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Dejonghe v. Hutton9/24/1991
tremely active. The first year E.F. Hutton had DeJonghe's account, purchases exceeded $92,000 even though the average value of the account was only $37,000. Losses totaled $11,606, and DeJonghe paid E.F. Hutton $9,292 in commissions. Margin loans used on DeJonghe's account resulted in $3,446 in interest being charged to DeJonghe. During the first year E.F. Hutton handled McDonough's account, stock purchases exceeded $137,000, even though the average value of the account was only $76,000. The large number of transactions evidenced a pattern of short term speculation which was totally inappropriate for a fixed-income retiree.
When E.F. Hutton completed management of the two accounts, its commissions on DeJonghe's account totaled $10,500 and commissions on McDonough's account exceeded $18,000. Brokers receive no commission on dividends paid to investors, but do receive commissions on transactions. A financial expert called by plaintiffs testified that E.F. Hutton's handling of the accounts clearly showed E.F. Hutton's intent to "churn" the accounts so as to generate commissions.
After E.F. Hutton acquired the DeJonghe account, DeJonghe stopped receiving dividend checks. When she queried Glasgow, he suggested arranging for an E.F. Hutton checking account so that DeJonghe could write checks as needed. DeJonghe believed that the checking account was merely a substitute for dividend payments. Eventually, however, a check was returned as unpaid. Further investigation by DeJonghe disclosed that the checking account was funded by money borrowed by DeJonghe from E.F. Hutton, at 15% interest, with her holdings as security. Because DeJonghe's holdings no longer were of sufficient value to be security for further loans, the check did not clear.
E.F. Hutton's contact with DeJonghe's account ceased in September of 1985 and with McDonough's in January of 1986. DeJonghe sustained a net loss of $66,675 and McDonough's net loss totaled $134,508.
The losses resulted from the defendants' speculative trading, excessive trading, and excessive risk exposure. Evidence of complaints against Glasgow from other investors was presented. These complaints alleged unauthorized speculative trading.
PROCEDURAL HISTORY
Plaintiffs filed a civil RICO action against the defendants, based upon alleged violation of A.R.S. §§ 13-2301 et seq. and A.R.S. § 44-1991. The complaint was later amended to add a negligent supervision claim against E.F. Hutton.
The matter was tried to a jury and verdicts were returned awarding DeJonghe $99,590 in damages and McDonough $131,937 in damages on the civil RICO claims. The jury awarded both plaintiffs the same sums against E.F. Hutton on the negligent supervision claims. Pursuant to A.R.S. § 13-2314(A), the RICO damages were trebled. The trial court denied defendants' motions for new trial, judgment notwithstanding the verdict, and remittitur, concluding that "the evidence supports the finding of a violation of the securities fraud chapter of the Code . . . ."
ISSUES ON APPEAL
On appeal, the defendants argue (1) insufficient evidence exists to support the sum of damages awarded by the jury; (2) damages for emotional distress cannot be awarded in a RICO action; (3) damages could not be trebled absent scienter; (4) the negligent supervision award should be vacated; and (5) insufficient foundation was established for the admission of Professor Dyl's testimony.
SUFFICIENCY OF THE EVIDENCE
Plaintiffs' expert, believed by the jury, calculated damages by showing what the val
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