Limbaugh v. Merrill Lynch, Pierce, Fenner & Smith, Inc.
| Decision Date | 18 March 1986 |
| Docket Number | No. 85-7408,85-7408 |
| Citation | 784 F.2d 1086 |
| Parties | Carl M. LIMBAUGH, Plaintiff-Appellant, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., a corporation, et al., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Leo Costello, Costello & Stott, Thomas E. Mitchell, Birmingham, Ala., for plaintiff-appellant.
Maynard, Cooper, Frierson & Gayle, Birmingham, Ala., A. Inge Selden, Birmingham, Ala., for defendants-appellees.
Appeal from the United States District Court for the Northern District of Alabama.
Before JOHNSON and HATCHETT, Circuit Judges, and ALAIMO *, Chief District Judge.
In its second appearance before this Court, 1 this case presents a question concerning Alabama damages law. The district court granted summary judgment in favor of Merrill Lynch on the basis that appellant Limbaugh had not demonstrated any actual injury and, hence, was not entitled to recover either compensatory or punitive damages under Alabama law. We AFFIRM.
This is a diversity suit by an investor (Limbaugh) against his broker (Merrill Lynch) for unlawful conversion. Merrill Lynch allegedly converted monies from Limbaugh's "Ready Assets" account to recoup the purchase price of securities it was forced to buy on the open market when Limbaugh unlawfully retained shares of stock he previously had authorized his broker to sell. The uncontroverted facts surrounding this transaction were set out in Limbaugh v. Merrill Lynch, Pierce, Fenner & Smith, Inc., supra, and need not be repeated in detail here. A short recapitulation will suffice to preface our discussion of the applicable Alabama damages law.
Learning from a newspaper article that Golden Enterprises, Inc., stock had split, Limbaugh called Merrill Lynch and directed it to sell 365 shares of his stock for $18.00 or more per share. The securities were sold and Limbaugh received $6,510.86 from the sale. He promptly invested $6,510.00 in a "Ready Assets" money market fund managed by Merrill Lynch.
Two weeks later, Merrill Lynch called Limbaugh and told him the stock had been sold prior to the "ex-dividend" date; consequently, the 182 shares that resulted from the split legally belonged to the purchaser of the 365 shares. Limbaugh refused to deliver the stock certificates for the 182 shares, so Merrill Lynch bought replacements at prevailing market rates, then liquidated $2,725 of Limbaugh's Ready Assets account to cover the purchase price and to pay itself the customary commission.
Limbaugh sued to recover the $2,725, and the district court granted Merrill Lynch's motion for summary judgment. In Limbaugh v. Merrill Lynch, supra, this court agreed that Limbaugh was indebted to the brokerage house, but held that Merrill Lynch's confiscation of money Limbaugh had placed in a trust account might give rise to an action for conversion under Alabama law. We expressly declined to decide whether Limbaugh suffered any actual damages and remanded the case to the district court for further proceedings.
On remand, the district court did not decide whether Limbaugh had stated a viable cause of action for conversion. Instead, the court granted Merrill Lynch's motion for summary judgment on the basis that Limbaugh had not demonstrated any actual injury and, hence, was not entitled to recover damages under Alabama law. On appeal, Limbaugh contends that (1) the trial court erred in concluding he suffered no actual damages, and (2) proof of a technical conversion, without more, sufficed to support an award of nominal damages for the violation of his property rights.
Alabama law recognizes both compensatory and punitive damages. Compensatory damages, sometimes called actual damages, measure the actual loss sustained, while punitive damages are awarded to punish a wrongdoer and to deter the commission of similar acts in the future. Comer v. Age-Herald Publishing Co., 151 Ala. 613, 44 So. 673, 675 (1907).
In order to receive an award of either compensatory or punitive damages under Alabama law, a plaintiff first must prove he has suffered an actual injury. Purcell Co. v. Spriggs Enterprises, Inc., 431 So.2d 515, 523 (Ala.1983); Skipper v. South Central Bell Telephone Co., 334 So.2d 863, 866 (Ala.1976). Actual injury need not be a pecuniary loss, however. Humiliation, embarrassment, harm to reputation and other intangible losses constitute actual injuries as well. See, e.g., Skipper v. South Central Bell, supra, 334 So.2d at 866; Comer v. Age-Herald Publishing, supra, 44 So. at 675.
If Merrill Lynch is correct in asserting that Limbaugh suffered no cognizable injury from the confiscation of his funds, then Alabama law would preclude an award of damages in the case at bar and summary judgment would be proper. Limbaugh, however, points to two alleged injuries which he contends would support compensatory damages. First, he claims he was injured because the price of the shares purchased on the open market exceeded the price of his shares at the time the initial transaction took place. Second, Limbaugh contends he was injured because Merrill Lynch charged him an $80.18 commission to make the covering purchase.
What Limbaugh fails to recognize is that, by willfully refusing to deliver the 182 shares generated by the stock split, he compelled Merrill Lynch to make the covering purchase. We previously determined that Limbaugh was indebted to his broker for the price of the stock Merrill Lynch had to buy. Limbaugh v. Merrill Lynch, supra, 732 F.2d at 861. It is immaterial that Golden Enterprises stock rose in value between the time Merrill Lynch sold Limbaugh's shares and the time Merrill Lynch made its covering purchase. Limbaugh owed Merrill Lynch the sum that the brokerage house had to pay. 2 Thus, when Merrill Lynch liquidated the purchase price of the stock from Limbaugh's Ready Assets account, it merely extinguished a debt of equal value. 3
The same reasoning applies with equal force to the $80.18 commission Merrill Lynch charged Limbaugh. By affidavit, Merrill Lynch stated that it is standard practice in the brokerage industry to charge a commission when a customer fails to tender the full number of shares sold, thereby necessitating a covering purchase. That commission is used in part to defray the costs and expenses associated with the covering purchase. Had Limbaugh relinquished the 182 shares of stock, no covering purchase would have been necessary and, thus, no commission would have been charged. Under these circumstances, the district court properly concluded that the commission was "a valid part of the debt Limbaugh owes Merrill Lynch." Since appellant rightfully owed his broker the $80.18 commission as an incidental cost of covering the shortfall, Limbaugh was not injured when Merrill Lynch confiscated funds from his Ready Assets account to recoup its loss.
In sum, it is clear that Limbaugh suffered no cognizable injury when Merrill Lynch liquidated $2,725 from his Ready Assets account to extinguish the debt caused by Limbaugh's failure to deliver the proper number of shares. Accordingly, Limbaugh is not entitled to recover compensatory damages for Merrill Lynch's act.
Even if he sustained no pecuniary loss, Limbaugh still maintains he is entitled to nominal damages because Merrill Lynch invaded his property rights by unilaterally seizing money from his Ready Assets account without resorting to legal process. An award of nominal damages would, in turn, support a claim for punitive damages under Alabama law. See Rushing v. Hooper-McDonald, Inc., 293 Ala. 56, 300 So.2d 94 (1974); Maring-Crawford Motor Co. v. Smith, 285 Ala. 477, 233 So.2d 484 (1970); Cooper Chevrolet Co. v. Taliaferro, 439 So.2d 158 (Ala.Civ.App.1983).
This argument is based on a misapprehension of the current 4 Alabama law of damages, and must fail. As the Alabama Court of Civil Appeals recently explained:
It has been the law of this state since 1846 that nominal damages are always proper when a breach of a legal duty has been made out and the extent of the injury is not shown by the evidence.... In other words, in order to recover nominal damages for fraud the plaintiff need not show the exact extent of his damages, but only that he was damaged.
Long-Lewis Hardware Co. v. Lightsey, 392 So.2d 545, 546-47 (Ala.Civ.App.1980) (emphasis added), citing Bagby v. Harris, 9 Ala. 173 (1846). Other Alabama cases likewise hold that nominal damages can be recovered only where the loss is unquantifiable or where actual injury can be inferred. See Skipper v. South Central Bell, supra, 334 So.2d at 866; Comer v. Age-Herald Publishing, supra, 44 So. at 674, Wilson v. Draper, 406 So.2d 429 (Ala.Civ.App.1981) (); Shafer v. Timmons, 51 Ala.App. 157, 283 So.2d 609 (1973) (same as Wilson ). 5
Appellant cites several automobile conversion cases as support for the proposition that a technical invasion of a naked property right will support an award of nominal damages. See Ray Hughes Chevrolet, Inc. v. Gordon, 294 Ala. 638, 320 So.2d 652 (1975); Roebuck Auto Sales, Inc. v. Wallace, 293 Ala. 231, 301 So.2d 546 (1974); Cooper Chevrolet, Inc. v. Taliaferro, supra; Richard Kelley Chevrolet Co. v. Seibold, 363 So.2d 989 (Ala.Civ.App.1978). His reliance is misplaced. Each of those...
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