Court Opinion

ID: 9486456
Source: CourtListenerOpinion
Date Created: 2023-08-05 11:48:18.206938+00
Date Added: 2024-06-11T17:51:43.743721
License: Public Domain

LAY, Senior Circuit Judge,
dissenting.
I would reverse the judgment as a matter of law granted by the district court or at the very least order a new trial. I agree with the majority that the district court erred in finding that the defendant had not materially and knowingly misrepresented the risk involved in investing. I disagree, however, with the majority’s conclusion that the misrepresentations could not, as a matter of law, have been the cause of the plaintiffs’ losses. *1502Numerous circuits have held that downplaying the risks of investing can constitute a material misrepresentation sufficient to subject a broker to liability under the Commodity Exchange Act, 7 U.S.C. §§ 1-26 (1988). In Saxe v. E.F. Hutton & Co., 789 F.2d 105 (2d Cir.1986), the Second Circuit held that it was improper for the district court to dismiss a complaint that alleged that the broker of the plaintiffs discretionary commodities account had “misrepresent[ed] the degree of risk and highly speculative nature of commodities trading when he reassured appellant that commodities trading would be a safe, non-speeulative investment,” id. at 110. In Clayton Brokerage v. CFTC, 794 F.2d 573 (11th Cir.1986) (per curiam), the court flatly stated that “Misrepresentations about risk ... subject a broker to liability under § 4b [of the CEA],” id. at 578. The Fifth Circuit, while concluding that there was no misrepresentation in the case at hand, agreed that “the risk inherent in trading commodities is a material fact and that misrepresentations or omissions in this regard may subject a broker to liability under § 4b.” Puckett v. Rufenacht, Bromagen & Hertz, Inc., 903 F.2d 1014, 1018-19 (5th Cir.1990). Similar statements were made by the Sixth Circuit in First National Monetary Corp. v. Weinberger, 819 F.2d 1334, 1340 (6th Cir.1987), and by the First Circuit in Schofield v. First Commodity Corp. of Boston, 793 F.2d 28, 34 (1st Cir.1986). While the Eighth Circuit does not appear to have held specifically that misrepresentations of risk are actionable, in Myron v. Hauser, 673 F.2d 994 (8th Cir.1982) (McMillian, J.), this Court upheld the Commodity Futures Trading Commission’s determination that the defendant, a broker of sugar options, was liable for misrepresentations that included “minimiz[ing] the risk involved in commodity options investment, [and] [making] misleading representations of the profit potential,” id. at 1006 n. 21.
On this basis, it seems difficult to say that as a matter of law, there was no misrepresentation of a material fact by Mr. Gilder-sleeve. The jury heard testimony from the plaintiffs that Gildersleeve had downplayed the risks and maximized the profit potential throughout their dealings. I agree with the majority that a reasonable jury could therefore have concluded that Gildersleeve had improperly minimized the risks of investing, and that he did so knowing the statements were false and with the intent to induce reliance.
Where I differ with the majority, however, is in its conclusion that even though Gilder-sleeve knowingly made the material misrepresentations, with the intent to induce the plaintiffs to invest in commodities futures options, the plaintiffs failed to prove that the misrepresentations were the proximate cause of their eventual losses. The majority finds this element of the plaintiffs’ claim lacking because “reasonable persons could not differ as to the conclusion to be drawn from plaintiffs’ continued trading with A.G. Edwards and Gildersleeve after plaintiffs were aware of the risks.” Ante at 1499.
With all due respect, I fail to see how a person who realizes he has been defrauded only after the fraud takes place can be precluded as a matter of law from asserting reliance at the time of the initial fraud. The majority’s reasoning does not make much sense, and it is at odds with this Court’s precedent as well as that of other circuits.
In Myron, we stated that “disclosure following the sale of the commodity options constitutes no disclosure at all and would not cure or correct the misrepresentations made by [defendant].” 673 F.2d at 1006. In Clayton Brokerage, the Eleventh Circuit amplified this view, holding that “until a customer learns of the risk of trading, his or her continued trading is premised on reliance upon the failure to disclose or misrepresentations about the risk involved, and the broker will be liable for losses resulting therefrom.” 794 F.2d at 579. At a minimum, these statements suggest that Gildersleeve should be held liable for losses resulting from the options purchased before the plaintiffs learned of the risks, which their testimony indicates was by the time they began trading with A.G. Edwards on July 21, 1988.
The Clayton Brokerage court went further, however, rejecting the defendant’s argument, similar to that advanced here, that whatever the nature and effect of the defendant’s initial misrepresentations, there was no proxi*1503mate cause for the plaintiffs eventual losses because the plaintiff must have learned about the risks of commodity futures trading by watching his account balance fluctuate. Id. at 578. The court stated that given the defendant’s continued downplaying of the risks throughout the life of the account, it was “unwilling to conclude, as a matter of law, that [plaintiff] should have seen through [defendant’s] excuses and assurances to understand that the losses he had experienced reflected the true risk of commodity futures trading.”1 Id. at 580. I believe a similar conclusion is warranted here.
The majority states that:
even if the Gildersleeve options had resulted in some paper loss before July 21,1988, the plaintiffs’ election to hold on to them and to invest even more shows plaintiffs sustained no actual loss when they began trading with AG. Edwards and that with full knowledge of the risks, they expected the price of corn futures options to rise.
Ante at 1501. Yet the plaintiffs’ testimony indicates that Gildersleeve constantly reassured them that they would make money.2 In First National Monetary Corp., the Sixth Circuit rejected the argument that there was no proximate cause where the plaintiff had learned of the risks of commodities investing two months before he got out of the market. 819 F.2d at 1340-41. The court upheld the CFTC’s determination that the plaintiffs decision to stay in the market after he had learned of the risks “was caused by [the defendant’s] ‘lulling conduct’ — his continued assurances that [plaintiff] was suffering only ‘paper losses’ and his predictions that the market was about to turn around.” Id. at 1341. These assurances bear a striking resemblance to those Gildersleeve is alleged to have made to the plaintiffs.
If nothing else, these cases suggest that the question of proximate cause is a question of fact that should be left to the jury. A reasonable jury could have found on the basis of the evidence presented that the plaintiffs reasonably relied on Gildersleeve’s misrepresentations and that they suffered losses as a result.
Finally, I am troubled that in disregarding the jury’s verdict, the majority discusses and finds “instructive” the standard for affirming a grant of judgment as a matter of law as applied in Greenwood v. Dittmer, 776 F.2d 785 (8th Cir.1985). The majority apparently feels that Greenwood is analogous to the situation here, although it seems to me to be quite distinguishable. In Greenwood, this Court affirmed a j.n.o.v. for the defendant brokers because they were found to be investing their own money in accordance with the advice they were giving to the plaintiff— thus indicating, contrary to the jury’s verdict, that their advice was given in good faith. I do not agree with the majority’s view that “[similarly, the only conclusion a reasonable jury could have reached, in light of the plaintiffs’ post-July 21, 1988 trades with A.G. Edwards and Gildersleeve, is that Gildersleeve’s pre-July 21, 1988 misrepresentations were not the cause of the plaintiffs’ actual later losses,” ante at 1500-01 (emphasis added). There is nothing in this case to suggest that Gildersleeve did anything, like the defendants in Greenwood did, that would contradict what the jury found. Indeed, the evidence fully supports the conclusion that Gil-dersleeve acted only to compound his initial *1504misrepresentations, by repeatedly reassuring the plaintiffs that they would make money. In my view, then, the jury’s verdict was not “at war with the undisputed facts,” see ante at 1500, and should be reinstated.
I therefore dissent.

. To be sure, the court in Clayton Brokerage also acknowledged that “[t]he CFTC and certain courts have held that a claimant who suffers losses after learning of the risk of trading cannot recover for earlier reliance upon misrepresentations about risk." 794 F.2d at 578-79. Subsequently, in Puckett, the Fifth Circuit applied this language to deny recovery to a plaintiff who had continued to trade S & P Index contracts after he had, in the court’s view, learned of the risks of such trading by losing $65,000 in one day. 903 F.2d at 1020. Even if we were to adopt this reasoning, that should only prevent the plaintiffs in the present case from recovering for the trades made after they admitted knowledge of the risks. The principles enunciated in Myron and Clayton Brokerage would remain applicable to the earlier trades. At most then, this would require a new trial for a redetermination of damages, not a vacation of the total verdict.

. For example, McAnally testified that on numerous occasions when he told Gildersleeve he was getting scared by the declining market, Gilder-sleeve told him: "Don’t worry about it. You know, the price will rebound. You're going— going to make money.” Tr. at 115. Gildersleeve also allegedly told them that to "hit back is the only [way] you can regain.” Tr. at 148.