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ANTINOPH v. LAVERELL REYNOLDS SECS.

January 17, 1989

JANICE ANTINOPH, FLORENCE BUDOVITCH, PAT CHALPHIN, HAROLD EDELSON, RITA EDELSON, MIRIAM EPSTEIN, LYNETT WATSON, GEORGE WATSON and LINDA WATSON, Plaintiffs,
v.
LAVERELL REYNOLDS SECURITIES, INC., JUDSON D. LAVERELL, ROGER A. REYNOLDS, MARK SIEMON AND BROADCORT CAPITAL CORP., Defendants



The opinion of the court was delivered by: HUTTON

 HERBERT J. HUTTON, UNITED STATES DISTRICT JUDGE

 Plaintiffs seek recovery of approximately $ 400,000 in damages for securities which they purportedly lost because of the fraudulent practices and securities laws violations of the defendants. Pending before this court are motions by the Laverell firm, Judson D. Laverell and Roger A. Reynolds (hereinafter referred to as the "Laverell defendants") and Broadcort Corp. (hereinafter referred to as "Broadcort"), to dismiss plaintiffs' complaint for failure to state a claim upon which relief can be granted and failure to plead fraud with particularity. In the alternative, both defendants have made motions to compel plaintiffs' claims to arbitration. Upon the reasoning set forth in the following memorandum, I will grant in part defendant Broadcort's motion to dismiss, deny the Laverell defendants' motion to dismiss, and will deny both defendants' motion to compel arbitration.

 FACTS

 The complaint, filed on May 4, 1988, alleges violation of the Federal Securities laws, Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78(b), Rule 10b-5 of the Securities Exchange Commission, 17 C.F.R. § 240.10b-5, and Rule 10b-3 of the Securities Exchange Commission, 17 C.F.R. § 240.10b-3, as well as Pennsylvania statutory and common-law fraud claims.

 For the purposes of the present motion to dismiss, the allegations of the complaint will be taken as true. The substance of plaintiffs' claim is that Mark Siemon, a broker for the Laverell firm, conducted fraudulent practices in the trading of plaintiffs' options which were known and were tolerated by both the Laverell defendants and Broadcort causing plaintiffs to suffer loses in excess of $ 400,000.

 In opening their accounts, all plaintiffs, with the exception of Florence Budovitch, Harold Edelson and Rita Edelson, signed a standard option agreement with the Laverell firm and a customers agreement with the Broadcort Corp. These agreements set out the relationship between the parties. The relationship was that all option transactions initiated between the Laverell firm and the plaintiffs would be processed through the Broadcort Capital Corp. which would serve as a clearing agent since the Laverell firm did not have the facilities to carry out option trading. After Broadcort processed the transactions between plaintiffs and the Laverell firm it would mail plaintiffs confirmation slips along with monthly margin statements. Each of these agreements contained arbitration clauses.

 Plaintiffs allege that neither the Laverell firm nor Siemon explained to them the risks involved with option trading.

 Eventually, Siemon informed plaintiffs that there were losses as the result of his trading.

 Plaintiffs allege that the Laverell firm did not have any program providing for the diligent supervision of its customers' accounts and that they knowingly and recklessly permitted Siemon to commit illegal and wrongful activities.

 Both the Laverell defendants and defendant Broadcort move this court pursuant to Federal Rule of Civil Procedure 12(b) (6) to dismiss the complaint on the grounds that plaintiffs' allegations failed to state a claim upon which relief can be granted as it relates to them, based on the following arguments: (1) because they owed no duty to plaintiffs; and (2) because plaintiffs have failed to plead their claims with sufficient particularity. In the alternative, both the Laverell defendants and defendant Broadcort request that any claims which have not been dismissed with respect to them be compelled to arbitration in accordance with the terms of the agreements among the parties. This court will proceed to address the merits of these motions seriatim.

 I.

 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

 Plaintiffs contend that the Laverell defendants and defendant Broadcort are primarily liable under the anti-fraud provisions of the Federal Securities laws. In addition, plaintiffs also assert that defendant Broadcort is secondarily liable under the theory of aiding and abetting. On the other hand, the defendants assert that plaintiffs' entire complaint against them should be dismissed for failure to state a claim upon which relief can be granted. Both the Laverell defendants' and defendant Broadcort's sole contention in support of their motions is that they owed plaintiffs no duty to disclose any violations of the other defendants, specifically Siemon.

 In deciding a motion to dismiss, the court must accept as true well pleaded factual allegations made in the complaint and must resolve all reasonable inferences in the light most favorable to the plaintiff. Bogosian v. Gulf Oil, 561 F.2d 434, 446 (3d Cir. 1977); Cooper v. Pate, 378 U.S. 546, 84 S. Ct. 1733, 12 L. Ed. 2d 1030 (1964). The complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set ...


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