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WILKO v. SWAN

May 23, 1952

WILKO
v.
SWAN et al.



The opinion of the court was delivered by: GODDARD

Motion by defendants, Hayden, Stone & Co. to stay the trial of this action pursuant to Title 9 U.S.C.A. 3, and all further proceedings herein until an arbitration has been had in accordance with the terms of the margin agreements entered into between plaintiff and defendants. Defendants, Hayden, Stone & Co. have not yet answered the complaint. The Securities and Exchange Commission has filed a brief amicus curiae opposing the stay of proceedings pending arbitration.

The suit is under the Securities Act of May 27, 1933 as amended, 15 U.S.C.A. 77a et seq., and seeks to recover damages in the amount of $ 3,888.88.

The plaintiff alleges that on or about January 17, 1951, defendants sold to the plaintiff 1600 shares of the common stock of Air Associates, Inc., a New Jersey corporation, and that plaintiff paid $ 29, 517.54 therefor; that 'Said sale of securities by the defendants to the plaintiff was made by the use of the means and instrumentalities of transportation and communication in interstate commerce, to wit: the facilities of the New York Curb Exchange, a registered national securities exchange, the telephone and telegraph lines of the New York Telephone Company and the Western Union Company, and by the use of the United States mails, and said sale was made by means of communications by the defendants to the plaintiff which were and, which included untrue statements of material facts and omitted to state material facts necessary in order to make the statements made in the light of the circumstances under which they were made, not misleading.' Plaintiff charges that defendants represented to the plaintiff that Air Associates, Inc. had concluded a merger with the Borg Warner Corporation which would increase the value of the stock and that banks and large financial interests were buying the stock as a result. Plaintiff asserts that these representations were in fact untrue and plaintiff did not know them to be untrue at the time of his purchase. He also charges that the defendant Haven B. Page, a director, counsel and owner of record of a large block of the stock of Air Associates, Inc. was at that time selling his stock or some of it on the New York Curb Exchange, including some or all of the stock sold to the plaintiff.

 Hayden, Stone & Co. assert that the relationship between plaintiff and defendants Hayden, Stone & Co. was established by, based upon, and controlled by the terms and conditions of Margin Agreements dated May 2, 1950 and January 18, 1951, respectively, duly executed by the plaintiff.

 The Margin Agreements, in small-type printed form, contain 16 separate paragraphs, and provide in part:

 (Introductory clause)

 'In consideration of your opening now or in the future or continuing an account or accounts in my name or for me for the purchase or sale of property, I agree with you and your successors as follows, all my relations and dealings with you being subject to this agreement.'

 (Paragraph 2)

 'All transactions made by you or your agents for me are to be subject to the constitutions, rules, customs and practices of the exchanges or markets where executed and of their respective clearing houses and shall be subject to the provisions of the Securities Exchange Act of 1934 (15 U.S.C.A. 78a et seq.) * * * .'

 (Paragraph 8)

 'I expressly agree that you shall not be bound by any representation or agreement heretofore or hereafter made by any of your employees or agents which in any way purports to affect or diminish your rights under this agreement and that no representation or advice by you or your employees or agents regarding the purchase or sale by me of any property bought or sold on my order or carried or held in any manner for my account shall be the basis of any liability on your part to me.'

 (Paragraph 16)

 'Any controversy arising between us under this contract shall be determined by arbitration pursuant to the Arbitration Law of the State of New York, and under the rules of either the Arbitration Committee of the Chamber of Commerce of the State of New York, or of the American Arbitration Association, or of the Arbitration Committee of the New York Stock Exchange or such other Exchange as may have jurisdiction over the matter in dispute, as I may elect. Any arbitration hereunder shall be before at least three arbitrators.'

 The contract for the sale of the stock was a separate agreement.

 The Federal Arbitration Statute, Section 3, Title 9 ...


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