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JACABSON v. MERRILL LYNCH PIERCE FENNER & SMITH

December 3, 1984

Estelle JACABSON and Cynthis Carson, Plaintiffs,
v.
MERRILL LYNCH PIERCE FENNER & SMITH, INC., and Robert M. Kolaczynski, Defendants



The opinion of the court was delivered by: MENCER

 MENCER, District Judge.

 This action arises out of alleged violations of the Securities Act of 1933, the Securities Exchange Act of 1934, the Racketeer Influenced and Corrupt Organizations Act (RICO) as well as alleged violations of common law. We have federal question jurisdiction pursuant to 28 U.S.C. § 1331 and also pendent jurisdiction over the state law claims.

 The Court has before it a Motion by the Plaintiff for Leave to File an Amended Complaint which we grant in the interest of justice and in accord with the liberal pleading rules of federal practice. Also pending are Motions by the defendants Kolaczynski and Merrill Lynch to Dismiss and Strike various counts of the plaintiffs' complaint, to Compel Arbitration, For a More Definite Statement and to Strike a Prayer for Relief. We will grant the plaintiffs' Motion and also consider the defendants' motions at this time.

 The plaintiffs, mother and daughter, are joint tenants of an options account held with Merrill Lynch which was opened on or about June 23, 1981. Estelle Jacobson, the mother, was a recent widow at that time and relied heavily on the advice of Robert Kolaczynski, a broker-dealer employed by Merrill Lynch. The plaintiffs' account consisted of securities inherited from Estelle's husband, the late Roger Jacobson. Estelle was dependent upon the interest and earnings of the inherited securities for her support. At the time the joint account was opened, the value of the securities then owned and deposited was $125,000.00. The defendant Kolaczynski allegedly misrepresented to the plaintiffs the risks of engaging in options trading and churned the plaintiffs' account to generate commissions. On or about September 1983, the plaintiffs learned that there was no balance remaining in the account.

 Plaintiffs claim that the defendants failed to comply with the rules and regulations of the Securities and Exchange Commission, the New York Stock Exchange, the National Association of Securities Dealers and failed to fulfill their fiduciary obligation to the plaintiffs. Plaintiffs also claim that the defendants violated the Securities Act of 1933, the Securities Exchange Act of 1934, and RICO, and intentionally caused the plaintiffs emotional distress. They are seeking general damages, as well as punitive damages on some counts and treble damages for the counts under RICO.

 Motion to Compel Arbitration

 The defendants move to compel arbitration of the plaintiffs' claims pursuant to the Federal Arbitration Act. When the plaintiffs opened their options account at Merrill Lynch, they signed a Standard Option Agreement and also a Customer Agreement, both of which contained arbitration provisions. The plaintiffs could not, however, sign away their rights under the Securities Act of 1933 and the Securities Exchange Act of 1934. Those Acts contain anti-waiver provisions. *fn1"

 Section 29 of the Securities Exchange Act of 1934, 15 U.S.C. § 78cc(a) provides: "Any condition, stipulation or provision binding any person to waive compliance with any provision of this chapter or of any rule or regulation thereunder, or of any rule of an exchange required thereby shall be void." This provision is uniformly held to render void agreements to arbitrate future Securities Act and Securities Exchange Act violations. Wilko v. Swan, 346 U.S. 427, 74 S. Ct. 182, 98 L. Ed. 168 (1953); see also Ging v. Parker-Hunter, Inc., 544 F. Supp. 49 (W.D.Pa.1982). Thus, the plaintiffs cannot be compelled to arbitrate their federal securities claims.

 This Court will follow the reasoning of the New York court in S.A. Mineracao Da Trindade-Samitri v. Utah International Inc., 576 F. Supp. 566 (S.D.N.Y.1984) in holding the plaintiffs' RICO claims to be non-arbitrable as well. We also decline to sever the issues in this case since the factual issues in all of the plaintiffs' claims appear to be identical.

 Motion to Dismiss and Strike Various Counts

 A. The stock exchange rules and rules of the national association of securities dealers

 The Securities Exchange Act does not expressly authorize private actions for stock exchange rule violations. The plaintiffs, in claiming violations of the New York Stock Exchange Rules, are seeking to imply private rights of action under the relevant congressional statutes. The Supreme Court in Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S. Ct. 2479, 61 L. Ed. 2d 82 (1979) enunciated the standard for implying private actions. The Court stated

 
"the fact that a federal statute has been violated and some person harmed does not automatically give rise to a private cause of action in favor of that person." Cannon v. University of Chicago, supra, 441 U.S. [677] at 686 [99 S. Ct. 1946, at 1952, 60 L. Ed. 2d 560]. Instead, our task is limited solely to ...

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