Opinion ID: 546342
Heading Depth: 3
Heading Rank: 2

Heading: Duty of a Broker

Text: 19 Whether Refco's conduct was negligent is a matter of state law. In Sherry v. Diercks, 29 Wash.App. 433, 628 P.2d 1336, rev. denied, 96 Wash.2d 1003 (1981), the Washington Court of Appeals considered the extent of a commodity broker's responsibility to a customer who is not suitable to trade. The Sherry court held that there is no suitability doctrine under Washington law. [U]nder the common law a commodity futures broker has no duty to determine a customer's suitability where, as here, the customer's account is nondiscretionary. Id. 628 P.2d at 1339. 3 Although the court did not discuss internal brokerage firm rules it opined that there is no broker liability based solely on a violation of NYSE or NASD rules. [U]nless a customer proves a violation of the antifraud provision of the Commodity Exchange Act, 7 U.S.C.A. Sec. 6b, recovery of damages against a broker is not an available remedy. Id. at 1340. 20 Other courts that have discussed whether, outside fraudulent conduct, a broker has any obligation to stop trading for an emotionally or financially unsuitable client also have held that there is no such duty. See, e.g., Phacelli v. Conti Commodity Serv's, Inc., Comm.Fut.L.Rep. (CCH) p 23,250, 32,674 (CFTC Sep. 5, 1986)([A] customer who makes a knowing and meaningful election to undertake the risks of commodity futures trading cannot recover his losses by claiming under Section 4b that his account executive should have warned him that he was unsuitable for such a risk.); J.E. Hoetger & Co. v. Ascencio, 572 F.Supp. 814 (E.D.Mich.1983) (holding that there was no authority for a suitability claim resting on a violation of internal brokerage firm rules); Leib v. Merrill Lynch, Pierce, Fenner & Smith, 461 F.Supp. 951 (E.D.Mich.1978), aff'd without opinion, 647 F.2d 165 (6th Cir.1981); Kearney v. Prudential-Bache Securities, Inc., 701 F.Supp. 416, 429 (S.D.N.Y.1988). 21 Because Washington state law finds no duty by brokers to prevent emotionally or financially unsuitable clients from trading on nondiscretionary accounts, we conclude that judgment for the plaintiff was improper. Accordingly we reverse the district court on the negligence claim. 4