# Petition — Rosansky v. Ladenburg, Thalmann & Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1977
- **Citation:** 434 U.S. 968

## Text

i

X

Supreme Court, U. S,
FILED

OCT 3 1977

MICHAEL RODAK, JR., CLERK

’

IN THE

Supreme Court of the United States

OCTOBER TERM, 1977

No,
MARTIN G. ROSANSKY,
Petitioner,

Vv.
LADENBURG, THALMANN & CO., INC.,

Respondent,

PETITION FOR WRIT OF CERTIORARI
TO THE APPELLATE DIVISION, FIRST
DEPARTMENT OF THE SUPREME COURT
OF THE STATE OF NEW YORK

Richard deY. Manning, Esq.
Counsel for Petitioner
Martin S, Rosansky
122 East 42nd Street

‘ New York, New York 10017

“Kevin F. Cook
\\ Of Counsel

COUNSEL PRESS, INC., 55 West 42nd Street, New York, N.Y. 10036 @ (212) 391-6622

INDEX
PAGE
Opinion Below 2
Jurisdiction 2
Question Presented 3
Statement 4
Reasons for Granting the Writ
A. The decision below 7
squarely presents an
important Federal
question -- never
passed upon by this
Court -- as to whether
any claim under the
1934 Act is arbitrable,
with or without the con-
sent of the parties.
B. The State Court decided 12

an important question

of Federal law for the
first time, in a manner
not in accord with the
1934 Act and probably

not in accord with de-
cisions of this Court,
that if 1934 Act questions
may under proper circum-
stances, be submitted to
arbitration, must such
arbitration be conducted
under the Federal Arbitra-
tion Act under the aegis
of Federal Courts or may
such arbitration be con-
ducted under the State
Arbitration Act under the
aegis of the State Courts.

ii

PAGE

Cc. The State Court decided 17
an important question
of Federal law for the
first time in a manner
probably not in accord
with the decisions of
this Court, in that it
permitted the arbitration
of a 1934 Act claim
against petitioner, which
was not previously known
to petitioner, over the
specific and continual
objection of petitioner.

Conclusion 20

iii

TABLE OF AUTHORITIES

United States Cases Page

Axelrod & Co. v. Kordich 9 & 12
Victor & Newfeld, 451 F.2d
838 (2nd Cir. 1971).

Clark v. Watchie, 513 F.2d
~994 (9th Cir.) cert. den.
423 U.S. 841 (1975). 13

Metro Indust. Painting Corp.
Vv. Terminal Const. Co.,

287 F.2d 382 (2nd Cir. 1961) 15

Moran v. Paine, Webber

“Jackson & Curtis, F.2d
242 (3rd Cir. 1968). 9 & 19
Sobel v. Hertz Warner & Co., 9 & 10
F.Supp. 28

reversed and remanded,
469 F.2qg 1211 (2nd Cir. 1972)

Wilko v. Swan, 201 F.2d 439 8, 9
(2nd Cir.), reversed, 19

346 U.S. 427 (1953).

Wright v. Securities and

Exchange Commission,
112 er 89 (2nd Cir. 1940). 14
New York Cases

New York Stock Exchange v. 14
~“Goodbody & Co., vm WEL A.D. 556,
345 N.Y.S.2d 58 (lst Dept.

1973).

ta Ml ee ee

iv

STATUTES

Securities Act of 1933,
15 U.S.C. 77a et seg.

Securities Exchange
Act of 1934, 15 U.S.C.
78a et seq.

Civil Practice Law and
Rules:

§5602
§7511

Page

2-5;

7-14;

and 16-19

8-10;

18 &
19

IN THE
SUPREME COURT OF THE UNITED STATES

| OCTOBER TERM, 1977

i No.

MARTIN G. ROSANSKY,
Petitioner,
Vv.
LADENBURG, THALMANN & CO., INC.,
Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE
APPELLATE DIVISION, FIRST DEPARTMENT OF
THE SUPREME COURT OF THE STATE OF NEW YORK

To The Honorable The Chief Justice And
Associate Justices Of The Supreme Court Of

The United States:

Petitioner prays that a writ of cer-
tiorari be issued to review the judgment
of the Appellate Division, First Department,
of the Supreme Court of the State of New

York in the above entitled action.

OPINION BELOW

Neither the Court of Appeals nor the
Appellate Division, First Department, of
the Supreme Court of the State of New
York rendered an opinion. The opinion of
the Supreme Court of the State of New York
is unreported. A copy of this opinion

is annexed hereto as Appendix A.

JURISDICTION

The jurisdiction of this Court is
invoked under 28 United States Code, Sec-
tion 1257 by reason of the fact that the
Court of Appeals of the State of New York,
as the Court of last resort, refused to
grant leave to appeal and thus left stand-
ing a decision of the Appellate Division,
Supreme Court, affirming an arbitration
award based on a proceeding in which there
was introduced, over the objections of
petitioners, a counterclaim arising under

the Securities Exchange Act of 1934,

ee

15 U.S.C. 78aa ("1934 Act"), that act

provides, in pertinent part, that:
"The district court of the
United States, and the United
States courts of any terri-_
tory or other place subject

to the jurisdiction of the
United States shall have ex-

clusive jurisdiction of viola-
tions of this chapter or the
rules and regulations there-
under, and of all suits in
equity and actions at law
brought to enforce any lia-
bility or duty created by

this chapter or the rules

and regulations thereunder.
(Emphasis added)

QUESTION PRESENTED FOR REVIEW

Did the New York Court err in con-
firming an award of an arbitration panel
acting pursuant to the New York Arbitra-
tion Act in a proceeding instituted by
petitioner, a customer of respondent (a
member of the National Association of
Securities Dealers) for non-payment for
securities sold for petitioner's account,
which panel, over petitioner's objection

(a) held that it had jurisdiction

to hear and decide a counterclaim of

| respondent based upon alleged violations

| by petitioner of the 1934 Act; and

| (b) heard extensive evidence of such
: alleged violations of the 1934 Act; and

| (c) thereafter dismissed petitioner's

claim and respondent's counterclaim.
STATEMENT

The proceedings below were commenced
by the filing by petitioner of an arbitra-
tion "Submission Agreement", dated May 13,
1974, under the Code of Arbitration Pro-
cedure ("CAP") of the National Association
of Securities Dealers ("NASD").

Petitioner, an officer of Power Con-
version, Inc. ("PCI") initiated the arbi-
tration with respect to a $20,000 claim for
breach of contract for the sale of 500
shares of PCI common stock for which re-
| spondent, the purchaser, refused to pay.

After the arbitration proceedings had
been commenced, respondent interposed a

counterclaim against petitioner for

RE ee eee

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$200,000 asserting a violation of Rule
10b-5 promulgated pursuant to the Se-
curities Exchange Act of 1934 (i5 U.S.C.
78a et seg.).

Petitioner challenged the jurisdiction
of the arbitration panel to entertain the
said "counterclaim" under NASD-CAP. The
panel did not initially decide the juris-
dictional objection. After hearing the
evidence on the claim which consisted
simply of the respondent's "confirmation"
of the sale, the arbitrators heard exten-
sive evidence of the alleged violation of
petitioner of the 1934 Act, and then
rendered a decision

(a) holding that the panel had juris-
diction over the 1934 Act counterclaim; and

(b) dismissing both the claim and
counterclaim.

Petitioner thereafter moved in
Supreme Court, New York County under New
York CPLR 7511 to vacate the award on the

ground that, inter alia the arbitrators,

ad

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war

in entertaining the respondent's counter-
claim and hearing evidence with respect
thereto exceeded their power. That Court
denied the motion and confirmed the award.
Thereafter petitioner appealed to the
Appellate Division, First Department,

of the Supreme Court seeking a reversal
of the Supreme Court's order confirming
the award. That Court affirmed the
Supreme Court's judgment without an
opinion. Petitioner then moved the Supreme
Court, Appellate Division for an order
granting a rehearing or leave for appeal
to the Court of Appeals of the State of
New York. CPLR 5602. The Court denied
both motions. Thereafter petitioner
moved the Court of Appeals for an order
granting leave to appeal to the Court of
Appeals. CPLR 5602. On July 7, 1977,
the Court of Appeals denied the motion
thus exhausting the remedies available to
petitioner under New York law and pro-

cedure.

SOLO EP PS ER Tre a eee RT oe he ee

Dar Re FECA FO AGT *

REASONS FOR GRANTING THE WRIT

A.

The decision below squarely presents

an_ important Federal question -- never
passed upon by this Court -- as to whether

any claim under the 1934 Act is arbitrable,

with or without the consent of the parties.

After forty years, there still exists
an important and unanswered question as to
whether any claim arising under the 1934
Act is arbitrable. In spite of the tre-
mendous impact that that Act has had on
the securities industry and its customers,
neither can be sure whether it has a
judicial or arbitral remedy under the Act.
This court has never passed on the question
of whether a 1934 Act claim is arbitrable.
This unsettled state of affairs should not
continue and this Court is respectfully
requested to issue the writ sought and
allow this question to be fully briefed and

squarely presented for adjudication.

In the preamble of the Act, section

2 states:

"([SJecurities exchanges and

over-the-counter markets are

affected with a national

pubiic interest...."
Inasmuch as the Act is an expression of
statutory public policy, the comment of

Judge Charles E. Clark in his dissenting

Opinion in Wilko v. Swan, 201 F.2d 439

(2nd Cir.) whose position was ultimately
sustained by this Court, 346 U.S. 427

| (1953) is particularly germane. Judge
Clark pointed out the dangers of permitting
commercial arbitration to extend its reach
into areas involving public policy:

"Commercial arbitration has
been highly successful in
bringing a businessman's ad-
judication to business
questions. But it would be
vastly unfortunate if it be-
came usable as a device to
blunt or break social legis-
lation.” (201 F.2d at 445)

In Wilko v. Swan, 346 U.S. 427 (1953)

the petitioner sued to recover damage

| pursuant to the Securities Act of 1933.

|

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Fs Pe FRET Te ete

ORS 6 OT RRL OT ae

FO, Pe ET Wes 2Te re, concen “1

The Court held that an agreement to arbi-

trate a future controversy was void under

the 1933 Act. This Court did not there hold,
nor has it ever held since, that a different

rule prevails with respect to existing con-

troversies. The Court of Appeals of the

Third Circuit has held that, under certain
extreme circumstances, a party might waive
right to have 1934 Acts decided by a Court

(Moran v. Paine, Webber, Jackson & Curtis,

389 F.2d 242 (3rd Cir. 1968); however, the
decisions of the District Court of the
Southern District of New York (Pollock, J.)

in Sobel v. Hertz Warner & Co., 338 F.Supp.

287 (1971) and the Second Circuit, in re-
versing and remanding (469 F.2d 1211 (1972))
clearly point up the inherent problems in
permitting a 1934 Act claim to be sub-
mitted to arbitration, discussed infra.

This Court, in Wilko v. Swan, took

specific note of the many problems in ar-
bitrating 1933 Act claims which apply with

equal force to 1934 Act claims (Axelrod &

RE Sn att ore tee

10

Co. v. Kordich, Victor & Newfeld, 451 F.2d

838, 843 (2nd Cir. 1971)). Such claims re-
quire subjective findings on the purpose
and knowledge of the alleged violator.

Such findings by an arbitration panel would
necessarily be determined and applied with-
out judicial instruction. In addition they
are almost always decided without explana-
tion or complete records. This makes ef-
fective judicial review well nigh impos-
sible (the problem “wrestled with" but not

determined in Sobel, supra). These con-

siderations which were held to be fatal
to the arbitrability of a 1933 Act claim
are equally important under the 1934 Act.

In Sobel, supra, a customer who agreed

to arbitrate an existing dispute under the
1934 Act and lost his claim before the ar-
bitrators, moved the district court to
vacate the award. The district court faced
with no record of how the panel arrived at
its decision ordered the case remanded to

the panel for explanation. The Court of

11

Appeals reversed and remanded holding that
the efficiency and informality of arbitra-
tion would be destroyed under such pro-
cedure; after discussing the conflicting
public policy questions (desirability of
arbitration vs desirability of correct
decisions in the 1934 Act cases) the Court,
as noted above, reversed and remanded,

holding:

"In short, we believe that
the district court erred in
remanding the arbitration pro-
ceeding to the arbitrators.
We do not agree with its con-
clusion that ‘the present
state of the record is not
sufficient to justify final
determination of the issues
petitioner has raised.' 338
F.Supp. at 289. Those issues
are whether the arbitration
award was procured by ‘undue
means,' 9 U.S.C. §10(a), or
is void as against public
policy. Both parties have
urged us to decide those ques-
tions. While we are tempted
to do so in order to bring
this litigation to an end,
orderly administration sug-
gests that the district court
should rule upon them first."
(469 F.2d at 1216)

ee ee

12

Petitioner herein is faced with a
similar problem and understands that if
arbitrators simply ignore applicable law
or exceed their power then such action
would compel vacation of the award. Pe-
titioner submits that arbitration should
not be used to decide 1934 Act claims be-
cause judicial review is effectively

thwarted. *

The State Court decided an important

guestion of Federal law for the first time,

in a manner not in accord with the 1934 Act

and probably not in accord with decisions
of this Court, that if 1934 Act questions

*Petitioner, of course, is aware of the
numerous decisions of Courts of Appeals
upholding arbitration of disputes between
brokers and members of brokerage firms.
Those cases are founded upon a spec-

ific statutory recognition of agreements to
settle disputes between securities exchange
members (1934 Act §28(b)). See e.g. Axelrod
& Co. v. Kordich, Victo & Newfeld, 451
F.2d 638 (2nd Cir. i371) and cases and

authorities there discussed.

13

may under proper circumstances, be sub-

mitted to arbitration, must such arbitra-

tion be conducted under the Federal Arbi-

tration Act under the aegis of Federal

Courts or may such arbitration be conducted

under the State Arbitration Act under the

aegis of the State Courts.

The Securities Exchange Act of 1934
confers exclusive jurisdiction on the
federal judiciary to hear all cases arising
under that statute:

"The district courts of the
United States...shall have
exclusive jurisdiction of
violations of this chapter
or the rules and regulations
thereunder, and all suits in
equity and actions at law
brought to enforce any lia-
bility or duty created by
this chapter or the rules
and regulations there inder."

(15 U.S.C. 78 aa) (Emphasis
added)

The federal courts have repeatedly
sustained their right to exclusivity.

Clark v. Watchie, 513 F.2d 994 (9th Cir.)
cert. den. 423 U.S. 841 (1975);

OY eee <0 row

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PERIL RE Te ee

a ee a ee ——

14

Wright v. Securities and Exchange Com-

mission, 112 F.2d 89 (2nd Cir. 1940).

Even the courts of the State of New York
have historically recognized that the
federal courts have pre-empted this area

of regulation. New York Stock Exchange

v. Goodbody & Co., 42 A.D.2d 556, 345

N.Y.S.2d 58 (lst Dept. 1973) (defenses and
counterclaims involving Securities and
Exchange Act of 1934 were not cognizable
in the state court).

In spite of the clear wording of the
statute and rulings by both federal and
state courts, the New York Court below
clearly did not ebnstbes stecit so
limited in the case of arbitration of 1934

Act claims as it confirmed the arbitrator

award rather than refusing to accept juris-

diction.

It is respectfully submitted that even
if such claims are arbitrable under proper
circumstances, any such arbitration must

be conducted under federal and not state

ee

ee -

15

arbitration procedures. The reason why pe-
titioner moved in the State Court to vacate
the award is that no Federal question was
presented by petitioner's claim; since pe-
titioner was challenging the right of the ar-
bitrators to hear the counterclaims arising
under Federal law it would have been totally
inconsistent for petitioner to invoke the
jurisdiction of the Federal Court to deny
jurisdiction of Federal question.* Cf. Metro

Indust. Painting Corp. v. Terminal Const. Co.,

287 F.2d 382 (2nd Cir. 1961). Petitioner's
dilemma was that he was challenging the

jurisdiction of the arbitrators to hear the

counterclaims based on exclusively Federal

questions; had petitioner invoked the juris-

diction of the Federal Court he would have
expressly (or tacitly) been asserting that
that Court had jurisdiction which, in turn,

would necessarily have been founded on

*Quaere: Where arbitration is invoked under
a question of state law and a counterclaim

is interposed of an exclusive Federal ques-
tion; under which arbitration act are the
parties proceeding; the State or the Federal?

16

the proper existence of a Federal question

before the arbitrators -- the very point
which petitioner was challenging.

In any event, it is respectfully
submitted that the State Court, in con-
firming the award of the arbitration panel,
necessarily held that

(1) the State Court had jurisdiction
Over an arbitration of 1934 Act claims; and

(2) the State arbitration act con-
trolled such arbitration.

In the light of the express provisions
of the 1934 Act that the Federal Courts have

exclusive jurisdiction over claims in law

or in equity under the 1934 Act, it is re-
spectfully submitted that the New York

Courts have, in this case of first impres-

sion, incorrectly decided this important

question of Federal law.

| 1

Cc.

The State Court decided an important

question of Federal law for the first time

in a manner probably not in accord with

the decisions of this Court, in that it

| permitted the arbitration of a 1934 Act

claim against petitioner, which was not

previously known to petitioner, over the

specific and continual objection of pe-

titioner.

Here, petitioner sold stock through

his broker, E.F. Hutton, to respondent.
Respondent refused to pay the $20,000
due as the purchase price and petitioner
commenced what he contemplated was to be
a simple arbitration under the CAP of the
NASD.

After invoking the jurisdiction of the
arbitrators, petitioner was confronted

for the first time with a $200,000 counter-

claim based upon claimed violations of the

1933 and 1934 Acts (there is involved here

a

18

only the question of the 1934 Act claims,
but the point is exactly the same with re-
spect to the 1933 Act claims asserted).

Petitioner objected to the counter-
claims and the arbitrators reserved de-
cision.

After presentation of petitioner's
case, which consisted of a very short pre-
sentation of the facts and the introduc-
tion of the respondent's “confirmation"
of the purchase, respondent was permitted
to go on for days alleging all types of
alleged violations of the 1933 and 1934 Acts.

Thereafter, the arbitrators held that
they had jurisdiction of the 1933 and 1934
Act counterclaims, and dismissed both the
petitioner's claim and respondent's counter-
claim.

Of course, no one can say with assur-
ance the extent to which the allegations
of the 1934 Act violations affected the
decision of the arbitrators on the pe-

titioner's claim, but the point is that

EEE EEE EEE SS'S&=—~““~“~~

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19

they never should have been permitted to

hear such allegations.

It is respectfully submitted that the

Clear holding of this Court in Wilko v.

Swan, supra, has been violated under the

procedural ploy that once petitioner in-
voked the jurisdiction of the arbitrators
on his simple claim for money damages he
consented to any and all counterclaims,
including unknown claims under the 1933
and 1934 Acts.

Certainly, the facts of this case do

not meet the standards of Moran v. Paine,

Webber, Jackson & Curtis, supra, which is

a Circuit Court exception to the rule of

Wilko v. Swan.

It is respectfully submitted that even
if such be the law of New York with respect
to normal arbitration procedures, State
procedural rules under State arbitration
acts cannot be permitted to deprive a party

of a substantive Federal right to a hearing

of 1934 Act claims by a Federal Court.

2

WHEREFORE, petitioner prays that a
writ of certiorari be issued out of and
under the seal of this Honorable Court
directed to the Appellate Division, First
Department of the Supreme Court of the State
ef New York commanding that Court to cer-
tify and send to this Court for its review
and determination on a date certain to be
therein named, a full and complete tran-
script of all proceedings of the case en-
titled on its docket No. 08566/76, Martin
G. Rosansky, Petitioner - Appeliant,

against, Ladenburg, Thalmann & Co., Inc.,

2 IE STE OE, Sa he, te ee ee tow

Respondent-Respondent; and that said decree
of the Appellate Division, First Department,
of the Supreme Court of the State of New
York be reversed by this Honorable Court,
and that your petitioner may have such other
| and further relief on the premises as to
this Court may seem just and proper.

| Dated: New York, New York

| Respectfully submitted,

| Martin G. Rosansky, Petitioner
| By Richard deY. Manning

APPENDIX A

SUPREME COURT OF THE STATE OF NEW YORK,
SPECIAL TERM, PART I, NEW YORK COUNTY
at the Courthouse thereof, 60 Centre
St., New York, New York, 10007

Present:
HON. HAROLD BAER
“Justice

*

MARTIN G. ROSANSKY
-~against-

LADENBURG, THALMANN & CO., INC.

x

The following papers numbered 1 to 21 read
on this motion SUBMITTED

No 283 on Calendar PAPERS NUMBERED
of May 20, 1976

Notice of Motion-Order
to Show Cause-and Affi-
Aavits C—O ee

Answering Affidavit-
CEES BGREBc coccccccccceesesccecosan ae

Replying Affidavit.............++ 20

RE. 6.86. 66660660660660666666066 21

Upon the foregoing papers this motion

for an order vacating arbitrator's award is

denied and the cross motion for an order

confirming same together with judgment in
accordance therewith is granted.

Whether respondent's counterclaim was
related to petitioner's claim was properly
reserved for the arbitrators’ determina-
tion. In the absence of a clear exclusion
from arbitration, which is not the case
here, questions concerning arbitrability
are properly resolved at the arbitration,
not in a court. Settle order.

Dated: June 25, 1976

County Clerk's No. 8566, 1976
Spec I Liber R6l, Line 9, 1976

---

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