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Anspacher & Associates Inc. v. Henderson

decided: July 29, 1988.

ANSPACHER & ASSOCIATES, INC., A CORPORATION, PLAINTIFF-COUNTER-DEFENDANT-APPELLANT,
v.
WAYNE HENDERSON, INDIVIDUALLY, AND D/B/A ELECTRIC SERVICE COMPANY, DEFENDANT-COUNTER-PLAINTIFF-APPELLEE



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 83 C 3512--Charles R. Norgle, Judge.

Wood, Posner and Manion, Circuit Judges.

Author: Manion

MANION, CIRCUIT JUDGE.

A commodities futures brokerage house sued a former customer under Illinois law to recover the balance due on the customer's futures trading account. The customer responded that the broker handling his account had engaged in unauthorized trading, and that the broker then ignored his protests, leading to compensable losses and the debit balance. The brokerage house replied that had the customer timely notified it directly of the unauthorized trades, as the customer had agreed to do, instead of first waiting to see the results of those trades, then it could have taken steps to cancel the unauthorized trades, and the customer would have sustained limited losses.

A jury returned a verdict for the customer, and the district court denied the brokerage house's motion for judgment notwithstanding the verdict. Because we cannot hold as a matter of Illinois law that the brokerage house's own subsequent conduct did not serve to modify the original notification agreement, we do not overturn the jury's verdict. We do, however, reduce the amount of the damages awarded, which were excessive.

I. NATURE OF THE CASE

Plaintiff-appellant Anspacher & Associates, Incorporated (Anspacher), a commodities brokerage house based in Chicago, is a "futures commission merchant" within the meaning of Section 2(a)(1)(A) of the Commodity Exchange Act ["Act"], 7 U.S.C. § 2. Jon Jensen was a registered commodity representative and a broker in Anspacher's Minot, North Dakota office. Jensen was registered with the Commission as an "associated person" of Anspacher's. An associated person is a futures commission merchant's employee who solicits or accepts customer orders. 17 C.F.R. § 1.3(a); § 4(k) of the Act, 7 U.S.C. § 6(k).

On January 10, 1983, defendant-appellee Wayne Henderson, individually and doing business as Electric Service Company (Henderson), opened an account with Jensen in Minot to trade commodity futures contracts. Henderson is an electrician who lives in Minot. While Henderson referred to himself at trial as "a naive country boy," and he had no previous experience in futures trading, he is a self-made millionaire.

Henderson deposited $20,000 into the account to start and subsequently added at other times $7,350, for a total of $27,350. The account was non-discretionary; Jensen could not establish new positions without first obtaining Henderson's permission.

Before opening his account, Henderson signed the Customer's Agreement (Agreement). The Agreement was a two-page form prepared by Anspacher. At the top of the first page of the Agreement, set forth in italics, was the following exhortation: " This is an important document which should be read before signing."

Section V, the notification provision, informed Henderson that written confirmations of trades would be binding unless he objected directly to Anspacher's Chicago headquarters within five days after receipt. Section V (in which "you" refers to Anspacher and "me/I" refers to Henderson) provided in pertinent part as follows:

Reports of executions of orders, as reflected in your written confirmations, shall be conclusively deemed received by me not later than 5 postal business days after the date of such confirmation, whether actually received by me or not. Such confirmations shall be deemed conclusive of your authority from me to execute such transaction if not objected to by me on the earlier of the date made reference to in the immediately preceding sentence or the date of actual receipt by me. Such objection shall be made orally to one of your officers in Chicago, Illinois, and forthwith confirmed by mailgram or telegram to your Chicago office. This provision shall act to protect you from an untimely or misdirected assertion by me of a lack of authority to you or other impropriety with respect to any such transaction. ... I will similarly notify you as set forth above if, within 5 postal business days, I have not received your confirmation of a transaction ordered by me for my account.

The Agreement also provided in its modification provision that only Anspacher's president or executive vice-president could amend or modify the Customer's Agreement, and that waiver of any provision had to be negotiated with one of those two individuals. In the final pretrial order, Henderson stipulated that he "knowingly signed Anspacher's Customer's Agreement."

In the beginning of February, 1983, Henderson went to Arizona for a vacation. On Monday, February 14, 1983, Henderson, who was closely following the commodities markets from Arizona, telephoned Jensen and ordered him to sell all the open positions in his accounts. Instead, on Wednesday, February 16, Jensen purchased two May New York Silver contracts. This purchase ultimately led to a $42,100 loss. Jensen also made several other unauthorized trades--each the purchase of a long position in gold or silver--on or before Thursday, February 17.

Henderson testified that when he returned to Minot sometime during the weekend of Saturday, February 19 through Monday, February 21, he reviewed his confirmation statements and realized that Jensen had not liquidated his account. Each confirmation sent to Henderson (presumably from ...


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