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WITT v. MERRILL LYNCH

February 6, 1985

Ellen D. WITT, Plaintiff,
v.
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., a corporation, and Marc L. Gold, an individual, Defendants



The opinion of the court was delivered by: MCCUNE

 Plaintiff, Ellen D. Witt, brings this action against defendants, Merrill Lynch, Pierce, Fenner & Smith, Inc. (hereinafter Merrill Lynch), and Marc L. Gold (hereinafter Gold). Witt, a Pittsburgh resident, opened a cash management account in March, 1982, and an options account in April, 1982, with Merrill Lynch at its Bethesda, Maryland office. Gold was plaintiff's account executive. Three months later the Bethesda office was closed and Witt's accounts were transferred by Merrill Lynch to its Washington, D.C. office. Gold remained the account executive.

 Witt invested $ 45,000.00 with defendants, which is alleged to be money from a $ 50,000.00 inheritance. Plaintiff alleges that from August, 1982, to February, 1984, her account was reduced to $ 13,500.00 as a result of defendants' churning and improper choice of investments.

 On October 15, 1984, plaintiff filed an amended complaint, adding three counts. Defendants have filed numerous motions relevant to plaintiff's original complaint, which we will address seriatim.

 Motion to Dismiss

 Count 4 of plaintiff's original complaint alleges a manipulative and deceptive scheme by defendants in violation of Title IX of the Organized Crime Control Act, Racketeer Influenced and Corrupt Organizations (RICO), 18 U.S.C. § 1961 et seq. (1983). By letter dated January 11, 1985, counsel for plaintiff concedes that Count 4 must be dismissed as to Defendant Merrill Lynch based upon the recent case, B. F. Hirsch v. Enright Refining Company, Inc., 751 F.2d 628 (3d Cir.1984). In that case, the court held that under 18 U.S.C. § 1962(c), the predicate for Count 4 herein, the "person" subject to liability cannot be the same entity as the "enterprise." Since Witt alleged that Merrill Lynch is an enterprise, Count 4 must be dismissed against it on the basis of Hirsch.

 Defendant Gold argues that Count 4 must be dismissed against him for a variety of reasons. The only argument of merit is the claim that RICO is inapplicable because Gold has not been convicted of the predicate criminal acts. A recent case in the Second Circuit Court of Appeals so holds. Sedima, S.P.R.L. v. Imrex Co., Inc., 741 F.2d 482 (2d Cir.1984). See also Bankers Trust Co. v. Rhoades, 741 F.2d 511 (2d Cir.1984) and Furman v. Cirrito, 741 F.2d 524 (2d Cir.1984) filed the same day.

 In October, 1984, the contrary view was expressed in Haroco v. American National Bank & Trust Co. of Chicago, 747 F.2d 384 (7th Cir.1984), by the Seventh Circuit Court of Appeals. The Haroco court rejected Sedima and concluded that a civil RICO plaintiff need not allege an injury to business or property resulting from the underlying acts of racketeering. The Supreme Court granted certiorari in both Sedima and Haroco on January 15, 1985, and has scheduled them for argument together. 469 U.S. 1157, 105 S. Ct. 901, 933 L. Ed. 2d 917; 469 U.S. 1157, 105 S. Ct. 902, 83 L. Ed. 2d 917.

 Defendants also move to dismiss Counts 8 and 9 of the original complaint. Count 8 alleges a violation of Rules 405 and 435 of The New York Stock Exchange, and Count 9 asserts a violation of Art. III § 2 of the National Association of Securities Dealers (NASD) Rules of Fair Practice. We agree with the court in Jacobson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 605 F. Supp. 510 (W.D.Pa. 1984), and adopt its reasoning therein, that there is no private right of action against defendants, either express or implied, under the New York Stock Exchange and NASD Rules. Therefore, we will grant the motion to dismiss Counts 8 and 9.

 Motion for Change of Venue

 Defendant Gold argues that venue is improper for Counts 5-9. He asserts that the appropriate statutory section to determine proper venue is 28 U.S.C. § 1391(b), not § 1391(a) which relates to jurisdiction based solely on diversity of citizenship. Section 1391(b) provides,

 
A civil action wherein jurisdiction is not founded solely on diversity of citizenship may be brought only in the judicial district where all defendants reside or in which the claim arose, except as otherwise provided by law.

 The significance of this section is that it eliminates the alternative of venue where all of the plaintiffs ...


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