Kerr v. First Commodity Corp. of Boston

• Decision Date: 07 June 1984
• Docket Number: No. 83-1488,83-1488
• Citation: Kerr v. First Commodity Corp. of Boston, 735 F.2d 281 (8th Cir. 1984)
• Parties: 15 Fed. R. Evid. Serv. 1535 Jerry J. KERR, Appellee, v. FIRST COMMODITY CORPORATION OF BOSTON, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 281

735 F.2d 281

15 Fed. R. Evid. Serv. 1535

Jerry J. KERR, Appellee, v. FIRST COMMODITY CORPORATION OF BOSTON, Appellant.

No. 83-1488.

United States Court of Appeals Eighth Circuit.

Submitted Dec. 13, 1983.

Decided May 9, 1984.

Rehearing and Rehearing En Banc Denied June 7, 1984.

Theodore C. Beckett, Don R. Lolli, Emmett J. McMahon, Kansas City, Mo., for appellee; Beckett & Steinkamp, Kansas City, Mo., for counsel.

Peper, Martin, Jensen, Maichel & Hetlage, Arthur L. Smith, Richard P. Sher, Mark S. Packer, St. Louis, Mo., for appellant.

Before McMILLIAN, JOHN R. GIBSON and BOWMAN, Circuit Judges.

BOWMAN, Circuit Judge.

This is an appeal from a jury verdict awarding $75,000 in actual damages and $275,000 in punitive damages to plaintiff Jerry J. Kerr on a finding that defendant First Commodity Corporation of Boston was guilty of fraud in the sale to Kerr of certain commodity options. The District Court remitted the award of actual damages to $21,942, which was the price Kerr paid for the options. Kerr accepted the remittitur, and First Commodity brought this appeal.

First Commodity argues that the judgment of the trial court should be reversed because Kerr failed to meet his burden of proving actual damages and also because federal preemption prevents an award of punitive damages in a common law commodities fraud case. First Commodity further argues that the instructions to the jury regarding the measure of damages were improper, that certain evidence was erroneously admitted thus causing the jury to be prejudicially influenced in its award of punitive damages, and that the award of punitive damages was so excessive as to require either a new trial or a remittitur. As we find these and First Commodity's other contentions to be without merit, we affirm the district court's judgment.

Facts

On October 30, 1977, First Commodity advertised in the Kansas City Star, a daily newspaper in Kansas City, Missouri. The advertisement gave several examples of how First Commodity's customers had made large profits speculating in commodity options. Kerr noticed this advertisement and, in order to acquire more information on commodity options, sent off the coupon contained in the advertisement.

Kerr is a medically retired Air Traffic Controller who has a degree in Business Administration from the University of Missouri at Kansas City and a degree in Fine Arts from the Kansas City Art Institute. He knew nothing about commodities at the time of his dealings with First Commodity. Kerr received a pamphlet entitled "Apples and Options" from First Commodity which discussed commodity option trading. Kerr testified that he only gave this pamphlet a cursory reading. Tr. at 43. Shortly after receiving the pamphlet, Kerr began receiving telephone calls from Michael Volosin, an account executive for First Commodity, in an effort to sell copper commodity options to Kerr.

Volosin claimed to be an "expert" in the field of commodity investments, and that none of his customers had ever lost money. He "guaranteed" that Kerr would make $75,000 on his initial investment.

Kerr agreed to purchase two copper option contracts. On December 12, 1977, he mailed to First Commodity a certified check for $13,942 in payment of the purchase price of the contracts. Volosin called Kerr and told him that a "signature card" would arrive in the mail the next day, that an account could not be opened without Kerr's signature, and that he should return the card immediately or else he would make less money. Kerr did so, signing the card without reading it. That card contained various disclaimers of liability and disclosures of risk intended to protect First Commodity; it did not embody the oral representations made by Volosin. Kerr received an information packet shortly after this purchase, but Volosin assured Kerr that the packets were a mere formality and that he had told Kerr everything Kerr needed to know. On December 14, 1977, Kerr purchased two more option contracts for $8,000. The first two contracts were for seven-month terms and expired on July 14, 1978. The second two options were for three-month terms and expired on March 20, 1978. P. Ex. 12-15.

Volosin told Kerr that his $21,942 investment would be worth $75,000 by January 15, 1978, and that Kerr was guaranteed to realize this amount. Volosin also told Kerr that he would send Kerr the actual contracts and that the contracts could be exchanged for cash at any bank or with any stockbroker.

First Commodity never sent the contracts to Kerr. Instead, he received only "confirmations of purchase," which indicated the amount of copper involved and the price paid. The confirmations on the first two contracts also indicated that the entire price of the option was consumed by "brokerage charges." The president of First Commodity testified that "brokerage charges" meant the same as "commission"--thus creating a 100% commission for First Commodity. The second two confirmations divided the purchase price into three categories: $82.00 for "clearing broker's fees," $1,370 for "grantor's premium/hedge cost," and $2,548.00 for "U.S. brokerage charges." P. Ex. 14, 15. According to First Commodity, the "clearing broker's fee" is the amount paid to the actual broker who purchases the option on the exchange floor. The "grantor's premium/hedge cost" (or option premium) is the actual cost of the option. The "U.S. brokerage charges" are First Commodity's internal costs, expense and profit. P. Ex. 2 at 5. Thus, on the second set of contracts, 34.25% of what Kerr spent paid for the option while 65.75% paid First Commodity's fee and the clearing broker's fee.

At trial, evidence was presented showing that the price of copper on the London Metals Exchange fluctuated from a high of 780 pounds sterling to a low of 685 pounds sterling per metric ton during the period from December 14, 1977 to July 28, 1978. Each of Kerr's first two option contracts gave him the right to purchase 25 metric tons of copper at 725 pounds sterling per metric ton for a period of seven months. The second set of options each gave him the right to purchase 25 tons of copper at 695.5 pounds sterling per metric ton for a period of three months. Although the exchange rate between pounds sterling and dollars appeared on the confirmations of purchase received by Kerr, no evidence was presented on any exchange rate changes during the period of the options. Likewise, no evidence was presented indicating the minimum increase in the price of copper above the exercise price needed for Kerr to realize a profit.

After the purchases, Volosin called Kerr and stated that he would call Kerr every week to inform him of the status of his investment. Not having received his contracts, Kerr attempted to contact Volosin. Kerr kept asking when his contracts would arrive, and Volosin kept stating that they were on the way. Volosin then became impossible to reach until after New Year's Day 1978. Kerr eventually contacted a man named Alex Fisher at First Commodity. Fisher told Kerr that he had no chance of making any money from the options he had purchased. Kerr had one more conversation with Volosin the first week in January. Volosin now told him that it would take more time--until January 31, 1978--to realize his profits, and again guaranteed him a $75,000 return on his investment. At this point, Kerr felt certain that something was unusual about the entire transaction, and he contacted the Commodities Futures Trading Commission. He then contacted an attorney, which resulted in the filing of this lawsuit alleging common law fraud. The suit was filed on February 24, 1978, prior to the expiration of any of the options. Plaintiff did not exercise any of the options, and they expired in accordance with their terms.

Subject matter jurisdiction is based on diversity of citizenship. The parties agree that the governing substantive law is the law of Missouri.

Issues

I. Proof of Actual Damages

First Commodity asserts that Kerr failed to prove any actual damages from the transaction. First Commodity contends that Kerr paid for the right to participate in the upward movement of the price of a certain amount of copper for a given period of time, and that this is what he received. In so contending, First Commodity accurately describes the substance of a commodities option contract as understood by a properly informed investor. Kerr, however, was not a knowledgeable investor in contracts of this kind, and Volosin undoubtedly was aware of Kerr's ignorance in this regard. There is no evidence that Volosin made any attempt to educate Kerr as to option contracts and the investment risks they carry. Instead, Volosin made false promises and representations that Kerr believed and relied upon. In view of Volosin's promises and the nature of the fraud he practiced on Kerr, we hold that Kerr presented sufficient evidence for the jury to conclude that he suffered actual damages.

Kerr testified that he never received anything he was promised: 1) Kerr was told he would receive the actual option contracts. There is evidence that Kerr repeatedly contacted First Commodity attempting to ascertain the status of his investment and to get First Commodity to send the option contracts to him, yet the contracts never were received by Kerr. 2) Volosin told Kerr that he would call Kerr weekly to advise him on the status of his investment. Instead, Volosin became very difficult to reach, and others at First Commodity told Kerr that Volosin had been overly optimistic in his assurances to Kerr of huge profits. 3) Volosin promised Kerr that his investment was risk free and would produce a gross return of $75,000 by January 15, 1978. Instead, when Kerr talked to Volosin one last time during the second week in January, Volosin admitted no profits would be realized by January 15 and made a new promise that the profits would be forthcoming by January 31, 1978. January 31 passed and Kerr still had...