Ellwood v. Mid States Commodities, Inc.
| Citation | 404 N.W.2d 174 |
| Decision Date | 15 April 1987 |
| Docket Number | No. 85-1358,85-1358 |
| Parties | Richard B. ELLWOOD, Appellant, v. MID STATES COMMODITIES, INC., and Richard L. Rosenquist, Appellees. |
| Court | Iowa Supreme Court |
Patrick B. Chambers, Webster City, for appellant.
Arthur H. Johnson and James L. Kramer of Johnson, Erb, Latham, Gibb and Carlson, P.C., Fort Dodge, for appellee Mid States Commodities, Inc. Blake Parker of Parker & Fors, Fort Dodge, for appellee Richard L. rosenquist.
Considered by REYNOLDSON, C.J., and McGIVERIN, LARSON, LAVORATO and NEUMAN, JJ.
This appeal involves a complex series of unauthorized commodity futures trading transactions and the consequences of those transactions. Plaintiff Richard Ellwood appeals from denial of recovery on his petition for damages for the unauthorized trading and from the trial court's assessment of damages for related check forgeries by defendant Richard Rosenquist. Defendant Mid States Commodities, Inc., a commodity futures broker, appeals from an adverse judgment on its counterclaim for a deficit balance in plaintiff's margin account. We affirm in part, reverse in part, and remand.
I. Background facts and proceedings. In June 1979 plaintiff Richard Ellwood, a retired farmer with previous experience in commodities trading, was solicited by defendant Richard Rosenquist to open a commodities trading account with Stotler & Company, a member of the Chicago Board of Trade. The account was to be handled by defendant Mid States Commodities, Inc. (Mid States), a registered commodities representative of a futures commission merchant, and its associated person, Rosenquist. See 7 U.S.C. §§ 2, 6k (1982).
Ellwood executed a customer agreement and a risk disclosure statement with Stotler on June 7. The customer agreement specified that trades on the customer's account would be binding on the customer if not objected to within five days of receipt of a confirmation slip or statement of account. Ellwood then placed $5,000 in his account. Rosenquist requested that Ellwood execute the authorization for a discretionary account. 1 Ellwood refused, leaving the account a nondiscretionary one in which Rosenquist would have to get authority from the customer, Ellwood, before executing a trade. 2
In late June, Rosenquist began a pattern of unauthorized buying and selling of agricultural commodity futures that permeates the records on Ellwood's account. On his return from a trip to California, Ellwood received written confirmation of trades on June 26 and 27. The written confirmations from Stotler & Company noted: "Please report any differences immediately." Ellwood phoned Rosenquist about the trades. Rosenquist explained, as he would throughout most of 1979, that the trades were errors or attempts to correct errors, assuring Ellwood that he would "take care of the trades." Fourteen unauthorized trades on Ellwood's account occurred between the date the account was initially opened and the time Ellwood's first authorized trade was executed. Following the receipt of each written confirmation of a trade, Ellwood would speak with Rosenquist and accept his assurances that the "error" would be corrected.
Ellwood made the first authorized trade on his account on July 13, 1979. From this date forward it is unclear which of the several trades were authorized and which were not. Trial court found that Rosenquist made approximately 130 unauthorized trades on Ellwood's account in the six-month period from June to December 1979.
Ellwood made additional investments in his account during that period, raising his total investment from $5,000 to $26,000.
A large number of the unauthorized trades by Rosenquist resulted in margin calls 3 on Ellwood's account. Ellwood ignored these requests for additional margin. Rosenquist satisfied the inquiries of Dick Stone, Mid States' office manager, by explaining the money was "in the mail." Sometimes fluctuations in the market would take care of the margin shortages.
In November and December, Rosenquist's unauthorized trading activity in Ellwood's account increased. His trading in those months resulted in a loss of $81,849.98, including commissions, and sometimes generated margin requests in excess of $50,000. Ellwood had a reminder of his contractual duty to notify Stotler & Company on the confirmation of each of these unauthorized trades. He refused to take action, however, and did not notify Stotler of any unauthorized transactions.
On December 13, another customer became aware of unauthorized trading on his account by Rosenquist, and the customer confronted Rosenquist. Stone overheard this confrontation and intervened. As a result of these allegations, Rosenquist was fired.
Mid States liquidated Ellwood's account on December 17, following Ellwood's allegation to Mid States that Rosenquist had made unauthorized trades on his account. The liquidation left the account with a $45,096 debit balance. We will highlight other relevant facts in the discussion of specific issues raised on appeal.
Ellwood filed suit against Mid States and Rosenquist alleging joint or several negligence based on violations of statutory trading guidelines, joint or several common law and statutory fraud, and joint or several conversion. Mid States answered the petition denying Rosenquist made unauthorized trades on Ellwood's account and denying the existence of an employer-employee relationship with Rosenquist. Rosenquist's answer was a general denial of the allegations. Mid States also counterclaimed for the debit balance in Ellwood's account. During trial, Mid States was granted leave by the court to amend its answer to raise the affirmative defense of ratification by Ellwood of the alleged unauthorized trades.
In a bench trial of this law action, the district court ruled on each theory raised by the parties. The court, ruling on the unauthorized trading theories of negligence, conversion and fraud, held Ellwood either expressly or impliedly ratified all the unauthorized trades. Ratification was treated as a complete defense to any award of damages to Ellwood under any theory arising out of the unauthorized trading.
Ellwood's petition also had raised fraud and conversion theories with respect to two checks, each in the amount of $25,000, that Rosenquist forged on Ellwood's bank account. The checks were never honored. Therefore, the court held no conversion of Ellwood's property occurred; however, the court allowed recovery on a statutory fraud theory. Ellwood was awarded compensatory damages of $5,000 against both defendants for damage to his credit; Rosenquist was liable as the forger and Mid States was held liable under the doctrine of respondeat superior. Punitive damages of $10,000 were assessed by the court against Rosenquist.
The court denied recovery on Mid States' counterclaim. The court found Mid States had "unclean hands" in the unauthorized but ratified trades; therefore, Mid States was ordered to absorb the $45,096 account deficit.
Ellwood appeals on numerous grounds from trial court's judgment, claiming (1) evidence was insufficient to prove Ellwood ratified the unauthorized trades, thus Mid States failed to carry its burden of proof; (2) evidence was sufficient to establish defendants Mid States and Rosenquist committed statutory and common-law fraud in allowing unauthorized trades to occur or making such trades; (3) evidence was sufficient to prove defendants Mid States and Rosenquist converted the value of Ellwood's account to their own use since 1979; (4) trial court erred by allowing Mid States to amend its answer to raise as an affirmative defense to unauthorized trading the ratification of those trades by Ellwood; and (5) trial court erred in assessing fault to Ellwood with respect to the unauthorized trading. Ellwood also asserts, regarding the check forgeries, (1) the evidence was sufficient to establish a greater amount of compensatory damages, and (2) trial court erred in denying punitive damages against Mid States.
Mid States also challenges the judgment on cross-appeal, contending the doctrine of clean hands cannot bar recovery of an account in a legal action. It claims the evidence was insufficient to support the court's apportionment of negligence to Mid States and to support the award of $5,000 for damage to Ellwood's credit. Finally, Mid States asserts it is not responsible for Rosenquist's acts under the doctrine of respondeat superior.
Rosenquist filed a notice of appeal in this action; however, he failed to file a brief. See Iowa R.App.P. 13(f). Due to his failure to specify the issues that he appeals and his failure to cite authority in support of those arguments, we deem Rosenquist's appeal waived. See Iowa R.App.P. 14(a)(3), (b). Therefore, we affirm the judgment of the trial court in all respects as to defendant Rosenquist.
The issues that are decisive in this case and to which we will limit our discussion are: (1) Did trial court abuse its discretion in allowing Mid States to amend its answer to raise the affirmative defense of ratification? (2) Was the evidence sufficient to support trial court's conclusion that Ellwood ratified the unauthorized trades by Rosenquist before October 26, 1979? (3) Was the evidence sufficient to support trial court's conclusion that Ellwood ratified the unauthorized trades by Rosenquist between October 26 and December 13? (4) Was the evidence sufficient to support trial court's award of damages for injury to Ellwood's credit on the forgery count? and (5) Did trial court err in denying Mid State's recovery on its counterclaim?
Our review of the judgment is for correction of errors at law. Iowa R.App.P. 4. The trial court's findings of fact are binding on us if supported by substantial evidence. Iowa R.App.P. 14(f)(1). If a finding of fact reasonably may be inferred from the evidence, the finding is supported by substantial evidence. Janda v. Iowa Indus....
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