The opinion of the court was delivered by: Bauer, District Judge.
MEMORANDUM OPINION AND ORDER
On March 28, 1974 this Court, 374 F. Supp. 36, adjudged the
defendant A.G. Becker & Co., Inc. liable to plaintiff on Counts
I, II, IV, X, XI, XIII, XIV, and XV of the instant complaint.
This Court in its Memorandum Opinion and Order dated March 28,
1974 requested the parties, in support of their respective
positions, to submit briefs and any supporting or supplemental
documents concerning the issue of damages that they deem
appropriate.
After carefully examining the relevant pleadings, memoranda,
affidavits, and exhibts submitted by the parties in support of
their respective positions, it is the opinion of this Court that
the method and mathematics of computations as to damages by the
plaintiff is not completely accurate and should be redone in
light of the principles enunciated by this Court below.
It is well settled that a "defrauded" purchaser of securities
is entitled to recover the difference between the price paid for
the securities with interest from the date of purchase, and the
value of the securities determined as of the time of the
discovery of the fraud. In addition, the buyer is entitled to
recover any additional outlays attributable to the defendant's
conduct less dividends or any other payments received from the
defendant seller. Esplin v. Hirschi, 402 F.2d 94 (10th Cir.
1968), cert. denied, 394 U.S. 928, 89 S.Ct. 1194, 22 L.Ed.2d 459.
See also Richardson v. MacArthur, 451 F.2d 35 (10th Cir. 1971);
Reube v. Pharmacodynamics, Inc., 348 F. Supp. 900 (E.D.Pa. 1972);
Lamb v. United Security Life Company, 59 F.R.D. 25 (S.D.Iowa
1972). Under the facts and circumstances of this case, the
appropriate date to be applied in determining damages is the date
on which the fraud was, or in the exercise of reasonable
diligence should have been discovered. Esplin v. Hirschi, supra.
See also Parrent v. Midwest Rug Mills, Inc., 455 F.2d 123 (7th
Cir. 1972); Bailes v. Colonial Press, Inc., 444 F.2d 1241 (5th
Cir. 1971); Vanderboom v. Sexton, 422 F.2d 1233 (8th Cir. 1970),
cert. denied, 400 U.S. 852, 91 S.Ct. 47, 27 L.Ed.2d 90; Azalea
Meats, Inc. v. Muscat, 386 F.2d 5 (5th Cir. 1967); Hart v. First
National Bank, 373 F.2d 202 (5th Cir. 1967). The plaintiff in his
briefs in support of his damage claim has merely stated that the
relevant date is the time of filing the instant complaint. This
unsupported claim of the plaintiff is not sufficient to properly
designate the date on which the fraud was, or in the exercise of
reasonable diligence should have been, discovered. Thus, the
plaintiff should precisely and properly determine the appropriate
date of when the "fraud" was discovered or should have been
discovered. This date should, if necessary, be properly supported
by the affidavit of the plaintiff. This proper date should then
be used by the plaintiff in calculating the damages.
It is clear that interest is appropriate in computing the
instant damages. See Esplin v. Hirschi, supra. The plaintiff has
improperly used the 8% interest provided in Section 4 of Chapter
74 of the Illinois Revised Statutes. Section 4 provides, in
relevant part:
"In all written contracts it shall be lawful for
the parties to stipulate or agree that 8% per annum,
or any less sum of interest, shall be taken and paid
upon every $100 of money loaned or in any manner due
and owing from any person to any other person or
corporation in this state, and after that rate for a
greater or less sum, or for a longer or shorter time,
except as herein provided."
It is clear that the instant issue of damages does not involve
a contract wherein parties have stipulated or agreed to 8%
interest per annum and thus Section 4 is not applicable. However,
it is the opinion of this Court that Section 3 of Chapter 74 of
the Illinois Revised Statutes provides a guide for the
appropriate interest rate in the instant action. See Chicago,
Rock Island and Pacific Railroad Company v. Chicago, Burlington
& Quincy Railroad Co., 55 F.R.D. 209 (N.D.Ill. 1972). Section 3
of Chapter 74 provides:
"Judgments recovered before any court or magistrate
shall draw interest at the rate of 6% per annum from
the date of the same until satisfied. When judgment
is entered upon any award, report or verdict,
interest shall be computed at the rate aforesaid,
from the time when made or rendered to the time of
rendering judgment upon the same, and made a part of
the judgment. However, that the judgment debtor may
by tender of payment of judgment, costs and interest
accrued to date of tender, stop the further accrual
of interest on such judgment notwithstanding the
prosecution of appeal, writ of error, or
other steps to reverse, vacate or modify the
judgment."*fn1
Thus, the plaintiff should use the interest rate as provided by
Section 3 of the Illinois Revised Statutes.
The defendant has raised some questions as to the manner the
plaintiff used in computing damages. As to the purchase and sale
of Ranchers stock the defendant contends that the plaintiff did
not compute the sale of 2,000 shares of Ranchers stock on the
first-in first-out basis as the plaintiff did on his 1970 Income
Tax Return. There are commonly two different procedures for
determining which shares are sold when a party holds shares in
the same company purchased at different dates and at different
prices, namely, either the first-in first-out method or specific
identification. The more preferable method is normally that of
specific identification to the extent that property can so be
identified. However, it has to be realized that securities are
often held in street name and, from time to time, are sold
pursuant to the direction of the owner without regard to specific
certificates and that certificate representing the remainder of
the shares, if any, may not be issued until a later date. For
this reason, the principle of using a first-in first-out basis
for the sale of shares has been accepted as an alternative means
of identification. The plaintiff adequately contends that the
relevant certificates are capable of specific identification
relating to the purchases and sales by Dr. Cant of Ranchers
stock. Thus the respective shares sold and retained can be
determined with certainty and specific identification and can be
used in computing the instant damages. It is clear to this Court
that since the certificates and sales in this instance are
capable of specific identification, the measure of damages should
be precisely computed by specific identification rather than by
the first-in first-out method.*fn2
As to the damages resulting from the plaintiff's purchase of
Red Rope stock, the defendant contends that the money damages
suffered by the plaintiff based upon the diminished value of the
stock should be offset by virtue of the value of the shares still
held long after the complaint was filed. The plaintiff contends
that any changes in the value of the shares after the date of
filing the instant complaint should not be considered. This
dispute can easily be resolved by using common sense. As noted
above the key date as to the damage issue is the date the
plaintiff discovered or should have discovered that he was
"defrauded".
The plaintiff will not be able to avail himself of any further
decrease in the value of the security after that date. So also
the defendant should not be able to avail itself of any increase
in the value of the stock after that date. This is the only
method in which a consistent measure of damages can be obtained.
If the defendant's contention was accepted the scale of damages
would be prejudicially tipped in favor of the defendant.
Accordingly, it is hereby ordered that the plaintiff has until
July 10, 1974 to re-compute its damages in light of the above
ruling and to file a draft judgment order accompanied by
supporting memoranda; and that the defendant has until July 23,
1974 to file any response it may deem ...