Freundt-Alberti v. Merrill, Lynch ( 1998 )


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  •                                                                                 PUBLISH
    
                          IN THE UNITED STATES COURT OF APPEALS
    
                                  FOR THE ELEVENTH CIRCUIT
    
    
    
                                             No. 95-5224
    
    
                               D.C. Docket No. 91-1882-CIV-KEHOE
    
    
    NANCY FREUNDT-ALBERTI, OSCAR FREUNDT ROSELLI,
    LUCCIOLA ALBERTI DE FREUNDT,
    
                                                                                 Plaintiffs-Appellants,
    
                 versus
    
    
    MERRILL, LYNCH, PIERCE, FENNER & SMITH,
    INCORPORATED,
    
                                                                                 Defendant-Appellee.
    
    
    
    
                          Appeal from the United States District Court for the
                                     Southern District of Florida
    
    
                                          (January 29, 1998)
    
    Before EDMONDSON, Circuit Judge, CLARK and WELLFORD*, Senior Circuit Judges.
    
    PER CURIAM:
    
    
    *Honorable Harry W. Wellford, Senior U.S. Circuit Judge for the Sixth Circuit, sitting by
    designation
                  In this case plaintiffs’ counsel had difficulty pleading their clients’ case
    
    adequately.      After several dismissals without prejudice, the district court
    
    understandably lost patience and dismissed it with prejudice. Nevertheless, our
    
    review of the second Amended Complaint and exhibits convinces us that plaintiffs’
    
    complaint is sufficient. After pleading counts against defendant for fraud and failure
    
    to follow plaintiffs’ instructions with respect to purchases of securities, plaintiffs
    
    clearly plead a count for churning which is supported by exhibits attached to
    
    plaintiffs’ second Amended Complaint. These exhibits are copies of defendant’s
    
    monthly statements of plaintiffs’ transactions during a number of months. We attach
    
    one page of the account.
    
                  The transactions reflect the very first large purchase of GNMA bonds in
    
    April and May of 1987, on which a two percent underwriting commission was
    
    charged. These bonds were sold, despite high yields of interest, in July, 1987, at a
    
    loss of over $45,000, with an underwriting fee of one percent. Another early
    
    purchase in the account, a Merrill Lynch collateral mortgage investment, was acquired
    
    in late July of 1987 with a three percent "markup" or underwriting fee and part was
    
    sold in August of 1987 at a loss; the balance was sold in September, 1987 at a loss of
    
    over $74,000.
    
    
    
    
                                                2
                 Consistent and large losses with similar underwriting fees on markup
    
    allegedly occurred throughout 1987 and 1988. Losses on transactions were likewise
    
    allegedly depressingly consistent in 1989. In 1990 there were numerous very short-
    
    term "exchanges in" and "exchanges out" of mutual funds, some of them Merrill
    
    Lynch funds with substantial losses. (In August 1990, alone, losses on such
    
    "exchanges" were nearly $100,000.) The amended complaint specified a significant
    
    turnover rate and that defendant earned more than a half million dollars on this
    
    account during an approximately three-year period.
    
                 The amended complaint asserted "false and misleading oral reports to the
    
    plaintiffs," concealment, and failure "to give plaintiffs any written reports or
    
    statements" (with one exception) for two years.         It specifically also averred
    
    defendant's misrepresentation about trading authority, and fraud and deceit.
    
                 These averments in the amended complaint address fully the district
    
    court's concerns in its prior dismissals about necessary elements of the churning (and
    
    fraud) counts. They assert particularly: (1) commissions paid; (2) turnover ratio; and
    
    (3) specific securities involved.     This case is decidedly different from the
    
    circumstances in Craighead v. E.F. Hutton & Co., 
    899 F.2d 485
     (6th Cir. 1990):
    
                        Plaintiffs have not alleged, nor does anything in the
                 complaint support the inference that defendants engaged in
                 an inordinately large number of transactions during the time
                 in question, or that defendants engaged in "in and out" or
                                              3
                 other, similarly questionable, trading, or that defendants
                 engaged in any other conduct that would indicate that their
                 trading was excessive. Plaintiffs argue that figures such as
                 turnover ratios constitute evidence, which they need not
                 provide to withstand a 12(b)(6) motion.
    
                                             ***
    
                 For example, when a plaintiff alleges that a broker turned
                 his account over more than ten times in a year, he implicitly
                 alleges that his broker exceeded the benchmark annual
                 turnover ratio of six. See Siegel, 685 F.Supp. at 554.
    
                                             ***
    
                 Similarly, a plaintiff who alleges that his broker engaged in
                 "in and out" trading implicitly alleges that his broker has
                 breached industry standards and practices, and thereby
                 alleges a basis for the inference of excessive trading. See
                 Costello, 711 F.2d at 1369 and n.9.
    
    Id. at 491. See also Heller v. L.F. Rothschild, 
    631 F. Supp. 1422
     (S.D. N.Y. 1986).
    
                 The district court should reconsider the adequacy of the so-called "in
    
    connection with" averments.       Plaintiff Nancy Freundt-Alberti and her mother,
    
    Lucciola Alberti de Freundt, are two of the joint holders in this account--the other, the
    
    father and husband, is long-since deceased. The district court should consider, on
    
    remand, whether the two named parties may proceed under these circumstances as
    
    agents of the deceased. There is no showing or averment in the motion to dismiss by
    
    Merrill Lynch of conflict of interest nor danger of duplicative or multiple proceedings.
    
    The joint account agreement states, furthermore, that upon notice of death of any joint
                                               4
    account holder, Merrill Lynch "shall separate the account into equal accounts." Why
    
    may not the two named live plaintiffs sue in connection with their own separate
    
    interests or accounts?
    
                 We also note that the district court never discussed, in effectuating
    
    dismissal of this case, the basis of the joinder deficiency or requirement. Under Fed.
    
    R. Civ. P. 19(b), "the court shall determine whether in equity and good conscience the
    
    action should proceed among the parties before it" or if the deceased joint account
    
    holder "cannot be made a party." It did not consider whether the other parties may
    
    serve as agents of or were the sole heirs of the deceased joint account holder. The
    
    district court must also consider " whether the plaintiff will have an adequate remedy
    
    if the action is dismissed for nonjoinder." In determining whether the action should
    
    proceed, a court should consider such pragmatic factors as whether the absentee party
    
    would be “adversely affected in a practical sense”; whether prejudice, if any, to
    
    defendant would be "minor"; whether there is a serious threat of further action; and
    
    whether the court can "shape relief" in the absence of the third (deceased) joint
    
    account holder. See the amended rule advisory committee notes. Finally, the district
    
    court, on remand, must consider and specify the basis for dismissal of the Florida
    
    state law claims.
    
    
    
    
                                              5
                For the reasons stated above, the district court’s dismissal is VACATED,
    
    and the matter is REMANDED for further consideration in light of this opinion.
    
    
    
    
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Document Info

DocketNumber: 95-5224

Filed Date: 1/29/1998

Precedential Status: Precedential

Modified Date: 12/21/2014