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ZUCKERMAN v. YOUNT

August 2, 1973

HOWARD J. ZUCKERMAN ET AL., PLAINTIFFS,
v.
RALPH H. YOUNT ET AL., DEFENDANTS.



The opinion of the court was delivered by: McLAREN, District Judge.

MEMORANDUM OPINION AND ORDER

This matter is before the Court on defendants' motion for summary judgment pursuant to Fed.R.Civ.P. 56. The motion is denied.

The complaint alleges, inter alia, that Blackman, Ray & Zuckerman, Inc., wholly owned by Howard J. Zuckerman, Stuart N. Blackman and Joseph Ray, was formed for the purpose of conducting business as a broker-dealer in securities in interstate commerce. It is further alleged that plaintiffs introduced themselves to potential customers in various cities and on information it is alleged that some of these potential customers had previously done business with or were customers of defendants Morton Weinress, Leo Meiselman, David Y. Williams, and James C. Dougall, Jr. It is alleged that the defendants conspired to (1) restrain plaintiffs from securing said business by inducing the Midwest Stock Exchange ("Exchange") to postpone, delay and deny plaintiffs' membership on the Exchange and (2) prevent Stuart Blackman from functioning as a specialist on the Exchange.

It is also alleged that in furtherance of the conspiracy, the defendants caused false, derogatory and defamatory information concerning the plaintiffs to be brought to the attention of the Board of Governors, the Executive Committee and the Admissions Committee of the Exchange. As a result thereof, plaintiffs allegedly were prevented from obtaining full membership on the Exchange although they met all membership requirements. The Exchange is charged with furtherance of the conspiracy by its refusal to admit the plaintiffs to membership.

The action allegedly arises under Sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. § 1 and 2, and jurisdiction allegedly exists pursuant to Section 4 of the Clayton Act, 15 U.S.C. § 15.

In support of their motion for summary judgment, defendants contend that (1) the plaintiffs have suffered no injury in their business or property as required by § 4 of the Clayton Act, since the Exchange offered to admit Mr. Blackman to membership subject to a six-month probationary period; (2) the alleged behavior of the defendants does not constitute a violation of the federal antitrust laws since they acted pursuant to the Exchange's statutorily imposed duty of self-regulation and that, pro tanto, there is an implied waiver of the antitrust laws; and (3) in the alternative, the alleged behavior of the defendants does not constitute a violation of the antitrust laws under the rule of reason which is applicable here inasmuch as fair procedures were adhered to.

In light of this Court's disposition of the motion, only a brief statement of the facts is necessary. After Blackman's application was rejected by the Exchange's Executive Committee,*fn1 counsel for the Exchange gave Blackman notice of the information upon which the Executive Committee acted and informed him that he would be granted a hearing. It was charged that Blackman, while employed by Weinress & Co., (1) made several unnecessary and exaggerated requests to bid up for his own account a certain stock in which he was a co-specialist, in violation of Rule 9 of Article XXIV of the Midwest Rules; (2) failed to maintain an orderly market in the same common stock by reason of large spreads between bid and ask quotations and large gaps between successive sales;*fn2 (3) used "strong and offensive profanity" on the floor of the Exchange. It was also stated that "[t]he general opinion of members of the Committee on Floor Procedures is that during the period you [Blackman] were active on the Floor of the Exchange, you displayed a gross disregard for Exchange Rules, professional ethics and gentlemanlike behavior."

The Exchange's Executive Committee held a hearing on Blackman's application at which time witnesses with information adverse to Blackman were heard first. Blackman was given the opportunity to cross-examine these witnesses and present his own case. Blackman's counsel was not permitted to participate in the cross-examination, although counsel was allowed to be present to advise Blackman throughout the proceeding. The Exchange stipulated that the Executive Committee's decision on the application would be made solely on the basis of the evidence presented at the hearing.

The Executive Committee decided that the evidence was not sufficient to deny membership to Blackman. The minutes of the Executive Committee meeting of March 2, 1971 state, inter alia, that

  "[t]he Committee finds that because of the serious
  questions that have been raised as to the knowledge
  and experience as well as the character and integrity
  of Mr. Blackman, he should be admitted to membership
  subject to a six month probationary period during
  which he would be under the active supervision of a
  member of the Floor Procedure Committee."

During the probationary period Blackman was to be able to operate without limitations, "except as may be found appropriate by the Floor Procedure Committee as a result of conduct on the Floor subsequent to his joining the Exchange. . . ."

When notified of the Executive Committee's action, Blackman considered it adverse and requested review by the Exchange's Board of Governors. The Board of Governors reviewed and unanimously affirmed the Executive Committee's action at its meeting of March 16, 1971. Blackman declined to accept this probationary membership and filed this suit.

I.

Defendants contend that they are entitled to summary judgment since it is undisputed that the Exchange offered to admit Mr. Blackman to membership subject to a six-month probationary period, and consequently injury which Blackman incurred, if any, resulted from his refusal to accept this offer. This contention rests on § 4 of the Clayton Act, 15 U.S.C. § 15, which requires that the plaintiff in a private ...


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