Opinion
No. C05-1510 BZ.
June 30, 2006
ORDER DENYING RULE 50 AND RULE 59 MOTIONS AND REMITTING PUNITIVE DAMAGES
The motions of defendants GunnAllen Financial ("GunnAllen") and Curt Williams for judgment as a matter of law pursuant to Rule 50(b) on the punitive damage claim or, in the alternative, for a new trial pursuant to Rule 59(a) on the issue of punitive damages are DENIED for the reasons given during oral argument and for the following reasons:
1. Defendants cannot now claim that the jury was inadequately instructed on certain punitive damage issues because the instructions given by the court were either instructions submitted by defendants or joint instructions to which defendants had agreed. U.S. v. Baldwin, 987 F.2d 1432, 1437 (9th Cir. 1993) ("Where the defendant himself proposes the jury instruction he later challenges on appeal, we deny review under the invited error doctrine.").
2. The jury's award of punitive damages was not contrary to the weight of the evidence. McEuin v. Crown Equipment Corp., 328 F.3d 1028, 1036 (9th Cir. 2003) ("Judgment as a matter of law is proper if the evidence, construed in the light most favorable to the nonmoving party, permits only one reasonable conclusion, and that conclusion is contrary to the jury's.") (internal quotations and citation omitted). Ample evidence supported the jury's award, including: (a) evidence of excessive trading or turnover in plaintiff's account which he testified that he did not authorize, (b) evidence of the substantial commissions earned by defendants in two months, more than half of the value of plaintiff's account at the inception of the "churning," (c) evidence that it would have been virtually impossible for plaintiff to earn a rate of return sufficient to offset the commissions charged, (d) evidence that defendants had never presented plaintiff with a commission schedule and that the statements that plaintiff received were formatted to make it very difficult to determine what commissions he was being charged and (e) evidence that following plaintiff's complaint, GunnAllen reviewed his account and concluded that there had been no impropriety, from which the jury could have concluded that whatever Williams did, it was not a personal lark but was consistent with GunnAllen's policies and practices and that Williams' conduct had been ratified or approved by GunnAllen.
3. The fact that plaintiff is an experienced trader and did not object to the defendants characterizing him as an "aggressive" trader is beside the point. Jt. Pretrial Stmt. 4:7-9 [doc # 30-1]. Plaintiff is not complaining that he was placed in an aggressive investment which he authorized or approved and which subsequently lost value; rather he presented evidence that defendants were churning his account to earn themselves commissions and not to earn him money.
4. Defendants did not help their case by not testifying. The only testimony from any GunnAllen employee was a few portions of the depositions of Renee Emerick and Emil Dimitrov introduced by plaintiff. The jury heard no percipient defense witness explain the strategy behind the substantial turnover in plaintiff's accounts on certain days.
5. The size of the jury's award, however, is excessive under the factors enumerated in State Farm Mutual Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003). "Whether an award comports with due process is measured by three guideposts: (1) the degree of reprehensibility of the defendant's misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases." Planned Parenthood of Columbia/Willamette Inc. v. American Coalition of Life Activists, 422 F.3d 949, 953 (9th Cir. 2005). See also Bains LLC v. Arco Products Co., 405 F.3d 764, 775 (9th Cir. 2005).
6. The most important guidepost is the reprehensibility of defendants' conduct. State Farm, 538 U.S. at 419. Some of the factors which make a defendant's conduct reprehensible do not exist here. The harm to plaintiff was economic, not physical, and it did not endanger his health or safety. Plaintiff was not financially vulnerable and was not subject to the sorts of misrepresentations and inducements often found in other churning cases. See, e.g., Hatrock v. Edward D. Jones Co., 750 F.2d 767 (9th Cir. 1984) (broker's misleading assurances of rumored takeover induced young couple to buy stock); Hobbs v. Bateman Eichler, Hill Richards, Inc., 164 Cal.App.3d 174 (1985) (broker took advantage of widow with no previous investing experience). Plaintiff's compensatory damages, together with his prejudgment interest, have made him whole. See State Farm, 538 U.S. at 426. At the same time, churning an account for commissions is financially reprehensible and there was no evidence from either defendant explaining their conduct.
7. As to the second guidepost, against GunnAllen the jury awarded punitive damages of exactly six times compensatory damages. While this single digit ratio satisfies due process as determined by the Supreme Court in State Farm, 538 U.S. at 425, it is higher than the ratio suggested by the Supreme Court and the Ninth Circuit for cases in which plaintiff has received substantial compensatory damages. "[A]n award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety." State Farm, 538 U.S. at 425; Planned Parenthood, 422 F.3d at 962 (in cases which awarded plaintiff economic damages and defendant's behavior was not particularly egregious, "a ratio of up to 4 to 1 serves as a good proxy"). The ratio of six to one is also just outside the high end of the range of punitive damage awards in other cases cited by plaintiff, all of which were decided several years before State Farm and BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996). See, e.g., Hatrock, 750 F.2d at 772 (upholding a punitive damage award of $200,000 against the brokerage company following an award of $37,000 in compensatory damages for a ratio of 5.4 to 1.0).
8. The third guidepost is not very helpful here. It does not appear that federal or state law authorizes civil penalties in churning cases. 15 U.S.C. § 78bb(a). A federal crime analogous to churning would be wire fraud, which is punishable by a fine of up to $500,000 for an organization and up to $250,000 for an individual. See 18 U.S.C. § 1343; 18 U.S.C. § 3571(b) and (c).
Having found the amount of the punitive damages to be excessive, I have two options.
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 a remittitur.Fenner v. Dependable Trucking Co., 716 F.2d 598, 603 (9th Cir. 1983). Accordingly, IT IS ORDERED that defendants' Rule 50 and Rule 59 motions are DENIED except that GunnAllen's motion for a new trial pursuant to Rule 59(a) on the issue of the amount of punitive damages is DENIED on condition that plaintiff accept a remittitur of the amount of punitive damages to $721,146, or three times the amount of compensatory damages. Plaintiff shall file an election to accept or reject the remittitur by July 17, 2006.