John F. Struck Trust by Struck v. Offerman & Co., Inc.
| Decision Date | 02 August 1993 |
| Docket Number | No. 92-1882,92-1882 |
| Citation | 1 F.3d 1244 |
| Parties | NOTICE: Seventh Circuit Rule 53(b)(2) states unpublished orders shall not be cited or used as precedent except to support a claim of res judicata, collateral estoppel or law of the case in any federal court within the circuit. JOHN F. STRUCK TRUST, By Linda D. STRUCK, Trustee, Linda D. Struck and Delores E. Struck, Plaintiffs-Appellants, v. OFFERMAN & COMPANY, INCORPORATED and Keith M. Schermitzler, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Before BAUER, Chief Judge, and RIPPLE and KANNE, Circuit Judges.
Linda Struck, Delores Struck, and the John F. Struck Trust (the Strucks) appeal from a jury verdict in favor of the defendants, Offerman & Company, Inc., and Keith Schermitzler. The Strucks brought suit against Offerman and Mr. Schermitzler for alleged misrepresentations in the sale of securities. The Strucks alleged violations of federal securities law under section 12(2) of the Securities Act of 1933 and Rule 10b-5 of the Securities Exchange Act of 1934; violations of state securities law under sections 100.18, 551.21, 551.41, 551.59 of the Wisconsin Statutes; and violations of state common law. The Strucks contend that the district court erred in excluding certain testimony from trial, confused and misled the jury by the instructions it chose to give, and erred by answering questions from the jury during its deliberations in a suggestive and prejudicial manner. For the reasons that follow, we affirm.
John Struck died in 1984 and left fifty percent of his financial assets to his wife, Delores, with the remainder placed in a trust. The Strucks' daughter, Linda, was appointed as the trustee. Delores is the income beneficiary of the Trust and Linda is the remainder beneficiary. Neither Delores nor Linda is a sophisticated investor; during his lifetime, John Struck had overseen both his wife's and daughter's finances. In 1988, Mr. Schermitzler began to advise Delores and Linda about their personal investments and investments for the Trust. At all times pertinent to the sales here on appeal, Mr. Schermitzler was a registered representative of Offerman. All of the sales were effected in Wisconsin.
The Strucks contend that they told Mr. Schermitzler they had little knowledge about financial investments and that they were only interested in safe investments that would insulate and protect their principal and provide them with a little more interest than they were currently receiving from their CDs and Treasury Bills. Mr. Schermitzler asserts that they were primarily interested in achieving a better rate of return on their investments than they were currently receiving from their short-term investment instruments. Periodically, Mr. Schermitzler met with Delores and Linda or with Linda alone and suggested various securities in which they could invest both their personal funds and those of the Trust. Among other securities, they bought interests in American Continental Corporation (ACC), VMS, Datronic, USAssets, and the Putnam High Yield Fund. The Strucks contend that Mr. Schermitzler represented to them that these securities were safe investments that were suitable for their financial situation. The Strucks, however, eventually sold each of the securities here at issue at a loss. They believe that the securities were unsuitable for their financial situation and were high-risk investments; furthermore, they contend that Mr. Schermitzler misrepresented to them the riskiness of these securities.
Mr. Schermitzler claims that he explained to the Strucks the relationship between rate of return and risk. He also claims that he provided Linda with the prospectus for each security, advised her to familiarize herself with the prospectus, and noted the risk factors to her when he recommended an investment to her, her mother, or the Trust. The Strucks, however, claim that Mr. Schermitzler never explained the risks of the investments and always represented that they were safe and suitable for conservative investors. The Strucks contend that Mr. Schermitzler misrepresented the nature of the various investments, thereby persuading them to invest in several relatively non-liquid and risky ventures including limited partnerships, non-investment grade bonds, and initial public offerings. The Strucks also assert that it was Mr. Schermitzler's regular sales pattern to gloss over the risks of his recommendations and push sales of securities that Offerman was promoting at the time. They also contend that selling high-risk investments to unsophisticated investors was a routine practice for Offerman. Offerman and Mr. Schermitzler deny all of these allegations.
The Strucks filed suit in federal district court and brought federal and state securities claims against Offerman and Mr. Schermitzler. The case was tried to a jury on March 9-11, 1992. At trial, the court refused to allow testimony by LaVerne Duerst and Pauline Johnushka, two other investors, that Mr. Schermitzler had also sold them high-risk investments promoted by Offerman after they explicitly told him that they sought only safe investments.
The court also refused to allow Linda to testify regarding the manner in which Mr. Schermitzler sold Delores and the Trust shares in ACC. A class action was then pending in Arizona regarding ACC and the judge in that case had ordered that parties to the class action could not litigate related aspects of the claim in other courts, nor could they gain discovery from ACC for purposes of other securities litigation. Linda had not purchased any shares for herself but had purchased shares on behalf of the Trust. Even though Linda was not a party to the class action in her individual capacity but only as trustee, the district court here refused to allow her to testify to Mr. Schermitzler's sales pitch for ACC.
At the conclusion of the evidence, the court gave a variety of jury instructions over the Strucks' objections. Additionally, during its deliberations, the jury submitted two written questions to the judge regarding the
special verdict form which they were to complete. The Strucks objected to the answers given by the judge and contended that these answers suggested to the jury that it should find in favor of the defendants. The jury did change two of its findings after receiving the judge's answers. Eventually, the jury found in favor of the defendants on all counts. Based on these issues, the Strucks now appeal the jury's verdict, and for the reasons stated below, we affirm.
We first note that, in reviewing the district court's evidentiary rulings, we determine only whether the district court abused its discretion. United States v. Lennartz, 948 F.2d 363, 366 (7th Cir.1991). Under the abuse of discretion standard, we shall not second-guess a trial court's decision as long as it is "in conformity with established legal principles and, in terms of its application of those principles to the facts of the case, is within the range of options from which one could expect a reasonable trial judge to select." United States v. Koen, 982 F.2d 1101, 1114 (7th Cir.1992). We have also repeatedly recognized that the trial court's balancing of probative value and unfair prejudice is highly discretionary, and the trial court's decision on admissibility thus will be accorded great deference. See, e.g., Geitz v. Lindsey, 893 F.2d 148, 150 (7th Cir.1990). After reviewing the record on the evidentiary issues, we conclude that the Strucks have failed to establish an abuse of the district court's discretion sufficient to mandate a new trial.
The Strucks sought to introduce the testimony of two separate investors who also bought securities from Mr. Schermitzler. These witnesses would have testified to the manner of the sales pitch that Mr. Schermitzler used to convince each of them to buy allegedly high-risk securities. Although both Johnushka and Duerst bought a variety of securities from Mr. Schermitzler, only Duerst bought one of the securities, VMS, at issue in the Strucks' litigation. The district court refused to allow the witnesses to testify regarding Mr. Schermitzler's sales methods; it did, however, allow Duerst to give his opinion as to Mr. Schermitzler's truthfulness.
At the pretrial conference, the district court characterized the evidentiary issue as falling primarily under Federal Rule of Evidence 404(b) and required the Strucks to provide a proffer of Duerst's and Johnushka's testimony in order to show that it satisfied the four Rule 404(b) criteria set forth in United States v. Shackleford, 738 F.2d 776 (7th Cir.1984). Tr. at 23-24. Once the Strucks provided the proffer, the court noted that it was concerned that the similarity element in Shackleford was not satisfied. The court was concerned that the proffered testimony related to securities that were dissimilar to those that the Strucks purchased. Tr. at 66. It reserved ruling on the issue, but, once trial began and the plaintiffs had testified, the court held that it would consider admitting only Duerst's testimony regarding VMS, the security that both Duerst and the Strucks had purchased. Tr. at 287. The court did not rule definitively on Duerst's testimony at that point, but it did note that, if Duerst were called only to testify that he had asked for safe securities and that Mr. Schermitzler had advised him that the suggested investments were safe, then the evidence was cumulative to that which had already been presented by the Strucks. Id.
At the close of the evidence at trial, the Strucks attempted once more to present Duerst's testimony to the jury. The court disallowed any testimony regarding Mr. Schermitzler's sale of VMS to Duerst. Tr. at 616. The court stated that it was not allowing Duerst's testimony under Rule 404(b). I...
To continue reading
Request your trial