Gilman v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

• Citation: 404 N.Y.S.2d 258,93 Misc.2d 941
• Parties: Michael G. GILMAN, on behalf of himself and all other persons similarly situated, Plaintiff, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Defendants.
• Decision Date: 05 April 1978
• Court: United States State Supreme Court (New York)

Page 258

404 N.Y.S.2d 258

93 Misc.2d 941

Michael G. GILMAN, on behalf of himself and all other

persons similarly situated, Plaintiff, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Defendants.

Supreme Court, Special Term, New York County, Part I.

April 5, 1978.

Pomerantz, Levy, Haudek & Block, New York City, for plaintiffs; Abraham L. Pomerantz, Stanley M. Grossman, Stephen P. Hoffman, New York City, of counsel.

Brown, Wood, Ivey, Mitchell & Petty, New York City, for defendants; Richard C. Casey, New York City, Joseph G. Riemer, III, Scarsdale, of counsel.

MAX BLOOM, Justice:

Plaintiff moves pursuant to CPLR 902 for an order permitting maintenance of this suit as a class action. The complaint alleges that the defendant, a stockbroker, violated and continues to violate a fiduciary duty owed to its customers by withholding funds due them for a period of 24 hours or more, thus permitting it to use such funds for a day or more for its own profit. This was and is accomplished by drawing checks for sums due to its New York customers on its account at the Bank of America in San Francisco. Inasmuch as checks drawn here on California banks take at least 24 hours longer to clear through the Federal Reserve System than do checks drawn upon banks located within New York, defendant obtained for itself, at least one, and sometimes two, additional days' interest on the monies so paid out. The total of the "float" on these funds is estimated at about $2,000,000 for 1977. The complaint seeks to enjoin the defendant from continuing its practice and to recover defendant's profits resulting therefrom and disbursal thereof to members of the class. Plaintiff asserts that the large number of customers who have been affected, the minimal injury to each in the form of lost interest, and the very substantial damage to all makes class certification appropriate.

CPLR Article 9, which governs class actions, adopts the general scheme of Rule 23 of the Federal Rules of Civil Procedure. However, the CPLR is simpler in structure and consistent with a more functional operation and seeks to overcome limitations imposed by the Federal Rules (2 Weinstein-Korn-Miller P 901.03; Mem. Approval of Governor to L.1975 c. 207). CPLR 901(a) sets forth five prerequisites for maintaining an action by a representative party on behalf of the class. CPLR 902 in addition to providing the procedure to be followed, sets forth five illustrative practical considerations to guide the court in its determination of class status (Practice Commentaries, Joseph M. McLaughlin, C. 902:1). The requirements which must be met before class action status may be granted are:

"(1) the class is so numerous that joinder of all members * * * is impracticable; (2) there are questions of law or fact common to the class which predominate over any questions affecting only individual members; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; (4) the representative parties will fairly and adequately protect the interests of the class; and (5) a class action is superior to other available methods for the fair and efficient adjudication of the controversy".

Plaintiff maintains that each of these criteria have been more than adequately met. Defendant, however, vigorously contests many of them. Accordingly, they will be examined seriatim.

I

SIZE OF THE CLASS (CPLR 901(a)(1))

It is admitted that for the eight-month period from September 1, 1976 through April 30, 1977, defendant issued more than 63,000 checks to its New York customers drawn on its account at the Bank of America in California. These totalled $216,358,000. Moreover, the routing of check payments cross-county continues to the present time. Clearly, the individual joinder of potentially thousands of members of the putative class is impractical (Guadagno v. Diamond Tours & Travel, 89 Misc.2d 697, 698, 392 N.Y.S.2d 783, 784; Swanson v. American Consumer Ind., 415 F.2d 1326, 1333 (CA-7); Berland v. Mack, D.C., 48 F.R.D. 121 (S.D.N.Y.); Cusick v. N. V. Nederlandsche Combinatie Voor Chemische Industrie, D.C., 317 F.Supp. 1022 (E.D.Pa.); Herbst v. Able, D.C., 47 F.R.D. 11 (S.D.N.Y.); Green v. Wolf Corp., 406 F.2d 291 (CA-2), cert. den., 395 U.S. 977, 89 S.Ct. 2131, 23 L.Ed.2d 766; Vernon J. Rockler & Co. v. Graphic Enterprises, Inc., D.C., 52 F.R.D. 335, 339 (D.C.Minn., Div. 4); 2 Weinstein-Korn-Miller, N.Y.Civ.Prac. P 901.04; Practice Commentaries, Joseph M. McLaughlin, C. 901:2; 3B Moore's Fed.Prac. (2nd Ed.) P 23.05; Fed.Rules of Civ.Proc., Rule 23(a)(1); see also J. I. Case Co. v. Borak, 377 U.S. 426, 432-433, 84 S.Ct. 1555, 12 L.Ed.2d 423; Daar v. Yellow Cab Co., 67 Cal.2d 695, 63 Cal.Rptr. 724, 433 P.2d 732).

Indeed, considering the small individual benefit to be derived from joinder and the high cost of such litigation, it is highly unlikely that any considerable number of those affected by the practice would be tempted to join as parties plaintiff, if class status is not granted.

II

COMMON QUESTIONS OF LAW OR FACT (CPLR 901(a)(2))

While "separate wrongs to separate persons, though committed by similar means and even pursuant to a single plan, do not alone create a common or general interest in those who are wronged" (Society Milion Athena v. National Bank of Greece, 281 N.Y. 282, 292, 22 N.E.2d 374, 377; see also Ray v. Marine Midland Grace Trust, 35 N.Y.2d 147, 151, 359 N.Y.S.2d 28, 31, 316 N.E.2d 320, 322; Gaynor v. Rockerfeller, 15 N.Y.2d 120, 129, 256 N.Y.S.2d 584, 589, 204 N.E.2d 627, 631; Onofrio v. Playboy Club of N. Y., 15 N.Y.2d 740, 257 N.Y.S.2d 171, 205 N.E.2d 308), here the wrong complained of is identical for each of the members of the putative class. Similarly, the several defenses that have been raised are available against all class members.

It is unnecessary that every question be common to each member of the class; all that is required is that common questions predominate over individual ones; (Ray v. Marine Midland Grace Trust, 35 N.Y.2d 147, 154, 359 N.Y.S.2d 28, 31, 316 N.E.2d 320, 322; Practice Commentaries, Joseph M. McLaughlin, C. 901:3; Weinstein-Korn-Miller, N.Y.Civ.Practice, P 901.08; cf. Matter of Miles v. Lascaris, 84 Misc.2d 96, 98, 375 N.Y.S.2d 829, 831). While the amounts potentially recoverable by each member of the class may differ, such circumstance is not sufficient to warrant denial of class status (Werfel v. Kramarsky, D.C., 61 F.R.D. 674, 682 (S.D.N.Y.); Leisner v. New York Telephone Co., D.C., 358 F.Supp. 359, 372 (S.D.N.Y.); Senter v. General Motors Corp., 532 F.2d 511, 524-525 (CA-6); Herbst v. Able, D.C., 47 F.R.D. 11, 17 (S.D.N.Y.); City of Philadelphia v. American Oil Co., D.C., 53 F.R.D. 45, 67-68 (D.N.J.); cf. Koehler v. Ogilivie, D.C., 53 F.R.D. 98, 100-101 (N.D.Ill.) aff'd 405 U.S. 906, 92 S.Ct. 938, 30 L.Ed.2d 777; Strauss v. Long Island Sports, Inc., 60 A.D.2d 501, 506-507, 401 N.Y.S.2d 233, 235-236; see also Liberty Alliance of Blind v. Califano, 568 F.2d 333, 346-47 (CA-3); Swanson v. American Consumer Ind., 415 F.2d 1326, 1333 (CA-7); see generally 89 Harv.L.Rev. 1318, 1489-1498).

Indeed, in the light of the power of the court to mold the plastic remedies of chancery to meet the exigencies of particular situations, this insubstantial difference among members of the class is of no moment. Thus, in Daar v. Yellow Cab Co., 67 Cal.2d 695, 63 Cal.Rptr. 724, 433 P.2d 732, the court directed that the sum recovered in settlement of the action from a taxi cab company for overcharges be applied to the reduction of cab fares for a specified period rather than directing that the recovery be distributed among members of the class on the theory that it is better for the money to benefit persons similar to those adversely affected than for it to be kept by the wrongdoer (Pooler, Consumer Law, New York Law Journal, 6/19/75, p. 5, c. 4).

The central issue here involved which makes this matter ripe for class certification is a breach by defendant of its fiduciary duty to its customers. While defendant contends that no fiduciary relationship can be held to exist unless the circumstances surrounding the relationship of defendant and each of its customers is examined on a case by case basis, the relationship between a stockbroker and his customer is one of principal and agent (6 N.Y.Jur., Brokers, § 29, et seq.). The broker, once he has received his customer's funds, is a fiduciary with respect to those fund (Hanly v. SEC, 415 F.2d 589, 596 (CA-2); Charles Hughes & Co. v. SEC, 139 F.2d 434, 437 (CA-2), cert. den., 321 U.S. 786, 64 S.Ct. 781, 88 L.Ed. 1077; Opper v. Hancock Securities Corp., D.C., 250 F.Supp. 668, 674-675 (S.D.N.Y.); People v. Mercer Hicks Corp., 4 Misc.2d 55, 58, 155 N.Y.S.2d 740, 744, aff'd, 3 A.D.2d 708, 160 N.Y.S.2d 806; Rolf v. Blyth Eastman Dillon & Co., D.C., 424 F.Supp. 1021, 1036-1037 (S.D.N.Y.)). The obligation which a stockbroker owes to its customer with regard to advice and counsel in respect to investments is here immaterial. What is material is the broker's possession of the funds belonging to the customer. After the investment is sold and funds belonging to the customer come into the broker's possession, the broker may not consciously utilize this possession to the detriment of his customer and for his own benefit (cf. Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545). In this context, the amount of time, interest and inclination which a particular customer has to look after his own investment (Avern Trust v. Clarke, 415 F.2d 1238 (CA-7), cert. den., 397 U.S. 963, 90 S.Ct. 997, 25 L.Ed.2d 255) is immaterial.

III

TYPICALITY OF THE CLAIMS OF THE REPRESENTATIVE (CPLR 901(a)(3))

"The essence of the requirement of typicality * * * is that not only must the representative party have an individual cause of action, but the interests of the representative must be closely identified with the interests of all other members of the class" (2 Weinstein-Korn-Miller, N.Y.Civ.Practice, P 901.09; ...