Court Opinion

ID: 2995822
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:22:42.219233+00
Date Added: 2024-06-11T18:01:26.498585
License: Public Domain

In the
    United States Court of Appeals
                  For the Seventh Circuit
                          ____________

No. 01-4026
R.J. O’BRIEN & ASSOCIATES, INC.,
                                               Plaintiff-Appellant,
                                 v.

RONALD FORMAN,
                                          Defendant-Third Party
                                              Plaintiff-Appellee,
                                 v.

CHRISTOPHER LONGWORTH, doing
business as OZARK FUTURES & OPTIONS,
                                                    Third Party
                                            Defendant-Appellant.
                          ____________
            Appeal from the United States District Court
       for the Northern District of Illinois, Eastern Division.
             No. 96 C 2711—James T. Moody, Judge.Œ
                          ____________
      ARGUED MAY 29, 2002—DECIDED JULY 29, 2002
                    ____________

 Before RIPPLE, DIANE P. WOOD, and EVANS, Circuit
Judges.

Œ
  Judge Moody, of the Northern District of Indiana, sitting by
designation.
2                                                No. 01-4026

  EVANS, Circuit Judge. At first glance, the verdicts in
this case look inconsistent, so inconsistent, in fact, that
both sides moved to have them set aside. And had this case
been litigated differently, there is a chance—though far
from a certainty—that we might have found them inconsis-
tent. But as the case comes before us, we find that they
are not. More than anything, the case is another illustra-
tion that the principles and rules by which the federal
courts operate have teeth.
  R.J. O’Brien and Associates, Inc. (RJO) is a futures com-
mission merchant (FCM) that clears trades for commodity
futures and options contracts on commodity exchanges
such as the Chicago Mercantile Exchange and the Chicago
Board of Trade. Christopher Longworth is an introducing
broker who had a clearing and guarantee agreement with
RJO. Ronald Forman is a Texas real estate developer who,
in 1995, decided to enter the commodities market. His
cousin introduced him to Longworth and, through Long-
worth, Forman opened an account with RJO. He signed
a customer agreement which states in part:
    Customer understands that RJO will not be responsible
    for delays or inaccuracies in the electronic preparation
    of statements or the distribution of market information.
Further, the agreement states:
    Customer understands that RJO, among other require-
    ments, is financially liable to the contract market clear-
    ing houses for debit balances occurring in the Cus-
    tomer’s account. Because RJO is the guarantor to the
    clearing house, Customer agrees to hold RJO, its prin-
    cipals, officers, directors, employees, its affiliates and
    agents harmless with respect to any and all losses sus-
    tained by the latter resulting from the Customer’s
    account, or any related activity, and to indemnify RJO
    for all costs incurred, including reasonable attorney’s
    fees.
No. 01-4026                                                3

In commodities trading, speculators like Forman must pay
what is a margin to the FCM when the contract is first
entered. As time passes, it often becomes necessary for the
speculator to make additional margin payments to cover
payments that FCM would have to pay to the clearing
houses to cover losses.
  Forman’s initial forays into the market were unsuccessful,
and for a few months he dropped out of trading. But
he reactivated his account with Longworth in April 1996.
Then things really went south.
  In the commodity futures market, the rules of the ex-
change establish trading limits which govern the amount
of movement a particular commodity can sustain in any
given day. At the time of Forman’s trades, trading limits on
corn were 12 cents or 18 cents a day. What this means
is that the price of corn could not fluctuate either higher
or lower than the limit amount from the prior day’s clos-
ing figure. But immediately prior to the first day of the
delivery month (May for May corn), there is a “first notice
day,” at which time there are no trading limits on a particu-
lar commodity and the price can fluctuate much higher
or lower than the prior day’s closing price.
  At the close of the market on Friday, April 26, 1996,
Forman’s account had a market value of about $180,630,
which he quite naturally wanted to protect. On Sunday,
April 28, 1996, Forman called Longworth at home to discuss
how to best protect his market position. Forman asked
Longworth what the market limits would be on Monday,
April 29, for May corn. Longworth said he did not know.
He had not found out when Forman called him later that
evening. Longworth said he would call RJO prior to the
opening of trading on the 29th. In the morning, Longworth
called RJO and was told that normal limits would apply,
which Longworth thought would be 12 cents. He informed
Forman, who promptly ordered an additional 250,000 bush-
els of May corn and 250,000 bushels of July corn.
4                                             No. 01-4026

  As it turns out, April 29, 1996, was the first notice day
for May corn. At about 10:15 in the morning, after For-
man’s order was placed, Longworth saw that the price for
May corn had dropped below the 12 cent limit. At that
point, Longworth again called RJO and was told that there
were no limits on May corn that day. By 10:30, when Long-
worth called Forman, the price of May corn had dropped
17 to 18 cents below the Friday closing price. Forman
was not happy about these developments and demanded
that Longworth and RJO “fix it.” He demanded reinstate-
ment of the $180,630 he had in his account prior to the
opening of the market.
  At about 1 p.m., with the market having continued to
fall throughout the day, Longworth informed Forman that
he would be facing huge margin calls because the market
had moved against his position. Forman told Longworth
to sell the May corn; Longworth was able to sell 230,000
bushels of May corn by the end of trading that day. On
April 30 the remaining May corn was sold. Forman still
had the July corn, which also was moving against his
position. Longworth informed Forman that he needed to
deposit a $100,000 maintenance margin into his RJO ac-
count. Forman did not pay the margin. In a conference call
with persons from RJO, Forman again refused to pay the
$100,000 margin. When all was said and done after For-
man failed to furnish the margin and his positions were
liquidated, there was a net deficit in his account of
$152,002.
  RJO sued Forman for breach of contract and fraud to
collect the deficit which occurred when Forman failed to
meet margin calls. Forman counterclaimed and brought
several third-party claims against Longworth and RJO.
The case was tried to a jury, and the jury found, as
relevant here, that Forman had breached the contract
with RJO and awarded RJO compensatory damages of
$152,002.10. The jury also found for Forman on his counter-
No. 01-4026                                                 5

claims and third-party complaint against RJO and Long-
worth for negligent misrepresentation to the tune of
$139,143.00.
   The issue is, how can this be? How can both sides win?
The answer supplied by the district judge is that the neg-
ligent misrepresentation and the breach of contract
claims are entirely separate animals. The negligent rep-
resentation grew, not out of the contract, but rather out
of the common law duty owed by Longworth (and RJO
because Longworth is its agent) to Forman. They were
negligent in their failure to inform Forman that there were
no limits on April 29th. The judge stated:
    The duty plaintiffs [a reference to RJO and Longworth]
    owed Forman to provide accurate information was
    an extra-contractual duty arising from the profession-
    al obligations plaintiffs owed their clients. Congregation
    of the Passion v. Touche Ross & Co., 159 Ill. 2d 137, 636
    N.E.2d 503, 514 (1994). Forman’s duty to meet his
    margin call was a contractual duty. Consistent with the
    case as it was argued and proved by the parties, the jury
    could have concluded that despite his (ultimately cor-
    rect) belief that he had been caused losses by plaintiffs’
    negligent advice, Forman nevertheless was contractu-
    ally obligated to meet his margin call, and hash out
    later with plaintiffs whether their negligence led to
    the margin call in the first place. [Emphasis in origi-
    nal.]
We agree with this explanation, especially, as we shall see,
with its emphasis on the manner in which the case
“was argued and proved by the parties.”
   Yet RJO and Longworth profess to be stunned by the
result. It runs counter, they say, to the well-established
Illinois Moorman doctrine, the law of Illinois being the
governing authority for the negligent misrepresentation
claim. In Moorman Manufacturing Co. v. National Tank
6                                                No. 01-4026

Co., 91 Ill. 2d 69, 435 N.E.2d 443 (1982), the Illinois
Supreme Court set out its economic loss doctrine, bar-
ring tort recovery for economic losses. As with most doc-
trines, however, Moorman is subject to exceptions. An
exception exists for instances in which the allegedly
negligent party is in the “business of supplying information
for the guidance of others . . . .” Fireman’s Fund Ins. Co. v.
SEC Donohue, Inc., 176 Ill. 2d 160, 165, 679 N.E.2d 1197,
1200 (1997). In such a case, the party can be sued for
negligent misrepresentation. But because the Illinois courts
have not established that introducing brokers like Long-
worth fall within the exception, it would be wrong, RJO and
Longworth say, for the federal courts to say they do.
Besides, at least in most instances, determination as to
whether the exception applies requires a case-specific
factual inquiry, citing Continental Leavitt Communications,
Ltd. v. PaineWebber, Inc., 857 F. Supp. 1266 (N.D. Ill.
1994). The jury here was not instructed that they had
to find that Longworth was in the business of supplying
information, as no request for an instruction of the sort
was made on the record.
  Recognizing that they have a waiver problem with the
jury instruction, RJO and Longworth also argue that, in
any case, the verdicts are inconsistent. They say that the
verdict on the negligent misrepresentation claim should
be set side, but, if not, both verdicts should be set aside
and a new trial ordered. As they see it, the jury found
that RJO was not responsible for the lost revenues and
therefore it prevailed on the breach of contract claim, but
the jury also found that it was responsible for the losses
and thus awarded damages to Forman.
  The entire appeal—viewed from any angle—depends
on Moorman and its exceptions. Moorman dictates that,
when a contract sets out the duties between the parties,
recovery should be limited to contract damages, even
though recovery in tort would otherwise be available under
No. 01-4026                                                7

the common law. See Congregation of the Passion v. Touche
Ross & Co., 159 Ill. 2d 137, 636 N.E.2d 503 (1994). The
district judge’s explanation of how the verdicts can be
reconciled is correct only if there is a duty independent
of the contract, which was owed by Longworth (and RJO,
for whom Longworth was an agent), to not negligently
represent the state of trading. Where does this duty come
from? Under Illinois law, to exist it must be an exception to
the Moorman doctrine. It depends on a finding that Long-
worth is in the “business of supplying information for the
guidance of others.” Fireman’s Fund.
   The problem RJO and Longworth face is that their
claim that Longworth might not fit under the exception was
not raised at trial. There was no objection to the jury in-
struction on negligent misrepresentation or to giving such
an instruction in the first place. The case proceeded as
if there was no problem with Forman’s tort recovery the-
ory. That is, in the district judge’s words, the way the case
“was argued and proved by the parties.”
  Perhaps sensing a grave problem with waiver, after
their appeal was filed, RJO and Longworth moved the
district court to supplement the record with affidavits from
trial counsel setting out that they had, in fact, objected
off the record to the negligent misrepresentation instruc-
tion as given. The affidavits did not set out the basis of
that objection, and, especially in a situation such as this,
only a specific objection stating that Moorman prevented
the claim from proceeding would have been helpful. The
district judge denied the motion to supplement, saying:
    A lengthy instruction conference was held on the record
    in this case, during which the parties’ respective at-
    torneys were given unlimited opportunity to make any
    and all objections they had to the court’s instructions.
    It is the court’s belief that if the objections at issue
    were not made during that instruction conference, they
8                                               No. 01-4026

    were not made at all, and RJO and Longworth’s motion
    to supplement the record would actually change the
    record to reflect events that did not occur.
  Rule 51 of the Federal Rules of Civil Procedure could not
be clearer. It says in part,
    No party may assign as error the giving or the fail-
    ure to give an instruction unless that party objects
    thereto before the jury retires to consider its verdict,
    stating distinctly the matter objected to and the
    grounds of the objection. Opportunity shall be given to
    make the objection out of the hearing of the jury.
  Just recently, in Chestnut v. Hall, 284 F.3d 816 (7th Cir.
2002), we again pointed out that Federal Rule of Civil
Procedure 51 requires not only that “objections to jury
instructions be made in a timely fashion and on the record,
but also with sufficient specificity to apprise the district
court of the legal and factual bases for any perceived
defect.” We also reiterated that, unlike in a criminal trial,
there is no plain error analysis in a civil trial.
  That RJO and Longworth had every opportunity to object
to the jury instructions and raise their concerns that Long-
worth did not fit into a Moorman exception is absolutely
clear from the record. A discussion of jury instructions
began near the end of the trial. At noon on August 29, 2001,
the judge released the jury for a long lunch because the
parties had to work on the instructions. At this time,
counsel for RJO and Longworth moved to dismiss Forman’s
fraud claims and Forman voluntarily dismissed a com-
mon law fraud claim. Because the discussion of the instruc-
tions was not going as smoothly as the judge wanted, he
sent the jury home that day to return the next morning, at
the same time telling the lawyers he was “not asking you to
work fast [on the instructions]. I want you to work right.”
  The next morning, an instruction conference was held
on the record. Counsel for RJO and Longworth informed
No. 01-4026                                                 9

the court that the parties agreed on everything but one
issue regarding a fiduciary duty under the Commodities
Exchange Act. Despite that degree of agreement, the judge
went through the instructions one by one, asking as to each
one whether there were any objections. When they reached
instructions 32 and 33, which covered the negligent misrep-
resentation claim, counsel for RJO and Longworth asked for
minor changes, which were made. But what is notable here,
despite every opportunity, is that there was no questioning
of the legal basis for the claim, as there had been in regard
to the Commodities Exchange Act instruction. Similarly,
there was no objection when the proposed verdict on the
negligent misrepresentation count was discussed.
  Therefore, the issue of error in the jury instruction is not
before us, which means that the Moorman issue is not be-
fore us. The parties had an obligation to inform the judge
at trial of their legal position on that claim. We will not
make an end run around the failure to object to the jury
instructions and find some way to reach the Moorman
issue, for as we note, there is no equivalent civil “plain
error” doctrine which applies in the trial of criminal cases.
National Org. for Women, Inc. v. Scheidler, 267 F.3d 687
(7th Cir. 2001). Furthermore, if there were, we are not
convinced that any error in giving the instruction was
anything close to plain. Whether Longworth falls into a
Moorman exception is a close question. What we have here,
then, as far as we are concerned, is a jury properly in-
structed on negligent misrepresentation. Because of that,
we have, as the district judge concluded, verdicts which can
be reconciled with one another.
  The other issue raised regarding RJO’s entitlement
to attorney fees under the contract depends on setting
aside of the negligent misrepresentation verdict; there-
fore, we need not consider the issue. The judgment of the
district court is AFFIRMED.
10                                       No. 01-4026

A true Copy:
      Teste:

                   ________________________________
                   Clerk of the United States Court of
                     Appeals for the Seventh Circuit

               USCA-97-C-006—7-29-02