The opinion of the court was delivered by: BONSAL
Defendants move, pursuant to the United States Arbitration Act (9 U.S.C. §§ 1-14), for an order compelling arbitration in Los Angeles, California, or, in the alternative for an order, pursuant to 28 U.S.C. § 1404(a), transferring this action to the United States District Court for the Central District of California. If defendants' motion to compel arbitration in Los Angeles, California, is denied, and the motion for transfer is denied, defendants seek an order compelling arbitration in New York. Defendants further move, pursuant to Rules 30(b) and 45(b), F.R. Civ. P., for an order modifying the subpoena duces tecum issued by plaintiffs on April 18, 1967 and limiting the "Schedule For Production of Documents" (the schedule) attached thereto. Defendants' motion for an order compelling arbitration in Los Angeles, California or in New York City, and for an order transferring this action to the United States District Court for the Central District of California, is denied. Defendants' motion with respect to the subpoena duces tecum and the schedule is granted in part and denied in part.
Plaintiffs Maheu and Gay are residents of Los Angeles, California. In June 1965, they opened a joint commodities account in Los Angeles with defendant Reynolds & Co. (Reynolds). Reynolds is a limited partnership organized under the laws of New York engaged in the business of buying and selling securities and commodity futures contracts on its own behalf and on behalf of its customers through the facilities of the New York Stock Exchange, the American Stock Exchange, the Chicago Board of Trade and other exchanges in the United States of which Reynolds is a member firm. The individual defendants are general partners of Reynolds.
On June 25, 1965 plaintiffs executed a "Joint Account" agreement with Reynolds, and between June 25, 1965 and September 22, 1965 purchases and sales of commodity futures contracts were made by Reynolds in the joint account. On August 1, 1965 plaintiffs executed a "Customer's Agreement" which was signed by Reynolds on August 11, 1965.
On May 18, 1966 plaintiffs instituted this action seeking to recover losses of $43,528.25, which they claim they sustained in the joint account, and "lost profits" of $287,192.50. Jurisdiction is claimed under Section 22(a) of the Securities Act of 1933 (the 1933 Act) (15 U.S.C. § 77v (a)); Section 27 of the Securities Exchange Act of 1934 (the 1934 Act) (15 U.S.C. § 78aa); and 28 U.S.C. §§ 1331 and 1337.
The complaint alleges that in June 1965 an employee of Reynolds induced plaintiffs to open a "discretionary commodities account" with Reynolds, making the following representations:
1) partners of Reynolds in charge of the department responsible for trading commodity futures contracts would, in all respects, manage plaintiffs' account for plaintiffs' benefit;
2) substantial profits could be made by trading in commodity futures contracts; and,
3) plaintiffs' account would be managed so as to limit exposure to loss to $5,000.
Plaintiffs contend that in reliance on these representations, they opened the joint account with Reynolds; that Reynolds undertook to manage and supervise the account in all respects; and that the joint account was an "investment contract" and hence a "security" within the meaning of Section 2 (1) of the 1933 Act (15 U.S.C. § 77b (1)) and Section 3 (a) (10) of the 1934 Act (15 U.S.C. § 78c (a) (10)).
Plaintiffs further allege in their complaint that Reynolds:
1) "churned" the joint account, engaging in trading disproportionate to the size of the account, and operated the account primarily for the purpose of creating commissions and benefiting itself to the detriment of plaintiffs;
2) failed to use qualified persons to manage the account, managed the account negligently, and managed and traded the account in a manner that was inconsistent with the manner in which other accounts were managed.
The complaint alleges that Reynolds utilized the mails and instruments of transportation and communication in interstate commerce and that Reynolds' ...