The opinion of the court was delivered by: MACMAHON
MacMAHON, District Judge.
Plaintiff moves for a preliminary injunction, pursuant to Rule 65, Fed. R. Civ. P., enjoining defendant American Stock Exchange ("Exchange") from proceeding with a disciplinary hearing on charges that he may have violated certain rules and regulations of the Exchange and the securities laws.
Plaintiff is an officer of Walston & Co., which is a broker-dealer and member of the Exchange. He was charged, pursuant to Rule 345 of the Exchange's board of governors which allows the board to discipline employees of member organizations, with engaging in conduct inconsistent with just and equitable principles of trade and detrimental to the interest and welfare of the Exchange by churning market activity in the stock of Four Seasons Nursing Centers, Inc., while he was in a position to receive inside information, by making a material misstatement about his personal indebtedness to the officers of Four Seasons, by engaging in transactions off the Exchange without the required permission of the Exchange, and by arranging for the extension of credit to himself for the purchase of stock from the officers of Four Seasons on terms more favorable than those permitted under Federal Reserve regulations.
Upon plaintiff's denial of the charges, a hearing was scheduled to be held before the board, and plaintiff requested the right to be represented by counsel at that hearing. The Exchange denied the request, pursuant to Section 1(d) of Article 5 of its constitution, which provides: "No person, firm or corporation shall have the right to be represented by professional counsel in any investigation or hearing before the board of governors . . . "
Plaintiff then instituted the present action to permanently enjoin the Exchange from conducting the hearing until it permitted him to be represented by counsel on the ground that denial of the right to be represented by counsel (1) violates his right to due process under the Fifth Amendment, (2) violates Section 6 of the Securities Exchange Act of 1934,
(3) violates Sections 1 and 2 of the Sherman Anti-Trust Act,
and (4) is a breach of plaintiff's contract with the Exchange.
A preliminary injunction is an extraordinary remedy and should be granted only where the applicant shows a strong likelihood of ultimate success on the merits and irreparable injury unless such relief is granted, or where the applicant makes a limited showing of probable success but raises substantial issues requiring further inquiry and shows that the harm to him outweighs the injury to others if the relief is denied.
We consider first the likelihood of plaintiff's success on the merits of his four claims. Plaintiff's first claim is that the denial of his right to be represented by counsel at the hearing violates his right to due process.
Plaintiff contends that the Fifth Amendment right to due process inheres in the Exchange's disciplinary procedures since the Exchange is acting as an arm of the federal government when it exercises the power of self-regulation granted it by the 1934 Securities Exchange Act. Plaintiff further contends that in the present case, the right to due process includes the right to be represented by counsel at the hearing.
The Exchange, on the other hand, maintains that it is a private organization and it does not act as an arm of the government and that, therefore, its disciplinary proceedings are not subject to the due process requirements of the Fifth Amendment. The Exchange further maintains that even if it could be construed as an arm of the government, the due process which it must accord plaintiff in this situation does not require a full trial-type hearing with representation by counsel.
We think that the day is long gone when a national stock exchange can be considered a private club when it conducts disciplinary proceedings against its members or their employees. When an exchange conducts such proceedings under the self-regulatory power conferred upon it by the 1934 Act, it is engaged in governmental action, federal in character, and the Act imposed upon it the requirement that it comply with fundamental standards of fair play.
That requirement was reiterated in Intercontinental Indus., Inc. v. American Stock Exch., 452 F.2d 935 (5th Cir., Dec. 20, 1971), in which it was held that the intimate involvement of the American Stock Exchange with the S.E.C. brought it within the purview of the Fifth Amendment controls over governmental due process.
However, the fact that disciplinary proceedings of the Exchange come within the purview of Fifth Amendment due process does not, of itself, mean that plaintiff is constitutionally entitled to counsel at the hearing before the board of governors. The Fifth Amendment does not require a full trial-type hearing in every case of government impairment of a private interest.
The requirements of due process vary from case to case. The procedures due one person in one situation are not automatically required for another person in a different situation.
At a minimum, due process generally includes notice and a hearing,
although even these basics are not always required.
But, surely, the presence of counsel at a hearing such as the present one is not an inherent requirement of due process. Counsel has been held not to be required in other instances where purely private interests were involved, such as at draft board hearings,
at hearings involving expulsion from a service academy
or expulsion from school,
or even at investigatory hearings that could lead to criminal prosecution.
As Mr. Justice Frankfurter stated:
"The utmost devotion to one's profession and the fullest recognition of the great role of lawyers in the evolution of a free society cannot lead one to erect as a constitutional principle that no administrative inquiry can be had in camera unless a lawyer be allowed to ...