The opinion of the court was delivered by: CONNER
J. R. Williston & Beane, Inc. ("W & B") brought this action pursuant to Section 1 of the Sherman Act (15 U.S.C. § 1) to recover the damages allegedly sustained by it when it was temporarily suspended from membership on The New York Stock Exchange ("NYSE") and The American Stock Exchange ("ASE"), and when Stock Clearing Corporation, The American Stock Exchange Clearing Corporation and National OTC Clearing Corporation
("Clearing Corporations") ceased dealing with it.
The relevant facts are largely undisputed. However, in order to render the nature of the alleged antitrust violations understandable, it is necessary to review the factual background in considerable detail.
In 1963 and prior thereto, W & B was a broker-dealer registered with the Securities and Exchange Commission ("SEC") pursuant to Section 15(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78 o (b). During this time, Allied Crude Vegetable Oil Refining Corporation ("Allied") maintained a margin account in soybean oil and cottonseed oil futures, as well as a "spot oil" account with W & B. The accounts were collateralized by warehouse receipts held by W & B and believed to be worth about $1,800,000.
In November, 1963, the market price of commodity futures contracts dropped sharply.
Accordingly, W & B made margin calls on Allied totalling $610,000. Although Allied delivered a check for $610,000 on November 19, the check was dishonored and these calls were never met.
The NYSE was aware that W & B carried a very large commodities account for Allied because it had been monitoring that account for a substantial period of time. Consequently, when it learned that Allied had failed to meet margin calls from another member firm (Ira Haupt & Co.), it sent an examiner on the 19th to review W & B's books in order to determine the extent to which recent events had adversely affected W & B's ability to comply with the Exchange's net capital rules. The examiner determined that W & B had a negative capital position of $1,263,045. While he was there, he also learned of the default on the Allied check; later that afternoon it was learned that Allied had filed a petition for an arrangement under Chapter XI of the Bankruptcy Act.
On the evening of November 19, 1963, Alpheus C. Beane ("Beane"), chief executive officer of W & B, discussed the problem of the Allied bankruptcy with NYSE officials. Beane was informed at that time that the question of the Allied bankruptcy would be the subject of a special meeting of the Board of Governors of the NYSE that would be held the following morning.
Prior to the commencement of trading on November 20, the Board of Governors of the NYSE met. Beane and the chief operations officer of W & B were not present at the meeting, but waited in an adjacent room. The meeting extended past the opening of trading and W & B kept its brokers off the floor pending further notice from the Board. Thereafter, the Board informed W & B that it had been suspended as an Exchange member corporation pursuant to Article XIII, Section 2 of the NYSE's constitution.
Shortly thereafter, the ASE suspended W & B as a member, and the Clearing Corporations ceased acting for it.
During the time of its suspension, W & B was permitted to continue handling business for its customers by arranging for Shields & Co. to clear transactions for it. Throughout this time, W & B was making arrangements to obtain the funds (in excess of $500,000) necessary to comply with the requirements of the NYSE's net capital rule.
By November 22, 1963, W & B had raised more than the minimum amount required, and was reinstated as a member of the NYSE pursuant to Article XIII, Section 5 of the NYSE's constitution and as a member of the ASE by act of a Special Committee. The Clearing Corporations reinstated W & B shortly thereafter. However, on November 26, W & B announced the termination of its business and liquidated its assets in December, 1963.
On November 17, 1967,
W & B instituted the present action, claiming that it was arbitrarily suspended without proper notice and an opportunity to be heard.
W & B further claims that defendants acted in contravention of their constitutions, charters and by-laws, and that their actions constituted a boycott in violation of the Sherman Act. W & B asserts that the action of defendants destroyed its reputation, caused the public to lose confidence in it and forced it to liquidate its business at a substantial loss.
Seven years after the commencement of this action, defendants have moved for summary judgment, and these motions are presently before the Court.
Defendants NYSE and ASE claim that W & B was suspended pursuant to their duty to protect the investing public and that they are constitutionally required to suspend a member who is in such financial condition that it cannot be permitted to continue in business with safety to its creditors and the exchange. NYSE Constitution Art. XIII, Section 2; ASE Constitution Art. V, Section 3(b).
The ASE further contends that when, on the morning of November 20, the NYSE revealed that W & B had been suspended due to a serious impairment of the firm's net capital, representatives of the ASE attempted to contact responsible officals at W & B, but were unsuccessful. The ASE argues that W & B's failure to notify the ASE of the substantial impairment of its net capital position was a violation of ASE Rule 467, governing net capital requirements for member corporations.
The Exchanges assert that, in view of the exigency of the circumstances, notice and a formal hearing were not required as a prerequisite to suspending W & B, and that their conduct was mandated by Section 6 of the Securities and Exchange Act of 1934, 15 U.S.C. § 78f,
and their respective Constitutions and Rules.
In any event, the Exchanges argue that under the prevailing case law, the action which they took is not subject to review under the antitrust laws.
The Clearing Corporations assert that suspension by the Exchanges required them, pursuant to their By-Laws and Rules,