Finkelberg v. Luckett, 89-CA-0752

• Decision Date: 19 August 1992
• Docket Number: No. 89-CA-0752,89-CA-0752
• Citation: 608 So.2d 1214
• Court: Mississippi Supreme Court
• Parties: Arthur FINKELBERG and Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Patrick Henry LUCKETT, III.

Page 1214

608 So.2d 1214

Arthur FINKELBERG and Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Patrick Henry LUCKETT, III.

No. 89-CA-0752.

Supreme Court of Mississippi.

Aug. 19, 1992.

Rehearing Denied Dec. 3, 1992.

John Edward Hughes, III, Walter D. Willson, Wells Wells Marble & Hurst, Jackson, for appellants.

Crymes G. Pittman, Joseph E. Roberts, Jr., Cothren & Pittman, Jackson, for appellee.

En Banc.

HAWKINS, Presiding Justice, for the Court:

This is an appeal by Arthur Finkelberg (Finkelberg) and Merrill Lynch, Pierce, Fenner and Smith, Incorporated (Merrill Lynch), a securities corporation operating world-wide, from a judgment in the chancery court of Rankin County awarding Patrick Henry Luckett, III, damages in the total amount of $1,660,264.50, of which $13,571 was the amount in a joint account which the defendants released to Dr. Luckett's wife; $46,693.56 the amount Dr. Luckett incurred in legal expenses in litigation with Mrs. Luckett; $100,000 an award for mental anguish and anxiety; and $1,500,000 a punitive damages award. Finding no basis in the record for any damages except the withdrawal of $13,571, we affirm the judgment as to Merrill Lynch as to this amount, and as to Arthur Finkelberg we reverse and render.

FACTS

Dr. Luckett, a practicing veterinarian in Rankin County, married Winnie Sue Cook on May 14, 1977; two children were born of their marriage. They lived in Brandon.

On March 4, 1982, the two of them with Dr. Luckett's funds opened a joint account with right of survivorship in the Jackson office of Merrill Lynch, called a Cash Management Account (CMA). On July 25, 1983, they signed a Cash Management Account Agreement detailing the rights of the parties and how the funds would be invested. A CMA is an account in which Merrill Lynch invests funds of the depositor in accordance with his wishes, and also affords him check writing and Visa credit card privileges to the extent of the uninvested balance in the account. The Merrill Lynch representative with whom they dealt was Finkelberg, the company's local broker.

Very few checks were written on this account, these few being by Dr. Luckett in large sums to take care of an investment or purchase. Checks drawn on the account did not clear locally, but through a national exchange of Merrill Lynch located in New Jersey. Approximately 200,000 checks were processed daily through this exchange.

Approximately 4,000 of these daily checks constitute what the company called "exception items." An exception item could be an insufficient balance to cover the check, a check following notice that the depositor had lost his checks, or any reason causing Merrill Lynch to stop payment. The account would then be "blocked" and no checks honored until the problem was corrected.

There is nothing in the CMA agreement executed by the Lucketts authorizing Merrill Lynch to refuse to honor a check presented for payment by a joint account owner/depositor. Yet Merrill Lynch did have in force a long-standing policy whereby in domestic disputes between a husband and wife Merrill Lynch would block the account and prevent either from withdrawing any funds from the account. The local broker would then notify the joint account owners that the funds could not be withdrawn except upon signature of them both or by court order.

At trial Hollis D. Anderson, manager of the local Merrill Lynch office, testified:

When there is a possibility of Merrill Lynch being used as an instrument of ill-will of one client to another, to protect both clients we require that they both acknowledge that funds are being withdrawn from the account.

(R.141) Under this policy either could order Merrill Lynch to buy or sell securities, but neither could withdraw funds.

Anderson testified the company had this policy in effect when he went to work for it twelve years before.

In June, 1985, Merrill Lynch learned that the Lucketts were involved in a divorce proceeding and blocked the account. Dr. Luckett's attorney, Frank T. Moore, Jr., advised him to withdraw the funds in the CMA and he informed Finkelberg that he wished to do so. Finkelberg told Dr. Luckett of the company policy, and that the account would be frozen so that neither he nor Mrs. Luckett could withdraw the funds pending resolution of the problems between them. Dr. Luckett reported this to Moore. Because Merrill Lynch was not going to permit either party to withdraw funds pending resolution of the marital dispute, Moore saw no particular objection to this arrangement. Dr. Luckett was concerned that Mrs. Luckett not be permitted to withdraw the funds, and was reassured by Finkelberg upon several subsequent occasions that the funds were frozen and would not be released to her.

It was the trial strategy of Dr. Luckett and his counsel to cause Mrs. Luckett monetary problems, and hopefully induce her to reach an agreeable settlement with them. According to them both, during her marriage to Dr. Luckett, she was only a housewife, had no separate funds, and her only properties were a Lincoln car, a half interest in the marital residence, and a half interest in the Merrill Lynch account.

The Jackson office in July, 1985, did notify the national office that the account should be blocked. Corporate headquarters wired the exchange to block the funds, and withdrawals be permitted "only when instructed by the branch office."

Mrs. Luckett had in fact filed a complaint for divorce in the Rankin County Chancery Court in March, 1985. On March 22, 1985, Dr. Luckett filed an answer denying that Mrs. Luckett had ground for divorce, and also filed a counterclaim seeking custody of the children. When the cause was heard on April 15, 1986, the court denied the divorce, but did award Mrs. Luckett custody of the children and $450 per month child support.

On or about April 15, 1986, someone, presumably Mrs. Patricia Cook, mother of Mrs. Luckett, presented a check signed by Mrs. Luckett dated April 3, and payable to Mrs. Cook in the amount of $13,571.00. Because of a misunderstanding between the local office and the national exchange in the transmitted wire, this check was honored by the national exchange.

On April 24, 1986, Anderson wrote Mrs. Luckett the following letter:

On 18 April a check you wrote for the amount of $13,571.00 cleared your account. The account, however, was frozen due to your divorce proceeding. Through a clerical oversight we inadvertently cleared that check.

Mrs. Luckett, this has placed us in an adversarial position with Dr. Luckett as you might understand. The funds, being jointly owned and held should have been released only with joint approval on court order. It's appropriate that these funds be re-deposited as soon as possible and I hereby request that you do so.

I thank you in advance for your understanding and prompt attention to this matter.

According to Anderson, Dr. Luckett and Moore telephoned him quite upset, not because Dr. Luckett did not have the money, but because it had been released to Mrs. Luckett, thereby upsetting the trial strategy. In the divorce pleadings, Dr. Luckett pleaded that he and Mrs. Luckett each owned a one-half interest in the account.

At sometime during this period, Mrs. Luckett went to Florida with the children. When she got to Florida, she filed a suit against Dr. Luckett for child support, which was later dismissed. Dr. Luckett in Mississippi subsequently filed suit against his wife for divorce on the ground of desertion, and obtained a divorce. According to Moore, Mrs. Luckett filed another suit in Florida for divorce against Dr. Luckett, which was dismissed because Dr. Luckett had obtained a divorce in Mississippi. ¹

On May 19, 1986, Moore wrote Anderson a demand letter for $38,000, for the wrongful release of the funds to Mrs. Luckett.

On May 28, 1986, Jean B. Sinatro, New York house counsel for Merrill Lynch replied:

We reject your request for a $38,000 settlement. Mr. Luckett has failed to indicate how he has been damaged in any manner. Winnie Sue Luckett had as much interest in the account as Patrick Henry Luckett. In addition, it is my understanding they remain married. Thus, any funds removed from Merrill Lynch by Mrs. Luckett, would continue to be part of the marital estate.

Though it is true that Bank One of Columbus, Ohio, did clear the check after Mr. Luckett was advised the bank would fail to honor it, Winnie Sue Luckett had as much right to the funds as your client.

Dr. Luckett thereafter employed additional counsel. His subsequent counsel on December 3, 1986, wrote Sinatro asking her if Merrill Lynch "would like to resolve this matter by settlement," and concluding with the statement: "If I do not hear from your office with ten (10) days of the date of this letter, appropriate action will be taken." Sinatro replied by referring to and enclosing a copy of her previous letter to Moore.

On May 7, 1987, Luckett filed a complaint against Finkelberg and Merrill Lynch alleging that when divorce proceedings were filed by Mrs. Luckett in 1985 and Dr. Luckett had attempted to withdraw the funds, he had not been allowed to do so. The wrongful conduct of the defendants was set forth in paragraph 5 of the complaint:

On or about April 3, 1986, Mrs. Luckett wrote a check on the account in the sum of $13,571. The check was presented for payment on or about April 15, 1986, and Defendants advised Plaintiff that the check would not be honored. Despite assurances by the Defendants to the contrary, the check was allowed to clear resulting in damage to the Plaintiff in the sum of $13,571."

The complaint then demanded $13,571 in actual and $500,000 in punitive damages. ²

At trial both Dr. Luckett and Moore testified that Mrs. Luckett had no outside funds, was unemployed, and both were of the opinion that without the $13,571 she would have been unable to go to Florida and pursue the Florida litigation. Moore testified that it was his trial strategy that Mrs. Luckett would become so...