Summary
In Trickett, the defendant stockbroker breached its fiduciary duty to plaintiff by causing plaintiff's Time Warner stock options to be exercised without plaintiff's consent.
Summary of this case from Karnes v. FlemingOpinion
Civil Action No. 3:98-CV-2912-M.
December 26, 2000.
MEMORANDUM OPINION AND JUDGMENT U.S. DISTRICT CLERK'S OFFICE
Before the court is Plaintiff's Motion for Judgment on the Jury Verdict and to Disregard a Jury Finding, filed on September 6, 2000, and Defendant's Motion for Entry of Judgment, filed on September 13, 2000.
Having considered the record, jury findings, briefs of the parties, applicable law, and arguments of counsel in a hearing held in open court on November 6, 2000, and for the reasons stated below, the court is of the opinion that Plaintiff's motion should be GRANTED and Defendant's motion should be DENIED.
Plaintiff John Trickctt was a customer of Defendant A.G. Edwards Sons, Inc. Included in Plaintiff's portfolio were stock options in Time Warner, which Plaintiff had received as an employment benefit when Time Warner acquired New Line Cinema, Plaintiff's employer. In 1996, Plaintiff wanted to obtain information about the options, and as directed by Defendant, Plaintiff filled out certain option exercise forms, which Defendant sent to Time Warner. Upon receipt of the forms, Time Warner exercised Plaintiff's options. Upon exercise, Plaintiff received shares of Time Warner stock. He sold most of these shares to pay the option exercise price. Plaintiff brought claims against Defendant for causing his Time Warner stock options to be exercised without his consent, alleging that the original option exercise forms were wrongly sent by Defendant to Time Warner.
Plaintiff also sued Lafitte individually, but he dismissed his claims against Lafitte during the trial of this case. Defendant filed third-party claims against Time Warner, but those claims were settled and dismissed before trial.
The court tried this case to a jury beginning on August 23, 2000. On August 25, 2000, the jury returned its verdict, finding, among other things that: (1) Defendant knowingly engaged in false, misleading and deceptive acts which were a producing cause of damages to Plaintiff under the Deceptive Trade Practices Act ("the DTPA"); (2) $247,802 in actual damages would fairly and reasonably compensate Plaintiff for his damages; (3) Defendant had a fiduciary duty to Plaintiff; (4) Defendant failed to comply with its fiduciary duty; (5) Defendant's negligence was the proximate cause of the occurrence in question; and (6) Plaintiff ratified the transaction at issue. The jury also found reasonable attorney fees for the Plaintiff of $82,000 for the preparation and trial of the case, $15,000 for an appeal to the Fifth Circuit Court of Appeals, and $40,000 for an appeal to the United States Supreme Court.
Plaintiff urges this court to disregard the jury's finding as to the defense of ratification and to enter a judgment reflecting the jury's findings on actual damages and attorney fees. Defendant, on the other hand, moves this court to enter a judgment in its favor, based on (1) the ratification defense, which Defendant claims defeats the negligence and breach of fiduciary duty claims, and (2) the absence of competent evidence to support the jury's finding of a DTPA violation. In the alternative, Defendant asks this court to limit Plaintiff's damages to $30,882, the difference in value, before and after exercise, of Plaintiff's stock options.
In response to Defendant's motion, Plaintiff claims the facts and law do not support the ratification defense. The court notes that "[j]udgment as a matter of law is proper after a party has been fully heard by the jury on a given issue, and `there is no legally sufficient evidentiary basis for a reasonable jury to have found for that party with respect to that issue.'" Foreman v. Babcock Wilcox Co., 117 F.3d 800, 804 (5th Cir. 1997), cert. denied, 522 U.S. 1115 (1998) (quoting FED. R. Civ. P. 50(a)). This court agrees that the ratification answer is insupportable factually and legally. The court instructed the jury that "[r]atification may be express or implied," and defined implied ratification as follows:
Implied ratification occurs if a party, though he may have been unaware of unauthorized conduct taken on his behalf at the time it occurred, retains the benefits of the transaction involving the unauthorized conduct after he acquired full knowledge of the unauthorized conduct.
The evidence is undisputed that Plaintiff did not have available funds to pay for the exercise of his options, so he sold some of the Time Warner stock to pay for it. Defendant notes that after it "raised the possibility of continuing to seek alternatives to selling the stock," Plaintiff remarked "drop it, it's over, forget about it," and Plaintiff retained the unsold Time Warner stock. Plaintiff's comment and action, however, do not constitute a ratification of the exercise of his Time Warner options; at most, they reflect his agreement to sell some portion of that stock to pay for the exercise. The evidence at trial confirmed that once the exercise of Plaintiff's options had occurred, it could not be undone, and Plaintiff, or someone else acting for him, had to pay for the exercise of those options. As a matter of law, Plaintiff's acquiescence to the sale of some of his stock to pay for the unauthorized exercise of his stock options cannot constitute a ratification of the exercise. Similarly, Plaintiff's retention of the remaining stock cannot constitute a ratification of Defendant's conduct, because the right to that stock, upon exercise, belonged to the Plaintiff, not to the Defendant. Thus, the court GRANTS that part of Plaintiff's motion urging the court to set aside the jury's finding on the ratification issue and DENIES that part of Defendant's motion requesting the court to recognize the jury's ratification finding and enter a verdict for it based on that finding.
Because the jury's finding on the ratification issue has been set aside, Plaintiff can recover on the jury verdict for negligence and breach of fiduciary duty. However, the attorney fee claim is based solely on the DTPA finding. See TEX. BUS. COM. CODE § 17.50(d) (a prevailing party on a DTPA claim is entitled to "reasonable and necessary" attorney fees). Defendant argues that there is no competent evidence to support the jury's DTPA finding. After reviewing the evidence, the court is of the opinion that there is evidence from which the jury reasonably could have found a DTPA violation. Therefore, the court will not set aside the jury's finding of a DTPA violation.
Defendant next contends that the court should limit Plaintiff's damage award to $30,882, the difference in the value of Plaintiff's stock options immediately before and after the time of exercise. Plaintiff argues, in contrast, that the court should enter judgment based on the jury's damages finding of $247,802, the value of the sold stock options had Plaintiff retained them to the time of trial, as calculated by Plaintiff's expert. In support of that position, Plaintiff cites the evidence that, (1) but for the wrongful exercise by Defendant, Plaintiff would have held all of the options, since he planned to exercise them at a future time after trial when his daughter would attend college, and (2) he could not "cover his losses" because, even if he could have found a seller of identical or similar options, he did not have sufficient funds to buy them. Plaintiff argues that under the facts here, he will not be fairly compensated for the consequential damages caused by Defendant's wrongful actions if his recovery is limited to the value of the options at the time of the wrongful exercise. In response, Defendant urges that Plaintiff's damage theory is flawed, because there is an arbitrary aspect to the temporal calculation — i.e., when the case actually went to trial — and a speculative and unforeseeable quality to the calculation — i.e., the value of the stock options during trial, which would depend largely on general market factors, and not on Defendant's conduct.
Plaintiff cites to Miga v. Jensen, 25 S.W.3d 370 (Tex.App.-Fort Worth, no pet.) to support his claim to the larger damage figure. In that case, defendant Jensen gave his employee, plaintiff Miga, an option to buy stock in Pacific Gateway Exchange ("PGE"). Id. at 374. The relationship between Jensen and Miga deteriorated and Miga signed a "termination agreement." Id. For nine months after his termination, Miga repeatedly tried to exercise the PGE option. Id. "Each time, Jensen refused, claiming that Miga had released the option." Id. Miga then sued to recover for damages resulting from Jensen's refusal to honor the option. Id. Jensen argued that contract damages must be limited to the value of the PGE stock at the time Miga "resigned." Id. at 377. The Miga court disagreed, holding that lost profits should be included in the measure of damages in that case. Id. at 378. In so doing, the court stated that the "risk of price fluctuations should fall on Jensen" because of (1) Jensen's "willful" conduct and (2) Miga's inability to "cover his loss." Id. The court further stated:
In this case, it was impossible for Miga to replace the stock within a reasonable time after Jensen failed to deliver because the stock was not publicly traded at the time of the breach. When the stock later went public, Miga could not afford to pay the $12 per share opening price. Under the circumstances here, it would be unjust to limit Miga's recovery to the stock price on the date of breach . . . Because Jensen's wrongful conduct prevented Miga from having the stock, Jensen should bear the uncertainty of whether Miga would have held or sold the stock.Id. at 378-79 (citation omitted).
In support of its position, Defendant cites Reed v. White, Weld Co., Inc., 571 S.W.2d 395 (Tex.Civ.App.-Texarkana 1978, no writ). See also ContiCommmodity Servs., Inc. v, Ragan, 63 F.3d 438, 444 (5th Cir. 1995), cert. denied, 517 U.S. 1104 (1996) (when customer of commodities trading firm asserted a conversion claim against firm for converting the balance in customer's account by closing the account, the court affirmed the district court's grant of summary judgment on the conversion claim, stating that "[a] failure to either reinvest or demand reinstatement of one's trading position amounts to a decision to get out of the market and not risk a further loss."); Varel Mfg. Co. v. Aceytlene Oxygen Co., 990 S.W.2d 486, 498 (Tex.App.-Corpus Christi 1999, no pet.) ("[w]here conversion is unmixed with fraud or other egregious conduct by defendant, conversion damages are not subject to the whim of the plaintiff; and the courts are admonished not to unjustly enrich either the wrongdoer or the complaining party.") (citing United Mobile Networks, L.P. v. Deaton, 939 S.W.2d 146, 147-48 (Tex. 1997)). The court in Reed stated that absent fraud, willful wrong, or gross negligence, the measure of damages in a stock conversion suit is the "highest intermediate value of the stock between the time of its conversion and a reasonable time after the owner has received notice of the conversion to enable him to replace the stock." Reed, 571 S.W.2d at 397 (citations omitted). In support of its holding, the court in Reed noted that "[t]he injured party is thus fully compensated, because he can go into the market and make himself whole by purchasing property of like character as that of which he has been wrongfully deprived." Id. Unlike Reed, this case does not involve the sale of stock for which Plaintiff can make himself "whole" by simply going back into the market and either re-purchasing that stock or purchasing similar stock. Instead, this case involves the sale of stock options, which, as the evidence at trial revealed, are unique and not available in that form on the open market; further, neither options nor stock were replaceable by Plaintiff, because his financial situation did not permit it.
Both the courts in Miga and Reed focused on the notion that, if possible, the damaged Plaintiff should be made whole. In fact, that is the principal function of damages. See Douglas v. Delp, 987 S.W.2d 879, 885 (Tex. 1999); Transportation Ins. Co, v. Moriel, 879 S.W.2d 10, 16 (Tex. 1994). Defendant committed the wrong in this case by delivering original option exercise forms to Time Warner, based on which Time Warner exercised Plaintiff's options. Defendant's conduct led to a situation very much like that which occurred in Miga. Plaintiff here could not afford to buy replacement options in the market, nor did Defendant offer to do so on his behalf Although Plaintiff's expert testified that Defendant could have written and granted to Plaintiff an option on the same terms as his lost options, Defendant did not do that either. Because, as in Miga, Plaintiff could not cover for the loss created solely by Defendant's conduct, it would be unjust to limit Plaintiff's recovery to the difference in value of his stock options immediately before and after the time of exercise. Miga, 25 S.W.2d at 378. Under these circumstances, it is Defendant which should bear the risk of the stock options' fluctuating value. Id. For this reason, the court GRANTS that part of Plaintiff's motion urging the court to enter judgment on the jury verdict of $247,802 in damages and DENIES that part of Defendant's motion requesting the court to reform the jury's damages award to $30,882. However, as the court held in Miga, and as Plaintiff concedes, such a recovery should not generate pre-judgment interest. See id. at 381. Based on this court's determination of damages, that part of Defendant's motion urging the court to reform the jury's verdict on attorney fees, since it was based on a percentage of the damage award, is DENIED.
The court further notes Defendant's argument that the value of Plaintiff's options depended on the fluctuating price of the underlying stock and, because Plaintiff's expert's damage calculation of $247,802 was based on the value of the options on August 22, 2000 and not on August 25, 2000, when the jury deliberated and rendered its verdict, the $247,802 figure was necessarily incorrect. The court rejects this argument. The damage evidence was established with reasonable certainty. See generally Texas Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276, 279 (Tex. 1994).
The higher damage figure is also appropriate here because, as Texas courts have held, the plaintiff in a DTPA case is entitled to the most liberal recovery that he can plead and prove. See Farrell v. Hunt, 714 S.W.2d 298, 300 (Tex. 1986); Griffith v. Porter, 817 S.W.2d 131, 137 (Tex.App.-Tyler 1991, no writ); A.V.I., Inc. v. Heathington, 842 S.W.2d 712, 715 (Tex.App.-Amarillo 1992, writ denied).
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that the Plaintiff John Trickett shall recover Judgment against Defendant A.G. Edwards Sons, Inc. in the sum of $247,802, plus attorney fees in the amount of $82,000 for the preparation and trial of this case, $15,000 for an appeal to the Fifth Circuit Court of Appeals, and $40,000 for an appeal to the United States Supreme Court. It is further ORDERED that the Plaintiff shall recover taxable court costs and post-judgment interest on all sums at 6.052% per annum until paid.
SO ORDERED.