It appears from an examination of the cases that § 10(b)
reaches those cases of fraud in the trading of securities which
would be covered under § 15(c)(1). In Fratt v. Robinson,
203 F.2d 627 (9th Cir. 1953), the Court held that § 10(b) of the 1934 Act
embraces stock transactions in which no phase of a stock exchange
is involved. A private right of action under § 10(b) arises even
though the transaction is conducted directly between the buyer
and seller and not through a securities exchange or an organized
over-the-counter market. Hooper v. Mountain States Securities
Corporation, 282 F.2d 195 (5th Cir. 1960), and Schine v. Schine,
250 F. Supp. 822 (S.D.N.Y. 1966). See also, Maher v. J.R.
Williston and Beane, Inc., 280 F. Supp. 133 (S.D.N.Y. 1967).
Because sections 10(b) and 15(c)(1) are largely coterminous and
because securities fraud claims can be privately enforced under
§ 10(b) and Rule 10b-5, it would not further the purpose of the
regulatory framework to allow an implied private right of action
under § 15(c)(1).*fn2
In consideration of the three relevant factors set out in
Touche Ross, this court finds no Congressional intent to imply a
private right of action under § 15(c)(1) of the Securities
Exchange Act of 1934 and therefore Dean, Witter's motion to
dismiss Count IV is GRANTED.
4. Count V, Section 15(c)(3) (15 U.S.C. § 78o(c)(3)).
Section 15(c)(3) applies to brokers-dealers and requires
compliance with rules that the SEC adopts pursuant to this
section. These rules must be "necessary or appropriate in the
public interest or for the protection of investors to provide
safeguards with respect to the financial responsibility and
related practices of brokers and dealers including, but not
limited to, the acceptance of custody and use of customers'
securities and the carrying and use of customers' deposits or
credit balances". In Siedman v. Merrill Lynch, Pierce, Fenner and
Smith, Inc., 465 F. Supp. 1233 (S.D.N.Y. 1979), the Court held
that no private right of action could be implied under Rule
15(c)3-3(b) promulgated under § 15(c)(3). Specifically, the Court
held that unlike Rule 10b-5 which is aimed at preventing fraud
upon the customer, Rule 15(c)3-3(b) provides a standard of
conduct for the broker-dealer for the purpose of insuring the
orderly operation of the exchange. Furthermore, the court found
that a private right of action would not further the legislative
scheme since it would serve to benefit individual investors and
not the market as a whole.
In Touche Ross and Co. v. Redington, 442 U.S. 560, 99 S.Ct.
2479, 61 L.Ed.2d 82, the Supreme Court held that § 17(a) of the
Securities and Exchange Act of 1934 does not create an implied
private right of action. Section 17(a) of the 1934 Act simply
requires brokers-dealers to keep such records and file such
reports as the Commission may prescribe. The court found that the
purpose of this statute was to provide the Commission, the
exchange, and other authorities with sufficiently early warning
to enable them to take appropriate action to protect investors
before the financial collapse of the particular broker-dealer
involved. The court found no intent to provide a private right of
action to any individual. Section 15(c)(3) has a similar purpose
of protecting the integrity of the stock market as a whole rather
than protecting any individual investor.
Therefore, this Court finds that there is no evidence of a
Congressional intent to create a private right of action under §
15(c)(3) of the Securities Exchange Act of 1934. Accordingly, it
is ordered that Dean,
Witter's motion with respect to Count V is GRANTED and Count V is
Motion to Sever and Compel Arbitration of the Common Law Counts
Dean, Witter has also asked this court to compel arbitration of
the state law counts of breach of fiduciary duty, negligence and
fraud. The Customer's Agreement signed May 20, 1977, by the
Piersons contains a broad mandatory arbitration provision.*fn3 The
agreement also provides that the laws of the State of New York
govern its enforcement. Because under New York law punitive
damages are unavailable in an arbitration award, Garrity v. Lyle
Stuart, Inc., 40 N.Y.2d 354, 386 N.Y.2d 831, 353 N.E.2d 793
(Ct.App. 1976), Dean, Witter argues that the Piersons have
knowingly and willingly waived their right to a full legal
remedy. I cannot agree.
First, I am not convinced that the wording of the arbitration
provision would ordinarily and reasonably be construed to cover
such claims as fraud and breach of fiduciary duty. Although there
are cases which hold otherwise, Baselski v. Paine, Webber,
Jackson & Curtis, Inc., 514 F. Supp. 535 (N.D.Ill. 1981) and
Weissbuch v. Merrill Lynch, Pierce, Fenner and Smith, Inc.,
558 F.2d 831 (7th Cir. 1977), based on the facts in this case I am
not persuaded that the arbitration provision applies.
In addition, the Piersons agreed to arbitration under New York
law, but they did not specifically agree to waive their right to
a full legal remedy including punitive damages. Because they did
not specifically agree to waive their right to punitive damages,
I cannot thrust that harsh result upon them. Accordingly, Dean,
Witter's motion to sever and compel arbitration of the state
claims is DENIED. Count VII alleging negligence as well as
intentional conduct is dismissed because it contains inconsistent
theories of recovery. The Piersons have 20 days to refile their
Motion to Strike Claim for Attorney Fees Under the Securities
Exchange Act of 1934
Finally, Dean, Witter has requested this Court to strike that
portion of the Piersons' complaint which seeks recovery for
attorney fees under the Securities Exchange Act of 1934. Dean,
Witter claims that attorney fees are not recoverable for
violations of the Federal Securities Laws. To the extent that
this is a motion to strike under Fed.R.Civ.P. 12(f), it is
neither an authorized nor a proper way to procure the dismissal
of part of the complaint. Wright & Miller, Federal Practice and
Procedure: Civil § 1380. To the extent that it is a motion to
dismiss under Fed.R.Civ.P. 12(b)(6), it does not appear to the
court beyond doubt that the Piersons can prove no set of facts
which would entitle them to attorney fees. Accordingly, this
motion is DENIED.
1. Dean, Witter's motion to dismiss the entire complaint as
time-barred by the statute of limitations is DENIED.
2. Dean, Witter's motion to dismiss Counts II through V because
of the unavailability of a private right of action is GRANTED.
3. Dean, Witter's motion to sever the common law count of breach
of fiduciary duty, negligence and fraud and compel arbitration
is DENIED. Count VII is
dismissed and the Piersons have 20 days to refile this count.
4. Dean, Witter's motion to strike the Piersons' prayer for
attorney fees is DENIED.