Schaffer v. Edward D. Jones & Co.

• Decision Date: 24 April 1996
• Docket Number: No. 19277,19277
• Citation: 552 N.W.2d 801,1996 SD 94
• Court: South Dakota Supreme Court
• Parties: Edward SCHAFFER, Plaintiff and Appellee, v. EDWARD D. JONES & CO., Defendant and Appellant. . Considered on Briefs

Page 801

552 N.W.2d 801

1996 SD 94

Edward SCHAFFER, Plaintiff and Appellee, v. EDWARD D. JONES & CO., Defendant and Appellant.

No. 19277.

Supreme Court of South Dakota.

Considered on Briefs April 24, 1996.

Decided July 24, 1996.

Michael J. Schaffer of Davenport, Evans, Hurwitz and Smith, Sioux Falls, for plaintiff and appellee.

Robert D. Hofer and David A. Pfeifle of Riter, Mayer, Hofer, Wattier & Brown, Pierre, for defendant and appellant.

GILBERTSON, Justice.

¶1 Edward D. Jones & Co. (Jones) appeals from a judgment awarding Edward Schaffer punitive damages in the amount of $750,000. Jones also appeals the trial court's post-trial order denying Jones' motions for a new trial or, in the alternative, for vacatur or remittitur of the punitive damages award, and for judgment notwithstanding the verdict or, in the alternative, for a new trial. We affirm.

FACTS AND PROCEDURE

¶2 This appeal derives from the retrial on the issue of punitive damages following our decision in Schaffer v. Edward D. Jones & Co., 521 N.W.2d 921 (S.D.1994) (Schaffer I ). The facts relevant to this appeal were set forth fully in Schaffer I and will therefore be discussed only briefly herein as necessary. In the trial which led to Schaffer I, the jury awarded Schaffer $25,000 in compensatory damages for fraud, deceit, and misrepresentation based upon the sale of a Natural Resource Management (NRM) oil and gas income limited partnership investment. The jury further awarded $500,000 in punitive damages. ¹ We remanded the case for a new trial on the punitive damages. We held that the trial court should have admitted, for the jury's consideration, evidence of Jones' financial worth as well as evidence of Schaffer's profitable investments with Jones, both of which could have had a mitigating effect on the amount of punitive damages awarded. In the second trial, the jury could have awarded none or any amount of punitive damages. Schaffer I, 521 N.W.2d at 926, n. 8.

¶3 The jury in the second trial found in favor of Schaffer and against Jones and awarded Schaffer punitive damages in the amount of $750,000. The trial court denied Jones' post-trial motions for a new trial, judgment notwithstanding the verdict, or for vacatur or remittitur of the punitive damage award. Jones appeals the denial of these post-trial motions and further appeals the final judgment, raising the following issues:

1. Did the trial court err in allowing testimony of an expert witness who admitted having no expertise on limited partnership investments?

2. Did the trial court err in submitting instructions and a verdict form which Jones claimed removed from the jury the issue of whether Jones' conduct justified a punitive damage award?

3. Did the trial court err in refusing to instruct the jury on the clear and convincing burden of proof standard?

4. Did the trial court abuse its discretion in failing to order vacatur or remittitur of the punitive damages award?

¶4 We will address these issues in the order in which they are appealed.

ANALYSIS AND DECISION

¶5 1. Did the trial court err in allowing testimony of an expert witness who admitted having no expertise on limited partnership investments?

¶6 We review questions of the admissibility of an expert witness' testimony under an abuse of discretion standard. State v. Hill, 463 N.W.2d 674, 676 (S.D.1990). We have long acknowledged that the trial court has broad discretion concerning the admission of expert testimony. Id. (citing State v. Bachman, 446 N.W.2d 271 (S.D.1989); United States v. Purham, 725 F.2d 450 (8th Cir.1984)). The trial court's decision on such matters will not be reversed absent a clear showing of an abuse of discretion. Id. (citing State v. Logue, 372 N.W.2d 151 (S.D.1985)).

¶7 Expert witness testimony is admissible under the statutory authority found within SDCL 19-15-2, which provides:

If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise.

¶8 This statute serves four distinct functions: 1) it authorizes the use of expert testimony; 2) it provides the standard for determining whether expert testimony should be admitted in a particular case; 3) it provides a basis for determining whether an individual should be accorded expert status; and 4) it expands the form that expert testimony may assume. John W. Larson, South Dakota Evidence 475 (1991) (citing G. Weissenberger, Weissenberger's Federal Evidence § 702.1 at 297-98 (1987)). Whether an expert's testimony is admissible depends upon whether the testimony would assist the trier of fact in understanding the evidence or determining a fact in issue. It is for the trial court to make the initial decision on whether the testimony will assist the trier of fact. Nebraska Depository Inst. Guar. Corp. v. Stastny, 243 Neb. 36, 497 N.W.2d 657, 670 (1993). In Hill, 463 N.W.2d at 677, we stated "the determining factor in admitting expert testimony is if it would assist the jury in understanding matters that normally would not lie within a layman's breadth of knowledge." (citing State v. Swallow, 350 N.W.2d 606 (S.D.1984)). " 'When opinions are excluded, it is because they are unhelpful and therefore superfluous and a waste of time.' " Wilkinson v. Rosenthal & Co., 712 F.Supp. 474, 479 (E.D.Pa.1989) (quoting FedREvid 702 advisory committee's note).

¶9 Schaffer's expert witness, Robert Leacox, testified regarding the risks inherent in the NRM investment purchased by Schaffer as outlined in the fund's prospectus. Leacox also testified regarding the financial health of the NRM partnership as analyzed by three Jones officials in a July 1983 interoffice memorandum to Jones' managing partner. Leacox's testimony established what Jones' management knew about the risks involved in Schaffer's investment and when Jones knew of these risks. The jury could then compare this information with what Jones' broker, who sold Schaffer the investment, represented to Schaffer about the risks. In this case, Bill Edwards, the Jones broker who sold Schaffer the NRM income fund, testified that he had represented the fund as a "low risk conservative investment" when he sold it to Schaffer in September 1983. Schaffer received a sales brochure from Jones which represented the investment as low risk and "as safe as bonds." Approximately one month after purchasing the fund, Schaffer received the prospectus which provided what Schaffer believed to be a very different perspective on the risks associated with his investment. At that point, Schaffer called Edwards to back out of the investment and was informed that he could not as there was no re-sale market for this type of limited partnership investment. The prospectus indicated, as Leacox testified, that the investment was speculative and the risks were in fact high.

¶10 Jones challenges the admission of this testimony, claiming Leacox has no expertise on the subject of limited partnerships and, as such, could offer no opinion greater than that of a layperson. However, in reviewing Leacox's testimony, we note Leacox did not offer the objectionable testimony which Jones attributes to him. Rather, his testimony on direct examination by Schaffer narrowly focused on interpreting the investment risks as outlined in the prospectus received by Schaffer one month after he invested in NRM, and in explaining the analysis of NRM's financial condition described in Jones' interoffice memorandum written July 1983, two months before Schaffer invested in NRM. As a former stockbroker and manager of brokerage companies with 23 years of experience in the brokerage business, Leacox was sufficiently qualified to provide testimony on these subjects. See Wilkinson, 712 F.Supp. at 478 (finance professor permitted to testify concerning basic principles of commodities investing but not permitted to testify concerning excessive commodities trading in which he demonstrated insufficient knowledge of the subject matter).

¶11 It is true that on cross-examination, Jones extensively questioned Leacox on his knowledge of limited partnerships and Leacox admitted his lack of expertise on this subject. However, Jones cannot now claim error on testimony it solicited upon cross-examination. After Jones opened the door on this evidentiary subject, Schaffer, on redirect, attempted to go into these same areas. Jones objected on the basis of lack of expertise and the trial court properly sustained the objection.

¶12 During voir dire of the jury in the second trial, it was learned that few of the jurors had experience in investing with brokerage firms. As such they may not have had knowledge of investment risks and terminology from their own experience and would have been assisted by such explanation. See FDIC v. First Interstate Bank of Des Moines, N.A., 885 F.2d 423, 435 (8th Cir.1989) (expert witness testimony was admissible where it assisted jurors in understanding the function of bank's investment department, role of investment officers, and in gauging the importance of various information to these officers in handling investment accounts). We find Leacox's testimony to be sufficiently helpful to the jury under the standard set forth in SDCL 19-15-2 in understanding the issues involved in this case. We find no abuse of the trial court's discretion in its admission of this testimony.

¶13 2. Did the trial court err in submitting instructions and a verdict form which Jones claimed removed from the jury the issue of whether Jones' conduct justified a punitive damage award?

¶14 We review jury instructions as a whole and they are sufficient if they correctly state the law and so inform the jury. The trial court should instruct the jury on issues supported by competent evidence in the record and is not required to instruct on issues...