(D.C. Civil Action No. 72-427). APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA.
Aldisert and Adams, Circuit Judges, and Stapleton, District Judge.
In the midst of an action seeking damages for violation of the Securities Exchange Act of 1934, the district court, 352 F. Supp. 1000, issued a preliminary injunction restraining the appellant Boenning from executing on a state court judgment entered by confession six years prior to commencement of the federal action. This appeal requires an interpretation of the Securities Exchange Act of 1934 and the federal Anti-Injunction Act to determine the propriety of the district court's action.
John E. Jennings, a stockbroker in the employ of the Boenning Company, purchased for the account of his wife, Helen Jennings, certain Eastern Airlines debentures on February 9, 1966, and certain Rohr Aircraft debentures on January 18, 1966. The Jennings did not make full cash payment for the order within 7 days of purchase. Regulation T of the Federal Reserve Board, 12 C.F.R. § 2204(c)(2), promulgated pursuant to the Securities Exchange Act of 1934, 15 U.S.C. § 78g(a), requires that where "a customer purchases a security (other than an exempted security) in the special cash account and does not make full cash payment for the security within 7 days after the date on which the security is so purchased, the creditor shall, . . . [with exceptions not pertinent here], promptly cancel or otherwise liquidate the transaction or the unsettled portion thereof."
Boenning sold the Eastern securities on March 1, 1966, and the Rohr securities on March 2 and 3, 1966. During the time the securities were held beyond the 7 day period permitted under Regulation T, the fair market value of the securities decreased by $32,175. This decrease in value when credited against Helen's account resulted in a deficit of $30,500.00 for which Boenning demanded and received from John and Helen Jennings a judgment note. On April 14, 1966, judgment by confession was entered against the Jennings in the Court of Common Pleas, Montgomery County, Pennsylvania. Three years later the Jennings attempted to open the judgment, but were rebuffed by the trial court and the Pennsylvania appellate court on the theory of laches. Boenning & Co. v. Jennings, 222 Pa. Super. 712, 294 A.2d 739 (1972).
Thereafter the Jennings filed a complaint in federal district court against Boenning seeking damages for "violation of the margin requirements of the Securities Exchange Act of 1934," 15 U.S.C. § 78g(c); 15 U.S.C. § 78cc.
During the course of the proceedings below the Jennings obtained a preliminary injunction restraining Boenning from executing on the judgment entered by the Montgomery County Court of Common Pleas. While the district court noted both the Federal Anti-Injunction Act, 28 U.S.C. § 2283, and the admonition of the Supreme Court of the United States in Atlantic Coast Line R.R. v. Brotherhood of Locomotive Engineers, 398 U.S. 281, 287, 26 L. Ed. 2d 234, 90 S. Ct. 1739 (1970), that "any injunction against state court proceedings otherwise proper under general equitable principles must be based on one of the specific statutory exceptions to § 2283 if it is to be upheld . . . [and] the exceptions should not be enlarged by loose statutory construction," it found two such exceptions. The court concluded it was specifically authorized by § 21(e) of the Securities Exchange Act, 15 U.S.C. § 78u(e), to issue the injunction in this case. See Studebaker Corp. v. Gittlin, 360 F.2d 692, 696-98 (2d Cir. 1966). Furthermore, the court was also of the opinion that the second exception provided in the Federal Anti-Injunction Statute for injunctions "necessary in aid of" the jurisdiction of the district court likewise enabled the court to issue the relief requested. We hold that the district court erred in both conclusions and reverse.
The district court's reliance on the Second Circuit's Studebaker case was misplaced. There, the enjoined state proceeding was one to inspect a corporation's stockholder list. The federal court's order enjoined the use of other stockholders' authorizations in the state action until there was compliance with the Proxy Rules of the Securities and Exchange Commission promulgated under § 14(a) of the Securities Exchange Act, 15 U.S.C. § 78n(a).
Section 21(e) of the Securities Exchange Act provides:
Whenever it shall appear to the Commission that any person is engaged or about to engage in any acts or practices which constitute or will constitute a violation of the provisions of this chapter, or of any rule or regulation thereunder, it may . . . bring an action . . . to enjoin such acts or practices, and upon a proper showing a ...