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LICHTER v. PAINE

August 29, 1983

DAVID LICHTER, PLAINTIFF,
v.
PAINE, WEBBER, JACKSON & CURTIS, INC., DEFENDANT.



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

MEMORANDUM OPINION AND ORDER

David Lichter ("Lichter") sues Paine, Webber, Jackson & Curtis, Inc. ("Paine Webber") for having failed to notify Lichter of the need to deposit funds in his securities account before Paine Webber liquidated International Harvester bonds to maintain Lichter's requisite margin requirements. Lichter's Complaint advances four claims stemming from that failure to give him advance notice:

    1. Count I charges negligence (and perhaps
  breach of an implied contractual duty).

2. Count II asserts breach of a fiduciary duty.

    3. Count III claims a violation of Securities
  Exchange Act of 1934 ("1934 Act") § 10(b),
  15 U.S.C. § 78j(b) ("Section 10(b)").
    4. Count IV claims a violation of 1934 Act
  § 15, 15 U.S.C. § 78o ("Section 15").*fn1

Paine Webber has now moved:

    (1) to dismiss Counts I and II under
  Fed.R.Civ.P. ("Rule") 12(b)(1) for lack of
  subject matter jurisdiction and
    (2) to dismiss all counts under Rule 12(b)(6)
  for failure to state a claim upon which relief
  can be granted.

If all counts are not so dismissed, Paine Webber seeks severance of Counts I and II for arbitration pursuant to an alleged contract between the parties.

Facts*fn2

On March 18, 1974 Lichter entered into a Customer Agreement (the "Agreement") with Blyth Eastman Dillon & Co. (since merged into Paine Webber*fn3) covering Lichter's opening of a securities margin account. In a course of dealing extending over eight and one-half years, whenever Lichter's equity in the account fell below the required level Paine Webber would notify Lichter and Lichter would deposit the necessary funds. Lichter so responded to such margin calls on (at least) April 28, 1982, September 22, 1982 and October 5, 1982.

On the October 5 margin call Paine Webber notified Lichter (1) his account required $538 to meet the requirements and (2) if sufficient funds or securities were not deposited by Lichter before noon October 8, Paine Webber would liquidate an appropriate amount of securities. On October 8 Lichter authorized the sale of 1,000 shares of Massey Ferguson, Ltd. stock to cover the delinquency.

On October 8 — this time wholly without notice — Paine Webber liquidated Lichter's International Harvester 8 5/8%, September 1, 1995 bonds ("IH bonds") in addition to the Massey Ferguson stock. That IH bonds sale, undertaken to cover a further ...


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