739 F.2d 1434 (9th Cir. 1984), 83-5946, Vucinich v. Paine, Webber, Jackson & Curtis, Inc.

Docket Nº:83-5946.
Citation:739 F.2d 1434
Party Name:Jennie VUCINICH, Appellant, v. PAINE, WEBBER, JACKSON & CURTIS, INC., a Delaware corporation, and Philip F. Moore, Appellees.
Case Date:August 07, 1984
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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739 F.2d 1434 (9th Cir. 1984)

Jennie VUCINICH, Appellant,



corporation, and Philip F. Moore, Appellees.

No. 83-5946.

United States Court of Appeals, Ninth Circuit

August 7, 1984

Argued and Submitted Feb. 7, 1984.

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Robert L. Kramer, Palm Springs, Cal., Allen J. Capeloto, Richard L. Rubin, Capeloto & Rubin, San Francisco, Cal., for appellant.

Charles Siegal, Munger, Tolles & Rickershaueser, Los Angeles, Cal., for appellees.

Appeal from the United States District Court for the Central District of California.

Before BROWNING, Chief Judge, and GOODWIN and KENNEDY, Circuit Judges.


Jennie Vucinich sued Paine, Webber and the firm's employee, Moore, alleging that she had sustained losses caused by the defendants' investment advice. The district court ruled in favor of defendants on motions for summary judgment and dismissal and plaintiff appealed. We affirm in part and reverse in part.

In 1977, Vucinich sought advice from Philip F. Moore on how best to hold a portfolio of stocks and mutual fund shares she had inherited. Moore provided her with published materials and suggested, on the basis of his and others' prognostications as to market trends, that she invest in short positions, a strategy designed to capitalize on a falling stock market. Between January and July 1978, Moore, with Vucinich's prior approval, sold her portfolio of securities and used the money to open short positions in eleven securities. In addition, he recommended that she use the proceeds from an inherited parcel of real estate to purchase a retirement annuity.

Contrary to Moore's predictions, the market remained relatively constant from the middle of 1977 through the beginning of 1980. During this time, Moore continued to advise Vucinich to hold her short positions in anticipation of a downtrend, which she did except when sale was necessary to meet a margin call. Finally, during 1980, Vicinich, again on Moore's advice, began selling off her positions and in September 1980, closed the account. By that time, her balance had been reduced from approximately $40,000 to $8,273.93.

Vucinich brought this action alleging breach of Sec. 10(b) of the Securities Act of 1934, 15 U.S.C. Sec. 78j(b), and S.E.C. Rule 10b-5, 17 C.F.R. 240.10b-5, common law fraud, negligence and negligent failure to supervise.

I. Scienter

Scienter, defined as an intent to deceive or defraud, is an element of a Sec. 10(b) and Rule 10b-5 claim. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). This court has interpreted scienter to include recklessness. Nelson v. Serwold, 576 F.2d 1332, 1338 (9th Cir.), cert. denied, 439 U.S. 970, 99 S.Ct. 464, 58 L.Ed.2d 431 (1978). Rather than being "merely a greater degree of ordinary negligence," recklessness is closer to "a lesser form of intent." Pegasus Fund, Inc. v. Laraneta, 617 F.2d 1335, 1341 (9th Cir.1980), citing Sanders v. John Nuveen & Co., 554 F.2d 790, 793 (7th Cir.1977).

The scope of duty owed under Rule 10b-5 is to be determined from a number

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of factors. Among these are the relationship between the advisor and the client, their relative access to information, the benefit derived from the relationship by the...

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