Petition — Merrill Lynch, Pierce, Fenner & Smith Inc. v. Malandris
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- 2- 2 0 1 8 Office-Supreme Court, U.S.
.:
No. 82-__ eth Be
JON 10 1983
IN THI A EXANDER » SPEAR,
Supreme Court of the United States
OCTOBER TERM, 1982
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED.
Petitioner,
JUNG JA MALANDRIS,
Respondent,
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
ROGERS & WELLS
William P. Rogers
(Counsel of Record)
Guy C. Quinlan
James N. Benedict
David A. Schulz
200 Park Avenue
New York, New York 10166
(212) 878-8000
HOLME ROBERTS & OWEN
Donald K. Bain
lohn M. Kobayashi
1700 Broadway
Denver, Colorado 80290
(303) 861-7000
titornevs for Petitioner
QUESTION PRESENTED
May a United States Court of Appeals properly attempt to
cure a grossly excessive jury verdict by ordering remittitur in
lieu of a new trial, where the trial itself was marked by
repeated incidents of prejudicial and inflammatory courtroom
misconduct, the issues as to liability and damages were insepa-
rable, and the question of liability was sharply contested?
PARTIES TO THE PROCEEDING
All of the parties appearing in the District Court and the
Court of Appeals are listed in the caption.*
’ P if iil Rul ha! t ‘ ‘1 | |
i | "i & Smith In norated } 4} |
TABLE OF CONTENTS
PAGE
Be ee By oe gg ne
ee SUMO LO RE, De ew I ee ene
ee Or RG PR ic ke ccc eens ae I\
gh a 2g SANG ae rae ee eeu eas
COPPER LU geek cee cess
PU, FIT oo int even es ss oie es 2
BD COR WEE CR ik ec eee ees 3
REASONS FOR GRANTING THE WRIT.......... 7
The En Banc Order of the Court of Appeals
Resolves Important Due Process Issues in Direct
Conflict With Controlling Decisions of This Court
and With Decisions of Courts of Appeals in Other
NEES SASUSSI ONES hg TU ee oe 7
1]
fe Se en ee ac hee sea ene os
FABLE OF AUTHORITIES
Cases PAGE
City of Cleveland v. Peter Kiewit Sons’ Co., 624 F.2d
Te CORTE CO, ESE hic cece rece eksseunecahuceee 10
Dorin v. Equitable Life Assurance Society of U.S., 382
ee NF ice be dee ee tun eerste, 10
Draper 4irco, Inc., 580 F.2d 91 (3d Cir. 1978)...... 10
Ford Motor Co. v. Mahone, 205 F.2d 267 (4th Cir. 1953) 10
Glazer v. Glazer, 374 F.2d 390 (Sth Cir.), cert. denied,
MO OT) OD OO ken b ances ehednesdanunccpus 1]
Te ie Mies, S08 US. 155 C1905) oc ccc wc cceess 7
es Pie OE TE. FET CISGE se gcc cece keckans 7
Koufakis v. Carvel, 425 F.2d 892 (2d Cir. 1970) ....... 10
Minneapolis, St. Paul & S.S.M.R. v. Moquin, 283 U.S.
i ii ica ceewenectneerccicateas 7, 10
Ouachita National Bank v. Tosco Corp., 686 F.2d 1291
RU PUREE i vace ns ce weet tava s beeen s ee wen 10
Schweiker v. McClure, 456 U.S. 188 (1982)........... 7
Statutes
TF 8 FED ok hikes shi bcc b cee a sce acasen ncn. 2
3
Te 6 oe ak ci wee we eae eee een en eee
IN THI
Supreme Court of the United States
OCTOBER TERM 1982
‘cise i shes ieiahiiagteieineaii
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
Petitioner,
JUNG JA MALANDRIS,
Respondent.
peereanensserenemienetenstnaeat oo
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
Petitioner, Merrill Lynch, Pierce, Fenner & Smith Incorpo-
rated (“Merrill Lynch”), prays that a Writ of Certiorari issue to
review the en banc judgment and opinions of the United States
Court of Appeals for the Tenth Circuit entered in this proceed-
ing on March 31, 1983.
OPINIONS BELOW
Annexed hereto are the following decisions from the Court
of Appeals, which are not yet reported: the en banc order
reinstating the judgment of the panel (Appendix A); the
Original majority opinion of the panel (Appendix B); the
dissenting opinion of Judge Logan, as a member of the panel
(Appendix C); the dissenting opinion of Chief Judge Seth,
rendered after consideration en banc (Appendix D); and the
5
ne
concurring and dissenting opinion of Judge Seymour, rendered
after consideration en banc (Appendix E). The opinion of the
District Court for the District of Colorado, which is reported
at 447 F. Supp. 543, is annexed as Appendix F.
JURISDICTION
The jurisdiction of this Court is invoked under 28 U.S.C.
§ 1254(1).
rhe original judgment of the panel of the Court of Appeals
for the Tenth Circuit was entered on March 4, 1981. A timely
petition for rehearing with suggestion of rehearing en banc was
granted on April 17, 1981, and the judgment of the panel
simultaneously was vacated. On February 23, 1982 the Court
requested supplemental briefs from the parties, and oral argu-
ment was presented to the Court sitting en banc on May 6,
1982.
On March 31, 1983, the en banc Court issued an order
reciting that it was “unable to reach a majority opinion or
judgment tor disposition of this appeal” (Appendix A, p. A-2).
The Court further stated:
Upon being re-polled on the issue of disposition in the
light of the stalemate, the court, by a vote of four to
three, determined to sustain the judgment of the panel,
but otherwise adheres to the views expressed in the opin-
lions issued stimulateously with this order.
(/d., tootnote omitted). Four separate opinions were issued.
Four of the seven judges expressed disapproval, on various
grounds, of the result reached by the panel, which was never-
theless given effect by the Court’s action.
STATEMENT OF THE CASE
Plaintiff suffered financial losses totalling approximately
$30,000 in a brokerage account which her husband had
opened, in her name, at Merrill Lynch (Tr. VII at 49-50, Apdx.
790-91).' She thereafter brought the present action for inten-
tional infliction of emotional distress and for common law
fraud; the diversity jursidiction of the District Court was
invoked under 28 U.S.C. § 1332. No allegation was made that
any member of Merrill Lynch’s management was aware of any
alleged wrongdoing. After a trial which included various epi-
sodes of crying, screaming, table pounding and shouted accu-
sations and threats by plaintiff or her husband, the jury
returned a verdict awarding plaintiff $1,030,000 in compensa-
tory damages, and $3,000,000 in punitive damages.
Plainuff’s husband testified that he had asked an account
representative in Merrill Lynch’s Denver office, one John
Barron, to sell the couple’s stock in United Airlines, so that the
proceeds could be deposited in a bank account in plaintiff's
name (Tr. Ill at 78, Apdx. 353). Plaintiff’s husband further
testified that he had been persuaded to invest the money in the
stock market, contrary to plaintiff's wishes, by various misrep-
resentations on the part of Barron, including a promise that
plaintiff would participate in a risk-free “partnership” with
Merrill Lynch (Tr. II] or 95-103, Apdx. 366-72). Mr. Malandris
further testified that Barron had induced him to forge plain-
tiff’s name on a power of attorney (Tr. III at 108, Apdx. 376).
No evidence was offered that any of Barron's superiors were
aware of his alleged misconduct, or approved or ratified it.
In addition to the $30,000 financial loss, plaintiff sought
damages for her subsequent emotional distress and depression,
| “Tr.” refers to the trial transcript; “ Apdx.” refers to the Appendix
filed with the Court of Appeals
4
which were manifested chiefly in an excessive preoccupation
with religion (Tr. IV at 70, 99-100, Apdx. 456, 480: Tr. V at
13-14, 62 Apdx. 519, 559). However, plaintiff was never
hospitalized, and apparently did not require any medical treat-
ment, Or consult any physicians other than the psychiatric
witnesses at the trial.
The record indicated that plaintiff had suffered serious
mental and emotional problems for many years prior to her
financial loss, and that she had been advised several years
before to seek psychiatric treatment, but had not done so (Tr.
IV at 61-63, 101-102, 106-107, Apdx. 448-50, 481-82, 486-87).
Che psychiatric witnesses called on behalf of plaintiff testified
that she had long been fearful, reclusive, and Suspicious,
frequently frightened by dreams and premonitions, and Subject
to episodes of bizarre behavior (Tr. III at 55, 86-87. Apdx. 334,
359-60; Tr. IV at 57, 89-90, Apdx. 446, 472-73). They further
testified that plaintiff's emotional distress at the time of trial
was caused by a number of factors. including a recent FBI
search of her home, for which Merrill Lynch concededly had
no responsibility (Tr. IV at 44, 58-60, 69-99, Apdx. 434-35,
446-48, 477-78). It was undisputed that plaintiff's psychiatric
history was not known to Barron, or to any other employee of
Merrill Lynch.
The trial was marked by several “highly inflammatory”
incidents (Appendix C, p. C-4). These included the plainuff’s
uncontrolled weeping on the stand during her direct testimony;
an outburst of crying and screaming by plaintiff during Bar-
ron’s tesumony, which caused the trial judge to have the jury
removed from the courtroom; shouted recriminations by plain-
uiff’s husband while he was being cross-examined by deten-
dant’s counsel; and an incident during which plaintitf’s
husband leaped to his feet, began pounding his fists on the
furniture, and shouted that detendant’s principal witness was
lying, and that he would kill him. Defendant’s timely motion
for a mistrial was denied
Through plaintiff's psychiatric testimony the jurv was pre
sented with an extensive description of her difficult early life
‘nan
and experiences of poverty and hardship. Because a claim for
punitive damages was made, plaintiff was also permitted to
introduce evidence of Merrill Lynch’s assets and net worth. In
a highly emotional summation, plaintiff’s counsel urged the
jury to “send a message” by the size of its verdict (Tr. VIII at
50, Apdx. 863).
The jury returned a verdict of $1,030,000 in compensatory
damages, and $3,000,000 in punitive damages. Defendant's
timely motions for judgment n.o.v. and for a new trial were
denied.
On appeal to the Tenth Circuit, all three members of the
panel which initially considered the matter agreed that the
verdict was excessive as a matter of law, and could not be
permitted to stand. The Court was divided, however, as to the
appropriate remedy.
The majority of the panel, while agreeing that the award of
punitive damages was “excessive and unwarranted” (Appendix
B, p. B-42), stated that the excessiveness of the verdict “does
not lead us to the conclusion that the liability determination
was tainted here” (/d.). The majority accordingly held that a
new trial would not be required if plaintiff agreed to a
remittitur reducing the punitive damages from $3,000,000 to
$1,000,000.
One member of the panel dissented, stating that the compen-
satory award also “profoundly shocks me to the extent | am
convinced passion and prejudice entered into the determina-
tion” (Appendix C, p. C-3) and that a new trial should be
required. The dissenting opinion noted the absence of any
evidence to support the amount of the compensatory award,
Stating that the figure “appears to have been plucked from the
air” (id.), and that the amount of the punitive damages was
also “a product of passion and prejudice” (id., p. C-4)
Almost two years afier the grant of rehearing en banc, a
sharply divided Court of Appeals announced that it had been
unable to arrive at a majority opinion or decision. The three
6
members of the panel adhered to their original views. One
additional judge joined in the opinion of the panel majority,
i.e., concluding that the verdict was excessive, but that the
defect could be cured by ordering remittitur. Chief Judge Seth
filed an opinion concluding that a new trial should be ordered,
Stating (Appendix D, p. D-1):
The record shows that the damages complained of were
from a variety of sources, there were preexisting prob-
lems, the testimony was by lay witnesses as to their
subjective evaluations, there were marital problems, the
alleged forgery and the extensive participation by the
husband. The amount of money involved must also be
included. It was in this context that there was injected the
passion and prejudice resulting mostly from the outbursts
by the plaintiff in the courtroom. The result was that a
large measure of punitive damages was included in the
compensatory award. The amount of the compensatory
damages is just too large to be otherwise explained. |
don’t think this can be cured by a reduction in the amount
of punitive damages.
The remaining two judges who participated’ acknowledged
“the occurrence of several emotional outbursts by Mrs. Malan-
dris and her husband during the trial” (Appendix E, p. E-2),
but characterized such outbursts as “genuine human responses
to testimony which was not credible” (id.), and concluded that
the original jury verdict should be reinstated. “Upon being
repolled on the issue of disposition in light of the stalemate”
(Appendix A, p. A-2), the Court voted 4 to 3 to reinstate the
judgment of the panel, while otherwise adhering to the various
views expressed in the four separate opinions which were filed.
~ One of the eight active judges on the Tenth Circuit disqualified
himsell, and took no part in the proceedings en ban
REASONS FOR GRANTING THE WRIT
The En Banc Order of the Court of Appeals Resolves
Important Due Process Issues in Direct Conflict With Control-
ling Decisions of this Court and With Decisions of Courts of
Appeals in Other Circuits.
The issue presented in this case is whether, when a grossly
excessive jury verdict follows a course of prejudicial and
inflammatory courtroom conduct, a United States Court of
Appeals may nevertheless seek to correct the verdict by remitti-
tur, rather than by ordering a new trial. That question would
seem to have been resolved definitively by this Court’s decision
in the early leading case of Minneapolis, St. Paul & S.S.M.R.
v. Moquin, 283 U.S. 520, 521-22 (1931), where the Court
stated:
[No] verdict can be permitted to stand which is found to
be in any degree the result of appeals to passion and
prejudice. Obviously such means may be quite as effective
to beget a wholly wrong verdict as to produce an excessive
one. A litigant gaining a verdict thereby will not be
permitted the benefit of calculation, which can be little
better than speculation, as to the extent of the wrong
inflicted upon his opponent. [Emphasis supplied]
This result would also seem to be mandated by the due process
requirement of a fair trial before impartial fact-finders.’ Yet,
the instant decision of the Tenth Circuit, the most recent
departure from the principles laid down in Moquin, is unfortu-
nately not unique. While a majority of the Circuits have
adhered to the Moquin standard, others have adopted remitti-
tur as a remedy in the case of actual courtroom misconduct,
and have disregarded this Court’s admonition against “calcula-
3 See, e.g., Schweiker v. McClure, 486 U.S. 188,198 (1982); Irvin \
Dowd, 366 U.S. 717, 722 (1961); In re Murchison, 349 U.S. 133, 136
(1955).
tion, which can be little better than speculation” as to the
extent of the prejudicial impact on the jury. (See, infra pp.
10-11.)
That prejudicial and inflammatory misconduct did occur in
the trial of the present action is undisputed on the record. The
trial judge described one series of episodes, which he character-
ized as “unfortunate,” as follows (Tr. 1Vat 125, Apdx. 723-24):
The record ought to reflect that during the testimony of
Mr. Barron on cross-examination by Mr. Fishman, Mrs.
Malandris, who was seated in the public sector of the
courtroom in the first row behind the bar, began to cry
and then began to scream, and I ordered the jury out of
the box and excused them. As they were walking out of
the box, Mr. Malandris jumped up and began to yell,
something about, “How can a man lie like that?” and
began to pound his fists against the seat.
In his opening statement, plaintiff's counsel had told the jury
that plaintiff was being kept outside the courtroom for reasons
which would become apparent (Tr. | at 6, Apdx. I11); the
meaning of this statement became clear when plaintiff wept
continuously during her direct testimony (Tr. Vat 59-64; Apdx.
556-61). No explanation appears in the record for the fact that,
despite counsel’s comment, plaintiff was seated in the specta-
tor section of the courtroom when Merrill Lynch’s principal
witness was called to testify.
As noted, the courtroom dramatics by plaintiff’s husband
also included shouted threats that he would kill defendants’
witness for allegedly lying (Tr. VI at 124, Apdx. 722). Mr.
Malandris also engaged in a similar outburst when he was
confronted with prior inconsistent testimony while being cross-
examined (Tr. 1V at 10, Apdx. 404-05).
I’m not no match for no 20 people in college Uf you want
to trick me, fine, you can do it, trick me, it is a very easy
thing to do. . . God help me, so help me, let me die in
this chair.
9
The summation by plaintiff’s counsel also included blatant
appeals to the emotions of the jury. Although plaintiff’s
psychiatric problems had long predated her financial loss, and
although her emotional distress did not require either hospital-
ization or medical care at home, plaintiff's counsel told the
jury (Tr. VIII at 51, Apdx. 864):
“You have to determine compensation. What's it worth
to have your mind destroyed, to be dead to this world,
permanent condition, twenty, thirty, forty years of that
suffering of humiliation, grief, the shame, the outrage;
the damage—the damage—the damage.
“Deprived of a few joys in life she had by willful
”
intentional outrage.
Further, as Judge Logan noted in his dissenting opinion
(Appendix C, p. C-S):
Because punitive damages were sought, counsel for
Malandris was allowed to comment to the jury on Merrill
Lynch’s considerable net worth. On the other hand,
because Malandris’ emotional distress resulted from her
loss of financial security, her extremely impoverished life
was presented. Counsel requested the jury to
“Send a message, a warning, a deterrent to this
country, to this state, to this city, to New York, to
Chicago, to San Francisco, to Los Angeles, telling
those people who were entrusted with the life savings of
others that they shall not conceal—they shall not bear
false witness to signatures. They shall not gamble with
other people’s money. They shall not take advantage of
the uneducated.”
These incidents were followed by a verdict which all three
members of the panel held to be grossly excessive as a matter
of law. Nevertheless, two of the three panel members somehow
arrived at the conclusion that the determination as to liability
was not “tainted” by the courtroom outbursts, and that remit-
10
titur would be an adequate remedy. The result reached by the
Tenth Circuit in this action is in direct conflict with the rules
prevailing in the majority of other Circuits, which we submit
are in accord with the principles laid down in Moquin. See,
e.g., City of Cleveland v. Peter Kiewit Sons’ Co., 624 F.2d 749
(6th Cir. 1980) (setting aside “grossly excessive” verdict of
$350,000 for damages to a municipal dock); Draper v. Airco,
Inc., 580 F.2d 91, 95 (3d Cir. 1978) (setting aside verdict of
$585,000 for wrongful death); Ford Motor Co. v. Mahone, 205
F.2d 267, 272 (4th Cir. 1953) (“grossly excessive” verdict of
$234,330 required new trial even though plaintiff had accepted
remittitur to $135,000). As the Third Circuit stated in Draper,
580 F.2d at 97:
A jury which is prejudiced with respect to its finding of
liability is not likely to be free from prejudice in awarding
damages. Because there is a substantial probability that
the error which affected the liability verdict also affected
the determination of damages, the new trial must deal
with both liability and damages.
See also, Koufakis v. Carvel, 425 F.2d 892, 901 (2d Cir. 1970)
(“It seems to us that the trial judge should not guess about the
jurors’ reactions to an obviously improper argument.”).
Unfortunately, however, the Tenth Circuit’s departure from
these principles is not unique. Decisions in other Circuits have
also sanctioned remittitur in lieu of new trial in the face of
actual prejudice; the result has been to permit the very kind of
“calculation, which can be little better than speculation” which
this Court condemned in Moquin, 283 U.S. at 521-22. See,
e.g., Ouachita National Bank v. Tosco Corp., 686 F.2d 1291,
1295 (8th Cir. 1982) (remittitur allowed as an alternative to a
new trial even though summation by counsel was held to be
“so intemperate as to have contributed to the jury awarding to
[plaintiff] a sum grossly exceeding that reasonably supported
by the evidence . . .”); Dorin v. Equitable Life Assurance
Society of U.S., 382 F.2d 73, 77 (7th Cir. 1967) (remittitur
approved as alternative to new trial even though trial judge
stated that “it is quite obvious that the jury was inflamed by
passion and prejudice in awarding the amount of damages
above mentioned”). Cf., Glazer v. Glazer, 374 F.2d 390, 413
(Sth Cir.), cert. denied, 389 U.S. 831 (1967).
The result reached by the Tenth Circuit is contrary to
principles of due process and to prior decisions of this Court
and of other Courts of Appeals. We submit that this departure
from sound judicial procedure should be corrected in the
exercise of this Court’s supervisory power.
CONCLUSION
For each of the reasons set forth above, this Court should
issue a Writ of Certiorari to review the judgment and opinions
of the Court below.
Dated: June 9, 1983
Respectfully submitted,
ROGERS & WELLS
William P. Rogers
(Counsel of Record)
Guy C. Quinlan
James N. Benedict
David A. Schulz
200 Park Avenue
New York, New York 10166
(212) 878-8000
HOLME ROBERTS & OWEN
Donald K. Bain
John M. Kobayashi
1700 Broadway
Denver, Colorado 80290
(303) 861-7000
Attorneys for Petitioner
APPENDICES
TABLE OF CONTENTS
Appendix
Order of the United States Court of Appeals for the
Tenth Circuit on Rehearing In Banc in Malandris vy.
Merrill Lynch, Pierce, Fenner & Smith, No. 77-1957
Se ee A-]
Majority Opinion of the United States Court of Appeals
for the Tenth Circuit in Malandris vy. Merrill Lynch,
Pierce, Fenner & Smith, Nos. 77-1957 & 78-1855
ee © Pee) ce se B-]
Dissenting Opinion of Judge Logan in Malandris vy.
Merrill Lynch, Pierce, Fenner & Smith, Nos. 77-1597
& 78-1655 (10h Cir. March 4, 1961) .........++4..- C-]
Dissenting Opinion of Chief Judge Seth on Rehearing In
Banc in Malandris v. Merrill Lynch, Pierce, Fenner &
Smith, No. 77-1957 (10th Cir. March 31, 1983)...... D-|
Concurring and Dissenting Opinion of Judge Seymour
on Rehearing In Banc in Malandris vy. Merrill Lynch,
Pierce, Fenner & Smith, No. 77-1957 (10th Cir. March
LM Ae ee E-]
Opinion of the United States District Court for the
District of Colorado in Malandris v. Merrill Lynch,
Pierce, Fenner & Smith, 447 F. Supp. 543 (D. Col.
APPENDIX A
Order of the Court of Appeals
on Rehearing In Banc
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
No. 77-1957
March 31, 1983
i
JUNG JA MALANDRIS,
Plaintiff-Appellee,
—_—V—
MERRILL LYNCH, PIERCE, FENNER &
SMITH, INCORPORATED,
Defendant-Appellant,
COLORADO TRIAL LAWYERS’ ASSOCIATION,
Amicus Curiae.
APPEARANCES:
WILLIAM P. ROGERS (Guy C. Quinlan, James N. Benedict,
John A. Karaczynski of Rogers & Wells, New York, New York,
and Donald K. Bain and John M. Kobayashi of Holme,
Roberts & Owen, Denver, Colorado, were also on the brief) for
Defendant-A ppellant.
WILLIAM R. FISHMAN (David H. Drennen of Fishman,
Gengler & Geman, P.C., Denver, Colorado, was also on the
brief) for Plaintiff-Appellee.
A-2
J. CONRAD METCALF and WILLIAM A. TRINE, Attorneys,
Boulder, Colorado, were on the brief for the Colorado Trial
Lawyers’ Association, as Amicus Curiae.
+
Before
SETH, Chief Judge, and HOLLOWAY, BARRETT, DOYLE,
McKay, LOGAN and SEYMOUR, Circuit Judges.*
a
The in banc court was unable to reach a majority opinion or
judgment for disposition of this appeal.’ Upon being re-polled
on the issue of disposition in light of the stalemate, the court,
by a vote of four to three,” determined to sustain the judgment
of the panel, but otherwise adheres to the views expressed in
the opinions issued simultaneously with this order.
It is therefore ordered that the judgment of the panel 1s
sustained and that such judgment is re-entered as follows:
In No. 77-1957, we conclude that the judgment should be
affirmed, provided that the plaintiff accepts a reduction in the
The Honorable Robert H. McWilliams, Circuit Judge, did not
participate in the consideration or disposition of this appeal or the
hearing in banc thereon.
I In No. 78-1855, Malandris v. Merrill Lynch, Pierce, Fenner &
Smith, Incorporated, a separate appeal was taken from an order of the
district court denying relief under Rule 60(b) F.R.Civ.P. In that appeal
the original panel opinion and judgment of the court was that the
order of the district court be affirmed. No rehearing or rehearing in
banc was sought from that ruling and that order was not reconsidered
in banc. The appellate judgment in No. 78-1855 was not vacated by
our order granting rehearing in banc in No. 77-1957.
tv
Judges Holloway, Barrett, Doyle and Seymour voted to sustain the
judgment originally entered by the panel majority in the Conclusion of
the panel opinion. That judgment was vacated when rehearing in banc
was granted but is re-entered, as stated below.
A-3
punitive award to $1,000,000. Therefore the cause is remanded
to the district court with directions that an order be entered
providing that if, within a reasonable time to be fixed by the
district court, the plaintiff accepts a reduction of the judgment
by reducing the punitive damages award to $1,000,000 or thus
a total judgment of $2,030,000, with costs and interest as
provided in and accruing from the entry of the original
judgment, then the judgment as so modified shall be final;
otherwise, an order shall be entered granting a new trial of the
cause.
It is further ordered that there be published following this
order the original opinion by Judge Holloway for a majority of
the panel, now adhered to as expressing the views of Judges
Holloway, Barrett and Doyle. There will also be published
herewith the concurring and dissenting opinion of Judge Sey-
mour, in which Judge McKay joins, and the dissenting opin-
ions of Chief Judge Seth and Judge Logan.
IT IS SO ORDERED.
APPENDIX B
Majority Opinion of the Court of Appeals
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
Nos. 77-1957 & 78-1855
March 4, 1981
tt
JUNG JA MALANDRIS,
Plaintiff-A ppellee,
—_—V—
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
Defendant-Appellant.
APPEARANCES:
William P. Rogers (Guy C. Quinlan, James N. Benedict,
John A. Karaczynski of Rogers & Wells, New York, New York,
and Donald K. Bain and John M. Kobayashi of Holme,
Roberts & Owen, Denver, Colorado, were also on the brief) for
Deferdant-A ppellant.
William R. Fishman (David H. Drennen of Fishman,
Gengler & Geman, P.C., Denver, Colorado, was also on the
brief) for Plaintiff-Appellee.
J. Conrad Metcalf and William A. Trine, Attorneys,
Boulder, Colorado, were on the brief for the Colorado Trial
Lawyers’ Association, as Amicus Curiae.
a
Before
HOLLOwayY, DOYLE and LOGAN, Circuit Judges.
——
HOLLOwAY, Circuit Judge
Defendant Merrill Lynch, Pierce, Fenner & Smith Inc.
(Merrill Lynch or defendant hereafter) appeals from a judg-
ment awarding plaintiff Jung Ja Malandris damages in the
amount of $4,030,000—$1,030,000 as compensatory damages
and $3,000,000 as punitive damages—on claims of common
law fraud and intentional infliction of emotional distress (No.
77-1957), asserting numerous errors. Merrill Lynch also seeks
reversal of the district court’s order denying its motion to
vacate the judgment and grant a new trial on the basis of newly
discovered evidence and fraud (No. 78-1855).
Mrs. Malandris commenced this action against Merrill
Lynch as the result of transactions between Mrs. Malandris’
husband and an account executive of Merrill Lynch’s Denver
office, John Barron. The transactions were related to an
account with Merrill Lynch which was solely in Mrs. Malan-
dris’ name and which transactions resulted in a loss of approxi-
mately $30,000 to the account.’ Mrs. Malandris alleged that
the actions of defendant constituted a violation of § 10(b) of
the 1934 Securities Exchange Act, Rule 10b-5, § 22(a) of the
1933 Securities Act, various rules of the New York Stock
Exchange, the National Association of Securities Dealers’
Rules of Fair Practice and the Chicago Board of Options
Apparently $30,000 of the compensatory award was for the actual
monetary loss of plaintiff, although this was not specified in the
verdict for compensatory damages of $1,030,000. This $30,000 element
of the plaintiff's recovery is not specifically challenged in the defen-
dant’s briefs. Defendant does argue that the testimony of its account
executive established that all of the transactions were properly author-
ized for Mrs. Malandris by her husband, but the jury implicitly
rejected such a theory and we find that no grounds are shown to set
aside the jury’s resolution of this issue.
B-3
Exchange (CBOE), and of § 4-8-315(a) of the Colorado stat-
utes, the state statute prohibiting wrongful transfer of securi-
ties.
In addition, Mrs. Malandris alleged that the actions consti-
tuted common law fraud, intentional infliction of emotional
distress, conversion of her property, and breach of fiduciary
duty. (II App 26-41). Jurisdiction was asserted on federal
question grounds as to the claims under the Securities Acts and
regulations, and on diversity and pendent jurisdiction grounds
as to the state law claims. Along with some other claims the
claims of violations of the Securities Acts and regulations were
withdrawn by the plaintiff before submission of the case to the
jury, and only the claims of fraud, intentional infliction of
emotional distress, and for punitive damages were submitted.
The jury returned a verdict of $1,030,000 in compensatory
damages and $3,000,000 in punitive damages. Motions for a
directed verdict, for judgment notwithstanding the verdict, and
for a new trial were denied by a written Memorandum and
Order of the trial judge discussing the issues raised and the
evidence in detail. 447 F.Supp. 543. Defendant appeals from
the judgment asserting, infer alia, that the evidence does not
support an action for intentional infliction of emotional dis-
tress, that the trial court erred in refusing to grant a mistrial
due to emotional outbursts at trial by Mr. and Mrs. Malandris,
that all the damages are so excessive as to indicate that they
resulted from passion and prejudice, that the award of punitive
damages is unsupported by the evidence and barred by the
Colorado one-year statute of limitations on actions for penal-
ties and statutory liabilities, and that the punitive damage
statute is unconstitutional as applied in this case. (Brief of
Defendant 1-2).’
Defendant also moved the court to vacate the judgment and
grant a new trial pursuant to F.R. Civ. P., 60(b)(2) and (3),
alleging that defendant had newly discovered evidence of a
2 Separate briefs for each appeal have been filed by the parties. When
discussing the issues in the separately numbered appeals our references
will be to the particular briefs filed in the respective appeals.
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material and controlling nature which established that the
judgment “was procured as a result of the fraud and misrepre-
sentations of plaintiff’s husband, Steven Malandris.” The mo-
tion was denied at the conclusion of a hearing before the trial
judge. Defendant also appeals the denial of this motion,
claiming an abuse of discretion and errors of Law. (Brief of
Defendant, 2).
I
THE APPEAL FROM THE ORIGINAL JUDGMENT
A. The claim of intentional infliction of emotional distress
In considering the defendant’s challenges to the damage
awards we must heed the restrictive rules governing appellate
review after a jury verdict as outlined in Tennant v. Peoria &
Pekin Union Railway Co., 31 U.S. 29, 35:
The focal point of judicial review is the reasonableness
of the particular inference or conclusion drawn by the
jury. It is the jury, not the court, which is the fact-finding
body. It weighs the contradictory evidence and inferences,
judges the credibility of witnesses, receives expert instruc-
tions, and draws the ultimate conclusion as to the facts.
The very essence of its function is to select from among
conficting inferences and conclusions that which it con-
siders most reasonable. Washington & Georgetown R. Co.
v. McDade, 135 U.S. 554, 571, 572; Tiller v. Atlantic
Coast Line R. Co., supra, [318 U.S. 54] 68; Bailey v.
Central Vermont Ry., 319 U.S. 350, 353, 354. That con-
clusion, whether it relates to negligence, causation or any
other factual matter, cannot be ignored. Courts are not
free to reweigh the evidence and set aside the jury verdict
merely because the jury could have drawn different in-
ferences or conclusions or because judges feel that other
results are more reasonable.
We must view the evidence in the light most favorable to the
party who prevailed before the jury and thus will discuss it in
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this manner. Rasmussen Drilling, Inc. v. Kerr-McGee Nuclear
Corp., 571 F.2d 1144, 1149 (10th Cir.), cert. denied, 439 U.S.
862. Erroneous admissions or exclusions of evidence and
erroneous orders or rulings are not grounds for setting aside a
verdict unless the error affects the substantial rights of the
parties. /d. at 1149; Harris v. Quinones, 507 F.2d 533, 539,
(10th Cir.). And, of course, since only claims based on state
law were tried, Colorado law is controlling.
The tort known as intentional infliction of emotional distress
was recognized by the Supreme Court of Colorado in Rugg v.
McCarty, 476 P.2d 753, 756:
We recognize that an action in tort will lie to recover
damages for severe emotional distress without any accom-
panying physical injury, subject to the limitations as set
forth in Restatement (Second) of Torts § 46 (1965).
See also Hansen v. Hansen, 608 P.2d 364 (Colo. App.); Meiter
v. Cavanaugh, 580 P.2d 399 (Colo. App.); Enright v. Groves,
560 P.2d 851 (Colo. App.). We will focus on § 46 of the
Restatement of Torts (2d) because of the reliance on it by the
Colorado Court. Section 46 provides:
(1) One who by extreme and outrageous conduct inten-
tionally or recklessly causes severe emotional distress to
another is subject to liability for such emotional distress,
and if bodily harm to the other results from it, for such
bodily harm.
(2) Where such conduct is directed at a third person,
the actor is subject to liability if he intentionally or
recklessly causes severe emotional distress
(a) to a member of such person’s immediate fam-
ily who is present at the time, whether or not such
distress results in bodily harm, or
(b) to any other person who is present at the time,
if such distress results in bodily harm.
Thus, the four essential elements of such a claim are that (1)
the conduct is extreme and outrageous; (2) the conduct is
B-6
intentional or reckless; (3) the conduct causes emotional dis-
tress; and (4) the distress is severe. Chuy v. Philadelphia Eagles
Football Club, 595 F.2d 1265, 1273 (3d. Cir.). For the conduct
to be considered extreme and outrageous, it must “go beyond
all possible bounds of decency and ... be regarded as
atrocious, and utterably intolerable in a civilized community.
Generally, the case is one in which the recitation of the facts to
an average member of the community would arouse his resent-
ment against the actor, and lead him to exclaim ‘Outra-
geous!’” Rugg v. McCarty, supra at 756 (quoting comment d
to § 46).
The requisite intent is present where the actor desires to
inflict severe emotional distress and knows that it is substan-
tially certain to result from his conduct, or where he acts
recklessly “in deliberate disregard of a high degree of probabil-
ity that the emotional distress will follow.” Restatement (Sec-
ond) of Torts, /d. The resulting distress must be extreme as
opposed to trivial, in other words “so severe that no reasonable
man could be expected to endure it.” § 46, supra, comment i.
Moreover, the distress must be “reasonable and justified under
the circumstances.” /d.
If the distress is exaggerated in comparison to that which a
reasonable man would experience, there is no liability unless
the defendant is aware of the plaintiff’s peculiar susceptibility
to emotional distress. /d., comments f and j. The plaintiff's
peculiar susceptibility to emotional distress thus both broadens
and narrows the scope of the tort. It broadens the scope in that
a jury may find the defendant's conduct to be outrageous in
light of his knowledge of the plaintiff's peculiar susceptibility
where it would not be so without such knowledge. /d., com-
ment f. Yet it narrows the scope in that without such knowl-
edge, the defendant is not liable for exaggerated emotional
distress. /d., comment j.
Defendant makes three main arguments in asserting that a
case of intentional infliction of emotional distress was not
made out. First, it says that the elements of the tort were
absent, that the tort consists of extreme and outrageous con-
duct which is intentional or reckless so as to cause severe
B-7
emotional distress to another, and that its employee Barron did
not have the requisite intent to harm Mrs. Malandris and his
conduct was neither extreme nor outrageous. Contrary to most
cases where a plaintiff was threatened, harassed, or abused,
defendant asserts that here “the record establishes that defen-
dant attempted to generate a profit for the Malandrises and
that, as a result of advice which Barron gave them, they did
make money by trading in options . . . and on several other
occasions either realized profits or minimized the losses they
would have otherwise incurred in other stock transactions.”
(Brief of Defendant, 19).
Second, defendant asserts that there was absolutely no direct
contact between the plaintiff and Mr. Barron, that this claim
would have to come within the class of cases in which conduct
is directed at a third party, here the plaintiff’s husband, with
whom Mr. Barron conducted all of the stock transactions.
Because the tort requires that the plaintiff be present at the
time the wrongful conduct is directed at the third party, the
action will not lie in this case. (Brief of Defendant, 15-20)
Third, defendant contends that recovery for intentional
infliction of emotional distress is subject to clear limitations,
one being that there is “no liability where the plaintiff has
suffered exaggerated and unreasonable emotional distress, un-
less it results from a peculiar susceptibility to such distress of
which the actor has knowledge.” (Brief of Defendant, 21).
Defendant notes that Mrs. Malandris had a background of
psychiatric problems and indeed suffered exaggerated emo-
tional distress. Defendant says the evidence does not show that
Mr. Barron was aware of Mrs. Malandris’ “exaggerated sus-
ceptibility” to distress and hence defendant cannot be held
liable. (Brief of Defendant, 21-22).
Last, defendant complains that the presentation of its de-
fense was hampered by the trial court’s exclusion of expert
testimony designed to show the conservative nature of options
trading and to rebut plaintiff’s expert testimony as to the
unsuitability of such transactions for a customer in plaintiff's
position. Defendant says that the “unwarranted exclusion of
such testimony on a material issue is reversible error,” espe-
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cially in a case like this where the “outrageous” nature of
defendant’s conduct resulted in an “astronomical” award of
damages. (Brief of Defendant, 19-20).
In considering these contentions we now turn to the evi-
dence. As noted above, the record is evaluated in the light most
favorable to the plaintiff as the prevailing party under the
jury’s verdict.
The plaintiff’s version of the events was presented largely
through Steven Malandris, her husband. Mr. Malandris
described himself and his wife as uneducated people, Mr.
Malandris having quit school in the tenth grade because of his
inability to keep up with his schoolwork. The school advised
him to learn a manual trade and he joined the Army for this
purpose but was unsuccessful in two attempts to lean various
trades. He was finally able to obtain a high school equivalency
degree after taking the test three times.
While stationed in Korea during his tour of duty, Mr.
Malandris met and married the plaintiff. Mrs. Malandris is
Korean and has never been to school. She can neither read nor
write Korean or English. Her family was very poor. Mrs.
Malandris was forced to leave home at the age of nine to work
and help support her family. It was established that plaintiff
was born on June 1, 1942 and Mr. Malandris was born on May
19, 1941. (VI App., Plaintiff’s Ex. 84).
After marrying and coming to the United States, the couple
adopted a spartan lifestyle, spending very little for anything
other than basic necessities and doing nothing in the way of
entertainment. Mr. Malandris obtained a job as a baggage
handler for United Airlines, working almost every waking
hour, including all major holidays. All of his earnings except
that needed for bare essentials were put into a joint savings
account.
Mr. Malandris first became interested in stock when he read
about how much money he could make on United Airlines
stock from a company bulletin board at work. He was con-
cerned with financial security for his wife and the fact that
manual labor did not offer security in the event of physical
incapacity. Consequently, he decided to buy a thousand shares,
B-9
which was later sold at a profit. The proceeds were redeposited
in the savings account and Mr. Malandris was soon thereafter
approached by various salesmen, offering him everything from
vacuum cleaners to a chinchilla raising business. Mrs. Malan-
dris began to recognize her husband’s gullibility and insisted
their savings be put into an account in her name alone. Mrs.
Malandris thereafter controlled all of their money, giving her
husband only enough money to pay bills or buy specific
necessities.
In 1973 Mr. Malandris again decided that they should buy
stock in United Airlines since it was his impression from the
company billboard that even if the company went out of
business, they couldn’t lose money on the stock. He convinced
his wife to agree to his plan and together the couple went to the
banks and withdrew all of Mrs. Malandris’ accounts. They
then went to a brokerage house and purchased 2800 shares of
United Airlines stock in Mrs. Malandris’ name. IV App.
347-48.
In the summer of 1973, plaintiff “had a feeling” that the
stock should be sold and requested her husband to find a
broker to sell it for her. She refused to return to the broker
with whom she had previously dealt because he had embar-
rassed her by handing her an upside down newspaper to see if
she could read. (/d. 349). Mr. Malandris contacted the local
Merrill Lynch office because it was apparent to him from
Merrill Lynch’s advertising that “[o]ther companies get the
leftovers and Merrill Lynch gets the top people.” (/d., 350).
After calling the Denver office of Merrill Lynch, Mr. Malan-
dris asked to speak to someone who “handles just air-line
stock” and was put through to a Mr. Barron, a retired military
man who became a registered broker in February of 1973, four
or five months prior to meeting Mr. Malandris. (V App. 621).
The two talked briefly on the phone and then met at defen-
dant’s office later that same day. (IV App. 351-53). It was at
that meeting that Mr. Malandris discussed opening an account
in his wife’s name alone:
Q. Did you ask them about opening an account in your
wife’s name only?
B-10
A. Yes, and he wanted to know why, you know, what’s
the reason for this. And I told them—there is only like
one kind of business, the wife wanted the stock sold
and put it back into the bank, and then he asked me,
“Do you agree with that?” And I said, “It doesn’t
matter whether I agree or not. The wife—it’s the
wife’s money, the wife’s stock, and it’s her decision,”
and then he wanted to know more about the wife.
Q. What did you tell him?
A. I told him like, you know, she is a Korean woman,
and I didn’t—and she is—and she really feels insecure
and how she says I am a very gullible person, and then
he says, “That’s—you know how gullible get taken
advantage of, taken in by certain people, but not this
company. A good thing—if I had gone to another
company, I have to worry but not to worry here.
And your wife wants the account in her name,” and
then I told him about the banks and then he laughed
and he says, “Your wife,” he said, “Being she is so
uneducated I won’t be mad at her for this idea, but
putting money in the bank but,” he said, “Would you
believe, there are college graduate people putting
money in banks. What do you think the banks do,
hold the money? You go to a bank someday and you
ask them how much have you got on deposit in this
bank, and they will say, add all your customer’s
accounts up, and say 5,000,000 and ask you whether
this $5,000,000 is right here in the bank in the ground.
No, they will tell you it’s in the New York Stock
Exchange. They are taking the dumb monies people,
even though they are dumb, taking that money and
giving the people little money, and they are putting it
in the stock market and making money off people.
That’s all that banks do. They are making money off
people,” and I said, “Well the wife wants it in the
bank because it’s safe, and it’s her future. I under-
stand the stock market is not safe,” and he said,
“Well, you know nothing about the stock market,”
and I said, “No.” (/d., 353-54).
B-11
Mr. Malandris testified that he informed Mr. Barron in
subsequent meetings that he was a baggage handler, that the
couple had no other stock nor savings, that the couple never
went out, that Mr. Malandris wore his work uniform all the
time to save on clothing and laundry expenses, and that he
never bought meals at work. (/d., 356).
Mr. Barron subsequently opened an account in Mrs. Malan-
dris’ name, indicating on the new account information form
that she was referred by Tom Travers, a United Airlines pilot,
that she had previous investment experience, that Mr. Malan-
dris was a mechanic with an annual income of $22,000, and
that she had a net worth of $100,000. (VI App. 955). The
account was opened and all transactions took place without
Mr. Barron ever consulting the plaintiff. (V App. 625). Mr.
Malandris denied telling Mr. Barron that he was a mechanic,
that he was referred by Tom Travers, or that either he or his
wife had a net worth of $100,000. (IV App. 397-98). Mr.
Travers also denied knowing either Mr. or Mrs. Malandris and
denied referring either one to Mr. Barron. (III App. 129-30).
After the account was opened the plaintiff changed her mind
about selling the stock but did agree to allow the stock
certificates to be deposited at Merrill Lynch for safekeeping.
Mr. Malandris testified that Mr. Barron thereafter advised Mr.
Malandris that due to a decline in price, the stock should be
sold without consulting the plaintiff, stating:
“What does she know. You told me she doesn’t know
anything about it, do you want to be looking out for her.
You are really thinking about her future or aren’t you
worrying about her future? . . . You already told me she
doesn’t understand what is happening, and she doesn’t
know a darn thing, and you don’t sound like you know
nothing about it either. Trust me. I am in this, and 1 know
what is happening.” (IV App. 361).
The stock was sold and when Mr. Malandris informed
plaintiff of the sale, she became very upset, accusing him of
having the account in his name and of lying to her. Mr.
Malandris promised to deposit the proceeds of the sale in a
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savings account as soon as they became available. (/d., 362-
64).
However, Mr. Malandris testified that when he went to pick
up the proceeds, Barron began talking to him about the
options market,’ which had begun in April of 1973 and with
which Barron had no prior experience. Mr. Barron did not talk
in terms of options but as “an opportunity to go in partnership
with Merrill Lynch,” and Mr. Malandris said Barron told him
(IV App. 366-69):
“You know, Merrill Lynch doesn’t take chances, and
banks don’t take chances, and this is only given to really
top people, people fight with it, but I feel sorry for you
and your wife. Nobody probably has ever given you this
opportunity before. . . . What it consists of, it’s guaran-
teed first off . . . What are you concerned with? Why are
you putting the money back in the bank? Why does your
wife want the money in the bank?. . . [T]his is guaran-
teed, and you are going to get 20 percent interest.”
Mr. Malandris said he was not given the required prospectus
on the options exchange until much later, and then with the
explanation that even though Mr. Barron was required to give
him the prospectus, Mr. Malandris would not understand the
material in the book and Mr. Barron really couldn’t see any use
in giving him the book. (/d., 385). To take advantage of the
opportunity, of options transactions, Barron decided plaintiff's
account should be switched from a straight cash account to a
margin account,* although he did not use that term with Mr.
3 “Options” transactions were described in the testimony as trans-
actions which involve the purchaser of the option paying a certain
amount of money for the right to purchase a security at a stated price
for a certain time. Correspondingly the seller agrees to sell the security
at the agreed price during that time if the purchaser decides to exercise
his option. (III App. 312).
4 In the testimony, a margin account was defined as one in which the
customer borrows money from the broker in order to buy more stock,
with the customer’s stock being held as collateral for the loan. The
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Malandris. He explained only that Mrs. Malandris would need
to put up 50 percent of the partnership money and in order “to
make her 50 percent even to Merrill Lynch’s 50 percent she
would have to borrow some kind of money that defendant was
going to loan her.” (/d., 370). Barron repeatedly emphasized
that this “partnership” did not involve the stock market but
rather the “banking department of Merrill Lynch.” (/d., 371).
When Mr. Malandris said he would discuss the proposition
with his wife, Barron told him:
“I have never met your wife. I have never seen your wife.
I have never talked to your wife. You are telling me your
wife has never been to school. Doesn’t know anything.
What are you going to talk to her about? It’s like talking
to the wall.” (/d., 373).
Mr. Malandris testified that he finally agreed not to consult
his wife and then signed some papers as directed by Mr.
Barron. Mr. Barron also told him he needed Mrs. Malandris’
signature On a document later determined to be a power of
attorney (authorizing Mr. Malandris to act on his wife’s behalf)
brokerage firm makes money on a margin account in two ways. First,
it charges interest on the loan at a higher rate than what it must pay to
borrow the funds itself. Second, because the customer has increased
purchasing power with the borrowed funds, he purchases more stock
than he would in a straight cash account and thus the oroker is earning
more commissions. (III] App. 301-03).
Most brokerage firms require the equity (’.e., the difference between
the market values of the securities and the amount of the debt fer the
loan) in the account to be no less than 25 percent of the market value
of the stock held by the account. This 25 percent (or any higher
percentage set by the brokerage firm) is known as the maintenance
margin. Should the equity in the account drop below the maintenance
margin, the broker demands that the customer deposit additional
funds or additional stocks. If the customer is unable to do either of
these things, the broker will begin liquidating the collateral by selling
the customer's stock. (/d.)
To switch an account from straight cash to margin requires a
customer's authorization evidenced by his signature on a hypotheca
tion card. Defendant failed to produce any evidence at trial that such a
card was signed by plaintiff. (V App. 577-78)
B-14
and, when informed that Mrs. Malandris would not sign since
she believed her money was in the bank, Mr. Malandris said
that Barron told him to sign her name for her. (/d., 374-76).*
Mr. Malandris acquiesced in the “partnership” for awhile, even
bringing more money to Barron after telling his wife that he
was using the money to pay off bills resulting from his
mother’s illness and from bringing his wife’s relatives to
America. (/d., 378-79).
Difficulty with the margin account developed when the New
York office returned some of the forged documents requesting
new signatures by Mrs. Malandris. When Mr, Barron insisted
that Mr. Malandris sign his wife’s name again, Mr. Malandris
began to worry that his wife would find out the money was not
in the bank. He told Barron that he wanted to end the
“partnership” and sought the return of his wife’s stock. At this
point Mr. Malandris said that Mr. Barron threatened him with
jail, saying:
“You knew this was your wife’s account only. You had no
authority to be doing it. . . . You said your wife is
dumb, let’s use that. . . . And she has never worked.
Who will take care of your wife when you go to jail?”
(/d., 381).
Finally Mr. Malandris said that he again forged his wife’s name
to the papers, assured by Mr. Barron that there was nothing to
worry about, the papers were simply paperwork and “every-
thing is guaranteed.” (/d., 383).
Subsequently Mr. Malandris overheard a group of pilots at
work discussing the options exchange and learned for the first
time that there was a considerable risk involved. He then
angrily called Mr. Barron who responded that the pilots didn’t
know what they were talking about and that everything was
guaranteed or otherwise Merrill Lynch would not invest its
4a When Mr. Malandr:s decided to trade in options, he signed margin
agreements and a put and call agreement in his own name. (VI
4956-58). When these were returned from New York, he signed his
wite’s name to a new put and call agreement. (/d. at 960)
B-15
own money. Mr. Malandris said he believed and trusted Barron
again. (/d., 386-88).
Near the end of 1973 Barron called Mr. Malandris and
unexpectedly demanded immediate delivery of $42,000, ap-
parently to cover the amount loaned to the account by defen-
dant. Malandris said Barron informed him that unless he
delivered the money, defendant would “completely end the
partnership” and sell everything in the account, (/d., 389-90),
that Barron then tried to convince him that even though the
account represented “everything the wife had”, the amount of
money lost in the account was “really nothing” (/d., 390-91):
That’s nothing. There are some people who in a matter of
days lose half a million dollars. This is just giving you a
taste of what the market is.
Malandris testified that Barron then suggested a new invest-
ment to recoup the loss without Mrs. Malandris learning of the
loss. He stated that he would purchase Pennzoil stock and
make back all the money that had been lost. Mr. Malandris
refused to agree and instead told Barron to sell whatever was
left in the account and he would “give back the wife her
money, whatever is left.” (/d.) Mr. Malandris subsequently
picked up a check for $33.300 dated December 27, 1973, and a
subsequent check for $517.24. (/d.)*°
4b In options and Northwest Airlines transactions there was an overall
net loss of approximately $30,000 to the Malandris account. There was
a gain of approximately $14,000 on the sale of options, which fund
was applied on the purchase of 4600 shares of Northwest Airlines
stock, and a loss of approximately $44,000 on the sale of Northwest
Airlines stock. Detendant maintains that the Northwest Airlines stock
sale was Mr. Malandris’ decision, as Barron testified. (Brief of Defen-
dant 10-11). The plaintiff says the sale followed a demand by Barron
for $42,000 in connection with the margin account, and that the
proceeds were then used to repay defendant its margin loan. (Brief ot
Plainutf 26). On the basis of Mr. Malandris’ testimony, the conclusion
could have been drawn by the jury that Barron knew the power of
attorney was forged and that Mr. Malandris had no right to direct a
sale of the Northwest Airlines stock.
A brief outline of the Malandris account transactions from Mr.
Mandell’s testimony (III A.303-05) and the exhibits is as follows:
B-16
After picking up the checks, Mr. Malandris said that he
talked by phone with Barron who warned him that it would be
to Mr. Malandris’ advantage to “keep quiet on the whole
thing,” not to tell anyone, and not to talk to a lawyer. (/d.,
392).
Mr. Malandris subsequently told his wife of the loss of her
money. He described her having initial reactions of disbelief
and then anger, first refusing to believe that the money was not
safely in the bank, and then becoming angry that her husband
had stood by and let people steal her money. (/d., 444). Mrs.
Malandris has, according to her husband, undergone a marked
change since learning of the loss. She no longer wants to have
children, she is prejudiced “against white people who wear
suits,” and is “wrapped up in. . . religion,” spending most of
her time listening to religious programs on the radio. (/d.,
398).
Mr. Malandris sought help from several people in recovering
his wife’s money, including his senator, the Securities and
Exchange Commission, the New York Stock Exchange, and
defendant. (/d., 393-94, 401). His attempt to seek the assis-
tance of the Securities and Exchange Commission and his
displeasure in not receiving assistance led him to be considered
as a Suspect in a bombing at the Denver SEC office. As a
result, the FBI searched the Malandrises’ home, leading Mrs.
Malandris to believe that defendant and the government were
in “cahoots” and that defendant had caused the FBI to
conduct the search. (/d., 478).
In late September of 1973, 2800 shares of United Airline stock were
sold, generating $57,400 in proceeds. Thereafter, 50 shares of Winter
Park Telephone Stock were sold, generating $730 in proceeds and an
additional $3,900 was deposited by Mr. Malandris in the account.
Forty options calls on Northwest Airline stock were written generating
$19,000 in proceeds and almost simultaneously, the account purchased
4,000 shares of Northwest Airline stock, followed less than two weeks
later by a purchase of an additional 500 shares of Northwest stock.
Consequently, in early October, the account included $118,000 worth
of Northwest Airline stock which was purchased from the $78,000
worth of client’s funds (including proceeds from the option sales) and
$40,000 borrowed from Merrill Lynch. (See Plaintiff's Exhibit 1).
B-17
It is true that Mr. Barron directly and vigorously contra-
dicted almost all of Mr. Malandris’ version of the transactions.
Among other things Barron testified that he did not have Mr.
Malandris forge his wife’s power of attorney, that all the
transactions were authorized by Mr. Malandris for his wife,
and that he did not promise any “partnership” with defendant.
Barron maintained that Mr. Malandris was knowledgeable
about the types of transactions undertaken, that Mr. Malandris
was the one to first express interest in options trading, that
Barron fully explained the risks of such trading, and that it was
Mr. Malandris who had been interested in airline stock and
decided to buy Northwest Airline stock.
Two psychiatrists testified concerni: g their assessment of
Mrs. Malandris’ present mental state and the causes of her
condition. One of them, Dr. Grey, had seen Mrs. Malandris in
1972 as a result of her inability to conceive. He described her
as being depressed in 1972 over problems with her sisters and
with her inability to become pregnant but said that she was
able to function quite well in her role as a housewife. (/d.,
489). However, in November 1975 when he saw her again she
was plaintive, crying, unable to control herself, non-function-
ing and “almost paralyzed in her depression, in her religious
mania,” what he would call “dead to the earth, dead to this
life. . . .” Ud. at 491, 497). From his six examinations of
Mrs. Malandris in 1975, 1976 and 1977 Dr. Grey attributed her
change to the loss of her money “because the money was all
the security that she had.” (/d., 493). It was his opinion that
her condition appears to be permanent and he doubted and
questioned how she could come out of it. (/d.)
Dr. Frey, a psychiatrist who examined Mrs. Malandris on
behalf of the defendant, was of the opinion that she had a
“depressive neurosis” and described her as becoming “increas-
ingly sad, upset, depressed, [and] tearful over this great loss.”
(Id., 477, 513). In addition, she felt humiliated and felt “a
terrible loss of face” by having details of her background and
personal life divulged in the presence of many strangers as a
result of the instant lawsuit. (/d., 479). As a result of her
feelings, Dr. Frey explained that Mrs. Malandris had increas-
ingly turned to religion for solace. (/d., 480).
B-18
Dr. Frey agreed with Dr. Grey that Mrs. Malandris’ early
deprivations made her more vulnerable to the subsequent loss
of security she felt when she lost her money. (/d., 492; V App.
548). Dr. Frey diagnosed Mrs. Malandris as having a “depres-
sive neurosis” attributed to three major losses stemming from
the Merrill Lynch transactions: “the actual loss of money, the
very, very important loss of control, which was essential to her
over Mr. Malandris and a very important loss of face.” 513-19.
Dr. Frey believed that antidepressant medication would be
“[vJery, very effective in lifting and in easing and in dealing
with the picture of depression,” (VA.522), and that with other
medication and psychotherapy there was a very high likelihood
of significantly helping a person such as Mrs. Malandris. He
said that some mental health center treatment of this sort
would not necessarily have to be extended over years and
years, although work with individual therapists once or twice a
week could take a matter of years. (/d. at 529, 535, 573).
We conclude that the evidence was sufficient to enable the
jury to find liability for intentional infliction of emotional
distress. Even if Mr. Barron did not intend to inflict severe
emotional distress, the evidence would support inferences that
such distress was “certain, or substantially certain, to result
from his conduct,” see Restatement, Second of Torts, § 46,
comment i, and that Barron knew from the beginning of these
transactions that the plaintiff was very concerned with finan-
cial security and wanted her money in a Savings acount; that
even if his actions had not resulted in a loss, Mr. Barron should
have reasonably foreseen that there was a “high degree of
probability that the emotional distress” would occur when
plaintiff learned that her instructions had not been followed.
Id.“. . .{RJeckless conduct causing emotional distress renders
an actor as liable as if he had acted intentionally. See comment
i to § 46.” Chuy v. Philadelphia Eagles Football Club, supra,
595 ©2060 at 1275.
We cannot accept defendant’s contention that the conduct
could not be found to be outrageous. There was evidence that
Mr. Barron avoided consulting the plaintiff before making
unauthorized transactions in her account, knowing that such
B-19
transactions were directly contrary to her wishes; that he
convinced her husband to misrepresent the facts to her and
used Mr. Malandris as a pawn, knowing that the plaintiff
insisted on having the account in her name alone because of
her husband’s gullibility; that Barron continued to suggest
high-risk investment decisions to Mr. Malandris, knowing the
plaintiff was very concerned with financial security; and that
even when the account showed a $30,000 loss, Barron persisted
in trying to conduct other transactions with what remained of
plaintiff’s savings.
In light of such evidence, we feel the trial court was not in
error in submitting the issue to the jury. It is true that the
evidence was sharply conflicting as noted, with Mr. Malandris’
account being almost entirely contradicted by Mr. Barron’s
testimony. However, these conflicts in testimony were issues of
fact to be resolved by the jury. Boehm y. Fox, 473 F.2d 445,
447 (10th Cir.); Jaeco Pump Co. v. Inject-O-Meter Manufac-
turing Co., 467 F.2d 317, (10th Cir.). The jurors are the
exclusive judges of the credibility and weight to be given to the
testimony of any witness. Boehm v. Fox, supra; United States
v. Plemons, 455 F.2d 243, (10th Cir.). See DeCicco v. Trinidad
Area Health Ass’n, 573 P.2d 559, 562 (Colo. App.) (quoting
Section 46, comment h: “where reasonable men may differ, it
is for the jury, subject to the control of the court, to determine
whether, in the particular case, the conduct has been suffi-
ciently extreme and outrageous to result in liability.”).
We cannot agree with the defendant that the absence of
direct contact between Barron and the plaintiff precludes
liability in these rather unusual circumstances, or that the
record compels a finding that the conduct was directed at Mr.
Malandris so that only subsection 2 of § 46 may apply. Bar-
ron’s conduct involved funds which belonged to the plaintiff,
as he knew, and which were in an account in her name alone.
The evidence that he used the plaintiff’s husband to gain
control of the money does not establish that his conduct was
directed solely at Mr. Malandris.
The sufficiency of the evidence in this respect is supported
by the examples discussed under § 46. Moreover, in Chuy v.
Philadelphia Eagles Football Club, supra, liability was found
where a football team physician made a statement to the press
that plaintiff, a member of the team, was suffering from a
potentially fatal disease. Plaintiff, after reading the statement,
became very upset and depressed. Even though plaintiff had
had prior contact with the team physician, the conduct upon
which liability was based was not between plaintiff and the
doctor, but between the doctor and a third party. The absence
of the plaintiff during the tortious conduct was irrelevant in
that case just as it is here. In both situations the plaintiff was
the party most likely to suffer emotional distress upon learning
of the defendant’s actions. See § 46, illustrations 15 and 16.
We agree with defendant that plaintiff’s reaction to Barron’s
conduct was somewhat extreme, although the sudden realiza-
tion that half of one’s savings was gone could be expected to
cause even the most stable individual great distress. We cannot
agree that, as a matter of law, the evidence was wholly
insufficient for the jury to find defendant liable for the injury
to the plaintiff. There was evidence that Barron was advised
that plaintiff was an insecure, illiterate Korean woman; that
she was so concerned with financial security that she refused to
allow her husband any control over their finances; that Barron
knew of the couple’s frugal lifestyle, denying themselves even
the simplest pleasures in order to save money; and that Barron
knew that he was dealing with all the savings the plaintiff had.
(IVA. 353-56). It was a permissible inference that Barron could
reasonably anticipate an exaggerated reaction to the loss of the
savings which plaintiff valued so highly. We do not feel it
necessary that Barron know specifically of Mrs. Malandris’
previous depression or that she had previously been referred to
a psychiatrist. See Restatement, Second, of Torts § 46, com-
ment f and illustrations 9-13.
As to defendant’s contention that its expert testimony was
improperly excluded, we find no reversible error. The question
of the simplicity of options trading was raised by defendant on
cross-examination of plaintiff’s expert witness, as defendant’s
citation to the record shows. (See Brief of Defendant at 20; III
B-2]
App. 309-10).° The court rejected defendant’s subsequent at-
tempts to introduce evidence as to the simplistic and conserva-
tive nature of options trading, reasoning that it was irrelevant
and also stating:
What I am saying, given the counts as they are, a
simplified explanation of these accounts, this kind of
trading, to the jury is prejudicial and unfair to the
testimony. It’s not what some expert can explain. It’s
what Barron knew and what Malandris knew. (VI App.
811; see VI App. 773-76, 799-800).
While we have some concern about this ruling, we cannot
say that the trial court abused its discretion in excluding the
evidence. The court explained in its order denying defendant’s
motions for judgment notwithstanding the verdict and for a
new trial, that such testimony could mislead and misdirect the
jury as to the issues in the case. 447 F.Supp at 547. We cannot
hold that it was an abuse of discretion to exclude the evidence.
See F.R.Evid. 403; Weinstein’s Evidence, ¢ 403[04).
In sum, we are persuaded that the evidence was sufficient to
go to the jury on the claim of intentional infliction of severe
emotional distress and to justify a compensatory damage
award on that basis.
B. The fraud claim
Defendant argues that an award of damages for emotional
distress was also improper on the claim of common law fraud.
Defendant says that such damages are allowed only where the
injury could have been reasonably anticipated to be a natural
and probable consequence of defendant’s conduct, and not
5 Plaintiff asserts that a question during the course of cross examina-
tion was erroneously attributed to plaintiff's counsel. (Brief of Plain-
tiff, 42). The question in issue asked the witness to explain whether the
concept of writing call options is a simple concept. Whether or not
plaintiff's counsel asked for this explanation is irrelevant since the
previous question by defense counsel had raised the same question. (III
R. 310).
B-22
where the underlying tort is a “business fraud.” Additionally
defendant contends that because such damages were not recov-
erable in a fraud action, special verdicts should have been
submitted to the jury to determine whether the jury found
liability for emotional distress based on the tort of intentional
infliction of emotional distress or on the theory of common
law fraud. Since this request was denied, it is impossible to tell
which of the two theories of liability was found by the jury and
therefore the general verdict must be set aside. (Brief of
Defendant, 22-25).
In Valley Development Co. v. Weeks, 364 P.2d 730, 733
(Colo.), the Colorado Court stated:
[U]nder ordinary circumstances there can be no recovery
in tort for mental anguish suffered by a plaintiff in
connection with an injury to his property, either real or
personal. Where, however, the act occasioning the injury
to property was inspired by fraud, malice, or like motives,
mental suffering is often held to be a proper element of
damage.
See also McNeill v. Allen, 534 P.2d 813, 819 (Colo. App.).
We thus are not persuaded by defendant's assertions that the
award of damages for mental distress was improper under a
fraud theory. Whether based on the principle of recovery for
intentional infliction of emotional distress or for fraud, we
conclude that the verdict for compensatory damages should
not be disturbed when the evidence in the record is considered
as a whole and favorably to the prevailing party, as we must.
C. The claim of excessiveness of the compensatory
damages award
Defendant vigorously challenges the amount of the verdict
as to both compensatory and punitive damages, alleging that it
is sO grossly excessive that it must have resulted from passion
or prejudice. Defendant argues that “[dJespite an out-of-
pocket loss of only $30,000, the jury awarded plaintiff dam-
ages of $4,030,000, or approximately 134 times the actual
financial loss incurred.” (Brief of Defendant, 31). The defen-
B-23
dant also specifically attacks both the compensatory award of
$1,030,000 and the $3,000,000 punitive award as wholly unjus-
tified. We will consider the compensatory award now and will
later treat the claim of excessiveness of the punitive damages
award.
Defendant contends that the amount of the compensatory
award is clearly disproportionate to the injuries sustained, that
the highest award of compensatory damages for emotional
distress ever previously allowed by a Colorado court is $30,000
awarded in DeCicco v. Trinidad Health Ass'n, 573 P.2d 559
(Colo. App.), and that no jurisdiction has upheld an award ot
more than $60,000 in the absence of physical injury or death.
(/d., 33). According to defendant, the evidence even viewed In
the light most favorable to plaintiff does not support the
compensatory damages. Defendant points out that plaintiff
was suffering from mental problems before the alleged tort
occurred and that there were other causes for the subsequent
emotional distress plaintiff suffered after the loss of her
money.
Defendant further says that the FBI search of plaintiff's
home after the bombing of the Denver SEC office was a major
cause of plaintiff’s mental problems and that defendant clearly
was not responsible for this search. (/d., 34-35). Defendant
also contends that the punitive award bears no rational rela-
tionship to the alleged injury, noting it is three times the
maximum fine permitted under federal law for a criminal act,
which is an indication that “the verdict was dictated by
emotion, and not by any reasoned consideration of the evi-
dence.” Gd., 35-36).
We have said that absent an award so excessive as to shock
the judicial conscience and to raise an irresistible inference that
passion, prejudice, corruption or other improper cause invaded
the trial, the jury’s determination of the damages is considered
inviolate.“* Metcalfe v. Atchison, Topeka and Santa Fe Rail-
Sa We have not treated these statements as a bar to remittitur in all
cases. See, e.g., R.E.B., Inc. v. Ralston Purina Co., 525 F.2d 749 (10th
Cir.) Gury verdict reduced by amount of double recovery).
B-24
way Co., 491 F.2d 892, 898 (10th Cir.); Ketchum v. Nall, 425
F.2d 242 (10th Cir.); see Hudson v. Smith, 618 F.2d 642, 646
(10th Cir.); Colorado Coal Furnace Distributors, Inc. v. Prill
Manufacturing Co., 605 F.2d 499 (10th Cir.). Such bias,
prejudice or passion can be inferred from excessiveness. Wells
v. Colorado College, 478 F.2d 158, 162 (10th Cir.); Earl W
Baker & Co. v. Legaly, 144 F.2d 344, 347 (10th Cir.). However,
a verdict will not be set aside on this basis unless it is so plainly
excessive as to suggest that it was the product of such passion
or prejudice on the part of the jury. Wells v. Colorado College,
supra, see Snowden v. Matthews, 160 F.2d 130, 131 (10th Cir.).
Such cases recognize the principle that if the court deter-
mines that the verdict was the result of passion or prejudice, or
for any other reason it appears that the jury erred or abused its
discretion not only on the issue of damages but also on the
issue of liability, the court must unconditionally order a new
trial and cannot give the plaintiff the option to accept a lesser
amount. 6A Moore’s Federal Practice ¢ 59.05[3], pp. 59-59,
59-67 and 59-68; Minneapolis St. Paul and Sault Ste. Marie Ry.
Co. v. Moquin, 283 U.S. 520, 521-22; see Curtis Publishing
Co. v. Butts, 388 U.S. 130, 160.
However, another remedy is also recognized. Where the
court concludes there was error only in an excessive damage
award, but not one also tainting the finding of liability, the
appellate court may order a remittitur and alternatively direct a
new trial if the plaintiff refuses to accept the remittitur, a
widely recognized remedy. See Holms v. Wack, 464 F.2d 86, 89
and n.3 (10th Cir.) (citing Botsford v. Ideal Trucking Co., 417
F.2d 681 (2d Cir.) as illustrating a “remittitur ordered by
appellate court”); Minker v. St. Louis—S.F. Ry. Co., 574 F.2d
1056, 1060 (10th Cir.) (discussing the claim of an excessive
verdict but stating that the appellate court was not “inclined to
order a remittitur” in that case); Stapleton v. Kawasaki Heavy
Industries, Ltd., 608 F.2d 571, 574. n.7, modified, 612 F.2d 905
(Sth Cir.); Curtis Publishing Co. v. Butts, 351 F.2d 702, 717-19
(Sth Cir.), aff'd. 388 U.S. 130; Lanfranconi v. Tidewater Oil
Co., 376 F.2d 91, 96-97 (2d Cir.), cert. denied, 389 U.S. 951
(conditional remittitur of a portion of a punitive award);
B-25
Covey Gas & Oil Co. v. Checketts, 187 F.2d 561, 563 (9th Cir.);
11 Wright and Miller, Federal Practice and Procedure, § 2820,
pp. 133-35; 6A Moore’s Federal Practice ¢ 59.05[3], pp. 59-
67-59-68. Cf. Bankers Life & Casualty Company v. Kirtley,
307 F.2d 418, 426 (8th Cir.). And see Kresse v. Bennett, 379
P.2d 807, 808 (Colo.) (conditional remittitur of a portion of
exemplary damages).
For reasons explained below, we do not disturb the compen-
satory award here but must agree that the punitive damage
award was excessive. However, we do not feel that the verdict
was the result of passion or prejudice so that the determination
of liability is tainted; and since we conclude that there is only
error in the size of the punitive award, the remedy of remittitur
is appropriate. Especially in a case like this involving a claim of
Outrageous conduct, it is not a jury’s duty to set aside, even if
it were possible, “all the decencies of human emotion when
called upon to decide controversy,” although it is their duty
“not to allow emotion to overcome fact, not to allow sympathy
to overcome reason, not to allow desire for result to overcome
justice.” Barnes v. Smith, 305 F.2d 226, 229 (10th Cir.). In this
case we conclude that excessiveness of the punitive award does
not demonstrate that the liability determination was tainted.
We are convinced that the remedy of remittitur is proper and
fair, and that ordering a new trial because of the size of the
punitive award would be unfair to the plaintiff since we are
persuaded that only the size of that award was error requiring
relief.
With these standards in mind, we turn first to the defen-
dant’s challenges to the compensatory award. We are not
persuaded by defendant’s reasoning that the overall verdict is
excessive because it is 134 times the amount of the “actual
financial loss.” There is no requirement that the award for
mental distress bear any relationship to the financial loss
incurred as a result of the tortious acts. Indeed, actions for
intentional infliction of emotional distress are often brought
against creditors by plaintiff-debtors, a situation in which the
plaintiff often has suffered no financial loss. See Prosser,
Handbook on the Law of Torts, § 12 at 57 (4th Edit.). We also
B-26
note that while the loss of $30,000 is much the smaller item, it
represented the loss of one-half of the couple’s savings. Hence
the relevant inquiry is whether the compensatory award was
excessive in relation to the injury—an injury consisting of the
emotional distress suffered by the plaintiff and its long-range
effects on her, as well as the financial loss.°
It is true that here there was evidence that prior to the loss of
her money plaintiff had experienced emotional difficulties and
had been examined by a psychiatrist in 1972 in relation to her
inability to become pregnant. The psychiatrist who had seen
her in 1972 described her condition then as depression due to
problems with her two sisters. (IV App. 489). And while the
trial court characterized plaintiff's condition as the “tragedy of
a lost life,” we note that there was no evidence that plaintiff
requires hospitalization or someone in the home to care for her
physical needs. Apparently she is able to function to this
extent.
Nevertheless, before the impact of these transactions in the
latter part of 1973, plaintiff was able to function quite well as a
housewife. She was 31 years of age and had a well-ordered,
though frugal, marriage relationship. In contrast, after the
disastrous 1973 transactions, plaintiff by 1975 had become
almost paralyzed in her depression and in her religious mania,
according to Dr. Grey:
| observed that she became almost like paralyzed in her
depression, in her religious mania, and she became really,
what I would call, she became dead to the earth, dead to
this life, because everything was “I don't care,” and
giving up, you see, totally, her interest now, and that
affected, you know, all the relationships which she had
towards the husband, towards her own family.
And the contact which has been so close before to the
family, now it’s practically nonexistent, and nothing is
really important for her. (IV App. 491).
6 Defendant apparently does not challenge the reasonableness of the
$30,000 portion of the verdict, arguing only that the $1 million award
for mental distress and the $3 million award of punitive damages are
excessive,
B-27
The psychiatrist felt that plaintiff’s condition had adversely
affected her marital life and appeared to be permanent. As to
the cause of the changes in her condition, he said the only
possible cause was the financial loss which totally undermined
her security. (IV App. 492-93).
As noted, Dr. Frey, who examined the plaintiff for the
defendant, was of the opinion that she had a “depressive
neurosis.” He attributed plaintiff's condition to three causes:
the loss of the money, the loss of plaintiff’s control over her
husband’s actions, and the humiliation resulting from an FBI
search of her home. (V App. 515). Although defendant argues
that this testimony established that the FBI search was a
primary cause of plaintiff's condition, we note that Dr. Grey's
testimony indicated that the loss of her money was the sole
cause. Hence the jury was entitled to determine that the impact
of the transactions alone caused the plaintiff's condition.
There was sufficient evidence to Support the inference that
before the impact of the transactions with defendant, plaintiff
functioned well in her admittedly limited world and took an
interest in her home, her husband, her sisters and in her hope
to have children, and that since this episode, these interests
have ceased and plaintiff has withdrawn to the point that
religion is her only interest. With respect to the evidence on
causation and plaintiff’s condition, we are persuaded by the
cogent observations of the trial judge who saw and heard the
plaintiff and all the evidence. These views were expressed in his
order denying post-trial motions (447 F.Supp. at 545-46):
The evidence also shows, orpane doubt, that Jung Ja
Malandris has sustained rmanent emotional injury
which has destroyed her « |ity to function as a human
being. She has rejected this world and lives only in the
anticipation of life after death. This results in her total
preoccupation with religion.
The defendant urges that the verdicts be set aside
because they are “so grossly excessive as to shock the
judicial conscience.” What is most relevant in this case Is
not the judicial conscience, it is the conscience of the
community as represented by the six people who served
B-28
on this trial jury. They heard this evidence and they
considered whether the conduct of John Barron went
beyond the bounds of decency and was utterly intolerable
in a civilized community. The defendant's counsel wish to
make much of the fact that there was only a $30,000.00
economic loss. They, like their client, fail to understand
that such economic losses can and do result in human
suffering which cannot be evaluated arithmetically. This is
not a case of a lost investment, it is the tragedy of a lost
life. Is $1,000,000.00 too great a value to place upon that
life?
The defendant denies that there is any showing of
proximate causation between its acts and plaintiff's emo-
tional state. The jury was correctly instructed as follows:
Proximate cause means that cause which in natu-
ral and probable sequence produced the claimed
injury. It is the cause without which the claimed
injury would not have been sustained. See C.J.I.
§ 9:24.
The evidence shows that Jung Ja Malandris did have a
predisposition to suffer severe emotional! injury from any
economic loss and the psychiatric testimony that she was
greatly affected by the loss of control of her husband is an
important aspect in this case. That loss of control was a
consequence of the defendant’s interference in this cou-
ple’s relationship. It is apparent to me, as it must have
been to the jury, that, knowing that which he did know
about the plaintiff, John Barron should be held to know
that a reasonably foreseeable consequence of the manipu-
lation of Steven Malandris and the deceit of his wife
would be the collapse of her ability to function. The
defense has pointed out that there were other factors
contributing to plaintiff's emotional condition. Yet, it
failed to produce any evidence which would separate the
effects of its wrongful conduct from the effects of other
influences. The law in Colorado is clear that the aggrava-
tion of a pre-existing condition can result in liability if the
wrongdoer is unable to isolate the impact. Stephens v.
B-29
Koch, Colo., 561 P.2d 333 (1977): Intermill v. Heumesser,
154 Colo. 496, 391 P.2d 684 (1964). (Emphasis added).
We cannot reject the conclusion of the trial judge that the
jury's award of compensatory damages was justified. Consid-
ering the whole of the evidence, including the plaintiff's
condition before and after the impact of the transactions, her
age, the medical testimony of present and permanent mental
injury to the plaintiff, and the jury’s opportunity to observe
Mr. and Mrs. Malandris’ testimony and her emotional appear-
ance on the stand, we are satisfied that the compensatory
award itself is not so plainly excessive that we should infer that
it was the product of passion or prejudice or hold that it is
shocking to the conscience of the court.
D. The punitive damages award
Defendant presses these principal arguments in objecting to
the award of punitive damages. First, it argues that the
evidence is insufficient to allow imposition of punitive dam-
ages against it as the corporate employer of Mr. Barron, even
assuming a sufficient showing to allow punitive damages
against Barron himself. Secondly, defendant asserts that the
punitive damages claim was barred by the Colorado one year
Statute of limitations imposed on actions to recover any
penalty or forfeiture under any penal statute. Third, defendant
says that the Colorado punitive damages statute, as applied in
this case, violates the federal Due Process and Equal Protec-
tion Clauses and the Colorado Due Process Clause. Lastly,
defendant strongly argues that the punitive award of
$3,000,000.00 is grossly excessive in any event.
7 No argument is made that punitive damages should not be awarded
in cases involving intentional infliction of emotional distress because
compensatory damages for that tort are themselves awarded due to
defendant's outrageous conduct. Cf. Eckenrode v. Life of America
Ins. Co., 470 F.2d 1, 5 (7th Cir.). It is clear that under Colorado law
both compensatory and punitive damages may be awarded for this
tort. Enright v. Groves, 560 P.2d 851, 854 (Colo. App.).
B-30
It is convenient to discuss the arguments on the statute of
limitations and the constitutional questions first, and then the
remaining questions which both require consideration of the
evidence pertaining to the punitive award.
(1) The one-year statute of limitations
The defendant argues that the plaintiff's claim for punitive
damages is barred by the statute of limitations provided by
§ 13-80-104 Colo. Rev. Stat. (1973).” This is a special statute
providing that all actions for any penalty or forfeiture on any
penal statute must be brought within one year. The Colorado
courts and the federal district judges in Colorado are divided
on the applicability of the statute to claims for punitive
damages.’ The latest opinion in Colorado is Jones v. Harding
Glass Co., _....P2d._. (Cole. Ct. App., July 3, 1960), which
held the one-year statute inapplicable in such circumstances,
one Judge dissenting. The Supreme Court of Colorado granted
certiorari to review that decision on November 28, 1980.
8 Section 13-80-104 provides:
“All actions and suits for any penalty or forfeiture of any penal
statute, brought by this state or any person to whom the penalty or
forfeiture is given, in whole or in part shall be commenced within
one year after the offense is committed and not after that time.”
The transactions in question occurred in the latter part of 1973 and
this action was commenced on February 14, 1975. This would be
within the three-year bar imposed by § 13-80-109 on actions for fraud
and within the six-year bar applicable to actions on the case pursuant
to § 13-80-110.
9 The cases holding that § 13-80-104 does apply include Sherwood vy.
Graco, inc., 427 F. Supp. i55 (D.Colo., Finesiiver, J.); Biser v.
Adkins, 75-F-1096 (D.Colo., January 26 and April 5, 1977, Finesilver,
J.) and Hixon v. Elano Products Co., 74-F-1163 (D.Colo., August 17,
1976, Finesilver, J.). Cases holding that § 13-80-104 does not apply
include Dorney v. Harris, 482 F.Supp. 323 (D.Colo.,Kane,J.);
Griswold v. Lange Co., C 4681 (D.Colo., April 18, 1977, Arraj, J.);
Alexander v. Graco, Inc., 75-W-104 (D.Colo., January 19, 1977,
Winner, C.J.); and Wagner v. Johns-Manville Products Corp., 77-
0703-2 (District Court, Boulder, Colo., January 10, 1978, Dane, J.);
Resource Exploration & Mining, Inc. v. Itel Corp., 492 F.Supp. 515,
§17 (D. Colo.) (Carrigan, J.).
B-31
The plaintiff responds that the argument based on the one
year statute is raised for the first time on appeal, that defen-
dant’s failure to assert the issue at trial constituted a waiver,
that the general statement of an affirmative defense that
plaintiff's claims are barred by the “applicable statutes of
limitations” was not sufficient notice to preserve the defense,
and that defendant made no motion concerning the defense to
the trial court. On the merits, plaintiff adopts the arguments of
the amicus and says that the special statute itself and the more
persuasive opinions demonstrate the inapplicability of the
one-year statute.
We agree that the issue concerning § 13-80-104 was not
presented in the trial court and may not be asserted for the first
time on appeal. It is true that defendant’s answer includes a
fourth defense that “[p]laintiff’s claims are barred by the
applicable statutes of limitations.” (Il App. 22). Further, the
pre-trial order also includes a statement among defendant’s
claims “ . . . that Plaintiff’s claims are barred by the applica-
ble statutes of limitation and the doctrine of laches, ratifica-
tion, waiver and estoppel. . .” and a statement that one of the
contested issues of law, according to defendant, is “[w]hether
plaintiff's claims are barred by the applicable statutes of
limitations.” (II App. 44, 49). Defendant points to no other
reference to limitations in the pleadings, orders, trial briefs and
cites no reference to § 13-80-104 or the theory that punitive
damages claims are governed by the one year statute applicable
to actions for any penalty or forfeiture on any penal statute.
We note that defendant’s trial brief filed September 13,
1977, following defendant’s answer and the September 6, 1977
pre-trial order, contains an argument as Proposition | that a
one-year statute of limitations applies to plaintiff's claim under
§ 12 (2) of the 1933 Securities Act. (I Orig. R. 84-85).'° This
10 ~—s-‘ This limitations argument is grounded on 1S U.S.C. § 77 m impos-
ing a one-year limitation on such a securities claim after the discovery
of the untrue statement or after such discovery should have been made
by the exercise or omission, of reasonable diligence, unless the action is
brought within one year after the violation, and in no event more than
three years after the sale of the security.
B-32
Securities Act claim was abandoned by the plaintiff at trial. We
note further that the trial brief of plaintiff contained a discus-
sion of punitive damages, but nowhere within such discussion
was any reference to limitations or the applicability of the
one-year statute of limitations of § 13-80-104 made. (I Orig.
R.99-102). Furthermore, we note that while the trial judge
discussed briefly defendant’s objections to the punitive dam-
ages verdict in his order denying the post-trial motions, he
made no reference to any contention by defendant based on
any statute of limitations. 447 F.Supp. at 546.
Thus there is not only a failure by plaintiff to assert
§ 13-80-104 by citation or theory in the trial court. Addi-
tionally, a different one-year limitation actually relied on re-
specting the Security Act claim was identified and argued, and
that one year statute became moot when plaintiff withdrew the
Security Act claim. Viewing the whole of these circumstances
in the record we must agree that the limitation imposed by
§ 13-80-104 was not raised in the trial court and may not be
asserted for the first time on appeal.'' See Singleton v. Wulff,
428 U.S. 106, 120; New v. Grant, 548 F.2d 281, 286-87 (10th
Cir.); Stanspec Corp. v. Jelco Inc., 464 F.2d 1184, 1187 (10th
Cir.); cf. Chiodo v. General Waterworks Corporation, 380 F.2d
860, 868 (10th Cir.), cert. denied, 389 U.S. 1004.
11 Defendant additionally argues that the burden is on the plaintiff to
show that a claim for a penalty was commenced within the time
permitted by the statute, citing Afchison, T. & S.F. R. Co. v. Tanner,
36 P. $41 (Colo.) and Denning v. A. D. Wilson & Co., 326 P.2d 77
(Colo.). We recognize that in a diversity case the question of the
burden of proof is one of iocal law, even though the pleading
requirements are controlled by federal law. See Palmer v. Hoffman,
318 U.S. 109, 116-17. However, assuming the correctness of defen-
dant’s argument that the one-year statute applies, and that plaintiff
had the burden of proving the claim was brought within one year, there
is no indication from the record that defendant raised the issue
concerning § 13-80-104 at trial, or otherwise in the trial court, as
noted. Under these circumstances we will not now consider this issue.
B-33
(2) The challenge to the constitutionality of the
punitive damage statute
Defendant also presents a constitutional argument against
the punitive award. It contends that the Colorado punitive
damages statute, as applied in this case, is violative of the
federal Due Process and Equal Protection Clauses as well as
the Due Process Clause of the Colorado constitution. Defen-
dant reasons that punitive damages are penal in nature and
serve the same functions as criminal punishment. Yet none of
the procedural safeguards imposed in criminal proceedings are
afforded defendants subjected to punitive damages. (Brief of
Defendant, 45-52).
Plaintiff again responds that this argument was not raised at
trial and hence cannot be raised now. Replying on the merits,
plaintiff says that punitive damages statutes have been upheld
by the Supreme Court of the United States against like objec-
tions and that no violations of due process occurred here.
Further plaintiff argues that there are clear standards in the
statute which are applied with a great deal of certainty by the
Colorado courts. (Brief of Plaintiff, 58-60).
We have on occasion addressed questions raised for the first
time on appeal when they involved due process implications.
E.g., Staton v. Mayes, 552 F.2d 908, 915 (10th Cir.); cert
denied, 434 U.S. 907; Gomes v. Williams, 420 F.2d 1364, 1367
(10th Cir.); but see Curtis Publishing Co. v. Butts, 388 U.S.
130,143. Here we feel we should consider the constitutional
claim involving the due process and equal protection issues
raised.
We note that the defendant is not alone in questioning the
validity of punitive damage statutes. See, e.g., Dobbs, Hand-
book on the Law of Remedies, § 3.9, 219-20. Nevertheless, the |
Supreme Court has clearly recognized that “. . . the Constitu-
tion presents no general bar to the assessment of punitive
damages in a civil case. . .” Curtis Publishing Co. v. Butts,
388 U.S. 130, 159; see Day v. Woodworth, 54 U.S. 362, 371,
and we are not persuaded that any basis for a departure from
this view is demonstrated. The statute does clearly define strict
standards and they are applied carefully by the courts, as the
B-34
trial judge did here. Therefore we are convinced that the
Statute is valid and not violative of the federal or State
constitutions.’
(3) The claim that the evidence supported no award of puni-
tive damages and that the award was grossly excessive
Detendant argues that to impose punitive damages against a
corporation for the acts of an employee it must be shown that
the corporation authorized or approved the act for which
exemplary damages are claimed, or that it approved of or
participated in the wrong of its agent, or that it failed to
exercise proper care in selecting its agent. Defendant contends
that approval of a specific transaction without knowledge of
its wrongful aspects is an insufficient basis for holding a
corporation liable for punitive damages. Yet no more than this
was proven at trial; /.e. “that the sales manager and officer of
defendant’s Denver office had approved the opening of an
account in plaintiff’s name and were aware that the stock
transactions had occurred.” (Brief of Defendant, 38). And,
according to defendant, “there was not a scintilla of evidence
to indicate that any member of defendant’s management knew
of the alleged wrongs, let alone authorized or participated in
them.” (/d., 39). Further, it argues that there is no evidence to
indicate that defendant was negligent in hiring Mr. Barron.
Even if the court was correct in stating that defendant was
negligent in supervising Mr. Barron, negligent supervision is
not a sufficient basis on which to impose punitive damages.
I2 We tind no Colorado case dealing with the specific due process
arguments of defendant. An equal protection argument and a double
jeopardy contention, based on a prior criminal conviction preceding
the damage suit alleging the same facts, were rejected in E. F Hutton
and Co. v. Anderson, 896 P.2d 413 (Colo. App.). While not addressing
constitutional challenges, opinions of the Colorado Supreme Court
have upheld punitive damages awards under this same statute. E.z.,
Kresse v. Bennett, 379 P.2d 807, (Colo.); see also Herald Co. vy.
Harper, 293 F.Supp. 1101, 1105 (E.D.Mo.), aff’d., 410 F.2d 125 (8th
Cir.); Daugherty v. Firestone Tire and Rubber Co., 85 F.R.D. 693
(N.D.Ga.); Annotation, Constitutionality of Statute permitting puni-
tive damages for personal injury or death, §1 A.L.R. 1379.
B-35
Additionally, defendant asserts that the court erroneously
failed to instruct the jury that plaintiff must prove beyond a
reasonable doubt both the commission of the alleged wrong
and the authorization, approval or participation by the corpo-
ration. Similarly, defendant says that the court erred in refus-
ing to charge that an officer or director of defendant must
have authorized or participated in the wrong, rather than
someone as subordinate as a local manager. (/d., 36-40).
In rejecting the defendant’s objections to the punitive award
the trial judge stated in his Memorandum and Order (447
F.Supp. at 546):
The defendant contends that punitive damages are not
allowable in this case. On this issue the jury was in-
structed that such damages could be considered only if the
plaintiff had proven beyond a reasonable doubt that the
injury was attended by circumstances of fraud, malice,
insult or a wanton and reckless disregard of the rights and
feelings of the plaintiff. Again, I join the jury in the view
that the evidence was sufficient to make such a finding
and the amount of the damages imposed as a sanction
against the defendant bears a reasonable relationship to
the amount of the compensatory damages in the verdict.
Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co.,
561 F.2d 1365 (10th Cir. 1977).
To say, as defendant argues, that the corporate defen-
dant cannot be sanctioned for the misconduct of its
employee in this case is to ignore the evidence that the
sales manager and office manager of the Denver office of
Merrill Lynch approved and participated in that miscon-
duct and failed to exercise proper care in selecting and
supervising this salesperson. The jury was properly in-
structed and there is sufficient evidence to support the
verdict for punitive damages.
We are persuaded to agree with the trial court’s conclusions
to the extent that a substantial punitive award was justified and
permissible under Colorado law. However, for reasons given
B-36
later we cannot agree to sustain a punitive award of this size in
these circumstances.
age 3
Colorado has long allowed punitive damages.'’ However, the
rule has developed that a principal cannot be held liable in
exemplary damages for the act of an agent unless it is shown
that it (a) authorized or approved the servant’s tortious act; or
(b) approved of or participated in the act; or (c) failed to
exercise proper care in the selection of its servant.'* Holland
Furnace Co. v. Robson, 402 P.2d 628, 631 (Colo.); see Ristine
v. Blocker, 61 P.486, 489 (Colo. App.); Lake Shore & Michigan
Southern Railway Co. v. Prentice, 147 U.S. 101; Restatement
(Second), Agency § 217C;'° Restatement (Second), Torts
§ 909.'°
13 Sec. 13-21-102, Colo. Rev. Stat. (1973), derived from an 1889
Statute, provides:
Exemplary damages. In all civil actions in which damages are
assessed by a jury for a wrong done to the person, or to personal or
real property, and the injury complained of is attended by circum-
stances of fraud, malice or insult, or a wanton and reckless
disregard of the injured party's rights and feelings, the jury, in
addition to the actual damages sustained by such party, may award
him reasonable exemplary damages.
14 This rule, known as the complicity rule, is apparently the current
minority rule, while the majority of courts allow punitive damages
against the employer under ordinary principles of respondeat superior.
See Dobb, Handbook on the Law of Remedies, § 3.9, 214 (1973);
Prosser, Handbook on the Law of Torts, § 2, 12 (1971).
15 § 217C provides:
Punitive damages can properly be awarded against a master or
other principal because of an act by an agent if, but only if:
(a) the principal authorized the doing and the manner of the act,
or
(b) the agent was unfit and the principal was reckless in employ-
ing him, or
(c) the agent was employed in a managerial capacity and was
acting in the scope of employment, or
(d) the principal or managerial agent of the principal ratified or
approved the act.
16 § 909 provides:
B-37
We agree with defendant that the evidence does not indicate
that it failed to exercise proper care in the selection of Mr.
Barron. Nevertheless, although the question is close we feel the
proof was sufficient to go to the jury on the issue of punitive
damages since there was some evidence to support inferences
of authorization or approval and participation by defendant’s
local managers'® in the tortious acts to the extent of being
wanton and reckless in handling the transactions.'” Defen-
dant’s rules, rules of the New York Stock Exchange, and of the
Chicago Board Options Exchange were in evidence. From the
various rules there were stated duties for defendant’s office
manager or his designate to be informed as to the essential
facts relative to the customer to approve opening his account,
to satisfy himself as to the desirability of such customer before
approving the acceptance of the account, to “qualify” the
customer before allowing him to trade in options (and stating
Punitive damages can properly be awarded against a master or
other principal because of an act by an agent if, but only if,
(a) the principal or managerial agent authorized the doing and
the manner of the act, or
(b) the agent was unfit and the principal or a managerial agent
was reckless in employing or retaining him, or
(c) the agent was employed in a managerial capacity and was
acting in the scope of employment, or
(d) the principal or managerial agent of the principal ratified or
approved the act
18 We reject defendant's assertion that the actions of a local manager
are insufficient to allow the imposition of punitive damages against the
corporation, especially where, as here, defendant delegated a great deal
of authority to its local branch managers. See Doralee Estates v. Cities
Oil Co., 569 F.2d 716, 721-22 (2d Cir); General Motors
Cir); Restatement
Service
Acceptance Corp. v. Froelich, 273 F.2d 92 (D4
(Second) Torts § 909
19 Hence we need not decide whether negligent supervision is sufficient
per se to impose punitive damages against the corporation. In the
instant case, it could be found that defendant's managerial agents had
an affirmative duty to participate in and approve some of the account
decisions, as discussed below. These duties would necessarily include
supervision of the account
B-38
that in some cases he may want to have a personal interview
with the customer, see Plaintiff’s Ex.31), and to approve a
switch from a cash to a margin account. (V App. 561-591, see,
e.g., Plaintiff's Exhibits 21-41). The trial court properly
charged the jury that (VI App. 912):
You have also heard testimony about these rules. While
these rules do not have the force of law and while no
liability can be found to result from the mere violation of
any or all of such rules, you may consider the fact that the
Defendant was a member of these organizations which
had adopted these rules in considering whether the con-
duct of the Defendant was such that liability should be
found under these instructions which are the applicable
law in this case.
See Master Commodities, Inc. v. Texas Cattle Management
Co., 586 F.2d 1352, 1357 (10th Cir.); Carelli v. Denber & Rio
Grande Western R.R. (No. 72-1487, 10th Cir., 12/26/73, pp.
5-6) (unpublished).
Defendant argues that “it is unreasonable to suggest that the
sales manager should be required to conduct a personal inter-
view as to everyone,” and that at most the manager was
negligent in his supervision of plaintiff’s account. While this
argument is persuasive, we do not feel the trial court erred in
submitting the punitive damages issue to the jury. The evidence
included the rules as evidentiary matter and evidence permit-
ting an inference of lack of any managerial contact with
plaintiff or any meaningful review or supervision of her trans-
actions. There was evidence indicating that defendant took
Mrs. Malandris’ stock as collateral for its loan, without any
authorization from her,”’ when the account was switched to a
margin account. (V A. 577-78).
20 There was evidence indicating that an hypothecation agreement had
been signed by Mr. Malandris in his own name, but that this authoriza
tron was returned by the New York office (which approved all such
documents) requestine an authorization signed by the customer, Mrs
Malandris. (Ill A. 186-203). The request for a properly executed
hypothecation was routed to Mr. Barron by a new accounts clerk in
B-39
Defendant's Denver sales manager testified that to the best
of his knowledge, he did approve the switch of plaintiff's
account from cash to margin. (V A.569). While written ap-
proval by defendant’s manager was required before options
transactions could be conducted, defendant produced no such
writing. Defendant’s own compliance rules forbid Merrill
Lynch employees acting as witnesses on power of attorney
forms, but one of its employees witnessed the forged signature
on the power of attorney in this account. Defendant’s Denver
sales manager testified that he initialed approval of the unsolic-
ited order for the sale of 5,000 shares of Northwest Airlines
stock at $17.25 per share which liquidated most of Mrs.
Malandris’ account. (V A. 585-86; see note 4b, supra). While
the case is not free from doubt, considering all the evidence the
jury could draw the inference that there was some managerial
participation in wanton and reckless handling of the trans-
actions so that the punitive damage matter was a jury issue.
See Restatement (Second) Agency § 213 and comment h.
The argument that the managers had no knowledge of
Barron's conduct is not persuasive. There was evidence from
which substantial responsibility of the managers for knowing
about this type of transaction could be inferred. It could be
found that the managers themselves disregarded proper safety
procedures, indicating wanton and reckless conduct on the part
of management. See Leslie v. Jones Chemical Co., 551 P.2d
234, 235 (Nev.); Franklin Inv. Co., v. Smith, 383 A.2d 355,
359 (D.C.App.); S.H. Kress & Co. v. Rust, 120 S.W.2d 425,
428 (Tex.).
Further, we do not find reversible error in the court's failure
to instruct that plaintiff must prove beyond a reasonable doubt
both the commission of the alleged wrong and the authoriza-
tion, approval or participation in the wrongful act by the
corporate management. Defendant did not make such an
objection to the charge at trial. (VI App. 822-27, 927-28). We
Denver when ts was received from New York. /d. There was no
evidence that an hypothecation agreement was ever signed by Mrs
Malandris or in her name
B-40
deem the objection waived and do not consider it here.
F.R.Civ.P. 51; Scholz Homes, Inc. v. Wallace, 590 F.2d 860,
864 (10th Cir.). And in view of the charge given on the burden
of proof as to punitive damages,”' we see no plain error. (See
VI A. 920-21, 926).
21 Defendant bases this assertion on 1973 Colo. Rev. Stat. § 13-25-127
(2) which provides:
Exemplary damages against the party against whom the claim is
asserted shall only be awarded in a civil action when the party
asserting the claim proves beyond a reasonable doubt the commis-
sion of a wrong under the circumstances set forth in section
13-21-102. Nothing in this subsection (2) shall be construed as
preventing a party asserting the claim from being awarded money
damages or other appropriate relief, other than exemplary dam-
ages, if he sustains the burden of proof by a preponderance of the
evidence.
The instruction given by the trial court explicitly stated that the
plaintiff must prove “beyond a reasonable doubt that the injury
complained of was attended by circumstances of fraud, malice, insult
or a wanton and reckless disregard of the rights and feelings of the
Plaintiff.” (VI App. 920). Further, the charge stated that in order to
award punitive damages the jury must also further find that the
plaintiff had proved that the Denver sales managcr or office manager
authorized or approved the manner and doing of the act for which
exemplary damages are claimed, or that they approved of or partici-
pated in the wrong of the agent, or that they failed to exercise proper
care in selecting the agent and he was unfit. (/d. at 921). Then, in a
later portion of the charge on compensatory and punitive damages the
court instructed the jurors, “. . . and if you find beyond a reasonable
doubt that punitive damages should be awarded in the case, then you
would use the form of verdict for Plaintiff on punitive damages.” (/d.
at 926).
As stated earlier, we feel the evidence was insufficient to establish
that defendant was negligent in hiring Mr. Barron. Hence the portion
of the instructions noted above presenting the alternative theory of
negligent hiring was subject to an objection. Where there is an
objection to the erroneous submission of one alternative theory of
liability, it can be argued that a general verdict cannot stand since it
cannot be determined whether the jury based liability on the theory
erroneously submitted. E.g., Sunkist v. Winckler & Smith Co., 370
U.S. 19, 27, 30. Here, although defendant argued that there was no
corporate involvement on any basis for submission of the punitive
damage issue, defendant did not object to the instruction at trial, or on
appeal, on the ground that it included an alternative submission of the
negligent hiring theory, and the charge given was similar in this respect
to defendant's tendered instruction on the complicity rule which
B-4]
In sum, we are satisfied that no reversible error is demon-
strated in the submission to the jury of the punitive damage
issue.
We turn now to defendant’s vigorous objections that the
$3,000,000 punitive award is grossly excessive. Defendant says
that the award bears no rational relationship to the alleged
injury and notes that it is three times the size of the maximum
fine permitted under federal law for a criminal act. It says that
this demonstrates that “the verdict was dictated by emotion,
and not by any reasoned consideration of the evidence.” (Brief
of Defendant 35-36).
The Colorado Supreme Court has stated that the purpose of
punitive damages is to punish the wrongdoer and deter similar
conduct in the future. Frick v. Abell, 602 P.2d 852, 854
(Colo.). The proper factors to be considered include: (1) the
nature of the act which caused the injury; (2) the economic
status of the defendant; and (3) the deterrent effect of the
award on others. /d. In addition, Colorado requires that the
punitive damages bear some relation to the compensatory
award. Big O Tire Dealers v. Goodyear Tire & Rubber Co.,
561 F.2d 1365, 1376 (10th Cir.), cert. dismissed, 434 U.S. 1052;
Wegener v. Rodeo Cowboys Association, 290 F.Supp. 369, 370
(D.Colo.); aff'd, 417 F.2d 881 (10th Cir.), cert. denied, 398
U.S. 903.
Punitive damages have been sustained under Colorado law
in ratios as high as six-to-one in comparison to compensatory
damages, see Big O Tire Dealers, supra. Thus the approxi-
mately three-to-one ratio in the present case presents no prob-
lem in itself. Moreover, there was evidence indicating that in
included the alternative of negligent hiring. (1 R.160). There was
sufficient evidence to sustain punitive damages under the other theories
of managerial involvement. In these circumstances, we feel that any
error in submitting the negligent hiring theory should not now be
considered on appeal. Union Pacific Railroad Co. v. Lumbert, 401
F.2d 699, 701-02 (10th Cir.); Comins v. Scrivener, 214 F.2d 810, 814
(10th Cir.); Rochester Civic Theatre, Inc., v. Ramsay, 368 F.2d 748,
751-53 (8th Cir.). See Continental Oil Co. v. Brack, 381 F.2d 682,
684-85 (10th Cir.); Sunkist v. Winckler & Smith Co., supra, 370 U.S.
at 27.
B-42
1976 defendant had total assets worth over six billion, six
hundred million dollars, shareholders’ equity of over six hun-
dred thirty-two million dollars, and a net worth of over one
hundred six million dollars. (See Plaintiff’s Ex. 85). However,
the crucial question for us here is whether the punitive award
was so excessive that it shocks the judicial conscience or leads
to an inescapable inference that it resulted from improper
passion or prejudice on the part of the jury.
We must agree the $3,000,000 punitive award is excessive
and unwarranted. An award of substantial compensatory dam-
ages and sizeable financial worth do not inescapably mean that
some ratio of punitive damages is permissible. The question
remains here as to whether the verdict is shocking to the
conscience of the court or excessive under the statute providing
that the jury “may award [the plaintiff] reasonable exemplary
damages.” § 13-21-102, Colo. Rev. Stat. (1973); see, Kresse v.
Bennett, supra, 379 P.2d at 808. Keeping in mind all the
relevant factors we are convinced that the $3,000,000 award is
excessive and beyond a reasonable punitive award under the
Colorado statute and must be reduced. See Lanfranconi v.
Tidewater Oil Co., 376 F.2d 91, 96-98 (2d Cir.), cert. denied,
389 U.S. 951; Kresse v. Bennett, supra, 379 P2d at 808;
Mooney v. Henderson Portion Pack Co., 339 F.2d 64, 65-66
(6th Cir.); Texas Co. v. Christian, 177 F.2d 759, 762 (Sth Cir.).
This conviction that the punitive award was excessive does
not lead us to the conclusion that the liability determination
was tainted here. As explained in Part I C, supra, we are
persuaded that a new trial on liability need not be ordered and
that the established remedy of remittitur, long used by the
federal courts, is proper and fair here. *'* We are convinced,
therefore, that we should require a remittitur to reduce the
punitive award to $1,000,000, for the judgment to stand. If the
plaintiff declines to accept a reduced judgment, there should
21a The authorities cited in Part I C, supra, and cases noted in the text
above illustrate familiar use of the remittitur remedy as proper. See the
discussion in 6A Moore's Federal Practice, ¢ 59.05{3] p. 59-47 to
59-68.
B-43
be a new trial on all issues since we feel that a new trial on less
than all the issues could not be had without confusion and
uncertainty, which would amount to a denial of a fair trial.
Gasoline Products Co. v. Champlin Refining Co., 283 U.S.
494, 500. Accordingly we remand the cause with directions that
the trial court enter a remittitur order for acceptance of a
judgment reducing the punitive award to $1,000,000 or
otherwise for a new trial of all issues.
E. Defendant's motion for a mistrial
In the appeal from the original judgment, defendant argues
further that the court should have granted a mistrial due to
emotional outbursts by plaintiff and her husband during Mr.
Barron’s testimony. The denial of the motion was an abuse of
discretion, according to defendant. Although ihe jury was
asked to leave when the outbursts began, defendant contends
that the jury was present during at least part of the scene.
Further, defendant suggests that plaintiff’s counsel should have
anticipated that such a reaction would occur and should not
have allowed the plaintiff to be present during Barron’s testi-
mony.
Defendant adds that the above errors were compounded by
plaintiff's counsel who “repeatedly appealed for sympathy for
the plaintiff, and sought to incite hostility against the defen-
dant,” by references to plaintiff’s poverty and defendant’s
wealth. (Brief of Defendant, 25-31). Further, the “cumulative
prejudice” was increased due to “speeches and outbursts” by
plaintiff's husband during his cross-examination. (/d.) Thus,
alternatively defendant urges this court at least to reverse for a
new trial.
The conduct which prompted the motion for a mistrial came
during the redirect examination of Mr. Barron, and was
described by the trial judge as follows:
The record ought to reflect that auring the testimony of
Mr. Barron on cross-examination by Mr. Fishman, Mrs.
Malandris, who was seated in the public sector of the
courtroom in the first row behind the bar, began to cry
B-44
and then began to scream, and I ordered the jury out of
the box and excused them. As they were walking out of
the box, Mr. Malandris jumped up and began to yell,
something about, “How can a man lie like that?” and
began to pound his fists against the seat. (VApp. 723-24).
The jury was excused as soon as Mrs. Malandris’ outburst
began. The trial judge could not say on his own observation
where the jury was when Mr. Malandris began to yell, but
thought the jurors were on their way out. /d. at 724. An
immediate motion for a mistrial was made and denied. (/d.)
The jurors were given a cautionary instruction when they
returned to the courtroom including, inter alia, instructions
not to consider the outbursts as evidence, not to allow such
occurrences to affect their opinion, and not to judge the case
on the basis of sympathy or prejudice. (V App. 724-25). A
subsequent motion for a new trial, based in part on these
outbursts, was denied by the trial judge for reasons which he
explained in detail (447 F.Supp. at 546-47):
The intervening day of testimony and weekend between
the Malandris’ conduct and closing arguments and sub-
mission to the jury must be considered in evaluating any
effect of this unfortunate incident on the jury’s delibera-
tion. Additionally, the conduct of Mr. and Mrs. Malandris
must be viewed in the context of the trial. There is
nothing to indicate that either of these people engaged in
any theatrics or that they deliberately attempted to use
this as a means to communicate with the jury. Having
observed the entire trial, including the incident in ques-
tion, it is my finding and conclusion that these outbursts
were genuine human responses to testimony which was
not credible and which went directly to the pivotal issues
in the case. Mrs. Malandris’ actions were entirely consis-
tent with the testimony of both psychiatrists. Mr. Malan-
dris’ reaction to the testimony of Mr. Barron can best be
characterized as instinctive, uncontrolled anger. It is not
possible to try lawsuits in a sterile chamber, wholly free
from the effects of human emotions, particularly in a case
B-45
in which the injury complained of is severe emotional
distress. The prejudice to the defendant in this case from
the emotional outburst by the plaintiff is no greater thana
plaintiff's display of disfigured or dismembered parts of
his body on a claim for physical injury. See S. Gard,
Jones on Evidence § 15:4 at 10 (6th ed. 1972).
While both parties have cited state court decisions which
may indeed be considered, the ruling on such a motion is
governed by federal law. See Holmes v. Wack, 464 F.2d 86, 88
(10th Cir.); 6A Moore’s Federal Practice € 59.05. The matter
of declaring a mistrial or granting a new trial on such grounds
is peculiarly within the discretion of the trial judge for he is in
a better position than this court to assess the potentially
prejudicial impact of such conduct by parties, witnesses and
counsel. Standard Industries, Inc. v. Mobil Oil Corp., 475 F.2d
220, 228 (10th Cir.), cert. denied, 414 U.S. 829: see Franklin v.
Shelton, 250 F.2d 92, 99-100 (10th Cir.), cert. denied, 355 U.S.
959.
Furthermore, even though it is true, as plaintiff states, that
defendant did not object to many of the errors it now com-
plains of, we acknowledge the proposition asserted by defen-
dant that litigants are entitled to a fair trial and that frequent
objections, even though valid, may prejudice the party object-
ing. Koufakis v. Carvel, 425 F.2d 892, 900-901 (2d Cir.). Hence
we have considered these claims of error to determine whether
they were of such magnitude as to have seriously prejudiced
defendants’ right to a fair trial. Edwards v. Sears, Roebuck
and Co., 512 F.2d 276, 286 (Sth Cir.).
We conclude that the trial court did not abuse its discretion
in these circumstances. As noted in Franklin v. Shelton, supra,
250 F.2d at 99:
[T]he conduct of a party in weeping or crying in the
courtroom does not necessarily justify a new trial, where
it does not clearly appear that such conduct improperly
influenced the jury. Nothing in the record indicates that
the trial Judge abused his discretion in not ordering a
mistrial. It must be presumed that he was in the best
B-46
position to discover whether plaintiff's conduct had such
an effect upon the jury that the trial could not continue
on a fair basis.
See also Price v. H.B. Green Transportation Line Inc., 287
F.2d 363, 364 (7th Cir.).
In view of the trial judze’s conclusions we have noted, we
cannot agree that the conduct of the plaintiff and her husband
is comparable to the “schooled histrionics, affected ignorance
of matters on which they possessed virtually expert knowledge,
[and] their dramatizations and theatrical displays” which
would have req:tired 4 new trial in the court’s opinion, al-
though dismissal was ordered on other grounds in Drasner v.
Thomson McKinnon Securities, Inc., 433 F.Supp. 485, 489-91
(S.D.N.Y.); see Cecil Corley Motor Co., v. General Motors
Corp., 380 F.Supp. 819, 861 (M.D. Tenn.). Nor did the closing
argument of plaintiff’s counsel “so far exceed the bounds of
proper argument that we are bound to reverse the district
court,” as was done in Draper v. Airco, Inc., 580 F.2d 91, 94
(3d Cir.), and Edwards v. Sears, Roebuck and Company, 512
F.2d 276 (Sth Cir.). Taken together, the theories of liability and
the compensatory and punitive damages issues justified fair
comment, within reasonable bounds of vigorous advocacy, on
defendant’s conduct, its financial status, and the purpose of
deterrence.
We are satisfied that there was no abuse of discretion or
reversible error in the denial of the motion for a mistrial.
THE APPEAL FROM THE DENIAL OF THE
RULE 60(b) MOTION
In No. 78-1855 defendant appeals from the trial court’s
order denying defendant's motion to set aside the judgment
and to grant a new trial pursuant to F.R.Civ.P. 60(b)(2) and
22 E.R.Civ.P. 60(b) provides in pertinent part
B-47
Defendant asserts that newly discovered evidence secured
from the SEC, the FBI and the Denver District Attorney’s
office, demonstrates that Mr. Malandris lied throughout the
trial. According to Merrill Lynch this evidence shows, inter
alia: 1) that Mr. Malandris sought to file a false criminal report
accusing Barron of having forged plaintiff’s signature to a
power of attorney, which Mr. Malandris subsequently admitted
having forged himself; 2) that Mr. Malandris first came to
Merrill Lynch because he wanted to “sell short” and his
previous broker would not allow him to do so; 3) that before
trial Mr. Malandris had demonstrated substantial knowledge of
financial matters, even to the point of correcting a mistake by
an SEC attorney as to the mechanics of selling short; and 4)
that Mr. Malandris was not totally dependent on Barron for
investment advice and admitted to the FBI that in November
1973 he directed Barron to execute certain stock transactions.
(Brief of Defendant 9-10).
Defendant claims that this evidence is newly discovered,
could not have been discovered in time to move for a new trial
under F.R.Civ.P. 59(b), and is of such a material and control-
ling nature that it would probably change the verdict. Because
the case was dependent almost entirely on the testimony of Mr.
Barron and Mr. Malandris, credibility was a crucial factor in
the case. Thus defendant argues that the newly discovered
evidence, directly contrary to Mr. Malandris’ testimony at
trial, would have changed the outcome of the trial. Defendant
maintains that, contrary to the trial court's determination, it
had indeed exercised due diligence in attempting to gather this
information at an earlier time. It was not a lack of diligence
but rather a change in circumstances that resulted in the
eviderice being produced after the judgment. According to
On motion and upon such terms as are just, the court may relieve
a party or his legal representative from a final judgment, order, or
proceeding for the following reasons: (2) newly discovered
evidence which by due diligence could not have been discovered in
time to move for a new trial under Rule $9%(b); (3) fraud (whether
heretofore denominated intrinsic or extrinsic), misrepresentation, or
other misconduct of an adverse party
B-48
defendant, various Government agencies had _ repeatedly
refused requests to produce evidence until the changed circum-
stance of the large verdict in this case. It was only then that the
agencies decided, “in the interest of justice,” to release addi-
tional information. (/d. 19-26).
Defendant additionally argues that this same evidence dem-
onstrates that the judgment was procured through fraud in
that it shows that Mr. Malandris “repeatedly and systemati-
cally perjured himself at trial. . .” (/d. at 26); accordingly the
judgment should have been set aside and a new trial granted.
Plaintiff responds that defendant’s allegations are unsup-
ported by any admissible evidence. Further, this “new” evi-
dence concerns collateral issues or seeks Only to impeach Mr.
Malandris’ testimony. Plaintiff argues that defendant was not
diligent in attempting to locate this evidence since it made no
formal attempts to obtain any information from Government
sources prior to trial. In fact, plaintiff says that much of the
allegedly “new” evidence was in defendant’s possession before
the trial and some of it was actually used by the defendant at
trial. (Brief of Plaintiff at 1-7).
At the conclusion of a hearing the trial court denied defen-
dant’s motion. With respect to the 60(b)(2) motion, it was
found that the evidence would be impeaching and collateral
and also that defendant failed to make an adequate showing
that the information was not available at an earlier time
through the exercise of due diligence. With respect to the claim
under Rule 60(b)(3), the court held that fraud had not been
shown. (VIII App. 1114-1118).
We are satisfied that the record amply supports the trial
court's findings and conclusions made in denying the motion.
There is evidence that much of the proof could have been
discovered earlier through due diligence such as by the filing of
formal Freedom of Information Act requests promptly or by
contacting parties known to defendant prior to trial who might
have pertinent information. Nor do we feel that the district
court erred in holding that fraud had not been shown, particu-
larly in view of his conclusions, formec at his vantage point,
an. the credibility af the twa principal witnesses. In holding
B-49
that the testimony about the SEC contact with Mr. Malandris
and Mr. Malandris’ contacts with the Denver District Attor-
ney’s office did not justify a new trial, the trial judge stated
(VIII A. at 1115):
I sat through this trial. I watched both of these wit-
nesses whose testimony is challenged sitting on the witness
stand, and it is my view that if that additional [24]
testimony had been presented at trial, it would not have
changed my opinion which I expressed myself in the post
verdict memorandum and order that I join the pid ape
believing the version of the contacts with the Merrill,
Lynch firm and Mr. Barron that was given by Mr. Malan-
dris, and I do not believe the testimony of Mr. Barron.
In reviewing the denial of a Rule 60(b) motion, we are
mindful that the decision whether to grant relief is addressed to
the sound discretion of the trial court, Chief Freight Lines Co.
v. Local Union No. 886, 514 F.2d 572, 576-77 (10th Cir.);
Wilkin v. Sunbeam Corp., 466 F.2d 714 (10th Cir.), cert.
denied, 409 U.S. 1126. We are generally limited to determining
whether the ruling amounts to an abuse of discretion. V.7-A.,
Inc. v. Airco, Inc., 597 F.2d 220, 223 (10th Cir.); see Security
Mutual Cas. Co. v. Century Cas. Co., 621 F.2d 1062, 1068
(10th Cir.). We conclude that the record supports the trial
judge’s ruling and that he did not err or abuse his discretion in
denying the Rule 60(b) motion for a new trial.
CONCLUSION
Accordingly, in No. 78-1855 the district court’s order deny-
ing the motion made under Rule 60(b) is affirmed. In No.
77-1957, we conclude that the judgment should be affirmed,
provided that the plaintiff accepts a reduction in the punitive
award to $1,000,000. Therefore the cause is remanded to the
district court with directions that an order be entered providing
that if, within a reasonable time to be fixed by the district
court, the plaintiff accepts a reduction of the judgment by
B-50
reducing the punitive damages award to $1,000,000 or thus a
total judgment of $2,030,000, with costs and interest as pro-
vided in and accruing from the entry of the original judgment,
then the judgment as so modified shall be final; otherwise, an
order shall be entered granting a new trial of the cause.
APPENDIX C
Dissenting Opinion of Judge Logan
Nos. 77-1957 and 78-1855
7
JUNG JA MALANDRIS
Vv.
MERRILL LYNCH, PIERCE, FENNER
& SMITH, INCORPORATED
>
LOGAN, Circuit Judge, dissenting:
I agree with most of the analysis in the carefully crafted
majority opinion. But in important respects I disagree and,
therefore, must dissent.
The trial judge here refused to grant a new trial sought by
Merrill Lynch on grounds that the actual and punitive damages
awards were grossly excessive. As an appellate court reviewing
that denial, we apply the well-established abuse of discretion
standard. E.g., Brown v. Richard H. Wacholz, Inc., 467 F.2d
18 (10th Cir. 1972); Barnes v. Smith, 305 F.2d 226 (10th Cir.
1962). This Circuit has firmly stated that “absent an award so
excessive or inadequate as to shock the judicial conscience and
to raise an irresistible inference that passion, prejudice, corrup-
tion or other improper cause invaded the trial, the jury’s
determination of the fact is considered inviolate.” Jd., 305 F.2d
at 228 (emphasis added). In many cases through the years we
have made the same categorical statements that the judgment
must be affirmed unless the award is so high that passion and
prejudice must have affected the verdict. See Minker v. St.
Louis-S.F. Ry., 574 F.2d 1056 (10th Cir. 1978); Brown v.
Skaggs-Albertson’s Properties, Inc., 563 F.2d 983 (10th Cir.
C-2
1977); Metcalfe v. Atchison, T. & S.F. Ry., 491 F.2d 892 (10th
Cir. 1974); Brown v. Richard H. Wacholz, Inc., 467 F.2d 18
(10th Cir. 1972); Ketchum v. Nall, 425 F.2d 242 (10th Cir.
1970); Lane v. Gorman, 347 F.2d 332 (10th Cir. 1965); Grey-
hound Corp. v. Jones, 327 F.2d 904 (10th Cir. 1964); Franklin
v. Shelton, 250 F.2d 92 (10th Cir. 1957), cert. denied, 355 U.S.
959 (1958); E. L. Farmer & Co. v. Hooks, 239 F.2d 547 (10th
Cir. 1956), cert. denied, 353 U.S. 911 (1957); Chicago, R.I. &
Pac. Ry. v. Kifer, 216 F.2d 753 (10th Cir. 1954), cert. denied,
348 U.S. 917 (1955); Earl W. Baker & Co. v. Lagaly, 144 F.2d
344 (10th Cir. 1944).
If the verdict is the result of passion and prejudice we must
reverse and send the case back for a new trial. Minneapolis, St.
P. & S.S.M.R. v. Moquin, 283 U.S. 520 (1931); 11 Wright &
Miller, Federal Practice and Procedure, § 2815 (1973); 6A
Moore’s Federal Practice ¢ 59.05[3], p.59-59 (1979). In Mo-
quin, the Supreme Court forbade the use of remittitur in a case
where the verdict was found excessive as a result of passion or
prejudice. As explained in Moquin,
“no verdict can be permitted to stand which is found to be
in any degree the result of appeals to passion and preju-
dice. Obviously such means [prejudicial conduct] may be
quite as effective to beget a wholly wrong verdict as to
produce an excessive one. A litigant gaining a verdict
thereby will not be permitted the benefit of calculation,
which can be little better than speculation, as to the extent
of the wrong inflicted upon his opponent.”
283 U.S. at 521-22.
Appellate courts have ordered remittiturs when reversible
error is found in the trial proceedings, the effects of which can
be reasonably approximated to either a definite portion of a
verdict Or a maximum amount. See 6A Moore’s Federal
Practice 4 59.05(3). We did that in R.E.B., Inc. v. Ralston
Purina Co., 525 F.2d 749 (10th Cir. 1975), when erroneous
instructions resulted in the jury awarding double recovery. See
also Allied Materials Corp. v. Superior Products Co., 620 F.2d
224 (10th Cir. 1980). I recognize that some other appellate
C-3
courts seem to have gone further and substituted their judg-
ment for that of a jury or trial judge, when they considered the
damages merely excessive. E.g., Abernathy v. Southern Pac.
Ry., 426 F.2d 512 (Sth Cir. 1970); Lanfranconi v. Tidewater Oil
Co., 376 F.2¢ 91 (2d Cir. 1967).
The instant case is not one in which we can reasonably
approximate the amount of the jury’s error without acting as a
second jury. The awards at issue here—for emotional suffering
and punitive damages—are of such indeterminate character
that there are no criteria for segregation. We have only our
overall impressions to guide us, our judicial conscience. | do
not trust the personal opinion of appellate judges, including
myself, based on a review of the written record only, to
fine-tune damages awards in such a case; but I can determine
whether an award is so excessive as to shock my judicial
conscience and raise the irresistible inference that passion and
prejudice affected the jury verdict.
This is such a case, I believe, and I think the proper
approach is to remand for retrial so that new fact-finders can
assess the proper damages to award. The actual damages
award made in this case profoundly shocks me to the extent |
am convinced passion and prejudice entered into the deter-
mination. The world has changed a great deal since a judgment
of $5,000 for the death of a six-year old would be challenged as
excessive. See, e.g., Earl W. Baker & Co. v. Lagaly, 144 F.2d
344 (10th Cir. 1944). Still, apparently the largest verdict for
emotional stress ever awarded in Colorado is $30,000. Merrill
Lynch claims the largest award previously made in the United
States is $60,000, when there was no physical injury or death.
One publication specializing in reporting personal injury ver-
dicts indicates awards as high as $90,000 for intentional inflic-
tion of mental suffering, though it is not apparent whether
physical injury occurred there. 2A Personal Injury Valuation
Handbooks 1455 (1976). Here the award for mental suffering
is $1,000,000. This figure appears to have been plucked from
the air; it is not supported by any documentation. Mrs.
Malandris’ condition required neither hospitalization nor pro-
fessional care at home. Indeed, we have no evidence she saw
C-4
any doctor other than the psychiatrist who testified for her at
trial. She was able to attend the trial and to be a witness,
although she cried a lot on the stand. The record shows her
neurosis stemming from the Merrill Lynch incident was pre-
ceded by emotional problems relating to a host of other
personal troubles.
The same infirmity seems to apply to the punitive damages
award. I am not prepared to say a $3,000,000 award against a
national corporation is excessive in all circumstances. Relevant
to corporate liability for punitive damages is the management
level of the officials who participated in the tort or who could
be regarded as culpable. Here only Barron’s immediate super-
visors were inculpated to any degree, and the evidence against
them merely suggests they disregarded proper safety proce-
dures established by the company. Considering the low level of
corporate involvement in this case, | am convinced that this
$3,000,000 punitive damages award is a product of passion and
prejudice.
In reaching my conclusions I am also influenced in part by
several highly inflammatory moments during the trial. During
Barron’s testimony on the pivotal issues of the case, Mrs.
Malandris began crying and screaming. As the jury was being
removed from the room because of that incident, Mr. Malan-
dris jumped up and yelled that he would kill Barron and that
Barron was a liar. (App. 721-23). This dramatic scene was
preceded by a brief direct examination of Mrs. Malandris,
during which she apparently wept at nearly each question.
(App. 556-61). Another incident involved Mr. Malandris.
During cross-examination, confronted with the fact that his
deposition conflicted with his testimony that he never read the
New York Times, Malandris replied,
“That is not true. You are saying things. If you want to
Say it, say it.
“I’m talking, not you. I’m not no match for no 20
people in college. If you want to trick me, fine, you can
do it, trick me, it is a very easy thing to do. Make you feel
like a big man, just do it, fine.”
C-5
Upon being cautioned to just answer the question, Malandris
replied: “I’m sorry. | have never read the New York Times.
God help me, so help me, let me die in this chair.” (App.
404-05).
Because punitive damages were sought, counsel for Malan-
dris was allowed to comment to the jury on Merrill Lynch’s
considerable net worth. On the other hand, because Malandris’
emotional distress resulted from her loss of financial security,
her extremely impoverished life was presented. Counsel re-
quested the jury to
“send a message, a warning, a deterrent to this country, to
this state, to this city, to New York, to Chicago, to San
Francisco, to Los Angeles, telling those people who were
entrusted with the life savings of others that they shall not
conceal—they shall not bear false witness to signatures.
They shall not gamble with other people’s money. They
shall not take advantage of the uneducated.”
(App. 863)
I believe that the foregoing events, combined with the
grossly excessive awards, amply demonstrate that passion and
prejudice invaded the trial. This being so, the proper action on
our part is to order a new trial.
APPENDIX D
Dissenting Opinion of Chief Judge Seth
on Rehearing In Banc
No. 77-1957
ae
JUNG JA MALANDRIS
—_—V—
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC.
>
SETH, Chief Judge, dissenting.
I must respectfully dissent from the majority opinion and
also indicate a disagreement with some of the concurring
opinions. In my view, the problem in this appeal does not arise
from the fact of, nor from the amount of, the punitive
damages. Instead, the error in the verdict and judgment is that
the compensatory damages are excessive and were the result of
passion and prejudice. The compensatory award was
$1 030,000.00.
The record shows that the damages complained of were
from a variety of sources, there were preexisting problems, the
testimony was by lay witnesses as to their subjective evalua-
tions, there were marital problems, the alleged forgery and the
extensive participation by the husband. The amount of money
involved must also be included. It was in this context that there
was injected the passion and prejudice resulting mostly from
the outbursts by the plaintiff in the courtroom. The result was
that a large measure of punitive damages was included in the
compensatory award. The amount of the compensatory dam-
ages is just too large to be otherwise explained. I don’t think
this can be cured by a reduction in the amount of punitive
D-2
damages. The general view is that there should be no remittitur
where there is passion and prejudice. Again, considering the
amount of money invested by plaintiff and her then existing
condition, the compensatory damage award must be grossly
excessive.
It is apparent that appellate courts may order remittitur. The
question remains as to how it should be exercised. | would
limit it to formula cases, Big O Tire Dealers v. Goodyear Tire
& Rubber Co., 561 F.2d 1365 (10th Cir.), or double recovery
cases and other instances where there is present some adequate
measure for a reduction. | find no measure whatever in the
case before us and thus would hold that a remand for a new
trial is required.
The awarded punitive amount is not too far out of line
comparing it to the excessive compensatory award and the
position of the defendant. The remittitur ordered by the
majority moves the punitive award from the higher end of the
ratio or scale to the lower end. This is done with the comments
in the panel opinion that the award is excessive and unwar-
ranted. This again points to the excessive nature of the com-
pensatory award not the punitive damage award.
It would thus remand the case for a new trial on all issues.
APPENDIX E
Concurring and Dissenting Opinion of Judge Seymour
on Rehearing In Banc
No. 77-1957
+
JUNG JA MALANDRIS
ome Y _—
MERRILL LYNCH, PIERCE, FENNER & SMITH. INC.
*
SEYMOUR, Circuit Judge, with whom MCKAY, Circuit Judge,
joins, concurring and dissenting.
The only point of disagreement between the majority panel
opinion and the dissent is whether the jury’s determination of
liability was tainted by passion and prejudice, thus requiring a
new trial. The dissent concludes that passion and prejudice did
infect the jury’s determination of liability and that a new trial
is required. The dissent bases that conclusion on what it
perceives to be an excessive award of both actual and punitive
damages, as well as the occurrence of emotional incidents
during trial that the dissent believes inflamed the jury. The
majority, on the other hand, concludes that passion and preju-
dice did not affect the finding of liability and that a new trial is
therefore not mandated. With respect to the award of dam-
ages, the majority finds the actual damages not excessive:
however, it finds the punitive damages so excessive that a
remittitur is in order.
I agree with the majority opinion in all respects except in its
conclusion that a portion of the punitive damages must be
remitted. After reviewing the law and the record in this case, |
am convinced the entire award should stand.
E-2
The district court concluded that passion and prejudice did
not affect the jury’s determination of liability:
“Considering the evidence as a whole, in my judgment,
this jury verdict was produced not by any passion, preju-
dice or sympathy generated by the plaintiff's conduct or
that of her husband; it was, rather, the product of a sense
of outrage and indignation about the callous and cavalier
conduct of the defendant’s agent acting in complete
disregard of the rights and sensitivities of the plaintiff
whose emotional and economic security was in his
hands.”
Malandris v. Merrill Lynch, Pierce, Fenner & Smith, 447
F.Supp. 543, 547 (D. Colo. 1977). This decision must be
accorded great deference.’ In my judgment the record supports
the determination in this case.
Inferring passion and prejudice solely from the size of the
verdict is unwarranted. Here, the dissent bases its conclusion
both on the size of the verdict and on the occurrence of several
emotional outbursts by Mrs. Malandris and her husband
during the trial. However, | do not agree that these outbursts
support the dissent’s conclusion. The record contains abundant
evidence of an outrageous course of conduct by defendant's
broker. The district judge who heard the spontaneous out-
bursts, which were made in response to the broker’s testimony
portraying Mr. Malandris as a liar, viewed them as “genuine
human responses to testimony which was not credible,” /d. at
$47. In addition, the judge considered Mrs. Malandris’ reac-
tion as a demonstration of the extent of her mental and
emotional damage, creating no greater prejudice to the defen-
dant than when a plaintiff who suffers physical injuries from
l One authority states that “[t}]he trial court's determination as to
whether the verdict is the result of the passion or prejudice will not be
disturbed on appeal, unless the determination ts clearly erroneous.” 6A
J. Moore, Moore’s Federal Practice { $9.05{3) at 59-59 (1982). The
trial court’s denial of a motion for new trial will be reversed only upon
a finding of a gross abuse of discretion. Holmes v. Wack, 464 F.2d 86,
89 (10th Cir. 1972).
E-3
the tort of another displays those injuries to the jury by
appearing in the courtroom. /d. Viewing the incidents in the
context of the trial, I am not led to an irresistible inference that
the verdict on liability was the result of the outbursts rather
than the jury’s extreme indignation over the broker’s activities.
I also agree with the panel majority that the amount of
compensatory damages awarded Mrs. Malandris is not exces-
sive. The record establishes that the jury was not considering
minor emotional distress when it computed the damages but
had before it evidence showing that Mrs. Malandris incurred
extensive, possibly permanent, emotional injury that had de-
stroyed her ability to function normally. Under these circum-
stances, the award of $1,000,000 does not shock my judicial
conscience.
Notwithstanding my agreement with the panel majority thus
far, | cannot concur in the remittitur ordered as to the punitive
damages. I recognize that in some cases the award of punitive
damages may be so excessive that it shocks the judicial con-
science, even though the jury’s resolution of the issue of
liability is free from passion and prejudice. See, e.g., Holmes
v. Wack, 464 F.2d 86, 89 & n.3 (10th Cir. 1972); 6A J. Moore,
Moore's Federal Practice 4 59.05{3] at 59-67 to 68 (1982); 11
C. Wright & A. Miller, Federal Practice and Procedure § 2820
at 133-35 (1973). In such cases, remittitur furthers both justice
and judicial economy. However, after reviewing the record in
this case, and considering the size of the corporate defendant
and the reprehensible nature of the conduct giving rise to the
injury, the amount of punitive damages assessed against Merrill
Lynch does not shock my judicial conscience.
Ordering a remittitur in this case is particularly troublesome
because no independent basis exists to support it apart from
the size of the verdict. As the majority recognizes, the three to
one ratio of punitive damages to actual damages is well within
the range approved by Colorado law. Moreover, the assets of
the defendant are vast and the conduct of its broker deplor-
able. Under these circumstances, an appellate court should be
particularly reluctant to order a remittitur, especially when the
jury’s award has been upheld by the trial court on a motion for
E-4
new trial. See Hedrick v. Hercules Inc., 658 F.2d 1088, 1095
(Sth Cir. 1981); Transok Pipeline Co. v. Darks, 565 F.2d 1150,
1156 (10th Cir. 1977), cert. denied, 435 U.S. 1006 (1978); 11 C.
Wright & A. Miller § 2820 at 135 (quoting Taylor v. Washing-
ton Terminal Co., 409 F.2d 145, 148 (D.C. Cir.), cert. denied,
396 U.S. 835 (1969)).
An amount which one judicial conscience finds shocking
may be entirely palatable to another, as is shown by the diverse
reactions of the members of this court to the size of the verdict
in this case. This state of affairs reveals the pitfalls inherent in
judicial tinkering with the jury’s determination of the amount
of exemplary damages necessary to punish outrageous behav-
ior and prevent its recurrence.
In sum, I agree with the dissent that the personal reactions
of appellate judges standing alone are poorly suited to govern
the modification of a punitive damage award. We are unde-
niably substituting our judgment for that of the jury and, in
my view, encroaching upon its function. For these reasons,
and because I conclude that the determination of liability is not
he result of passion and prejudice and the award of compensa-
tory damages does not shock my judicial conscience, | would
affirm the award in its entirety.
APPENDIX F
Opinion of the District Court
UNITED STATES DISTRICT COURT
DISTRICT OF COLORADO
Civ. A. No. 75 M 156
October 19, 1977
i
JUNG JA MALANDRIS,
Plaintiff,
MERRILL LYNCH, PIERCE, FENNER
& SMITH, INC.,
Defendant.
Appearances:
William R. Fishman and David H. Drennen, Denver, Colo.,
for plaintiff.
Donald K. Bain and John M. Kobayashi, Holme, Roberts &
Owen, Denver, Colo., for defendant.
7
MATSCH, District Judge.
After a four day trial with sharply conflicting testimony and
upon instructions that liability could be found for fraud and
deceit and for the intentional infliction of emotional distress, a
jury of six persons returned a verdict for the plaintiff for
$1 ,030,000.00 in compensatory damages and $3,000,000.00 in
punitive damages. The defendant seeks a judgment notwith-
F-2
standing the verdict or, alternatively, a new trial. A proper
consideration of these motions requires some comment on the
evidence.
The plaintiff, Jung Ja Malandris, is a naturalized citizen of
the United States who was born and raised in the Republic of
Korea. She has had no formal education of any kind and she is
unable to read or write in any language. The plaintiff married
Steven Malandris when he was on active duty as a truck driver
ir. the United States Army in Korea.
After discharge, Mr. Malandris obtained employment as a
baggage handler for United Airlines working first in New
Jersey and later at Stapleton International Airport in Denver,
Colorado. Recognizing that as an uneducated and unskilled
worker his earning capacity is entirely dependent upon his
physical strength, Steven Malandris has relentlessly worked
double shifts and all of the overtime and holiday time which he
could obtain from his employer.
Steven and Jung Ja Malandris have pursued an extraor-
dinary life style, wholly dominated by a search for financial
security. Although their income has been maximized, Mr. and
Mrs. Malandris have avoided most of the expenditures or-
dinarily incurred by other couples in comparable circum-
stances. They have not gone to restaurants or movies; they
have not subscribed to magazines or newspapers; they have not
visited in the homes of others or had guests in their apartment;
and they have lived at a subsistence level. In sum, Mr. and Mrs.
Malandris have existed in an isolated environment wholly
separate from the society surrounding them.
Steven’s hard work and their unusual life style enabled Mr.
and Mrs. Malandris to accumulate more than $60,000.00 and,
as a result of a posting of the price and income record of
United Airlines stock on an employees’ bulletin board, they
invested all of their savings in United’s common stock.
Jung Ja Malandris was the dominant marriage partner and,
although Steven earned it, she controlled the couple’s money.
In this way, she also controlled her husband.
When the plaintiff became disquieted and uncomfortable
about the future of United Airlines stock, she directed her
husband to sell it and to put the proceeds into bank deposits.
Mr. Malandris went to Merrill Lynch for that purpose and
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there he met Mr. John Barron, an account executive who was a
retired army officer. While the testimony of Steven Malandris
and John Barron sharply conflicts in most important respects,
taken as a whole the evidence supports the version of Mr.
Malandris. He said that John Barron induced him to leave the
proceeds of the United Airlines sale with Merrill Lynch be-
cause the firm could make money for him just as banks made
income from the investment of funds placed on deposit. Steven
Malandris testified that John Barron said that there would be a
“partnership” with Merrill Lynch with an assured gain and no
possibility of any loss. The plaintiff’s husband also said that he
was induced to mislead his wife and to forge her signature on a
power of attorney by the representations and later the threats
of John Barron. What remains undisputed is that a margin
account was opened in the name of Jung Ja Malandris and that
a number of transactions were made on the Chicago Board of
Options Exchange for this account. The account was closed
with a loss of approximately $30,000.00.
The conflicting testimony of John Barron was that Steven
Malandris came to him and directed him not only to sell the
United Airlines stock, but also instructed him to open a margin
account in his wife’s name and, after computing the margin
requirement without assistance, gave specific directions for
each of his options trades.
After viewing the demeanor and manner of these two wit-
nesses while they testified during the trial and after considera-
tion of the other evidence in the case, including the documents
in evidence and the unexplained absence of some of the routine
documentation, I join the jury in rejecting the testimony of
John Barron as lacking credibility. The evidence fully supports
the finding that John Barron knew that he was dealing with a
man and his wife who were wholly innocent of the risks
involved in the securities market; that he knew of the extraor-
dinary efforts to achieve the life savings brought to him; that
he knew that the airlines stock was in the name of the plaintiff
and that Mr. Malandris had delivered all of his earnings to his
wife; that he deliberately manipulated Steven Malandris to
deceive his wife and to conceal from her the investments which
were made; that he knew Jung Ja Malandris was a Korean
from a background of poverty and deprivation to whom
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financial security was of great importance; that he knew of the
extraordinary life style which this couple followed; and, finally,
that he, Barron, had no previous experience with options
trading.
The evidence also shows, beyond doubt, that Jung Ja Ma-
landris has sustained permanent emotional injury which has
destroyed her ability to function as a human being. She has
rejected this world and lives only in the anticipation of life
after death. This results in her total preoccupation with reli-
gion.
The defendant urges that the verdicts be set aside because
they are “so grossly excessive as to shock the judicial con-
science.” What is most relevant in this case is not the judicial
conscience, it is the conscience of the community as repre-
sented by the six people who served on this trial jury. They
heard this evidence and they considered whether the conduct of
John Barron went beyond the bounds of decency and was
utterly intolerable in a civilized community. The defendant’s
counsel wish to make much of the fact that there was only a
$30,000.00 economic loss. They, like their client, fail to under-
stand that such economic losses can and do result in human
suffering which cannot be evaluated arithmetically. This is not
a case of a lost investment, it is the tragedy of a lost life. Is
$1,000,000.00 too great a value to place upon that life?
The defendant denies that there is any showing of proximate
causation between its acts and plaintiff's emotional state. The
jury was correctly instructed as follows:
Proximate cause means that cause which in natural and
probable sequence produced the claimed injury. It is the
cause without which the claimed injury would not have
been sustained. See C.J.1. § 9:24
The evidence shows that Jung Ja Malandris did
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