Court Opinion

ID: 9848996
Source: CourtListenerOpinion
Date Created: 2023-09-24 04:32:22.873053+00
Date Added: 2024-06-11T09:18:56.584292
License: Public Domain

STEINMETZ, J.
The issues decided in this case are: (1) Does a commodities broker who undertakes to provide investment information and counsel to a customer with a nondiscretionary account, and who later learns that previously given information has been changed or was incorrect, have a fiduciary duty to disclose the latest information before the customer invests through the same broker in reliance on the original disclosure?
(2) Under what circumstances can a commodities broker be held strictly responsible for misrepresentation concerning investment advice?
(3) Based on the jury instructions on fiduciary duty and negligent misrepresentation, is a new trial necessary in the interest of justice for failure to try the real issue?
The circuit court for Dane county, William F. Eich, judge, ruled as a matter of law that Merrill Lynch owed no fiduciary duty to George V. Boeck in granting a judgment notwithstanding the verdict. The court ruled as a matter of law that strict responsibility for misrepresentation was not appropriate. The court of appeals affirmed the trial court judgment in Merrill Lynch v. Boeck, 120 Wis. 2d 591, 357 N.W.2d 287 (Ct. App. 1984).
Merrill Lynch commenced this action to recover $21,712 that Boeck owed on his investment account for *131soybean futures transactions made during May, 1978. Boeck denied liability and counterclaimed for the losses he sustained on the transactions.
Boeck was an experienced commodities investor who had dealt with two other brokerage houses before opening a commodities account with Merrill Lynch in February, 1977. Before he began trading with Merrill Lynch, Boeck subscribed to several publications and services concerned with commodities investments. Boeck signed a commodities account agreement that set forth the risky and speculative nature of investing in commodities futures contracts and that warned of the possibility of significant losses. Merrill Lynch had no authority to decide what trades to make in Boeck's account.
Boeck was drawn to Merrill Lynch by an advertisement placed by Merrill Lynch in the Wall Street Journal. He stated that he opened the account at Merrill Lynch because the company had a good reputation for financial services and a strong research program in the commodities field.
Douglas Terrill, Boeck's broker at Merrill Lynch, testified that during March, April and May of 1978, Boeck regularly asked what information Merrill Lynch's research department had about particular commodities. Boeck claims that he based his commodities investment decisions on the information and advice given to him by Merrill Lynch.
The critical time period in the relationship between Boeck and Merrill Lynch was May 15,1978, through June 1, 1978. On May 15, Boeck claims Terrill told him that Merrill Lynch's soybean expert, David Bartholomew, had just returned from a trip to Brazil and that he had sharply reduced his estimate of the size of the Brazilian soybean crop. Bartholomew was reputed to be a world-renowned expert in the soybean industry and Terrill advised Boeck of that fact. Terrill allegedly told Boeck that news of Bar*132tholomew's trip and Bartholomew's estimate of Brazil's crop had not been made public and that based on this news, Merrill Lynch's research department soon would make a very strong recommendation to buy, among other things, bull spreads in soybeans and soybean meal.1
It is undisputed that the size of the Brazilian soybean crop was a significant, material factor affecting the price of soybean futures. During the two weeks between May 15 and 31, Boeck purchased $1 million worth of soybean and soybean meal futures. He alleges that he based these purchases on Terrill's representations.
Terrill denied telling Boeck about a visit by Bartholomew to Brazil or that Bartholomew had sharply reduced his estimate of the Brazilian soybean crop. Bartholomew also testified that he never lowered his estimate of the 1978 Brazilian soybean crop below the April estimate and that the crop, in fact, was higher than the April estimate. He denied traveling to Brazil during 1978. However, Merrill Lynch never denied telling Boeck the crop estimate was going down.
On May 17, 1978, Boeck claims that Terrill learned that the Brazilian government had increased, not decreased, its soybean crop estimate. Terrill never told Boeck about this information even though Terrill handled numerous soybean and soybean meal trades for Boeck between May 17 and 30. Over 98 percent of Boeck's losses were sustained as a result of investments he made after May 17. Terrill, however, argues that the May 17 information did not indicate a change in Merrill Lynch's estimate, and, in fact, the reports were not consistent or conclusive. Nonetheless, Merrill Lynch's estimate of Bra*133zil's soybean crop was higher than Terrill's alleged representation of Bartholomew's estimate.
Boeck requested that the case be submitted to the jury on four alternative theories: intentional misrepresentation, negligent misrepresentation, strict responsibility for misrepresentation and breach of fiduciary duty. The trial court refused to give an instruction or submit a verdict question on the strict responsibility theory of misrepresentation. Over the objections of Merrill Lynch, the trial court submitted the breach of fiduciary duty issue to the jury.
The jury found that there had been no intentional or negligent misrepresentation. The jury did find, however, that Merrill Lynch undertook to provide Boeck with investment advice and counsel concerning soybean futures between May 1 and June 1, and that Merrill Lynch failed to provide Boeck with material information in its possession, thereby causing Boeck to lose money. The basis of the finding was evidence of Terrill's silence regarding the May 17 information. This finding constituted a breach of fiduciary duty, if such duty existed. The circuit court then granted judgment notwithstanding the verdict based on the court's conclusion that no fiduciary duty existed.

BROKER'S FIDUCIAR Y DUTY

The court of appeals held as a matter of law that a broker who provides advice and counsel to a customer with a nondiscretionary account does not have a fiduciary duty to that customer. We agree. The broker, however, does owe the customer a duty of ordinary care.
Both parties rely on Schweiger v. Loewi & Co., Incorporated, 65 Wis. 2d 56, 221 N.W. 2d 882 (1974), to support their respective claims concerning a broker's fiduciary *134duty. In that case, this court held that a broker who is "handling" a customer's financial investments owes that customer a fiduciary duty. Id. at 64. Boeck argues that this holding imposes a fiduciary duty in broker-customer relationships, such as the one in the present case. Merrill Lynch contends that Schweiger only imposes a fiduciary duty in the case of discretionary accounts. We agree that a broker does not have a fiduciary duty to a customer with a nondiscretionary account absent an express contract placing a greater obligation on the broker or other special circumstances.
We are persuaded by the decisions from other jurisdictions refusing to impose a fiduciary duty in the case of nondiscretionary accounts. In Robinson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 337 F. Supp. 107 (N.D. Ala. 1971), aff'd. 453 F. 2d 417 (5th Cir. 1972), that court held that a fiduciary duty did not arise to require the transmission of all extrinsic facts or opinions related to the market in question unless there was an express contract or special circumstances which required defendant to transmit to plaintiff such information.
"To make this defendant or any other broker the guardian of a customer such as the plaintiff would destroy an important part of the marketplace. In every case a trader could recover damages from his broker merely by proving non-transmission of some fact which, he could testify with the wisdom of hindsight, would have affected his judgment had he learned of it." Id. at 113. In the instant case, there is no indication of any express agreement or special circumstances between Merrill Lynch and Boeck for the provision of investment decision services.
In Leib v. Merrill Lynch, Pierce, Fenner & Smith, 461 F. Supp. 951, 952-53 (E.D. Mich. 1978), the customer had a nondiscretionary account with his broker, i.e., an account in which the customer rather than the broker de*135termines which purchases and sales to make. Under those facts, that court held: "Unlike the broker who handles a non-discretionary account, the broker handling a discretionary account becomes the fiduciary of his customer in a broad sense." Id. at 953. A discretionary account is one where the broker makes all the investment decisions.
Shearson Hayden Stone, Inc. v. Leach, 583 F. 2d 367 (7th Cir. 1978), also adopted the Robinson rationale in the context of a nondiscretionary account. Similar to Boeck, the investor in Leach made all the investment decisions. Caravan Mobile Home Sales v. Lehman Bros. Kuhn Loeb, 769 F. 2d 561 (9th Cir. 1985), applied the same reasoning to reject the argument that a broker breached a fiduciary duty to a customer. That case also involved a nondiscre-tionary account.
Our decision in Gries v. First Nat. Bank of Milwaukee, 82 Wis. 2d 774, 264 N.W. 2d 254 (1978), does not change our interpretation of Schweiger. Gries at 778 states: "[I]n Schweiger, . . . [t]his court recognized that persons offering financial investment services have a fiduciary duty to disclose to their clients all material information concerning the transaction involved." We continue to adhere to this statement of the law in the context of discretionary accounts. Because Schweiger addressed the sufficiency of the complaint, it was inappropriate for this court to determine as a matter of fact whether the customer had a discretionary or nondiscretionary account. We did not state or intend, however, to impose a fiduciary duty in the case of nondiscretionary accounts in Schweiger.
The record in this case reveals that Boeck had a non-discretionary account and that he made all the investment transaction decisions on his Merrill Lynch account. Terrill merely placed the orders at Boeck's request. Boeck was an experienced commodities trader who was aware *136of the risks and uncertainties of that type of investing. There is no express agreement or special circumstances to provide investment advice other than as an incident to brokerage activities. Upon these facts, we hold that a broker does not owe a fiduciary duty to an investor-customer who makes all of the investment decisions, unless there is an express agreement placing a greater obligation on the broker or other special circumstances. We are unpersuaded by the decisions of the Commodities Futures Trading Commission which Boeck construes as reaching a contrary result.
We also are unpersuaded by the concurrence's argument that a broker may become a fiduciary for a person with a nondiscretionary account by gaining the person's trust and confidence and purporting to advise that person with the other's interest in mind. A fiduciary relationship does not arise merely because a broker offers advice and counsel upon which a customer has a right to place trust and confidence. The right to place trust and confidence in the reliability of representations involving commercial transactions already is protected by the law of misrepresentation. See Ollerman v. O'Rourke Co., Inc., 94 Wis. 2d 17, 29-40, 288 N.W. 2d 95 (1980) (discussing the easing of the rule of caveat emptor in commercial transactions). A fiduciary relationship arises from a formal commitment to act for the benefit of another (for example, a trustee) or from special circumstances from which the law will assume an obligation to act for another's benefit. The mere fact of reliance on representations, therefore, does not necessarily create a relationship of trust arid confidence leading to a fiduciary duty. Thus, we do not hold that a fiduciary duty may arise out of every circumstance where there is a relationship of trust and confidence between the parties.
*137Here, Merrill Lynch did not formally agree to make investment decisions for Boeck. In fact, Boeck always remained ultimately responsible for making investment decisions, as required by his nondiscretionary account. Also, no special circumstances exist from which we could find that Merrill Lynch should be responsible as a fiduciary for Boeck's investment decisions. Moreover, if we held that a broker is a fiduciary in these circumstances, then an investor could allege that the broker exercised poor judgment when advising the investor. This is because the duty of a fiduciary is greater than simply the duty not to misrepresent. A professional fiduciary, like a broker, also would be held to a higher degree of skill and care than a man of ordinary prudence. See Estate of Scheibe, 30 Wis. 2d 116, 120, 140 N.W. 2d 196 (1966). Recognizing the full implications of treating a broker as a fiduciary, we refuse to hold that a broker is liable as a fiduciary for representations to an investor with a nondiscretionary account. We would make a broker a guarantor of a customer's investments if we held otherwise.
The trial court initially submitted a verdict question to the jury on the issue of fiduciary duty after giving instructions on that theory. After the jury found a breach of fiduciary duty, the court granted Merrill Lynch's motion for judgment notwithstanding the verdict, pursuant to sec. 805.14(5)(b), Stats.2 The motion admits that, for its limited purposes, the findings of the verdict are true but *138asserts that judgment should be granted to the moving party on grounds other than those decided by the jury. Herro v. Dept. of Natural Resources, 67 Wis. 2d 407, 413, 227 N.W. 2d 456 (1975). In Wozniak v. Local 1111 of UE, 57 Wis. 2d. 725, 733, 205 N.W. 2d 369 (1973), citing State v. Escobedo, 44 Wis. 2d 85, 90, 91, 170 N.W. 2d 709 (1969), we stated:
" 'A motion notwithstanding the verdict amounts to a post-verdict motion for a directed verdict ... It is, in a sense, a demurrer to the evidence. It admits the facts found but contends that as a matter of law those facts are insufficient, though admitted, to constitute a cause of action.'"
The evidence presented and viewed in the most favorable light to Boeck does not, as a matter of law, reveal the existence of a fiduciary duty. The trial court therefore correctly granted judgment notwithstanding the verdict that Merrill Lynch breached its fiduciary duty to Boeck. The court of appeals also correctly affirmed the trial court's determination.

STRICT RESPONSIBILITY OF BROKER

Boeck also argues that the court of appeals erred by upholding the trial court's refusal to submit a strict responsibility theory of misrepresentation to the jury. We agree with the trial court and the court of appeals that strict responsibility is not properly an issue in this case.
Strict responsibility for misrepresentation only is appropriate in circumstances where the speaker appears to have such personal knowledge that it is expected he is providing infallible information. In Whipp v. Iverson, 43 Wis. 2d 166, 169-70, 168 N.W. 2d 201 (1969), we stated the considerations that determine whether strict responsibility applies:
*139"In strict responsibility, the misrepresentation must be made on the defendant's personal knowledge or under circumstances in which he necessarily ought to have known the truth or untruth of the statement and the defendant must have an economic interest in the transaction. Intent to deceive and good-faith belief in the truth of the representation are immaterial. In this classification the speaker is supposed to possess complete knowledge of the facts or could normally be expected to know them without investigation. Harper and McNeely, A Synthesis of The Law of Misrepresentation, 22 Minn. L. Rev. (1938), 939, at Note 12, p. 988. A person is therefore justified in expecting infallibility as to the representations of facts."
Applying the above test to the facts of this case, we conclude that information about estimated crop sizes is not the type of information where infallibility is expected. We also refuse to hold a broker strictly liable to accurately report crop sizes estimated by various sources because such estimates can fluctuate suddenly without the broker's awareness.
Gauerke v. Rozga, 112 Wis. 2d 271, 280, 332 N.W. 2d 804 (1983), supports our conclusion that strict responsibility is inappropriate in this case. There we reiterated the factors influencing imposition of strict responsibility:
"The policy behind strict responsibility for misrepresentation is stated in the Law Notes for Trial Judges in Wis. J.I. — No. 2400, Misrepresentation: Bases for Liability and Damages:
" 'Strict responsibility for misrepresentation, the second basis, applies to those situations where public opinion calls for placing the loss on the innocent defendant rather than on the innocent plaintiff. In Stevenson [v. Barniweck, 8 Wis. 2d 557, 99 N.W. 2d 690 (1959)], the court (citing Prosser) required the presence of two factors before liability would be found: (1) a rep*140resentation made as of defendant's own knowledge, concerning a matter about which he purports to have knowledge, so that he may be taken to have assumed responsibility as in the case of warranty, and (2) a defendant with an economic interest in the transaction into which the plaintiff enters so that defendant expects to gain some economic benefit. In other words, strict responsibility applies in those circumstances which "indicate that the speaker either had particular means of ascertaining the pertinent facts, or his position made possible complete knowledge and the statements fairly implied that he had it." Therefore, the speaker ought to have known or else ought not to have spoken.'"
Prosser, Law of Torts (2d ed.) at 548, sec. 88, also notes the limited use of strict liability in misrepresentation cases, except in the case where a speaker is expected to guarantee his accuracy:
In Stevenson, 8 Wis. 2d at 562, we favorably cited this reasoning as controlling the use of strict responsibility for misrepresentation.
Here, Merrill Lynch had an interest in Boeck's transaction from which it expected to benefit economically, which is one of the criteria for strict liability. Stevenson at 562-63; see also Law Notes for Trial Judges in Wis. J.I. — Civil 2400 (1981). Boeck did not show, however, that *141Merrill Lynch made untrue representations based on Ter-rill's own personal knowledge, or in circumstances which indicate that he had means of ascertaining the relevant facts, or that his position made possible complete knowledge of the matter or that the statements he made fairly implied he had such knowledge. Id. at 562-63. Many different complex factors influence the estimate of future crop size in foreign countries. Such factors can change daily, if not more often. Governmental and world policies and economics, as well as weather conditions, can affect crop production. The nature of the commodities futures market is so volatile and speculative that complete knowledge is impossible. Imposing strict responsibility for representations based on rapidly changing, voluminous and sometimes conflicting information would create an untenable burden for investment brokers. Moreover, we do not hold a broker strictly responsible to accurately report crop estimates because such estimates vary without notice to the broker. Brokers do have a common law duty based on negligence standards not to misrepresent known crop estimates.
We hold the trial court was correct in not including a question on the verdict or submitting the issue of strict responsibility to the jury.

INTEREST OF JUSTICE

Although the trial court and the court of appeals correctly ruled that Merrill Lynch did not owe Boeck a fiduciary duty and that strict responsibility is not an issue in this case, we conclude that Boeck is entitled to a new trial on the negligent misrepresentation theory of liability. We base this conclusion on the fact that the real controversy was not fully and fairly tried. Section 751.06, Stats.; State v. Wyss, 124 Wis. 2d 681, 735, 370 N.W. 2d 745 (1985).
*142The trial court erroneously permitted this case to proceed to the jury for deliberation on the fiduciary duty theory of liability. Boeck, in reliance on this error, argued that Terrill's failure to disclose information about the May 17 report (allegedly indicating higher Brazilian soybean production than represented on May 15) constituted a breach of fiduciary duty. Boeck did not argue that Ter-rill's silence constituted a negligent misrepresentation, most likely because he believed that breach of fiduciary duty was easier to prove. Terrill's alleged silence, however, may constitute a negligent misrepresentation. We conclude, therefore, that submission of the fiduciary duty theory to the jury prejudicially misled Boeck not to pursue the possible negligent misrepresentation claim. As a result, the real controversy was not fully tried. We order that Boeck be granted a new trial limited to the issue of negligent misrepresentation.3 At the new trial, Boeck may attempt to establish negligent misrepresentation based on Terrill's alleged failure to disclose, as well as any allegedly erroneous actual statements.
For the purpose of clarification at the new trial, we note that a broker does not have an a priori duty to disclose known and relevant information about investments contemplated by a customer. The broker may simply transact the customer's purchase or sell orders without making any representations. The broker's duty may change, however, if he volunteers information that he was not otherwise obligated to provide. He may not give such information negligently. If such initial information is given, the broker then has a duty to disclose subsequently acquired information that he knows will make a *143previous representation erroneous or misleading.4 This duty to disclose only exists if the client has not yet completed his transaction or if the client directs the broker to make subsequent additional transactions in reasonable reliance on the original representation.
By the Court. — The decision of the court of appeals is reversed and the cause is remanded to the trial court for further proceedings consistent with this opinion.

 A "bull spread" is a transaction designed to capitalize on what appears to be a rising market. It consists of a contract to buy a quantity of a commodity in one month and sell the same quantity of a commodity in a subsequent month.

 Sec. 805.14(5)(b), Stats., provides:
"Motion for judgment notwithstanding verdict. A party against whom a verdict has been rendered may move the court for judgment notwithstanding the verdict in the event that the verdict is proper but, for reasons evident in the record which bear upon matters not included in the verdict, the movant should have judgment.”

 Boeck's debt to Merrill Lynch is uncontested. The new trial, therefore, is limited to Boeck's counterclaim against Merrill Lynch.

 See Restatement (Second) of Torts, ch. 22 Misrepresentation: Pecuniary Loss, sec. 551 Liability for Nondisclosure:
"(1) One who fails to disclose to another a fact that he knows may justifiably induce the other to act or refrain from acting in a business transaction is subject to the same liability to the other as though he had represented the nonexistence of the matter that he has failed to disclose, if, but only if, he is under a duty to the other to exercise reasonable care to disclose the matter in question.
"(2) One party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated,
"(c) subsequently acquired information that he knows will make untrue or misleading a previous representation that when made was true or believed to be so; and. . . .”