Seymour v. Summa Vista Cinema, Inc.

• Decision Date: 19 May 1987
• Docket Number: Nos. 85-6278,85-6307,s. 85-6278
• Citation: 809 F.2d 1385
• Parties: Muriel B. SEYMOUR and David Seymour, Plaintiffs-Appellees-Cross-Appellants, v. SUMMA VISTA CINEMA, INC., et al., Defendants-Appellants-Cross-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1385

809 F.2d 1385

55 USLW 2468

Muriel B. SEYMOUR and David Seymour Plaintiffs-Appellees-Cross-Appellants, v. SUMMA VISTA CINEMA, INC., et al Defendants-Appellants-Cross-Appellees.

Nos. 85-6278, 85-6307.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Sept. 4, 1986.

Decided Feb. 6, 1987.

As Amended on Denial of Rehearing and Rehearing En Banc May

19, 1987. ^*

Richard A. Love, Santa Monica, Cal., for plaintiffs-appellees-cross-appellants.

Robert A. Holtzman, Los Angeles, Cal., for defendants-appellants-cross-appellees.

Appeal from the United States District Court for the Central District of California.

Before WALLACE, BOOCHEVER and KOZINSKI, Circuit Judges.

KOZINSKI, Circuit Judge:

Facts

Appellees, Muriel B. Seymour and her son David Seymour, sued a variety of defendants for securities fraud in connection with the purchase of stock in Summa Vista Cinema, Inc. (Summa Vista). Claiming violations of federal securities law and common law fraud, they sought compensatory and punitive damages. The Seymours took a default judgment against J.R. Shestak III, the broker who actually induced the purchase, and entered into a settlement agreement with Summa Vista and related defendants. They then proceeded to trial against Shestak's employer, appellant J. Alexander Securities, Inc. (Alexander).

Evidence at trial showed that Shestak made several false representations and material omissions in inducing the Seymours to purchase the Summa Vista stock. There was also proof that Alexander failed to properly train and supervise Shestak, failed to adequately control his activities, and ignored problems with Shestak's behavior when the Seymours complained.

The jury initially returned a verdict in favor of Muriel Seymour for $570,000 compensatory and $180,000 punitive damages. ¹ The district court found that the compensatory damage figure far exceeded the amount supported by the evidence. Believing that the jury may have transposed the compensatory and punitive figures, the court reinstructed the jury and sent them back for further deliberations. This failed to correct the problem; the jury returned a second verdict awarding Mrs. Seymour $570,000 compensatory and $500,000 punitive damages.

Alexander moved for judgment notwithstanding the verdict or for a new trial. The district court denied the j.n.o.v. motion but granted the motion for new trial on the issue of damages only, conditioned on Muriel Seymour's agreement to remit all compensatory damages in excess of $180,000. The judge also disregarded the second verdict as "surplusage." Mrs. Seymour agreed to the remittitur and the court entered final judgment in her favor for $180,000 compensatory and $180,000 punitive damages. Both parties appeal.

Discussion

New Trial

Alexander complains that the jury verdict of $570,000 compensatory damages, which the district court recognized far exceeded the amount proved at trial, was the product of passion and prejudice, requiring a new trial on all issues. Alexander admits that the court's attempt to cure the defect by reinstructing the jury was proper. However, once the second verdict failed to correct the problem, Alexander contends, a new trial should have been granted. We review a district court's decision on a motion for new trial for abuse of discretion. McKinley v. City of Eloy, 705 F.2d 1110, 1117 (9th Cir.1983).

The district court found that the amount of the damage award may have resulted from passion and prejudice, but did not find, nor did Alexander establish, that the jury's finding of liability was tainted by prejudice. The fact that a jury may have been outraged by the defendant's conduct to the point of awarding excessive damages does not prove that its decision on liability was flawed. This case is different from Minnesota, St. Paul & Sault Ste. Marie Ry. v. Moquin, 283 U.S. 520, 51 S.Ct. 501, 75 L.Ed. 1243 (1931), where the Court ordered a new trial because counsel's misconduct in appealing to the passion and prejudice of the jury tainted the liability finding. There was no impermissible conduct in this case; Alexander relied entirely on the excessive jury award to prove passion and prejudice.

Where there is no evidence that passion and prejudice affected the liability finding, remittitur is an appropriate method of reducing an excessive verdict:

When the court, after viewing the evidence concerning damages in a light most favorable to the prevailing party, determines that the damages award is excessive, it has two alternatives. It may grant defendant's motion for a new trial or deny the motion conditional upon the prevailing party accepting an remittitur. The prevailing party is given the option of either submitting to a new trial or of accepting a reduced amount of damage which the court considers justified.

Fenner v. Dependable Trucking Co., 716 F.2d 598, 603 (9th Cir.1983) (citing Linn v. United Plant Guard Workers, 383 U.S. 53, 65-66, 86 S.Ct. 657, 664, 15 L.Ed.2d 582 (1966)); see also 6A J. Moore, Moore's Federal Practice p 59.08 at 59:126-27 ("it may be appropriate, where the verdict is excessive, to order a new trial unless the claimant remits a certain sum"). ²

Mrs. Seymour argues that the amount of compensatory damages awarded by the jury was supported by the evidence and the district court therefore erred in requiring her to remit a portion. But Mrs. Seymour may not appeal from the remittitur order she accepted below. Donovan v. Penn Shipping Co., 429 U.S. 648, 650, 97 S.Ct. 835, 837, 51 L.Ed.2d 112 (1977) (per curiam); 999 v. C.I.T. Corp., 776 F.2d 866, 873 (9th Cir.1985).

Sufficiency of the Evidence and Jury Instructions

Alexander contends that there was no evidence it knew the Seymours purchased Summa Vista stock so it could not properly be held liable for Shestak's fraud, nor for punitive damages under Cal.Civ.Code Sec. 3294. We believe the evidence supported a finding Alexander had at least constructive knowledge of the Summa Vista deal. In any event, Alexander is liable as a controlling person if (1) Alexander had actual power or influence over Shestak, and (2) Alexander was a culpable participant in the alleged illegal activity. Buhler v. Audio Leasing Corp., 807 F.2d 833, 835 (9th Cir.1987). Participation may be proven indirectly by showing that Alexander failed to establish a reasonable system of supervision and control. Id. at 836. In the broker-dealer context presented here, Alexander had actual power over Shestak as his employer and a corresponding duty to supervise him. See Ketsh v. General Council, 804 F.2d 546, 550 (9th Cir.1986); Zweig v. Hearst Corp., 521 F.2d 1129, 1134-35 (9th Cir.), cert. denied, 423 U.S. 1025 [96 S.Ct. 469, 46 L.Ed.2d 399] (1975). Alexander does not seriously dispute this, but claims instead there is no evidence to support the allegation that its supervision and training were inadequate. The evidence, however, clearly supports this claim. ³

Likewise, punitive damages were properly submitted. They could have been based on Alexander's own malice, evidenced by its failure to adequately control Shestak or to make an adequate investigation of his previous activities before hiring him, in reckless or conscious disregard for the rights of others. See Krusi v. Bear, Stearns & Co., 144 Cal.App.3d 664, 678-80, 192 Cal.Rptr. 793, 802-03 (1983). Prior to working for Alexander, Shestak was a defendant in two lawsuits alleging fraud and theft of customer lists. In view of the nature of Alexander's business involving reliance by customers, the jury could have found that Alexander's failure to investigate those incidents, coupled with its failure to adequately train or supervise Shestak, amounted to reckless or conscious disregard for the rights of others. In the alternative, the jury could have found that Alexander ratified Shestak's fraudulent activity, through knowledge and failure to act. See Hobbs v. Bateman Eichler, Hill Richards, Inc., 164 Cal.App.3d 174, 193-94, 210 Cal.Rptr. 387, 398 (1985); Greenfield v. Spectrum Investment Corp., 174 Cal.App.3d 111, 118, 219 Cal.Rptr. 805, 809 (1985). Indeed, there was evidence that Alexander tried to sweep certain of Shestak's misdeeds under the carpet instead of attempting to remedy them.

Alexander also claims the district court erred in giving an instruction on its fiduciary duty to the Seymours and in failing to give other instructions. These arguments are without merit. The fiduciary duty instruction properly described the relationship between the firm and the Seymours. See Hobbs, 164 Cal.App.3d at 201, 210 Cal.Rptr. at 403-04; Main v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 67 Cal.App.3d 19, 32, 136 Cal.Rptr. 378, 386 (1977). The failure to give the other instructions requested by Alexander was not error; the instructions as a whole fairly stated the applicable law. In addition, the record reflects that Alexander failed to properly object in most instances.

Finally, based on a pretrial stipulation, the district court refused to allow Alexander to present evidence that Shestak was really employed by another broker at the relevant time. Relief from a pretrial order is committed to the district court's discretion. Angle v. Sky Chef, Inc., 535 F.2d 492, 495 (9th Cir.1976). Alexander might have been entitled to relief had it demonstrated manifest injustice, as well as lack of prejudice to the Seymours and minimal inconvenience to the court. Id.; Fed.R.Civ.P. 16. Alexander could not show manifest injustice because its liability was unaffected by the excluded evidence: it continued to control Shestak with respect to the Seymours even though another entity technically might have been his employer. In addition, relief from the order would have prejudiced the Seymours, who had prepared for trial based on the stipulated employment relationship.

Settlement Offset

Prior to trial, the Seymours accepted a settlement from the Summa Vista defendants, consisting of a promissory note for $4000,...