Finn v. Prudential-Bache Securities, Inc.
| Citation | 821 F.2d 581 |
| Decision Date | 15 July 1987 |
| Docket Number | PRUDENTIAL-BACHE,No. 85-5513,85-5513 |
| Parties | J. Richard FINN and Regina R. Finn, Plaintiffs-Counter-Defendants-Appellants, v.SECURITIES, INC., etc., and John Kenning, an individual, Defendants-Counter-Plaintiffs-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (11th Circuit) |
Fred W. Mattlin and Gloria Oshman North, Siemon, Larsen, Mattlin & Purdy, Boca Raton, Fla., for plaintiffs-counter-defendants-appellants.
Douglas C. Broeker, Michael J. Cappucio and Curtis Carlson, Fowler, White, Burnett, Hurley, Banick & Strickroot, P.A., Miami, Fla., for defendants-counter-plaintiffs-appellees.
Appeal from the United States District Court for the Southern District of Florida.
Before HILL, Circuit Judge, HENDERSON * and BROWN, ** Senior Circuit Judges.
J. Richard Finn and Regina R. Finn appeal from the judgment of the United States District Court for the Southern District of Florida granting summary judgment against them and in favor of John Kenning and Prudential-Bache Securities, Inc. (Bache) in their suit alleging violations of federal securities laws. The district court concluded that a release signed by the Finns barred their claims against Bache as a matter of law. We affirm in part and reverse and remand in part.
The Finns are a retired Illinois couple who sold their business and moved to South Florida in 1981. In August of that year they opened a joint securities account with Bache in Boca Raton, Florida. The Finns deposited approximately $500,000.00 in this account, which represented the bulk of their retirement fund.
The Finns informed the Bache agent responsible for their account, John Kenning, that they had never previously traded in stocks or bonds and that they merely wanted a conservative return on their investment. Kenning represented to the Finns that he was an experienced securities broker and that they could expect a return of $65,000.00 annually if he were allowed to make investments on their behalf. The Finns gave Kenning their permission to make such investments. In the subsequent months, the Finns relied exclusively on Kenning to explain the monthly reports they received from Bache and to handle the investment of their retirement funds.
On August 10, 1983, Dennis Easter, Bache's Boca Raton branch manager, phoned Richard Finn and notified him that additional funds in the amount of $530,000.00 were needed to cover losses that had been incurred by the Finns' account. Finn was not aware of any prior losses and had not been advised of any prior shortages. Upon Bache's request, Finn met with Easter and two of Bache's regional managers at 4:30 p.m. on the same day. At this meeting, Finn was told that over $6,000,000.00 in bonds had been purchased by his account and that unless he paid Bache $530,000.00 immediately, the account would be completely liquidated.
On the following day, August 11, 1983, Finn spoke to Kenning who told him that Easter was wrong in his assessment of the account and that within a month the market would turn around. At this point, the Finns consulted an attorney, Arthur Sullivan, who arranged a meeting with them for 2:30 p.m. Shortly thereafter, Easter telephoned the Finns and told them that he was ready to liquidate the account. Finn advised Easter that he had not yet talked to his attorney.
At 3:30 p.m., the Finns and their attorney went to Bache's office and met with Bache officials and a New York attorney representing the company. The Bache representatives told the Finns that they had to make up the shortage in the account or it would be liquidated. The Finns informed Bache that they had no money to pay the equity loss and another meeting was scheduled for the following morning.
On August 12, 1983, the Finns and their lawyer again met with the Bache representatives. During this meeting, Finn sought an explanation from the representatives as to why his account incurred an indebtedness of over $500,000.00 when it should have been handled in a conservative manner. No explanation was forthcoming from the Bache employees.
During this meeting, the Finns were shown a financial statement which contained incorrect figures of their assets and net worth. They advised Bache that the financial statement was in error and indicated that Kenning must have fraudulently filled out the form. Also during this meeting, Bache's representatives continued to exert pressure on the Finns by threatening them with liquidation of the account. One of them told the Finns that all of the trading in their account was consistent with Bache's policy and practices and did not constitute violations of the securities laws.
Also on August 12, 1983, the Finns were told that, as an alternative to liquidation, they could sign a release and promissory note. In exchange for the Finns' complete release of Bache and Kenning from all claims, Bache agreed to carry the Finns' bond position by loaning them $410,000.00 in the hope that eventually they could recoup their losses. The Finns also would receive $30,000.00 in cash at the time of the signing of the release. Bache informed the Finns that unless they agreed to execute the release and promissory note by August 15, 1983, Bache would liquidate the account.
On August 13, 1983, the Finns met again with the Bache representatives and again asked for an explanation of the current status of the account. They were not given a satisfactory answer and were told that there was no time for a full explanation because the account was to be liquidated. Subsequently, the Finns signed the release and promissory note.
On August 15, 1983, Bache fired Easter for failing to adequately supervise Kenning. Bache also discharged Kenning and numerous employees in the Boca Raton branch office. Subsequently, Bache filed a lawsuit against Kenning alleging that he had fraudulently handled the accounts of several customers including the Finns.
Following the dismissals in the Boca Raton office, another broker was assigned by Bache to handle the Finns' account. Under the terms of the promissory note, the Finns had no control over their assets. Approximately six months later, Bache liquidated the account at a loss of approximately $400,000.00. Shortly thereafter, the Finns filed the present action.
The Finns filed their complaint on June 1, 1984, 1 alleging violations of 15 U.S.C. Sec. 78j(b) and Rule 10b-5 promulgated thereunder. On July 3, 1984, Bache submitted its answer which contained the affirmative defense that the Finns' claims were barred by the terms of the release. Bache also filed a counterclaim against the Finns for the $400,000.00 represented by the promissory note.
On July 18, 1984, Bache filed a motion for summary judgment alleging that the Finns' claims were barred by the release. This motion was filed before any meaningful discovery had taken place. The Finns responded that the release was void because of economic duress and fraud. On December 17, 1984, the district court granted Bache's motion. The Finns then filed a motion to stay the enforcement of summary judgment. The motion for a stay was granted by the court on January 10, 1985 so that the parties could conduct discovery into the transactions surrounding the execution of the release.
After the court stayed the summary judgment order, the parties executed a "Joint Proposed Discovery Schedule" in which they agreed that additional motions for summary judgment could be submitted to the court thirty days after the completion of discovery. Between February 13, 1985 and April 18, 1985, the parties proceeded with further discovery. During this time, the Finns filed two motions to compel discovery and a motion for sanctions based on Bache's alleged failure to comply with two court orders requiring it to produce certain documents. Before the court ruled on these motions, however, Bache filed a motion to dissolve the stay of the summary judgment. This motion was predicated on a memorandum written by the Finns' attorney which summarized the events surrounding the signing of the release. After hearing oral argument on Bache's motion, the district court dissolved the stay entered on January 10, 1985 and granted summary judgment against the Finns. This order was entered before the expiration of the discovery period and before a ruling was made on the pending discovery motions. 2
On appeal, the Finns assign error on several grounds. First, they claim that the district court abused its discretion by granting Bache's motion to dissolve the stay before meaningful discovery had taken place. Second, they contend that the district court erred by holding that there were no material issues of fact remaining as to the invalidity of the release. And, finally, they urge that there was a lack of consideration for the release.
Before turning to the merits of the appeal, there are several jurisdictional matters requiring resolution. Although the parties have not pressed these issues, we, of course, are obligated to examine our jurisdiction sua sponte. See Martin v. Campbell, 692 F.2d 112, 114 (11th Cir.1982).
At the time the district court dissolved the stay of the summary judgment, Bache's counterclaim was still pending before the court. Therefore, the order granting summary judgment was not a final appealable order. Also, the district court did not enter a Rule 54(b) certificate permitting the appeal. After the notice of appeal was filed, however, the district court dismissed Bache's counterclaim at Bache's request. This dismissal cured the defect caused by the district court's failure to issue a Rule 54(b) certificate. In Campbell, supra, the court, faced with the same problem, stated that "there is an exception to the requirements of Rule 54(b) that allows the separate appeal of a nonfinal judgment where a subsequent judgment of the district court effectively terminates the litigation." Id. at 114. See also Jetco Electronic Industries, Inc. v. Gardiner, ...
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