958 F.2d 448 (1st Cir. 1992), 91-1307, Putnam Resources v. Pateman

Docket Nº:91-1307, 91-1308.
Citation:958 F.2d 448
Party Name:PUTNAM RESOURCES, Plaintiff, Appellant, v. Ronald M. PATEMAN, et al., Defendants, Appellees. Ronald M. PATEMAN, et al., Plaintiffs, Appellees, v. FRENKEL & COMPANY, INC., Defendant, Appellant.
Case Date:February 20, 1992
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

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958 F.2d 448 (1st Cir. 1992)

PUTNAM RESOURCES, Plaintiff, Appellant,


Ronald M. PATEMAN, et al., Defendants, Appellees.

Ronald M. PATEMAN, et al., Plaintiffs, Appellees,


FRENKEL & COMPANY, INC., Defendant, Appellant.

Nos. 91-1307, 91-1308.

United States Court of Appeals, First Circuit

February 20, 1992

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

Heard Sept. 6, 1991.

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Henry P. Monaghan, with whom Norman Roy Grutman and Grutman Greene & Humphrey were on brief, for plaintiff, appellant Putnam Resources.

Alan G. Miller, with whom Stephen J. Paris, D. Alice Olsen, and Morrison, Mahoney & Miller were on brief, for defendant, appellant Frenkel & Co., Inc.

James F. Campise, with whom Marcigliano & Campise, George Vetter, Gordon P. Cleary, Howard A. Merten, and Vetter & White were on brief, for Ronald M. Pateman, et al.

Before CAMPBELL, ALDRICH and SELYA, Circuit Judges.

SELYA, Circuit Judge.

When Virgil, some twenty centuries ago, wrote in The Aeneid of mankind's "accurst craving for gold," he accurately anticipated the timeless appetite undergirding the twin appeals which confront us today. The tarnished tale follows.


We limn the contours of the case as reflected in the trial record, resolving occasional conflicts in a manner consistent with the jury's recension of the evidence.

Putnam Resources, Ltd. (Putnam), a Connecticut limited partnership dealing in precious metals, was a vendor to Sammartino, Inc. (SI), a Rhode Island corporation. Under a series of contracts in force between the two, Putnam stored gold at SI's premises in Cranston, Rhode Island. The gold was made available in daily allotments for SI's manufacture of fine jewelry. To facilitate this arrangement while providing needed security, a field warehouse was established under the auspices of SLT Warehouse Company (SLT). SLT would receive gold from Putnam at the field warehouse, log it in, and thereafter dole it out to SI. Putnam was to be paid for the metal as and when the manufacturer sold the jewelry which it made from the gold.

In mid-1986, Putnam's insurance broker, Frenkel & Co. (Frenkel), a New York firm, learned that Putnam's carrier was planning to cancel existing coverage. Frenkel sought a replacement policy in the London market. Its attention soon focused on Lloyd's of London. Because underwriters at Lloyd's deal through a select group of intermediaries, Frenkel found it necessary to work cooperatively with J.H. Minet & Co. (Minet), a London brokerage house. In September, Minet managed to assemble a consortium which wrote the desired insurance (Lloyd's marine policy no. 243440200). Ronald M. Pateman was the lead underwriter. 1

In July 1987, SI's factory closed to permit the work force to take a summer vacation. The SLT warehouseman, Charles Harrison, subsequently testified that, during this interval, Walter Sammartino (Sammartino), SI's principal, sought authorization to remove quantities of gold from the

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field warehouse far exceeding what Putnam had authorized SLT to release. Harrison testified that he did as Sammartino asked, believing that an exchange would eventually take place to replenish the inventory. When the excess gold had not been replaced by the end of July, Harrison informed his superiors at SLT about the situation. Shortly thereafter, Sammartino notified Putnam that substantial amounts of the vendor's gold were missing. After inspecting the premises and finding the cupboard virtually empty, Putnam filed claim under the Lloyd's policy for an estimated loss of $3,900,000. In October, the underwriters paid Putnam $2,000,000 on account, but noted that an investigation of the circumstances and an accounting of Putnam's inventories were still in progress.

Eventually, the underwriters denied the claim outright. Invoking diversity jurisdiction, 28 U.S.C. § 1332(a), Putnam sued on the policy in federal court. A change of venue was granted, transferring the case from the District of Connecticut to the District of Rhode Island. The case was docketed in the transferee district on April 29, 1988. Pateman answered the complaint on July 20, 1988, contending that no loss occurred during the policy period because Putnam's gold had been wrongfully misappropriated well prior to issuance of the Lloyd's policy. Additionally, Pateman pleaded two affirmative defenses, hypothesizing that, even if a loss transpired while the policy was in force, an agent infidelity exclusion in the policy barred recovery; 2 and that, in any event, material misrepresentations and omissions arising in the course of obtaining the policy negated the coverage. Pateman also counterclaimed for return of the advance payment. On September 8, 1988, Pateman sued Frenkel in Rhode Island's federal district court, alleging that, during the original negotiations, Frenkel purposely failed to disclose facts material to the underwriters' proposed assumption of the risk.

The two suits were consolidated and the case was tried to a jury. The jury exonerated Pateman from liability to Putnam, finding not only that Putnam was unable to prove an insured loss, but also that Pateman had proved both of his affirmative defenses. Finally, the jurors found that Frenkel, in procuring the policy, had intentionally concealed material facts. Accordingly, the district court entered judgment for Pateman (1) on the primary complaint (qua defendant), (2) on the counterclaim (in the sum of $2,000,000), and (3) on Pateman's separate complaint (in the same sum). The counterclaim defendant, Putnam, and the named defendant in the second suit, Frenkel, both appealed.

We deal first with Putnam's appeal, bifurcating our analysis to consider, initially, its argument that the court below erred in entering judgment on the counterclaim (Part II). Concluding, as we do, that the judgment on the counterclaim was responsive to the jury verdict, we thereafter consider Putnam's remaining assignments of error (Part III). That exercise completed, we turn last to Frenkel's appeal (Part IV). In the end (Part V), we affirm the defendant's verdict in Putnam's case and the $2,000,000 damage award in favor of the counterclaimant, Pateman. At the same time, we set aside the multimillion dollar verdict against Frenkel, remanding Pateman's case against the broker for a new trial.


Putnam hotly disputes the district court's entry of judgment on the counterclaim, asserting that the court impermissibly exceeded the perimeters of the jury's responses. In order to place Putnam's argument into proper perspective, it is essential that we begin by recounting a panoply of critical events.

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A. The Circumstances Surrounding the Verdict.

The district court sent the case to the jury by means of a specially crafted verdict form which, as eventually clarified by the court and inscribed by the jury, we provide in an appendix hereto. The form was a hybrid. It combined questions (e.g., items one, two and three) with declarations (e.g., item four) and also combined statements that seemed like verdicts (e.g., items five and six) with statements that seemed like findings (e.g., item four). The form instructed the jury to determine whether Pateman was liable to Putnam. If not, the jury was to enumerate which of three delineated reasons exonerated Pateman from liability. The form also provided a space for the jury to enter its verdict as between Frenkel and Pateman, specifying the dollar amount of Frenkel's liability if Pateman prevailed. The form did not contain a similar space for entry of the jury's verdict on the counterclaim.

The omission, of course, was scarcely a bolt from the blue. For one thing, the form was a hybrid, thus putting the parties on notice to expect the unexpected. For another thing, the record shows that the district court discussed the verdict form with counsel on numerous occasions. The court repeatedly solicited counsel's advice, stressing that it was seeking ways of simplifying the jury's task. As the day of reckoning dawned, the court apprised counsel of the final design of the verdict form before actually giving it to the jurors. No one, least of all Putnam, objected to the absence of a direct request for a verdict on the counterclaim. All parties must have realized that the counterclaim was being decided. After all, more than once during on-the-record colloquy between court and counsel the judge articulated his view that, if Pateman was not liable to Putnam at all, the necessary implication of such a finding would be to require Putnam to return the $2,000,000 that Pateman had advanced on the insurance claim. Far from voicing any disagreement with, or criticism of, the district court's assumption, Putnam indicated its assent that, should the jury find Pateman not liable, it would follow automatically that Pateman would prevail on the counterclaim. 3

And, there was more. Notwithstanding the apparent lacuna in the form, the district court, in charging the jury, left no doubt that submission of the Putnam/Pateman dispute included the counterclaim for return of the advance. The court reminded the jury that, in addition to defending the primary complaint, Pateman was "counterclaim[ing] against plaintiff Putnam for return of the two million dollars it advanced to Putnam." The court told the jury specifically that, if the jury determined the amount of the covered loss was "less than two million dollars, then you must render a verdict for the defendant for the difference between the loss and two million dollars." (Emphasis supplied). Putnam did not object either to the final version of the verdict form or to the court's instructions appertaining thereto.

The jury paused during its deliberations to ask whether it could specify more than one reason for finding Pateman not liable to Putnam. After consulting with all counsel,...

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