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LEGG, MASON & CO. v. MACKALL & COE

December 13, 1972

LEGG, MASON & COMPANY, INC., Plaintiff,
v.
MACKALL & COE, INC., et al., Defendants


Richey, District Judge.


The opinion of the court was delivered by: RICHEY

RICHEY, District Judge.

 This case came before the Court for hearing on the Motion of plaintiff, Legg, Mason & Company, Inc., for a Temporary Restraining Order and the Motion of the defendants to Dismiss or in the Alternative to Stay the Present Action Pending Arbitration pursuant to the Constitution and Rules of the New York Stock Exchange. The Court denied the plaintiff's Motion for a Temporary Restraining Order, finding that the plaintiff had not made the requisite showing of irreparable injury necessary to justify the relief requested, and granted the defendants' Motion to Stay the Present Action Pending Arbitration provided that such arbitration could be had within sixty days from the date of the Court's Order.

 The defendants deny plaintiff's allegations, but their main contention was that this controversy must be resolved by the arbitration procedures of the New York Stock Exchange to which both Legg, Mason and Mackall & Coe are members and signatories. Mackall & Coe and the individual defendants each requested arbitration by Affidavit.

 I. Issues Presented

 While this action sounds in tort, the issue presented by the defendants' Motion to Stay Pending Arbitration is basically one of contract law -- that is, whether there is a binding agreement to arbitrate between the parties. The defendants contend that the arbitration provisions of the New York Stock Exchange Constitution and Rules constitute such a binding agreement.

 Article VIII, Section 1 of the New York Stock Exchange Constitution provides in pertinent part:

 
"Any controversy between parties who are member firms or member corporations shall, at the instance of any such party, and any controversy between a non-member and a member or allied member or member firm or member corporation arising out of the business of such member, allied member, member firm or member corporation, . . . shall at the instance of such nonmember, be submitted for arbitration. . . ."

 Rule 345, paragraph J, of the New York Stock Exchange provides that member firms and registered representatives sign the following agreement:

 
"I agree that any controversy between me and any member organization or affiliate or subsidiary thereof arising out of my employment or the termination of my employment shall be settled by arbitration at the instance of any such party in accordance with the arbitration procedure prescribed in the Constitution and the rules then obtaining of the New York Stock Exchange."

 It is undisputed that the plaintiff, defendant Mackall & Coe, Inc. and the individual defendants are all members, signatories or beneficiaries of the arbitration procedures of the New York Stock Exchange Constitution.

 A. Whether the Constitution and Rules of the New York Stock Exchange Constitute a Binding Contract Between Its Members

 This Court is not aware of any District of Columbia decisions dealing with the question of whether the Constitution and Rules of the New York Stock Exchange constitute a binding contract. *fn1" However, the Court may appropriately look for guidance to the decisions of the Federal and state courts sitting in New York, a jurisdiction which has many, if not the most significant contacts with parties who are members, signatories or beneficiaries of the provisions of the New York Stock Exchange Constitution and Rules. *fn2" There are many such decisions holding that the constitution and rules of a stock exchange constitute a contract between all members of the exchange with each other and with the exchange itself. See Brown v. Gilligan, Will & Co., 287 F. Supp. 766 (S.D.N.Y.1968); ...


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