Webster v. Edward D. Jones

• Decision Date: 27 April 1999
• Docket Number: Nos. 98-1105,98-1156,s. 98-1105
• Parties: (6th Cir. 1999) Paul S. Webster, Plaintiff-Appellee, Cross-Appellant, v. Edward D. Jones & Co., L.P., Defendant-Appellant, Cross-Appellee. Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 815

197 F.3d 815 (6th Cir. 1999)

Paul S. Webster, Plaintiff-Appellee, Cross-Appellant, v. Edward D. Jones & Co., L.P., Defendant-Appellant, Cross-Appellee.

Nos. 98-1105, 98-1156

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: April 27, 1999

Decided and Filed: October 8, 1999

Appeal from the United States District Court for the Eastern District of Michigan at Detroit, No. 96-72956--John Corbett O'Meara, District Judge.

Patrick R. Hogan, LASKY, FIFAREK & HOGAN, Lansing, Michigan, for Appellee.

Stephen S. Muhich, Mark E. Derwent, DYKEMA GOSSETT, PLLC, Grand Rapids, Michigan, for Appellant.

Before: MARTIN, Chief Judge; BOGGS and COLE, Circuit Judges.

OPINION

BOYCE F. MARTIN, JR., Chief Judge.

Edward D. Jones & Company, L.P. appeals the district court's denial of its Rule 50 motions and motion for a new trial in Webster's breach of contract action arising from Jones & Co.'s failure to sell certain shares of stock.

I.

In 1991, Paul S. Webster owned about six million shares of stock in a company named Comparator. The stock was restricted and bore a restriction legend, the reason for which is unnecessary for this decision. Periodically, however, Comparator issued an opinion letter which allowed Webster to sell some of his stock through a broker who, in turn, would get the restriction legend lifted. In April 1996, Comparator agreed to lift the restriction from the remaining stock. Webster sent his certificate to United Stock Transfer to have the legend lifted. Webster instructed United Stock Transfer to send one unrestricted certificate for 500,000 shares to Rocky Mountain Securities and Investments, Inc. and one unrestricted certificate to Webster for 3.25 million shares, the amount remaining of the initial six million.

On Saturday, May 4, Webster discovered that the price of Comparator stock had risen from three cents a share to forty-three cents a share. When Webster received his certificate on Tuesday May 7, he decided to sell his shares immediately. He located the office of Jones & Co. and met with broker Peter Keay. Keay contacted Matt Lung, a trader, and informed him that Webster had 3.25 million shares of stock to sell. Lung contacted the office's restricted securities team, who asked Webster numerous questions about his status in the company and the status of his certificate. Eventually, Lung gave clearance to sell the shares.

Although both parties stipulate that they entered into a contract at this time, they disagree on the terms of the contract. Webster testified that he instructed Keay to sell the entire 3.25 million shares and that Keay replied: "if you put that much out at once it will crush the market." Webster further testified that they agreed to put 2 million shares up for sale, although he was unable to remember who suggested the number. Keay testified to the contrary, stating that Webster was concerned about putting all 3.25 million shares up for sale because Webster thought the order could have an effect on the market. Keay testified that Webster told him to place an order for only 2 million shares, but that Keay would have liked Webster to sell all of his shares because the sale would result in a larger commission.

Keay placed an order to sell 2 million shares of Webster's stock, and Webster asked how long it would take to sell all the shares. Keay consulted with someone on the phone and answered that he could probably sell them all that day, but at the latest by noon on May 8. Webster does acknowledge that Keay did not guarantee the sale of all his shares by that time. Originally, Webster cited one and one eighths as his limit price, the minimum price at which he would sell his shares. Because the price of the stock kept falling, however, Webster continuously lowered his limit price and eventually ordered the stock to be sold at market price. When Keay had sold 320,000 of the 2 million shares, Webster told Keay to place all of his shares out for sale at market price.

Keay contacted Lung to place a second sell order for the remainder of the 3.25 million shares. Phil Schwab, Jones & Co.'s general partner in charge of over-the-counter trading and Lung's boss, temporarily suspended selling Webster's stock until Webster's stock certificate had been delivered to Jones & Co.'s St. Louis headquarters to confirm its validity. Keay sent Webster's certificate to St. Louis by overnight mail.

At 10:30 a.m. on May 8, Webster again stated that when his certificate cleared, he wanted to try to sell all 3.25 million shares. Approximately thirty minutes before the market closed that day, Schwab informed Keay that he could resume selling Webster's shares. At this time, Keay called Webster to reconfirm the number of shares he wished to sell. Keay testified that Webster said to "finish out the balance of the 2 million share order and then I will come into your office on the morning of May the ninth and discuss how we will handle the . . . additional 1.25 million order." Webster testified that he still wanted to sell all 3.25 million shares when Keay called him. Webster testified: "I said, 'do you think you're going to be able to sell it all today . . . ?' He said 'ah, probably not.' I said, 'well, ask them to sell however much they can . . . .' And I said 'if there's any left, I'll talk to you ... in your office first thing in the morning . . . and we'll get rid of the rest of it.'"

Keay managed to sell the remainder of the 2 million shares by the close of the market on May 8; however, Webster was unable to sell any more of his stock because on May 9, the National Association of Securities Dealers halted trading in Comparator stock pending an investigation into the unusual trading activity. The suspension remains in effect, although the stock has been trading informally. Webster testified at trial that after he filed his complaint, Keay contacted him and told him that Jones & Co. would still sell his remaining 1.25 million shares at whatever price they could. Webster declined the offer.

On June 27, Webster filed a complaint in district court against Jones & Co., alleging that Jones & Co. had breached its contract to sell all 3.25 million shares of Webster's Comparator stock. Webster alleged damages caused by Jones & Co.'s inability to complete the sale of 2 million shares by noon on May 8, and Jones & Co.'s refusal to sell the additional 1.25 million shares. Jones & Co. maintained that it had only contracted to sell 2 million shares, and that the contract had no fixed time for performance. Jones & Co. also requested a mitigation of damages instruction, which the court refused to give. The jury found that Jones & Co. had breached the contract and awarded Webster one million dollars in damages.

Jones & Co. moved for judgment as a matter of law at the close of Webster's evidence, which the district court denied. Jones & Co. renewed the motion at the close of all the evidence, and the district court once again denied the motion. Jones & Co. then filed a Motion for Judgment as a Matter of Law or New Trial pursuant to Federal Rules of Civil Procedure 50(b) and 59. The court denied the motion without prejudice, and Jones & Co. filed this appeal. Jones & Co. argues that the district court erred in denying its motions for judgment as a matter of law and for a new trial because Webster failed to present sufficient evidence from which the jury could conclude that Jones & Co. had breached its contract with Webster.

II.

In a diversity case, this Court reviews a district court's decision on a Rule 50 motion which challenges the sufficiency of the evidence under the applicable standard of the forum state. K & T Enters., Inc. v. Zurich Ins. Co., 97 F.3d 171, 175-76 (6th Cir. 1996). Because this is a diversity case, this Court applies Michigan law, which states that "[a] judgment notwithstanding the verdict is appropriate only if the evidence is insufficient as a matter of law to support a judgment for the nonmoving party." J.C. Wyckoff v. Associates, Inc., 936 F.2d 1474, 1483 (6th Cir. 1991). We must view the evidence in a light most favorable to Webster, the non-moving party. Mull v. Equitable Life Assurance Soc'y, 493 N.W.2d 447, 452 (Mich. Ct. App. 1992).

Conversely, we determine whether a district court should have ordered a new trial in a diversity action according to federal procedural law. Tobin v. Astra Pharm. Prod., 993 F.2d 528, 541 (6th Cir. 1993). The district court must compare the offered evidence and set aside the verdict only if it is against the clear weight of the evidence as a whole. Id. We review a district court's denial of a motion for a new trial for an abuse of discretion, which we have defined as "a definite and firm conviction that the trial court committed a clear error of judgment." Id.

To recover for breach of contract under Michigan law, Webster had to prove: 1) the existence of a contract between Jones & Co. and himself, 2) the terms of the contract, 3) that Jones & Co. breached the contract, and 4) that the breach caused his injury. Jones & Co. stipulated at trial that they did enter a contract with Webster, and the only contractual issue on appeal is the terms of the contract. Webster alleged that under the contract, Jones & Co. was to sell all 3.25 million shares by noon on May 8. Jones & Co., on the other hand, claims that it never agreed to sell the additional 1.25 million shares and that it never guaranteed the sale of the 2 million shares by noon on May 8.

Webster...