The opinion of the court was delivered by: HERLANDS
This is a motion to dismiss made by defendant under Rule 12(b) of the Federal Rules of Civil Procedure.
Plaintiff's amended complaint contains the following relevant allegations, the truth of which must be assumed arguendo for purposes of this motion to dismiss.
Defendant is a securities broker and dealer, who has registered with the Securities and Exchange Commission (SEC) pursuant to the Securities Exchange Act of 1934 (hereinafter the 1934 Act) and who is a member of the New York Stock Exchange. In June 1960, defendant suggested that plaintiff purchase shares of common stock in Siegler Corporation, the shares of which were traded on the New York Stock Exchange and registered with the SEC pursuant to the 1934 Act.
Paragraph Ninth of the amended complaint states the following:
NINTH: To induce plaintiff to purchase a greater number of shares of the common stock of SIEGLER than she could purchase for cash within the margin requirements established and at said time in effect pursuant to the Securities Exchange Act of 1934, and by the rules and regulations thereunder, GILMAN (an alleged agent of defendant) suggested and advised that plaintiff 'factor' the acquisition of SIEGLER with a lender to be furnished and arranged for by GILMAN, which would enable plaintiff to purchase said stock by posting no cash and less margin than that required by Broker-Dealers and other regulated lenders.
Pursuant to the above suggestion, defendant obtained a loan of $ 12,000 from the First Discount Corporation, the entire amount necessary to enable plaintiff to purchase 300 shares of Siegler Corporation.
During June or July of 1960, defendant effected the purchase of 300 shares of Siegler Corporation and arranged with First Discount Corporation to furnish all cash necessary for the purchase and further arranged for plaintiff to deposit with First Discount Corporation 200 shares of the common stock of the Standard Oil of California Corporation (CALSO) which shares were delivered to Gilman endorsed in blank, pursuant to his directions.
The 300 shares of Siegler Corporation were delivered by defendant to First Discount Corporation; plaintiff never received the shares of Siegler.
No additional demand for margin was made of plaintiff nor any notice given to plaintiff of the necessity of posting additional margin, although plaintiff was at all times ready and able to post additional margin had any such demand been made of plaintiff or had plaintiff been apprised of the necessity therefor.
Thereafter, sometime during 1961, First Discount Corporation wrongfully converted to its own use the CALSO securities belonging to plaintiff and sold them to a person or persons unknown to plaintiff.
Thereafter, the First Discount Corporation became insolvent; and all of its assets have been dissipated. The 200 shares of CALSO stock belonging to plaintiff, having been sold, are no longer in the possession of the First Discount Corporation.
In arranging the aforesaid credit transaction, defendant wilfully and knowingly violated section 7(c) of the 1934 Act, 48 Stat. 886 (1934), 15 U.S.C. § 78g(c) (1964) and the rules and regulations promulgated thereunder, Regulation T, 12 C.F.R. § 220 (1963), whereby plaintiff suffered injury in the conversion of its CALSO stock.
Plaintiff seeks as damages under Count I, $ 17,535 -- $ 13,850, representing the value of the 200 CALSO shares at or about the time plaintiff learned of their conversion, plus $ 3,685, representing the value of dividends in cash and stock of which plaintiff was deprived.
Based on the claims made under Count I, Plaintiff further alleges that, in advising plaintiff to finance through First Discount Corporation, in violation of the 1934 Act, defendant breached a fiduciary duty owed to plaintiff as plaintiff's stock adviser, whereby plaintiff was injured in the amount of $ 17,535.
Count III is a claim based upon common-law fraud, predicated upon the allegations of Paragraph Thirtieth of the ...