Stanley S. PEARLSTEIN, Plaintiff-Appellant, v. SCUDDER & GERMAN, a Partnership, Defendant-Appellee.
No. 92, Docket 33315
United States Court of Appeals, Second Circuit
July 2, 1970
429 F.2d 1136
Argued Nov. 5, 1969.
Enforcement is denied, and the case is remanded to the National Labor Relations Board for such proceedings as may be appropriate with reference to unresolved questions of fact and modified remedies for discharged drivers.
ORDER MODIFYING OPINION AND DENYING REHEARING
The Clerk is directed to file the Board‘s untimely petition for rehearing.
There is also before us the petitioner‘s “Motion for Clarification” of our opinion of April 30, 1970. In its petition, the Board has requested that we modify our opinion by providing that on the remand “the Board is not precluded from considering the propriety of ordering restoration of the status quo ante” pending bargaining negotiations should it find a violation of the duty to bargain, and that restoration is an appropriate remedy therefor.
We have concluded that because the decision concerning remedies initially lies with the Board, the Board‘s petition, in part, is well taken. Upon remand the Board is not precluded from ordering any appropriate remedy provided by law, subject, of course, to judicial review.
No remedy, whether for the benefit of Local 274 or for individual drivers, however, can be sustained unless it is predicated upon a finding that Carnation unlawfully refused to bargain. To the extent that our former opinion may have suggested that remedies previously ordered for discharged drivers may be sustained without a finding that Carnation refused to bargain, it is hereby corrected.
As modified, the opinion of April 30, 1970, is adhered to and the petition for rehearing is denied.
Joseph Tiefenbrun, Henry Conan Caron, New York City, of counsel, for appellant.
Myron S. Isaacs, Hellerstein, Rosier & Rembar, New York City, for appellee.
Before WATERMAN, FRIENDLY and SMITH, Circuit Judges.
Appellant Stanley S. Pearlstein, the plaintiff below, sued Scudder & German, a partnership engaged in the securities business, for damages which he alleged he suffered because the defendant had violated the margin and antifraud provisions of the federal securities laws.1 Plaintiff‘s allegations grew out of two
At about this time plaintiff must have developed serious doubts as to the legality of his debt to defendant, both in this transaction and in that described below. He consulted a lawyer concerning the matter, and on August 8 he visited the Securities and Exchange Commission, the New York Stock Exchange, and the National Association of Security Dealers. He was everywhere told that his obligation was valid. The following day, August 9, plaintiff entered into a stipulation of settlement in the suit defendant had commenced, promising to pay the sum he owed in two installments on August 11 and September 20, 1961. Plaintiff made both payments on schedule. The bank which held the bonds as security for its loan to plaintiff eventually sold them in three lots on May 11 and May 18, 1962, and April 19, 1963, for a total price of $33,159.14. Thus Pearlstein suffered a total loss of $26,466.27 on his purchase of Lionel bonds.
The second or “AMF” transaction germane to this lawsuit involves the purchase by plaintiff, on a “when issued” basis, of 100 convertible bonds of the American Machine and Foundry Company (“AMF“). Once again plaintiff made the purchase contrary to defendant‘s advice, at a total price of $150,082.64. Defendant had a short position in these bonds and told plaintiff that it could furnish him his bonds upon their issuance by AMF in the near future from this short position. Plaintiff agreed. The bonds became available for purchase on March 23, 1961 and payment under Regulation T should have been made April 4. Although payment was not made by that date defendant did not demand payment of any part of the total sales price until May 22, 1961. After various subsequent requests for payment were ineffectual defendant threatened plaintiff with legal action in August. On August 9, 1961, the same day that Pearlstein entered into the stipulation of settlement respecting the Lionel bonds, the parties entered into an agreement with regard to the AMF bonds as well. The agreement provided that defendant would attempt to arrange
After he had begun the present lawsuit in the federal court below plaintiff sought to reopen the New York judgment of $22,712.81 which defendant had obtained. The New York judge, Hecht, J., dismissed his motion, suggesting that plaintiff‘s remedy, if any, lay in the federal courts. Pearlstein did not appeal.
Plaintiff was hospitalized for surgery on two occasions during these transactions. The lower court found, however, that plaintiff‘s ill health did not affect his capacity to understand and evaluate his business dealings.
In the instant case Pearlstein sought to recover from defendant the difference between the amounts he would have received for the Lionel and AMF bonds if defendant had sold them on his account on the day payment was due and the amounts actually received when the banks sold the bonds much later. In seeking these damages plaintiff alleged not only that defendant had violated the securities laws, but also that it had committed fraud. The court below held that plaintiff had standing to sue for damages under
We agree with the district judge below that defendant violated the federal securities laws by extending credit to the plaintiff and that Pearlstein has a right of action against the defendant. We disagree, however, with the holding that the stipulations of settlement and the New York judgment in the AMF transaction bar this suit. Accordingly, we reverse and remand for further proceedings consistent with the approach taken in this opinion.
At the outset we express reservations as to the legality of the size of the loans, up to two thirds of the value of the bonds, which defendant procured for plaintiff—a matter quite distinct from the length of time defendant extended credit to plaintiff. It appears from our own examination of the relevant law3 that in 1961 a broker could not legitimately arrange a loan for the purchase of securities, secured by those same securities, for more than 30% of their value. The parties have not raised this issue, however, and for that reason we do not deal with it except to call the matter to the attention of the parties and of the district court on remand.
In regard to Regulation T, upon which the plaintiff bases this suit, it seems reasonably clear that defendant
We also hold that Pearlstein has a right of action against Scudder & German for its violation of Section 7. Although the congressional committee report which recommended the enactment of Section 7 indicates that the protection of individual investors was a purpose only incidental to the protection of the overall economy from excessive speculation,6 it has been recognized in numerous cases since that time that private actions by market investors are a highly effective means of protecting the economy as a whole from margin violations by brokers and dealers.7
The defendant asserts that these cases limit investor recovery to those situations where the broker has deliberately and wilfully induced the investor to buy securities on the assurance of an unlawful extension of credit. Here, defendant submits, it was the plaintiff who fraudulently induced the broker to enter into these transactions. Pearlstein was knowledgeable in the securities field, and defendant attributes to him a conscious plan to profit from the illegal extension of credit if the bonds increased
In our view, defendant‘s statement of the law is incorrect. The federal securities laws charge brokers and dealers with knowledge of the margin requirements and with the duty to obey them. No broker can conscientiously claim to have been misled into extending credit beyond the seven-day limit absent some misstatement of fact by his customer regarding the customer‘s use of the money loaned, see A. T. Brod & Co. v. Perlow, 375 F.2d 393 (2 Cir. 1967), a circumstance which is not present here.
Whether Pearlstein also knew of the margin requirements is unclear in the absence of some specific finding on that point by the lower court, although his unfruitful trips to the Securities and Exchange Commission and the New York Stock Exchange several months after the commencement of these transactions would seem to indicate that he may have been merely suspicious as to the illegality of the credit given him. However, our holding does not turn on Pearlstein‘s subjective knowledge of the law. In our view the danger of permitting a windfall to an unscrupulous investor is outweighed by the salutary policing effect which the threat of private suits for compensatory damages can have upon brokers and dealers above and beyond the threats of governmental action by the Securities and Exchange Commission.8 As the district court observed in Serzysko v. Chase Manhattan Bank, 290 F.Supp. 74, 87-90 (SDNY 1968), aff‘d mem., 409 F.2d 1360 (2 Cir.), cert. denied, 396 U.S. 904, 90 S.Ct. 218 (1969), the defense of in pari delicto in securities law cases has been undermined by the recent antitrust case of Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 88 S.Ct. 1981, 20 L.Ed.2d 982 (1968). There the Court held that the doctrine of in pari delicto would not bar a retailer from suing a manufacturer for antitrust violations when the retailer had been coerced into joining the illegal agreement.
Although Perma Life would apparently continue to deny recovery to plaintiffs who had not been coerced but who had benefited from the arrangement equally with the defendant, such a defense does not appear desirable in the securities area here involved, even when the investor may be shown to have had knowledge of margin requirements. Unlike the antitrust laws which forbid both seller and buyer to enter into a proscribed transaction, the federally imposed margin requirements forbid a broker to extend undue credit but do not forbid customers from accepting such credit. This fact appears to indicate that Congress has placed the responsibility for observing margins on the broker, for the original need for margin requirements undoubtedly derived from the common desire of investors to speculate unwisely on credit. Moreover, whereas brokers are charged by law with knowledge of the margin requirements, the extent of an investor‘s knowledge of these rules would frequently be difficult of tangible proof.
The cases cited by defendant need not be read to contradict this view of the law.9 Although two of them do indicate that certain kinds of contributory fault
We next turn to the lower court‘s holdings that plaintiff‘s suit is barred by the stipulations of settlement which he entered into with defendant and by the judgment entered in the AMF transaction in the New York Supreme Court. As to the settlements, the court below recognized that a simple agreement between the parties that plaintiff would pay if defendant extended further credit would be void under Section 29(a) and (b) as a contract made in violation of the rule against extension of credit. However, in both transactions involved here, defendant had commenced lawsuits before plaintiff signed a stipulation of settlement in the Lionel matter and a confession of judgment in the AMF suit. The court held that these agreements served to settle the actions, that they did not continue illegal credit but served as a “fresh start” in the relationship of the parties, and that to hold otherwise “seemingly leads to the untenable result that it would never be possible to settle issues arising from violation of the credit and margin regulations and that all such controversies would have to be litigated.” 295 F.Supp. at 1204.
We disagree with this logic. First, we hold that the settlements did involve the promise by defendant of a continuation of credit which was illegal under the Act. Defendant argues that because it had already delivered the bonds to the lending banks in each transaction, it could not have sold them even if it had wanted to, and therefore did not extend any more credit than it already had extended. However, defendant should have used its best efforts to secure the return of the bonds which it had improperly delivered to the banks, by replevin if necessary, and to sell them. Defendant‘s failure to take such action resulted in a continuation of credit in violation of Regulation T, and under Section 29(b) of the Securities Exchange Act,
Even apart from the continuing ability of Scudder & German to liquidate the bonds on plaintiff‘s account, we think that the stipulations do not bar this suit. Assuming that plaintiff and defendant both believed that it was impossible for defendant to sell the bonds after their delivery to the bank, the plaintiff‘s primary motive to enter into the stipulation was undoubtedly the desire to gain enough time to meet his debt, thus avoiding an immediate judgment which might precipitate his bankruptcy or at least cause him serious financial strain. Nevertheless, it was defendant‘s very
Finally, even if defendant could not have sold the bonds and if plaintiff were not induced to sign the stipulation because of any financial pressure, it would nonetheless contravene public policy to give the stipulation conclusory effect. Section 29(a) of the Securities Exchange Act holds void any stipulation obligating a party to waive compliance with the Act. Although the lower court held that waivers of rights under the Act may be given effect if the waivers occur after the commencement of suit, the cases cited only stand for the proposition that the remedial right of access to the courts after an active controversy has arisen can be waived knowingly in favor of arbitration. Here it is difficult to say that Pearlstein‘s waiver was knowing, given the apparent lack of any inducement to give up his rights other than financial pressure. But if the waiver were knowing, it would not secure some desirable end such as arbitration, easily compatible with the broad purpose of the Act, but would instead serve only to legalize the very extension of credit which the margin requirements seek to prevent and which suits such as this one serve to discipline. Indeed, brokers could routinely extend credit beyond margin simply by delivering bonds to third-party lenders before they were paid for by the customer, and then immediately commencing suit against the customer for the difference, obtaining a waiver in return for a stay of judgment. Such a possibility clearly militates against any bending of the language of Section 29(a) to accommodate the stipulations here involved.
We now turn to defendant‘s claim, concurred in by the lower court, that plaintiff‘s action regarding the AMF bonds is barred by the res judicata effect of the consent judgment entered in the New York court February 8, 1962. Defendant argues and the district judge held that Pearlstein could have raised the violation of federal law as a defense in that action, and his failure to do so must preclude this suit. Cf., e. g., Stuyvesant Ins. Co. v. Dean Constr. Co., 254 F.Supp. 102 (S.D.N.Y. 1966), aff‘d mem. sub nom. Stuyvesant Ins. Co. v. Kelly, 382 F.2d 991 (2 Cir. 1967).
Pearlstein did attempt to raise his federal issue in the state court by means of a motion to reopen the judgment after its entry. The New York Supreme Court, per Hecht, J., denied this motion, observing only that “The defendant [Pearlstein] has submitted no substantial reason to set aside the judgment. His remedy is by way of the independent action which he states has been commenced in the federal court.”
The confession of judgment signed by Pearlstein in the AMF transaction was invalid for the reasons just discussed. The doctrine of res judicata has in the past been held subordinate to principles of public policy, see, e. g., Spilker v. Hankin, 188 F.2d 35 (D.C.Cir. 1951); Denver Bldg. & Constr. Trades Council v. NLRB, 87 U.S.App.D.C. 293, 186 F.2d 326 (1950), rev‘d on other grounds, 341 U.S. 675, 71 S.Ct. 943, 95 L.Ed. 1284 (1951). Here, the same arguments which make the original confession of judgment invalid apply with equal strength in favor of refusing to bar the instant suit because of a judgment entered pursuant to that agreement. Cf. Donald F. Duncan, Inc. v. Royal Tops Mfg. Co., 343 F.2d 655 (7 Cir. 1965), holding that a consent judgment obtained by fraud or mutual mistake cannot be used to invoke res judicata.
It could be argued by defendant that even though the New York judgment was voidable, plaintiff‘s failure to ap-
We conclude that jurisdictional grounds constitute the reason for the dismissal of Pearlstein‘s motion to reopen the judgment. It is therefore difficult to see why Pearlstein‘s suit should be barred in the very federal courts which the New York court recommended to him when it overruled his motion. Normally, a denial of jurisdiction by one court will not preclude consideration of the merits by a second court which does have jurisdiction, see, e. g., Smith v. McNeal, 109 U.S. 426, 3 S.Ct. 319, 27 L.Ed. 986 (1883). And as Mr. Justice Rutledge stated in dissent in Angel v. Bullington, 330 U.S. 183, 204, 67 S.Ct. 657, 91 L.Ed. 832 (1947), a point not contradicted by the majority in that case, the policy favoring res judicata has never been so strong
“* * * that the matter is ended simply by showing that a party has had some chance, however slight, in a previous litigation to secure a favorable decision.
If this were the law every case where a party takes a nonsuit or a dismissal expressly for the purpose of starting over again would be a final and conclusive determination against him. I know of no jurisdiction where the law has been so harsh. Nor do I think it should be in this one.”14
One point remains for consideration: Pearlstein‘s assertion that defendant‘s conduct in this case amounted to fraud. Plaintiff asserts that defendant had not actually acquired the AMF bonds which it was to sell plaintiff from its short position until well after the settlement date, and that defendant was thereby enabled to speculate on the price of the bonds without actually committing its own money. We do not understand how defendant actually benefited from this delay in acquiring the bonds, nor how the delay especially damaged the plaintiff. In any event, we find it quite unnecessary to make any determination with reference to this assertion.
Accordingly we reverse and remand to the district court to determine the proper measure and amount of damages. We leave open the question whether defendant‘s liability for the bonds’ decline in price ended when they were sold by the bank or was terminated at some earlier date.
FRIENDLY, Circuit Judge (dissenting):
This case illustrates the need for putting some brakes on the onrush of civil obligation for violation of the securities laws if that doctrine is to be an instrument of justice rather than the opposite. With all respect, the scholarly opinion of my brother Waterman seems to me to reach a conclusion that shocks the conscience and wars with common sense. Apart from the unfairness of the result on the facts of this case, press reports of “backroom troubles” of many brokerage houses and the sharp decline in security prices could give the decision far-reaching consequences.
Although the opinion‘s statement of facts is accurate as far as it goes, a somewhat fuller narrative is needed to place the matter in proper setting: Plaintiff Pearlstein was a practicing lawyer from 1936 to 1953. Since 1956, his time has been spent in investment activity and unsuccessful attempts at freelance writing. Before opening an account with Scudder & German on February 20, 1961, he had accounts with four other brokerage firms and had engaged in extensive convertible bond transactions. He financed these by having the broker arrange bank loans for a large portion of the cost, as the law then permitted.1
Pearlstein‘s first transactions with Scudder & German were carried out in accordance with this practice and with applicable regulations. On February 20, 1961, he purchased 20 Richfield convertible bonds and 20 Phillips Petroleum convertible bonds for $52,509, borrowed $42,000 on them as collateral, and paid the balance of $10,509 on February 27, 1961, the settlement date. On March 6, he sold the Phillips convertibles for $24,599. He used $20,000 of this to reduce the bank loan and obtain the Phillips bonds and left the balance in his account.
On the same day Pearlstein purchased $50,000 principal amount of Lionel convertible bonds for $59,625. While there is a dispute whether defendant recom-
On March 8, Pearlstein advised defendant that he was being hospitalized for an operation. Scudder testified that he advised Pearlstein to sell his securities, which could have been done at a profit, and avoid concern. Pearlstein declined, and entered the hospital that afternoon. Next day, from the hospital, he ordered defendant to sell 50 of the AMF bonds at 155, but that price could not be obtained. He left the hospital on March 31 but on April 9 was brought back on an emergency basis. He underwent operations on April 10, 13 and 20, and was in danger of losing his leg and, indeed, his life. He was not discharged until June 10. Meanwhile the date fixed by Regulation T for payment of the Lionel bonds occurred on March 15 and that for payment of the AMF bonds on April 4.
Defendant did what it could to obtain payment, short of closing out the transactions, which it had every reason to think the sick man did not want. On April 5 it received payment of $48,000 from a bank on account of the Lionel bonds and delivered them as collateral. Unable to communicate directly with Pearlstein, it called Earle, his customer‘s man at Dean Witter & Co., where he had his chief stock account, and his mother and sister. Earle promised payment several times but this never materialized; he conveyed no suggestion that Pearlstein wished the bonds to be sold.2 During May, Earle obtained Pearlstein‘s signature in the hospital to a $110,000 note for the AMF bonds. However, as a result of Pearlstein‘s failure to pay the balance of $40,083, this was not consummated. On two occasions during May defendant wrote letters demanding payment on the AMF bonds. There being no response, it placed the collection in the hands of counsel. On plaintiff‘s discharge from the hospital, he obtained legal advice and consulted the SEC, the New York Stock Exchange, and the NASD. After this he voluntarily entered into the settlements outlined by my brother Waterman. At no time did he indicate any desire that defendants sell the bonds—indeed, he specifically requested additional time to pay his debts. He now asks that, because of defendant‘s having indulged his desire to retain his securities, it should pay him for the depreciation of the AMF bonds until their sale in May 1962 and of the Lionel bonds until their sale in April 1963, in a total amount of $85,466, plus many years interest.3
Regardless of the theory under which it is sought to establish civil liability, the starting point for discussion is whether imposition of such liability will further the purposes behind the statute and the regulation. It is thus desirable to begin by examining just what the purposes of § 7(c) were.
The legislative history of that section4 affords scant evidence that protection of the investor loomed at all large in the Congressional mind. Although passages in the Senate hearings and a later Senate report indicate that an important purpose of the Senate Bill was “to protect the margin purchaser by making it impossible for him to buy securities on too thin a margin,” the upper house was considering a bill that placed the administration of the credit requirements in the same agency, then the Federal Trade Commission, that was to enforce the rest of the Securities Exchange Act. The change, initiated by the House of Representatives and concurred in by the Senate, whereby determination of allowable credit was placed in the Federal Reserve Board, has been said to demonstrate “that concern for the investor was wholly subordinated to the achievement of macro-economic objectives.”5 In fact, the report of the House Committee, H.R.Rep.No.1383, 73d Cong., 2d Sess. 8 (1934), stated:
The main purpose of these margin provisions * * * is not to increase the safety of security loans for lenders. Banks and brokers normally require sufficient collateral to make themselves safe without the help of law. Nor is the main purpose even protection of the small speculator by making it impossible for him to spread himself too thinly—although such a result will be achieved as a by-product of the main purpose.
The main purpose is to give a Government credit agency an effective method of reducing the aggregate amount of the nation‘s credit resources which can be directed by speculation into the stock market and out of other more desirable uses of commerce and industry—to prevent a recurrence of the pre-cash situation where funds which would otherwise have been available at normal interest rates for uses of local commerce, industry and agriculture, were drained by far higher rates into security loans and the New York call market.
While it thus may be wrong to say that concern for the investor was “wholly subordinated” to the effect of excessive credit on the economy, the history surely does not indicate a Congressional desire that the courts should engage in an all-out effort to utilize § 7(c) to protect investors against themselves, no matter how offensive the result.6
With deference to my brother Waterman‘s contrary view, I doubt whether permitting the customer to shift the risk of market decline to the broker is generally either necessary or desirable as a means of furthering the primary purpose of § 7(c). Occasional and isolated violations of Regulation T do not threaten to cause a significant alteration in the allocation of credit in the economy;
Even assuming that the purpose of § 7(c) would be served by a degree of private enforcement, I question whether the majority‘s free-wheeling approach will have the desired effect. As a result of it, speculators will be in a position to place all the risk of market fluctuations on their brokers, if only the customer‘s persuasion or the broker‘s negligence causes the latter to fail in carrying out Regulation T to the letter. Any deterrent effect of threatened liability on the broker may well be more than offset by the inducement to violations inherent in the prospect of a free ride for the customer who, under the majority‘s view, is placed in the enviable position of “heads-I-win tails-you-lose.”7 For these reasons, and for those given in Judge Graven‘s opinion in Serzysko v. Chase Manhattan Bank, 290 F.Supp. 74 (S.D.N.Y.1968), which we affirmed “in all respects,” 409 F.2d 1360, cert. denied, 396 U.S. 904, 90 S.Ct. 218, 24 L.Ed.2d 180 (1969), I would not find the decision under the anti-trust laws in Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 88 S.Ct. 1981, 20 L.Ed.2d 982 (1968), to be truly pertinent even if there had been more of a consensus among the Justices than there was.
The majority‘s reason for imposing civil liability thus fails, and I see no other supporting rationale to sustain the result reached in this case. To be sure, it may be proper in some instances to impose civil liability in furtherance of the subsidiary purpose of § 7(c), protection of the innocent “lamb” attracted to speculation by the possibility of large profits with low capital investment. That was the situation envisioned in the dictum in Smith v. Bear, 237 F.2d 79, 87-88 (2 Cir. 1956), see also Junger v. Hertz, Neumark & Warner, 426 F.2d 805 (2 Cir. 1970), both affirming judgments for the defendants.8 Pearlstein, an experienced speculator, was no lamb, and the trial judge specifically found that he was not induced to enter into the transactions by any expectation that defendant would be slow in selling him out if he were to default in payment.
A view similar to that advocated in this opinion was taken in Serzysko v. Chase Manhattan Bank, 290 F.Supp. 74, 88-90 (S.D.N.Y.1968), aff‘d mem., 409 F.2d 1360 (2 Cir.), cert. denied, 396 U.S. 904, 90 S.Ct. 218 (1969), which the majority cites as somehow opposing recognition of the plaintiff‘s fault as a defense in cases of this sort, and in Judge Bartels’ thoughtful opinion in Moscarelli v. Stamm, 288 F.Supp. 453, 458-460 (E.D. N.Y.1968), also cited by the majority, fn. 7. I would follow the lead of these cases and deny recovery on the theory of an implied cause of action.
Although the majority does not reach the issue, I would reach the same result if liability were here sought to be justified under § 29(b) of the Securities Exchange Act. That section provides in pertinent part that “Every contract made in violation of any provision of this title or of any rule or regulation thereunder, and every contract * * * the performance of which involves the violation of, or the continuance of any relationship in violation of, any provision of this title or any rule or regulation thereunder, shall be void * * *” as regards the rights of violators. Here the contract was not in violation of any provision of the statute or any rule or regulation; its performance would not have involved any violation if Pearlstein had done as he was obligated; and the court is not here asked to enforce anything that constitutes a violation. Contrast Kaiser-Frazer Corp. v. Otis & Co., 195 F.2d 838 (2 Cir.), cert. denied, 344 U.S. 856, 73 S.Ct. 89, 97 L.Ed. 664 (1952). Despite the Draconian language, § 29(b) does not provide a pat legislative formula for solving every case in which a contract and a violation concur. Rather it was a legislative direction to apply common-law principles of illegal bargain, enacted at a time when it seemed much more likely than it might now that courts would fail to do this without explicit legislative instruction. See D. R. Wilder Manufacturing Co. v. Corn Products Refining Co., 236 U.S. 165, 174-175, 35 S.Ct. 398, 59 L.Ed. 520 (1915). There has been a conspicuous lack of judicial enthusiasm for the doctrine thus incorporated when there has been performance by the violator; the reasons are clearly set forth in Bruce‘s Juices, Inc. v. American Can Co., 330 U.S. 743, 752-757, 67 S.Ct. 1015, 91 L.Ed. 1219 (1947), and Kelly v. Kosuga, 358 U.S. 516, 519-521, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959).
Pearlstein‘s claim for restitution based on § 29(b) is, if anything, even less attractive. Courts cannot recall too often Lord Mansfield‘s observation that the action for money had and received “is the most favourable way in which he [the defendant] can be sued” since he “may defend himself by every thing which shews that the plaintiff, ex aequo & bono, is not entitled to the whole of his demand, or to any part of it.” Moses v. Macferlan, 2 Burr, 1005, 1010, 97 Eng.Rep. 676, 679 (K.B. 1760). Equity and justice are qualities that Pearlstein‘s claim conspicuously lacks. He bought the bonds against defendant‘s advice, refused to sell them on its urging, remained silent when defendant was pressing for payment, and settled his liability after having had legal advice. Equity would leave the loss where it lies.
I would therefore affirm the judgment dismissing the complaint, without reaching the grounds relied on by the district court.
Notes
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(c) It shall be unlawful for any member of a national securities exchange or any broker or dealer who transacts a business in securities through the medium of any such member, directly or indirectly to extend or maintain credit or arrange for the extension or maintenance of credit to or for any customer—
(1) On any security (other than an exempted security) registered on a national securities exchange, in contravention of the rules and regulations which the Board of Governors of the Federal Reserve System shall prescribe under subsections (a) and (b) of this section.
Regulation T of the Federal Reserve System,
In case a customer purchases a security (other than an exempted security) in the special cash account and does not make full cash payment for the security within 7 days after the date on which the security is so purchased, the creditor shall, except as provided in sub-paragraphs (3)-(7) of this paragraph, promptly cancel or otherwise liquidate the transaction or the unsettled portion thereof.
The seven days referred to above refer to seven full business days,
The antifraud provisions cited by plaintiff are