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Winkleman v. New York Stock Exchange

filed: August 4, 1971.


Van Dusen and Rosenn, Circuit Judges, and Kraft, District Judge.

Author: Kraft

Opinion of the Court

KRAFT, District Judge:

Appellants, Edward Winkleman and Scientific Resources Corporation (Scientific), appeal from the district court's denial of their motion for preliminary injunction and its dismissal of their action against New York Stock Exchange and its members (Exchange). We shall first review the propriety of the grant by the court below of defendants' motion to dismiss the action for lack of jurisdiction over the subject matter, under Fed.R.Civ.P. 12(b) (1), since if the dismissal was proper, appellants' motion for preliminary injunction must necessarily have failed.

Count I of appellants' complaint is filed by Scientific, under Sections 4 and 15 of the Clayton Act,*fn1 for injunctive relief and treble damages for injuries claimed to result from alleged violations by Exchange of Sections 1 and 2 of the Sherman Act*fn2 and Section 3 of the Clayton Act.*fn3

Count II of the complaint is filed by Edward Winkleman, as a class action, asserting as jurisdictional bases diversity of citizenship and involvement of federal questions. It incorporates by reference §§ 2 thru 28 of Count I, but omits incorporation of § 1 in which Scientific invokes jurisdiction under §§ 4 and 15 of the Clayton Act. Count II seeks injunctive relief and such damages as are determined to have been suffered by each class member.

Briefly, the allegations of appellants' complaint*fn4 essential to our review are that: Scientific, a publicly-held corporation of which Winkleman is a shareholder, applied to the Exchange for listing, was accepted and, since 1964, its stock has been listed and traded under the provisions, inter alia, of the Exchange Listing Agreement, which provides, in part, that Scientific, like other listed issuers " . . . will publish at least once a year and submit to its stockholders . . . not later than three months after the close of the last preceding fiscal year of the Corporation a balance sheet as of the end of such fiscal year, and a surplus and income statement for such fiscal year. . . ." Such publication and submission to stockholders were most recently due from Scientific on or before December 30, 1970. Customarily, with Exchange's knowledge, listed issuers delayed, for appropriate times, publication and submission to stockholders of the required annual statements where special circumstances so warranted. During January, 1971, authorized officers of Scientific met and communicated with officers of the Exchange to explain what Scientific claimed were special circumstances which warranted a delay in compliance by Scientific. The Exchange, without warning, suspended all trading in Scientific's stock on February 1, 1971. Thereafter the Exchange informed Scientific that it was considering delisting Scientific's securities, but that upon issuance by Scientific of an acceptable news release relating to the effect of pending transactions on other pertinent financial data the Exchange would permit resumption of trading in Scientific's securities. Scientific prepared and submitted such a proposed news release, which it modified as requested by the Exchange. After acceptance thereof by the Exchange, Scientific issued the news release through normal channels, but the Exchange nevertheless refused to permit a resumption of trading in Scientific's securities and proposed to initiate steps to delist them.

In light of the foregoing factual allegations appellants assert that: the Exchange unlawfully exercised its monopolistic economic power through its rules and regulations, relating to suspension of trading in and delisting of securities, which are "vague, overly broad and arbitrary", provide no opportunity for fair hearing and are designed to use the power of monopoly to insulate and protect their trading specialists and other members. Appellants claim that the suspension of and the failure to permit resumption of trading in Scientific's securities were per se antitrust violations; that opportunity for fair hearing was denied; that the Exchange rules and regulations were arbitrarily, capriciously and discriminatorily applied to Scientific.

Appellants sought a temporary restraining order and preliminary and permanent injunctions against continued suspension in trading and against initiation by the Exchange of any delisting procedure against Scientific.

The very brief record before us appears to indicate determination by the district court of issues not yet ripe for decision, as well as some inattention to the Federal Rules of Civil Procedure.

Appellants claim, on appeal, that they were not afforded opportunity in the court below to brief or argue the Exchange's motion to dismiss and that they had reason to and did believe that the district court had taken under advisement only appellants' motion for preliminary injunction. The record and docket entries so indicate.

The transcript*fn5 and docket entries reveal that a hearing on appellants' motion for preliminary injunction was held on February 22, 1971 and that the trial court then took that motion under advisement. On April 14, 1971 the district court filed an opinion and order*fn6 denying appellants' motion for preliminary injunction and granting a motion by the Exchange to dissolve the temporary restraining order and to dismiss appellants' complaint. Both the docket entries and the record show that the Exchange's motion to dismiss,*fn7 an affidavit in opposition to the motion for preliminary injunction and in support of the motion to dismiss,*fn8 together with a brief in opposition to the motion for preliminary injunction and in support of the motion to dismiss*fn9 were filed of record on April 14, 1971, the date of the order of dismissal. The record and the docket entries disclose no service on appellants of the motion to dismiss, no brief of appellants opposing that motion and no hearing or opportunity for hearing thereon.

The Exchange's motion to dismiss, under F.R.C.P. 12(b)(1) was made upon the sole ground that the court lacked jurisdiction over the subject matter. This rule makes no provision for matters outside the pleading. The district court, however, quite apparently considered the testimony taken on the preliminary injunction hearing, as well as the contents of the affidavits of Philip L. West and Don Mayerson. The district court apparently regarded this motion as one based on a failure to state a claim upon which relief can be granted, under F.R.C.P. 12(b)(6). This is evident not only from its consideration of matters outside the pleading, but also from its treatment of the motion as one for summary judgment and disposition as provided in F.R.C.P. 56, and is demonstrated by its statement, "We do not believe that a substantial factual issue relating to an alleged anti-trust violation has been established."*fn10

This treatment of Exchange's motion deprived appellants of the benefit of the provision in Rule 12(b) that, in such circumstances, " . . . all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56." The latter rule not only requires service of a motion thereunder at least 10 days before the time fixed for hearing, but also provides a right to the adverse party to serve opposing affidavits prior to the day of hearing. That this rule envisions depositions and ...

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