Chance v. F.N. Wolf & Co., Inc., 93-2390
| Decision Date | 30 September 1994 |
| Docket Number | No. 93-2390,93-2390 |
| Court | U.S. Court of Appeals — Fourth Circuit |
| Parties | NOTICE: Fourth Circuit I.O.P. 36.6 states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit. Logan O. CHANCE, Plaintiff-Appellant, v. F.N. WOLF & COMPANY, INCORPORATED; Robert H. Taggart, Defendants-Appellees. |
Before POWELL, Associate Justice (Retired), United States Supreme Court, sitting by designation, and HALL and NIEMEYER, Circuit Judges.
Logan O. Chance filed this securities fraud action in March 1993 against Robert H. Taggart, his stock broker, and F.N. Wolf & Company, Taggart's employer, after his stock portfolio dropped significantly in value. He charged that defendants ignored his instruction that he purchase only safe stocks and pressured him, with misleading information about the reliability of risky ventures, to invest in them. His complaint alleges, inter alia, violations of federal and Virginia securities laws and common law fraud. The district court granted defendants' motion for judgment as a matter of law at the close of plaintiff's case, concluding that the federal securities claims were not filed within the applicable statute of limitations and that the Virginia claims were defective because there was no justifiable reliance by Chance upon any alleged misrepresentations by defendants. Finding no error, we affirm.
Chance retired from the United States Navy in 1992 after 26 years of active service, having developed expertise in such areas as engineering, military weaponry, heavy artillery, maintenance, and navigation. Upon retirement, he accepted a position with Hughes Aircraft Corporation, where he was involved in the management and repair of submarine torpedoes. He has a Bachelor of Science degree in mathematics and a Master of Science degree in systems management. Until the early 1990's, he had invested his savings conservatively, in mutual funds, certificates of deposit, and bonds, and he had accumulated assets of approximately $80,000 to $100,000.
In January 1991, Chance received an unsolicited telephone call from Charles Tyrrell, a stock broker employed by defendant F.N. Wolf & Company, in Reston, Virginia. Having recently attended investment seminars, Chance was contemplating putting some of his assets in the stock market, and he agreed to meet with Tyrrell. Tyrrell visited Chance at Chance's office in February 1991 when, as Chance states, he told Tyrrell that he would be interested in investing about $15,000 to $20,000 in the stock market, but that he sought long-term growth through safe investments that would preserve principal. Since Chance planned to use these assets to supplement his Navy retirement income, he emphasized that he wanted to avoid speculative investments. Chance was never asked to sign a new account agreement or document.
A few days later, Tyrrell called Chance to urge that he invest $5,000 in Nacoma Consolidated Industries, Inc. Tyrrell said, Acting on the advice, Chance purchased almost $6,000 worth of Nacoma stock.
In March 1991 Tyrrell left F.N. Wolf, and defendant Robert Taggart assumed responsibility for Chance's account. On Taggart's advice, Chance made his second stock purchase in March 1991, this one involving almost $20,000 worth of Communications Group, Inc. stock. After Chance "reviewed diligently" the March monthly statement of his stock portfolio, which covered only four days of his ownership of Communications Group stock, Chance noticed that the stock had dropped 36% in value, representing a total loss to Chance of more than $7,000. The April monthly statement showed that Communications Group dropped even further, and by the end of May it had lost more than half of its original value. Nevertheless, on May 17 and 30, 1991, Chance followed Taggart's advice and purchased more than $7,000 worth of two other stocks. One of these stocks, Vision Technologies International, Inc., dropped more than 42% on the first day he owned it, representing a loss to Chance of almost $1,800.
In the ensuing months, Taggart convinced Chance to invest in more stocks. Four of the stocks for which Chance paid almost $20,000, were initial public offerings, and Chance received prospectuses detailing the goals of the companies and the risks associated with investing in them. On the front page of each of those prospectuses, in bold and/or capital letters, were warnings about the high degree of risk associated with the stocks. Typical of these warnings was that on the prospectus for Great American Recreation, Inc., which read:
These Securities Involve a High Degree of Risk and Immediate Substantial Dilution and Should Not Be Purchased By Investors Who Cannot Afford the Loss of Their Entire Investment. See "Risk Factors" and "Dilution".
Among the seven pages of "risk factors" detailed in the Great American Recreation prospectus were the absence of any liability insurance, a working capital deficiency, a history of significant losses, the company's dependence upon favorable weather conditions, and the planned immediate dilution of stock value. Chance was provided with these prospectuses, either before or shortly after he made purchases, during the period from June to November 1991. Chance stated at trial that when he asked about the warnings, that Taggart reassured him that he need not be concerned because the language in the prospectuses was "boilerplate."
When Chance received the June 1991 statement from F.N. Wolf, it showed that his investments had lost approximately 10% in that month alone. Chance initiated a meeting with Taggart and Michael Dunn, the F.N. Wolf office manager and Taggart's boss, because Chance was concerned about the prospect of losing his original investment. Chance expressed his concerns, but he left the meeting reassured that his account was being handled properly. According to Chance, Dunn and Taggart told him that there was nothing in the account that was not appropriate for his conservative investment goals.
On Taggart's urging, Chance continued to invest in new stocks through early 1992. Chance stated that Taggart employed high pressure sales tactics, calling him as often as 10-12 times per week at home, at the office, and while he was travelling. According to Chance, none of these conversations ever touched upon the risks involved in any of the purchases. By the middle of May 1992, over a year after he opened an account with F.N. Wolf, Chance had invested in 12 different stocks, and the value of his portfolio reached a high of almost $80,000.
Chance claims that he did not discover that defendants had ignored his investment goals until May 25, 1992, when he realized, in reviewing his monthly statement, that the value of his portfolio had dropped from an initial investment of $110,000 to a value of slightly less than $60,000. While he understood that losses in the range of 10% might reflect unavoidable fluctuations in the market, he could not conceive of why "conservative" investments could drop almost 50% during a period when the market as a whole was healthy. Chance sent two letters to F.N. Wolf seeking an explanation for the poor performance of his stocks, but neither letter was answered. Eventually, he moved his portfolio to another broker and sold the majority of the stocks which he had purchased through F.N. Wolf.
Chance filed this action on March 16, 1993. His complaint alleged that defendants' knowing disregard for his stated investment objectives violated federal securities laws, includingSecs. 12(2) & 15 of the Securities Act of 1933, 15 U.S.C. Secs. 77l (2) & 77o, Secs. 10(b) & 20(a) of the Securities Act of 1934, 15 U.S.C. Secs. 78j(b) & 78t(a), and Rule 10b-5 promulgated under Sec. 10(b), 17 C.F.R.Sec. 240.10b-5, along with the Virginia Securities Act, Va.Code Ann. Sec. 13.1-502. In addition, he alleged breach of contract, fraud, and breach of fiduciary duty, all under Virginia law.
The case proceeded to trial on all counts, and Chance testified to his experiences with defendants and presented testimony of a securities broker to the effect that the stocks recommended by defendants were highly speculative and not appropriate for one looking for conservative investments to nurture retirement assets. At the close of Chance's case, the district court granted defendants' motion for judgment as a matter of law under Federal Rule of Civil Procedure 50 on all counts. The court concluded that the fluctuations in Chance's portfolio and the explicit warnings given to him in the prospectuses put him on notice very early in his dealings with defendants, and almost two years before the complaint was filed, about the alleged fraud. Because the one-year statute of limitations for private causes of action under the federal securities laws runs from the date the fraud should have been discovered, the court concluded that the federal counts were barred by the statute of limitations. The court also concluded that, because of the portfolio fluctuations and the prospectus warnings, Chance was not justified in relying upon the alleged misrepresentations committed by defendants. Since justifiable...
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