Court Opinion

ID: 9455963
Source: CourtListenerOpinion
Date Created: 2023-08-04 19:38:18.759292+00
Date Added: 2024-06-11T17:34:48.226698
License: Public Domain

POWELL, District Judge
(dissenting in part).
I dissent from the separate opinion on damages.
By taking $143,000 of the judgment away from the plaintiff the Court is adopting the formula for measure of recovery set forth in Newkirk v. Hayden, Stone & Co. CCH Fed.Sec.L.Rep. para. 91,621 (S.D.Calif.1965). There are court said: “Damages should be limited to the amount of the commissions because this is the only element of damage which was proximately caused by defendants.” In narrowing recovery for churning solely to commissions earned (plus interest on the margin account) the Majority overlooks the fact that the dealer in his zeal to earn commissions may have caused damage unrelated in amount to what he earned in commissions.1
The trial court concluded from the facts of this case that “ * * * the excessive trading of plaintiff’s account by Wilder in both securities and commodities did constitute a single scheme. Although only $7,500 was originally deposited in plaintiff’s commodity account, *1213Wilder was able to effect an enormous amount of commodity trading by transferring a total of $2^5,360 from her security account to the commodities account. Thus, the security and commodity transactions were inextricably co-mingled.” (Emphasis added). 283 F.Supp. at 437.
Although Mrs. Hecht was held to be estopped to deny knowledge that securities were being sold to enable Wilder to purchase commodities, the trial court also found “ * * * she just did not have the sufficient competence to understand whether the frequency and volume of the transactions might be ‘excessive’.” 283 F.Supp. at 434.
This .excessive transferring of money from the securities account into the commodities account naturally resulted in a loss of dividend income from security investments. The district court awarded Mrs. Hecht $65,000 for this loss. Recognizing that she had knowledge that a portion of her securities had been sold to purchase commodities, the court did not award her the entire loss of dividend income as if no authorized transfers had occurred. The record indicates that figure could have amounted to $108,000.
To the degree that she was in commodities beyond her knowledge and as a result of Wilder’s scheme to generate commissions by the excessive transfer of money from the securities account to the commodities account she was entitled to recover damages. The award of $65,-000 was not clearly erroneous and in my opinion should be affirmed.
The Majority would further disallow damages of $78,000 awarded for net commodity losses. The Majority has concluded that “ [i] f loss of value in the account occurred (beyond the cost of commissions), it would seem to be due not to the number of transactions engaged in but to the unfortunate choice of risk those transactions entailed.” Maj. Damage Opin. at p. 1212.
I assume from this statement the Majority has decided that Mrs. Hecht’s eom-modity account was in fact churned but that any loss beyond that of cost of commissions was due to the risks of commodity trading of which she had knowledge.
The record in this case might support that conclusion had the trial judge made it. The fact is he did not. He found that there was an excessive transferring of money from the securities account into the commodities account, and that the action was pursuant to Wilder’s fraudulent scheme to generate commissions. Mrs. Hecht was therefore more deeply involved in commodity trading than she knew. As a consequence her losses were just that much greater. For that she was entitled to redress. The trial court awarded her $78,000 — the net commodity losses.
The loss of $78,000 could very well have been a substantial profit considering the size of the account and assuming it was properly traded. The evidence in this case discloses churning of a grand magnitude. In the eight years the commodity account was with Harris, Upham & Co., total sales and purchases exceeded $89,000,000; commissions charged to Mrs. Hecht were $98,338; and the account profited in only two of the eight years. The years of most significant transferring from the securities account to the commodities account were also the years in which the commodities account sustained its greatest losses, e. g., in 1963 there were eleven transfers from the securities account to the commodities account in the amount of $104,000. In that year the commodity account sustained losses in excess of $116,000.
In my judgment the award of $78,000 for commodity account losses is sustained by the evidence. While the damages may have been difficult to compute “* * * the risk of the uncertainty should be thrown upon the wrongdoer instead of upon the injured party.” Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 563, 51 S.Ct. 248, 250, 75 L.Ed. 544 (1931).
*1214The record and opinion of the district court clearly demonstrate the care and attention the court gave in reaching a just conclusion from a very complicated set of facts operating in a fairly new area of the law.
This Court should not reduce damages by $143,000. Such action is unwarranted on the facts as found. The findings are not clearly erroneous. I respectfully dissent.

. Churning by Securities Dealers, 80 Harv. L.Rev. 869, 883 (1967). See e. g. Stevens v. Abbott, Proctor & Paine, 288 F.Supp. 836, 851 (E.D.Va.1968) where the court in addition to awarding commissions charged in the amount of $59,-689.99, also awarded $35,831.78 for capital gains taxes incurred.