O'Connell v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

• Decision Date: 16 November 1964
• Citation: 230 Cal.App.2d 633,41 Cal.Rptr. 257
• Court: California Court of Appeals Court of Appeals
• Parties: Thomas J. O'CONNELL, Plaintiff and Appellant, v. MERRILL LYNCH, PIERCE, FENNER AND SMITH, INCORPORATED, Defendant and Respondent. Civ. 21789.

Page 257

41 Cal.Rptr. 257

230 Cal.App.2d 633

Thomas J. O'CONNELL, Plaintiff and Appellant, v. MERRILL LYNCH, PIERCE, FENNER AND SMITH, INCORPORATED, Defendant and Respondent.

Civ. 21789.

District Court of Appeal, First District, Division 2, California.

Nov. 16, 1964.

Rehearing Denied Dec. 16, 1964.

Thomas J. O'Connell, in pro. per.

Long & Levit, Bert W. Levit, David R. Harrison, Dennis M. Day, San Francisco, for respondent.

AGEE, Justice.

Plaintiff appeals from a summary judgment in favor of defendant. The facts set forth in the following paragraph are not in dispute.

Defendant is a stockbroker with whom plaintiff maintained a margin account; in early August, 1960 ¹ defendant sold short for plaintiff's account 4,000 shares of Studebaker-Packard common stock at $8.50 to $8.625 per share; on August 17 the price of the stock rose to $9.50 per share; under existing regulations, of which plaintiff claims he was then unaware, defendant was required either to obtain additional margin from plaintiff or to liquidate said account to the extent necessary to raise the credit balance in the account to the required level; on August 18 the market opened at $9.75 per share and the short sale could then have been covered for $39,000 ($9.75 X 4,000); on August 31 defendant sent plaintiff a telegram demanding additional margin; on September 1 the market opened at $13 per share and the cost of covering the short sale had accordingly risen to $52,000 ($13 X 4,000); plaintiff seeks damages of $13,000 for this loss of equity in his account ($52,000 minus $39,000) during the period of August 18 to September 1.

The gravamen of plaintiff's cause of action, as alleged in his complaint, is that defendant's account executive, one de Urioste, had negligently understated the amount of margin required to be maintained in his account and thereby 'created in the mind of plaintiff a delusion of safety from forced liquidation of said account'; that defendant 'perpetuated the delusion by negligently failing to send plaintiff a demand for additional margin on August 17, 1960, and by continuing to fail to send plaintiff a demand for more marigin until August 31, 1960, at which time defendant sent plaintiff a telegram demading $12,116.00, which telegram was received by plaintiff on the night of August 31, 1960'; that his 'first opportunity to cover the short sale after receiving said telegram was on the morning of September 1, 1960, when the price of said stock opened on the New York Stock Exchange at $13.00 per share.'

It may be noted parenthetically that defendant would never have had to use any of its own funds in order to cover the sale, since plaintiff had a credit balance of $57,884.66 in his marign account (also $1,832.19 in his cash account) with defendant and the price of the stock did not at any time relevant herein exceed $13.875 per share.

Plaintiff appears herein in propria persona and his pleadings are not very well stated. However, defendant has not been misled as to the theory of plaintiff's cause of action. This is indicated by defendant's statement in its brief to the court below that plaintiff 'claims that if he had not been misinformed about the margin requirements, or if he had received notice of the need for margin on 17 August 1960, he would have covered the entire 4000 shares of stock short in his account on 18 August 1960, at a price of 9 3/4 per share.'

In its brief on appeal defendant again recognizes that plaintiff's claim is that if plaintiff 'had known of the margin requirements, or had received a margin call on or before 17 August 1960, he would have covered his entire short sale of 4000 shares at a price of 9 3/4 at the opening of the market on 18 August 1960 * * *.'

Our reason for stressing defendant's awareness that plaintiff limits his claim of actionable wrong to the period commencing on August 17 and terminating with the sending of the telegram on August 31 is that defendant's motion for summary judgment appears to be directed, with only one exception, to events occurring after the opening of the market on September 1.

Defendant's motion for summary judgment alleges that it is based upon the ground that 'plaintiff's action has no merit.' (Code Civ.Proc. § 437c.) It is supported by the declarations under penalty of perjury of Kenneth R. Rearwin, one of defendant's vice-presidents, and David R. Harrison, one of defendant's attorneys.

Rearwin's declaration states that 'on 31 August 1960, defendant sent by telegram a notice to plaintiff that $12,116 margin was needed for his account'; that on '1 September 1960, plaintiff came into defendant's Montgomery Street office and, because the price of the stock had risen to 13 3/4, was presented with a revised margin call for $16,000'; that plaintiff thereafter made a number of misrepresentations as to his financial ability to put up more margin, which resulted in inducing defendant not to start covering any part of the short sale until September 13; that the covering of the short...