Paine, Webber, Jackson & Curtis, Inc. v. Adams, 84SC58

Decision Date12 May 1986
Docket NumberNo. 84SC58,84SC58
Citation718 P.2d 508
PartiesPAINE, WEBBER, JACKSON & CURTIS, INC., a corporation, and Sueann A. Ocrant, Personal Representative of the Estate of Lawrence Ocrant, Petitioners, v. Caryl ADAMS, Individually and as Trustee of the V.M. Johnson 1962 Trust, Respondent.
CourtColorado Supreme Court

Fairfield & Woods, Charles E. Matheson, Denver, for petitioners.

Roath & Brega, Charles F. Brega, J. Stephen McGuire, Stuart N. Bennett, Margaret C. Gilliam, Denver, for respondent.

LOHR, Justice.

We granted certiorari to review the judgment of the Colorado Court of Appeals in Adams v. Paine, Webber, Jackson & Curtis, Inc., 686 P.2d 797 (Colo.App.1983). In that case, the plaintiff, Caryl Adams, claimed that the defendants, Paine, Webber, Jackson & Curtis, Inc. (Paine Webber) and one of its account representatives, Lawrence Ocrant 1, breached the fiduciary duties they allegedly owed her with respect to an individual account and a trust account established in her name at Paine Webber. The jury awarded Caryl Adams substantial damages against both defendants, and the court of appeals affirmed the judgment entered on that verdict. We agreed to review the issues of whether the trial court had jurisdiction to award exemplary damages in this action and whether the trial court erred in instructing the jury that, as a matter of law, the defendants owed fiduciary duties to Caryl Adams during specified periods of time. We conclude that the defendants waived their right to contest the award of exemplary damages and that the evidence supported the trial court's instruction as to the defendants' fiduciary duties. Therefore, we affirm the judgment of the court of appeals.

I.

Prior to her marriage to her first husband, Ronald Adams, in 1961, Caryl Adams had received approximately 150,000 shares of stock in Illinois Tool Works, Inc. (ITW) from her family. At the time of that marriage, Caryl Adams' assets, primarily consisting of the ITW stock, were valued at approximately $1.8 million. In 1962, Caryl Adams' mother, Violet Johnson, established a trust for Caryl Adams' children (the "Johnson trust"), the assets of which consisted of 1,000 shares of ITW stock. Caryl Adams and Ronald Adams were named as co-trustees.

Using the dividends from Caryl Adams' ITW stock, Ronald Adams invested in a variety of businesses in the late 1960s and the early 1970s. He also opened accounts at several brokerage firms in Denver and used Caryl Adams' stock as collateral for borrowing in those accounts to obtain funds for his businesses. By 1973, Ronald Adams owed large sums of money to several brokerage firms and to a bank. All the loans were secured by Caryl Adams' stock.

In April 1973, Ronald Adams met Lawrence Ocrant, who was a stockbroker. Ocrant suggested that Ronald Adams consolidate all of his debts. After Ocrant began working at Paine Webber in mid-1973, a Paine Webber account was opened in the name of Caryl Adams (the "personal account") at the instance of Ronald Adams and Ocrant, and those two men arranged to transfer the accounts that existed at the other brokerage firms to Paine Webber. To accomplish this, Paine Webber paid the other firms the amounts owing on the accounts and in return received the securities in the accounts, including the ITW stock certificates, which had been used as collateral for the borrowings in those accounts. The same arrangement was made with a bank that had loaned money to Ronald Adams. The personal account at Paine Webber was placed "on margin," which meant that the account owner could borrow funds from Paine Webber for the purchase of new securities and that the securities in the account would serve as collateral for such loans.

To open the personal account and to effectuate the various transfers, Ronald Adams obtained Caryl Adams' signature on several documents and wrote what purported to be her signature on others. Caryl Adams testified at trial that she signed these documents at Ronald Adams' request without reading them. She also testified that she left all business and financial matters to her husband and did not even know that the Paine Webber personal account existed until December 1974, shortly before Ronald Adams first introduced her to Ocrant. Prior to that time, Paine Webber sent all correspondence about the account to her husband's business address and Ocrant neither called nor wrote Caryl Adams concerning the account. From the time the account was opened through November 1974, Paine Webber disbursed over $2,110,000 from the account and sold over 50,000 shares of Caryl Adams' ITW stock.

In September 1973, Ronald Adams opened a second Paine Webber account as a trustee, with Caryl Adams, of the Johnson trust (the "trust account"). Caryl Adams' testimony suggests that until December 1974, she was not aware of the existence of the trust account. Ocrant purchased and sold corporate bonds on behalf of both accounts, sometimes selling ITW stock to finance purchases in the personal account. For each purchase or sale of a $1,000 bond, Paine Webber received approximately five dollars as a commission.

In November 1974, Caryl Adams went to see a lawyer, Robert Appel, because she could not understand her husband's newly developed irritability and was concerned that something was amiss. She suggested that Appel check the status of her stock. After learning about this visit to Appel, Ronald Adams told Caryl Adams about the Paine Webber personal account and about his use of her ITW stock. He then introduced Caryl Adams to Ocrant and told Ocrant to begin sending all correspondence about the account to Caryl Adams. Shortly thereafter, Caryl Adams initiated divorce proceedings; she obtained a divorce from Ronald Adams in April 1975.

Although initially Caryl Adams was very angry at Ocrant because she had not been informed concerning the Paine Webber account, she quickly became satisfied after talking with Ocrant that Ronald Adams, not Ocrant, was to blame. Ocrant and Caryl Adams became friends almost immediately after they met in December 1974. Ocrant visited Caryl Adams at her home several times a week, talked with her at least once a day, and brought her flowers and candy. He repeatedly assured her that her accounts were making her a great deal of money. He gave her advice on personal matters and, in December 1974, introduced her to a friend of his named Kermit Turley. Turley and Caryl Adams began dating each other and were married in November 1975.

In January 1975, the trust account at Paine Webber was placed on margin. In order to accomplish this, a modification of the original agreement creating the trust was necessary. An addendum was prepared for this purpose by William Fishman, an attorney to whom Ocrant had referred Caryl Adams. Caryl Adams testified that she did not remember signing the addendum and was not aware that the trust account had been margined until 1976. She thought that Fishman had merely assisted in the removal of Ronald Adams as one of the trustees of a different trust that had been established for her children.

In 1975, Caryl Adams closed out her savings account and placed the $21,000 from that account into her personal account at Paine Webber. She testified that she did this on Ocrant's recommendation after he advised her that he could make more money for her than the savings account was earning. By mid-1976, according to Caryl Adams, all of her assets, except for her house, and all of her children's trust assets had been placed in the two Paine Webber accounts. Ocrant remained the account representative for the accounts from the time they were opened until August 25, 1976, when Caryl Adams "froze" all activity in both accounts. Caryl Adams took this action on the advice of her attorney in connection with dissolution of marriage proceedings that she initiated against Turley in August 1976. She closed the accounts in April 1977.

In March 1979, Caryl Adams filed suit, individually and as trustee of the Johnson trust, against Ocrant and Paine Webber. She alleged that from August 1973 through April 1977, Ocrant and Paine Webber owed fiduciary duties to her and induced her to rely on their skill and abilities and to trust wholly in them. In her first claim for relief, she alleged that Ocrant and Paine Webber breached their fiduciary duties by their conduct, including disbursing more than two million dollars out of the personal account in 1973 and 1974 without her knowledge or approval; selling large amounts of her ITW stock without her knowledge, and using the proceeds to invest in highly speculative, low-quality corporate bonds; trading in corporate bonds to a grossly excessive degree (a practice commonly known as "churning"); and managing the accounts more for the defendants' benefit and financial gain than for the benefit and gain of Caryl Adams and the Johnson trust. Caryl Adams requested, as compensatory damages, the difference between the income earned by the accounts and the income that would have been earned had Ocrant and Paine Webber prudently managed the accounts; the profit made by Ocrant and Paine Webber in the form of commissions resulting from excessive trading; and other losses incurred in the accounts as a result of imprudent margin loans, rapid turnover of securities, and loss of principal because of imprudent investments.

Caryl Adams further alleged, in her second claim for relief, that Ocrant and Paine Webber were guilty of extreme and outrageous conduct which had caused her severe physical and emotional distress. Finally, in her third claim for relief, Caryl Adams averred that the defendants acted with wanton and reckless disregard of her rights and feelings, thus entitling her to exemplary damages.

Ocrant and Paine Webber denied that they owed any fiduciary duties to Caryl Adams and that their management of the two accounts was in any way improper. They also claimed as affirmative defenses that, among other things, Caryl Adams had...

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