This entire controversy was apparently resolved on October 13, 1969, by an exchange of general releases, whereby defendant cancelled the asserted balance of $7,287.07 and paid an additional $2,700.00 to the plaintiffs. If the releases are valid, the case is at an end; if not, the plaintiffs may proceed.
To test the validity of the releases, both parties rely principally on Pearlstein v. Scudder and German, 429 F.2d 1136 (2d Cir. 1970), cert. denied, 401 U.S. 1013, 91 S. Ct. 1250, 28 L. Ed. 2d 550 (1971). In Pearlstein, plaintiffs had purchased bonds on credit and were obligated under Federal Reserve System Regulations
to satisfy the balance within seven business days after date of purchase. When payment was not made and before the bonds were sold, defendant broker instituted suit to collect the balance. The suit was settled under a stipulation by which the plaintiffs were given additional time to pay for the bonds. Payment was not made, and, after the bonds were sold at a loss, plaintiffs sued, alleging margin violations. The Court held that the settlement "involved the promise by defendant of a continuation of credit which was illegal under the Act (Securities Exchange Act of 1934)." Pearlstein, supra, at 1142. The Court added that "Section 29(a) of the Securities Exchange Act holds void any stipulation obligating a party to waive compliance with the Act."
(emphasis supplied) Pearlstein, supra, at 1143.
Initially, the Pearlstein interpretation of Section 29(a) was construed as an in terrorem provision apparently voiding any final settlement short of litigation.
Cohen v. Tenney Corp., 318 F. Supp. 280 (S.D.N.Y. 1970); In Re Cohen's Will, 51 F.R.D. 167 (S.D.N.Y. 1970). However, on motion for reargument in Cohen v. Tenney Corp., supra, the court reconsidered and stated:
"The import of Pearlstein, in my view, is not that all settlements of matured claims, short of litigation, are void; but rather that their terms are not necessarily above judicial scrutiny, as the district court in that case had erroneously ruled. (citing Pearlstein). Since the 1933 Securities Act does not require persons aggrieved by violations of its provisions to sue, this general release, purporting to settle an already ripened controversy, is not by its term void as a matter of law. (citation omitted)