Court Opinion

ID: 9754448
Source: CourtListenerOpinion
Date Created: 2023-08-28 20:00:57.474906+00
Date Added: 2024-06-11T07:27:53.597922
License: Public Domain

HOFFMAN, Judge,
concurring:
I agree with the majority’s conclusion that judgment entered in favor of appellee, Dr. Perelle, on his counterclaim must be reversed. I cannot agree, however, with the majority’s holding that a broker, as an agent, has an obligation to use reasonable efforts to inform its client, the principal, of the precise amount of money due to prevent liquidation of a nondiscretionary margin account. For the following reasons, I would hold that no such fiduciary duty exists.
Under the law of this Commonwealth,1 a fiduciary relationship exists between a broker and a client. Berkowitz v. *190Mayflower Securities, Inc., 455 Pa. 531, 533 n. 2, 317 A.2d 584, 585 n. 2 (1974) (citing Butcher v. Newburger, 318 Pa. 547, 179 A. 240 (1935)). An agent is, of course, a fiduciary only with respect to matters within the scope of its agency. Restatement (Second) of Agency (Restatement) § 13 (1958). “The scope of affairs entrusted to a broker is generally limited to the completion of a transaction.” Schenck v. Bear, Stearns & Co., 484 F.Supp. 937, 947 (S.D.N.Y.1979). Thus, the agency relationship exists when a client places an order to buy or sell, and terminates when the transaction is completed. Robinson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 337 F.Supp. 107, 111 (N.D.Ala.1971). The majority correctly sets forth the duties incident to such transactions. See majority slip op. at 561 (citing Leib v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 461 F.Supp. 951, 953 (E.D.Mich.1978)).
*189§ 8335. Damages for conversion of property of fluctuating value Damages for the conversion of stocks, bonds, or other like property of fluctuating value shall be limited to the difference between the proceeds of the commission, or that portion thereof duly paid or credited to the owner, and such higher value as the property may have reached within a reasonable time after he had notice of the conversion. Where the facts are not in dispute, such period shall be fixed by the court as a matter of law.
*190Here, the claimed breaches of fiduciary duty are not with respect to buy or sell orders placed by appellee, but rather with respect to appellant’s, Merrill Lynch, Pierce, Fenner & Smith, Inc.’s, liquidation of appellee’s non-discretionary margin account pursuant to the parties’ margin agreement. The trial court found that appellant, through its agent, Mr. Kirkpatrick, had breached its fiduciary duty by several omissions to act. See majority at 181-182. I believe, however, that contract, not fiduciary, principles govern this case. See Berkowitz v. Mayflower Securities, Inc., supra, 455 Pa. at 534-35, 317 A.2d at 585-86 (plaintiff’s failure to pay for stock constituted a material breach of the parties’ subscription agreement; no fiduciary duty on defendant’s part to notify plaintiff of the pending cancellation of his order).
As the majority points out, a margin account is, in essence, a loan. Majority at 168 n. 1. A fiduciary “act[s] primarily for the benefit of another____” Restatement, supra § 13 comment a. In its role as a creditor, appellant does not act primarily for appellee:
*191[M]ortgagees, pledgees, and other similar power holders, although having power to sell the property involved under certain conditions or to subject another to contractual liability, are not agents of the power giver; they have not undertaken to exercise such power primarily for the benefit of the person in whose name they formally act, and they are entitled to prefer their own interests in dealing with the subject matter.
Id. comment b; see also id. § 14 H. That a broker acts primarily for its own benefit in requiring additional margin or in liquidating a customer’s account is unquestioned. “House margin requirements ... are established primarily to protect the broker by assuring sufficient collateral for credit extended to finance customer speculation____” Altschul v. Paine, Webber, Jackson & Curtis Inc., 518 F.Supp. 591, 596 (S.D.N.Y.1981). “Stockbrokers carrying marginal accounts do not receive remuneration commensurate with the risk of [excessive losses], and hence must act swiftly in such cases.” Yohey v. Burton, 189 Pa.Superior Ct. 393, 404, 11 A.2d 794, 799 (1940). Furthermore, “[a] principal has the right to control the conduct of the agent with respect to matters entrusted to him.” Restatement, supra § 14. Surely it cannot be said that a customer can control his or her broker’s conduct when the broker seeks to protect itself from losses on its loans.
Here, the margin agreement gave appellant the right, whenever in its discretion it considered the exercise of such right necessary for its protection, “to sell any or all outstanding contracts, all without demand for margin or additional margin, notice of sale or purchase or other notice or advertisement----” The agreement further stated that “it [was] understood that a prior demand, or call, or prior notice of the time and place of such sale or purchase shall not be considered a waiver of [appellant’s] right to sell or buy without demand or notice____” It may be that appellant must exercise its discretion reasonably, see Schenck v. Bear, Stearns & Co., supra at 949, or that other contract principles, such as course of dealing or waiver, may be *192applicable to cases like this one,2 but I would hold that fiduciary principles have no place here.3

. The trial court found that, "[although the contract provides that it is to be governed by New York [l]aw, the counterclaim alleging breach of fiduciary duty is governed by the law of the forum.” Lower Court Opinion of February 4, 1983 (docketed February 24) at 18. Both parties argue Pennsylvania law in their briefs to this Court. See Brief *190for Appellant at 18; Brief for Appellee at 25. I find it unnecessary to consider whether the trial court applied'the proper state’s law because my research has disclosed no New York State case that stands for the proposition that appellee advances. But see note 3 infra.

. The only claim presented by appellee at trial was a breach of fiduciary duty claim. Brief for Appellee at 17.

. But see Gordon v. duPont Glore Forgan Inc., 487 F.2d 1260, 1261-62 (5th Cir.1973) (reverses trial court’s finding that plaintiffs were entitled to recover for defendant’s breach of fiduciary duty to notify them that their account was undermargined because they knew of their broker's breach and took no action) (Florida law), cert. denied, 417 U.S. 946, 94 S.Ct. 3071, 41 L.Ed.2d 666 (1974); Cauble v. Mahon Nugent & Co., 594 F.Supp. 985, 992-93 (S.D.N.Y.1984) (under New York law, broker has fiduciary duty to use reasonable efforts to give its customer information relevant to affairs entrusted to it; suggesting, on defendants' motion for summary judgment, that a margin account cannot be liquidated without authorization or notice).