De Kwiatkowski v. Bear Stearns & Co., Inc.
| Decision Date | 29 December 2000 |
| Docket Number | No. 96 CIV. 4798(VM).,96 CIV. 4798(VM). |
| Parties | Henryk de KWIATKOWSKI, Plaintiff, v. BEAR STEARNS & CO., INC., Bear Stearns Securities Corp., and Bear Stearns Forex Inc., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Paul J. Curran, Kaye, Scholer, Fierman, Hays & Handler, New York City, for plaintiff.
Dennis J. Block, Jonathan D. Polkes, Cadwalader, Wickersham & Taft, Dennis J. Block, Weil, Gotshal & Manges, LLP, Paul A. Engelmayer, Wilmer, Cutler & Pickering, New York City, for defendants.
DECISION AND ORDER
TABLE OF CONTENTS
INTRODUCTION............................................................................677
FACTS ..................................................................................678
RULE 50(b) and RULE 59(a) STANDARDS ....................................................683
DISCUSSION .............................................................................683
I. LAW OF THE CASE ...................................................................683
II. JURY INSTRUCTIONS..................................................................686
III. CLAIMS OF ERROR ...................................................................687
A. Bear Stearns as Investment Advisor .............................................687
B. Theories of Negligence..........................................................688
C. Failure to Advise...............................................................688
D. Absence of Duty.................................................................689
IV. APPLICABLE LEGAL PRINCIPLES........................................................690
A. Bases for the Broker's Duties...................................................690
1. The Broker as Agent..........................................................691
2. The Broker as Fiduciary......................................................693
3. The Duty of Due Care.........................................................694
4. Negligence and Contract......................................................694
5. Negligence and Breach of Fiduciary Duty......................................695
6. Standards of Due Care........................................................696
7. Policy Considerations for Fiduciary/Due Care Duty Distinction................697
B. Evolution and Application of Due Care Principles................................697
V. APPLICATION OF DUE CARE PRINCIPLES.................................................701
A. Special Circumstances...........................................................701
B. Advisory Relationship...........................................................705
C. Bear Stearns's Fees.............................................................708
D. Breach of Due Care..............................................................710
1. Placement of the 1994 Foreign Currency Position..............................711
2. Monitoring the Accounts......................................................713
3. Optimistic Assessments.......................................................714
4. The Negative Forecasts.......................................................714
5. Rising Risk to the Securities Accounts.......................................717
6. The Liquidation..............................................................717
7. Summary/Conclusion...........................................................718
E. Mixed Verdict...................................................................719
F. Scope and Determination of the Duty of Care.....................................720
G. The Court's Conclusion..........................................................723
VI. POLICY CONSIDERATIONS.............................................................724
ORDER ..................................................................................727
Plaintiff Henryk de Kwiatkowski ("Kwiatkowski") brought this action against defendants Bear, Stearns & Co., Inc.; Bear, Stearns Securities Corp.; and Bear, Stearns Forex Inc. (collectively, "Bear Stearns") alleging, among other things, breach of fiduciary duty and negligence in connection with Bear Stearns's handling of his brokerage accounts. After trial, the jury rendered a verdict in favor of Kwiatkowski on the negligence claim in an amount of $111.5 million, on which he was entitled as of right to statutory prejudgment interest of approximately $60 million that was then added by the Court. Bear Stearns now moves pursuant to Federal Rules of Civil Procedure 50(b) and 59(a) for judgment as a matter of law and, in the alternative, for a new trial. For the reasons discussed below, the motions are denied.
Kwiatkowski is an exceptionally wealthy individual who, through accounts he maintained at Bear Stearns under his own management and control, in late 1994 purchased a position in foreign currency futures contracts worth approximately $6.5 billion. In this venture, a form of investment some experts consider inherently risky, he lost an estimated $215 million in a space of a few weeks in early 1995. Subsequently, he commenced the case now before the Court against Bear Stearns, one of the nation's largest investment banking firms, to recover his losses. As the action went to trial, Kwiatkowski alleged two legal theories for recovery: breach of fiduciary duty and negligence. The jury found Bear Stearns liable on the negligence claim but not for breach of fiduciary duty.
Bear Stearns contends that the jury's award represents a miscarriage of justice, and that, not only by reason of its size, but by the allegedly new legal duties this determination would place on all securities dealers if the verdict were allowed to stand, the case has generated "shock and attention in the brokerage and legal communities." Memorandum of Law in Support of Defendants' Motion for Judgment as a Matter of Law and, in the Alternative, for a New Trial, dated June 15, 2000 ("Defendants' Memorandum"), at 14.1 In asserting that something here has gone awry, Bear Stearns asks this Court to intervene and set aside the jury's verdict, either by undoing certain previous rulings of this Court, and potentially those of the judge who managed earlier proceedings of the litigation, or by overturning the jury's factual determination.
The sheer magnitude of the jury award and the extraordinary relief Bear Stearns now seeks evince the high stakes at issue here as perceived by the parties and third persons otherwise following the outcome. But if the matter is critical to particular interests before the Court, it is fundamental as well in other respects. At bottom, Bear Stearns's challenge implicates some vital legal principles. Foremost among the underlying issues is the proper balance of labor our legal system prescribes for the respective roles of the judge and the jury not only in this case, but generally. What Bear Stearns urges must rank among the most demanding judgments any court is called upon to render: to recognize and correct not only alleged errors of its own and possibly of other judges, but, of larger scope and implications, to weigh a jury's verdict against the Court's own assessment of the evidence adduced at trial and to determine in effect whether to substitute the judge's own perceptions and judgment of the facts for those of the jurors charged to decide faithfully and impartially the factual issues in dispute.
So framed, one of the highest values here on the line, as gauged by this Court, is not the financial interests the parties may stand to gain or lose, but the integrity of the judicial system itself, as measured by the due respect and protection that must be accorded to the rightful offices of judge and jury in the constitutional enterprise in which they share appointed duties.
In fact, the most prominent question Bear Stearns's motions bring to this Court implicates the concept of legal duty, specifically its application to the relations between the litigants here. But in resolving this issue for these parties, the Court must first construe and settle what duty the Court itself is bound by its office to discharge. For this purpose, this Court fixes a rigorous mark. From its perspective, the most delicate and trying demand placed upon any court on these occasions is to decide when and under what circumstances, even if a jury's award stirred vigorous reaction from any litigant, or engendered adverse public pressures, perceptions or apprehensions, or indeed even were the Court itself to harbor any personal qualms agitating that somehow "this isn't right," the verdict should be allowed to stand. The proper basis for this judgment must rest upon whether the guided path of the law so directs; whether the award is supported by rational grounds; and whether the effect of overriding the jurors' determination would be to intrude upon their proper domain, diminish the acceptable latitude the jury is warranted in order to exercise its role, and upset the constitutional division of authority in the administration of justice.
This is a solemn task. For the sake of the justice system whose values we prize, the exercise of judicial discretion it demands should be justified only in the most compelling circumstances. The Court's duty at hand compels it to rule as the law commands. It can do no more. Insofar as the stakes are high all around, so the burden of persuasion must be exacting. Bear Stearns has not persuaded this Court that the jury's verdict should be disturbed.
Kwiatkowski is a Canadian citizen. During the times relevant to this litigation, he resided in Nassau, Bahamas and maintained his business offices there. A native of Poland, he escaped from...
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