Jolley v. Welch
| Decision Date | 05 July 1990 |
| Docket Number | No. 88-3814,88-3814 |
| Citation | 904 F.2d 988 |
| Parties | Fed. Sec. L. Rep. P 95,340, 17 Fed.R.Serv.3d 208, RICO Bus.Disp.Guide 7512 Victoria A. Carleton JOLLEY, et al., Plaintiff-Appellees, Cross-Appellants, v. James WELCH, Defendant-Appellant, Cross-Appellee. Valerie W. MILLS, Plaintiff-Appellee, Cross-Appellant, v. PAINE WEBBER JACKSON & CURTIS, INC., Defendant-Appellant, Cross-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
George C. Freeman, III, Phillip A. Wittmann, Stephen H. Kupperman, Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans, La., for Paine Webber Jackson & Curtis, Inc.
James E. Welch, Metairie, La., pro se.
Frank E. Massengale, Liskow & Lewis, New Orleans, La. for Victoria A. Carleton Jolley et. al.
Appeals from the United States District Court for the Eastern District of Louisiana.
Before REAVLEY, JONES, and DUHE, Circuit Judges.
All parties appeal a judgment awarding damages on claims for improper handling of investments. We affirm.
The plaintiffs are eight individuals who received investment services from Paine Webber. James Welch was the Paine Webber broker who handled plaintiffs' accounts. In 1985 each plaintiff filed a separate lawsuit against Paine Webber and Welch for claims relating to investment services performed from 1981 to 1983. The plaintiffs alleged that Paine Webber and Welch had purchased and sold stock, traded on margin, and traded options without their authorization, and that they had invested in speculative and unsuitable stocks, churned the plaintiffs' accounts, failed to provide "options disclosure documents" to the plaintiffs, and forged arbitration agreements. The plaintiffs claimed violations of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78a et seq., the Louisiana Civil Code, and rules of the National Association of Securities Dealers and the New York Stock Exchange. The plaintiffs also sought civil remedies under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sec. 1964.
The district judge consolidated the cases and Paine Webber moved to submit the claims against it to an arbitrator. The judge referred Paine Webber's motion to a magistrate for an evidentiary hearing on the alleged forgery of the arbitration agreements. After that hearing the district judge noted that plaintiffs, except Mills, had executed arbitration agreements with Paine Webber. The judge therefore stayed the claims of all plaintiffs except Mills against Paine Webber pending arbitration. The plaintiffs appealed the stay to this Court, which determined that it lacked jurisdiction. Jolley v. Paine Webber Jackson & Curtis, 864 F.2d 402 (5th Cir.), opinion supplemented, 867 F.2d 891 (5th Cir.1989).
A jury trial was held on the claims of all plaintiffs against Welch and Mills' claims against Welch and Paine Webber. The jury found for the plaintiffs on the federal securities law and state law claims, but exonerated both defendants on the RICO claims. The jury awarded damages of roughly $251,000 against Welch in favor of seven of the plaintiffs and $23,000 against both defendants in favor of Mills.
The plaintiffs were refused an instruction on mental anguish which would have informed the jury that, if they found in favor of the plaintiffs on the Louisiana fraud claims, they could award damages for mental anguish suffered as a result of the defendants' fraud. The plaintiffs argue that they were improperly denied the instruction, because the jury found in their favor on two tort-based Louisiana claims and Article 2315 of the Civil Code permits damages for mental anguish for such claims.
Louisiana law does not presently permit an award of damages for mental anguish in cases of this type. A prior panel of this Court upheld the dismissal of an emotional distress claim in a similar case on the ground that Louisiana law requires a nonpecuniary interest to be the cause for the distress. Stephenson v. Paine Webber Jackson & Curtis, Inc., 839 F.2d 1095, 1101 (5th Cir.), cert. denied, 488 U.S. 926, 109 S.Ct. 310, 102 L.Ed.2d 328 (1988). Dismissal was warranted because the claims were grounded, as in the present case, both in tort and in contract, and in contract cases the Civil Code limits damages for nonpecuniary loss to contracts "intended to gratify a nonpecuniary interest." La.Civ.Code art. 1998. Admittedly, the law is far from certain. In one case, for example, the Louisiana Supreme Court permitted an award of damages for mental anguish in an action for conversion of stock. Quealy v. Paine, Webber, Jackson & Curtis, Inc., 475 So.2d 756, 762 (La.1985). No contract was at issue in that case, however. Because Quealy was rendered prior to the decision of this Court in Stephenson, and because no intervening Louisiana decision has given further guidance, we defer to the district court's determination of Louisiana law as it is in a better position to ascertain the law of the state in which it sits. Stephenson, 839 F.2d at 1101 n. 19; Edwards v. State Farm Ins. Co., 833 F.2d 535, 541 (5th Cir.1987).
The plaintiffs moved for judgment notwithstanding the verdict on their RICO claims and the motion was denied. The plaintiffs argue that of the four elements under 18 U.S.C. Sec. 1962(c), 1 three are undisputed and the fourth was established beyond dispute through other findings determined in the plaintiffs' favor. In reviewing a ruling on a motion for judgment notwithstanding the verdict this Court considers the entirety of the evidence, and there must be substantial evidence opposed to the motion in order for the case to be submitted to the jury. Boeing Company v. Shipman, 411 F.2d 365, 374 (5th Cir.1969)(en banc).
The RICO interrogatories submitted to the jury inquired generally "Do you find by a preponderance of the evidence that [the defendants] violated the Racketeering [sic] Influenced [and] Corrupt Organizations Act ... ?" In a similar manner the SEA interrogatories inquired "Do you find by a preponderance of the evidence that [the defendants] violated Section 10(b) of the Securities Exchange Act ... ?" Given the general nature of these interrogatories this Court must essentially determine whether the record lacks evidence of any RICO element or whether the jury was entitled to reject substantial evidence of any such element. The defendants correctly point out that the jury might reasonably have concluded that a single trade or a single act of "churning" constituted the section 10(b) violation. In addition, the jury was certainly entitled to conclude that any predicate acts committed by the defendants lacked a sufficient relationship with one another to constitute a "pattern" or that the plaintiffs had failed to prove continuity in the racketeering activity or its threat. See H.J. Inc. v. Northwestern Bell Tel. Co., --- U.S. ----, 109 S.Ct. 2893, 2901, 106 L.Ed.2d 195 (1989); Sedima, S.P.R.L. v. Imprex Co., 473 U.S. 479, 496 n. 14, 105 S.Ct. 3275, 3285 n. 14, 87 L.Ed.2d 346 (1985); Smith v. Cooper/T. Smith Corp., 886 F.2d 755, 756 (5th Cir.1989).
The plaintiffs alternatively argue that the jury was improperly instructed on RICO and the case should therefore be remanded. If the instructions, considered as a whole, are comprehensive, balanced, fundamentally accurate, and not likely to confuse or mislead the jury, the charge will be deemed adequate. Armco Indus. Credit Corp. v. SLT Warehouse Co., 782 F.2d 475, 483 (5th Cir.1986). We do not believe the jury was confused in any respect the plaintiffs mention. The jury was not instructed that the plaintiffs must prove a "racketeering injury," nor could they have been confused into believing that the defendants must be associated with organized crime. Any confusion in the charge between single acts of fraud furthered by multiple mailings and separate mailings in furtherance of a scheme to defraud is minimal and does not render the instruction as a whole inaccurate or confusing.
The plaintiffs next argue that the district judge erroneously excluded evidence that was crucial to the RICO claims. An audit of accounts handled by Welch was prepared for Paine Webber and resulted in a brief memorandum describing several irregularities, some of which occurred in the accounts of persons not associated with this lawsuit. The district judge concluded that the memorandum was cumulative and prejudicial. We review for abuse of discretion, Jon-T Chemicals, Inc. v. Freeport Chemical Co., 704 F.2d 1412, 1417 (5th Cir.1983), and find no such abuse in the judge's ruling. The references to the accounts of other individuals posed a sufficient risk of prejudice to warrant the exclusion of the memorandum. See Johnson v. William C. Ellis & Sons Iron Works, Inc., 604 F.2d 950, 958 (5th Cir.1979)(district judge properly excluded as prejudicial a motion picture of a cotton compress in operation, where only a small part of the picture portrayed the portion of the compress at issue), reh'g granted in part on other grounds, 609 F.2d 820 (5th Cir.1980).
The plaintiffs sought to hold Paine Webber and Welch liable under Section 9 of the Securities Exchange Act of 1934 for Welch's failure to provide the plaintiffs with "options disclosure documents." 2 The district judge granted the defendants' motion for directed verdict on the section 9 claims, concluding that section 9 does not govern manipulative practices that do not directly affect the market or purchase price of a security:
Mere failure to provide a disclosure document will not establish liability or damages under section 9. Other elements such as santa [sc. scienter] and the effect on market price also must be present. To the extent that rule 9b-1 purports to state to the contrary, it is invalid.
The judge found that the plaintiffs had neither pleaded nor proved that the manipulative practices had artificially affected the market price of any security or that they had purchased any security at a price affected by the...
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