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COENEN v. R.W. PRESSPRICH & CO.

April 22, 1971

Dale S. COENEN, Plaintiff,
v.
R.W. PRESSPRICH & CO., Inc. and Stirling Homex Corporation, Defendants


Metzner, District Judge.


The opinion of the court was delivered by: METZNER

METZNER, District Judge.

Defendant R.W. Pressprich & Co., Inc., moves to stay all proceedings in this action pending arbitration of the disputes between the parties.

 Plaintiff is the principal stockholder of Coenen & Co., Inc., a broker-dealer and investment banking firm. During the period from July 1968 to July 1969 he was a member of the board of directors of defendant Stirling Homex Corporation, and personally purchased 90,000 shares of its stock. The certificates contained the standard restrictive "investment" legend.

 Sometime during the summer of 1970 the subject matter of this lawsuit came into being. The dispute revolves around the refusal of Stirling, with the claimed connivance of Pressprich, to permit the plaintiff to transfer his stock free of the restrictive legend. Subsequently the legend was removed, but only in connection with an alleged fraudulent scheme which forced the plaintiff on September 25, 1970 to sell the stock at what he claims was an unconscionably low price.

 As far as can be ascertained from the papers, there was no indication until January 6, 1971 that plaintiff intended to assert a claim for damages. On that date the attorney for the plaintiff sent a letter to Pressprich. It contained a copy of the complaint which counsel had been instructed by plaintiff to file against the defendants and asked if there was any possibility of settling the matter.

 On December 31, 1970 plaintiff had become an allied member of the New York Stock Exchange. Pressprich is a member of the Exchange.

 Membership in the Exchange embraces a pledge to abide by its constitution. Article VIII, § 1, of that document provides in part:

 
"Any controversy between parties who are members, allied members, member firms or member corporations shall, at the instance of any such party, * * * be submitted for arbitration, in accordance with the provisions of the Constitution and the rules of the Board of Governors."

 It has been held that a claim by one member that he has been libeled by another is an arbitrable "controversy" under this provision. Osborne & Thurlow v. Hirsch & Co., 10 Misc. 2d 225, 172 N.Y.S. 2d 522 (1958). In that case the claimed libel occurred while plaintiff was a member of the Exchange, but the action was instituted after he resigned from the organization.

 The issue here is whether the contractual agreement, evidenced by membership in the Exchange (Garfield & Co. v. Wiest, 432 F.2d 849 (2d Cir. 1970), cert. denied, 401 U.S. 940, 91 S. Ct. 939, 28 L. Ed. 2d 220 (March 2, 1971)), is applicable where the claimed cause of action arose before the plaintiff became a member, but the first attempt to enforce any rights was made after he became a member.

 It appears to me that a person aware of possible claims against another is bound by any subsequent agreement to arbitrate disputes between them which is knowingly entered into. It is obvious from the papers that plaintiff is a sophisticated person and clearly understood his responsibilities when he applied for membership. Furthermore, his claim grows out of a series of circumstances in which he was personally involved. I do not have to reach the question of what the law would be if the complaint had been filed before plaintiff became an allied member of the Exchange.

 Consequently, it is clear that the first cause of action either at common law or under the Uniform Commercial Code presents arbitrable issues under the constitution of the Exchange.

 Plaintiff's second cause of action arises under § 10(b) of the Securities Exchange Act of 1934. § 29(a) of this Act renders void certain agreements to arbitrate disputes between the parties arising under the 1934 Act. Wilko v. Swan, 346 U.S. 427, 74 S. Ct. 182, 98 L. Ed. 168 (1953). Wilko dealt with § 14 of the Securities Act of 1933, but the language of § 14 is virtually identical to the language of § 29(a).

 In the Wilko case the Court expressly limited its holding to agreements to arbitrate entered into prior to the existence of a controversy. It left open the ...


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