Silverberg v. Paine, Webber, Jackson & Curtis, Inc.

• Decision Date: 25 July 1983
• Docket Number: No. 81-6082,81-6082
• Citation: 710 F.2d 678
• Parties: Blue Sky L. Rep. P 71,840 Arnold SILVERBERG, Plaintiff-Appellee, v. PAINE, WEBBER, JACKSON & CURTIS, INCORPORATED, a Delaware Corporation and Hubert T. Houston, individually, Defendants-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 678

710 F.2d 678

Blue Sky L. Rep. P 71,840

Arnold SILVERBERG, Plaintiff-Appellee, v. PAINE, WEBBER, JACKSON & CURTIS, INCORPORATED, a Delaware

Corporation and Hubert T. Houston, individually,

Defendants-Appellants.

No. 81-6082.

United States Court of Appeals,

Eleventh Circuit.

July 25, 1983.

Delbridge L. Gibbs, Marks, Gray, Conroy & Gibbs, Nick V. Pulignano, Jr., Jacksonville, Fla., for defendants-appellants.

Charles P. Pillans, III, Bedell, Bedell, Dittmar & Zehmer, Peter D. Webster, Jacksonville, Fla., for plaintiff-appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before RONEY and KRAVITCH, Circuit Judges, and TUTTLE, Senior Circuit Judge.

TUTTLE, Senior Circuit Judge:

This case is an appeal from a jury verdict in the United States District Court for the Middle District of Florida. The jury returned a special verdict finding the defendants, Hubert T. Houston and Paine, Webber, Jackson and Curtis, Inc. ("Paine Webber"), jointly liable for violations of Section 12(2) of the Securities Act of 1933 (15 U.S.C. Sec. 77l (2)), Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. Sec. 78j(b)) and Rule 10b-5 of the Securities Exchange Commission, and Section 517.301(1)(b) of the Florida Securities Act (Fla.Stat.Ann. Sec. 517.301). The jury also found the defendants guilty of common law fraud and negligence. Paine Webber was held liable for the additional counts of violating Section 20 of the Securities Exchange Act (15 U.S.C. Sec. 78t), negligent supervision of an employee, and breach of fiduciary duty to the plaintiff. Both defendants bring this appeal.

I. STATEMENT OF FACTS

Dr. Arnold Silverberg, the plaintiff-appellee, is a veterinarian in Jacksonville, Florida. He was introduced to defendant-appellant Hubert T. Houston in 1970 when Houston managed Goodbody & Company's Jacksonville brokerage office. The two men commenced their business relationship shortly thereafter.

In 1970, Silverberg purchased approximately 10,000 shares of Tool Research and Engineering, Inc. He sold the stock in 1972 for a profit of almost $200,000. He immediately reinvested the funds in Masoneilan International, Inc. ("Masoneilan"), acquiring 34,000 shares over a five year period. Substantial volumes of this Masoneilan stock were purchased "on margin." ¹ In 1977, Silverberg sold this stock, recognizing a profit in excess of $390,000, and reinvested in oil and gas stocks. Each of these transactions was conducted upon the advice of Houston.

In 1973, Houston began his employment with defendant-appellant Paine Webber in Palm Beach, Florida. Despite subsequent transfers by Paine Webber to its offices in Scottsdale, Arizona, Palm Desert, California, and Houston, Texas, respectively, Houston continued his relationship with Silverberg; the two men apparently conversed quite frequently by phone, discussing various investments in the stock market.

The stock transactions that culminated in the filing of this lawsuit began on November 22, 1977. That morning, Houston phoned Silverberg and told him that a valve manufacturer named Posi-Seal, Inc., was going to be acquired by another company at $12/share. Silverberg immediately purchased 2,000 shares at an average price of 5 3/8. Over the next few months, Houston continued to call Silverberg and tell him that a merger was imminent between Posi-Seal and Masoneilan. Houston represented that this information came from Burt Gerber and Dick Barber, two Masoneilan employees who made purchases of Posi-Seal stock from Houston. Houston also mentioned an employee of Masoneilan's California plant, Nelson Jacobs, who was purchasing Posi-Seal stock and who allegedly told Houston that the Masoneilan plant would have to expand due to the merger. At trial, Gerber, Barber and Jacobs denied having any such conversations with Houston or having any knowledge of a pending merger between Masoneilan and Posi-Seal during the relevant time period. Between November 23, 1977, and March 22, 1978, Silverberg purchased an additional 31,500 shares of Posi-Seal. The great majority of these purchases and subsequent acquisitions of Posi-Seal stock were on margin.

On March 29, 1978, Posi-Seal issued a news release which stated, "The company has no knowledge of any reason for the recent activity and price change in its stock." Silverberg testified that Houston told him to disregard the release since the merger discussions were taking place between Masoneilan representatives and two of Posi-Seal's major shareholders without the knowledge of Posi-Seal's president, the signer of the news release. Houston urged Silverberg to continue his purchases of Posi-Seal stock.

By mid-July, 1978, Silverberg owned approximately 60,000 shares of Posi-Seal. At that time, Silverberg attended a meeting of Posi-Seal's shareholders in Mystic, Connecticut. Silverberg met several of Posi-Seal's top officers, but testified that he did not discuss the pending Masoneilan merger with anyone at the meeting. Upon returning to Florida, Silverberg told Houston that he was unimpressed by Posi-Seal, but Houston asserted that the Masoneilan merger would occur regardless of Posi-Seal's financial position because of Masoneilan's desire to possess a patented valve developed by Posi-Seal.

Silverberg resumed his purchases of Posi-Seal stock in October 1978 based on Houston's representation that officers of Masoneilan and Posi-Seal were meeting to discuss the merger. Silverberg became concerned when the confirmation slips for these purchases were marked "unsolicited," but Houston told him to "disregard it, it doesn't mean anything;" in fact, Paine Webber had ordered its brokers not to solicit anymore orders for Posi-Seal stock due to the substantial holdings of Paine Webber's clients in the company. ²

In January 1979, when Houston told Silverberg that the merger agreement would be executed at a meeting of officers of Posi-Seal and Masoneilan's parent company, Silverberg's Posi-Seal holdings reached a peak of 82,000 shares. ³ Silverberg testified that all of his substantial purchases of Posi-Seal stock were based solely on Houston's recommendations.

On May 11, 1979, Posi-Seal announced a tentative agreement for it to be acquired by Xomox Corporation. A month later, Posi-Seal issued a news release stating that the acquisition would occur on terms less favorable to Posi-Seal's shareholders than had been previously announced. Though these events precipitated a decline in the price of Posi-Seal's stock, Houston urged Silverberg not to sell his holdings. Silverberg retained approximately 73,000 shares despite having to pay Paine Webber over $47,000 in order to meet margin calls. ⁴

On November 5, 1979, Posi-Seal and Xomox announced the termination of their prior agreement. The price of Posi-Seal stock plummeted, and Paine Webber liquidated Silverberg's account when he was unable to meet further margin calls. In December 1979, Silverberg was advised that he was indebted to Paine Webber for an additional $25,276 which represented the deficit in his margin account after Paine Webber had liquidated his holdings. Silverberg filed this suit shortly thereafter.

II. DISCUSSION OF ISSUES

A. Federal Securities Law Claims

The defendants bring several challenges that go specifically to the jury's findings that they were guilty of violations of federal securities law. ⁵ However, we need not consider these grounds for appeal since the jury returned a special verdict finding the defendants guilty on each of the eight counts brought by the plaintiff. Since the defendants do not allege specific error in the jury's findings that they acted negligently and fraudulently in violation of Florida law, we need consider only those contentions of the defendants which constitute a general attack on their liability under all eight of the substantive counts or which go to the question of damages.

This conclusion draws support from LeSueur Creamery, Inc. v. Haskon, Inc., 660 F.2d 342 (8th Cir.1981), cert. denied 455 U.S. 1019, 102 S.Ct. 1716, 72 L.Ed.2d 138 (1982). In that case, the jury returned a special verdict finding the defendant liable for breach of warranty, negligence and fraudulent misrepresentation. The appellate court noted that the defendant-appellant would have to prove that the plaintiff was not entitled to recovery under any of the three claims in order to justify the granting of a new trial. Id. at 347 n. 7. See also Engine Specialities, Inc. v. Bombardier, Ltd., 605 F.2d 1, 17 (1st Cir.1979) ("By upholding one of the theories [of liability specified in the special verdict], we need not reach the question of whether the jury was likewise correct in premising liability on the second."), cert. denied, 446 U.S. 983, 100 S.Ct. 2964, 64 L.Ed.2d 839 (1980).

Thus, in the present case, the defendants would be required to challenge successfully each of the eight counts on which they were found liable before this Court would remand for a new trial on the question of liability. Since the defendants have failed even to appeal specifically from the jury's finding of liability on the state law counts, we may dispense with any consideration of their challenges to the jury's finding of substantive liability under the federal securities law and turn to the single issue raised by the defendants which constitutes a general challenge to liability under all eight counts, the question of jury confusion. ⁶

B. Jury Confusion

At the agreement of the parties, the jury was initially provided with five general verdict forms. The first form was to be used if the jury found for Silverberg on the common law fraud claim and intended to award punitive damages. ⁷ The second form was to be used if the jury found for Silverberg on any of the claims and did not intend to award punitive damages. ⁸ The third form was to be used if the jury found in favor of the defendants. The fourth and fifth forms pertained to Paine Webber's counterclaim against...