Fed. Sec. L. Rep. P 94,712 Charles N. Bird v. William H. Ferry, Jr. v. The Robinson-Humphrey Company, Inc. , 497 F.2d 112 ( 1974 )

GEE, Circuit Judge:

In 1959 William H. Ferry, a securities salesman, organized the Twenty-Ten Investment Club from citizens of Rockdale County, Georgia, near Atlanta. The club, an unincorporated association, -had as a major purpose familiarizing its members with securities transactions, and with the ways of the world of corporate stocks, markets, brokers, etc. As we shall see, there can be no doubt on this record that, in return for their rather modest monthly dues, the members received a great deal of useful information, some of it of a striking nature and delivered in such a manner as to make an indelible impression.

Ferry handled the club’s securities account until 1970. During his eleven-year tenure as the club’s investment ad-visor, Ferry worked at various times for three different brokers, always taking the club with him as a customer. Appellant Robinson-Humphrey Company employed him from May or June of 1962 until April 3, 1967. Shortly after transferring the club’s account to Robinson-Humphrey, Ferry began to use the club’s funds for personal speculation and, by the time he left appellant, had lost nearly all of them.¹ He covered his tracks by furnishing regular statements to the club tracing the vicissitudes of their non-existent stocks. Had he followed the club’s instructions, the value of its portfolio at the time he left Robinson-Humphrey would have been a figure over $48,000. Ferry and Robinson-Humphrey were held jointly liable to the club for the above amount, plus interest from the date of loss, on Federal securities’ law grounds and in common-law fraud.² Robinson-Humphrey appeals, asserting three heads of error, and we affirm.

In the first, complaint is made that, since payments from the club’s bank account exceeded the contributions of club members by almost $23,000, the club necessarily realized a gain rather than a loss. Appellant has misunderstood the evidence; the “contributions” figures used in appellant’s calculation are those of present club members only and do not include those of members who have retired, while the “payments” figure includes payments to retiring members. The “gain” thus computed-— by subtracting pineapples from pine cones — is without significance.

Appellant also complains that the damages awarded were “theoretical” ³ and should have been computed on a cost or out-of-pocket basis rather than the value basis used. We see nothing inappropriate in the court’s use of a measure of damages calculated to restore the club to the position it would have occupied had the defalcations not occurred. Nor, more importantly, are we cited to any Georgia case to the contrary. An additional complaint that the evidence is insufficient to support the damages found is meritless; it may be that the proof falls short of mathematical precision. A host of cases holds it may and still suffice.

Appellant’s second point asserts that Ferry’s conversion of the securities took place prior to his employment by appellant. The argument is founded in the circumstance that they were held in the club’s own account with the former employer, but were placed by Ferry in his personal account when he came to work at Robinson-Humphrey. The trial court found otherwise, however, and its finding is amply supported by such evidence as that the club’s account was opened by Ferry with appellant in April, while the club’s letter to the former employer requesting transfer of the stocks to appellant is dated in June. The court correctly found that Ferry was appellant’s employee before the defalcations began, despite Ferry’s testimony in one instance to the contrary.

Finally, appellant argues that the finding by the trial court that the club members exercised due diligence for their own protection is clearly erroneous, and that under Clement A. Evans & Co. v. McAlpine, 434 F.2d 100 (5th Cir. 1970), cert. denied, 402 U.S. 988, 91 S.Ct. 1660, 29 L.Ed.2d 153 (1971), therefore, the club may not recover. Thinking the finding sufficiently supported by evidence, we disagree. It is true that the club requested Ferry’s former employer to deliver the stocks, held in street name, to Ferry, and that the club requested neither a broker’s receipt from appellant for them nor confirmations of the authorized trades. Appellant’s books of account were never audited or checked by the club. And there was evidence that in 1960 Ferry mishandled nearly $5,000 in funds belonging to one member of the club, who felt Ferry stole his money and may have told other members of his suspicions, though he did not regard Ferry as a crook. On the other hand, Ferry was in, and in the nature of things was known by Robinson-Humphrey to be in, a quasi-fiduciary position: he was the teacher of the club members, who invested with him as much for the experience as for profit. Their degrees of knowledge were, and were acknowledged by all hands to be, unequal. Appellant was a well-known and respected Atlanta house, admittedly supervising such employees as Ferry was with greater stringency today. The club required and received regular reports from Ferry on trades and the portfolio. Many of these appear in the record. Though entirely spurious, they are detailed and convincing. All checks were made payable to Robinson-Humphrey and not to Ferry, and the stamped endorsements are those of appellant, for deposit only. We cannot say that the trial judge, who heard the witnesses and observed their demeanor, was clearly in error in this finding.

Affirmed.

1 . Ferry’s third employer was also sued by the club, but settled.

2 . Robinson-Humphrey’s liability was vicarious only.

3 . Apparently as based on stocks which were not, because of Ferry’s disobedience, actually purchased.