Elmore DUFFY et al., Individually and as Trustees, etc., et al., Plaintiffs, Cross-defendants, and Respondents, v. King CAVALIER et al., Defendants, Cross-complainants, and Appellants.
King Cavalier (Cavalier), Lehman Brothers Kuhn Loeb, Inc. (Lehman Brothers), together with Shearson Lehman/American Express, Inc., and Shearson Lehman Brothers, Inc., the successor corporations to Lehman Brothers, appeal from a judgment entered against them pursuant to a jury verdict. The jury's verdict found that appellants, acting as securities brokers to respondents Elmore Duffy (Duffy), Frank Ghilarducci (Ghilarducci), and Walter Chokan (Chokan), trustees of the Capital Wholesale Electric Company (Capital Wholesale) Profit Sharing and Trust Fund (the profit-sharing plan), had breached their fiduciary duties to respondents in appellants' handling of respondents' brokerage account. We affirm the judgment.
Capital Wholesale is a supplier of electrical materials. Duffy was employed by Capital Wholesale since 1952, starting out as a vice-president, becoming president in 1960 and chairman of the board in 1975. At the time of trial, Ghilarducci was president and Chokan was vice-president of Capital Wholesale; all three were participants in the profit-sharing plan.
In 1960, Capital Wholesale instituted a profit-sharing plan. The purpose of this plan was to share company profits with, and to provide for the retirement security of, Capital Wholesale's employees. Capital Wholesale made contributions of profits to a trust fund, which in turn were invested. The initial trustee of the profit-sharing plan was the Wells Fargo Bank. In 1963, Duffy, Ghilarducci, and Chokan became the trustees in place of Wells Fargo Bank; they felt that they could do a better job at managing the profit-sharing plan than the bank had done.
When Duffy became the chairman of the board, he became the trustee principally involved in managing the profit-sharing plan and handling the trust fund's investments. At the outset, the profit-sharing plan funds were invested in real estate and in some stocks and bonds. In 1977, Duffy expressed an interest in options to Kidder Peabody & Co., Inc., which in turn asked Duffy to obtain a letter from an attorney approving of such investments by the profit-sharing plan. In or around August 1977, Duffy asked Thomas E. Smail, Jr., the attorney for the profit-sharing plan, for a legal opinion as to whether it would be permissible for the profit-sharing plan to invest in options. In his letter, Smail specifically warned Duffy about the risks of trading in stock options. Nevertheless, in or about June 1978, the trust agreement establishing and governing the profit-sharing plan was amended to permit investments of trust fund monies in options, commodities, and futures.1
Duffy began to ask stockbrokers if they would trade in options for him on behalf of the profit-sharing plan. At least one brokerage house would not permit him to trade in options; others permitted him to do so. He first traded in options on the profit-sharing plan's account in September 1978. By the end of 1979, Duffy had purchased over $300,000 worth of options and sold over $200,000 worth in the profit-sharing plan's Kidder Peabody account alone; in addition, he had already purchased approximately $60,000 in options in an account with Paine Webber. At that point, the profit-sharing plan's losses amounted to approximately $133,000, with profits of about $90,000.
King Cavalier first joined Lehman Brothers as a “registered representative,” or stockbroker, in March 1978. In or about October or November 1979, Cavalier contacted Duffy by telephone to introduce himself and attempt to solicit the profit-sharing plan as a client.
At this point, the parties' versions of the facts diverge sharply. Duffy testified that Cavalier was already aware of the profit-sharing plan at the time that he first called and represented himself as an expert and specialist in options. According to Duffy, Cavalier never proposed an investment in stocks, as distinguished from options; instead, Cavalier solicited the business of the profit-sharing plan for trading exclusively in options. Cavalier, on the other hand, testified that he did not consider himself an expert on options, that he never represented himself as such, and that he was unaware of the profit-sharing plan at the time of his first brief introductory telephone call to Duffy as an individual “prospect.” According to Cavalier, Duffy emphatically stated that “he had absolutely no interest in buying stock,” and insisted that he wanted to trade in options only on the profit-sharing plan. Cavalier testified that when he told Duffy that he “had never seen a trust agreement that allowed for the trustees to trade options in it,” Duffy told him that the trust agreement had been amended to permit the profit-sharing plan to trade options “or anything else they wanted.” Cavalier allegedly did his “level darndest to discourage” Duffy from trading in options, telling Duffy that options were not “appropriate” for a profit-sharing plan, that they were too risky, that they expired worthless unless traded, and that four out of five option trades resulted in losses; he then told Duffy that he would only make recommendations as to stocks, and that “[i]f [Duffy] wanted to trade options, that was his business.”
At some point, the subject of discretionary authority was raised and discussed. According to Duffy, an individual identifying himself as Cavalier twice visited Duffy in the latter's office, on or about November 19 and December 3, 1979. This individual gave Duffy blank application forms for a Lehman Brothers' client option account and a business card bearing the name “King Cavalier,” told Duffy that he needed the forms signed in order to open an options account at Lehman Brothers, and said that he only traded in options and was in a better position to monitor the volatility in options accounts than his clients could be. Duffy signed the forms, obtained the signatures of the other two trustees, and returned the forms to the individual. During his second visit to Duffy's office, this individual told Duffy that he needed a letter from the trustees authorizing him to handle the profit-sharing plan's account on a discretionary basis, which was the only way that he could handle the account because “he had to have the ability to make decisions.” Duffy testified that he had never heard the term “discretionary authority” before this. According to Duffy, the letter, dated December 3, 1979, was typed and given to the individual while he was in Duffy's office. A cashier's check dated November 21, 1979, drawn from the savings account of the profit-sharing plan, was also conveyed to Lehman Brothers around this time. These funds were received by Lehman Brothers on December 4, 1979, and the first trade on the profit-sharing plan's new account took place that same day. According to Duffy, he never discussed the nature and risks of options trading with Cavalier or anyone else from Lehman Brothers at any time.2
Cavalier denied ever visiting Duffy in Sacramento, or sending anyone else to visit him; he denied telling Duffy that he only handled accounts on a discretionary basis; and he denied ever requesting the trustees' December 3, 1979, letter authorizing him to handle the profit-sharing plan's account on a discretionary basis. He testified that this letter “just came in the mail one day,” unsolicited. According to Cavalier, the subject of discretionary authority was raised by Duffy in a telephone conversation on November 15, 1979. Cavalier, who had no other discretionary accounts, tried to discourage the idea. Cavalier testified that he went over the Lehman Brothers' new account and option account application forms with Duffy over the telephone, and then mailed them to Capital Wholesale, where the trustees of the profit-sharing plan signed them.3 On the client option account application executed by the individual trustees, the available “investment assets” of the profit-sharing plan were stated to be $2 million. Cavalier gave these documents to his supervisor, Robert Glavor, to review.
The trustees' initial deposit in their Lehman Brothers account was made on December 4, 1979, in the amount of $50,000. Cavalier testified that after receiving notification of the receipt of a cashier's check in this amount and discussing it with Duffy, he purchased 50 Inexco call options on the profit-sharing plan's account the same day. A series of options transactions occurred thereafter in the profit-sharing plan's account with Lehman Brothers. According to Cavalier, each of these transactions was made only after consulting with Duffy over the telephone, with the single exception of the sale of the Inexco call options on December 6, 1979, which was made only after an unsuccessful attempt to reach Duffy. That particular transaction resulted in a net profit of $2,432; subsequent transactions had mixed results, but primarily ended in losses for the profit-sharing plan.
Cavalier testified that on December 14, 1979, he telephoned Duffy to inform him that Lehman Brothers would not accept discretionary authority in the profit-sharing plan's account. Duffy gave Cavalier his home telephone number in order to facilitate Cavalier's ability to reach him thereafter. Thereafter, Cavalier testified, he exercised no “true” discretion in the profit-sharing account. Nevertheless, he continued to mark many of the order tickers for trades on the account with a “D” for “discretionary.”
On February 22, 1980, Cavalier telephoned Duffy to tell him that Lehman Brothers' research department considered Reynolds Metals a “number one pick,” and that the price of both its stock and stock options was higher. At that point, the profit-sharing plan had already purchased 70 Reynolds Metals call options. Cavalier recommended that the profit-sharing plan increase its investment in the options; he asked Duffy if the profit-sharing plan could afford an additional $60,000 investment. Duffy responded affirmatively and sent Cavalier an additional $60,000 from the profit-sharing plan to invest in 100 additional Reynolds Metals call options. Cavalier proceeded to purchase these options on February 22 and 25, 1980.
Duffy testified that although he was “sure” he had telephone conversations with Cavalier in which they discussed the performance of the account, he kept no notes of them and could not recall anything about them until Cavalier telephoned him in February 1980 to request additional funds for the purchase of Reynolds Metals call options. According to Duffy, he agreed to send Cavalier an additional $60,000 for the purchase of the Reynolds Metals call options not knowing that Cavalier had already purchased 70 such options.
At the time that Cavalier solicited this large additional purchase of Reynolds Metals call options in late February 1980, the profit-sharing plan's entire account at Lehman Brothers was invested in 10 Standard Oil of California call options and 70 Reynolds Metals call options. As of March 20, approximately one month later, these investments were rapidly declining in value. On or about March 20, Cavalier telephoned Duffy and recommended that the profit-sharing plan sell all the call options in both Reynolds Metals and Standard Oil of California, and “take the loss” in the account before the value of the options dropped any further. According to Cavalier, Duffy told him to sell only the 10 Standard Oil of California call options; despite Cavalier's warnings, Duffy wanted to hold on to the Reynolds Metals options in the hope that the market would recover. Although Duffy was not able to recall exactly what was said in this telephone conversation, he testified that it was the first time he learned that almost all the profit-sharing plan's account was invested in Reynolds Metals call options, and that Cavalier gave him no explanation for why he had not “cut the trust fund's losses” as the value of the options fell.
Thereafter, the value of the Reynolds Metals options continued to drop until they expired worthless, resulting in a loss of $88,730. Cavalier testified that he could do nothing about this because Duffy had instructed him not to trade the options, and he had no discretion to do otherwise. Lehman Brothers, determining that there were insufficient funds in the account for it to remain active, returned the remaining funds in the amount of $7,788.25 to respondents.
Respondents filed suit against Cavalier and Lehman Brothers on December 2, 1982. After demurrers to several of the original causes of action were sustained, the case went to trial on the issues of intentional misrepresentation and breach of fiduciary duty. The jury found against appellants on breach of fiduciary duty. Respondents were awarded $45,000 in compensatory damages, plus punitive damages in the amounts of $250,000 against Lehman Brothers and $8,200 against Cavalier. This appeal followed from the judgment entered on the jury verdict.
Appellants' arguments on appeal are premised on the contention that, contrary to long-established California law, a stockbroker owes no fiduciary duty to a customer who is a “sophisticated” investor unless the stockbroker actually “controls” the investor's account. Closely allied to this legal premise is appellants' corresponding factual contention that Duffy was a “sophisticated” investor who either understood the risks of the options in which he was investing or who reasonably should have, and who “controlled” his accounts because he had sufficient intelligence, experience, and understanding to evaluate the stockbroker's recommendations and to reject any which were unsuitable. Neither of these legal and factual premises has any merit.
The leading California case on the issue of a stockbroker's fiduciary duty is Twomey v. Mitchum, Jones & Templeton, Inc. (hereafter Twomey ) (1968) 262 Cal.App.2d 690, 69 Cal.Rptr. 222. In Twomey, a widow brought suit against an individual stockbroker and the firm for which he worked, alleging, inter alia, breach of fiduciary duty in the handling of her account. The evidence showed that the plaintiff widow had had some previous experience in the stock market prior to the events in question; she had made previous transactions with other brokers, and had improvidently invested in one speculative security on her own initiative and against the advice of the defendant stockbroker. She subsequently brought her portfolio of securities to the defendant stockbroker and asked what she should do with them; he advised her to sell everything at a loss, give him the money, and let him invest it for her or advise her what to buy, assuring her that such a course was prudent because he could make up her losses, obtain “ ‘․ a good solid income and make more money ․’ ” for her. The widow told the stockbroker that the funds she was giving him were “ ‘nonreplaceable.’ ” Subsequently, the defendant stockbroker telephoned the widow almost daily to discuss transactions, and she followed his recommendations every time. She received confirmation slips for each transaction, which she read but did not always understand. Most of the stocks purchased by the defendant stockbroker on the plaintiff widow's account were speculative, and there was an excessive frequency in trades on the plaintiff's account. (Id., at pp. 712–720, 69 Cal.Rptr. 222.)
On appeal, this court affirmed the judgment, concluding that there was sufficient evidence to support the trial court's finding that “ ‘the defendants ․ were acting in a confidential and fiduciary capacity towards plaintiff [widow] and that each of them breached said duty towards plaintiff ․ [.]’ ” (Twomey, supra, 262 Cal.App.2d at pp. 712, 714, 69 Cal.Rptr. 222.) The principles applicable under the facts of Twomey are equally controlling here.
The Twomey court's statement of the extent of a stockbroker's fiduciary duty is as clear as it is broad. “ ‘Confidential and fiduciary relations are, in law, synonymous, and may be said to exist whenever trust and confidence is reposed by one person in the integrity and fidelity of another․’ [Citations.] ․ ‘An agent is a fiduciary. His [or her] obligation of diligent and faithful service is the same as that imposed upon a trustee. [Citations.]’ [Citations.] ‘The relationship between broker and principal is fiduciary in nature and imposes on the broker the duty of acting in the highest good faith toward the principal. [Citations.]’ [Citations.] With respect to stockbrokers it is recognized, ‘The duties of the broker, being fiduciary in character, must be exercised with the utmost good faith and integrity.’ [Citations.]” (Twomey, supra, 262 Cal.App.2d at pp. 708–709, 69 Cal.Rptr. 222.)
The defendants in Twomey, like appellants in this case, argued that their fiduciary obligation to the customer could not be measured by the duties owed by a stockbroker to a discretionary account, “because each transaction was authorized by a telephone conversation, and was confirmed in writing without objection” by the plaintiff. (Twomey, supra, 262 Cal.App.2d at p. 717, 69 Cal.Rptr. 222.) The appellate court rejected this argument, concluding that the plaintiff customer's testimony supported the trial court's findings that the individual stockbroker and his employer “were acting as financial advisors to plaintiff and that the plaintiff placed great trust and confidence in them and relied upon them․ The trial court was entitled to look at the substance and not the form of the transaction in determining the duty owed by defendants to plaintiff․ [Citations.]” (Ibid.)
Similarly, the defendants in Twomey argued that there was nothing untoward about the manner in which the plaintiff customer's account was handled, if it were considered in the light of the objective of trading to secure capital gains and profits. (Twomey, supra, 262 Cal.App.2d at p. 717, 69 Cal.Rptr. 222.) This court responded that the propriety of the defendants' handling of the account “appears to revolve about the question of whether it was proper to advise, encourage and execute such an objective for a customer with the plaintiff's resources and needs. On this basis the unsuitability of the securities selected for purchase colors the dealings between plaintiff and defendants, and supports the finding that ‘there was excessive trading in view of the plaintiff's financial position and in view of the size of plaintiff's account.’ ” (Id., at p. 718, 69 Cal.Rptr. 222.)
The Twomey defendants “contended that the sole obligation of the broker-dealer is to carry out the stated objectives of the customer.” (Twomey, supra, 262 Cal.App.2d at p. 719, 69 Cal.Rptr. 222.) This court pointed out that “[t]his may well be true when the broker is acting merely as agent to carry out purchases or sales selected by the customer, with or without the broker's recommendation. Here, however, there is evidence to sustain the finding that [the stockbroker's] recommendations, as invariably followed, were for all practical purposes the controlling factor in the transactions. Under these circumstances, there should be an obligation to determine the customer's actual financial situation and needs. [Citations.] If, as appears from the evidence and as found by the court, it was improper for [the plaintiff customer] to carry out the speculative objectives which defendants attribute to her (but which her testimony does not fully admit), there was a further obligation to make this known to her, and refrain from acting except upon her express orders. [Citations.]” (Id., at p. 719, 69 Cal.Rptr. 222.)
Appellants contend that Twomey only addresses the fiduciary duty owed by a stockbroker to an “unsophisticated” investor, and does not address “the issue of the extent to which a fiduciary duty is owed by a broker to a sophisticated investor such as Duffy.” Our own analysis of Twomey persuades us that appellants are incorrect. In fact, the Twomey court considered at considerable length the question of the degree to which a customer's relative sophistication, if any, affects the stockbroker's fiduciary duty.
In an analysis highly pertinent to this appeal, the Twomey court considered the hypothetical case “ ‘․ involving the “sweet trusting widow” who turns out to be a “greedy old lady.” ․’ ” (Twomey, supra, 262 Cal.App.2d at p. 720, 69 Cal.Rptr. 222.) The court concluded that where an apparently unsophisticated investor expresses a desire to engage in speculative investments with the objective of making large profits, the stockbroker cannot simply carry out the customer's wishes. Rather, the stockbroker has a fiduciary duty (1) to ascertain that the investor understands the investment risks in the light of his or her actual financial situation; (2) to inform the customer that no speculative investments are suitable if the customer persists in wanting to engage in such speculative transactions without the stockbroker's being persuaded that the customer is able to bear the financial risks involved; and (3) to refrain completely from soliciting the customer's purchase of any speculative securities which the stockbroker considers to be beyond the customer's risk threshold. As long as these duties are met, if the customer nevertheless insists on purchasing speculative securities, the stockbroker is not barred from advising the customer about various speculative securities and purchasing for the customer those securities which the customer selects. (Id., at p. 721, 69 Cal.Rptr. 222.) 4
As in this case, the defendants in Twomey argued that the plaintiff customer was actually a “sophisticated” investor, pointing to evidence “that she understood that there was a risk, that she knew securities could go down as well as up, and that she understood that defendants were not going to make good her losses, or guarantee her a profit.” (Twomey, supra, 262 Cal.App.2d at p. 722, 69 Cal.Rptr. 222.) The court concluded that these facts did not compel the conclusion that she was “competent to evaluate the extent of the risk she was taking or the propriety of one of her financial condition so doing. The fact that she had ․ prior transactions with other brokers, and that she had improvidently invested in one speculative security on her own initiative might justify a finding of knowledgeableness and lack of reliance, but they do not compel that result․ The receipt of confirmation slips and accounts, and her ability to chart the cost and prices of her securities are facts of the same tenor. They may permit, but they do not compel, findings that plaintiff knew she was engaged in a course of trading and purchasing securities of a type that were unsuitable for one of her financial situation and needs. The daily calls from [the stockbroker] only have significance if she was exercising some judgment herself. The trial court concluded to the contrary that she was relying on his judgment.” (Id., at p. 722, 69 Cal.Rptr. 222, emphasis added.)
Twomey remains the controlling statement of the law applicable to this case. Contrary to appellants' position, the relationship between a stockbroker and his or her customer is fiduciary in nature; the distinction between a “sophisticated” investor and an “unsophisticated” one is not controlling in this regard.
Appellants argue that the trial court erred in refusing to give two proposed jury instructions on the issue of whether they owed a fiduciary duty to respondents.5 We are of the opinion that, first, appellants' proposed jury instructions are misleading, and not an accurate statement of the law; and, second, the jury instructions actually given by the trial court were correct, in accordance with all applicable law, and sufficiently addressed the issues raised in such a way as to protect appellants from prejudice.
Appellants' proposed jury instruction No. 39 is, on its face, clearly an incorrect statement of law. Contrary to appellants' formulation, the existence of a stockbroker's fiduciary duty to a customer does not depend on a showing of “special facts,” including whether or not the stockbroker serves as an investment adviser or controls the account. Stockbrokers act as agents for buyers and sellers of securities. Any agent is also a fiduciary, whose obligation of diligent and faithful service is the same as that of a trustee. (Civ.Code, § 2322, subd. (c); Rest.2d Agency, § 13; Twomey, supra, 262 Cal.App.2d at p. 709, 69 Cal.Rptr. 222; 2 Witkin, Summary of Cal. Law (9th ed. 1987) Agency and Employment, §§ 41, 287, pp. 53, 284–285.) As repeatedly stated in Twomey and the many subsequent cases following it, the relationship between any stockbroker and his or her customer is fiduciary in nature, imposing on the former the duty to act in the highest good faith toward the customer. (Twomey, supra, 262 Cal.App.2d at p. 709, 69 Cal.Rptr. 222; Hobbs v. Bateman Eichler, Hill Richards, Inc. (1985) 164 Cal.App.3d 174, 201, 210 Cal.Rptr. 387; 2 Witkin, op. cit. supra, at § 287, p. 285.)
Appellants insist that recent federal cases have limited the scope of a stockbroker's fiduciary duty to instances in which it can be proven that the broker actually controlled the account. We disagree. In our opinion, appellants have misread these cases, which are not in conflict with Twomey and its progeny. The question is not whether there is a fiduciary duty, which there is in every broker-customer relationship; rather, it is the scope or extent of the fiduciary obligation, which depends on the facts of the case.
Thus, in Leboce, S.A. v. Merrill Lynch, Pierce, Fenner, etc. (9th Cir.1983) 709 F.2d 605, the plaintiff (Leboce) was a foreign investment holding company which placed an unsolicited order with the defendant stockbrokerage to sell its extensive shares of an over-the-counter stock. The stockbrokerage itself purchased the stock and then began to resell the shares to other purchasers at a small profit. Leboce sued for the subsequent profits earned on resale of the stock, claiming that the stockbrokerage had a fiduciary duty to disclose its intent to purchase the shares prior to acting on the customer's order to sell. The following facts were controlling: Leboce did not rely on the brokerage in making its decision to sell; the sale was unsolicited; the brokerage fully disclosed the fact that it had purchased the shares to Leboce; Leboce's investments were managed by a professional investment consultant who dealt on Leboce's behalf with all the various brokerages with which Leboce maintained accounts; and the brokerage had no authority to make trades on Leboce's account. The federal court of appeals affirmed the district court's judgment for the brokerage, holding that the brokerage's duties to its customer “were limited by the narrow extent of its agency,” which was “strictly limited” to selling the stock on the customer's order at the best available price and for a reasonable commission. (Id., at pp. 607–608.)
Similarly, in Caravan Mobile Home Sales v. Lehman Bros. Kuhn Loeb (9th Cir.1985) 769 F.2d 561, the federal court of appeals found that the stockbroker's agency was relatively narrow. The plaintiff customer in Caravan had a nondiscretionary account with the defendant stockbroker. On the stockbroker's recommendation, the customer invested funds in securities which subsequently declined in value; the customer then sued to recover its losses, claiming that the stockbroker violated a fiduciary duty by not advising the customer of adverse information about the security after it had been purchased. The federal appeals court held that, under the circumstances presented, where there was a nondiscretionary account with no showing that the defendant stockbroker had any control over the account whatsoever or acted as an investment counselor to the plaintiff, the stockbroker was only a limited agent of the customer. “Normally the agency relationship created by a non-discretionary account arises when the client places an order and terminates when the transaction ordered is complete. [Citation.] The stockbroker [in such a situation] assumes no continuing obligation to advise his [or her] clients of information that affects their securities. [Citation.]” (Id., at p. 567.) 6
Appellants' proposed jury instruction No. 39(a) was not wholly rejected by the trial court, which in fact gave a slightly revised version of the last sentence as part of its instructions on fiduciary duty. The rest of the instruction is either argumentative, misleading, incorrect, or covered by other instructions given by the trial court, which correctly reflected the actual state of California law.7
Thus, the trial court's instructions address the general nature of fiduciary duty; define the relationship between stockbroker and his or her principal, or customer, as fiduciary in nature; and set forth the stockbroker's “obligation to determine the customer's financial situation and needs” where the stockbroker, “for all practical purposes, controls the account, whether by use of his [or her] discretionary power or by making recommendations which are regularly followed․” In each of these instructions, the trial court used language taken directly from or paraphrasing Twomey, supra, 262 Cal.App.2d at pages 708–709, 719, 69 Cal.Rptr. 222. The trial court went on to instruct: “So long as the customer is of sufficient intelligence and understanding to make the ultimate investment decision and does so, the customer controls that trade for that account.” This instruction is a slightly modified version of the last sentence of appellants' proposed jury instruction No. 39(a), and is a virtually verbatim restatement of the language in several of the federal cases cited and relied on by appellants. (Follansbee v. Davis, Skaggs & Co., Inc. (9th Cir.1982) 681 F.2d 673, 676–677; Carras v. Burns (4th Cir.1975) 516 F.2d 251, 258–259; David K. Lindemuth Co. v. Shannon Financial Corp. (N.D.Cal.1987) 660 F.Supp. 261, 265.) 8
We conclude that the trial court did not err in refusing to give appellants' proposed instructions as submitted. To the contrary, the trial court would have erred and misstated applicable California law if it had given the proposed instructions. The instructions actually given by the trial court were comprehensive and correct.
Much the same analysis applies to appellants' next contention, which is that the trial court erred in refusing to give two more of appellants' requested instructions, purportedly dealing with the standard for determining whether a stockbroker has breached his or her fiduciary duty.9 As in the case of the other two jury instructions already discussed, these proposed instructions are argumentative, confusing, misleading, and incorrect statements of the law. Moreover, the jury instructions which the trial court did give sufficiently covered the issue of breach of fiduciary duty.
A stockbroker's fiduciary duty requires more than merely carrying out the stated objectives of the customer; at least where there is evidence, as there certainly was here, that the stockbroker's recommendations were invariably followed, the stockbroker must “determine the customer's actual financial situation and needs. [Citations.]” (Twomey, supra, 262 Cal.App.2d at p. 719, 69 Cal.Rptr. 222, emphasis added.) If it would be improper and unsuitable to carry out the speculative objectives expressed by the customer, there is a further obligation on the part of the stockbroker “to make this known to [the customer], and [to] refrain from acting except upon [the customer's] express orders. [Citations.]” (Ibid.) Under such circumstances, although the stockbroker can advise the customer about the speculative options available, he or she should not solicit the customer's purchase of any such speculative securities that would be beyond the customer's “risk threshold.” (Id., at p. 721, 69 Cal.Rptr. 222.) The trial court's instruction on the broker's obligation to determine the customer's financial situation and needs was almost a verbatim quotation from Twomey.
Contrary to this correct statement of California law, appellants' proposed instructions would absolve the stockbroker from any responsibility to ascertain the customer's actual financial situation prior to recommending to the customer any security transaction, no matter how risky or speculative. This is simply incorrect; it is totally unsupported by any case law, and not in accordance with the applicable rules of the national stock and options exchanges. Under the facts of this case, appellants were on notice that Duffy wanted to speculate with the trust funds of an employee retirement and profit-sharing plan. Under these circumstances, appellants had an obligation to investigate the nature and amount of the funds Duffy sought to invest in options before soliciting or recommending any speculative transactions, and to refrain completely from soliciting such transactions if it became apparent that they would be inappropriate. Appellants' proposed instructions would improperly relieve the stockbroker of that legal obligation. We decline to approve of such a change in the law.
The instruction given by the trial court was a correct statement of the law. There was no error in refusing to give appellants' proposed instructions.
Appellants urge that the trial court erred in denying their post-trial motions for judgment notwithstanding the verdict and for a new trial. They contend that there was insufficient evidence to support the jury's verdict that appellants breached their fiduciary duty. The contention is without merit.
Our consideration of the issue of whether the judgment was supported by substantial evidence is governed by the well-established standard of review applicable to any claim that a judgment or finding is not supported by the evidence in the record. Under that standard, we must consider all of the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference, and resolving conflicts in support of the judgment. (Chodos v. Insurance Co. of North America (1981) 126 Cal.App.3d 86, 97, 178 Cal.Rptr. 831; 9 Witkin, Cal. Procedure, Appeal, supra, § 278, p. 289.) It is not our task to weigh conflicts and disputes in the evidence; that is the province of the trial court. Our authority begins and ends with a determination of whether there is any substantial evidence, contradicted or uncontradicted, which will support the judgment. We must accept as true all evidence and all reasonable inferences from that evidence tending to establish the correctness of the trial court's findings and decision, resolving every conflict in favor of the judgment. (Board of Education v. Jack M. (1977) 19 Cal.3d 691, 697, 139 Cal.Rptr. 700, 566 P.2d 602; Estate of Teel (1944) 25 Cal.2d 520, 526–527, 154 P.2d 384; Henry v. Sharma (1984) 154 Cal.App.3d 665, 670, 201 Cal.Rptr. 478; Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873–874, 197 Cal.Rptr. 925; McKinney v. Kull (1981) 118 Cal.App.3d 951, 955, 173 Cal.Rptr. 696.) Applying this standard, we conclude on the basis of our review of the entire record herein that the evidence supporting the verdict was substantial, that is, of “ponderable legal significance,” “reasonable in nature, credible, and of solid value․” (Estate of Teed (1952) 112 Cal.App.2d 638, 644, 247 P.2d 54.)
Thus, the evidence shows that the account which respondents opened at Lehman Brothers was not the kind of account on which speculative investments might ordinarily be made, such as that of an individual of substantial means with sufficient assets reasonably to protect against risk. To the contrary, it was a profit-sharing trust fund, representing the retirement contributions of the employees of respondents' company. Cavalier sought and obtained discretionary authority to manage this account, which Lehman Brothers approved for transactions in highly speculative options. When this discretionary authority was later rescinded, Cavalier continued to solicit speculative transactions on the account, recommending large purchases of options. Cavalier specifically solicited respondents' purchase of 100 highly speculative options costing $60,000, in spite of the fact that virtually the entirety of respondents' account was already invested in that particular stock option. Although Cavalier probably discussed each transaction with Duffy before it was entered into, Duffy invariably followed Cavalier's recommendations. Despite Duffy's own professed understanding of options and knowledge gleaned from previous experience in the stock market, both his own trial testimony and that of a stockbroker who worked for Duffy at a different stockbrokerage firm provide strong evidence to the contrary. The portrait of Duffy that clearly emerges from the testimony is of an unsophisticated and naive investor, extremely trusting of and reliant on the brokers with whom he worked, who actually had very little real understanding of the nature and risks of options.
We conclude that this evidence overwhelmingly supports the jury's verdict that appellants breached their fiduciary duty to respondents. Even if Cavalier did not transact many discretionary trades on respondents' account, the facts that Duffy relied on Cavalier's judgment, invariably followed Cavalier's recommendations, and manifested an inability fully to understand the risks of options trading, suggests that Cavalier actually “controlled” the account. (Twomey, supra, 262 Cal.App.2d at pp. 719, 722, 69 Cal.Rptr. 222; Follansbee v. Davis, Skaggs & Co., Inc., supra, 681 F.2d at pp. 676–677.)
Of equal importance is the nature of the account itself. No matter how sophisticated Duffy might have been, appellants were on notice that the account on which he wanted to speculate belonged to a trust fund. Aside from any control Cavalier may be considered to have had over the transactions in the account, this fact alone placed on both him and his employer a heightened obligation to determine respondents' actual financial situation and needs, and to refrain scrupulously from soliciting or recommending any inappropriate transactions on the account. It should have been clear to appellants, just from the nature of respondents' account and the kinds of speculative transactions Duffy wanted to make, that they had a fiduciary duty to warn respondents that such transactions were totally inappropriate and that no speculative transactions were suitable for the account, and to refrain from acting on the account except upon respondents' express, unsolicited orders. (Twomey, supra, 262 Cal.App.2d at pp. 718–722, 69 Cal.Rptr. 222.) The record shows that appellants breached this fiduciary duty.
Next, appellants argue that there was no substantial evidence to support the award of punitive damages. Again, we disagree.
Under the form of Civil Code section 3294 in effect at the time of trial, punitive damages are permitted in an action “for the breach of an obligation not arising from contract, where the defendant has been guilty of oppression, fraud, or malice․” The statute defines “ ‘[m]alice’ ” to include “conduct which is carried on by the defendant with a conscious disregard of the rights or safety of others.” (Former Civ.Code, § 3294, subds. (a), (c)(1); Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 922, 148 Cal.Rptr. 389, 582 P.2d 980; Travelers Ins. Co. v. Lesher (1986) 187 Cal.App.3d 169, 200, 231 Cal.Rptr. 791.) 10 To be liable for punitive damages, a defendant must act “ ‘ “․ with the intent to vex, injure, or annoy, or with a conscious disregard of the plaintiff's rights. [Citations.]” ’ [Citations.]” (Taylor v. Superior Court (1979) 24 Cal.3d 890, 895, 157 Cal.Rptr. 693, 598 P.2d 854, emphasis added by the Taylor court; Flyer's Body Shop Profit Sharing Plan v. Ticor Title Ins. Co. (1986) 185 Cal.App.3d 1149, 1154, 230 Cal.Rptr. 276; Hobbs v. Bateman Eichler, Hill Richards, Inc., supra, 164 Cal.App.3d at p. 194, 210 Cal.Rptr. 387.) “Evidence establishing ‘conscious disregard’ is evidence indicating that the defendant was aware of the probable consequences of his or her acts and willfully and deliberately failed to avoid those consequences. [Citation.]” (Travelers Ins. Co. v. Lesher, supra, 187 Cal.App.3d at p. 200, 231 Cal.Rptr. 791; Weisman v. Blue Shield of California (1984) 163 Cal.App.3d 61, 66–67, 209 Cal.Rptr. 169.) In order to justify an award of punitive damages, a plaintiff bears the burden of establishing this evidence of conscious disregard on the defendants' part. (Hilliard v. A.H. Robins Co. (1983) 148 Cal.App.3d 374, 395, 196 Cal.Rptr. 117.) 11
We recognize that a breach of fiduciary duty, by itself, does not justify an award of punitive damages. Even if a stockbroker has acted unreasonably, it need not follow that he or she also acted with malice. (Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 462–463, 113 Cal.Rptr. 711, 521 P.2d 1103; Travelers Ins. Co. v. Lesher, supra, 187 Cal.App.3d at p. 200, 231 Cal.Rptr. 791.) There must be evidence that appellants were aware of the probable adverse consequences to respondents of appellants' acts or omissions, and that they “willfully and deliberately failed to take the steps necessary to avoid those consequences. [Citation.]” (Travelers, supra, at p. 200, 231 Cal.Rptr. 791.) 12
We have examined the evidence in the record of Cavalier's handling of respondents' account and his relations with Duffy. Reviewing the record in a light most favorable to the judgment, as we must, we have concluded that the actions of Cavalier and Lehman Brothers did in fact manifest a willful indifference to and reckless disregard of the rights of respondents and the beneficiaries of the trust fund whose money was being used to invest in highly speculative options. Such actions by fiduciaries in the position of appellants are intolerable and in violation of public policy.
For purposes of reviewing this award of punitive damages, the fact that the funds being invested were those of a trust fund is of critical significance. By concentrating the vast bulk of respondents' account in a single security, Cavalier and Lehman Brothers played fast and loose with money held in trust for innocent beneficiaries with no say in how their money should be handled, and with a great deal to lose if that money were not handled properly. These beneficiaries of the trust funds in the profit-sharing plan were at least as vulnerable as the classic unsophisticated investor who relies on the advice of his or her stockbroker; at the same time, they were even further removed from being in a position to control the investments made with their money. Cavalier's solicitation of highly speculative investments in light of respondents' trust fund status was not just a breach of fiduciary duty; in this instance, in view of the heavy risks always attendant on such a large concentration of investments in a single security, it amounted to recklessness.
Thus, the evidence in the record does permit the reasonable inference that appellants acted in conscious, deliberate, and willful disregard of respondents' rights or interests. The actions of Cavalier and Lehman Brothers in soliciting highly speculative investments by a trust fund manifested a knowledge of the probable dangerous consequences to respondents' interests and a deliberate failure to avoid those consequences. They were marked by recklessness and willful indifference to the interests of respondents and the beneficiaries of the trust fund. (Flyer's Body Shop Profit Sharing Plan v. Ticor Title Ins. Co., supra, 185 Cal.App.3d at p. 1155, 230 Cal.Rptr. 276.) Based on this record, therefore, we find sufficient evidence for the award of punitive damages.
Finally, appellants argue that the trial court erred in excluding evidence which they sought to introduce, and in admitting expert testimony introduced by respondents. Neither of these contentions has merit.
First, in response to respondents' motion in limine, the trial court excluded certain evidence regarding a Labor Department investigation of the profit-sharing plan's account at Lehman Brothers. This investigation had resulted in the entry of a consent decree between respondents and the Labor Department, under which the respondent trustees of the profit-sharing plan made restitution for the losses incurred to the profit-sharing plan by transferring funds from the trustees' own beneficiary account within the plan to the accounts of the remaining beneficiaries. The trial court ruled pursuant to Evidence Code section 352 that the investigation, the consent decree, and the materials connected therewith could not be alluded to by counsel for appellants, except that any admissions against interest by specific parties or witnesses might be admitted.13
The Labor Department investigator, Roy Panelli, was permitted to testify on behalf of appellants to several admissions made to him by Duffy which directly contradicted Duffy's trial testimony. These included statements by Duffy to the effect that the account was opened by telephone solicitation from Cavalier for the purchase of stocks, not options; that it was Duffy, not Cavalier, who had first brought up the subject of options; that Duffy never met Cavalier or any other Lehman Brothers representative in person, but transacted all his business with appellants over the telephone; that Duffy had several telephone conversations with Cavalier about the account over the six-month period that the account was open; that the trades in the account were made on the basis of recommendations by Cavalier, rather than on a discretionary basis; that Cavalier had advised him to sell the 170 Reynolds Metals options rather than let them expire; and that Duffy had told Cavalier that he wanted “to hang onto the options to see what happened.” Panelli was not asked who his employer was, apparently pursuant to the trial court's ruling in limine. Nevertheless, he did testify that he had known Duffy and Ghilarducci both socially and in a business context, and that he had talked with Duffy “in the course” of his “business.” Respondents made no attempt to challenge Panelli's credibility.
Appellants urge that the evidence excluded by the in limine ruling was highly relevant, and that its exclusion prevented them from supporting Panelli's credibility. Since Panelli's credibility was never attacked, it is difficult to see how it could have been important for appellants to defend it. Moreover, appellants ignore the fact that relevant evidence may be excluded in the court's discretion on grounds of undue prejudice, confusion of issues, and undue consumption of time. (Evid.Code, § 352; People v. Jackson (1971) 18 Cal.App.3d 504, 509, 95 Cal.Rptr. 919; Moody v. Peirano (1906) 4 Cal.App. 411, 418, 88 P. 380; 1 Witkin, Cal. Evidence (3d ed. 1986) Circumstantial Evidence, §§ 298–306, pp. 268–277.) Here, the evidence excluded raised a host of potentially time-consuming issues of no overwhelming probative value, but with great potential for confusing the issues and unduly prejudicing respondents. Under these circumstances, we cannot say that the trial court's broad discretion was abused in this case.
Appellants' other evidentiary contention concerns the trial court's admission of opinion testimony by respondents' expert witness, Richard Teweles, concerning the interpretation of certain internal Lehman Brothers documents. Appellants assert that Teweles's opinion should have been excluded, because Teweles had never been employed by Lehman Brothers and had no personal knowledge of Lehman Brothers' internal procedures, as well as because of alleged involvement by Teweles in securities fraud in 1960.
Teweles was unquestionably a competent expert witness of very wide experience. Appellants' arguments go more to the weight to be given his testimony than to the question of whether it was properly admitted. The documents as to which Teweles testified speak for themselves; they are in evidence. The jury had ample opportunity to interpret them for themselves. There was no error in the admission of this expert opinion.
The judgment is affirmed.
1. Although Duffy testified that he was aware of what options were, and of the risks of investing in them, he also stated his opinion that “[c]ommodities and futures and options in the hands or in the possession of an expert could be less risky than an inexperienced person dealing in common stocks.” According to Duffy, trading in commodities and options was risky “[o]nly to the degree that we don't have the expertise.” Conceding that options are not assets in and of themselves and that they must be traded on or before a certain date or they will expire worthless, Duffy stated that he embarked on the investment of profit-sharing plan funds in options because he wanted “to increase the profitability of the profit-sharing plan.”
2. Duffy testified that the man who came to his office on November 19 and December 3, 1979, and who identified himself as King Cavalier, was not the same person as the individual identified at trial as in fact being appellant Cavalier. When asked whether he could recall if the person he had twice met with appeared to have the same voice as the person (also identified as King Cavalier) with whom he spoke on the telephone, Duffy testified, “No, I couldn't connect the two.”
3. Contrary to Duffy's testimony, his cotrustee, Ghilarducci, testified that when he signed the Lehman Brothers' forms, the typed-in information was already on them.
4. “The controversy in this case is paralleled by the examples ․ of the ‘greedy old lady’ posing as the ‘sweet trusting widow.’ [Citation.] ․ ‘․ Typically, the “sweet trusting widow” has opened an account with an investment objective stressing conservation of capital and stability of income. At some point—and for various reasons—she asks for recommendations of a speculative nature which will permit her to become rich quickly․ [T]he broker-dealer cannot, without more, act on her announced change in investment objective. The problem is similar to that which occurs when a customer opens an account and the broker-dealer helps him [or her] to decide on the proper investment objective․ [T]he broker-dealer must assume the responsibility for ascertaining that the widow understands the investment risks involved in her changed objective. These risks should be explained by the broker-dealer in the light of her financial situation as known to [the broker-dealer]. The conversation between the broker-dealer and the widow may result in: (1) The widow's return to her old investment objectives. In this case she would not purchase any of the speculative securities she initially demanded. (2) The widow's adherence to her changed investment objective with the broker-dealer persuaded that she is able to bear the risks inherent in the new investment objective. In this case he [or she] should be permitted to recommend those speculative securities which he [or she] thinks are appropriate. (3) The widow's adherence of her changed investment objective without, however, the broker-dealer being persuaded that she is able to bear the risks inherent in the new investment objective. In this case the broker-dealer should be required to inform the customer that no speculative securities are suitable for her. If, nevertheless, she insists on purchasing such securities, the broker-dealer should be allowed to advise her about various speculative securities and purchase for her the ones which she selects. However, [the broker-dealer] should not, as long as he [or she] thinks that the securities are beyond [the widow's] risk threshold, be permitted to solicit her purchase of any such speculative securities.’ ” (Twomey, supra, 262 Cal.App.2d at pp. 720–721, 69 Cal.Rptr. 222, emphasis added.)
5. The instructions at issue read as follows: “[Appellants'] Proposed Jury Instruction No. 39 [¶] A stockbroker is not a fiduciary to a customer unless special facts are shown. A stockbroker assumes a fiduciary relationship with a customer if the stockbroker serves as an investment adviser and controls the account. [Citations.]”“[Appellants'] Proposed Jury Instruction No. 39(a) [¶] In determining if a broker ‘controls' an account you should consider whether or not the customer has sufficient knowledge and understanding to evaluate the broker's recommendations and to reject one when he thinks it unsuitable. Generally, if a broker does not exercise discretion then the customer retains control. And the mere fact that a broker made all the initial calls and recommendations does not indicate the broker had control. A nonprofessional investor's routine reliance on a broker's recommendation is not evidence of control because the investor typically engages a broker precisely to receive such recommendations, knowing that the broker has greater access to pertinent financial information. So long as the customer is of sufficient intelligence and understanding to make the ultimate investment decision, the customer controls the account. [Citations.]”
6. We recognize that the opinion of the federal court of appeals in Leboce contains broad language which could be interpreted as supporting appellants' position herein that a broker owes no fiduciary duty to an investor of “sophistication and independence.” (Leboce, S.A. v. Merrill Lynch, Pierce, Fenner, etc., supra, 709 F.2d at p. 607.) This flies in the face of repeated statements throughout Twomey and subsequent cases reaffirming the fiduciary nature of the relationship between a stockbroker and his or her customer. (Twomey, supra, 262 Cal.App.2d at p. 709, 69 Cal.Rptr. 222; 2 Witkin, Summary of Cal. Law, Agency and Employment, supra, at § 287, pp. 284–285.) The correct reading of the opinion in Twomey is that there is in all cases a fiduciary duty owed by a stockbroker to his or her customers; the scope of this duty depends on the specific facts and circumstances presented in a given case. These include the relative sophistication and experience of the customer; the customer's ability to evaluate the broker's recommendations and exercise an independent judgment thereon; the nature of the account, whether discretionary or nondiscretionary; and the actual financial situation and needs of the customer. To the extent there is language in Leboce, Caravan, or any other federal case purporting to interpret California law as not imposing any fiduciary duty on a stockbroker unless he or she exercises continuing control over the customer's account or acts as an “investment counselor,” we are in disagreement with the federal courts of appeals. Federal decisions are, of course, not controlling on matters of state law. (Bank of Italy etc. Assn. v. Bentley (1933) 217 Cal. 644, 653, 20 P.2d 940; Estate of D'India (1976) 63 Cal.App.3d 942, 948, 134 Cal.Rptr. 165; 9 Witkin, Cal. Procedure (3d ed. 1985) Appeal, § 781, pp. 751–752.)
7. The trial court's actual instructions on fiduciary duty and breach thereof, in their entirety, were as follows: “A fiduciary or a confidential relationship exists whenever under the circumstances trust and confidence reasonably may be and is reposed by one person in the integrity and fidelity of another.“․“Breach of Fiduciary Duty. Introduction: In this case plaintiffs are seeking to establish liability among others on a theory of a breach of fiduciary duty, on which I will now instruct you.“A fiduciary relationship is a relationship of trust and confidence in another. A person is a fiduciary when they voluntarily assume a relationship of personal confidence with another whereby another person reposes trust and confidence in the integrity and fidelity of that person.“Every person or entity who voluntarily assumes a relationship of personal confidence with another is a fiduciary not only as to the person who reposes such confidence, but also as to all persons over whose affairs he [or she], by such confidence, obtains any control.“A commission for lawful services rendered is not an advantage gained under this instruction or rule. And the fact, standing alone, that the defendant received a commission for a transaction is not in and of itself proof of churning.“The relationship between broker and principal is fiduciary in nature and imposes on the broker the duty of acting in the highest good faith towards the principal.“If the broker, for all practical purposes, controls the account, whether by use of his [or her] discretionary power or by making recommendations which are regularly followed, there is an obligation to determine the customer's financial situation and needs.“So long as the customer is of sufficient intelligence and understanding to make the ultimate investment decision and does so, the customer controls that trade for that account. When a person invests in securities he [or she] assumes the risks inherent in the market and must bear the losses therefrom.“A stockbroker is not a guarantee [sic ] of market performance․”
8. The trial court went on to give, in full, appellants' proposed jury instruction No. 27, stating that a person investing in securities “assumes the risks inherent in the market and must bear the losses therefrom,” and that a stockbroker is not a guarantor of market performance. This instruction was based on language from Stevens v. Abbott, Proctor & Paine (E.D.Va.1968) 288 F.Supp. 836, 850.
9. The two instructions at issue are as follows: “[Appellants'] Proposed Jury Instruction No. 29(a) [¶] In approving a customer's account for options trading a broker is to use due diligence to learn the essential facts as to the customer, his [or her] investment objectives and financial situation, and shall make a record of such information. A broker is entitled to rely on the information provided by the customer and not required to make an independent investigation of the customer or of the customer's financial situation. [Citations.]”“[Appellants'] Proposed Jury Instruction No. 30 [¶] In recommending to a customer the purchase of an option, a broker shall have reasonable grounds for believing that the customer has such knowledge and experience in financial matters that he [or she] may reasonably be expected to be capable of evaluating the risks of the recommended transaction, and is financially able to bear the risks of the recommendation. In fulfilling this duty, a stock broker [sic ] is under no duty to make an independent investigation of the customer's finances. Rather, a broker is permitted to rely on the facts, if any, disclosed to him [or her] by the customer. There is no affirmative duty on a broker to investigate or to solicit any facts before recommending to a customer the purchase, sale, or exchange of any security. [Citations.]”
10. Trial of this matter took place in March 1986. Civil Code section 3294 was amended in 1987 to provide in pertinent part as follows: “(a) In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.“․“(c) As used in this section, the following definitions shall apply:“(1) ‘Malice’ means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others․” (Emphasis added.) (Amended Stats.1987, ch. 1498, § 5, No. 12 West's Cal. Legis. Service, pp. 850–851.)
11. The jury was instructed that they could award punitive damages “if, and only if, you find by a preponderance of the evidence that said defendant was guilty of ․ malice in the conduct on which you base your finding of liability. [¶] Malice means conduct which [is] intended by the defendant to cause injury to the plaintiff, or carried on by the defendant with a conscious disregard for the rights or safety of others. A person acts with conscious disregard of the rights or safety of others when he [or she] is aware of the probable dangerous consequences of his [or her] conduct and willfully and deliberately fails to avoid those consequences.” This is a correct statement of the law in effect at the time of trial.
12. “[A] breach of a fiduciary duty alone without malice, fraud or oppression does not permit an award of punitive damages. [Citation.] The wrongdoer ‘ “must act with the intent to vex, injure, or annoy, or with a conscious disregard of the plaintiff's rights. [Citations.]” ’ [Citation.] Punitive damages are appropriate if the defendant's acts are reprehensible, fraudulent or in blatant violation of law or policy․ Punitive damages are proper only when the tortious conduct rises to levels of extreme indifference to the plaintiff's rights, a level which decent citizens should not have to tolerate. The jury's decision to award punitive damages is entitled to great weight, but we must view the entire record to see if there is substantial evidence from which the jury could conclude that the acts of defendant reached the level of outrage and reprehensibility to justify the award. [Citations.]” (Flyer's Body Shop Profit Sharing Plan v. Ticor Title Ins. Co., supra, 185 Cal.App.3d at p. 1154, 230 Cal.Rptr. 276, emphasis added.)
13. Pursuant to California Rules of Court, rule 41, appellants request that this court take judicial notice of certain extracts from the records of the United States District Court for the Northern District of California in Raymond J. Donovan, Secretary of Labor, United States Department of Labor v. Edwin [sic] J. Duffy, Frank Ghilarducci, Walter Chokan, individually, and as trustees of Capital Wholesale Electric Company Profit Sharing & Trust Fund, No. C–82–5994 SC, namely, the complaint filed November 1, 1982; the consent order filed January 14, 1983; and the judgment filed that same date. In addition, they seek judicial notice of rules 9.7 and 9.9 of the Chicago Board of Options Exchange, and the Securities and Exchange Commission decision entitled In the Matter of Shearson, Hammill & Co. and Shearson, Hammill & Co., Incorporated, File Nos. 8–475, 801–348 (Nov. 12, 1965) 42 S.E.C. 811. In accordance with Evidence Code sections 451, 452, 453, and 459, we grant the request for judicial notice.
BARRY–DEAL, Associate Justice.
WHITE, P.J., and STRANKMAN, J., concur.