Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-01510/USCOURTS-cand-3_05-cv-01510-15/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

ROYAL YATES,

Plaintiff(s),

v.

GUNNALLEN FINANCIAL and CURT

WILLIAMS,

Defendant(s).

)

)

)

)

)

)

)

)

)

)

)

No. C05-1510 BZ

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

Case 3:05-cv-01510-BZ Document 87 Filed 06/30/06 Page 1 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

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

Case 3:05-cv-01510-BZ Document 87 Filed 06/30/06 Page 2 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

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). 

Case 3:05-cv-01510-BZ Document 87 Filed 06/30/06 Page 3 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

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

Case 3:05-cv-01510-BZ Document 87 Filed 06/30/06 Page 4 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5

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

Case 3:05-cv-01510-BZ Document 87 Filed 06/30/06 Page 5 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6

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.

Dated: June 30, 2006

 Bernard Zimmerman

United States Magistrate Judge

G:\BZALL\-BZCASES\YATES 2\ORDER.DENY.51.59.MOTIONS.5.wpd 

Case 3:05-cv-01510-BZ Document 87 Filed 06/30/06 Page 6 of 6