*1 SMITH, LYNCH, PIERCE, FENNER & MERRILL INC., Plaintiff-Respondent,
v. BOECK, Defendant-Appellant-Petitioner. George V.
Supreme Court Argued 1985. September December 1985. Decided No. 83-675. (Also 605.) reported in N.W.2d *3 Callaghan's Digest, number. same and section topic Wisconsin *See there were defendant-appellant-petitioner
For the Florsheim, McGrath and Brian W. S. by Richard briefs Milwaukee, Mr. Lardner, argument by and oral & Foley Florsheim. by there was brief plaintiff-respondent
For the Zirbel, Howard, R. Howard Paul Erickson G. James Milwaukee, Mr. Malone, S.C., argument by and oral & Erickson.
STEINMETZ, decided this case are: J. The issues (1) who undertakes Does a commodities a cus- information and counsel investment provide account, nondiscretionary and who later tomer with given information has been previously learns incorrect, to dis- have changed or was the customer invests information before close the latest original in reliance on the dis- through the same broker closure?
(2) can a commodities what circumstances Under misrepresentation for strictly responsible broker be held concerning investment advice?
(3) instructions on Based on the necessary a new trial misrepresentation, negligent try failure to the real issue? justice in the interest of Eich, F. county, Dane William The circuit court for Lynch owed no ruled a matter of law that Merrill judge, as *4 judgment in granting V. Boeck George as a matter of notwithstanding the The court ruled verdict. misrepresentation was not responsibility law that strict the trial court appropriate. appeals affirmed The court of Boeck, 591, 357 Lynch in v. 120 Wis. 2d judgment Merrill (Ct. 1984). App. N.W.2d 287 to recover commenced this action Lynch Merrill $21,712 account for owed on his investment that Boeck during May, 1978. transactions made futures soybean for the liability and counterclaimed losses denied Boeck on the transactions. he sustained experienced an commodities investor who Boeck was opening brokerage houses before with two other had dealt Lynch February, in account with Merrill commodities began trading Lynch, with Merrill Boeck Before he 1977. publications and services concerned to several subscribed signed a investments. Boeck commodi- commodities with specu- risky that set forth the agreement ties account investing commodities futures con- nature of in lative significant possibility of the tracts and warned authority had no to decide what Lynch Merrill losses. in Boeck's account. trades make by to Merrill an advertise- Lynch Boeck was drawn Lynch in the Wall Street Journal. placed by Merrill ment opened Lynch the account at Merrill He that he stated good company reputation had a for financial because strong program research commodi- and a services ties field. Terrill, tes- Lynch, at Merrill
Douglas Boeck's broker 1978, March, April and Boeck during May tified that Merrill re- Lynch's what information regularly asked department particular about commodities. had search his commodities investment claims that he based Boeck given by advice to him on the information and decisions Lynch. Merrill period relationship between time in the
The critical 15,1978, through May was June Boeck and Merrill Terrill told him May Boeck claims 1978. On Bartholomew, had expert, David Lynch's soybean sharply he trip from a to Brazil and that had returned just soybean of the the Brazilian reduced his estimate size reputed was to be world-renowned crop. Bartholomew Terrill advised Boeck soybean industry expert news of Bar- allegedly Terrill told Boeck that of that fact. *5 trip tholomew's and Bartholomew's estimate of Brazil's crop public had not been made and that based on this news, Lynch's department Merrill research soon would very strong make a recommendation to buy, among other things, spreads soybeans bull in and soybean meal.1 undisputed
It is that the size of the soybean Brazilian crop significant, affecting was a material factor price During futures. soybean two weeks between May purchased 15 and Boeck million worth soybean $1 soybean alleges meal futures. He that he based these purchases representations. on Terrill's telling
Terrill denied Boeck about a visit by Bartholo- mew to Brazil or that Bartholomew had sharply reduced estimate soybean crop. his of the Brazilian Bartholomew also testified that he never lowered his estimate of the soybean crop 1978 Brazilian April below the estimate and fact, crop, higher that the was April than the estimate. traveling during However, He denied to Brazil 1978. Mer- rill Lynch telling never denied crop Boeck the estimate going was down. 17, 1978, May
On Boeck claims that Terrill learned government increased, Brazilian had not de- creased, soybean its crop estimate. Terrill never told Boeck about though this information even Terrill han- dled numerous soybean and soybean meal trades for Boeck 17May between and 30. 98 percent Over of Boeck's losses were sustained as a result of investments he made Terrill, May however, after 17. argues that 17May information did change not indicate a in Merrill Lynch's estimate, and, fact, reports were not consistent or Nonetheless, conclusive. Lynch's estimate of Bra- spread" designed A capitalize "bull is a transaction on what appears rising buy to be a market. It quantity consists of a contract to commodity of a quantity in one month commodity and sell the same of a subsequent in a month. *6 alleged repre- higher than Terrill's crop was soybean zil's estimate. of Bartholomew's sentation case be submitted to the requested that Boeck misrepre- theories: intentional on four alternative jury responsibil- sentation, misrepresentation, strict negligent fiduciary duty. breach of misrepresentation ity for give or submit to an instruction trial court refused The responsibility theory on the strict question a verdict Lynch, of Merrill objections Over misrepresentation. duty fiduciary the breach of trial court submitted to jury. issue no or had been intentional
The found that there jury find, however, The did misrepresentation. negligent provide in- Lynch Boeck with undertook that concerning futures soybean and counsel vestment advice Lynch that Merrill failed June May and between in its posses- material information Boeck with provide causing money. lose The basis of sion, Boeck to thereby regarding the was of Terrill's silence finding evidence finding a breach of This constituted 17 information. May court then duty existed. The circuit fiduciary duty, if such notwithstanding the on verdict based granted judgment fiduciary duty existed. that no the court's conclusion DUTY Y BROKER'S FIDUCIAR that as a matter of law a appeals The held court of to a customer provides advice and counsel who a fiduciary does not have nondiscretionary a account with broker, however, The agree. We to that customer. duty ordinary care. duty the customer a does owe Co., Incor- Loewi & rely Schweiger Both on v. parties (1974), support 2d 882 65 Wis. 2d 221 N.W. porated, concerning fiduciary a broker's claims respective their case, duty. In that this court held that a broker who is "handling" a customer's financial investments owes that fiduciary duty. customer a Id. at 64. argues Boeck holding imposes fiduciary this duty broker-customer relationships, present such as the one in the case. Merrill only imposes contends that Schweiger a fiduciary in the case of discretionary agree accounts. We a broker does not have a to a customer with account nondiscretionary express absent an contract placing greater obligation on the special broker or other circumstances. persuaded by
We are
the decisions from other juris-
refusing
impose
dictions
a fiduciary duty in the case
*7
of nondiscretionary
accounts.
In Robinson v. Merrill
Pierce,
Smith, Inc.,
Lynch,
&
Fenner
"To make this any defendant or other broker the guardian plaintiff of a customer such as the would de- stroy important part marketplace. an of every the In damages case a trader could recover from his broker merely by proving non-transmission of some fact which, testify hindsight, he could with the wisdom of judgment would have affected his had he learned of it." case, Id. at 113. In the instant there is no indication express any agreement special of or circumstances be- tween Merrill provision and Boeck for the of in- vestment decision services. Pierce,
In
Lynch,
Smith,
Leib v. Merrill
Fenner &
461
(E.D.
Supp.
1978),
F.
952-53
Mich.
the customer had
a nondiscretionary
broker,
i.e.,
account with his
an ac-
count in which the customer rather than the broker de-
to make. Under those
purchases and sales
which
termines
who handles a
facts,
"Unlike the broker
held:
court
account,
handling
a discre-
non-discretionary
of his customer in
fiduciary
account becomes
tionary
discretionary
953. A
account
one
Id. at
a broad sense."
the investment decisions.
makes all
where the broker
Stone,
Leach,
kee, does not 2d 264 N.W. 2d 82 Wis. at 778 Schweiger. Gries change interpretation our recognized . . . court Schweiger, states: [t]his "[I]n have a fi- offering financial services persons investment infor- their clients all material duciary duty disclose to We con- concerning the transaction involved." mation in the context to this statement of law tinue to adhere Schweiger addressed discretionary accounts. Because inappropriate it was sufficiency complaint, of the whether the as a matter fact this court to determine *8 nondiscretionary ac- discretionary a or customer had however, intend, impose a to not state or count. We did nondiscretionary accounts the case Schweiger. a non- that Boeck had in this case reveals The record invest- all the he made discretionary account account. decisions on his ment transaction request. Boeck Boeck's placed orders at merely Terrill aware trader who was commodities experienced was an of the risks and uncertainties of that type investing. express agreement special There is no or circumstances provide to investment advice other than as an incident facts, brokerage Upon activities. these we hold that a does not owe a fiduciary duty to an investor- decisions, customer who makes all of the investment un- express agreement there is an placing greater less obli- gation special on broker or other circumstances. We unpersuaded are by decisions of the Fu- Commodities Trading tures Commission which Boeck construes as reaching contrary result. unpersuaded by
We also are
argu-
concurrence's
may
ment that a broker
person
become a
for a
with a nondiscretionary
by gaining
account
person's
trust and
purporting
confidence and
person
advise that
with the other's interest
in mind. A fiduciary relationship
merely
does not arise
because a broker offers advice and
upon
counsel
which a customer
right
place
has a
trust
right
place
and confidence. The
trust and confidence
reliability
representations
in the
involving commercial
already
protected
transactions
by
misrepre-
the law of
Co., Inc.,
sentation. See Ollerman v. O'Rourke
94 Wis. 2d
(1980)
17, 29-40, 288
(discussing
N.W. 2d
easing
transactions).
the rule
emptor
of caveat
in commercial
A
fiduciary relationship arises from a formal commitment
(for
trustee)
to act for the benefit of another
example, a
special
or from
circumstances from which the law will as-
obligation
sume an
to act for another's benefit. The mere
therefore,
fact of
representations,
reliance on
does not
necessarily
a relationship
create
of trust arid confidence
Thus,
leading to a fiduciary duty.
we do not hold that fiduciary duty may arise out of every circumstance where
relationship
there is a
of trust and confidence between
parties.
*9
agree
Here,
formally
not
to make
Lynch
Merrill
did
fact,
always
for
In
Boeck
re-
Boeck.
decisions
investment
making
for
investment de-
ultimately responsible
mained
Also,
cisions,
required by
nondiscretionary
his
account.
as
which we
find
exist from
could
no
circumstances
special
as a
responsible
fiduciary
should be
Merrill
Moreover, we
if
held
investment decisions.
for Boeck's
circumstances,
a
in these
then
fiduciary
broker is
that a
poor
allege that
the broker exercised
investor could
an
advising
This is because the
when
the investor.
judgment
not to
fiduciary
greater
simply
is
than
of a
broker,
a
professional fiduciary,
A
like
also
misrepresent.
higher degree
of skill
care than
be held
a
would
30 Wis.
ordinary prudence.
of Scheibe,
See Estate
a man of
(1966).
116, 120,
Recognizing
2d 196
full
140 N.W.
2d
fiduciary,
a
we refuse
treating a broker as
implications of
represen
fiduciary
as
for
that a broker is liable
a
to hold
account.
nondiscretionary
with a
to an investor
tations
of customer's in
guarantor
a
make
We would
if we held otherwise.
vestments
question
a verdict
initially
court
submitted
The trial
in-
giving
after
the issue of
jury
to the
on
a breach
theory.
After the
found
structions on
mo-
granted
Lynch's
court
duty, the
verdict,
notwithstanding
pursuant
judgment
tion for
that, for its
805.14(5)(b),
The motion admits
Stats.2
to sec.
true
findings of the verdict are
but
purposes,
limited
Stats.,
805.14(5)(b),
provides:
Sec.
against
party
notwithstanding
A
judgment
verdict.
"Motion for
judgment
may
for
the court
has
rendered
move
whom verdict
been
but,
proper
notwithstanding
the verdict
the verdict in the event that
upon
included
matters not
the record which bear
reasons evident in
verdict,
judgment.”
have
the movant should
*10
judgment
granted
moving
asserts that
should be
to the
party
grounds
on
other than those decided by
jury.
Resources,
407, 413,
67
Dept.
Herro v.
Natural
Wis. 2d
of
(1975).
UE,
" notwithstanding 'A motion the verdict amounts post-verdict to a is, motion for a directed verdict ... It sense, in a a demurrer to the evidence.It admits the facts found but contends that as a matter of law those insufficient, admitted, though facts are to constitute a cause of action.'" presented
The evidence and viewed in the most favor- not, light law, able to Boeck does as a matter of reveal the existence of a fiduciary duty. The trial court therefore granted correctly judgment notwithstanding the verdict that Merrill breached its to Boeck. appeals The court of correctly also affirmed the trial court's determination.
STRICT RESPONSIBILITY OF BROKER argues Boeck also appeals that the court of by erred upholding the trial court's refusal to submit a strict re- sponsibility of theory misrepresentation jury. to the We agree with the trial appeals court and the court of strict responsibility is not properly an issue in this case.
Strict responsibility misrepresentation only ap propriate in circumstances where speaker appears personal knowledge have such expected it is he is providing Iverson, infallible information. In v. Whipp 166, 169-70, 168 (1969), Wis. 2d N.W. 2d 201 we stated the considerations that determine responsibil whether strict ity applies: misrepresentation responsibility,
"In strict knowledge personal defendant's be made on the must ought necessarily he or under which circumstances or untruth the statement known truth have an economic interest in must have defendant good-faith belief Intent deceive and the transaction. representation are immaterial. In of the in the truth supposed possess speaker is this classification normally knowledge the facts or could be complete Harper investigation. without expected to know them Synthesis Misrepresen- Law McNeely, A The *11 (1938),939, 12, tation, p. at Note 988. Minn. L. Rev. 22 expecting infallibility justified in person A therefore is representations of facts." as to the case, of this we test to the facts Applying the above crop estimated sizes is information about conclude infallibility expected. is information where type not the to accu- strictly a broker liable also refuse to hold We be- by estimated various sources rately report crop sizes suddenly fluctuate without the estimates can cause such awareness. broker's 271, 280, 332 2d 112 2d N.W. Rozga, v. Wis.
Gauerke (1983), responsibil- our conclusion strict supports There we reiterated the in this case. inappropriate is ity responsibility: of strict influencing imposition factors misrep- responsibility for policy strict "The behind Judges for Trial is in the Law Notes resentation stated 2400, for Li- Misrepresentation: Bases in Wis. J.I.—No. Damages: ability and " misrepresentation, responsibility for 'Strict public basis, applies situations where to those second innocent de- placing the loss on the opinion calls for plaintiff. In Ste- rather than on the innocent fendant 557, Barniweck, 2d 690 2d 99 N.W. Wis. venson [v. Prosser) required presence (1959)], (citing court (1) rep- liability would be found: of two factors before knowledge, own of defendant's made as resentation purports to have concerning about which he a matter may knowledge, he be taken have assumed so that (2) warranty, case of a de- responsibility as in the interest in the transaction an economic fendant with plaintiff enters that defendant ex- so into which words, In other pects gain economic benefit. some responsibility applies in those circumstances strict speaker particular either had "indicate that which facts, ascertaining pertinent posi- or his means of knowledge possible complete and the state- tion made Therefore, fairly implied had it." ments that he ought speaker ought have known or else not to have spoken.'" ed.) (2d
Prosser, sec. of Torts at also Law misrepresenta- liability limited use of strict notes the cases, speaker expected in the case where a except tion guarantee accuracy: his that. . . there is a more or less con-
"It seems clear upon policy placing the loss the innocent de- scious plaintiff rather than the innocent who has fendant misled, public opinion seems to been cases where only it a result. Thus far has resulted call such representation of the defendant's where the is made as concerning knowledge, a matter as to which he own purports *12 knowledge, may that be to have so he taken responsibility in the case of a war- to have assumed as ranty." 562, Stevenson, cited favorably
In 8 Wis. 2d at we this rea- controlling responsibility the use of for soning as strict misrepresentation.
Here, had interest in Boeck's trans- Lynch Merrill an expected economically, from it to benefit action which liability. of the criteria for strict Stevenson which is one 562-63; Judges for Trial in Wis. also Law Notes at see (1981). show, however, did not J.I. —Civil Boeck representations on Lynch untrue based Ter- made in which knowledge, or circumstances personal rill's own ascertaining he had means the relevant indicate that facts, complete made knowl- position possible that his or fairly he made the matter or that statements edge of Id. at 562-63. knowledge. Many dif- had such implied he of future complex factors influence estimate ferent change countries. Such factors can foreign in crop size policies if more and world not often. Governmental daily, conditions, economics, as well as weather can affect and of the futures production. The nature commodities crop speculative complete market is so volatile and knowledge Imposing responsibility strict impossible. volumi- representations rapidly changing, based on conflicting information would create nous sometimes Moreover, for investment brokers. an untenable burden strictly responsible accurately we not hold a broker do report vary because such estimates with- crop estimates do law notice to broker. Brokers have common out misrepresent not to negligence based on standards crop estimates. known including trial court was correct not
We hold of strict submitting or the issue on verdict question to the responsibility jury. OF JUSTICE
INTEREST of appeals cor- Although the trial court and court not a fidu- did owe Boeck rectly ruled that Merrill is not an issue responsibility strict and that ciary new trial case, is entitled to a conclude that Boeck this we liability. We misrepresentation theory negligent on the controversy that the real this on the fact base conclusion 751.06, Stats.; State fairly not tried. Section fully was (1985). 2d 745 370 N.W. Wyss, v. 124 Wis. 2d *13 141 permitted The trial court erroneously this case to proceed jury to the for deliberation on the fiduciary duty Boeck, error, theory liability. in reliance argued on this that Terrill's failure to disclose information about May report indicating (allegedly higher soy- Brazilian 15) production represented bean than on May constituted fiduciary duty. a breach of argue Boeck did not that Ter- rill's silence negligent misrepresentation, constituted a likely most because he believed that breach of fiduciary duty prove. silence, was easier to alleged Terrill's how- ever, may negligent constitute misrepresentation. We conclude, therefore, that submission of the fiduciary duty theory to the prejudicially pur- misled Boeck not to possible negligent sue the misrepresentation claim. As a result, the real controversy fully was not tried. We order granted that Boeck be a new trial limited to the issue of negligent misrepresentation.3 trial, At the new Boeck may attempt negligent establish misrepresentation alleged disclose, based on Terrill's failure to as well as any allegedly erroneous actual statements. purpose
For the trial, at clarification the new we note that a broker does not an priori have duty to dis- close known and relevant information about investments contemplated by a customer. The broker may simply purchase transact the customer's or sell orders without making any representations. The broker's may however, change, if he volunteers information that he obligated was not otherwise provide. may give He not such information negligently. If such initial information given, is the broker then has a to disclose subse- acquired quently information that he knows will a make trial, Boeck's debt to Merrill is uncontested. The new therefore, against Lynch. limited to Boeck's counterclaim *14 misleading.4 or erroneous This representation previous yet if client has not com- only exists the duty to disclose the or if the client directs pleted his transaction transactions in reasonable subsequent additional to make representation. original on the reliance appeals of the court of decision By the Court. —The to is remanded the trial court and the cause is reversed opinion. with this proceedings consistent for further ABRAHAMSON, (concurring). J. I SHIRLEY S. Upon reviewing case be remanded. agree that the should misrepre- negligent and intentional on the instructions ju- I that the on conclude duty,2 sentation1 4 (Second) Torts, Misrepresentation: ch. 22 Restatement Pe See Loss, Liability cuniary 551 for Nondisclosure: sec. "(1) may to another a fact he knows One who fails to disclose acting
justifiably to in a the other act or refrain from business induce though subject liability the as to other he had to same transaction disclose, represented that he has failed to nonexistence of the matter if, if, only duty to care is under a to other exercise reasonable but he question. in to the matter disclose "(2) duty party a to to transaction is under exercise One a business transaction is to to the other before the consum- reasonable care disclose mated, "(c) acquired subsequently will that he knows make information misleading previous representation was that when made untrue or so; .” to be and. . . true or believed 1 negligent misrep- in cause of action There are four elements misrepresentation, jury and the five for intentional resentation and of action —and the The first element in each cause so instructed. was representation that the broker made a in in this review —is one issue representa- correctly that a court instructed fact. The circuit by duty by if there is a may act or silence made an affirmative tion be duty speak, failure to disclose is treated If is a disclose. there representation of the nonexistence equivalent to a as law Inc., 17, 26, 46, Co., N.W. 2d 2d O'Rourke 94 Wis. fact. Ollerman v. (1). (Second) Torts, (1980); sec. 551 Restatement duty speak may of circumstances. See A arise from a number (1976). (Second), See note 5 sec. 551 Restatement of Torts infra. adequately duty that it their rors were not advised was whether, case, determine under the circumstances of this relationship and confidence that there was a of trust would give rise to a on the broker to disclose material the transaction in issue.3 If there was a information about information, the failure to to disclose material disclose misrepresentation. negligent could constitute intentional or retrial, I would therefore remand this case for *15 justice, negligent interests of on the issues of and intention- (Second) Torts, misrepresentation. al of sec. Restatement case, following In the circuit court this Wis. J.I.-Civil No. in- jury negligent structed the as follows on the first element of and inten- misrepresentation: tional "First, plaintiff representation Represen- that the made the of fact. writing by tations of fact do not have to be in or even word of mouth. They may by part plaintiff by be acts or conduct on the of the or even silence, duty speak. duty speak may if there is a A arise when infor- response mation is asked for or where circumstances would call for a parties may equal footing, in order that the be on an or where there is relationship parties. trust or between the of confidence expression opinion "An of which either indicates some doubt as to speaker's fact, merely expresses the belief in the existence ofa state of or value, judgment quality, authenticity his on some matter such as like, However, representation does not constitute a of fact. a state- opinion implied speaker of ment carries with it an assertion that the support opinion, may, your knows that the facts exist which his in dis- cretion, by you representation making be determined to be of fact. In determination, your you may consider the form and the manner of ex- pression, relationship or the existence a trust or between of confidence “ added.) (Emphasis parties. 2 if The circuit court instructed the the broker undertook respect to advise and counsel the customer with to financial invest ments, in the broker assumed a to disclose all material possession formation in the broker's as to the transactions involved. 3 person Material information is information that a reasonable importance determining in the would attach to in a choice of action (Second) question. in 3 Restatement of Torts sec. 538. The transaction heavy duty majority's imposing fear of on brokers too to disclose is based on an erroneous characterization of what such a would en Pp tail. 134-135.
551(1)(2) (1976). controversy fully not real was The 751.06, fairly Stats. 1983-84. tried. Sec. it miscon- join majority opinion
I not because do duty and confi- concepts fiduciary of trust and strues the the issues on remand.4 erroneously limits dence and concerns the nature of central issue this case The who has a between a customer nondiscretion- the relation princi- relation is one of and the broker. The ary account broker, agents, other a fidu- agent, and the like is pal and (1958). (Second) of sec. 1 A Agency, Restatement ciary. 1 of is under a to act for the benefit another relation, e.g., scope within the with as to matters scope agency. respect to matters within imposed of the duties is not identical The extent (Second) Agency, fiduciary relations. Restatement all (Second) Trusts, (1958); sec. com- 1 Restatement sec. (1976). b, In nondiscretionary 6-7 account the pp. ment execute agency generally of the scope broker's from the fiduciary duty instructions. Aside customer's arising agreement that the broker express buy out of the instructed, as the broker-customer and sell investments *16 recognized traditionally fiduciary as a is not one relation holding therefore in majority The correct relation. not, case, in relation alone does this broker-customer 4 summary, agree majority court In I with the that the circuit instructing to advise in that a broker who undertakes erred has, nondiscretionary a mat a account as counsel a customer with and relating law, duty to the trans to disclose material information ter of a express agree majority in the absence of an I with the action. also circumstances, provided special a who incidental agreement or nondiscretionary a account information to a customer with investment law, fiduciary duty, infor to disclose all material no as a matter of has engages. regarding In in which the customer transaction mation information, view, question giving advice or counsel my of whether depends the cir gives duty on to a to disclose material information rise particular in cumstances case.
145 duty to disclose all give rise to a material infor- mation.
Nevertheless, "nonfiduciary" relationship business relationship and may become a of trust confidence when person gains the confidence of the other and purports one person to act or advise that with the other's interest Bogert, (1978); mind. Section 482 Trusts Trustees Keeton, 106, Page p. (1984); The Law sec. 738 Torts of II, Gray, James and 37 Misrepresentation-Part Md. L. (Second) 488, (1978); Trusts, Rev. 524-525 Restatement of Trusts, (1967). (1957); Scott, 2.5, p. pp sec. sec. 39-42 relationship In this case a of trust and confidence would impose duty on the broker the same that a traditional fi- relationship might duciary impose, namely, to dis- relating close material facts to the ques- transaction in (Second) Trusts, 2, Comment, tion. Restatement sec. p. (Second) 551(l)(2)(a). 7; Torts, Restatement sec. may give Brokers sometimes incidental advice or in- executing formation their duties for customers with nondiscretionary accounts. The gain broker does not trust and confidence of the simply by customer virtue of providing Nevertheless, incidental advice. a broker must giving use due care in advice even where there is no rela- exercising tion of trust and confidence. In due care a bro- ker must disclose subsequently acquired information that he misleading knows will make untrue or previous rep- resentation that was true or believed when made. Re- (Second) 551(l)(2)(c).5 Torts, statement sec. (Second) Torts, Sec. Liability Restatement entitled Nondisclosure, provides as follows: "(1) may One who fails to disclose to another a fact that he knows
justifiably acting induce the other to act or to refrain from in a business subject liability though transaction is to the same to the other as he had represented disclose, the nonexistence of the matter that he has failed to if, if, only but he is under a to the other to exercise reasonable care *17 question. to disclose the matter in "(2) party duty One to a business transaction is under a to exercise
146 place confidence would an relationship of trust and A upon to material in- duty the broker disclose additional subsequently acquired in- whether or not formation misleading previous repre- makes untrue or a formation placed or herself in a himself Whether sentation. many depends trust confidence on cir- position a of and cumstances, course of between the including the conduct customer, sophistication, the customer's broker and give undertakes to advice to which the broker extent counsel, placed confi- whether the customer fact and broker, justi- was whether customer in the and dence in the broker. placing confidence fied other before the transaction is consum- care discloseto the reasonable mated, "(a) to know be- to him that other is entitled matters known be- or other similar relation trust and confidence of a cause them; and tween "(c) subsequently acquired information he knows will make misleading representation previous when made was untrue or so; to be true or believed transaction, "(e) if he knows that the other is facts basic them, other, it under as to and that the because to enter a mistake about them, relationship other ob- the customs of the trade or between circumstances, reasonably expect jective disclosure of would those facts." 551, Oregon Fought, v. U.S. Nat. Bank a discussion sec. see For 201, 630, (1981); Stamping p. Co. v. Termi 291 2d 337 Central States Or. 1984). (6th Inc., 1405, Co., F. 2d 1409 Cir. Equipment nal 727 492, Goodwin, 486, also, rehearing e.g., Briggs 698 F.2d v. See (D.C. 1983), granted opinion 1444 cert. denied 712 F.2d Cir. vacated (common 1040, (1984) principles of 464 104 law tort U.S. S.Ct. 704 misrepresentation impose incorrect to correct an and deceit it): Fidelity Guaranty justifiably relying & Co. U.S. to those on statement 1981) (Mich. Black, (parties business transac v. N.W.2d 313 89 general obligation that renders to disclose information are under a tions McSwegin, misleading); previous representations Miles v. untrue or (seller (Ohio 1979) property under of residential N.E.2d incorrect). representations information that made earlier disclose *18 sum, determining special is no formula for In there relationship of and confidence exists. The trust whether depends on the circumstances. In of this issue disposition Wisconsin, relationship such a question the whether for the jury. exists is case, then, is whether there was suf- in this
The issue the circuit court to submit to for the ficient evidence special there circumstances whether were question the confidence, relationship of trust and gave to a rise which the the to disclose all imposing on broker thereby involved. about the transaction material information in this there evi- that case was sufficient I conclude go testi- question jury. the to to the The broker dence "regularly" trial the asked "what at customer fied Department say had to about Lynch's Research March, during April, . . . commodities" particular addition, a from to of 1978. In letter the broker cus- May (dated 9,1977) August was admitted into evi- Boeck tomer in which the broker described initiation dence concept... provide your with approach account "dual monitoring." also testi- attention Boeck continuous every morning called him and at least fied that day he was not on the road. Boeck selected twice a when repre- on the firm's advertisements the broker basis senting ability provide the firm's advice and counsel. Although expertise suggest skill and customer's confidence, it had been jury, absence trust and instructed, relationship could found properly have that a of trust and confidence existed. who advice majority provides
The
holds
a broker
nondiscretionary
ac-
and counsel to a customer with
all material
infor-
count has a
to disclose
if there is an
regarding
mation
a customer's transaction
Pp. 135-136.
express agreement
special
or
circumstances.
repeatedly recognizes
times
majority opinion
The
—seven
impose a
precise
special
be
circumstances can
—that
informa-
material
to disclose
fiduciary duty on the broker
pp.
nondiscretionary account. See
with a
tion to a customer
however,
fails,
majority
The
135 and 136-137.6
special circumstances.
by
phrase
it means
explain what
there
Moreover,
explanation
states —without
it then
—that
give
could
case which
circumstances
this
special
are no
stating
In
and confidence.7
relationship of trust
to a
rise
*19
in
exist
special circumstances
conclusory
that no
fashion
a
law, it fails
only misapplies the
case,
not
majority
the
this
industry and the courts.
to the
provide guidance
to
to determine
jury
the case for the
Refusing to remand
case,
in this
existed
special circumstances
any
whether
6
creating
of
"special
a relation
of
circumstances"
For a discussion
duty
in
gives
a
to disclose material
which
rise to
confidence
trust and
Stone,
Leach,
Shearson,
see,
formation,
Hayden,
Inc.
583 F.2d
e.g.,
v.
1978) (customer
decisions;
(7th
367,
made all investment
Cir.
371-72
fiduciary rela
relay
unless a
requirement
market
information
no
Pierce,
Smith,
Lynch,
existed);
Fenner &
tionship
Robinson v. Merrill
(5th
(N.D.
1971),
107, 113
Inc.,
aff'd,
The confusion the nature duty of information that should be type "recog- majority is disclosed also revealed when states: treating a nizing implications the full broker as a fidu- fidu- we hold that a liable as a ciary, refuse to broker to an investor with ciary representations make a broker a account. We would nondiscretionary if held other- guarantor of a investments we customer's (At 137.) of material information would wise." Disclosure invest- guarantor of a customer's not make duty The information to cus- ment. to disclose material tomer with a nondiscretionary account is distinct from a duty propose a financially successful trading course of or investment.
In instructing the on jury negligent and intentional case, misrepresentation in this the circuit court correctly jury advised the that a misrepresentation may be made by silence if there is duty speak. The circuit court fur- ther jury instructed the it could conclude that speak broker had a if it determined that the rela- tion between the broker and customer was one of trust failed, and confidence. The circuit however, court to in- form the jury what might give circumstances rise to such a relation and probably confused with the errone- ous instruction regarding a fiduciary duty to disclose ma- terial information. I would therefore remand the case for a new trial on all the issues involved in negligent and in- misrepresentation, tentional including question of a speak arising from a relation of trust and confi- dence.
I join cannot the majority opinion which excludes the element of trust and confidence in the remand for a re- question trial on the negligent misrepresentation. CECI, LOUIS J. (dissenting). J. I agree with the majority that the court appeals' decision must be reversed; however, I disagree part with that majori- of the ty's opinion which Lynch holds that Merrill had no fiduciary duty to Boeck to disclose material investment information. I would jury's reinstate the verdict which determined that Merrill provide failed to Boeck with material possession. information in its
Although express no contract existed between Mer- rill Lynch regarding and Boeck investment advisory serv- *21 ices, there is no doubt that Merrill Lynch undertook to provide such advice and market information to Boeck as an incident to the agreement. commodities account Dis- soybean Lynch's that Merrill indicates testimony
puted previous his esti- subsequently sharply reduced expert crop. soybean Brazilian of the mate however, Lynch Merrill never that undisputed, It is crop going that the estimate was telling Boeck denied 132.) questioned that Merrill it op. Nor is (majority down govern- Brazilian inform that Lynch Boeck failed to country's soybean to the increased its estimate ment had "the disputes that one, majority, not even crop. And no crop significant, soybean was Brazilian of the size soybean futures." affecting price factor material 132.) at (Majority opinion ninety-eight that he sustained over established
Boeck in- futures as a result of soybean his losses in percent 17, 1978, May the critical date of made after vestments that Terrill first learned Boeck asserts date when directly estimate government's soybean the Brazilian Lynch Lynch, Merrill estimate. Merrill with the varied Terrill, this critical to relayed never information through words, found, and nowhere does In Boeck. other to disagree, Lynch undertook majority that Merrill with material investment advice its client Boeck provide provide Boeck with critical information and failed with its earlier information. possession which varied its Lynch’s fiduciary of Merrill a breach This constitutes The to sustain to Boeck. breach caused Boeck owed the soybean losses in market. substantial this situa- The of broker's extent require signifi- it disclose the client all tion would regarding the cant, possession in its material information See, Co., 65 & Schweiger v. Loewi transactions involved. (1974). Here, 56, 64, 221 N.W.2d Wis. 2d signifi- to Boeck all required would be disclose cant, regarding the status of material information Lynch's fiduciary duty crop. Merrill soybean Brazilian in- subsumes, least, responsibility disclose very at the *22 possesses formation it contrary which is significant, it gave material information originally to the client. A finding Lynch that Merrill breached its fiduciary duty owed to Boeck would not make Merrill Lynch guaran- "a tor of (Majority 137.) investments." opinion at [Boeck's] Rather, finding such a would merely make a broker liable for its breaches.
A finding that a client's account is nondiscretionary determining is irrelevant in the existence of a fiduciary duty, especially where concedes, the majority as it does here, special may give circumstances rise to fidu- ciary obligations. Although Boeck's account with Merrill Lynch was nondiscretionary, special there are circum- stances in this case give which rise to a relationship of trust and confidence between Lynch Merrill Boeck; and namely, Lynch Merrill initially signifi- disclosed to Boeck cant, information, material upon market which Boeck was entitled to rely.
Boeck testified that he reposed his trust and confi- in dence Merrill Lynch based on its full-page advertise-
ment newspaper national reputation and its of a strong program research Indeed, commodities. Merrill Lynch, brokers, like other major promoted has itself through radio and television advertisements. Merrill proclaims Lynch itself to be a apart" "breed and asserts that it keep works hard to its clients informed! Obviously, part admit, no of this herd would imply, or even that they significant withhold and material information from the client, or that their clients' trust and confidence is mis- placed.
The majority's
invocation of Robinson v. Merrill
Pierce,
(N.D.
Lynch,
Smith, Inc.,
Fenner &
such does Boeck assert But neither here. a contract such from the opinions" facts and to receive "all right Instead, Lynch's only asserts he broker. *23 regarding material information significant disclose allowing I not advocate market. do soybean Brazilian merely by damages from his broker to "recover a client . . ." of some fact. non-transmission proving broker's] [a Rather, has original). the broker in Id. at (emphasis material factors significant, client to relate market. the relevant affecting experienced an inves- that Boeck was not doubt I do in- experienced But even an tor, majority claims. as the poor make invest- full information will vestor without certainly she cannot make He or decisions. ment initially pro- upon information judgments based reasoned and material informa- contrary, significant, when vided experience Investment subsequently withheld. tion is interpret analyze an investor to better merely allows in- information; a substitute for market it is not market formation. placed which Boeck Mer- confidence
The trust and Lynch legally significant when Lynch rill became soybean of the status of to inform Boeck undertook projections commodities of its own decreased market and crop. Merrill breached soybean the Brazilian Boeck of the it to inform its when failed govern- of the Brazilian significant, material information cor- crop. The was forecasts for promising ment's regarding of fidu- breach rect its verdict determination contrary disagree majority's I with the ciary duty; conclusion.