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COWEN v. NEW YORK STOCK EXCH.

July 12, 1966

Max L. Cowen
v.
New York Stock Exchange and Mohawk Valley Investing Company


Brennan, District Judge.


The opinion of the court was delivered by: BRENNAN

Memorandum Decision and Order

BRENNAN, District Judge

 Since matters outside of the pleadings are presented and not excluded by the court, for all practical purposes the motions here are considered as requesting a summary judgment dismissing the complaint in accordance with the provisions of F.R.C.P. 12 and 56. In effect, the motions challenge the sufficiency of the factual background and the applicability of legal principles thereto, which must be shown to sustain life in this litigation.

 Briefly stated, the complaint invokes the provisions of Section 1 of the so-called Sherman Act. (15 U.S.C. § 1) in that it alleges a conspiracy by the defendants to terminate plaintiff's employment as a salesman of securities and to prevent his further employment in that capacity or business. 15 U.S.C. Sec. 15, generally known as the Clayton Act, is invoked as affording the legal basis for this action which seeks a money judgment against the defendants for the damages sustained to be trebled under the provisions of the statute referred to above. A brief statement as to the relationship of the litigants and the present status of this action may be helpful in an understanding of this decision.

 The New York Stock Exchange, hereinafter referred to as the "Exchange", requires no complete definition. It is a well recognized association through whose operations securities are purchased and sold and which maintains business relationships with clients and brokers engaged in a similar business over a wide spread geographical area. It is subject to the provisions of the Securities Exchange Act to the end that "the maintenance of fair and honest markets" in securities transactions are maintained in the public interest. 15 U.S.C. § 78b.

 The Mohawk Valley Investing Company is a corporation with its principal place of business at Utica, New York and at all pertinent times was a member of the Exchange subject to its regulations in the matter of the sale and transfer of securities.

 The plaintiff is a resident of Utica, New York and from 1957-1961 was employed as a salesman of securities by Mohawk, his activities being limited to an area of which the City of Utica may be considered as the center. The plaintiff sought and was granted registration with the Exchange in 1957 thereby becoming subject to its rules and regulations as such employee of a member thereof.

 This action, commenced in 1964, is now in a position where it is ready for trial. Plaintiff's oral deposition has been taken by the defendants in which was developed the details of the controversy involved in this litigation. The plaintiff has taken the deposition of a former officer of the defendant Mohawk and has filed a note of issue designed to place the cause of action upon the trial calendar of this court. Upon this motion, the defendant Exchange has filed the affidavit of a member of that organization who asserts familiarity with the facts of this controversy insofar as the Exchange is involved. This affidavit is supplemented by written exhibits alleged to be pertinent to the cause of action itself and to the contentions of the parties on these motions.

 The underlying facts resulting in the termination of plaintiff's employment by Mohawk are not in dispute except in one particular which will be referred to below. Such facts will be briefly summarized.

 A few weeks prior to March 21, 1961, the plaintiff, while in the employ of Mohawk, purchased for his own account three $1000. bonds of the Mohawk Air Lines. Each of said bonds was registered in the name of a former client, who was then deceased, and in the name of one of his daughters. The plaintiff, dealing with one of the daughters, purchased said bonds at less than the market price, knowing that the name of the deceased co-owner had been endorsed thereon without specific authority. The subsequent details are unnecessary except to state that the bonds were converted into stock certificates issued in plaintiff's name. Plaintiff then opened an account with the brokerage firm of Bache & Company at Utica, New York in the name of his wife. The stock certificates were sold for plaintiff's ultimate benefit through the above organization.

 A short time later the attention of Mohawk was called to the above transaction by a representative of Bache & Company. Plaintiff was summoned to the office of Mohawk and questioned by A. J. Eckert, Jr., now deceased, the then president of Mohawk. As the result of this interview, Cowen was suspended from his employment and the Exchange was notified by Eckert by 'phone of the transaction as far as then known. Within a few days, Cowen was again summoned to Mohawk's office. The details of the transaction were again discussed. The profit resulting to the plaintiff, in the total amount of about $500., was paid by plaintiff to Mohawk and reimbursement to the three owners of the bonds in the total amount of said profit was made by Mohawk. As of March 22, 1961, plaintiff's employment by Mohawk was terminated.

 The plaintiff does not dispute the transaction as outlined above. He does not dispute, and it is not disputed in this litigation, but that said transaction was in violation of the rules and regulations which were binding upon the plaintiff in the matter of the performance of his duties as a security salesman. It appears to be plaintiff's contention that there was no intent on his part to violate his obligation either to his employer or to the clients and that at most, his action in the above transaction was the result of his lack of understanding of his obligations as a security salesman.

 The viability of this litigation depends upon one item of evidence, the availability of which is in serious dispute. The plaintiff asserts that his discharge as an employee of Mohawk was dictated by instructions to said employer by an official of the Exchange. The plaintiff contends that he was told by Eckert on several occasions that Coleman of the Exchange had dictated that the plaintiff be discharged because of the facts disclosed by Eckert to the Exchange in the telephone conversations in which the details of the transaction, as known by Eckert, were disclosed. There appears to be no contention by the plaintiff that such oral statements by Eckert would be admissible against the defendants upon the trial of this action, same being barred by the hearsay rule. The plaintiff does contend however that the testimony of Eckert in an arbitration proceeding, to the effect that Mr. Coleman of the Exchange told Eckert that he would have to release the plaintiff from Mohawk's employment, would be admissible in evidence upon the trial of this litigation. The defendant Exchange, through the affidavit of Coleman, definitely and unequivocally denies that any such instructions were given to Eckert. His position is concisely stated in the following quotation, taken from his affidavit - "I can state that I, acting individually and/or on behalf of the Exchange, did not request, instruct, demand or suggest that Mohawk dismiss plaintiff from its employ".

 Another factual situation should be briefly referred to at this point. It is conceded that under date of April 8, 1963 the plaintiff sought the offices of the Exchange to the end that several grievances involving the actions of Mohawk be submitted to arbitration in accordance with rules or regulations applicable in the business of the sale of securities. As far as pertinent to the issue of plaintiff's discharge from his employment is involved here, same was framed by the charges in the document prepared by plaintiff and ...


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