Pierce v. Richard Ellis & Co.
| Decision Date | 25 March 1970 |
| Citation | 62 Misc.2d 771,310 N.Y.S.2d 266 |
| Parties | , Fed. Sec. L. Rep. P 92,579 Guy R. PIERCE, Plaintiff, v. RICHARD ELLIS & COMPANY, Defendant. |
| Court | New York City Court |
Philip Gelfand, New York City, for plaintiff.
Windels, Merritt & Ingraham, New York City, for defendant; Richard J. Small, New York City, of counsel.
Plaintiff seeks to recover $3,000.00 from the defendant for (quoting the endorsed complaint in its entirety) 'breach of brokerage agreement.' The proof is, and I find, that on Oct. 9, 1964, plaintiff, in search of the large profits his friend was making in the stock market, invested $3,000.00 in a discretionary account with the defendant, his friend's stockbroker. During the following month, on eight trading days, fifteen purchases of a single security were made in the plaintiff's account aggregating over $31,000.00 and sales of the same security were made during the same period of time aggregating more than $26,000.00. The account yielded to the broker commissions of $1,021.87; and of the original $3,000.00 invested, the plaintiff eventually recovered $110.98 in cash and securities then having a value of $50.00.
The plaintiff's contention is that this conduct of his account constituted 'churning': excessive trading by the broker in order to generate commissions for himself with relatively little concern for the welfare of the investor (Moscarelli v. Stamm, D.C., 288 F.Supp. 453; Hecht v. Harris, Upham & Co., D.C., 283 F.Supp. 417). The defendant, having been given the right to purchase and sell securities in plaintiff's account without consulting plaintiff ('discretionary account'), became a fiduciary for plaintiff's benefit, undertaking the highest obligation of good faith and fair dealing (Stevens v. Abbott, Proctor & Paine, D.C., 288 F.Supp. 836). What the plaintiff has attempted to prove is that defendant's acts and intent in the management of this account were to profit the broker rather than the customer. If proved, this is a classic case of constructive fraud (Kronenberg v. Sullivan County Steam Laundry, Sup., 91 N.Y.S.2d 144, n.o.r., aff'd 277 App.Div. 916, 98 N.Y.S.2d 658). It is thus tort and not contract principles which apply, despite the name given the action by the plaintiff Warner Brothers Pictures Distributing Corp. v. Endicott Circuit, Sup., 55 N.Y.S.2d 300, n.o.r., aff'd 269 App.Div. 934, 58 N.Y.S.2d 344), and this court is empowered to grant the appropriate relief (CPLR 3017(a)).
Following a trial before the Court (the jury having been waived), the plaintiff, for the first time in a post trial memorandum, made reference to the Securities Act of 1934 (15 U.S.C. § 78j) and the regulations of the Securities Exchange Commission (Rule 10b--5 dealing with 'Manipulative and Deceptive Devices'; and the regulations of the New York and American Stock Exchanges prohibiting excessive trading in discretionary accounts).
None of these may be relied on by the plaintiff in this action. Violations of the Securities Act and the Regulations issued thereunder are within the 'exclusive jurisdiction' of the Federal Courts (15 U.S.C. § 78 aa; Gallo v. Mayer, 50 Misc.2d 385, 387, 270 N.Y.S.2d 295, 299); and the rules of the exchanges were not offered in evidence.
What remains then is a cause of action for common law fraud. Such fraud must be proved by clear and convincing evidence (Stevens v. Abbott, Proctor & Paine, supra, 288 F.Supp. p. 848; Manchel v. Kasdan, 286 App.Div. 483, 144 N.Y.S.2d 694, aff'd 1 N.Y.2d 734, 151 N.Y.S.2d 940, 134 N.E.2d 687; Lynch v. Gibson, 254 App.Div. 47, 3 N.Y.S.2d 672, aff'd 279 N.Y. 634, 18 N.E.2d 36). This is a greater degree of proof than is required in a Securities Act violation which need merely be proved by a fair preponderance of the credible evidence (Stevens v. Abbott, Proctor & Paine, Supra, 288 F.Supp. p. 847). Had the action been brought in the United States District Court where it belonged, it would have posed no problem for the plaintiff (cf. 80 Harvard Law Review, p. 869 et seq.)
There is, of course, no direct evidence of the broker's intent, but...
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Matter of Baldwin-United Corp., Bankruptcy No. 1-83-02495.
...a showing of clear and convincing evidence rather than a mere preponderance of the evidence. See, e.g. Pierce v. Richard Ellis & Co., 62 Misc.2d 721, 310 N.Y.S.2d 266, 269 (1970) and cases cited 24 This provision makes it unlawful, in connection with the offer or sale of a security for a pe......
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McNeal v. Paine, Webber, Jackson & Curtis, Inc., 77-2033
...enrichment, measure damages by the difference in value of the account before and after churning, See Pierce v. Richard Ellis & Co., 62 Misc.2d 771, 310 N.Y.S.2d 266 (Civ.Ct.1970) (a common law action), or by the difference between the actual experience and the experience of a theoretically ......
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Weinberger v. Kendrick
...case. Rudman v. Cowles Communications, Inc., 30 N.Y.2d 1, 330 N.Y.S.2d 33, 280 N.E.2d 867 (1972); Pierce v. Richard Ellis & Co., 62 Misc.2d 771, 773, 310 N.Y.S.2d 266, 269 (Civ.Ct.1970); Ajax Hardware Mfg. Corp. v. Industrial Plants Corp., 569 F.2d 181, 186 (2 Cir. 1977); 5 Jacobs, supra, a......
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Liability of stockbrokers: claims for churning and unsuitability.
...1385 (10th Cir. 1987); Stevens v. Abbott, Proctor & Paine, 288 F.Supp. 836 (E.D. Va. 1968). (7.) Pierce v. Richard Ellis & Co., 310 N.Y.S.2d 266, 268 (Civ. Ct. N.Y. Cry. (8.) Kaufman v. Merrill Lynch, Pierce, Fenner & Smith Inc., 464 F.Supp. 528, 534 (D. Md. 1978). See also Carr......
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...is granted. See, e.g., Hanford v. Marion Bass Securities Corp., NASD No. 98-01422 (August 12, 1999). 44. Pierce v. Richard Ellis & Co., 310 N.Y.S.2d 266, (N.Y. Civ. Ct. 1970). 45. M&B Contracting Corp. v. Dale, 20 Georgia Bar Journal 601 F. Supp. 1106,1111 (E.D. Mich. 1984), aff.d, 795 F.2d......