The opinion of the court was delivered by: KNAPP
Defendant moves to dismiss a complaint alleging violations of the anti-fraud provisions of the federal securities laws,
the rules of the National Association of Securities Dealers ("NASD") and the New York Stock Exchange ("NYSE"), and various state law obligations of due care and fiduciary duty. For the reasons which follow we dismiss the causes of action asserting violation of the rules of the above-mentioned associations, and, treating defendants' motion with respect to the securities claims as one for summary judgment, we grant that motion.
Early in 1983 plaintiff invested $50,000 in a commodity futures account at the defendant brokerage firm ("Merrill Lynch"). This account was managed by defendants Leonard and Fisher (the "brokers" or "investment managers") who were in turn supervised by defendant Tabone. Plaintiff alleges that over the period of just a few months his account was so mishandled that he lost $16,541, for which he demands compensatory and punitive damages.
While defendants style their motion as one made pursuant to F.R.Civ.P. 12(b)(6), they have attached to their papers plaintiff's account authorization and the affidavit of defendant Jay B. Leonard, plaintiff's broker. At oral argument we inquired whether plaintiff disputed any of the allegations contained in that affidavit, indicating that if there was no dispute we would be inclined to dismiss the securities laws claims. Although counsel for plaintiff first indicated that she had no dispute with the contents of the affidavit, in the course of argument it became apparent that this was not so. We accordingly advised plaintiff to conduct whatever discovery was necessary to refute any of the allegations in the defendants' submissions. Plaintiff has done so, and we thus treat the motion as to the securities claims as one for summary judgment.
The uncontradicted portion of defendant Leonard's affidavit reveals that plaintiff's account was a commodity futures account. Affidavit at P2. Pursuant to trading authorizations signed by plaintiff, the account was traded on a discretionary basis, or one which did not require plaintiff's approval prior to each individual trade. Affidavit at P3. The account was an individual account and not a commodity pool account. Affidavit at P4. Defendant Leonard's affidavit further states, at P7, that
[t]he only compensation which was derived from plaintiff's account was commissions on a trade by trade basis. No income was derived based upon the profit or loss in the account and no bonus or other incentive compensation was derived from the account based upon the success or failure of the trading activity.
Pursuant to our directive at oral argument plaintiff took the deposition of defendant Tabone who, at the time of the events complained of, oversaw the work of the defendant brokers. Tabone testified that at the relevant time, Merrill Lynch sponsored "recognition clubs" for which individual brokers became eligible when they achieved a certain annual level of commissions on all of their accounts. Club members became entitled to reimbursement for monetary and merchandise expenditures. Each of the defendant brokers before us gained entry into the club based upon the total amount of commissions earned from all of their accounts. Deposition of Tabone at 21-22. Tabone also confirmed defendant Leonard's explanation of the basis on which commissions were earned from plaintiff's account, that is, based upon the amount of trading done, rather than on the profitability of the transactions. Id. at 11-12, 21.
Tabone further testified that brokers could, if they wished, personally invest money in commodity futures in which their customers invested, and could invest several customers' funds in the same items. They were not required to advise their customers of such actions. Id. at 16-17.
Rules of the NASD and NYSE
We have previously held that there is no private right of action under the rules of the NASD or NYSE, Juster v. Rothschild, Unterberg, Towbin, et al. (S.D.N.Y. 1983) 554 F. Supp. 331, 333, and plaintiff has not set forth any arguments which would change our view on the matter. ...