23 F.3d 410 (7th Cir. 1994), 92-2737, T-Bill Option Club v. Brown & Co. Securities Corp.

Docket Nº:92-2737.
Citation:23 F.3d 410
Party Name:T-BILL OPTION CLUB, Plaintiff-Appellant, v. BROWN & COMPANY SECURITIES CORPORATION, Defendant-Appellee.
Case Date:May 23, 1994
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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Page 410

23 F.3d 410 (7th Cir. 1994)

T-BILL OPTION CLUB, Plaintiff-Appellant,

v.

BROWN & COMPANY SECURITIES CORPORATION, Defendant-Appellee.

No. 92-2737.

United States Court of Appeals, Seventh Circuit

May 23, 1994

Editorial Note:

This opinion appears in the Federal reporter in a table titled "Table of Decisions Without Reported Opinions". (See FI CTA7 Rule 53 regarding use of unpublished opinions)

Argued Jan. 14, 1994.

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division, No. 88 C 8461; James B. Parsons, Judge.

N.D.Ill.

AFFIRMED.

Before BAUER, COFFEY and RIPPLE, Circuit Judges.

ORDER

The plaintiff, T-Bill Option Club ("T-Bill"), brought an action for breach of contract and breach of fiduciary duty in Illinois state court against the defendant, Brown & Company Securities Corporation ("B & C"). Following removal to federal court, based on the diversity of citizenship of the parties,see 28 U.S.C. § 1332(a)(1), the case was submitted to a jury. It returned a verdict in favor of defendant B & C on both causes of action, and the district court entered judgment accordingly. T-Bill now appeals. For the reasons that follow, we affirm.

I

BACKGROUND

T-Bill is an Illinois general partnership which, at the time of the events in this lawsuit, traded in stock options and other securities. T-Bill's managing partner, Sheldon Pollack, is an experienced options trader who made all investment decisions for T-Bill. B & C, a Massachusetts corporation located in Boston, is a discount brokerage firm. The relationship between T-Bill and B & C arose in 1984 when Mr. Pollack responded to a B & C advertisement in Barron's and opened a nondiscretionary account for T-Bill with B & C. 1 The fact that the account was nondiscretionary meant that T-Bill, through Mr. Pollack, would make its own investment decisions; B & C would give no investment advice. 2

B & C has a maintenance requirement: A customer must maintain with B & C, either in the form of cash or marketable securities, a deposit amount equal to a certain percentage of the value of the securities held in the customer's main trading account. Maintenance requirements allow a customer to purchase a greater amount of securities with a given amount of capital than the customer could purchase in a cash-only account. See generally Schenk v. Bear, Stearns & Co., 484 F.Supp. 937, 939-40 (S.D.N.Y.1979). A customer's buying power is therefore determined by the maintenance reserve. If the maintenance reserve consists of marketable securities, fluctuations in the value of the equity will affect the level of the maintenance account. For example, if the stock prices drop, the maintenance level will drop and more maintenance collateral will be required.

The issue in this case concerns the maintenance requirement in T-Bill's account with B & C and the stock market's sharp decline in October 1987. That month culminated in what is said to have been the worse day in the market's history--Black Monday, October 19, 1987. 3 As a result, the value of the securities in T-Bill's maintenance account dropped below B & C's requirements, thereby creating a maintenance deficiency. On October 22, 1987, B & C telephoned Mr. Pollack to inform him that the T-Bill account had a deficit balance. In response, Mr. Pollack ordered the account closed and tendered $162,961 to B & C to correct T-Bill's account deficit.

In August 1988, T-Bill filed a two-count complaint against B & C. It alleged breach of contract and breach of fiduciary duty and sought $474,000 damages. T-Bill claimed that B & C knew T-Bill's account was deficient as many as ten days before B & C gave T-Bill notice of the deficiency, and that B & C therefore had a duty to inform T-Bill of the deficiency well before October 22, 1987. T-Bill asserted that, if B & C had notified it in timely fashion, the account would have been closed to preserve the equity that remained in the account.

The case proceeded to trial. Both parties relied on B & C's brochure, 4 among other material, in addressing whether B & C had either a contractual or a fiduciary duty to give T-Bill a "margin call," the industry term for notification of a maintenance deficiency, and, if B & C had any such duty, whether B & C breached it. Both parties presented expert testimony on the subject of maintenance requirements and margin calls. On June 24, 1992, a jury returned a verdict in favor of B & C on both the contract and fiduciary duty counts, and the district court entered judgment accordingly.

II

DISCUSSION

On appeal, T-Bill raises two issues. First, although it does not challenge the judgment with respect to the breach of contract count, T-Bill submits that the district court's jury instructions on the fiduciary duty count were erroneous as a matter of law and warrant reversal. Second, T-Bill asserts that the district court abused its discretion in allowing B & C's proffered expert to testify as an expert under Federal Rule of Evidence 702. We shall address each issue in turn.

  1. Jury Instructions

    The district court instructed the jury on the fiduciary duty count with instructions which read, in part, as follows:

    To find in favor of T-Bill on this claim, therefore, you must determine whether there was a fiduciary relationship, whether defendant breached it, and what, if any, damages resulted.

    If you find that the T-Bill account was totally nondiscretionary and that all investment decisions were to be made by T-Bill alone without any advice from defendant, then you may find that there was no fiduciary duty, and find in favor of the defendant and against plaintiff, T-Bill.

    Tr. 1483. T-Bill noted its objection...

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