Opinion ID: 1207872
Heading Depth: 1
Heading Rank: 4

Heading: The Jury Verdict Issue

Text: The case was submitted to the jury on the State's claims of fraud, constructive fraud and punitive damages. These claims were asserted with respect to the same transactions about which the circuit court had entered summary judgment, plus an additional claim related to volume trading. However, the jury was not advised of the amount of money (over $32 million) the court had awarded the State as a result of the summary judgment ( qua directed verdict) on the W.Va.Code 12-6-12 [1978] speculation claim, although the jury was advised of the court's conclusion that Morgan Stanley had violated Code, 12-6-12 [1978] because the transactions at issue were speculation. [16] Five weeks of live and video testimony was presented to the jury and, at the end of the trial, the State's lawyers exhorted the jury to punish the Wall Street ... hounds of greed by awarding the State not only restitutionary damages of $40 million, but punitive damages as well. After deliberating only four hours, the jury returned its verdict finding no actual fraud, awarding no punitive damages, and awarding $4.9 million, or only slightly more than one-tenth of the amount demanded, on the constructive fraud claim. Morgan Stanley asserts here that the circuit court erred in allowing the constructive fraud claim to go to the jury because the court had previously granted Morgan Stanley's motion for summary judgment on the State's claim for breach of fiduciary duty, holding that no fiduciary relationship existed between the State and Morgan Stanley. We agree with Morgan Stanley that the jury verdict must be reversed, but for reasons different from those that Morgan Stanley advances: Having decided as a matter of law that Morgan Stanley participated in speculation, ( see, supra, note 15) the court's instruction on constructive fraud compelled a jury finding against Morgan Stanley. Because we conclude that the issue of whether Morgan Stanley violated Code 12-6-12 [1978] is a jury question, the jury's finding of constructive fraud was based on a finding of illegality on which the trial court should not have given a binding instruction. The Court's charge on constructive fraud was as follows: Constructive fraud is a breach of a legal or equitable duty, which, irrespective of any moral guilt on the part of the defendant, the law declares fraudulent because of its tendency to deceive others, or violate public or private confidence, or to injure public interests. Neither actual dishonesty of purpose nor intent to deceive is an essential element of constructive fraud. Constructive fraud includes violations of public policy or public rights or transactions affected by illegal conduct of any kind. Constructive fraud may involve a mere mistake of fact, but it exists in cases in which the defendant's conduct, although not actually fraudulent, has the consequences and effects of actual fraud. In such a case the law assumes fraud in order to protect valuable social interests. To establish its claim of constructive fraud, the State must prove the following elements: 1. That Morgan Stanley breached a legal or equitable duty owed to the State; and 2. That Morgan Stanley's breach of its duty had either: a. A tendency to deceive the State; b. A tendency to violate public or private confidence; or c. A tendency to injure public interests. [Emphasis added.] Trial Court Charge, pp. 21-22. This instruction, combined with the Court's instruction informing the jury that Morgan Stanley had violated West Virginia law by aiding and abetting speculation, was tantamount to directing a verdict against Morgan Stanley on the constructive fraud claim. When a jury verdict is premised upon an erroneous conclusion of law by a trial court as stated in the charge to the jury, it must be set aside. Notwithstanding that Morgan Stanley sedulously cultivated good customer relations with the State of West Virginia, Morgan Stanley was nonetheless a principal in the transactions at stake, not a broker, and Morgan had the right to trade with the State without undertaking the obligation to insure the State against its elected officers' lack of wisdom. [17] Sophistication, as that term is used in the investment law, should never be confused with intelligence, prudence or good luck. ( See, supra, note 8.) Securities and Exchange Commission v. Ralston Purina Co., 346 U.S. 119, 73 S.Ct. 981, 97 L.Ed. 1494 (1953); Xaphes v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 632 F.Supp. 471, 481-483 (D.Me.1986); 17 C.F.R. § 230.215; 17 C.F.R. § 230.501(a); C. Edward Fletcher, III, Sophisticated Investors Under the Federal Securities Laws, 1988 Duke L.J. 1081.