Russell v. Dean Witter Reynolds, Inc.

• Decision Date: 10 June 1986
• Citation: 510 A.2d 972,200 Conn. 172
• Court: Connecticut Supreme Court
• Parties: , Blue Sky L. Rep. P 72,415, 1 UCC Rep.Serv.2d 1298 William A. RUSSELL v. DEAN WITTER REYNOLDS, INC., et al.

Page 972

510 A.2d 972

200 Conn. 172, Blue Sky L. Rep. P 72,415,

1 UCC Rep.Serv.2d 1298

William A. RUSSELL v. DEAN WITTER REYNOLDS, INC., et al.

Supreme Court of Connecticut.

Argued April 1, 1986.

Decided June 10, 1986.

Sharon S. Tisher, with whom was Kim M. Cooke, Hartford, for appellants (defendants).

David R. Schaefer, with whom were Mary-Michelle U. Hirschoff and, on brief, Robert J. Lofgren and Marc R. Cohen, New Haven, for appellee (plaintiff).

Joseph I. Lieberman, Atty. Gen., and Robert M. Langer and Neil G. Fishman, Asst. Attys. Gen., filed a brief as amici curiae.

Before PETERS, C.J., and ARTHUR H. HEALEY, DANNEHY, SANTANIELLO and CALLAHAN, JJ.

PETERS, Chief Justice.

The principal issue on appeal in this case is whether the Connecticut Unfair Trade Practices Act applies to the purchase and sale of securities. The plaintiff, William A. Russell, brought suit against the defendants, James J. Reid and Dean Witter Reynolds, Inc. (Dean Witter), to recover for losses he sustained as a result of a securities transaction that the defendants had arranged. The plaintiff alleged that the defendants had broken their contract with the plaintiff, made fraudulent misrepresentations, handled the plaintiff's account negligently, and violated both the Connecticut Uniform Securities Act (CUSA); General Statutes §§ 36-470 through 36-502; and the Connecticut Unfair Trade Practices Act (CUTPA). General Statutes §§ 42-110a through 42-110q. A jury found for the plaintiff on all but the fraud count and the court held the defendants liable to the plaintiff for $18,120.09 in compensatory damages, $42,294.75 in attorney's fees, and $34,240.18 in punitive damages. The defendants appeal from this judgment.

The jury could reasonably have found the following facts. On April 8, 1981, the plaintiff authorized his stockbroker Reid, an employee of Dean Witter, to purchase for his cash account 1000 shares of stock in Basic Earth Science Systems, Inc. (BESS). Reid proceeded to buy 2000, rather than 1000, shares of BESS stock in a margin account on the plaintiff's behalf. When the plaintiff learned of the size of the transaction, he immediately called Reid and objected. Reid told him that Dean Witter had made a clerical error in recording the transaction and that he would take care of the problem. Several days later, after receiving written confirmation from Dean Witter of a purchase of 2000 shares, the plaintiff again complained to Reid. Reid reassured the plaintiff that a "computer foul up" had caused the discrepancy and that he had purchased only the authorized number of shares. In early May, 1981, Dean Witter sent the defendant a statement of his account that indicated that he had purchased 2000 shares of stock in BESS and that he owed Dean Witter interest on the money Dean Witter had used to buy the stock. When the plaintiff confronted Reid with this document, Reid acknowledged that he had indeed purchased 2000 shares for the plaintiff and advised the plaintiff to keep the shares because they would be profitable. The plaintiff called Reid several more times during the next few days to complain further about the transaction. Finally, on May 14, 1981, the plaintiff directed Reid to sell enough of the BESS stock by May 29 to pay for the unauthorized shares. Reid agreed to follow this instruction, but did not carry it out. In early June of 1981, the price of BESS stock dropped sharply. The plaintiff was forced to sell at a substantial loss over half of the shares in BESS that Reid had purchased for him in the disputed transaction.

On appeal, the defendants claim that the trial court erred in: (1) holding that CUTPA applies to the purchase and sale of securities; (2) instructing the jury improperly on several points of law; (3) admitting the testimony of other investors who had dealt with Reid; and (4) awarding the plaintiff full attorney's fees. We find error in part.

I

The defendants initially claim that the trial court erred in holding them liable to the plaintiff under CUTPA because CUTPA does not apply to the purchase and sale of securities. We agree.

The Connecticut statute that expressly governs the purchase and sale of securities is CUSA, which in General Statutes § 36-498 ¹ provides a private remedy for a buyer who has suffered injury because of allegedly deceptive sales practices by someone who offers or sells a security. That statute affords the defrauded buyer the right to recover restitutionary damages, interest and attorney's fees. We have not previously had occasion to consider whether an aggrieved buyer of securities may also invoke the provisions of CUTPA to afford him additional remedies, principally in the form of punitive damages. General Statutes § 42-110g. ²

The trial court concluded that the plaintiff had stated a cause of action under CUTPA because of the broad sweep of CUTPA's coverage of unfair or deceptive acts or practices "in the conduct of any trade or commerce." General Statutes § 42-110b(a). ³ The court noted that none of CUTPA's express exemptions referred to security transactions; see General Statutes § 42-110c; ⁴ and observed that CUTPA, as a remedial statute, should be generously construed to protect the victims of unfair or deceptive trade practices. General Statutes § 42-110b(d); ⁵ Hinchliffe v. American Motors Corporation, 184 Conn. 607, 615, 440 A.2d 810 (1981). In further support of the trial court's position, the plaintiff reminds us that CUSA itself does not purport to preempt "other rights [and remedies] that may exist at law or in equity." General Statutes § 36-498. Although these contentions are certainly plausible, and the question of statutory construction is a close one, we have reached the opposite conclusion.

The crucial question is not whether CUSA transactions are exempt from CUTPA but whether CUTPA itself can fairly be interpreted to encompass such transactions in the first instance. We recognize the sweeping nature of the reference in § 42-110b(a) to "deceptive acts or practices in the conduct of any trade or commerce" (emphasis added) and the breadth of the definition of "trade" and "commerce" in § 42-110a(4). ⁶ This statutory language must, however, be reconciled with the equally unconditional statutory language that, in construing § 42-110b(a), "the commissioner and the courts of this state shall be guided by interpretations given by the Federal Trade Commission and the federal courts to Section 5(a)(1) of the Federal Trade Commission Act (15 U.S.C. 45(a)(1)), as from time to time amended." General Statutes § 42-110b(b).

This court has repeatedly held, in accordance with this statutory instruction, that Federal Trade Commission (FTC) rulings and cases under the Federal Trade Commission Act (FTC Act) serve as a lodestar for interpretation of the open-ended language of CUTPA. McLaughlin Ford, Inc. v. Ford Motor Co., 192 Conn. 558, 567-68, 473 A.2d 1185 (1984); Conaway v. Prestia, 191 Conn. 484, 492-93, 464 A.2d 847 (1983); Ivey, Barnum & O'Mara v. Indiana Harbor Properties, Inc., 190 Conn. 528, 533-34, 461 A.2d 1369 (1983); Heslin v. Connecticut Law Clinic of Trantolo & Trantolo, 190 Conn. 510, 517-18, 461 A.2d 938 (1983); Hinchliffe v. American Motors Corporation, supra. In Heslin v. Connecticut Law Clinic of Trantolo & Trantolo, supra, 518-19, 461 A.2d 938, in determining the applicability of CUTPA to the provision of legal services, we undertook a searching inquiry of the federal cases and of the statements of the FTC before concluding that CUTPA applied to attorneys. In Ivey, Barnum & O'Mara v. Indian Harbor Properties, Inc., supra, 190 Conn. 534-36, 539-40, 461 A.2d 1369, we looked to the standards developed by the FTC for our determination of what constitutes a cognizable unfair or deceptive practice under CUTPA.

Our recent decision in Mead v. Burns, 199 Conn. 651, 509 A.2d 11 (1986), does not signal a departure from this interpretative principle. We there concluded that CUTPA covered deceptive practices in the insurance industry although the FTC does not presently regulate such conduct. In reaching that conclusion, we relied upon federal legislation, the McCarran-Ferguson Act, 15 U.S.C. § 1012(b), which recognizes that federal regulation of insurance by the FTC would be appropriate "to the extent that such business is not regulated by State Law." See also United States v. SouthEastern Underwriters Assn., 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944). Since federal law has thus authoritatively informed us that insurance is presumptively within the ambit of the FTC, we were led to a similar conclusion about the coverage of CUTPA.

Application of the FTC lodestar to this case leads us to conclude that CUTPA does not apply to deceptive practices in the purchase and sale of securities. The FTC has never undertaken to adjudicate deceptive conduct in the sale and purchase of securities, presumably because such transactions fall under the comprehensive regulatory umbrella of the Securities and Exchange Commission. See Securities Act of 1933, 15 U.S.C. § 77a et seq.; Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. Despite the breadth of the language of § 5(a)(1) ⁷ of the FTC Act, which, read literally, would include security transactions, the plaintiff has cited no case in which the FTC or a federal court has applied the FTC Act to a securities transaction and we have found none. Indeed, in an agency statement listing the types of transactions and conduct to which the FTC Act applies, the FTC makes no mention of securities. 3 Trade Reg.Rptr. (CCH) p 9551, pp. 17,021-22. Consequently, in this case, taking our guidance from the FTC, we must construe CUTPA as not purporting to cover transactions for the purchase and sale of securities.

This conclusion finds support in the totality of the legislative and administrative patterns regulating deceptive practices in this state. In contradistinction to the statutes governing unfair insurance practices;...