Petition for Writ of Certiorari — Bruns, Nordeman & Co. v. American National Bank & Trust Co.

—rnmjsav ¥ OE aN gt FILED ,

SUPREME COURT. U. B : may 21 pep

: ae te 10H F. DAVIS, CLERK

ee ° Ix THE

agree Court of the nited States js

ene a PLR TERM, 1968

In the Matter of the Application of

Bruns, Norpeman & Co., a Limited Partnership,

Petitioner,

- agamst |

American: NationaL Bank anp Trust Company,

‘Respondent,

and eee

Tue Excuance Corp., Maurice Bexzamin

and Epwarp H. Levirt,

; Defendants.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

"SECOND _CIRCUIT- ~——

Davin J. Coron,

_ Spencer PinkwHaM,

e ~ Attorneys for Petitioher, *

a _ 120 Broadway, as

N@w York, N.Y. 10005.

Of. Counsel,

Cotton & PinkHaM.

pa"

|

Dros erry BEE RES me PSEA PN SOTNY AORPORYBMEREION T A Ta A R—I maRaag e _ ‘

. ers A : eg : ee

4

2

ray

Opinion—United ee Court of. “Appeals, Second

INDEX

ie . es PAGE

Citations to Opinions Below aie baer shone Sep . 3

_ A In the District Court . ev esees RaW 32

7 B. In the Court of Appeals . an teoscveceess jes 5

/Surisdiction ...0..2....6eeeeee: AM RETO

Questions Presented £50k ati babioae OTe. ae

Statement Sspiledecdies seddes APC EY POSE Pe) | 5

Reasons for Granting the Writ . ns Vise deep oe aes

A. The applieation raises an important question |

of Federal Law....... bh bdeede HER CES sf

B.. Such question has néver been determined by *

Cle Come asic ccs veciceenedéecccdy esi bseat 8

C. There is a conflict between the Court of Ap a

, peals for the Second Circuit and. the United

States District Court for the District of N ew:

bf . MPR ore ere ancgiatw uikceae . 9

+ D. Section 94 of the N ational Bank Act and the

venue provisions of the Securities Acts are in

irreconcilable conflict and, therefore, under \ .

‘well established: rules of statutory construe- ae

tion, the latter must re ee De

E. The Congresses which enacted the Securities. — -

_Acts must have intended to molly 5 7h, $94.10

Appendix ‘A—Opinions Below .............++- Cat eS

- “ Decision—United States District Court, Southern

District of New?York se svecdvecetdsvvdeceveeds 13 7

| sievnaagtien ine hepatic e ossesesesesesaagis) 15

, aa .

S.. . aNpEx

- - » STaTUTES Pale

a. _ ' PAGE

3 Retina Bank Act § 94 Te U. S. C. 5 94] throughout.

Pe i i pelea teeta te -» . 23

decatition Act of 1933 ‘ 3 fis U. S.C. § 71(c)] Te ees eee

Securities Act of 1933 45 [15 U. S.C.§ 77e] .,...-. 4,5, 23.

‘ Securities Act of 1933 § 12 [15 U.S.C. § rm}.. eee 4,5, 11, 24>

- Securities Act of 1933 § 17(a) [15 U,8.C. § 77q(a)]..4,5,24

- Securities Act of 1933 § 22(a) ‘115 US.C. § 77v(a)] .

_throughout-printed PPE Pee «Tey TT rey 25

“Securities Exchange ‘Act of 1934 § 7 [15 U.S.C. § 78g] u

Securities Exchange Act’ of 1934 § 10(b) ae Mi S.C. .

WEE. Sibkbedeeenededsceesee ce tee iee 4,5, 25 -

Securities Exchange Act of. 1934 s 12 [15 U.S.C.

=~ §$78 i) «ahd a Daslice bib SS Kone ted vehi sees edness 11

' - Securities Exchange Act of 1934 4 27 (15 U. S. C.

. . §78aa] throughout-printed .......... heb elie, 26

belle SRRMPG OSG, 14 PO URE 5,26

‘DECISIONS -

Friedman v. Bintliff (67 Civ. 3661, SDN. Nov. bad

. 1967, not reported) ........:. CORUE Ria} oe TES .

G. E. Credit Corp. v. James’ Talcott, nos 271 F Fed. wes

_ Supp. 699 (S.D.N.Y. 1966) - 2.2.2.5 ee eee ee eeees , 3,9

Levin v. Great Western Sugar Co., 274 Fed. Supp.

974 (D. 9. WOTY. «6.60. vio vcs ¥ ded ; dhe doinds 3, 9, 10

Mercantile National Bank v. Sualicstiian 371 U. S. 555

(1968) oes eee eee eee ees Liasebone itceneatl +. 48,9 —

+ INDEX ie | i

: | PAGE

Michigan National Rank *: Robertson, 3 372 U. 8.579 |

Gy 4c ee 4, 8,9

Silver v. New York, ‘Stock Exchange, 373 U. 8. aL os

LS eee eee begixs 9, 10

‘Wyndham Associates -v. Bintliff (67 ‘Civ. 6LL, |

S.D:.N.Y. Nov. de phere), ip sso fume 8. .

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In Tae

| Sagem Cnet of he td States ;

+

In the Matter. of the Application ¢ of |

7 Bruxs, ORDEMAN &.Co.,.a Limited. ‘Pestana,

Petitioner,

- against

_ AMERICAN Narrows Banx anp Trust CoMPAny,

Pret ies oe ci h aenecin dk

. Tue Excuancé Corp., Maurice ia

. and Epwarp H. Levitt, EY 4

ph ee etree as om ~ Defendants.

4.

se

‘ PETITION FOR. A WRIT OF CERTIORARI TO THE

"UNITED STATES COURT OF APPEALS FOR THE

“SECOND. CIRCUIT. -

- Petitioner prays that a writ of certiorari issue ‘to review

‘ he determination by the United States Court of. Appeals

for the Second Circuit, dated April 19, 1968, in the above-

entitled case, whieh affirmed an order of the District Court

. for the Southern District of New York, dismissing the

~ complaint as to Respondent, a national bank established in —

‘the Northern District of Illinois, upon the ground that

Section 94 | ore USC. $94) of Hse netananl a ae

: * The | Ee rtinent provisions of alt statutes referred to are grinned. Page

_ in Appen B hereto, page 23, et : Rares ;

is ee aati, “ll

(NBA) precludes suit against a national bank, except in

the district in which it is ‘‘established’’. The mandate of

the Court of Appeals was issued May 16, 1968.

. Petitioner contends that §22(a) [15 U.S.C. § 77v(a)]

of the Securities Act of 1933 (the 1933 Act) and §,27 [15

U.S.C: §78aa] of the Securities‘ Exchange Act 1934 .

(the 1934 Act), under which acts this action is brought,

have effected a partial repeal or modification of, and

should prevail over, NBA $94 as to actions under the

Securities Acts. It is an important question of federal law

which has not been settled "7 & Court. —

cs "Citations to Opisions Silow

A. In the District Court.

On N ovember 6, 1967 the Honorable Sylvester J. Ryan, — .

United States District Judge for the Southern District of —

-New ¥ork, filed a Memorandym Opinion (Appendix A, .

. p.- 13, infra) dismissing this‘ action as to Respondent on

. the sole basis of NBA § 94. A > ;

That portion of NBA § 94, here Mesuad was first en-

ested 3 in 1863. It provides that suit against a national bank

may be had in any district * * * in Whigh such associa-

tion may be established.’’ § 22(a) of the 1933 Act and

§ 27 of the 1934 Act provide i in substance that suits there-

under may be initiated in the district in which the ‘‘sale’’

or the ‘‘violation’’ occurred. The sale. and violation com-

plained of herein occurred i in the Southern District of New

: eek. , x

| Judge Ryan held that NBA §94 fi mihndatory And has

not been affected by the later venue provisions of the-

Securities Acts. He recognized that there were two irre-

concilable and directly : conflicting prior decisions on the ~

oe first by Judge Tenney. in the Southern Dis-

*.

—_ += -—_ -_-—— ——

| 3

trict of NewYork [G. E. Credit Corp. v. James Talcott,

_Ine., 271 F. Supp. 699 (1966)], and a later decision by.

Judge Coolahan in the District of New Jersey [Levin v.

Great Western Sugar Co., 274 F. Supp. 974 (September,

1967)]. In G. E. Credit Corp., Judge Tenney dismissed an

action against a national bank located in another district

on ‘the basis of NBA ¥94., In Levin, Judge Coolahan dis- .

agreed and denieg,a similar motion, saying,’

‘‘After a full consideration of the: issues .P sented,

I must decide to the contrary. Section 78aa ir@pliedly

repeals Section 94 for cases involving Securities Ex- ~

change Act violations by national banks.’’

Judge Ryan chose to follow G. E. Credit Corp, decided

in his own district. —

The judgyent and order (22a)* contain the einen

_ determination that there is no reason for delay’’ and the

‘express direction for the entry of judgment”’ called for

by. Rule 54 of the Federal Rules of Civil Procedure, so

that immediate appeal could be taken to the Court of

Appeals. ©

" 'B. In the Court of Appeals. — wt

The Court of Appeals, [Chief Judge Lombard, Circuit

J udge Friendly and rict Judge Blumenfeld] affirmed

-

——

m

(Appendix A, p. 16, et seq., infra). Judge Friendly,

writing for dre unanimous Court, pointed out that,

‘“‘A federal court of appeals. is here confronted for

tlie first time with an issue that has provoked a differ-

ence of opinion among thé district courts.’’

He made it plain that the Court affirmed “‘with regret’.

and that ‘‘if-we were writing on a clean slate”’, the .re-

* Parenthetical numerica! references followed“by “a” ‘are to the

— to the Brief of letentaitestinis in the Court of salt

o *. 2

.

4

~

- sult woul have been different. The opinion points out

that actions under the Securities Acts (p. 18, infra) ‘‘are

' typically multi-defendant’’ and that this ‘‘was doubtless

an important reason for the liberal venue provisions’’ of

_ such Acts; that (p. 18, infra) if Respondept had been -an

Illinois bank or trust company, instead of a national bank,

“it could have been sued in New York, where the sale

took place; that ‘‘of’all the fagots in plaintiff’s bundle,

the national character of appellee’s incorporation is

surely the least important’’,.and that its decision would

surely result in ‘“‘heavy inconvenience for the plaintiff’,

whereas the burden on Respondent of defending in New

York, along with its co-defendants, would be ‘‘slight in

this age of cheap long distance telephone rates, efficient

methods for copying documents, and jet air transport’’.

Judge Friendly referred to the dissent by Mr. Justice

/ Black joined in by Mr. Justice Douglas of this Court in _

Michigan National Bank v; Robertson, 372 U. S. 579

(1963), in which it was stated that application of NBA § 94

‘*would require a plaintiff to go to another State hundreds

_ of miles from home to bring a suit for a wrong done him

in a transaction ‘in his own State, a result which I cannot

believe Congress intended’’.

However, the Court of Appeals felt constrained to affirm

by reason of language in Michigan National Bank, supra,

- and Mercantile National Bank v. Langdeau, 371 U. 8S. 555

_ (1963), neither of which involved a conflict with the venue

' provisions of either Securities Act or any other federal

‘statute. x

Sentadieiten

Jurisdiction is grounded upon §§5, 12(1),.17{a) and

22(4) of the 1933 Act [15 U.S.C. % 77e, 71(i), 77q(a) and

77v(a)] and °§§10(b).and 27 of the 1934 Act [15 U.S.C.

. §%§ 78j(b) and 78aa] and Rule 10b-5. i :

5

Questions Presented

The only questions which. will be argued i in this Court if —

this Petition be granted, as stated by the Court of Appeals,

are pp. 16, 21, mfra) :

“Do the special and properly aide venue provisions

of the Securities Act of 1933 [Sec. 22(a),.15 U.S.C.

§77v(a)] and the Securities Exchange Act of 1934 °

[See." 27, 15 U.S.C. § 78aa] overcome the special and

exceedingly narrow venue provisions of the National

Bank Act of 1864 [§ 94,12 U.S.C. $94]?” >

= * * * * * -

’

. The question rather is whether, given the seventy

years of highly restricted venue of actions against —

national banks, there is sufficient reasgn to think that

the Congresses which enacted the 1933 and 1934 securi-

ties legislation intended to carve out-2n exception for

- claims under the securities laws?’’

In different form:

Are the venue provisions of the Securities Acts and

National Bank. Act in irreconcilable conflict, so that

the later Securities Acts should prevail over the earlier

National Bank Act in — under the Securities

Acts? ' o

The complaint (3a, et seq.) asserts a eonspiracy among

the four defendants, including Respondent, to distribute

10,000 unregistered shares of common stock of Canaveral

International Corporation (Canaveral) in violation of $§ 5,

12(1) and 17(a) of the 1933 Act and §10(b) of the 1934

Act and Rule 10b-5 thereunder.

Petitioner is a registered broker-dealer and a Mesler

of the New York and American Stock Exchanges and

other national securities and commodity exchanges.

>

-. Shares which it held as collateral for its loan to Levitt.

were unregistered; were not free for sale and would not be -

—

6 >

Defendant Edward H. Levitt i is a. resident of Louisiana,

who, purchaged the 10,000 shares of unregistered stock of

Canaveral from a controlling person to whom he -

an investment letter.

Respondent i is a Chicago waiting bank which loaned Mr.

Levitt $65,000 on the pledge of his Canaveral Shares as

security, and. thereafter received a letter: (12a) from .

Canaveral, dated May 16, 1967, stating that the- 10,000

transferred by Canaveral if presented. er

Defendant Exchange Corp. is a Florida corporation

which was a customer of petitioner. .

Defendant Maurice Benjamin, a resident of New York,

is president and principal stockholder of, and controls,

Exchange Corp.

The complaint alleges: that about April 24, 1967 Levitt

éntered into an agreement (lla) with Benjamin, pursuant

to which Benjamin agreed to buy, and then to sell upon

the open market, the 10,000 shares of Canaveral at not

less than $6.50 per share, pay,off Levitt’s debt to Respond-

ent bank with the proeeeds;and divide | any - excess; that

Benjamin caused Exchange to direct Petitioner to sell

10,000 shares of Canaveral. for its.account on the market

and accept delivery of the certificates therefor from Re-

spondent; that Petitioner executed such order and sold

10,000 shares for the account of Exchange Corp.; that on

May 28, 1967, Respondent, despite its knowledge that the

shares’ were not registered and would not be transferred,

‘guaranteed’ Levitt’s signature and sent his certificates to’

Petitioner with draft for $65,000 attached; that. Peti-

tioner, innocent of any knowledge or suspicion that any

of the shares were not fully registered and free for sale,

paid the draft, accepted delivery, and sent the certificates

to the transfer agent for Canaveral for transfer into its

Soe s

weiss He

‘*street’’ mame, so that delivery on be made to the

_ purchasers of the 10,000 shares sold; that Petitioner was ,

thereupon advised by Canaveral, not only that the shares.

were unregistered and would not be transferred, but that it

had so notified Respondent more than.ten days before.

Petitioner then returned the shares to Respondent and

demanded repayment of its $65,000; Respondent refused ; .

Petitioner was therefore forced to ‘‘caver’’.in order to

‘ | - ° make delivery of the shares sold; since the market price

| »- had risen in the meantime, Petitioner sustained a loss, in-

eluding the $65,000 paid to Respondent, of $73, 353.43.

‘The documentation (11a et seq.) annexed to the com- \

plaint makes it clear. that the defendants, with full knowl- _

edge of the unregistered status of thé shares, conspired

to distribute them to the public through the Petitioner. .

* | Reasons for Granting the Writ |

A. The application raises an a inipertomt question of. Federal

i —) re

During the yovente years between the enactment of {NBA

_ §94 and the Securities Acts, virtually the entire develop-

ment of the securities industry took place and natidhal

' banks became deeply involved therein. The Controller

of the Currency estimated (N. Y.. Times, Sunday, March

3, 1968, Section 3) that, as at December 31, 1966, the secu-

rities investment portfolios alone of banks (pension funds,

personal trusts, estates and investment advisory accounts)

equalled 210 billion dollars. National banks are engaged

in an interstate securities business. involving thousands of

| _ shares daily... Ps / , |

a _ The Court of Appéals pointe out (p. 16, infra) that

the question has been revently raised and decided, one way P

_ or the other, in three cases besides the instant case and.

Respondent,’in its brief in the Court of Appeals, pointed

to two further unreported cases decided by Judge Ryan on

the basis of G. E. Credit Corporation, to wit; Wyndham

Associates v. Bintliff, 67 Civ. 2611, and Friedman v. Bint-

lif, 67 Civ. 3661 (S.D.N.Y., Nov. 8, 1967).

As the involvement. of national banks in securities trans-

_ actions continues ‘to increase and actions under the Secu-

- rities Aéts continue to. proliferate, it would seem certain

that national banks will be saan, and eppieptints par-

ties to such litigations.

Securities litigations are generally. multi-defendant. The .

instant case is typical.’ There is no district, other than the pare

__ Southern District of New York,.in which all parties may .

Pra be joined under the venue provisions of the Securities Acts.

If this application be denied, or the decision of the Court

of Appeals: be affirmed, Petitioner will be forced to sue

Respondent. in Illinois and the other three alleged con-

spirators in New York. Indeed, conflicting decisions may

well result. The heavy burden which will be placed thereby

' upon the courts, counsel and litigants would seem clear.

The public and the Bar need to know finally whether all

parties defendant in a securities litigation may: be joined

under the .venue provisions of the Securities Acts or

whether a national bank may be sued only i in the district

in which it is established.

B. Such question has never been determined by this Court.

This Court has held i in Mercantile National Bank v. Lang--

deau, 371 U. S. 555, and again, in Michigan. National Bank,

supra, that the portion of NBA § 94, added i in 1864 and pro-

viding, ‘‘or in any Stete, county. or municipal court in the’ ~

county or city in which the association is located’’, is man-

\. ‘datory and precludes suit in a State court, except in the

. county or city in which the bank is located. But mever has

\ the 1863 portion of NBA §94, relating to federal court

N venue, been enero in this Court on the- basis of con-

9

‘flict with another federal venue statute. Different hold-

ings in: Mercantile National Bank or Michigan National

Bank might have involved direct judicial repeal of a clear

federal statute—although Justices Black and Douglas did

not think so. But nothing in. holding or language of

either case relates to the effect of a later conflicting federal

venue statute. or.

: C. hi tp 5 sselen Saiesils cn Cota ok algae tise’

Second Circuit and the United States District Court for

‘the District of New Jersey. )

There can be no doubt about: the conflict between the

' “decision of the Court of Appeals herein and the decision

‘by Judge Coolahan i in Levin, supra.

D. Section 94 of the National Bank Act anil the venue pro-

visions of ‘the Securities Acts are in irreconcilable con-

flict and, therefore, under well established rules of

‘statutory construction, the latter must prevail.

The conflict between Judge Tenney i in G. E. Credit Corp. ,

and Judge Coolahén in Levin meets at this point. Judge ©.

Tenney, citing this Court’s decision in Silver v. New York |

Stock: Exchange, 373 U. S. 341 (1963), pointed out that

repealers by implication are not favored; that -reconcilia-

tion should be accomplished if possible, and that modifica--

tion of NBA § 94 was not essential to make the Securities -

Acts ‘‘work’’. He, therefore, held that §94 prevails.

Judge Coolahan, on the other hand, pointed out that the

Coyrt was concerned only with the venue provisions of the

three Acts; that such venue provisions were in direct and ir--

reconcilable conflict ; that under NBA § 94, the action could

be brought only in the home districts: of the defendant na-

tional banks, whereas, under the Securities Acts, it could

be brought in New Jersey, where the transaction com--

_ plained of occurred.

‘There is no quiation about the rule of statutory con-

struction that where two statutes “are inwonflict and, as ©

e..

here, there is. nothing i in committee report or Congressional

debate to throw light on the hareate, the later statute will

* ‘prevail.

We urge that the reasoning of this Court, -as we -“under-

stand it, in Silver v. New’ York Stock Exchange, supra,

constitutes the touchstone. In that case, the.conflict was

between the 1934 Act and the earlier Sherman and Clayton

Acts. This Court held that where the ‘particular. instances

of Exchange self-regulation”? fell ‘‘within. the scope agd -

purposes of the Securities Exchange Act’’, the Stock Ex- -

ge would be protected by the 1934 Act and the. provi-

ey that Act would. prevail over the earlier anti-trust

laws’ However, this Court held that, since the 1934 Act

ontained no general exemption therefrom, the anti-trust -

Ie s would continue to apply to transactions which were

- not within the periméter of the provisions of the 1934 Act. » -

_ Accordingly, we urge. the soundness of the reasoning of.

Judge Coolahan. The provisions in respect of the districts

in which an action under the Securities Acts may be initi-

_ated, are well within the perimeter of those Acts and Con- -

gress must have intended that, in Securties Acts litigations, ~

the venue provisions of such Acts would apply. :

To hold that NBA § 94 applies to the Securities Act liti-

gation is not to ‘‘reconcile’’ the statutes; it is to hold that

the earlier statute prevails over the later statute. :

E. The Congresses which enacted the Securities Acts wise

. have intended to modify NBA § 94.

Under the conditions existing in 1933 and,1934 in respect

to the. securities industry, transportation and communica-

tions, no reasons existed for permitting national banks to

be immune from the venue provisions of the Securities

. Acts.

.. In Levin, ‘supra, J alee Coolahan said (274 F. Supp. at

ip. 978): AP .

‘¢But another réason compels my decision here. A

quick examination of the-1933 and -1934 securities acts —

o-

y

‘will reveal that on a number-of occasions the legisla- é

tive: draftsmen found fit to exempt nationat banks and

© their securities from the provisions of the act. See 15

U.S.C. §77(c)(a)(2),** 15 U.S.C. §77(1)(2),** 15

‘U.S.C. $ 78(1)(i).*** It becomes clear that the legis-

lative draftsmen knew about national banks when writ-

sing their securities acts, and knew how to except them:

from provisions of the acts when they chose to do so.

‘It would be a usurpation of legislative prerogatives

for this court to impute an exception from the. 1934

act, in view of the background just described. I find . 4

the venue provision of the 1934 Act to be the relevant

one for .purposes of considering. cornemnns banks’ .

motion to dismiss.?’ *

‘It shoul also be noted that Section 7 of the 1934 Act

(15 U.S.C. § 78g), which deals with credit restrictions ap-

plies to banks and, indeed, that the Federal Reserve System

has promulgated Regulation U, which regulates the lending

by banks for the purpose of-acquiring or carrying securities

pursuant to the authority granted thereby.

Since. the Congress was obviously aware of the involve-

ment of banks in the securities industry when it enacted the

Securities Acts, we urge that, if it intended to exempt any

banks from the venue provisions of such Acts, it would

have said so. Certainly, under conditions’ existing i in 1933

and 1934, it could not have intended that national banks be -

ieee

* 77e(a) (2), § 3 of the 1933 Act; exempts stocks of regulated

banks.

** 77 1(2), § 12(2) ‘of the 1933 Act; provides for civil actions

hay retains exemption of regulated bank stocks. .

“ *#** 78 1(i), § 12 of the 1934 Act; providing for registration of

, a securities upon national exchanges and “ reports‘to be filed; vesting

. . fegulatory powers over reporting by. specified banks th ‘the Comp-

troller of the Currency, the Federal Reserve System andthe Federal

Se baler a Deposit Insurance Corporation. — o.

eee Bi oly eg %- 5

. @

exempted from the venue provisions. of the Securities Acts

and all other pereens, ‘including alf other banks, ‘be sub-

Jected thereto.

We. urge that this application be rented,

ER ae reek, © Respectfully. submitted,

° 2 ay ) : * piven J. Coiton,

Spencer PinKHAM,

: Attorneys-for Petitioner.

. Of Counsel, Cor

; Coxton & Sicilia

May 2, 1968.

ae

%

‘ \

Pun

- Bruns, Norpeman & Co. v. Tue Excnaxge Cone. et al.

‘ ;@ . . |

| | -

) APPENDIX A.

Opinions Below. |

UNITED STATES DISTRICT COURT,

SourHRn District oF New komt,

“Endorsement

67 Civ. 408 fe

Ryax, D.

Defendant American NaTIONAL Sake ‘AND Trust Cons:

“PANY (the Bank) has moved to dismiss this. suit as to it on

the ground of improper venue.

It is not disputed that the Bank is a national bank and.

has its principal office and place of business in Chicago.

sions of Title 12 U.S.C. Section: 94. The Bank ‘contends it

can be sued only. in the Northern District of Ilinois.

Plaintiff asserts jurisdiction under Sections 12 and 17

(Title 15 U.S.C. Sections 77e, 77-1(1) and 77q)..of the

a!

Securities Act of 1933 and Section 10b (Title 15 U. S.C.

Rule 10b-5. ‘We assume for the purposes of this motion

‘that. this Court has jurisdiction of the subject matter of

the complaint and that the complaint ‘states a claim for aad

relief under the law cited.

Plaintiff does not ask that the’ suit be severed and trans-

_ Dismissal is sought by the Bank under the venue provi-

ferred to tlie Northern District of Mlinois should we con-

elude that venue is Sees, laid in this District. as to

the Bank. —

The question presented i is whether the terms of Section *

94 of the National Bank Act or the-venue provisions of the

Securities ‘Act of 1933 and the Securities Exchange Act of

1934 are controlling as to the clainis aqceule

ras

Section 78j) of the Securities Exchange Act of 1934 and.

14

| Decision. _

We have concluded that Section 94 of the National Bank

' Act is still mandatory and has not been impliedly repealed .

or modified by any section or provisions of the 1933 or 1934

_ Acts. We accept in toto the conclusions and reasoning of

our brether Judge Tenney in . Credit Corp. v. James

Talcott Inc. et al, 271 F. Supp. 699. We are not unmindful -

of the decision of our learned brother Judge Coolahan of

the District of New Jersey iy Levin v. Great Western

Sugar Co. (Civil No. 683-67, D.N.J., September 29, 1967).

Motion granted; complaint dismissed as to defendant

Bank for improper venue;” let an order be settled- so

providing. |

_” Dated: November 6, 1967.

| a Me ’ Sytvesrer J. RYan,

. USDJ. .

| / — © S

UNITED STATES COURT OF APPEALS

For THe Second Cizcurr .*.

=

No. 344—September Term, 1967. . |

(Argued March 20,1968 = ~° Decided April 19, 1968.)

"Docket No. 31987 :

'

+

Bavzs, NorpeMan & Co., a Limited Partnership; .

> Plaintiff agent, -

—v—

Anenicax Nessie Bank AND Tavie Company, |

Defendant-A ppellee,

and

Tue. Excuance Corp., Maurice Bensamin and

Epwarp H. Levrrr,

Defendants.

Before: ee . ae,

"8 | Lumparp, Chief Judge,

ss Frrenpwy, Circwit Judge, and ~

BLUMENFELD, ‘District Judge.°

A.

“es

' Appeal from a judgment of the District Court for the

Southern District of New York, Sylvester J. Ryan, Judge,

: dismissing | for lack of venue so much ‘of a complaint under

the Securities Act of 1933 and the Securities Exchange Act

* Of the District Court of Connecticut, sitting by designation. _-

16

Opinion of United States Court of Appeals.

of 1934 as related to a national bank established in Chi-

cago, Illinois. Affirmed.

.

4...

—

" Syuncen Pivxuam (Colton & Pinkham, New

' York, N. Y.; David J. Colton, of Counsel),

for Plawmtiff-Appellant.

Joun R. Huprer (Cravath, Swain®& Moore,

New York,» N. Y.; Edwin A. Kilburn,-of ©

Counsel), for Defendant-Appellee.

+.

_

Farexouy, Circuit Julge: ey “

A federal. court of appeals is here confronted for the

first- ‘time with an issue that has provoked a difference of

opinion at among district courts: Do the special and properly

wide venue provisions of the Securities Act of 1933 and

‘ the Securities Exchange Act of 1934 overcome the special

and exceedingly narrow venue provisions’ of the National

Bank Act of 18647 Judge Ryan, in the District Court for

the Southern District of New York, here followed the opin-

ion of Judge Tenney of tliat district that they do hot,

General Electric Credit Corp. v. James Talcott, Inc., and

FranklineNational Bank, 271 F. Supp. 699 (1966), a view

also adopted, aS an alternative ground of decision, by

Judge Horowitz in the Northern District of Illinois, -

Berman v. Thomson and The First National Bank of Bos-

ton, et al., 65-C-2051, not officially reported. The oppo-

site position was taken by Judge Coolahan of the District

of New, Jersey in Levin v. The Great Western Sugar Com-

- pany’and Colorado National Bank of Denver, et al., Civ.

No. 683-67, not officially reported. We conclude with regret

ort is recounted in Mercantile Nat'l Bank v.

tena, 371 U. S. 555, 558-61 (1963).

| 17

Opinion of United States Court of Appeals.

that the rulings upholding the claim of prevalence of the

1864 statute are right.

The complaint, summarily stated, alleged & conspiracy

among four defendants to effectuate, in violation of $45,

12(1) and 17(a) of the Securities Act of 1933 and §10(b) ‘

_ of the 1934 Act, the sale of 10,000 shares of unregistered_ -

common stock of Canaveral Corporation, owned by defend-

ant Levitt, apparently a Louisianian, and pledged by him

to the defendant, American National Bank and Trust Com-

pany, ‘‘established’’ in Chicago. The conspiracy. was tobe

accomplished as follows: Levitt was to sell the, shares to

Benjamin, president and principal owner of The Exchange

Corporation, a Florida corporation, which was to pay

Levitt out of the proceeds of a resale. Exchange was a

- eustomer of plaintiff, a New York broker-dealer. Pursuant.

to Exchange’s instructions plaintiff sold the 10,000 shares

in New York and sent the bank its draft for $65,000. Th

bank reteived this and forwarded to New York certificates

_ for the shares, although -knowing they were not registered

and could not be sold without violating $5 of the 1933 Act.

The transfer agent for Canaveral refused to accept. the

certificates for transfer and plaintiff had to cover in a

rising market, thereby sustaining a total loss (including

the $65, payment) of $73,353.43. On motion of ‘the

Chicago National Bank Judge Ryan dismissed the com-

plaint against it and entered-the language appropriate for

making the judgment final under F. R. Civ. Pr. 54(a).

Section 94 of the National Bank Act, originally adopted

in 1864, 13 Stat. "99, 116, provides, so far as pertinent,

that suits against a national bank

‘may be had in any district or territorial court of the

United States held within the district in which such

association may be established, or in any State, county

or municipal court in the —* or city in which the

association is located.’’

. «218 |

eran of United States Court of. Appeals.

Section 22(a) of the Securities Act of 1933 provides that .

any suit or action to enforce any liability or duty created by

_ the Act

‘‘may be brought in the district wherein the defendant

2 is found or is an inhabitant or transatts business, or .

in the district where the offer or sale took place, if

the defendant participated therein, and process in such

cases may be servedcin any other.district of which the

defendant is an inhabitant, or wherever the defendant

may be found.”? ,

Section: 27 of the Securities Exchange Act of 1934 contains

a provision with like or, indeed, even broader effect. . .

- The contention that the provisions of the securities legis-

‘lation should be read- as overcoming the historic venue.

limitation whereby national banks can be sued only where’

. ‘‘established’’ or ‘‘located’’ has much practical appeal. -

Plaintiff points out that actions wherein banks are sued for

violation of the securities laws are typically multi-defend- -

- ant actions, as illustrated by this case and the three others.

-. cited. Recognition of the probable multi-defendant charac-

ter of securities suits was doubtless -an important reason

for the liberal venue provisions of § 22(a) of the 1933 Act

and § 27 of the 1934 Act, in contrast to restrictive re-

quirement of the general venue statute, $51 ‘of the Judicial

Code of 1911, 36 Stat. 1087, 1101, nae $ federal question

. actions could be brought only in the district of which the

defendant was an inhabitant. ‘See also § 50. . If appellee

had been an Illinois stock bank or trust company, plaintiff

could have joined it in this action since the sale took place

in New York. Of all the fagots in plaintiff’s bundle, the

national character of appellee’s incorporation is surely the

least important. Compare Liberty Natl. Bank & T. Co. v.

Buscaglia, — 8. ¥. —— (1968)*; First Agricultural Na-

"#21 N.Y. 24 387. | | ie

~ 19

— of United States Court of Appeals.

tional Bank v. State Taa Comin, 36 L. W. 2106 (Mass,

Sup. J. Ct. 1967), appeal docketed, 36 L..W. 3244 (U. S.

Oct. 2, 1967) (No. 755). Yet undér thé view upheld by

the distrigt judge, the plaintiff musf resort to Illinois to

_ Sue appellee; it is exceedingly doubtful whether the 1933 _ |

Act would allow him te sue the other defendants there since

the unlawful ‘‘offer or sale’? apparently occurred in New

York;? and the Illinois action could;not be transferred to, '

the Southern. District of New York under 28 U. S. C.

§ 1404(a) since it could not ‘‘have been brought”’’ in that

district. The result thus is heavy incOnvenience for the

plaintiff and a burden fgr the federal courts, as against .

the burden on appellee—slight in this age of cheap long

distance telephone rates, efficient methods for copying docu-

mentg and jet air transport—of defending an action in -

New York rather’ than’ Chicago. While some of these fac-

tory also ease the burden of plaintiff in suing in Chicago,

there remains the serious difficulty in proceeding there

against the other defendants.

If we were writing on a clean slate, we would not find .

it difficult to reconcile § 94.of the National Bank Act with

' ‘§ 22(a) of the Securities Act. Since § 94 reads in terms of

permission rather than prohibition, it would not be a great

feat of construction to. read this as fixing venue only when

an applicable venue statute pldtéd this on the basis of

being a ‘‘resident”’ or ‘‘inhabitant,’’ and not as proscribing

other places of suit when the venue statute permitted this

where ‘an act was done. Such apparently was the view of

Mr. Justice Black, joined by-Mr. Justice Douglas, in Mich-

2 The situation would be different under § 27 of the 1934 Act ..

which gives venue “in the district wherein any. act or transaction

constituting the’ violation occurred.” Hooper v. Mountain States

Securities Corp., 282 F.2d 195, 204-05 (5 Cir. 1960), cert. denied,

. 365 U.S. 814 (1961). However, although the complaint sets forth

* aclaim under §10 of the 1934 Act, this might well be subject to

motion,

e

ee

%

\ 20.

Opinion of United soegucas of Appeals.

gan Nat’ Bank v. Robertson, 372 U. 8. 591, 594-95 (1963).

But equally apparently, this was not the view taken by .

the majority in that case and in the slightly earlier one of

Mercantile Nat’l Bank v. Langdeau 371 U. S. 555 (1963).

True-those decisions. concerned the portion of 494, added

in 1864, 13 Stat. 991, permitting suits in certain state courts

and not the portion, stemming from 4 59 of the Act of 1863,

12 Stat. 665; providing that suits ‘‘may be had in any dis-

trict or territorial court of the United States held within

the district in which such association may be established,’’

and on the one occasion when the issue seénis to have been .

squarely presented to the Supreme Court, it placed its de- ~

cision in favor of the bank on lack of jurisdiction, and said

it had ‘‘no occasion to consider’’ the issue of venue. Bank

of America v. Whitney Central Nat’l'Bank, 261 U.S. 171,

173 (1923). However, this court has given a construction

to the clause of § 94 dealing with the venue of suits in a

federal court quite as Draconian as the Supreme Court has.

done with respect to the state court clause, Leonardi v. ~~

Chase Nat’! Bank, 81 F. 2d-19, cert. denied, 298 U. S. 677

(1936), the Seventh Circuit has followed us, Buffum v.

‘Chase Nat’l Bamk, 192 F. 2d 58 (1951), cert. denied, 342

U. S. 944 (1952), and it would indeed strain language to

say that the same verbs were merely permissive with re-

spect to suits in federal courts although prohibitory as to

actions in state ones. - ;

The Supreme Court has emphatically held that where

Congress has dealt with a particular venue problem—here

actions against national banks—broader language in a.

' general venue statute will not overcome this even though

literally applicable. Stonite Products Co. v. Melvin Lloyd

Co., 315 U. S. 561 (1942) ; Fourco Glass Co. v. Transmirra

Products Corp., 353 U. S. 222 (1957). Indeed, appellant

apparently: concedes that the present general venue stat-

utes, 28 U. S. C. $§1391{a) and (b), would not overcome

t

| , 21

‘Opinion of United States Court of Appeals.

§ 94 of the National Bank Act even if it did not tontain the

words “except as otherwise provided by law.’” Its con-.

tention is rather that the venue clauses of the two securi-

ties acts are themselves ‘‘special’’ Venue statutes, and that

in such a case the latter prevails. We think it inappro- |

priate to resolve the issue so mechanically. The question —

rather is whether, given the seventy years of highly re-

stricted venue of actions against national banks, there is

. sufficient reason to think that the Congresses. which énactéd

the 1933 and’ 1934 securities legislation intended to carve

out an exception for claims under the securities laws. |

Nothing in the legislative history of the venue provisions -

of the 1933 and 1934 Acts indicates that Congress had

given thought to the status-of national banks. This is not

surprising. National banks, under extensive supervision

by the Comptroller of the Currency, were hardly envisioned

as likely defendants in actions under the new securities

laws. In fact, the House Committee Report reveals that

Congress expressly relied on the Comptroller when, in the

1933 Act, it exempted securities of national banks from the

requirement of registration, §3(a)(2),* and, even more

significantly, from civil liability for fraud in their distribu-_

tion. $12(2). H. Rep. No. 85, 73 Cong., Ist Sess. 14 (1933).

Such prospects as that a national bank as pledgee might

knowingly participate in the attempted sale of an unregis-

* These words in the 1948 revision supplanted. narrower language

in § 51 of the 1911 Code, 36 Stat. 1087, 1101.

_ It was only in 1955 that the Commission, reversing more than

__20 years of contrary «practice, limited §3(a)(2) exemptions to

issues of the bank’s own securities and held that American Deposi-

tory Receipts against outstanding foreign securities issued by a bank

must be registered. 22°SEC Ann. Rep. 43 (1956). ile this

decision was undoubtedly sound on policy grqunds, see 1 Loss,

Securities Regulation 564-65 (1961), review of the legislative his-

tory indicated that Congress-did not ener consider this 2 _

lem, see Loss, supra, at 564 n. 18. .

”

> : 22 7

“ Qpinion of United States Court of Appeals.

tered security, as here alleged, « or that by acting as. an.

o intermediary in an exchange offer a national bank might

te join in a violation of §10(b) of the 1934 Act were hardly

in Congress’ mind. Moreover, if the problem had occurred

‘to Congress, we cannot be at all certain how that body

would have wished: it resolved; the Comptroller of the

Currency now stoutly opposes the broad .venue rule which

the SEC advocates, see General Electric Credit Corp. v.

James. Talcott, Inc., supra, at 701. Concededly the case is

not one where adherence to § 94 of the National Bank Act

prevents a suit: against such a bank for violation of the

'- . geeupities legislation from being» brought anywhere—a

situation that led’ to the carving out of an exception to

\ § 94 for ‘‘local actions.’’ . See Casey v. Adams, 102 U. S. 66

\ (1880). Here suit against the bank in Chicago is not im-

' possible but simply inconvenient. Appellant’s case thus

does not méasure up to the standards laid down in United

\ States v. Borden & Co., 308 U. S. 188, 198-99 (1939), see

\ also Silver v. New York Stock Exchange, 373 U. S. 341, 357 »

(1963), to justify a holding of repeal—even partial re- —

peal—by implication. Granted that the situation calls for

- remedy, this lies in Congress, whether by specification in...

the venue sections of the securities laws, by a more general

overhaul of § 94 of.the National Banking Act, see Mercan-.

tile Nat’l. Bank v. Langdeaw, supra, 371 U. S. at 563, or

both, .-

Affirmed. -

.

23

d APPENDIX B

Statutes.

Sec. 94 of the National Bank Act, Title 12, U. S.C. § 94.

‘*Venue of Suits.

Actsons and proceedings against any association umn-

der this Chapter may be had m any district or Ter-

ritorial court of the United States held within the.

district in which such association may be established,

or in any State, county or municipal eourt in the

county or city in which said association is located,

having jurisdiction in similar cases.’? (Portion in italics

enacted 1863; portion not italicized enacted in 1864.) ,

12 Stat. 681, 13 Stat. 116-117.

Sec. 5 of the Securities Act of 1933, Title 15. U.S. C.

$Me: Un g

#(a) Unless a registration statement is in effect.

_7s to a security, it shall be unlawful for any person,

directly or indirectly—

(1) to make use of any means or instruments of

transportation or communication.in interstate com-

-

merce or of the mails to sell such security through,

the use or medium of any prospectus or otherwise;

or

(2) to carry or cause to be carried throught the

_ mails or in interstate commerce, by any means or .

instruments of transportation, any such security for

| the purpose of sale or for delivery after sale.’?.

_ See. 12 of the Securities Act of 1933, Title 15 U. S.C. .

§ 771:

‘‘ Any person wie

- g.

oe | Statutes -

(1) offers or sells a security in violation of sec-

tion 5,’’ eat

: 5 ia ty |

‘eo “shall - be 1 liable to the person Ae a such secu-

__ rity from him, who may sue either at law or in equity.

in any court of competent jurisdiction, to recover the

_.consideration paid for such security with interest -

; thereon, less the amount of any income received -

‘thereon, upon the tender of such secunity, or for dam-

ages if he no longer owns the: ‘security. 7

Ly -

: i. 17(a) of the Securities Act of 1933, Title 15 U. s, C.

| §Tig(a) >. .

: ea). It shall be ouditentiel for any person in the

: - offer or sale of any securities by the-use of any means

or instruments of transportation or communication in

interstate commerce or by the use of the _— di-

rectly or indirectly— .

ge (1) to. employ any doviee, ‘scheme, or artifice to

at - defraud, or

(2) to obtain _money or property wd means of

any untrue statement of a material fact or any

- omission to state a material fact necessary in order

| to make the statements made, in the. light of the

A circumstances under which they were made, not. mis-

OS leading, ‘or pas

(3) to engage in any transaction, practice, or

course of bisiness which operates:or would operate

d as a fraud or ‘deceit upon the purchaser.”

‘Sec: 22(a) of the Securities Act of 1933, Title 15 U.S.C.

§ 77v(a):

ee ae ‘(a) “The district wnat of the United States, the

United States courts of any Territory, and the Dis-

., B.

Statutes. * § |

a eee

, trict Dour of the United States for “ District of

- Columbia shall have jurisdiction of offenses and viola-

tions under this title and unde the rules, and regula-

tions promulgated by the Com

thereto, and, concurrent with State and Territorial

courts, of all suits inf equity and actions at law brought —

~ to enforce any liability or duty créated by this title.

Any such suit or action may be brought in the district

wherein the defendant is found or-is an inhabitant or

transacts business, or in. the district where the offer

or sale took place, if the defendant participated therein,

and process in‘such-cases may be served j Jn any other ©

district of which the defendant is an inhabitant or

wherever the defendant may be’found:’”’

yee”

t

‘ —

Sec. 10(b) of, the Securit les Exchange Act of 1904, Title

15 U.S.C. § 785(b)

“i shall be unlawful for any person, directly or

| indirectly; t by the usé of any means or instrumentality

of interstate commerce:or of the mails, or of any facil-

; ity of any national securities.exchange— .. .’’

-» (bh) To use or employ, in connection with the

purchase or sale of any security registered on a na-.

tional securities exchange or any security not so reg-

istered, any manipulative or deceptive device or con- .

_ trivance in contravention of such rules and regulations

as the Commission may prescribe as necessary or ap-—

' propriate in the public interest or for the reenacns

of investors. a

a

sis 27 of the Securities Exchange mn of 1934, Title 15°

U.S.C. § 78aa:

oe 0 * Any criminal proceeding may be brought i ees

‘the district wherein any act or transaction armas Tt 3

. 26 .

Statutes

ng te violation occurred. Any suit or action to en-

any liability or duty created by this title or rules

and regulations thereunder, or to enjoin any violation

of such title or rules and regulations, may be brought

in any such district or in the district wherein the

defendant is found or is an inhabitant or transacts

business, and process in such cases may be served in

any other district of which the defendant is an inhabi-

tant or wherever the defendant may be found.’’

Rule 10b-5. Empiormenr or Maytpvtative axp Decer-

tive Devices.

“Tt shall be unlawful for any person, directly or

indirectly, by the use of any means or instrumentality

of interstate commerce, or of the mails, or of any

facility of any national securities exchange

(1) to employ any device, scheme, or artifice to

defraud,

- (2) to make any untrue statement of a material

fact or to omit to state a matérial fact neces-

sary in order to make the statements made,

’ in the light of the circumstances under which

they were made, not misleading, or

(3) to ngage in any act, practice, or course of

business which operates or would operate as

a fraud or deceit upon any person,

| in connection with the purchase or sale of a security.’’

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