703 F.2d 1152 (10th Cir. 1981), 77-1957, Malandris v. Merrill Lynch, Pierce, Fenner & Smith Inc.

Docket Nº:77-1957, 78-1855.
Citation:703 F.2d 1152
Party Name:Jung Ja MALANDRIS, Plaintiff-Appellee, v. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, Defendant-Appellant.
Case Date:March 04, 1981
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

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703 F.2d 1152 (10th Cir. 1981)

Jung Ja MALANDRIS, Plaintiff-Appellee,




Nos. 77-1957, 78-1855.

United States Court of Appeals, Tenth Circuit

March 4, 1981

Argued May 16, 1979.

Order on Rehearing In Banc

March 31, 1983.

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William P. Rogers, New York City (Guy C. Quinlan, James N. Benedict, John A. Karaczynski of Rogers & Wells, New York City, and Donald K. Bain and John M. Kobayashi of Holme, Roberts & Owen, Denver, Colo., were also on brief), for defendant-appellant.

William R. Fishman, Denver, Colo. (David H. Drennen of Fishman, Gengler & Geman, P.C., Denver, Colo., was also on brief), for plaintiff-appellee.

J. Conrad Metcalf and William A. Trine, Boulder, Colo., were on brief, for the Colorado Trial Lawyer's Association, as amicus curiae.


Before SETH, Chief Judge, and HOLLOWAY, BARRETT, DOYLE, McKAY, LOGAN and SEYMOUR, Circuit Judges. [*]

The in banc court was unable to reach a majority opinion or judgment for disposition of this appeal. 1 Upon being re-polled on the issue of disposition in light of the stalemate, the court, by a vote of four to three, 2 determined to sustain the judgment of the panel, but otherwise adheres to the views expressed in the opinions issued simultaneously with this order.

It is therefore ordered that the judgment of the panel is sustained and that such judgment is re-entered as follows:

In No. 77-1957, we conclude that the judgment should be affirmed, provided that the plaintiff accepts a reduction in the punitive award to $1,000,000. Therefore the cause is remanded to the district court with directions that an order be entered providing that if, within a reasonable time to be fixed by the district court, the plaintiff accepts a reduction of the judgment by reducing the punitive damages award to $1,000,000 or thus a total judgment of $2,030,000, with costs and interest as provided in and accruing from the entry of the original judgment, then the judgment as so modified shall be final; otherwise, an order shall be entered granting a new trial of the cause.

It is further ordered that there be published following this order the original opinion by Judge Holloway for a majority of the panel, now adhered to as expressing the views of Judges Holloway, Barrett and Doyle. There will also be published herewith the concurring and dissenting opinion of Judge Seymour, in which Judge McKay joins, and the dissenting opinions of Chief Judge Seth and Judge Logan.


Before HOLLOWAY, DOYLE and LOGAN, Circuit Judges.

HOLLOWAY, Circuit Judge.

Defendant Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch or defendant hereafter) appeals from a judgment awarding plaintiff Jung Ja Malandris damages in the amount of $4,030,000--$1,030,000 as compensatory damages and $3,000,000 as punitive damages--on claims of common law fraud and intentional infliction of emotional distress (No. 77-1957), asserting numerous errors. Merrill Lynch also seeks reversal of the district court's order denying

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its motion to vacate the judgment and grant a new trial on the basis of newly discovered evidence and fraud (No. 78-1855).

Mrs. Malandris commenced this action against Merrill Lynch as the result of transactions between Mrs. Malandris' husband and an account executive of Merrill Lynch's Denver office, John Barron. The transactions were related to an account with Merrill Lynch which was solely in Mrs. Malandris' name and which transactions resulted in a loss of approximately $30,000 to the account. 1 Mrs. Malandris alleged that the actions of defendant constituted a violation of Sec. 10(b) of the 1934 Securities Exchange Act, Rule 10b-5, Sec. 22(a) of the 1933 Securities Act, various rules of the New York Stock Exchange, the National Association of Securities Dealers' Rules of Fair Practice and the Chicago Board of Options Exchange (CBOE), and of Sec. 4-8-315(1) of the Colorado statutes, the state statute prohibiting wrongful transfer of securities.

In addition, Mrs. Malandris alleged that the actions constituted common law fraud, intentional infliction of emotional distress, conversion of her property, and breach of fiduciary duty. (II App. 26-41). Jurisdiction was asserted on federal question grounds as to the claims under the Securities Acts and regulations, and on diversity and pendent jurisdiction grounds as to the state law claims. Along with some other claims the claims of violations of the Securities Acts and regulations were withdrawn by the plaintiff before submission of the case to the jury, and only the claims of fraud, intentional infliction of emotional distress, and for punitive damages were submitted.

The jury returned a verdict of $1,030,000 in compensatory damages and $3,000,000 in punitive damages. Motions for a directed verdict, for judgment notwithstanding the verdict, and for a new trial were denied by a written Memorandum and Order of the trial judge discussing the issues raised and the evidence in detail. 447 F.Supp. 543. Defendant appeals from the judgment asserting, inter alia, that the evidence does not support an action for intentional infliction of emotional distress, that the trial court erred in refusing to grant a mistrial due to emotional outbursts at trial by Mr. and Mrs. Malandris, that all the damages are so excessive as to indicate that they resulted from passion and prejudice, that the award of punitive damages is unsupported by the evidence and barred by the Colorado one-year statute of limitations on actions for penalties and statutory liabilities, and that the punitive damage statute is unconstitutional as applied in this case. (Brief of Defendant 1-2). 2

Defendant also moved the court to vacate the judgment and grant a new trial pursuant to F.R.Civ.P., 60(b)(2) and (3), alleging that defendant had newly discovered evidence of a material and controlling nature which established that the judgment "was procured as a result of the fraud and misrepresentations of plaintiff's husband, Steven Malandris." The motion was denied at the conclusion of a hearing before the trial judge. Defendant also appeals the denial of this motion, claiming an abuse of discretion and errors of law. (Brief of Defendant, 2).



  1. The claim of intentional infliction of emotional distress

    In considering the defendant's challenges to the damage awards we must heed the

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    restrictive rules governing appellate review after a jury verdict as outlined in Tennant v. Peoria & Pekin Union Railway Co., 321 U.S. 29, 35, 64 S.Ct. 409, 412, 88 L.Ed. 520:

    The focal point of judicial review is the reasonableness of the particular inference or conclusion drawn by the jury. It is the jury, not the court, which is the fact-finding body. It weighs the contradictory evidence and inferences, judges the credibility of witnesses, receives expert instructions, and draws the ultimate conclusion as to the facts. The very essence of its function is to select from among conflicting inferences and conclusions that which it considers most reasonable. Washington & Georgetown R. Co. v. McDade, 135 U.S. 554, 571, 572 [10 S.Ct. 1044, 1049, 34 L.Ed. 235]; Tiller v. Atlantic Coast Line R. Co., supra, [318 U.S. 54] 68 [63 S.Ct. 444, 451, 87 L.Ed. 610]; Bailey v. Central Vermont Ry., 319 U.S. 350, 353, 354 [63 S.Ct. 1062, 1064, 87 L.Ed. 1444]. That conclusion, whether it relates to negligence, causation or any other factual matter, cannot be ignored. Courts are not free to reweigh the evidence and set aside the jury verdict merely because the jury could have drawn different inferences or conclusions or because judges feel that other results are more reasonable.

    We must view the evidence in the light most favorable to the party who prevailed before the jury and thus will discuss it in this manner. Rasmussen Drilling, Inc. v. Kerr-McGee Nuclear Corp., 571 F.2d 1144, 1149 (10th Cir.), cert. denied, 439 U.S. 862, 99 S.Ct. 183, 58 L.Ed.2d 171. Erroneous admissions or exclusions of evidence and erroneous orders or rulings are not grounds for setting aside a verdict unless the error affects the substantial rights of the parties. Id. at 1149; Harris v. Quinones, 507 F.2d 533, 539, (10th Cir.). And, of course, since only claims based on state law were tried, Colorado law is controlling.

    The tort known as intentional infliction of emotional distress was recognized by the Supreme Court of Colorado in Rugg v. McCarty, 173 Colo. 170, 476 P.2d 753, 756:

    We recognize that an action in tort will lie to recover damages for severe emotional distress without any accompanying physical injury, subject to the limitations as set forth in Restatement (Second) of Torts Sec. 46 (1965).

    See also Hansen v. Hansen, 608 P.2d 364 (Colo.App.); Meiter v. Cavanaugh, 580 P.2d 399 (Colo.App.); Enright v. Groves, 560 P.2d 851 (Colo.App.). We will focus on Sec. 46 of the Restatement of Torts (2d) because of the reliance on it by the Colorado Court. Section 46 provides:

    (1) One who by extreme and outrageous conduct intentionally or recklessly causes severe emotional distress to another is subject to liability for such emotional distress, and if bodily harm to the other results from it, for such bodily harm.

    (2) Where such conduct is directed at a third person, the actor is subject to liability if he intentionally or recklessly causes severe emotional distress

    (a) to a member of such person's immediate family who is present at the time, whether or not such distress results in bodily harm, or

    (b) to any other person who is present at the time, if such distress results in bodily harm.

    Thus, the four essential elements of such a claim are that (1) the conduct is extreme and...

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