*3 initially grew succeeded. The account GARTH, and Circuit Before GIBBONS $2,000 $90,000 approximately at TEITELBAUM, Judges, District During year, the end of 1978. how- Judge.* ever, type The changed. multiplied. of commodities traded number THE OF COURT OPINION sophisticated market- The account reflected GIBBONS, Judge: Circuit straddles, spreads, ing maneuvers such as It Bowley, up” a former orders. also reflected Arthur customer “scaled broker, trades,” Coi, “day permitted control of of Stotler & a commodities * Teitelbaum, complaint alleges Judge, violation of Penn- United 2. The also Hon. Hubert I. Chief Although Bowley sylvania Court for the Western District of contends that States District law. sitting by designation. Pennsylvania, to a new trial on the state common he is entitled claims, any ground not briefed law he has litigants may damages recover for vio- 1. Private setting verdict in favor aside Pierce, Lynch, lations of that statute. Merrill Thus we do not on those claims. defendants Smith, Curran, Inc. v. Fenner U.S. them. consider (1982). 102 S.Ct. L.Ed.2d 182 greater value (CCH), ¶ 21,105
more contracts
without
Comm.Fut.L.Rep.
[1980-82]
margin deposits,
increasing
because mar-
24,453 (1980).
p.
parties
do not
were made at the close
gin determinations
dispute
private
there is a
right of
trading day.
The extent of
of a
action for violations of section 4b of the
knowledge
participation
making
of and
Act,
appeal they agree
and on
on the defini
disputed at trial.
It
these trades was
churning.3
tion of
That definition includes
clear, however,
daily
that he received
con-
two elements: control of an
account
orders,
slips
firmation
of executed
broker, and
trading.
Moreover,
monthly composite statements.
contends that
the trial court
erred
its
Mulach and
communicated fre-
charge on each element.
quently by telephone.
earned
commission
Stotler & Co.
A. The Charge on Control
the Ac-
$28,880.
In 1979
1978 was
commissions
count
*4
$115,065.
grew
During the
entire life of
alleged
This case
churning
involves
of a
paid
the account commissions were
account;
non-discretionary
is,
an ac-
3,855
contracts,
“round turn”
of which
count over which the broker was not for-
2,101
10, 1980,
“day
By July
trades.”
were
mally granted by the customer sole author-
closed,
when
account was
it had
ity
trading
to make
decisions. Thus Bow-
$5,000.
decreased
value
less than
ley attempted
prove
that he had effec-
July
Stotler’s commissions between
tively surrendered de
control to Mu-
$159,935.50.
July
1977 and
1980 totaled
lach.
so
doing
he relied on case law to
jury found that
The
Mulach did not vio-
the effect
that a finding of control is not
Act,
late the Commodity Exchange
and a
dependent upon
being
the account
formally
judgment
accordingly.
entered
was
discretionary,
labeled
but is based on who
Churning Charge
II. The
making
in fact
trading
decisions.
The Commodities Futures Trading
Co.,
g., Newburger,
Gross,
E.
Loeb &
Inc. v.
Commission,
regulatory agency
the federal
F.Supp.
(S.D.N.Y.1973);
365
1371
responsible for the administration and en
Harris, Upham Co.,
Hecht v.
&
supra, 283
forcement of
the Commodity Exchange
Supp.
F.
at 432-33. Bowley therefore re-
§
Act,
(1982),
seq.
7 U.S.C.
1 et
defines
quested
charge:
that the court
churning
as “the excessive
of an
you
“who,
The
for
to decide is
account
a broker with control of the
fact,
making
decisions”
account,
purpose
generating
following
account. The
you
are factors
commissions,
regard
without
for the invest
may take under consideration
may
ment or
objectives of the custom
control,
tend to demonstrate
but the list
er.” In the Matter
Lincolnwood Com
is not meant to be exhaustive:
modities,
California,
Inc.
Comm.Fut.
1. A
sophistication;
lack of customer
¶
(CCH)
L.Rep.
21,986,
28,246 (Jan. 31,
p.
prior
2. A lack
commodity trading
1984).
it is
the Act
Under
4b of
section
experience
of the customer
unlawful for a broker to cheat or defraud a
and a minimum
of time devoted
him
customer, and both the courts and the Com
account;
to his
churning
mission hold that
amounts to such
high degree
3. A
of trust and confi-
Johnson v. Ar
cheating
defrauding.
reposed in
dence
the Associated Person
Co.,
Espey,
thur
Shearson Hammill &
customer;
by the
F.Supp.
(S.D.N.Y.1972),
Hecht v.
Harris,
Upham
F.Supp. 417,
large percentage
4. A
of transactions
(N.D.Cal.1968),
in other
re
entered into
customer based
modified
spects,
(9th
Cir.1970);
Smith
105 at See Carras v. regard count in to the manner in which 251, Burns, (4th Cir.1975); 516 F.2d 258-59 go trades should forward. Co., Gross,
Newburger, Loeb Inc. v. & There has been testimony about com- 1057, (2d Cir.1977), F.2d 1069-70 cert. de modities markets and months that are nied, 1035, 434 U.S. 98 S.Ct. selected and not selected. You have to (1978). L.Ed.2d 782 determine from the evidence goals or
objectives
customer,
and then de-
termine,
light
goals
of those
and objec-
Charge
B. The
on Excessive Trading
tives, whether or not the account was
Whether there has been excessive
excessively traded.
trading
in an account is a
of fact
The mere fact that a lot of transactions
which cannot be determined
any univer
place
took
does not mean that automati-
sally applicable precise formula. Booth v.
cally
excessive,
it is
but that is a factor
Peavey Company
Services,
Commodity
to be considered.
(8th Cir.1970);
430 F.2d
Hecht v.
The mere fact that the
may
character
Harris, Upham
Co.,
F.Supp.
&
have changed,
evidence,
under the
(N.D.Cal.1968),
in other re
modified
this kind of trading to that kind of trad-
(9th
spects,
Cir.1970).
jective determining indicator whether place took does not mean that automati- merely was conducted to earn com cally excessive, it is but that is a factor broker, missions for the because that ratio to be considered. profit reflects amount of that would The mere fact that the may character during period just have to earned evidence, changed, under the from pay for commissions. In the Matter this kind of to that kind of trad- Commodities, Lincolnwood Inc. Cali ing, overnight day trading, ¶ (CCH) 21,986, Comm.Fut.L.Rep. fornia, whatever, they are all factors be con- 28,248-49 (1984). p. Bowley presented sidered, your job say and it is whether expert testimony that ratios 200 to 225% or not believe that at time from trading. The were indicators of excessive 1977 to the middle of 1980 this account account, according excessively ratio in his to Stotler’s traded. Bowley’s experts experts, was tes 241.6%. A urge and the Commission high
tified it was as as 253%. deemphasize that this instruction tended to requested an instruction: legal emphasize signifi- rather than objective cance of the indicia of excessive Although precise rule or formula trading. prove can used excessiveness [sic] cases, ap-
in all nevertheless certain agree on excessive accepted. become well proaches have trading may deemphasize have tended to widely used method in com- The most significance objective indicia of churning cases is the annualized trading present modities in the record. alone, equity Generally might deficiency, standing commission to ratio. That *9 equity ground trial. When cou- annualized commission to ratio be a for a new (3d Cir.1984), however, refusal to F.2d 838 with the court’s pled, because the commission-to-equity ratio by Bowley error asserted mention is neither funda- a whole significant, the as was mental nor did miscarriage it cause a jury appropri- provide failed to the with justice, I Bowley would hold that had failed determining analytical ate framework for preserve the issue of the control instruc- trading in the there was excessive whether Thus, appeal. recognition tion for with full account. trial, developed of the record as I would affirm the district court. I therefore dis-
V. Conclusion sent. instructions on both elements The court’s action, churning cause of control of of the I. account, trading, were
the
and excessive
Rule 51 of the Federal Rules of Civil
is, therefore,
inadequate. Bowley
entitled
Procedure mandates that:
judgment in
to a new trial. The
favor of
party may assign
the defendants will be reversed and the
No
as error the giving
give
remanded for a new trial.
or the failure
case
an instruction un-
objects
less he
thereto
jury
before the
GARTH,
Judge, dissenting:
Circuit
verdict,
retires to
stating
consider the
distinctly
objects
the matter to which he
part company
I
The issue on which
grounds
and the
objection.
of his
majority
the
involves the “control” issue of
Bowley’s appeal. Bowley contends that
purposes
of this Rule are twofold.
Mulach,
executive,
the account
had de
First,
prevents
it
the assertion of an objec
of his
account and that
grounds
tion as
for a new trial
the
unless
control,
Mulach, utilizing that
churned
judge
given
district
was
opportunity
Bowley’s security
account to
det-
jury.
correct the instruction
before
It
Mulach,
hand,
riment.
on the other
thereby
necessity
obviates the
of a new
asserting
Bowley
consistent in
had the
trial, if
error
had occurred.
right
by refusing
to control the account
Second,
prevents
it
covertly
counsel from
recommendations made Mulach to either
relying
guarantee
on an error to
a new
sell,
indeed,
buy
and that
the time of
trial in case of an adverse verdict. Fulton
alleged churning activity,
it was Bow-
Chicago,
R.R.,
v.
Rock Island and Pacific
ley
initiating
himself
who
(8th Cir.),
cert. denied sub
activity. Hence the factual
issue was
R.R.,
nom. Fulton v. Soo Line
414 U.S.
drawn as to who had control of the ac- 1040,
(1973).
94 S.Ct.
The issue thus became one for the follows: pursuant given to decide to the instructions Accordingly, to it the court. we must person right Did the who had the charge, objec- focus on the court’s and the “trade,” say also have the to re- objections charge. tions and lack of to that fuse, or did that rest in someone else? majority Bowley, by object- holds that effect, Mr. Bowley, Did that over aspect charge, of the must to one be by rubber-stamping Mr. every- to Mulach preserved objection deemed to have thing? accept Mr. Or did Mulach never aspects charge. Alternatively, all any trading circumstance majority holds that even without an refuse to trade? charge, to the court’s has But, refuse, alone, will not preserved appeal. this critical issue for be sufficient. It is the coupled willingness I with a to exercise Because do not believe that the district properly by Bowley’s objec- if under all the circumstances the court was alerted ob- would not ful- jection to now tives of the customer claims, Gibbs, That true test. see United States filled. is the *10 trade, coupled right judge, refuse to The district court charge, to after his right willingness to exercise that a objections then invited of counsel at a side- consideration to refuse jury bar before the retired. coun- all the factors it would not objectives and sel, however, object portion did not to that objectives those in the best interest of be of the court’s instruction which made con- right had the go forward. Whoever contingent right trol on Mulach’s coupled willing- to trade with that refuse object charge to trade. He did to the defin- control, person in and that is ness is the and, discretionary account based on you have to decide. what objection, that the court delivered a cura- Bowley, having Did Mr. addition to tive instruction. After the corrective in- knowledge objectives, did he con- struction, which did not deal with the issue the factors? Did he have a sider all objection no was made. Had right to refuse to trade? And was he objection point, counsel made an at that trade, sell,” if willing say, “Don’t don’t judge undoubtedly district court would objectives thought he his wouldn’t be recognized his misstatement and possessed If think he that served? cured supplemen- still another authority, he had control of the account. tary charge, thereby forestalling the need If, hand, agreed other he appeal for either an or a new trial. Mr. Mulach recom- everything that Bowley’s requested charge Nor did mended, Mr. Mulach had the the issue of control serve as a substitute willing to exercise that refuse and was for an to the court’s buy not sell or do not at a decision—do Mulach’s to refuse trades. Fulton v. commodity— that month or that price, or Chicago Rock Island and R.R. willingness to do that if he and he had a Pacific supra. Bowley’s proposed charge did not Bowley’s objecties thought Mr. wouldn’t “right deal with the to refuse” issue. It served, then Mr. Mulach had control. be only affecting dealt with other factors con- effect, misspoke In in the latter trol. charge. In half of its the first of its clearly the court was correct. The context, present In the it is Fed.R.Civ.P. judge jury court stated that if the district not Rule which controls the issue on Bowley found had to refuse to appeal. this Rule 46 does no more than trade, Bowley judge had control. The then exception may indicate when an unnec- erroneously jury then instructed the that if 51, however, essary. provides specifi- Rule it that Mulach had the to re- found cally that trade, fuse to then Mulach would have con- party may assign giving No as error definition, course, By this could trol. or the failure to an instruction un- occurred, since it was not dis- never have objects he less thereto before opened by Bowley puted that the account verdict, stating retires to consider its dis- account, i.e., non-discretionary tinctly objects the matter to which he discretion, and therefore Mulach had no grounds objection. and the of his “refuse” to trade as a Mulach could not specific to call It was the failure of matter of law. objectiona- he attention to what now labels but that had There can be challenged ble that in the instruc- resulted called this misstatement Bowley’s counsel remaining my opinion, tion uncorrected. attention, it would the district court’s Bowley’s obligation to call the atten- Indeed, immediately corrected. have been tion of the court to the error which charge indicates that reading of the a fair in sufficient time so claimed and do so delivering court was not a con- the district appropriately. react the court could instruction at sidered substantive seeking do He did not so and phrasing was rather point, but charge, which he now correct the court’s apparently con- parallel form which he in a challenges, preserve he did not this issue appropriate. sidered *11 Similarly, us, States v. the our review. See United case before the evi Gibbs, supra. clearly dence is sufficient support to find
ing, proper even under a charge, that it Bowley, Mulach, was not de who had I. I Thus, the eontrol of acc0unt. I find no Since no objection to the right-to-refuse-to-trade preserved, this charge was injustice. I manifest therefore not re am only if it by this court consti is reviewable quired reach the as to whether “plain tutes error.” See United States itg funda_ the error in court>s was Cir.1983). (3d 717 F.2d 91 Un Logan, mentaL See 334 F .2d at 859. If Trent exception judicially created to Fed. der this j do forced to ho hold that would discretionary power this . R.Civ.P. [to , iww9íS V» -i (cid:127) ill i sparingly. should be exercised review] light In of the balance of court’s the Land, States v. Acres United 564.54 of spoke in which it issues other (3d Less, 983, 988 Cir. More or 576 F.2d jury might which the determin- consider in 1978); City see Trent v. Atlantic Electric as, ing considering such (3d Cir.1964). who was Co., 334 F.2d In objectives exception allowing for the investment and who decid- order review to was trade, first, obtain: and in apply, light two conditions must of that it the fact injustice; must result in manifest the error position who was in the best fundamental, second, the error must be recognize the challenged error and who Trent, supra, my 859. in See easily sought could have correction of the view, present neither condition is here. so, court’s one misstatement and did not do charged I find the error to be that does one i.e., applying test, In the first manifest not the importance rise to level of we nor- injustice, the Trent court the evi- reviewed mally “plain reserve for error.” In Namet of record in that to determine dence case States, 179, 190-91, v. United supported the U.S. whether verdict could be de- 1151, 1157, spite given. (1962), the S.Ct. erroneous instruction L.Ed.2d 278 the injustice only opinion stating: Manifest would result if the Court concluded its verdict, support could not evidence the objection No was ever made this in- simply charge might where a different struction, though even for the counsel resulted in a verdict. different Ac- petitioner object aspects did to other cording court, to the Trent Thus, charge. we are not concerned This court has on reversed occasion right, with whether the instruction was sponte on the plain sua basis of or funda- only whether, but it assuming respecting charge---- mental error wrong, plain was a defect discretionary power This is exercised “affecting rights” substantial Rule under only sparingly prevent order to what 52(b) 0f Federal Rules of Criminal miscarriage justice. is deemed be a Procedure. „ „ „ express opinion need not on . . D 0. to Rul®30 °f Federal Rules of deficiency present in the whether <cltlIf Procedure). Criminal Rule 30 is exart charge constituted fundamental error ™™terpart Rul* 51 °* Federal meaning of our decisions for within requires Rules of Procedure and also event under the and circum- facts Cml. *at an distinctly mat stat[e] case, of this stances our view the ter to' 11 is evident to me that> obíected findings appellants’ negli- as to the on record as a no substantial whole> gence cannot be said to a mis- manifest were affected ri^ht® courts carriage justice. regard Deep- charge. Hill, and Gibbs and water indicated infra, I believe that in- Because the erroneous the evidence than suffi- was more “right justify struction is barred findings negligence dent to refuse” properly their even under a more and that review Fed.R.Civ.P. charge. assigned detailed of them- F.2d at the other errors do not trial, I would affirm a new warrant selves court. Be- of the district judgment otherwise, I re- majority holds
cause
spectfully dissent. *12 COMPA-
ALTEMOSE CONSTRUCTION
NY, Builders Contrac- Associated
tors, Inc., of Commerce Chamber America
the United States TRADES CONSTRUCTION
BUILDING PHILADELPHIA AND
COUNCIL OF
VICINITY, al. et
Appeal of ALTEMOSE
CONSTRUCTION
COMPANY.
Appeal OF COM- of the CHAMBER the UNITED
MERCE OF America. of.
STATES 83-1581,
Nos. 83-1582. Appeals, Court of
United States
Third Circuit.
Argued Sept. 8, 1985.
Decided Jan. Rehearing In Banc
Rehearing and 15,1985. Feb.
Denied