The opinion of the court was delivered by: BRYAN
The individual defendants named in this action are all general partners of Reynolds & Co., stock brokers, and will be referred to as the Reynolds defendants. These defendants move to dismiss the complaint and various separate counts of the complaint as against them pursuant to Rule 12(b) (1), (2) and (6), F.R.Civ.P., on various grounds of want of subject matter and personal jurisdiction and legal insufficiency.
The action arises out of the alleged conversion from plaintiff Cooper of 700 shares of Mesabi Iron, a stock listed on the New York Stock Exchange, and 200 shares of Drilling & Exploration, listed on the American Stock Exchange. These securities had been purchased by Cooper through a New York broker Shields & Company (Shields) with monies borrowed from First Discount Corporation (Discount) which was engaged in making loans of this nature, apparently to avoid compliance with current margin requirements. The stock so purchased was delivered by Shields on Cooper's behalf to defendant North Jersey Trust Company (NJTC) to be held in New Jersey as collateral for loans made to enable Cooper to purchase such stock through Shields. Apparently NJTC had made payment directly to Shields for the account of Discount as a loan to Cooper.
Discount, hopelessly insolvent, is now defunct and in the hands of a receiver appointed by this court in an action by the Securities and Exchange Commission to enjoin it from further interstate dealings in securities in violation of federal law. See Esbitt v. Dutch-American Mercantile Corp., 335 F.2d 141, (2 Cir. 1964); Esbitt v. Paul L. Forchheimer & Co., 300 F.2d 153 (2 Cir. 1962) (per curiam). This suit is one of a number of actions arising out of the activities of Discount.
Cooper alleges that the stock which was deposited with NJTC as collateral for his Discount loan was delivered by NJTC to the Ridgewood, New Jersey, office of Reynolds & Co. without authority from him and in contravention of his rights and was sold by Reynolds on the New York and American Stock Exchanges. He claims that such delivery and sale were wrongful and constituted a conversion of his property for which NJTC and the Reynolds defendants are liable in common law conversion, under various sections of the Securities Acts of 1933 and 1934 and the rules thereunder and other federal laws.
Cooper, who is a citizen and resident of New York, states that he is not attempting to sue Reynolds & Co., which is a New York partnership, as an entity. Instead he claims that he is suing as individuals only those general partners of Reynolds & Co. who are named as defendants in the complaint, all of whom are citizens and residents of states other than New York.
The complaint contains 12 separately stated and numbered counts. Six of these (I through IV, X and XI) are laid solely against defendant NJTC and are not directly involved on this motion. Five (V through VIII and XII) are laid solely against the Reynolds defendants. Count IX is laid against both NJTC and the Reynolds defendants.
Counts V, VI and VII purport to be based on various sections of the Securities Act of 1933 and the Securities Act of 1934, and rules and regulations promulgated under them. Count VIII is based on 18 U.S.C. § 2314, the criminal statute that prohibits the interstate transportation of stolen property. Count IX proceeds on the theory of civil conspiracy. Count XII purports to sound in common law conversion.
As to the claims alleged to arise under the Securities Acts and 28 U.S.C. § 2314, Cooper asserts that this court has federal question jurisdiction under § 27 of the 1934 Act, 15 U.S.C. § 78aa, and 28 U.S.C. §§ 1331 and 1337. As to the civil conspiracy and conversion claims, jurisdiction is asserted to be pendent and also to be based on diversity of citizenship under 28 U.S.C. § 1332.
Before proceeding to a detailed discussion of the allegations of the complaint and the legal sufficiency of the various counts attacked by the Reynolds defendants, the jurisdictional questions raised should be disposed of.
Subject Matter Jurisdiction as to Counts IX and XII
The Reynolds defendants seek to have Counts IX and XII dismissed under Rule 12(b) (1), F.R.Civ.P., on the grounds that they do not arise under federal law, that the court lacks pendent jurisdiction of them and that there is no diversity of citizenship between Reynolds & Co., a New York partnership, and the New York plaintiff.
It appears that there is plainly diversity jurisdiction here. It is true that the Reynolds defendants are named in the title of the action both "individually and as co-partners," and that it is alleged in the body of the complaint that they were all partners doing business as Reynolds & Co. at 120 Broadway, New York City.
On the argument of the motion, however, and in his brief plaintiff disclaims any intention of suing the Reynolds & Co. partnership as an entity and asks leave to drop the words "and as co-partners" from the title of the action. If these words are eliminated from the caption, as they will be, the action is plainly against a New Jersey corporation and 16 individual defendants, all of whom are citizens and residents of states other than New York, the state of plaintiff's citizenship and residence. At least on the face of the complaint, as it will read, there is thus diversity jurisdiction.
Quite apart from this, however, it would appear that there is pendent jurisdiction here also, though it is unnecessary to pass on that question. See Ackert v. Ausman, 198 F. Supp. 538, 545 (S.D.N.Y. 1961), mandamus denied, sub nom. Ackert v. Bryan, 299 F.2d 65 (1962); 2 Loss, Securities Regulation 1006-11 (2d ed. 1961). Compare Judge Feinberg's decision on pendent personal jurisdiction as to the claims ...