Knieriemen v. Bache Halsey Stuart Shields Inc.

• Decision Date: 17 April 1980
• Citation: 427 N.Y.S.2d 10,74 A.D.2d 290
• Parties: Walter KNIERIEMEN, Plaintiff-Respondent, v. BACHE HALSEY STUART SHIELDS INCORPORATED, Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 10

427 N.Y.S.2d 10

74 A.D.2d 290

Walter KNIERIEMEN, Plaintiff-Respondent, v. BACHE HALSEY STUART SHIELDS INCORPORATED, Defendant-Appellant.

Supreme Court, Appellate Division, First Department.

April 17, 1980.

William M. Dallas, Jr., New York City, of counsel (Wendy L. Addiss, New York City, with him on the brief; Sullivan & Cromwell, New York City, attorneys), for defendant-appellant.

Dan Brecher, New York City, attorney for plaintiff-respondent.

Before MURPHY, P. J., and KUPFERMAN, ROSS, MARKEWICH and LYNCH, JJ.

LYNCH, Justice.

At the close of the trial of this customer's suit against his brokerage firm, the court charged the jury on four causes of action, breach of contract, negligence, fraud, and churning (inordinate trading to generate broker's commissions), but it declined the defendant's request for submission of a special verdict form to the jury. A general verdict was rendered awarding plaintiff $45,000 in compensatory damages and $30,000 in punitive damages. Upon inquiry, the foreman stated that the jury had found against the defendant on the negligence and churning claims, but had found no fraud or breach of contract.

The plaintiff, a college graduate and holder of a master's degree, is a resident of New Orleans and has most recently been employed as a merchant seaman. About twenty years ago he was employed as a stock broker in New Orleans, where he gained some familiarity with the commodities market, having handled at least one commodities account. In 1975 he received $100,000 in insurance proceeds after his wife's death, and, at the suggestion of a broker friend in Atlanta, he invested this in blue chip stocks that would provide him an income of $600 to $700 a month.

In March, 1975, he ran into Newman, a broker with the defendant's New Orleans office whom he had known during his own time in the business. Plaintiff claims Newman convinced him to invest in commodities futures. Plaintiff also claims a long history of alcohol abuse and that following his wife's death he was drinking a quart of whiskey a day. He testified that he had been drinking when he encountered Newman and that their conversation took place in a bar.

The plaintiff deposited $10,000 with Newman in a nondiscretionary account, that is, that all trades had to be approved by the plaintiff. Plaintiff testified that between then and November, 1976, when his account was closed, Newman usually contacted him in a bar to discuss his trades. He stated that he was usually drunk during these conversations and could not remember most of them.

The first $10,000 was lost and plaintiff gave Newman a like amount. This, too, was lost and the plaintiff deposited some of his blue chip stocks as collateral for continued trading. Some of this was sold to cover more losses. By the time the account was closed, the plaintiff had lost $21,824.98 on trades and had been charged $23,926.52 for commissions and taxes and $532.11 in interest.

The customer's agreement that plaintiff signed with the defendant when their business relationship commenced recited that "(t)his contract shall be governed by the laws of the State of New York." Relying at least in part on this recitation the trial court held that New York law should apply to all of the causes of action. The defendant maintains that Louisiana law should have been applied to the tort causes of action.

That the parties agreed that their contract should be governed by an expressed procedure does not bind them as to causes of action sounding in tort (see Fantis Foods v. Standard Importing Co., 63 A.D.2d 52, 406 N.Y.S.2d 763 revd. on other grounds, 49 N.Y.2d 317, 425 N.Y.S.2d 783, 402 N.E.2d 122), and, as to the tort causes of action, there is no reason why all must be resolved by reference to the law of the same jurisdiction (Babcock v. Jackson, 12 N.Y.2d 473, 484, 240 N.Y.S.2d 743, 191 N.E.2d 279).

The Court of Appeals has set down the following instruction for the resolution of choice of law problems (Matter of Crichton, 20 N.Y.2d 124, 133-134, 281 N.Y.S.2d 811, 819, 228 N.E.2d 799):

"The choice of law decision we must make in this case should be guided by the same considerations that have guided our decisions in other choice of law cases (citations)."

"The choice of law problem here should be resolved by an examination of the contacts which Louisiana and New York have with this controversy for the purpose of determining which of those jurisdictions has the paramount interest in the application of its law. As we noted in Dym v. Gordon, 16 N.Y.2d 120, 124, (262 N.Y.S.2d 463, 466, 209 N.E.2d 792, 794) this process requires us 'first to isolate the issue, next to identify the policies embraced in the laws in conflict, and finally to examine the contacts of the respective jurisdictions to ascertain which has a superior connection with the occurrence and thus would have a superior interest in having its policy or law applied.' (Citations.)"

The first choice of law issue we must resolve is that of the availability of punitive damages. To do so we must look to the "law of the jurisdiction with the strongest interest in the resolution of the particular issue presented" (James v. Powell, 19 N.Y.2d 249, 259, 279 N.Y.S.2d 10, 18, 225 N.E.2d 741, 747, quoting Babcock v. Jackson, 12 N.Y.2d 473, 484, 240 N.Y.S.2d 743, 191 N.E.2d 279). Under New York law punitive damages are awarded in "singularly rare cases" (Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354, 360, 386 N.Y.S.2d 831, 353 N.E.2d 793) where the "wrong complained of is morally culpable, or is actuated by evil and reprehensible motives" (Walker v. Sheldon, 10 N.Y.2d 401, 404, 223 N.Y.S.2d 488, 490, 179 N.E.2d 497, 498). They are intended "to punish the wrongdoer for his misconduct and furnish a wholesome example" (Merrick v. Four Star Stage Lighting, Inc., 60 A.D.2d 806, 807, 400 N.Y.S.2d 543, 544).

Louisiana has a strong policy against punitive damages (Vincent v. Morgan's Louisiana & T. R. & S. S. Co., 140 La. 1027, 74 So. 541; Fassitt v. United T. V. Rental, La.App., 297 So.2d 283), and their recovery is never permitted unless authorized by special statute (Killebrew v. Abbott Laboratories, La., 359 So.2d 1275, 1278; Alexander v. Burroughs Corp., La., 359 So.2d 607). The policy underlying this position is that a plaintiff should recover only that which will fairly and reasonably compensate him (see Bacharach v. F. W. Woolworth Co., D.C., 212 F.Supp. 83, 85).

The conclusion is evident that, plaintiff being a Louisiana domiciliary, that state has an interest in seeing that he receive only such damages as will fairly compensate him. At first glance, it would seem as easy to conclude that New York is interested in punishing the New York defendant for its misconduct and to provide a wholesome example. This would, however, ignore the obvious fact that it was not the New York defendant but its Louisiana agent, if anyone, who engaged in morally culpable conduct. The New York interest in punishing a wrongdoer would not be furthered here because this defendant has not been found possessed of evil or reprehensible motives. The New York interest in providing a wholesome example would not be furthered here when all of the acts that would warrant punitive damages were restricted to Louisiana. Finally, even if we were to assume that New York has the stronger interest in the issue of punitive damages, they should not have been found here. Under our law, to hold an employer liable in punitive damages for the wilful or wanton acts of an employee, it must be shown that the employer somehow participated in the reprehensible conduct or that he ratified the wrongdoing (Davey v. D & Z Foods, Inc., 21 A.D.2d 860, 250 N.Y.S.2d 1018; Cohen v. Varig Airlines, 85 Misc.2d 653, 380 N.Y.S.2d 450, mod. on other grounds, 88 Misc.2d 998, 390 N.Y.S.2d 515, mod. on other grounds, 62 A.D.2d 324, 405 N.Y.S.2d 44).

We conclude that Louisiana law is applicable to the issue of punitive damages and that under that law they cannot be recovered here.

The next issue is referable to the negligence cause of action. In such actions New York has abandoned contributory negligence and assumption of risk for a form of comparative negligence (CPLR, Art. 14-A), the purpose of which is to ameliorate the harsh result when a plaintiff is slightly negligent and fairly to apportion damages among the parties. (Abbate v. Big V. Supermarkets, 95 Misc.2d 483, 485, 407 N.Y.S.2d 821; Prosser, Law of Torts, 4th ed., § 67). Louisiana adheres to contributory negligence and assumption of risk (La.Code of Civil Procedure Anno., Art. 1005; Bass v. Aetna Insurance Co., 370 So.2d 511), expressing the policy that no one is ever absolved from exercising reasonable and necessary care for his own safety (Normand v. Piazza, La.App., 145 So.2d 110, 113).

Examining the contacts of the respective jurisdictions (Matter of Crichton, supra ), we find the only relevant one to be the domicile of the plaintiff. Thus, although New York might have an interest in having its comparative negligence law applied to protect a New York plaintiff, it has no interest in protecting a Louisiana plaintiff. Louisiana, however, does have an interest in having a Louisiana plaintiff conform to the standard of care imposed by its contributory negligence and assumption of risk laws. Louisiana is, then, the jurisdiction with the greater concern with this issue and its law should have been applied.

Under Louisiana law the plaintiff would have been barred from recovery on the negligence cause of action by his own acknowledged conduct. It is an established principle of the law of that state that voluntary intoxication cannot relieve an individual of responsibility for his own conduct (Barlow v. City of New Orleans, La.App., 228 So.2d 47). "A voluntarily intoxicated person is bound to exercise the same degree of care for his own safety as is a sober person. If he places himself in a position of peril as a result of his intoxication and is...