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July 17, 1970

Abraham COHEN and Esther Friedlander, as Co-Executors of the Last Will of Raphael Cohen, Deceased, and Alexander Theoharous on behalf of themselves and all other Purchasers of Securities in 52 Broadway Realty Company, similarly situated, Plaintiffs,
TENNEY CORPORATION, Jerry M. Tenney, Jack Fechter, Belle Bergner, Louis Monas, Tenney Broadway Realty Corporation, Tenney Securities Corporation, Julia Monas, Bodin, Gottlieb & Charney, Zev William Wolfson and Broadway Equities, Inc., Defendants

Tyler, District Judge.

The opinion of the court was delivered by: TYLER

TYLER, District Judge.

Plaintiffs were limited partners in a real estate syndication, 52 Broadway Realty Company, which was organized in 1962. In this litigation they are suing the general partners and original limited partners, *fn1" the legal and business counsel of the partnership and various corporations and individuals who did business with the general partners. Plaintiffs charge that the defendants entered into a common scheme to defraud the plaintiffs and other limited partners of 52 Broadway through the publication of two brochures in 1962 which solicited funds for the syndication. Plaintiffs allege 97 omissions and mistatements of material fact in their complaint and on that basis bring suit under Section 17 of the 1933 Securities Act, Section 10(b) of the 1934 Securities and Exchange Act, Sections 352-c and 352-e of the New York General Business Law, McKinney's Consol. Laws, c. 20, and the common law. The defendants now raise the affirmative defense of a general release and move for summary judgment.

 The syndication did not turn out to be a profitable venture. There was a correspondence between the general and the limited partners dealing with the collapse of the venture and suggesting various schemes to reduce losses. The final resolution was a distribution of checks made by the general partners to the limited partners in July 1967 and bearing on the back a general release of the general partners in which endorsement of the check also acted as a signature on the release. Both named plaintiffs in this action signed the general release. By this instrument the general partners claim release and move for summary judgment in their favor. Other defendants Jerry Tenney, the Tenney Corporations and Wolfson make similar motions claiming that the complaint sets them up as joint tortfeasors with general partners. Thus, looking to the law of New York, under which they claim that a release to one joint tortfeasor is a release to all, they claim to be equally released with the general partners.

 Plaintiffs produce a variety of replies to this affirmative defense, only two of which need concern us on this motion. First, plaintiffs contend that claims arising under the federal securities acts cannot legally be compromised by release and therefore this release is void insofar as it relates to such claims. Second, it is contended that the release was fraudulently obtained and may be rescinded.

 I. Release under the Securities Acts.

 The Court of Appeals for this circuit has recently interpreted Section 29(a) of the Securities Exchange Act, 15 U.S.C. § 78cc(a), *fn2" in Pearlstein v. Scudder & German, 429 F.2d 1136 (2d Cir. July 2, 1970), and I find its ruling controlling here. In that case a broker had violated Section 7(c) of the 1934 Securities and Exchange Act, 15 U.S.C. § 78g(c), by failing to demand full payment from purchaser under the terms of Regulation T of the Federal Reserve System which is promulgated pursuant to Section 7(c). There was negotiation between the parties on the extension of credit and a brief lawsuit was had which ended in a stipulation of settlement between the parties by which the broker extended credit to the purchaser.

 It was argued that this stipulation gave the parties a "fresh start" and wiped from the slate any previous claims that they might have had against each other. The Court of Appeals disagreed, holding that, "it would * * * contravene public policy to give the stipulation conclusory effect. Section 29(a) of the Securities Exchange Act holds void any stipulation obligating a party to waive compliance with the Act." 429 F.2d at 1143.

 The ruling in Pearlstein goes to the roots of the policies which give vitality to settlements and stipulations of all sorts. Settlements have the advantage that where the parties to a controversy are able to come to an agreement they can legally lay their dispute to rest without the cost in time, money and effort which litigation demands of both the parties and the court. Further, the parties are able to close the books on the past and plan for the future without the uncertainty and delay which trial might entail. At least in the ideal settlement, both parties have knowledge of the possible claims between themselves, and both are able to deal without financial pressure which the settlement might relieve. Ordinarily in such circumstances, it is of no concern to the court or the public what terms such a knowing and voluntary settlement of a strictly private controversy may contain.

 In Pearlstein the Court of Appeals was willing to concede arguendo that the parties had made a knowing and voluntary settlement unstained by financial duress. Nevertheless, the Court felt that the Congressional policy expressed by the Act, the interest which the community as a whole has in the regulation of the securities market, was a bar to giving the stipulation binding legal effect. Section 29 (a) is indeed an in terrorem provision apparently making void any final settlement short of litigation. See Note, 73 Yale L.J. 477 (1964).

 I can see no significant difference between the general release at issue in this case and the stipulated settlement in Pearlstein. If anything, the stipulation of settlement, presumably reached after discussion with counsel, would be taken to show more knowledge of the issues settled than a general release. There may have been neither external nor subjective financial pressure present in the granting of the release, but the circuit court has found that to be beside the point. It is obvious that a release fits within the general language of Section 29(a) as a provision which purports to bind the signer to waiving the released's compliance with the provisions of the Act. It is equally clear that the force given to the language of Section 29(a) must also be given to the parallel expression of Congressional policy in Section 14 of the 1933 Securities Act, 15 U.S.C. § 77n. *fn3"

 In the light of the public policy controlling enforcement of the 1933 Securities Act and the 1934 Securities and Exchange Act as expressed in Pearlstein, I hold that general releases here offered as an affirmative defense to violation of those Acts must be dismissed as void. Defendants' motion for summary judgment on the claims under the federal securities laws is denied.

 II. State and Common Law Causes of Action and the Contention of Fraud.

 The bar to the conclusory effect of the releases does not extend to the state and common law causes of action where there is no enunciated non-waiver policy or provision. Pawgan v. Silverstein, 265 F. Supp. 898 (S.D.N.Y. 1967).

 Plaintiffs' first line of defense against the effect of the releases on their state and common law action appears to be fraud. As always in this litigation, the parties are determined that they will "[by] indirections find directions out" and to that end have submitted typically turgid and confused papers of a fully Polonian quality. The contention of fraud drifts across the sky appearing now like a camel, now like a weasel and at times disappearing altogether. It would be a worthless exercise to attempt to be precise about just what fraud in the obtaining of the releases plaintiffs presently claim. This may well be an issue on which discovery should be granted before summary judgment or ...

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