744 F.2d 719 (10th Cir. 1984), 82-1686, Wegerer v. First Commodity Corp. of Boston

Docket Nº:82-1686.
Citation:744 F.2d 719
Party Name:Louis W. WEGERER and Judith A. Wegerer, Plaintiffs-Appellees, v. FIRST COMMODITY CORPORATION OF BOSTON, et al., Defendants-Appellants.
Case Date:September 10, 1984
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit
 
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Page 719

744 F.2d 719 (10th Cir. 1984)

Louis W. WEGERER and Judith A. Wegerer, Plaintiffs-Appellees,

v.

FIRST COMMODITY CORPORATION OF BOSTON, et al., Defendants-Appellants.

No. 82-1686.

United States Court of Appeals, Tenth Circuit

September 10, 1984

Page 720

Theodore C. Beckett, Kansas City, Mo. (Don R. Lolli and Emmett J. McMahon, Kansas City, Mo., with him on brief) of Beckett & Steinkamp, Kansas City, Mo. (Charles C. Rankin, Lawrence, Kan., of counsel), for plaintiffs-appellees.

Arthur L. Smith, Washington, D.C. (Thomas W. Van Dyke, J. Michael Vaughan, and James C. Tilden of Linde, Thomson, Fairchild, Langworthy, Kohn & Van Dyke, Kansas City, Mo., on brief), for defendants-appellants.

Before BARRETT, BREITENSTEIN and McKAY, Circuit Judges.

BARRETT, Circuit Judge.

First Commodity Corporation of Boston (FCCB), Donald R. Schleicher, and his brother, Richard A. Schleicher (Appellants) appeal from an adverse jury verdict and remittitur judgment entered in favor of Louis and Judith Wegerer (Wegerers). The Wegerers were awarded $10,775.00 in actual damages and $250,000.00 in punitive damages on a finding that appellants and one Robert Jones, 1 a former account executive for FCCB, conspired to defraud the

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Wegerers in the sale of two copper commodity option contracts. The evidence presented at trial was developed exclusively by the Wegerers; the appellants rested without presenting any evidence.

BACKGROUND

FCCB is a corporation doing business as a commodity option brokerage firm with its main office in Boston and sales offices in Chicago, Miami, San Francisco, New York, and Newport Beach. FCCB is a private, closely-held corporation whose stock is owned by Donald Schleicher (80%) and Richard Schleicher (20%). At all times relevant hereto, Donald Schleicher was president, treasurer and chairman of the board of directors of FCCB, while Richard Schleicher was vice-president, secretary, and the only other member of FCCB's board of directors. Richard Schleicher did most of the research for FCCB. Over the years FCCB has enjoyed tremendous financial success and the Schleichers have profited accordingly. In his deposition Donald Schleicher testified that he and Richard had recently sold 20% of FCCB, for which he had received $3,900,000 and Richard had received $900,000; that FCCB was selling several of its offices to a partnership for $6,000,000, and that the proceeds of the sale would go to himself and his brother over a three to four year period. FCCB held itself out to be the oldest commodity options specialist on the East Coast with considerable financial strength, and one of America's most accomplished and professional commodity option brokerage firms. FCCB employs several hundred salesmen to sell various option contracts.

On November 11, 1976, FCCB, through Donald Schleicher as President, and Donald and Richard Schleicher, individually, and on behalf of "their affiliates, officers, agents, servants, employees, attorneys, and assigns, and those persons in active concert or participation with them" (R., Pl.Ex. 33 at 2) entered into a consent decree with the Commodity Futures Trading Commission permanently enjoining each of them from using the mails or any means or instrumentalities of interstate commerce to cheat or defraud any person by: (1) disseminating by means of oral representations or written materials expected and predicted profits and returns from commodity options and futures transactions, (2) representing that commodity options or commodity transactions are guaranteed, backed, escrowed or collateralized for the benefit and protection of purchasers of commodity options, (3) failing to disclose or misrepresenting the actual amount of the purchase price of commodity options, including a separate listing of the premium, markups on the premium, costs, fees, and commissions, (4) executing commodity option transactions and commodity futures contracts without the consent, knowledge, and/or authorization of its customers; (5) failing or omitting to disclose or misrepresenting the price level which a commodity must reach during the life of an option before an option customer will realize a profit, (6) failing or omitting to disclose that specific market movements of a commodity or contract of sale of a commodity for future delivery cannot be accurately predicted, (7) failing or omitting to disclose the nature and character of a customer's investment in commodity options, (8) failing or omitting to relate all additional costs which may be incurred by an option customer if the option is exercised, and (9) failing to disclose or misrepresenting the fact that a commodity option purchased by a customer had earlier been purchased for the account of FCCB or another customer of FCCB.

FACTS

During early April 1978, Louis Wegerer, a railroad engineer responded to an FCCB advertisement. 2 Although neither Louis nor his wife, Judith, both residents of Marion, Kansas, knew anything about stocks, bonds, or commodities, they decided to respond to the FCCB advertisement which stated that "Mr. X invested $3,445; nine

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months later he received $24,213." Within several days after responding to the ad, the Wegerers received the first of what was to be a series of phone calls from Robert Jones, an account executive for FCCB, from New York. Although the Wegerers told Jones that they knew nothing about dealing in commodities or investments and that they could not afford to invest in commodity option contracts, Jones persisted. He made thirty to forty telephone calls to the Wegerers over a period of several weeks. During the course of his telephone conversations with the Wegerers, Jones related, inter alia: an investment in copper commodity option contracts was completely safe; the Wegerers would make money with each rise in the price of copper; that copper was rising and the Wegerers were sure to make a profit; that the Wegerers should not review the documents and information mailed to them by FCCB because it was too complicated for them to understand and the information was sent out merely to fulfill a legal requirement; that he was an expert in commodities; and he was making many people a lot of money and that the Wegerers should trust him with their investment.

Based on Jones' representations, the Wegerers withdrew some of their savings and also obtained a bank loan, all in Kansas, for investing $5,375 with FCCB on May 8, 1978, and $5,400 with FCCB on May 30, 1978, in copper commodity options traded on the London exchange. Subsequent to making these investments, the Wegerers discovered, for the first time, (1) that FCCB charged a commission brokerage fee equal to 100% of the purchase price of the copper commodity options they had purchased, (2) that two days after they had purchased their second option contract, the sale of commodity options was banned in the United States by the Commodity Futures Trading Commission because of rampant fraud in the sale of such options, and (3) that the price of copper had to rise a fixed amount before they could even recover their initial investment.

After the Wegerers purchased their second contract, Jones stopped calling them. Despite repeated attempts, the Wegerers were unable to contact Jones again. The Wegerers subsequently sued FCCB, the Schleichers, and Jones alleging that they were persuaded to purchase two copper option contracts which were worthless at the time they were purchased and that the actions of the appellants and Robert Jones in inducing them to effectuate the purchases were in violation of federal law and constituted fraud and conspiracy to defraud under Kansas law.

Following a three day trial, the jury returned a verdict against FCCB and the Schleichers, awarding the Wegerers $15,000 in actual damages and $1,000,000 in punitive damages. Following appellants' post-trial motions, the district court entered an order denying a new trial and appellants' motion for a judgment notwithstanding the verdict. The district court did, however, grant appellants' motion for a remittitur. The court reduced the Wegerers' actual damages to $10,775.00, the purchase price of the contracts, and the Wegerers' punitive damages to $250,000.00.

ISSUES

On appeal FCCB and the Schleichers contend the district court erred by: (1) refusing to give their requested instruction on justifiable reliance, (2) refusing to grant a new trial after finding that the $1,000,000 punitive damage award was excessive, (3) denying their motions for directed verdict and a new trial, (4) submitting Instructions 9-11A since officers, directors or employees of a corporation acting in their official capacity on behalf of a corporation cannot conspire with their corporation, (5) holding that it had personal jurisdiction over the Schleichers, (6) admitting the 1976 consent decree, (7) admitting the testimony of two other FCCB customers, and (8) by ruling that various complaints filed with the Commodities Futures Trading Commissioner by unrelated parties could be used for cross-examination of any defendant.

I.

Appellants contend that the district court erred in refusing to give their requested

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instruction defining justifiable reliance. Appellants argue, citing to Goff v. American Savings Association of Kansas, 561 P.2d 897, 903 (Ct.App.Ks.1977), that the test for determining when reliance is justified is whether the plaintiffs had "information which would serve as a danger signal and a red light to any normal person of his intelligence and experience" and that the district court erred by not instructing accordingly.

In rejecting the appellants' proferred instruction, the district court stated:

The reason I rejected this [instruction], the way you submitted it is that you are trying to get comparative fault in this...

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