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CORDOVA v. BACHE & CO.

December 10, 1970

Sam Cordova, et al., Plaintiff
v.
Bache & Co., Inc., et al, Defendants.


Mansfield, D.J.


The opinion of the court was delivered by: MANSFIELD

MANSFIELD, D.J..

In this suit purportedly brought on behalf of securities representatives ("representatives" herein) charging their employers (some 42 leading stock exchange brokerage firms and the New York Stock Exchange) with conspiracy to reduce commissions paid to representatives in violation of the Sherman Act, defendants have moved to dismiss the complaint pursuant to Rules 12(b)(1) and (6), F.R.Civ.P.

 Plaintiff is the President of the American Association of Securities Representatives, which is affiliated with the National Maritime Union. Securities representatives are employed by stock brokerage firms to handle for such firms and their customers the purchase and sale of securities on public exchanges and over-the-counter. For his services in handling a securities transaction a representative receives a commission based upon a percentage of the commission received by his employer for the transaction.

 Plaintiff here, although purporting to sue on behalf of approximately 20,000 representatives throughout the United States, does not claim that he himself is employed as a securities representative. He simply alleges that the Association of which he is President has as its membership more than 5,000 such representatives.

 The gravamen of plaintiff's claim is that beginning in September 1969 defendants entered into a conspiracy in violation of §§ 1 and 2 of the Sherman Act to restrain trade by reducing the commission rates to be paid to the representatives employed by them. It is charged that pursuant to the alleged conspiracy defendants, from September 1969 to the present, have reduced the commission rates paid to their representatives by amounts ranging from 5% to 10% of their former commission rates; more specifically, that prior to September 1969 representatives employed by defendants were paid rates ranging from 34% to 37% of the commission received by the employer from a purchase or sale, and that thereafter these rates were reduced to approximately 30% to 33% of the employer's commission. Plaintiff alleges that the effect of the conspiracy has been to reduce competition in the hiring of representatives and in the compensation paid to them, causing them irreparable injury and damages. As pendent claims (Second and Third Causes of Action), plaintiff alleges that defendants' conduct violated § 340 of the General Business Law of New York, State Antitrust and Anti-Blacklisting statutes, and state common law.

 A further separate antitrust claim against all defendants (Fourth Cause of Action) alleges that since March 1970 the New York Stock Exchange, on behalf of its members (including the other defendants) has imposed a surcharge in the form of a service fee in the sum of $15 or 50% of the applicable commission, whichever is lesser, on orders of 1,000 shares or less, and that pursuant to the alleged conspiracy to restrain trade and competition in the hiring of, and in the compensation to be paid to, representatives, defendants have refused to pay to the latter any commission on the amount of the surcharge fee. Following his established pattern with respect to the First Cause of Action, plaintiff further claims (Fifth and Sixth Causes of Action) that this conduct violated the New York General Business Law, New York Antitrust and Anti-Blacklisting statutes, and common law.

 At the outset we are confronted with the undisputed fact that plaintiff is not an employee of any of the defendants and that neither he individually nor the Association claims that their property, business or earnings have been adversely affected in any way by the alleged conduct of the defendants. Having no stake in the outcome plaintiff therefore lacks standing to assert an antitrust claim under the Clayton Act, which permits such a suit to be brought only by a "person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws." Clayton Act § 4, 15 U.S.C. § 15. Allegation and proof of such injury is essential to the maintenance of a private suit under the Sherman Act for enforcement of rights arising out of alleged violations of the Sherman Act. Bookout v. Schine Chain Theatres Inc., 253 F.2d 292, 295 (2d Cir. 1958); SCM Corp. v. Radio Corp. of America, 407 F.2d 166 (2d Cir. 1969), affirming 276 F. Supp. 373 (S.D.N.Y. 1967), cert. denied, 395 U.S. 943, 23 L. Ed. 2d 461, 89 S. Ct. 2014 (1969); see Perma Life Mufflers Inc. v. International Parts Corp., 392 U.S. 134, 20 L. Ed. 2d 982, 88 S. Ct. 1981 (1968).

 The fact that plaintiff sues as the President of the American Association of Securities Representatives does not provide him with standing or cure the fatal deficiency, since an association has no standing to assert the rights of its members under the antitrust laws. Northern Cal. Monument Dealers Assn. v. Interment Association, 120 F. Supp. 93, 94 (N.D. Calif. 1954); Carroll v. Associated Musicians of Greater New York, 206 F. Supp. 462, 471-72 (S.D.N.Y. 1962), affd., 316 F.2d 574 (2d Cir. 1963). Lacking standing to sue individually, plaintiff cannot sue on behalf of a class of representatives, since only a member of the class is permitted under Rule 23, F.R.Civ.P., to bring such a suit. Bailey v. Patterson, 369 U.S. 31, 32-33, 7 L. Ed. 2d 512, 82 S. Ct. 549 (1962); Greenstein v. Paul, 275 F. Supp. 604, 605 (S.D.N.Y. 1967), affd., 400 F.2d 580 (2d Cir. 1968).

 Cases cited by plaintiff which involved standing to raise constitutional claims and to contest administrative action, not standing to bring an antitrust action, are not persuasive. The Supreme Court based its holding in NAACP v. Alabama, 357 U.S. 449, 2 L. Ed. 2d 1488, 78 S. Ct. 1163 (1958), on the ground that to compel individual NAACP members to present their constitutional claim that its membership lists need not be furnished to a state court "would result in nullification of the right at the very moment of its assertion." 357 U.S. 449, 78 S. Ct. 1163, 2 L. Ed. 2d 1488. No such contradiction would result from requiring individual securities representatives to come forward and sue in the present case. Nor did the Second Circuit, in Norwalk CORE v. Norwalk Redevelopment Agency, 395 F.2d 920 (1968), go beyond NAACP v. Alabama to hold that an association or organization could in every case sue on behalf of its members. Instead, it held that the question of standing depended upon "whether there is a compelling need to grant the association standing in order that the constitutional rights of persons not immediately before the court might be vindicated," 395 F.2d at 937, and remanded the case to the district court for a determination of that issue. Finally, in Curran v. Laird, 136 U.S. App. D.C. 280, 420 F.2d 122 (1969), the court did not focus on the right of an association to sue on behalf of its individual members; assuming that both union members and union leadership had equal standing to sue, 136 U.S. App. D.C. 280, 420 F.2d 122, the court proceeded to consider extensively the question of whether either the union or its members had standing, under § 10 of the Administrative Procedure Act, 5 U.S.C. § 702, and various cargo preference acts, to challenge the legality of certain administrative actions, 420 F.2d 124-27.

 Since plaintiff's counsel has requested leave, in the event of dismissal for lack of standing, to substitute as plaintiffs several individual representatives who apparently stand ready in the wings, we pass on to consider defendants' argument that the complaint fails to state a claim for the reason that defendants' alleged activities are exempted from the prohibitions of the Sherman Act by the first sentence of § 6 of the Clayton Act which states "The labor of a human being is not a commodity or article of commerce," 15 U.S.C. § 17. Defendants argue that the complaint, reduced to simplest terms, alleges a combination and conspiracy on the part of employers with respect to the labor of their employees and therefore it is exempted by § 6. *fn1"

 If the language of § 6 of the Clayton Act stopped with the sentence quoted by defendants, it would lend support to their position. It is immediately followed, however, by additional language which when considered in the light of the statute's legislative history, convinces us that the sole purpose and effect of the section is to exempt activities and agreements on the part of labor, agricultural or horticultural organizations with respect to their furnishing labor in the market place. The full text of 15 U.S.C. § 17 reads as follows:

 
"§ 17. Antitrust Laws Not Applicable to Labor Organizations
 
"The labor of a human being is not a commodity or article of commerce. Nothing contained in the antitrust laws shall be construed to forbid the existence and operation of labor, agricultural, or horticultural organizations, instituted for the purposes of mutual help, and not having capital stock or conducted for profit, or to forbid or restrain individual members of such organizations from lawfully carrying out the legitimate objects thereof; nor shall such organizations, or the members thereof, be held or construed to be illegal combinations or conspiracies in restraint of trade, under the antitrust laws. Oct. 15, 1914, c. 323, § 6, 38 Stat. 731"

 In the absence of an exemption the labor of a human being might be deemed a commodity or article of commerce within the meaning of the Sherman Act, in which event a strike or organized refusal to work could constitute an unlawful combination and conspiracy between employees to restrain trade in the furnishing of labor or services. For the same reason every union-employer agreement specifying the terms on which union members would work (or furnish their labor) could likewise violate that act. Indeed a union's organization of employees for such purposes would probably be deemed an unlawful conspiracy.

 It is readily apparent that Congress, in enacting § 6, was concerned with the right of labor and similar organizations to continue engaging in such activities, including the right to strike, not with the right of employers to band together for joint action in fixing the wages to be paid by each employer. There is no evidence of the existence of any necessity to protect the latter type of activity at the time when § 6 was enacted. It seems clear that if Congress had wanted to exempt agreements between employers as to the money or compensation that would be paid to their employees, it would not have limited § 6 to exemption of "the labor of a human being" which can be restrained only by the employees or unions controlling the labor itself. Congress would also have provided that compensation offered or paid by employers to employees is not a commodity or article of commerce. This it did not do.

 Nor does the legislative history support defendants' construction of § 6. Our review of the background of the statute, including successive drafts, amendments, the Senate and House Reports, voluminous debates before both Houses, and the Conference Report, discloses that Congress' only purpose, in an era when the balance of economic strength tipped more in favor of the employer than today, was to help the labor organizations and the labor movement by removing any doubt as to the legality of their existence and operations. We fail to find in these materials any Congressional intent to exempt multi-employer organizations, or joint action on the part of employers, with respect to the compensation to be paid to their employees. (See Appendix hereto).

 Defendants' attempt to wring help out of testimony given by Samuel Gompers to the House Committee in support of the enactment of the statute is wholly unconvincing. Although he expressed fear that existing agreements or "protocols" between labor and employers, which outlawed sweatshop conditions in certain New York industries, might be deemed to constitute per se violations of the Sherman Act unless exempted, no mention was made by him of employer groups. He was concerned with labor's right to organize, strike and enter into agreements fixing the terms and conditions on which labor would be furnished. As an outstanding pioneer and fighter in the ranks of labor, he would probably turn in his grave if he were credited with urging an exemption that would permit employers jointly and unilaterally to reduce wages of their employees.

 There can be little doubt about the fact that if a group of employers, as the complaint here alleges, were allowed, not as part of a collective bargaining agreement, to agree together to reduce the commissions paid to their respective employees, they would have the same power to restrain competition as is inherent in a price-fixing agreement. In a market where the demand for employees with particular skills exceeded the supply, employers could serve their mutual interests by jointly establishing a "going rate" which none would violate, thereby eliminating wage competition between them. *fn2" The effect of such a unilateral agreement between employers, as alleged in the present complaint (paras. 17, 19, 31), could also be to restrain mobility on the part of employees who would otherwise have the opportunity, in a competitive market for services, to transfer to higher paid opportunities offered by others. Conversely, an individual employer might be reluctant, acting alone, to reduce commissions paid to his representatives because, if competitors did not follow, his representatives might leave his employ. In such a case an agreement between employers would enable the employers together to achieve what no single one of them could do alone.

 We recognize that the exemption granted to labor organizations by § 6 leaves employees free to organize and exercise broad economic power which can result in harm to employers as well as to the public. For instance, they may take joint action for unreasonable demands and picket or strike without notice. 29 U.S.C. § 102; Sinclair Refining Co. v. Atkinson, 370 U.S. 195, 202, 8 L. Ed. 2d 440, 82 S. Ct. 1328 (1962), overruled on other grounds, Boys Markets, Inc. v. Retail Clerks Union, 398 U.S. 235, 26 L. Ed. 2d 199, 90 S. Ct. 1583 (1970); New Negro Alliance v. Sanitary Grocery Co., 303 U.S. 552, 82 L. Ed. 1012, 58 S. Ct. 703 (1938). It may be argued that § 6 should not therefore be treated as a one-way street, and that employers should be permitted to take joint unilateral action as long as labor is permitted to do so. Section 6, however, was aimed at preserving labor's right to organize, not that of capital. If events have since demonstrated the need for extension of the exemption to employers in order to provide a more equitable balance of economic power, such arguments should be addressed to Congress rather than to the courts.

 In support of their interpretation of § 6 defendants point to decisions sanctioning multi-employer bargaining and joint action by employers incident to such bargaining, National Labor Relations Board v. Truck Drivers Local Union, 353 U.S. 87, 1 L. Ed. 2d 676, 77 S. Ct. 643 (1956); Local 189, Amalgamated Meat Cutters & Butcher Workmen v. Jewel Tea Co., 381 U.S. 676, 14 L. Ed. 2d 640, 85 S. Ct. 1596 (1965); Publishers Association of New York City v. NLRB, 364 F.2d 293, 295-96 (2d Cir. 1966), including formulation of industry-wide terms and conditions of employment, mutual shutdown in the event of a strike, Clune v. Publishers Assn. of New York City, 214 F. Supp. 520 (S.D.N.Y.), affd. per curiam, 314 F.2d 343 (2d Cir. 1963), and ...


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