. 15 U.S.C.A. § 77p, and 15 U.S.C.A. § 78bb, both provide that the rights and remedies provided by those Acts "shall be in addition to any and all other rights and remedies that may exist in law or in equity." We recognize that actions under both the Securities Act of 1933 and the Securities Exchange Act of 1934 are based on different elements from common law actions for fraud and deceit in the state courts, and that the same set of operative facts may give rise to separate causes of action. Kernel Kutter, Inc. v. Fawcett Publications, Inc., 284 F.2d 675 (7th Cir., 1960), and that these may be sued upon separately. In Lippmann v. Hydro-Space Technology, Inc., 235 F. Supp. 860 (D.C.N.J. 1964), the court recognized this in dismissing the causes of action based on state law claims brought under diversity jurisdiction as being res judicata in prior state court action, and ruling separately under the claims brought under 15 U.S.C.A. § 77a et seq.

 Plaintiff argues that her statement of claim to the arbitrators alleged misrepresentations and general mismanagement, and recited no violations of federal law, and that therefore the decision of the arbitrators was not based upon her separate causes of action under the federal statutes. Furthermore, Plaintiff asserts the entire lack of jurisdiction in either the arbitrators or the state courts to consider her claims.

 We must first note that it is only as to the Securities Exchange Act of 1934 (15 U.S.C.A. § 78a et seq.) that the statute confers exclusive jurisdiction on the Federal Courts, 15 U.S.C.A. § 78aa. For causes of action arising out of violations of the Securities Act of 1933 (15 U.S.C.A. § 77a et seq.) 15 U.S.C.A. § 77v confers concurrent jurisdiction on the federal, state and territorial courts.

 Plaintiff here has pleaded separate causes of action, those arising out of common law rights cognizable in this court under diversity jurisdiction, those under the Securities Act of 1933, cognizable in this court under concurrent jurisdiction, and those under the Securities Exchange Act of 1934 in which the jurisdiction is exclusively in the Federal Courts.

 It is our opinion that as to all claims cognizable in the state courts, based upon common law rights, and all claims under the Securities Act of 1933, the Plaintiff has submitted her federal claims to a state tribunal freely and without reservation, has litigated them there, and has had them decided there. She is thus barred from a suit on the same claims in the Federal District Court. England v. Louisiana State Board of Medical Examiners, 375 U.S. 411, 11 L. Ed. 2d 440, 84 S. Ct. 461 (1964). The only avenue of appeal from the highest appellate court of a state where any right is set up or claimed under any statute of the United States is to the United States Supreme Court by writ of certiorari. 28 U.S.C.A. § 1257.

 

"And even though a question of federal law is presented in a case in a state court, if the court has jurisdiction of the subject matter and of the parties and after hearing enters judgment which is responsive to the issues and the judgment is affirmed by the highest court in the state, no court in the United States other than the Supreme Court on appeal or certiorari has jurisdiction to review, vacate or annul such judgment. Even though it is contended that such a judgment involves a denial of federal rights, the question cannot be reviewed in the courts of the United States except by appeal or certiorari to the Supreme Court. Angel v. Bullington, 330 U.S. 183, 67 Sup. Ct. 657, 91 L. Ed. 832." Parnacher v. Mount, 207 F.2d 788, at p. 791 (10th Cir., 1953).

 Therefore, to the extent that Plaintiff relies upon the lack of jurisdiction to overcome the defense of res judicata, this argument is valid only as to any cause of action pleaded under 15 U.S.C.A. § 78a et seq. We also note that any cause of action under 15 U.S.C.A. § 77l (2) is barred by the statute of limitations imposed by 15 U.S.C.A. § 77m.

 Therefore, we believe the only remaining question is whether the Plaintiff is now free to assert a cause of action under 15 U.S.C.A. § 78a et seq. despite the submission of all claims arising out of the transaction to binding arbitration, and the subsequent court proceedings confirming the result.

 15 U.S.C.A. § 78bb provides:

 

"(b) Nothing in this chapter shall be construed to modify existing law (1) with regard to the binding effect on any member of any exchange of any action taken by the authorities of such exchange to settle disputes between its members, or (2) with regard to the binding effect of such action on any person who has agreed to be bound thereby . . ."

 The plaintiff agreed to submit the entire controversy to arbitration under the rules of the New York Stock Exchange, and to be bound thereby.

 We do not take it to be the intention of Congress that such defenses as res judicata or estoppel are unavailable to a defendant facing a claim under § 78a et seq.. A variety of cases has sustained defenses of this nature. "Estoppel and waiver are defenses to a civil action brought under §§ 10(b) and 29(b) of the Securities Exchange Act of 1934." Royal Air Properties, Inc. et al. v. Smith, 312 F.2d 210 (9th Cir., 1962). See also Carr v. Warner, 137 F. Supp. 611 (D. Mass., 1955), Nash v. Warner, 137 F. Supp. 615 (D. Mass., 1955), and Goldenberg v. Bache & Co., 270 F.2d 675 (5th Cir., 1959). In the above actions, all brought under 15 U.S.C.A. § 78a et seq., the courts held the plaintiff estopped by a waiver of the right to bring action in the United States District Court.

 Defendant has presented its defense of res judicata by a Motion to Dismiss under Rule 12. Williams v. Murdoch, 330 F.2d 745 (3rd Cir., 1964) gives authority for such a pleading. But in considering this defense under Rule 12 it has been necessary for Defendant to present and the court to consider matters outside the pleadings, the state court record.

 While we are convinced that res judicata has application to all matters over which the state court had jurisdiction, it does not apply to claims under the Securities Exchange Act of 1934 over which the Federal Courts have exclusive jurisdiction.

 Where matters outside the pleading are presented and not excluded by the court, the motion must, under Rule 12(b) (6), be treated as a motion for Summary Judgment and be disposed of as provided in Rule 56.

 Defendant has filed its evidentiary material of matters outside the record in support of its motion. Opportunity to reply and answer has been afforded Plaintiff. Briefs have been filed and oral argument held before the court.

 The court finds that with respect to the plea of res judicata, the facts of this action are not in substantial controversy. We find no jurisdictional barrier existed to the submission of Plaintiff's claims under state law or under the Securities Act of 1933 to either arbitration or to the state courts. We find that the state courts fully considered all of Plaintiff's claims and made a full and complete adjudication of all of them. In a series of opinions the Common Pleas Court considered and disposed of these matters, and on appeal the Pennsylvania Supreme Court set forth its decision in an extensive opinion.

 Since we are limited by the pleadings to the defense of res judicata we make no findings on the claims asserted under the Securities Exchange Act of 1934 over which exclusive jurisdiction remains in this court. The Defendant may by a proper responsive pleading raise such defenses as are available to those claims.

 An appropriate Order will be entered granting partial summary judgment in accordance with this Opinion.

19661116

© 1992-2004 VersusLaw Inc.



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