Dasler v. EF Hutton & Co., Inc.

• Decision Date: 31 March 1988
• Docket Number: Civ. No. 4-85-1250.
• Citation: 694 F. Supp. 624
• Parties: H.A. DASLER, et al. v. E.F. HUTTON & COMPANY, INC., and Donald M. Tidlund.
• Court: U.S. District Court — District of Minnesota

694 F. Supp. 624

H.A. DASLER, et al. v. E.F. HUTTON & COMPANY, INC., and Donald M. Tidlund.

Civ. No. 4-85-1250.

United States District Court, D. Minnesota, Fourth Division.

March 31, 1988.

COPYRIGHT MATERIAL OMITTED

Bruce C. Recher and Roy S. Ginsburg, Henson & Efron, Minneapolis, Minn., for plaintiffs.

J. David Jackson, Dorsey & Whitney, Minneapolis, Minn., for defendants.

ORDER

ROSENBAUM, District Judge.

In this cause, plaintiffs claim the brokerage firm of defendant E.F. Hutton (Hutton), through its brokers, defendant Donald M. Tidlund (Tidlund) and Richard Lund (Lund), while acting as the investment manager of the Cornwall Clinic Profit Sharing Plan (the plan), breached its fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001, et seq., by excessively trading securities in the plan's account. Plaintiffs seek damages, pursuant to 29 U.S.C. §§ 1109 and 1132, for violations of duties imposed on fiduciaries under 29 U.S.C. § 1104. In their amended complaint, plaintiffs further claim defendants "churned" plaintiffs' account in violation of § 10(b) of the Securities Exchange Act of 1934 (the Exchange Act), as amended, 15 U.S.C. § 78j(b), and SEC Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.¹

Plaintiffs, Dr. H.A. Dasler, Dr. F.L. Whitlark, and Dr. W.R. Byrne (administrators of the Cornwall Clinic, S.C. Profit Sharing Plan and Trust), are residents of Wisconsin. Defendants are residents of Minnesota and New York. The matter in controversy exceeds $10,000, exclusive of interest and costs. The jurisdiction of this Court is properly invoked pursuant to 28 U.S.C. § 1332. This Court has subject matter jurisdiction pursuant to 29 U.S.C. §§ 1109, 1132(a)(2) and (3), 1132(e) and (f); 15 U.S.C. § 78aa; and, 28 U.S.C. § 1331.

The Court has heard and considered all of the evidence presented at trial, as well as the argument, pleadings, and memoranda of each party. This order constitutes the Court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure (Fed.R.Civ.P.).

Background

This action was tried before a jury and the Court. When claims within a single action are of both a legal and equitable nature,² the legal claim must be tried to a jury first and the equitable claim resolved subsequently. Wright and Miller, 9 Federal Practice and Procedure: Civil § 2305, p. 35 (1971), citing Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959). Plaintiffs' Rule 10b-5 claim, therefore, was presented to the jury as finder of fact, and their ERISA claim was tried to the court with the jury sitting in an advisory capacity pursuant to Rule 39(c), Fed.R.Civ.P.³,⁴

"When an advisory jury is used, the ultimate responsibility for findings of fact and conclusions of law remains with the district court." Mitchell v. Visser, 529 F.Supp. 1034, 1036 (D.Kansas 1981); see I.C.C. v. Southwest Marketing Association, 315 F.Supp. 805, 807 (N.D.Tex.1970). If the issues tendered are purely equitable, the Court in its discretion may accept or disregard the jury's verdict. Hargrove v. American Cent. Ins. Co., 125 F.2d 225, 228 (10th Cir.1942).

However, "when legal and equitable claims are tried together, the right to a jury in the legal action encompasses the issues common to both." Lincoln v. Board of Regents of Univ. System, 697 F.2d 928, 934 (11th Cir.1983); see McIntosh v. Weinberger, 810 F.2d 1411, 1429 (8th Cir.1987). Thus, to the extent that legal and equitable issues overlap, the jury's verdict on the legal claim operates as a finding of fact binding on the Court in its disposition of the accompanying equitable claim.⁵ See Dybczak v. Tuskegee Institute, 737 F.2d 1524, 1526-27 (11th Cir.1984); see also Lincoln, 697 F.2d at 934; Williams v. City of Valdosta, 689 F.2d 964, 976 n. 11 (11th Cir.1982).

In this action, the jury returned a verdict which responded to several factual issues common to plaintiffs' Rule 10b-5 claim and their ERISA claim. This Court is constrained to render a judgment on plaintiffs' ERISA claim which is consistent with the jury's determination of factual issues common to both claims.⁶See Garza v. City of Omaha, 814 F.2d 553, 557 (8th Cir.1987); see also McIntosh, 810 F.2d at 1429. With this background, the Court makes the following findings of fact and conclusions of law.

Findings of Fact

1. Plaintiffs, H.A. Dasler, W.R. Byrne, and F.L. Whitlark, are medical doctors who were practicing with the Cornwall Clinic, located in Amery, Wisconsin, during all times relevant to this action.

2. The Cornwall Clinic S.C. Profit Sharing Plan and Trust, established in approximately 1969, was a qualified employee benefit plan under ERISA, established and maintained pursuant to a written instrument (Amendment Restating Cornwall Clinic, S.C. Profit Sharing Plan and Trust in its Entirety, dated 4/27/77—Exhibit 2, Art. 16.3, p. 35) as required by 29 U.S.C. § 1102.

3. Plaintiffs were administrators of the plan and were named fiduciaries under the terms of the plan instrument and 29 U.S.C. § 1102(a). As named fiduciaries, plaintiffs owed fiduciary duties to the plan's participants and beneficiaries pursuant to 29 U.S. C. § 1104(a)⁷ and under the terms of the plan instrument.

4. During the period relevant to this action, the plan had approximately 20 participants including the plaintiffs and other employees of the Cornwall Clinic.

5. At all times relevant to this action, Northwestern National Bank of Minnesota (Norwest) served as the trustee under the plan. From the creation of the plan until February, 1979, Norwest also acted as investment manager of the plan's assets.

6. In late 1978, plaintiffs became disenchanted with Norwest's investment performance. In January, 1979, Dr. Dasler met with defendant Tidlund and discussed the possibility of Hutton serving as investment manager for the plan.

7. Plaintiffs' investment objectives with respect to the plan were conservative in nature. On or about January 25, 1979, Tidlund and Lund met with Dr. Dasler at Hutton's Minneapolis office. They discussed various investment strategies for the plan's assets including a covered option writing investment strategy.

8. At Dasler's invitation, Tidlund travelled to Amery, Wisconsin, on January 29, 1979. Tidlund gave a presentation to plaintiffs and two of their advisors. Tidlund's presentation included a covered options program which he represented as being a conservative method for investing in the stock market. Tidlund predicted that under Hutton's management, a 15% return would be attainable. Plaintiffs have made no claim arising from this assurance.

9. After considering Tidlund's presentation, plaintiffs voted to transfer the plan's investment management function from Norwest to Hutton. In February, 1979, plaintiffs opened a plan account at Hutton and transferred approximately $185,000 to that account. Plaintiffs signed an agreement naming Tidlund as account representative for the plan, allowing Hutton to function as the investment manager of the plan with discretionary authority to invest the plan's assets.

10. From March, 1979, through March, 1981, Hutton managed the plan's account. Hutton made decisions concerning which stocks to purchase and sell, which options to purchase and sell, when to do so, and the price at which such securities should be purchased and sold, all without the prior approval or knowledge of the plaintiffs.

11. According to Norwest reports concerning the plan's account, the plan earned an annual return of approximately 7.27% for the year ending December 31, 1979, it earned approximately 2.7% for the year ending December 31, 1980, and lost money during the first quarter of 1981.

12. Hutton used three investment strategies with the plan's account. During relevant portions of the first year, a covered option writing investment strategy was used. During the second year, a common stock purchase and sale strategy was used. Beginning in January, 1981, the stock positions were generally liquidated and placed in money market funds.

13. Richard Lund was primarily responsible for making investment decisions for the plan's account. Lund was assisted by Tidlund with whom he consulted concerning the purchase and sale of stocks and options. Tidlund and Lund functioned as a partnership, splitting the commissions they generated on the plan's account. The partnership dissolved in June, 1980.

14. During the time Hutton managed the plan's account, Hutton was paid commissions of approximately $64,000. The plan paid these commissions to Hutton following each stock or option transaction in the plan's account.

15. During the time the plan's account was at Hutton, plaintiffs received from Hutton 1) written confirmations concerning each purchase or sale (Exhibit 12); 2) monthly statements listing the past month's transactions (Exhibit 11); 3) quarterly reports concerning the status of the plan's account for the quarter ending September and December, 1979, and March, June, and September, 1980 (Exhibits 67, 69, 75, 76, and 77); and 4) an annual report detailing the net profit and loss on each opened and closed trade made during 1979, and providing a cumulative net profit or loss figure for the year (Exhibit 70).

16. On occasion, in either face-to-face discussions or by telephone conferences, Lund and/or Tidlund discussed matters concerning the plan's account with Dr. Dasler. Dasler functioned as the plan's primary contact person with Hutton.

17. During the period relevant to this action, the plan's trustee, Norwest, also provided plaintiffs information concerning transactions in the plan's account. Norwest provided plaintiffs the following written material: 1) confirmations, detailing the terms of each trade (this practice was terminated in April, 1980) (Exhibit 73); 2) monthly statements listing the past month's transactions by Hutton, and the current financial status of each security held in the...