Agra, Gill & Duffus, Inc. v. Benson
| Decision Date | 07 December 1990 |
| Docket Number | No. 89-2779,89-2779 |
| Citation | 920 F.2d 1173 |
| Parties | , 13 UCC Rep.Serv.2d 872 AGRA, GILL & DUFFUS, INC., a Delaware corporation, Plaintiff-Appellee, v. W. Arthur BENSON, Defendant-Appellant, and Frank M. Benson, Jr.; Stanley M. Naples; Lloyd J. Patterson; J. Alan Lindauer; Roberto M. Pensotti; Texas National Energy; C.B. White, Inc.; Forest Hill State Bank; Gatoil (U.S.A.), Inc.; Gatoil International, Inc.; Kahil J. Ghattas; Latina Oil Corporation; Latina Fuel Corporation; Eton Enterprises, Inc.; Eton Fuel Corporation, Defendants. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Rob Ross Hendrickson, argued, Frank Murray Benson, Jr., argued (Saul Z. Reese, on brief), Baltimore, Md., for defendant-appellant.
Franklin Terrell Caudill, argued (David F. Albright, Harry Rifkin, Semmes, Bowen & Semmes on brief), Baltimore, Md., for plaintiff-appellee.
Before PHILLIPS and WILKINSON, Circuit Judges, and BUTZNER, Senior Circuit Judge.
The principal issue in this appeal is whether the customer or the broker should bear the loss resulting from the liquidation of a futures trading account. The customer concededly breached his contract with the broker and failed to meet margin calls. The broker did not follow the customer's orders to liquidate immediately. The jury returned a special verdict in favor of the customer by finding that the broker failed to conduct a commercially reasonable liquidation. After the district court entered judgment on the verdict, it granted judgment n.o.v. for the broker, concluding that the customer had failed to prove any injury caused by the broker. We affirm. We also affirm the dismissal of the customer's counterclaim.
Arthur Benson traded heavily in heating oil and gasoline futures. Some of his positions constituted a majority of those in the market. Because of the size of his holdings, Benson sometimes found it difficult to sell without provoking an adverse market reaction. On November 22, 1982, there was a deficit in his account and it was undermargined. Benson told his broker, Gill and Duffus Services, Inc., that he was unable to meet any margin calls, to liquidate his account immediately, and to get him out of the market the next day at the opening of trading. He said he was sorry, he did not have much money, and he hoped the broker would not suffer any loss. The broker responded with a telegram that it would liquidate Benson's positions immediately and hold him responsible for the payment of any deficit in his account.
A group of experienced traders in the brokerage house decided the strategy they would follow in liquidating the account. Fearful that immediate liquidation would disrupt the market, the broker liquidated the account over a 15-day period. The broker suffered a loss of $1,360,821.37, which it seeks to recoup from Benson.
An expert testifying for Benson expressed the opinion that the broker's prolonged liquidation was unsound and the positions should have been liquidated immediately, regardless of the effect on the market. The expert also identified some unwise trades and an error that was not properly corrected. Nevertheless, he was unable to state that the proceeds of the liquidation would have been greater if any other course of liquidation had been followed.
At the conclusion of the evidence Benson had introduced no proof that the broker's liquidation strategy had caused him any loss, and the broker had introduced no proof that its liquidation had minimized loss. The broker moved for a directed verdict on two grounds: the liquidation was reasonable; and, even if it was not, Benson had not proved the extent of damages that flowed from an unreasonable liquidation.
The trial court was left with conflicting evidence about the commercial reasonableness of the liquidation but no evidence on which the jury could base a verdict on damages. At a conference held before the court instructed the jury, the parties and the court decided that if the jury accepted Benson's defense of commercially unreasonable liquidation, it would lack a basis for determining damages with any accuracy. Although Benson's accounts lost a fixed amount of money, all agreed that because the market was so volatile and Benson's portion of it so large, the evidence was too vague for an estimate of damages, other than the entire loss.
The court denied the broker's motion for a directed verdict. It decided that it would submit the question of commercially unreasonable liquidation to the jury in a special interrogatory. This procedure would resolve the controversy about liquidation, but it would not provide a means of determining who would bear the loss. To decide this issue the court said: "If I find that [Benson] had the burden of somehow proving what the increased loss was because of the unreasonableness of the liquidation, then [the broker] still wins if that's what I find as a matter of law because you [Benson] acknowledge you didn't prove that." The court told the parties that it would reserve final judgment until it could ascertain who shouldered the burden of proof on the issue of damages.
The court instructed the jury to return a special verdict in answer to the following interrogatory: "Do you find from a preponderance of the evidence that [the broker] failed to conduct a commercially reasonable liquidation?" The jury answered, "Yes," and the court entered judgment for Benson on the verdict.
The broker then filed a motion for judgment notwithstanding the verdict. In its decision on the motion, the court sustained the jury's finding that the broker failed to conduct a commercially reasonable liquidation. It next turned to the issue it had reserved during the trial. Citing a "fundamental common law rule," the court held that Benson bore the burden of proof as to damages and failed to carry it. Reasoning that "a claim of a commercially unreasonable liquidation is an affirmative defense as to which [Benson] bears the burden of proof," the court stated: "[I]n order to meet such a burden a party must prove not only that the plaintiff acted unreasonably but also that his action caused him to sustain a greater loss than he otherwise would have suffered."
The court held that Benson produced no evidence that the liquidation resulted in any diminution of the proceeds. It concluded that this "lack of evidence" was fatal to Benson's cause. The court entered judgment n.o.v. for the broker in the full amount of its loss resulting from the account's final deficit.
The contract entitled "Commodity Customer's Agreement" set out in detail the terms governing the trading account Benson held with the broker. Paragraph 1 states that "[a]ll transactions" covered by the contract "shall be subject to the constitution, rules, regulations, customs, and usages of the exchange or market, and its clearing house, if any, where the transactions are executed," as well as the Commodity Exchange Act and the rules and regulations of the Commodity Futures Exchange Commission. It also provided that New York law governs the agreement and its enforcement.
The agreement provided that in the course of trading futures on Benson's behalf, the broker could demand that Benson maintain a certain amount of margin with the firm at all times. The agreement obligated Benson to deposit whatever amount of margin the broker required in its "discretion." Paragraph 7 of the agreement granted the broker broad authority to close out Benson's account:
You [the broker] are hereby authorized, in your discretion ... for any reason whatsoever [you] deem it necessary for your protection, to sell any or all of the commodities or other property which may be in your possession or which you may be carrying for [Benson].... Such sale ... may be made according to your judgment and may be made at your discretion ... and the undersigned shall remain liable for any deficiency....
A separate document executed at the time of the agreement, a "Risk Disclosure Statement," describes the broker's power of liquidation in similar sweeping terms. As added protection the agreement gives the broker a "general lien" in any property carried by the firm on Benson's behalf "for the discharge of all obligations of [Benson] to [the broker]."
When Benson said that he could not meet his margin call, the broker treated this statement as a material breach and stopped following his orders. Benson asserts on appeal that he never breached his contract and that the broker therefore had a fiduciary duty to follow his liquidation orders. This argument comes too late. At trial defense counsel conceded that Benson breached the contract. In a colloquy with the court, defense counsel acknowledged: "There's a breach, I'm not saying there's no breach." In his appellate reply brief, Benson argues that the concession that he breached the contract was one of law. He cites a number of cases that a concession on the law is not binding. See, e.g., Saviano v. Commissioner, 765 F.2d 643, 645 (7th Cir.1985). He also cites cases that, implicitly at least, hold a refusal to meet a margin call and order a liquidation of a customer's account is not a breach of contract. See, e.g., Keller v. Scoular-Bishop, Inc., [1984-86 Transfer Binder] Comm.Fut.L.Rep. (CCH) p 22,477 (CFTC Jan. 17, 1985).
The difficulty with these arguments is that they were not raised at trial. We will not accept on appeal theories that were not raised in the district court except under unusual circumstances that would result in a miscarriage of justice. See National Wildlife Federation v. Hanson, 859 F.2d 313, 318 (4th Cir.1988); G. Heileman Brewing Co. v. Stroh Brewery Co., 843 F.2d 169, 172 (4th Cir.1988). Circumstances warranting a departure from the general rule do not exist in this case. Benson was represented by competent counsel who successfully defeated the broker's claim that Benson and his associates were guilty of fraud and...
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