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December 14, 1973

Joseph ZAPACH and Anna Zapach

Nealon, District Judge.

The opinion of the court was delivered by: NEALON

NEALON, District Judge.

This matter is before the Court on defendant's motion for summary judgment and plaintiffs' cross-motion for summary judgment and dismissal of defendant's counterclaim.

 Plaintiffs, Joseph and Anna Zapach, *fn1" were brokerage customers of J.H. Brooks & Co. during all relevant times. The defendant, Elkins, Morris, Stroud & Co., subsequently acquired both the assets and liabilities of the Brooks firm. Plaintiffs allege that during 1968 and through October of 1969 they bought and sold securities on margin through the Brooks firm and that Brooks failed to abide by the applicable margin requirements as a result of which plaintiffs claim losses amounting to $31,318.34.

 The Securities Exchange Act of 1934 provides for the maintenance of margin accounts in accordance with rules and regulations to be promulgated by the Board of Governors of the Federal Reserve System. *fn2"

 Those rules provide that the customer must deposit sufficient cash or collateral into his account within five business days after a purchase of stock so as to satisfy the current margin percentages. *fn3" The duty to police the account is placed on the broker, who is empowered to liquidate a customer's account to the extent necessary to meet the margin requirements. *fn4" If the broker fails to obtain the required cash or collateral, and fails to sell the stock after the permissible five-day period, he renders himself liable for any losses when the purchased stock is eventually sold. Those rules form the basis of the complaint that the defendant did not liquidate plaintiffs' account upon plaintiffs' failure to deposit sufficient funds in their account so as to meet the applicable margin requirements for the purchase of stock. Since the stock allegedly was not sold until sometime after the five-day period and until it had sharply declined in value, plaintiffs claim a loss of $31,318.34, according to their method of accounting. Defendant, on the other hand, asserts that the liquidation of plaintiffs' account resulted in a balance owed by plaintiffs of $7,287.07 on the original contracts of purchase. This amount is part of the damages sought in defendant's counterclaim.

 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 *fn5" 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." *fn6" (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. *fn7" 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)
"The inquiry, however, does not end here. Judicial hostility toward waivers generally requires that the right of private suit for alleged violations be scrupulously preserved against unintentional or involuntary relinquishment." Cohen v. Tenney Corp., supra at 284.

 The distinction between the instant case and Pearlstein lies in the purposes and effects of the stipulations of settlement executed in each case. In Pearlstein, the stipulation perpetuated the very evil Congress had condemned by granting the plaintiffs an illegal extension of credit to pay for the bonds which were being purchased. The stipulation continued the illegal transaction. In this case, on the other hand, the liquidation of plaintiffs' account severed the Congressionally-regulated relationship of broker and customer. Any extension of credit for the purchase of stock must necessarily have terminated when the stock was sold. At that point, it only remained for the parties to attempt to recoup their losses. *fn8"

 In light of the above, I conclude that the rationale of Cohen v. Tenney Corp., supra, dissuades me from holding these releases void as a matter of law. Cf. Jennings v. Boenning & Company, 352 F. Supp. 1000 (E.D. Pa. 1972). I might further add that once the dispute between the parties has crystallized, I do not believe Congress intended Section 29 to bar all attempts at amicable resolution. Cf. Wilko v. Swan, 346 U.S. 427, 74 S. Ct. 182, 98 L. Ed. 168 (1953) (which held void a stipulation binding the parties to arbitrate future controversies) with Moran v. Paine, Webber, Jackson & Curtis, 389 F.2d 242 (3d Cir. 1968) (which sanctioned an agreement to submit an "existing controversy" to arbitration).

 However, plaintiffs further contend that the release of the defendant is void under common law principles of mutual mistake, misrepresentation and unconscionability. In light of the chameleon-like nature of the facts in support and opposition to these theories, I cannot conclude that there is no genuine issue as to the material facts. In addition, since defendant posits its counterclaim on the possibility that the release will be held ...

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