Commerford v. Olson

• Decision Date: 02 July 1986
• Docket Number: No. 85-5056,85-5056
• Parties: , Fed. Sec. L. Rep. P 92,809 Audrey L. COMMERFORD, Appellant, v. Ronald O. OLSON, Miller & Schroeder Municipals, Inc., Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1319

794 F.2d 1319

55 USLW 2068, Fed. Sec. L. Rep. P 92,809

Audrey L. COMMERFORD, Appellant, v. Ronald O. OLSON, Miller & Schroeder Municipals, Inc., Appellee.

No. 85-5056.

United States Court of Appeals,

Eighth Circuit.

Submitted Sept. 13, 1985.

Decided July 2, 1986.

Daniel P. Taber, Minneapolis, Minn., for appellant.

W. Michael Drake, Minneapolis, Minn., for appellee.

Before ROSS, McMILLIAN and ARNOLD, Circuit Judges.

McMILLIAN, Circuit Judge.

Audrey L. Commerford appeals from a final judgment entered in the District Court for the District of Minnesota upon a jury verdict in favor of Miller & Schroeder Municipals, Inc. For reversal appellant argues that the district court erred in failing to submit to the jury a requested special verdict form on apparent authority. For the reasons discussed below, we reverse and remand.

Appellant is a retired librarian. During the summer of 1979, appellant sold her house in New York and moved to Little Rock, Arkansas. Appellant realized about $65,000 from the sale of her house and deposited the money in her checking account.

Appellee is a municipal bond firm, which has offices in several states and headquarters in Minnesota. In 1977 appellant's nephew, Ronald O. Olson, joined appellee as a vice-president and bond salesperson. Olson was licensed by the state of Minnesota and by the Securities and Exchange Commission to sell municipal bonds for appellee. A bond salesperson may sell bonds away from the office and at any time. Olson was one of appellee's top bond salespersons.

Because of appellant's deteriorating mental and physical condition, appellant's deposition, taken in December 1981, was submitted at trial in lieu of testimony in person. Olson testified for appellant and his testimony generally corroborated appellant's theory that Olson had misrepresented his intention to invest her money in municipal bonds through appellee. The testimony revealed the following.

In July 1979 Olson informed appellant that he could invest her money in a bond fund in order to earn a higher rate of return than her checking account. Appellant agreed to invest her money. Appellant had no prior experience in securities and relied on Olson's advice.

On July 14, 1979, appellant mailed a check for $45,000, made payable to Olson personally, to Olson at his home address. Appellant made the check payable to Olson because he told her that he would have to combine her check with other customers' money in order to obtain the highest rate of return.

On July 19, 1979, Olson mailed a handwritten note to appellant. The note was written on plain memo paper; the note, however, was enclosed in one of appellee's business envelopes. The note stated in part: "Money arrived and is already working for you. Your check August 2 will be for $173.44. And then starting September and each month thereafter $346.87.... Please let me know as soon as you get additional cash and we will put it to work for you right away." The note was signed "Love, Ron and Liz." "Liz" refers to Olson's wife.

On September 13, 1979, appellant sent another check for $10,000, made payable to Olson, to Olson at his home address. During the fall of 1979, appellant received two checks from Olson drawn on his personal checking account, ostensibly as "interest income" from her investment.

On April 15, 1980, appellant sent $13,000 by wire transfer to Olson's personal checking account. Appellant did not receive any more "income" checks from Olson but, after she inquried about future checks, in the summer of 1980 she received two checks from Olson's wife drawn on her checking account.

Olson did not invest appellant's money but instead converted the money to his personal use. Appellee was unaware of the fraud. From November 1979 until May 1980 Olson was on an extended leave of absence from appellee. In February 1980 appellant had called Olson at appellee's offices and had been told Olson was on a leave of absence. Appellee's vice-president testified that in the securities industry employees on leave of absence status cannot lawfully engage in securities transactions and are considered terminated. Appellant, however, believed that Olson was still employed by appellee.

In May 1980, appellee discovered that Olson had received $161,000 from his in-laws, the Olafsons, under the pretense that he would invest the money in a mutual bond fund. Olson had not invested this money but instead converted it to his personal use. Appellee officially terminated Olson and cancelled his license to sell bonds through appellee.

In September 1980, appellant's attorney called appellee's president to inquire about appellant's account. Appellee's president confirmed that Olson had not opened an account for appellant with appellee.

In March 1981, the Minnesota authorities revoked Olson's securities license. Olson was later prosecuted for securities fraud for the Olafsons' investment but not for appellant's investment. Olson filed a petition in bankruptcy in January 1981.

Appellant filed this action against Olson and appellee in October 1981, alleging, inter alia, violations of state and federal securities laws, common law fraud, breach of contract, and vicarious liability. Appellant sought compensatory and punitive damages, interest and attorney's fees. Olson did not answer and a default judgment was eventually entered against him. Before trial appellant voluntarily dismissed her federal and state statutory claims based on "controlling person" liability against appellee. The sole issue on appeal concerns appellee's liability for Olson's acts based on common law agency principles.

At trial appellant requested jury instructions and special verdict forms on the basis of two theories of vicarious liability--scope of employment and apparent authority. The district court instructed the jury on both scope of employment and apparent authority but refused, over appellant's objection, to submit a special verdict form which included the apparent authority theory as a basis of liability.

On appeal appellant asserts that the district court erred in failing to submit her requested special verdict form on apparent authority. Appellee asserts that it is unnecessary for this court to address this issue. Relying on this court's decision in Myzel v. Fields, 386 F.2d 718 (8th Cir.1967), cert. denied, 390 U.S. 951, 88 S.Ct. 1043, 19 L.Ed.2d 1143 (1968), appellee asserts that Sec. 20 of the Securities Act of 1934, which provides for "controlling person" liability, preempts recovery under common law agency principles. ¹ In Myzel v. Fields this court, in reviewing the adequacy of jury instruction under Sec. 20, stated that "liability is [not] governed by principles of agency." Id. at 738. However, in concluding that any error in the instruction was harmless because the language of the instruction was more restrictive than the statutory language, this court stated "[f]urthermore, under common law principles, a principal is liable for the deceit of his agent committed in the very business he was appointed to carry out." Id.

Although the Third Circuit has read Myzel v. Fields as support for the position that in some instances Sec. 20 supplants common law agency principles, Rochez Brothers, Inc. v. Rhoades, 527 F.2d 880, 885 (3d Cir.1975), we believe the Second Circuit's interpretation is more accurate. The Second Circuit has "assum[ed] that common law principles of agency would apply to impose liability on a principal for an agent's deceit committed in the business he was appointed to carry out." Marbury Management, Inc. v. Kohn, 629 F.2d 705, 714 (2d Cir.), cert. denied, 449 U.S. 1011, 101 S.Ct. 566, 66 L.Ed.2d 469 (1980). See also Nye v. Blyth Eastman Dillon & Co., Inc., 588 F.2d 1189, 1200 (8th Cir.1978) (assumes Sec. 20(a) does not support common law claims). In any event, Myzel v. Fields did not expressly hold that Sec. 20 does or does not supplant common law liability and therefore this issue must still be decided by this court. ²

Although appellee is correct that the Ninth Circuit has held that Sec. 20 supplants liability under common law agency principles, Hatrock v. Edward D. Jones & Co., 750 F.2d 767, 777 (9th Cir.1984), it is the only circuit that has so held. The Third Circuit has held that the doctrine of respondeat superior is applicable in certain securities cases, such as a broker-dealer fraud. Rochez Brothers, Inc. v. Rhoades, 527 F.2d at 886; see also Sharp v. Coopers & Lybrand, 649 F.2d 175, 180 (3d Cir.1981), cert. denied, 455 U.S. 938, 102 S.Ct. 1427, 71 L.Ed.2d 648 (1982). The First Circuit has recently held that "[Sec.] 20(a) does not preclude the assertion of liability--based on common law notions of 'apparent authority'--against a corporation for the misrepresentations of an important officer." In Re Atlantic Financial Management, Inc., 784 F.2d 29, 35 (1st Cir.1986). The Second, Fourth, Fifth, Sixth, Seventh, and Tenth Circuits have held that federal securities law does not preempt common law agency principles as a basis for recovery. Henricksen v. Henricksen, 640 F.2d 880, 887 (7th Cir.), cert. denied, 454 U.S. 1097, 102 S.Ct. 669, 70 L.Ed.2d 637 (1981); Paul F. Newton & Co. v. Texas Commerce, 630 F.2d 1111, 1119 (5th Cir.1980); Marbury Management, Inc. v. Kohn, 629 F.2d at 716; Holloway v. Howerdd, 536 F.2d 690, 696 (6th Cir.1976); Carras v. Burns, 516 F.2d 251, 259 (4th Cir.1975); Kerbs v. Fall River Industries, Inc., 502 F.2d 731, 741 (10th Cir.1974).

We agree with those circuits that have addressed the issue and held that there is no basis for believing that "[Sec.] 20(a) was intended to narrow the remedies of customers of brokerage houses or to create novel defenses in cases otherwise governed by traditional agency principles. On the contrary [Sec.] 28(a), 15 U.S.C. Sec. 78bb, specifically enacts that the rights and remedies provided by the 34 Act shall be in addition to any and all rights and remedies that may exist at law or in equity."...