Bone v. Refco, Inc., s. 84-1519

• Decision Date: 25 September 1985
• Docket Number: Nos. 84-1519,84-1574,s. 84-1519
• Citation: 774 F.2d 235
• Parties: Robert L. BONE, Appellee, v. REFCO, INC., f/k/a Ray E. Friedman & Company, Appellant. Robert L. BONE, Appellant, v. REFCO, INC., f/k/a Ray E. Friedman & Company, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 235

774 F.2d 235

Robert L. BONE, Appellee, v. REFCO, INC., f/k/a Ray E. Friedman & Company, Appellant.

Robert L. BONE, Appellant, v. REFCO, INC., f/k/a Ray E. Friedman & Company, Appellee.

Nos. 84-1519, 84-1574.

United States Court of Appeals Eighth Circuit.

Submitted Nov. 15, 1984.

Decided Sept. 25, 1985.

G. Alan Wooten, Oscar N. Person, Fort Smith, Ark., for appellant.

William H. Sutton, Little Rock, Ark., for appellee.

Before BRIGHT, Senior Circuit Judge, McMILLIAN and BOWMAN, Circuit Judges.

BRIGHT, Senior Circuit Judge.

Robert Bone commenced this diversity action against Refco, Inc., claiming damages for breach of contract. Refco filed a counterclaim seeking to recover debit balances on various commodities trading accounts which it alleged Bone owned or controlled. The jury awarded Bone $909,482.96 on his claim and Refco $980,002.92 on its counterclaim. Both parties appeal. Bone asserts that he is entitled to prejudgment interest on a portion of the amount awarded to him and that Refco was improperly awarded prejudgment interest. In its cross-appeal, Refco asserts, inter alia, that the magistrate, who served as the trial judge by consent of the parties under 28 U.S.C. Sec. 636(c) (1982), erred in denying its motion for judgment n.o.v. and erred in the conduct of the trial by permitting oral testimony concerning the terms and meaning of various agreements between the parties in violation of the parol evidence rule. For the reasons stated below, we affirm the judgment allowing Refco prejudgment interest on its counterclaim, and vacate the judgment on Bone's claims, which we remand for further proceedings consistent with this opinion.

I. BACKGROUND.

On February 18, 1977, Bone entered into an agreement with Refco, a Chicago-based commodity futures trading company, in which he agreed to establish an office in Springdale, Arkansas under Refco's name to solicit customers to engage in commodity futures trading and to serve as manager of the Springdale branch office. The terms of this agreement, which were set forth in a letter from Refco to Bone, provided, among other things, that Refco would pay the branch office manager interest on commissions held by Refco and that it would use its "best efforts" to purchase a specified number of feeder cattle at a specified spread for Bone's account.

In December 1977, the Chicago Board of Trade took disciplinary measures against Bone and required Refco to remove Bone from any position with supervisory duties. In March 1978, Bone and Refco entered into a second agreement, a standard form Account Executive Agreement, governing Bone's employment with Refco as an account executive, i.e., a salesman, in the Springdale office. The terms of this agreement obligated Bone to guarantee the accounts of his customers and to reimburse Refco for any losses it sustained as a result of any of Bone's customers' accounts falling into a debit position. The agreement also contained a merger clause stating that it constituted the entire agreement between the parties.

In the fall of 1979, Bone and numerous Refco customers (whose accounts were traded by Bone) sustained substantial losses in the commodities futures market. Pursuant to the terms of the guarantee provision in the 1978 agreement, Refco sued Bone to collect then existing deficits in several of these customers' accounts and in Bone's personal account. Bone contended that Refco and its president, Thomas Dittmer, were actually responsible for the trading losses. On December 1, 1979, Bone, Dittmer, and Refco entered into a settlement agreement in which Refco agreed to dismiss its pending suit against Bone. In exchange, Bone agreed to execute two promissory notes totalling $1,500,000 to Refco and to pay Refco a sum of $209,951.61, which the parties agreed represented "the amounts presently held by Refco for the account of Bone for unpaid commissions." The settlement agreement also provided that Dittmer and Refco would indemnify Bone for any losses, costs or expenses--including attorneys' fees--which Bone might incur because of lawsuits brought by Refco customers to recover their losses.

Shortly thereafter, the Chicago Mercantile Exchange (CME) took further disciplinary actions against Bone. As a result, Bone was suspended, in January 1980, from engaging in any brokerage or sales activity for a period of three years. He apparently continued, however, to run the Springdale office until Refco closed that office in July 1981.

In September 1981, Bone filed the present action alleging that Refco had breached the parties' February 1977 letter agreement by failing to pay him interest (totalling $720,844.39) on the reserve commissions, and by failing to use its best efforts to purchase any feeder cattle for his account between February 1977 and July 31, 1981 (which he alleged would have shown a profit of $428,657.62). In addition, Bone sought to recover $76,267.96 in attorneys' fees, pursuant to the 1979 settlement agreement, which he allegedly incurred as a result of his involvement in lawsuits brought by various former Refco customers against Refco to recover their losses in the 1979 live cattle futures market. Bone's total claim amounted to $1,225,769.97. Refco denied liability, asserting that Bone's claims for interest and lost profits on feeder cattle were barred by the 1979 settlement agreement and the 1978 Account Executive Agreement. It also asserted that Bone had not tendered to it written statements of the attorneys' fees he sought to recover, and that, consequently, it had not breached its agreement to pay them.

Refco also filed a counterclaim alleging that Bone had breached the terms of the 1978 Account Executive Agreement by failing to reimburse it for losses it suffered as a result of debit balances in various commodities trading accounts which Bone had guaranteed. It sought to recover the total amount of these debit balances, $816,064.53, along with prejudgment interest on that sum in the amount of $163,938.39 (computed at the rate of six percent from the date each debit balance was incurred until the date of the trial) for a total of $980,002.92.

The jury returned a general verdict awarding Bone $909,482.96 and Refco its entire claim of $980,002.92. Both parties filed motions for judgment n.o.v. or for a new trial. The magistrate denied all posttrial motions. Both parties now appeal.

II. PREJUDGMENT INTEREST ON REFCO'S COUNTERCLAIM.

Bone does not challenge the jury's verdict awarding Refco $816,064.53 on the debit account balances. His sole contention with respect to Refco's award is that the magistrate erred by allowing Refco to recover prejudgment interest on its counterclaim.

State law governs awards of prejudgment interest in diversity actions. Kinsella v. Leonard, 415 F.2d 574, 578 (10th Cir.1969); see Red Lobster Inns v. Lawyers Title Insurance Corp., 656 F.2d 381, 386 (8th Cir.1981). The Arkansas Supreme Court has held that prejudgment interest must be allowed when the measure of damages is capable of exact determination in amount at the time of the injury. See, e.g., Hopper v. Denham, 281 Ark. 84, 661 S.W.2d 379, 383 (1983); Wooten v. McClendon, 272 Ark. 61, 612 S.W.2d 105, 106 (1981); Lovell v. Marianna Federal Savings & Loan Association, 267 Ark. 164, 589 S.W.2d 577, 578 (1979).

At trial, Bone admitted liability for several of the accounts with debit balances totalling some $400,000, but denied liability for the remaining debit account balances Refco sought to recover. He contends that because his ultimate liability to Refco was not established until the conclusion of the trial, the magistrate erred, under Arkansas law, in allowing Refco to recover prejudgment interest on its claims. ¹

We disagree. The debit balances here were for a sum certain fixed at the time of injury or loss. Indeed, these debit balances are a paradigmatic example of the type of damages which are capable of an exact determination both in time and as to amount.

Bone's contention that his liability to Refco was not established until the conclusion of the trial is true, but that does not preclude Refco from recovering prejudgment interest. Bone's argument misperceives the nature of the requirement under Arkansas law that damages be capable of exact determination at the time of injury. The requirement is not that ultimate liability be established at the time of the injury, but rather that the damages be essentially liquidated at that time. Lovell presented an analogous situation that is instructive in this regard.

In Lovell, the issue was whether prejudgment interest should have been awarded on three certificates of deposit. Litigation was required to determine who owned the CD's, but the CD's had an exact determinable value. Consequently, the court held that prejudgment interest should have been awarded to the owner of the CD's, even though litigation was required to determine ownership. Similarly, even though the ultimate determination of Bone's liability for each of the accounts Refco alleged he was liable for was a question of fact for the jury, the amount of the debit balance in each account was capable of exact determination at the time it was incurred. Accordingly, Bone's argument on this ground must fail. ²

Alternatively, Bone contends that even if Refco is entitled to prejudgment interest, the magistrate erred in allowing Refco to recover interest on its entire claim. He asserts that the magistrate should have applied the "interest on the balance" rule under which prejudgment interest would be awarded only on the net difference between his claim and Refco's counterclaim after disallowing their separate claims for prejudgment interest. Bone relies on Ralston Purina Co. v. Parsons Feed & Farm Supply, Inc., 416 F.2d 207 (8th Cir.1969) (affirming trial court's application of interest on the balance rule), and argues that equity and fairness require that the interest on the balance rule apply here.

We disagree. The...