Baird v. Frankline

141 F.2d 238, 1944 U.S. App. LEXIS 4171

• Court: Court of Appeals for the Second Circuit
• Decided: February 25, 1944
• Docket: 104, 105
• Status: Published

Opinions

AUGUSTUS N. HAND, Circuit Judge.

In the opinion of a majority of the court the judgments must be affirmed. The facts are stated in Judge CLARK’S opinion and need not be here repeated.

We accede to the view that the Stock Exchange violated a duty when it failed to take disciplinary action against Richard Whitney on November 24, 1937, after there was reason to believe that the latter had converted the plaintiffs’ securities. But to justify a judgment in favor of either plaintiff, such a breach of duty must have resulted in damage that can be traced to the breach. We can see no substantial resemblance between the duties of bailees or other fiduciaries and those of the Stock Exchange. The duties of the former are to safeguard property over which they have some right of control. In the case of the Exchange there was no duty except to investigate the dealings and the financial conditions of the members and to suspend or expel members who it had reason to believe had been guilty of conduct inconsistent with just and equitable principles of trade. It appears from the record that by reason of unauthorized pledges the securities had all been converted prior to November 24, 1937, and were then in the possession of pledgee banks and so remained for some time thereafter, though at certain times all of them were returned to the pledgor and during the same day repledged to secure other loans. We can see no likelihood that the expulsion or suspension of Richard Whitney when his conversions came to the notice of the officers of the Exchange on November 24, 1937, would have in the least benefited the plaintiffs for the securities were then all converted and in the hands of pledgees.

It is argued that Richard Whitney’s brother, George, might have advanced money to Richard sufficient to redeem the securities just as was done in the case of the Gratuity Fund. But there is no reason to suppose that action by the Exchange on November 24 would have brought relief to Richard or the plaintiffs. On the other hand there is good ground for believing that it would not only have brought no relief to the plaintiffs but would have prevented the salvage of the Gratuity Fund since the additional loans to Richard were undoubtedly made to save his name and to prevent the exposing of a major scandal.

It is further suggested that George estimated the liquidating value of his brother’s estate at $500,000. But this estimate was shown to have been based on false statements by Richard as to the value of his distilling business. As the record stands, there is every reason to believe that in November, 1937, Richard was hopelessly insolvent and that he only obtained a loan through his brother by means of false statements and because of the latter’s belief that exposure would be averted if he furnished enough money to redeem the Gratuity Fund. Whether George would or could have procured more money for Richard is a matter of speculation. He surely would not have done so if Richard’s dealings with customers’ securities had been exposed for after there was exposure the loans ceased to be made.

The plaintiffs presented their proof upon the theory that they had valid claims against the Stock Exchange on account of its failure to take action against Richard Whitney on November 24, 1937, and that their loss was the result of that failure. The cases were tried on the only possible theory on which recovery could have been hoped for. The plaintiffs were allowed to introduce all the proof of damages they desired. They had the burden of showing that the breach of duty was the cause of their loss. We think that they have failed to show this and have presented claims of damage resting on the merest speculation with all reasonable chances against practical realization.

On the record the trial judge would not have been justified in any finding that the plaintiffs suffered damage and he in fact found to the contrary. (“Fifth” and “Sixth” Conclusions of Law.) The plaintiffs have had their day in court with an opportunity to offer their proof, which they presented unchecked. Under such circumstances there can be no basis for a new trial and the judgment is affirmed.