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ROBERT SHAW v. DREYFUS & CO. (12/11/69)

CIVIL COURT OF THE CITY OF NEW YORK, SPECIAL TERM, NEW YORK COUNTY 1969.NY.43855 <>; 314 N.Y.S.2d 372; 64 Misc. 2d 122 December 11, 1969 ROBERT SHAW, PLAINTIFF,v.DREYFUS & CO., DEFENDANT Morris Abrams for plaintiff. Royall, Koegel & Wells for defendant. Jerome W. Marks, J. Author: Marks

Jerome W. Marks, J.

Author: Marks

 Plaintiff sues defendant stock brokerage company, a member of the New York Stock Exchange to recover the sum of $8,200. Plaintiff moves for summary judgment, claiming that the stock he ordered has never been delivered to him, although he had made numerous demands therefor.

Plaintiff alleges that he placed an order with defendant for the purchase of 1,200 shares of the stock of Bartep Industries, Inc., on November 27, 1968. The stock was then traded in the "over-the-counter" market and not on any of the national securities exchanges.

The settlement date of plaintiff's trade or transaction with defendant was December 5, 1968. It appears from defendant's papers in opposition to this motion, that defendant did on November 27, 1968, place an order for the purchase of this said stock from two different brokers -- 800 shares at 6 7/8 with the Lockwood & Company and 400 shares at 6 3/4 with I. J. Schenin & Co. Confirmations of this transaction were sent to plaintiff.

Physical delivery of the stock has never been made to plaintiff and it is undisputed that plaintiff made numerous but fruitless demands for the stock. The earliest demand for delivery of the stock to him was made by plaintiff as of December, 1968, within one month after his purchase order.

On February 19, 1969, the Securities and Exchange Commission ordered that trading in the stock of Bartep Industries, Inc., cease.

The order disclosed to defendant that the president of Bartep had met with sudden death in an aviation accident, and in addition thereto defendant had also been informed by the Securities and Exchange Commission's release that stockholders of Bartep had not been provided with the required current financial statements of the company and for three companies acquired by Bartep. For these reasons the commission determined to suspend trading in the stock "pending public dissemination of adequate financial statements for Bartep Industries, Inc."

Defendant's house counsel states in his opposition affidavit that the Securities and Exchange Commission continually renewed the trading ban through the close of business July 18, 1969. The Security and Exchange Commission's release dated July 10, 1969, revealed to defendant that Bartep's assets consisted of $71.89 in cash, $9,100 receivable from a stockholder and an interest in a Utah Corporation, value of which was unknown. Bartep's debts totaled $113,071.90. The release warned broker-dealer firms to make full disclosure of all material facts in connection with Bartep transactions and to be mindful of their responsibilities to the investing public.

As of the date of the last S. E. C. release (July 10, 1969) the Bartep stock had not yet been delivered to plaintiff. On July 30, 1969 plaintiff's lawyer by a formal letter addressed to defendant canceled plaintiff's purchase order of the stock.

Up to the date of July 30, 1969 (plaintiff's cancellation letter) neither Lockwood & Co. nor I. J. Schenin Co. had delivered the Bartep stock to defendant.

Plaintiff asserts that at the various times he made demand upon defendant for physical delivery of the stock, he was informed by various members of defendant's staff that defendant had possession of 400 shares of Bartep. This has not been denied by defendant. That defendant did not have in its possession at said time or times 400 shares of the stock, is fortified by the fact that delivery of some part of plaintiff's purchase order was not made to defendant until August, 1969. Between August 15, 1969 and October 17, 1969, defendant was able to acquire only 1,000 shares of plaintiff's purchase order of 1,200 shares.

Defendant now holds 1,000 shares and $1,375 of plaintiff's money. Defendant maintains that it is not at all liable to plaintiff for the reason, that having received confirmation of plaintiff's order from the selling brokers and also having confirmed the trade to plaintiff (Nov. 27, 1968), an executed purchase of the stock took place, at which time plaintiff ccould have sold off the stock without the necessity of having physical possession of the stock certificates. And defendant urges this is so by reason of the rules and regulations of the National Association of Security Dealers (NASD).

At the time of plaintiff's purchase order the market price of Bartep varied between 6 3/4 and 6 7/8. Defendant now states that at the time of the last purchase by defendant of the stock, the market price thereof was 1 3/4.

Defendant states that pursuant to the rules of NASD the buying broker is required to pay the selling broker the price of a share of stock on the day of the purchase order, even though at the time of delivery thereof to the buying broker (eight months in ...

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