Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Boeck

• Decision Date: 18 September 1984
• Docket Number: No. 83-675,83-675
• Citation: 120 Wis.2d 591,357 N.W.2d 287
• Parties: MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Plaintiff-Respondent, v. George V. BOECK, Defendant-Appellant. d
• Court: Wisconsin Court of Appeals

Page 287

357 N.W.2d 287

120 Wis.2d 591

MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Plaintiff-Respondent, v. George V. BOECK, Defendant-Appellant. ^d

No. 83-675.

Court of Appeals of Wisconsin.

Submitted on Briefs July 16, 1984.

Opinion Released Sept. 18, 1984.

Opinion Filed Sept. 18, 1984.

Foley & Lardner, Richard S. Florsheim and Brian W. McGrath, Milwaukee, for defendant-appellant.

Paul R. Erickson and Zirbel, Howard & Malone, S.C., Milwaukee, for plaintiff-respondent.

Before FOLEY, P.J., and DEAN and NETTESHEIM, JJ.

NETTESHEIM, Judge.

The defendant, George V. Boeck, appeals from a judgment notwithstanding the verdict in favor of the plaintiff, Merrill Lynch, Pierce, Fenner & Smith, Inc. The trial court dismissed Boeck's counterclaim against Merrill Lynch. Boeck raises two issues on appeal. First, he argues that the trial court erred in ruling as a matter of law that Merrill Lynch owed no fiduciary duty to him as its customer. In the alternative, Boeck maintains that the trial court erred in refusing to submit the case to the jury on the issue of strict liability for misrepresentation. We conclude that the facts of this case do not establish a fiduciary relationship between Merrill Lynch and Boeck and that the strict liability theory of misrepresentation is not applicable. We therefore affirm the judgment.

Merrill Lynch commenced this action to recover $21,712 that Boeck owed on his investment account for soybean futures transactions from May 1978. Boeck denied liability and counterclaimed for the losses he sustained on the transactions.

George Boeck is an experienced commodities investor who had dealt with two other brokerage houses before opening a commodities account with Merrill Lynch in February 1977. Before he began trading with Merrill Lynch, Boeck subscribed to several publications and services concerned with commodities investments. Boeck signed a commodities account agreement that set forth the risky and speculative nature of investing in commodities futures contracts and that warned of the possibility of significant losses. Merrill Lynch had no authority to decide what trades to make in Boeck's account.

Boeck claims that on May 15, 1978, Mr. Terrill, a commodities broker for Merrill Lynch, told him that Merrill Lynch expected a reduction in Brazilian soybean crops from earlier estimates and that Merrill Lynch recommended the purchase of bull spreads in soybeans and soybean meal. According to Boeck, he was particularly impressed with this information because it allegedly came from Merrill Lynch's soybean expert after a recent trip to Brazil. During the following two weeks, Boeck engaged in a course of margin trading in soybean futures that he claims was based on the representations made by Terrill. ¹

On May 25, 1978, Merrill Lynch changed its position relative to trading in soybean futures. Boeck received this report on May 31, 1978. He pressed Terrill for more information and eventually liquidated the margin contracts he held. Boeck claims that Terrill learned on May 17, 1978 that the Brazilian government had raised its soybean crop estimates but that Terrill never relayed that information to Boeck. Allegedly, Terrill continued throughout the month of May to tell Boeck that Merrill Lynch recommended purchase of bull spreads in soybeans and soybean meal.

As a result of his soybean futures investments trading in May 1978, George Boeck sustained losses totaling $35,674 consisting of $13,961 out-of-pocket expenses and $21,713 indebtedness to Merrill Lynch. Boeck counterclaimed against Merrill Lynch for those losses.

Boeck claimed that Merrill Lynch had undertaken to provide investment advice and recommendations to him. He further claimed that Merrill Lynch, through its agent Terrill, had made misrepresentations to Boeck or had failed to disclose material facts to Boeck in connection with the transactions. Boeck maintained that he had relied on the statements of Merrill Lynch in entering into the soybean futures transactions and that he had been damaged by his losses in the commodities trading.

Merrill Lynch's claim and Boeck's counterclaim were tried to a jury. ² Boeck requested that the case be submitted to the jury on four alternative theories: intentional misrepresentation, negligent misrepresentation, strict liability for misrepresentation, and breach of fiduciary duty. The trial court declined to submit the strict liability theory. Over Merrill Lynch's objection, the trial court submitted the breach of fiduciary duty theory to the jury. The jury found that Merrill Lynch neither intentionally nor negligently misrepresented material facts to Boeck. On the theory of breach of fiduciary duty, the jury found that Merrill Lynch had undertaken to counsel and advise George Boeck on investment in soybean futures and that Merrill Lynch had failed to disclose material investment information in its possession. The jury awarded Boeck damages in the amount of $13,961.

On motions after verdict, Merrill Lynch moved for judgment notwithstanding the verdict. The court granted Merrill Lynch's motion, ruling that the breach of fiduciary duty theory should not have been submitted to the jury. Judgment for Merrill Lynch was entered in the amount of Boeck's debit balance owed to the broker. Boeck appeals and asks this court to remand for the trial court to enter judgment in accordance with the jury's verdict. Boeck also appeals the trial court's refusal to submit the strict liability for misrepresentation theory to the jury.

Boeck asserts that Merrill Lynch, as his broker, owed him a fiduciary duty to disclose all material information in its possession relating to the soybean futures market. He argues that Merrill Lynch breached that duty by failing to disclose such information to Boeck.

Boeck maintains that the jury findings entitle him to judgment. Boeck bases his claim that Merrill Lynch owed him a fiduciary duty on our supreme court's holding in Schweiger v. Loewi & Co., 65 Wis.2d 56, 65, 221 N.W.2d 882, 888 (1974). Schweiger involved a claim to recover damages for losses resulting from a broker's handling of a customer's financial investments. The defendant-broker appealed the trial court's denial of his demurrer to the plaintiff-customer's amended complaint. The court held that the complaint could be construed to allege facts sufficient to state a cause of action on a breach of fiduciary duty theory. Id. In its ruling, the supreme court applied the principle that a complaint challenged by demurrer must be liberally construed and is entitled to all reasonable inferences in favor of the pleading. Id. at 58, 221 N.W.2d at 884. Schweiger thus holds that certain facts and circumstances may establish a fiduciary duty--not that all broker-customer relationships are characterized by such a duty. The instant case is not a sufficiency of complaint case. Here, Boeck has had the opportunity to present all of the facts in support of his claim that his relationship with Merrill Lynch was marked by a fiduciary duty.

Thus, we must determine whether the evidentiary record established a fiduciary duty relationship. Because there are no helpful Wisconsin cases, we look to several federal court decisions that articulate the elements of a fiduciary duty between customer and broker.

An action by a customer against a commodities broker for losses sustained as the alleged result of the broker's failure to disclose particular market information is discussed in Robinson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 337 F.Supp. 107 (N.D.Ala.1971), aff'd, 453 F.2d 417 (5th Cir.1972). The court distinguished between a broker and an investment advisor and went on to state that a broker has a duty to use reasonable efforts to give the customer information relevant to executing the customer's order. Id. at 111-13. A fiduciary relationship might arise where there is proof of an express agreement or special circumstances requiring that the broker transmit market information. Id. at 112. The Robinson court referred specifically to a special relationship of trust and confidence or a situation where the customer is infirm or ignorant of business affairs. Id. at 113. Even in the commodities broker-customer relationship, however, the broker has no continuing duty to relay news of political, economic, weather or price changes to his customer, absent an express contract to furnish such information. Id. at 112. Accordingly, Robinson held that no fiduciary duty is imposed on brokers who supply investment information incidentally to their broker age activities.

In the instant case, the record shows no express agreement or special circumstances of Boeck's infirmity or ignorance of business affairs that would justify application of a fiduciary duty. Terrill, as broker for Merrill Lynch, gave investment advice as an incident of his brokerage activities. He provided information in response to Boeck's inquiries. There is no indication of any specific agreement between Merrill Lynch and George Boeck for the provision of investment advisory services.

In Leib v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 461 F.Supp. 951, 952-53 (E.D.Mich.1978), the Federal District Court ruled that the broker-customer relationship required only limited transactional duties where the customer, rather than the broker, determines which purchases and sales to make. Such duties include recommending stock only after sufficient study, informing the customer of the risks involved in buying or selling a particular security, and refraining from misrepresenting any material fact. Id. at 953. Ultimately, however, a broker dealing with such an account has no continuing duty to keep abreast of financial information that may affect his customer's account or to inform the customer of developments which could influence his investments. Id. Leib did observe that a fiduciary duty would exist with a discretionary account where the...