Parmenter v. Rollins Financial Counseling Inc.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-1189
MARY LAFONTAINE PARMENTER,
Plaintiff - Appellee,
versus
ROLLINS FINANCIAL COUNSELING INCORPORATED;
JOSEPH R. ROLLINS,
Defendants - Appellants.
Appeal from the United States District Court for the District of
South Carolina, at Beaufort. Patrick Michael Duffy, District
Judge. (CA-03-2150-9-23)
Argued: May 22, 2006 Decided: June 29, 2006
Before WILKINS, Chief Judge, and MOTZ and KING, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Frank W. Virgin, SLAUGHTER & VIRGIN, Atlanta, Georgia, for
Appellants. Edward Steven Feig, ARENT FOX, P.L.L.C., New York, New
York, for Appellee. ON BRIEF: Brian C. Pitts, SMOOT, PITTS,
ELLIOTT & BIEL, Hilton Head Island, South Carolina, for Appellants.
Eric S. Lent, ARENT FOX, P.L.L.C., New York, New York, for
Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
Joseph R. Rollins and his investment advisory company, Rollins
Financial Counseling Incorporated, (collectively, “Rollins”) appeal
a district court judgment entered in favor of Mary LaFontaine
Parmenter following a jury verdict for Parmenter on her claims
alleging that Rollins mismanaged her investment account.
We affirm.
I.
In early 1999, Parmenter, a widow with little investment
experience, transferred her investment portfolio to Rollins and
granted him full discretionary authority over her account. The
portfolio was then valued at $729,586. Parmenter informed Rollins
that she needed to withdraw $6,000 per month from her account to
cover living expenses. Rollins initially invested Parmenter’s
assets in a mix of stock and bond mutual funds, but by late 1999 he
had moved the account entirely into stock mutual funds, a
substantial portion of which were aggressive, higher-risk
investments. By early 2000, the value of Parmenter’s account had
increased significantly, peaking at approximately $1.1 million.
Thereafter, however, the account value declined dramatically. In
May 2002, Parmenter terminated Rollins’ services; at that time, her
account was worth $342,105.
2
Parmenter brought this action against Rollins, alleging claims
for breach of fiduciary duty, negligence, breach of contract,
negligent misrepresentation, constructive fraud, and violation of
the Investment Advisers Act of 1940, see 15 U.S.C.A. § 80b-6 (West
1997). A jury returned a verdict for Parmenter on each of her
claims, awarding her $423,000 in compensatory damages and $22,000
in restitution (for management fees she paid to Rollins). Rollins
moved, inter alia, for a new trial on several grounds, but the
district court denied his motion.
II.
Rollins first contends that the district court erroneously
admitted expert testimony offered by Parmenter regarding damages.
Rollins argues that the expert’s method of calculating damages was
unreliable. See Fed. R. Evid. 702; Kumho Tire Co. v. Carmichael,
526 U.S. 137, 147-49 (1999). We review a district court decision
to admit or exclude expert testimony for an abuse of discretion.
See Westberry v. Gislaved Gummi AB, 178 F.3d 257, 261 (4th Cir.
1999).
At trial, Parmenter called F. John Hermann, an experienced
investment advisor and arbitrator, to testify, inter alia,
regarding the appropriate measure of damages resulting from
Rollins’ alleged mishandling of Parmenter’s investments. Hermann
testified that Rollins breached his legal and professional duties
3
to Parmenter in several ways, including placing her assets into
investments that were not suitable for her investment objectives
and needs. Hermann testified that Rollins’ most serious breach
occurred when, after Parmenter’s account had increased in value, he
failed to take corrective action by shifting Parmenter’s assets
into more conservative investments that could have achieved her
investment goals with less risk. Based on various points during a
nine-month period when Hermann claimed Rollins could have taken
such corrective action, Hermann identified different possible
starting values for calculating damages. Using these starting
values, Hermann calculated how a properly managed portfolio would
have performed (assuming the same level of withdrawals), and then
subtracted the actual ending value of the account. Based on these
calculations, Hermann concluded that the loss attributable to
Rollins’ mismanagement was between $244,495 and $505,395.
Rollins does not dispute that the general method used by
Hermann to calculate damages--comparing actual investment results
to those that could have been achieved had the account been
properly managed--is generally accepted and reliable. See, e.g.,
Rolf v. Blyth, Eastman Dillon & Co., 637 F.2d 77, 84 (2d Cir.
1980). Rollins argues, however, that Hermann improperly deviated
from this method by using a starting point other than the value of
the account when it was first opened. The district court rejected
this argument, finding that Hermann’s methodology was sufficiently
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reliable in light of his testimony that Rollins committed multiple
breaches of duty and that one of those breaches was his failure to
take corrective action to preserve Parmenter’s account after it had
appreciated.
The decision by the district court to admit Hermann’s damages
testimony was not an abuse of discretion. Based on his experience,
Hermann testified that the appropriate starting value for measuring
damages in investment-loss cases is usually disputed and that a
starting value other than the opening value of the account is often
used. And, as the district court noted, Hermann identified several
distinct breaches of duty by Rollins and concluded that the most
serious breach occurred after the account value had risen, when
Rollins failed to preserve the account by shifting it into more
conservative investments. In this regard, Hermann opined that
measuring damages using the opening value of Parmenter’s account
would not fully compensate her for the loss caused by Rollins’
mismanagement. Based on this record, the district court did not
abuse its discretion in concluding that Hermann’s testimony was
sufficiently reliable to allow the jury to consider it in assessing
damages.1 See Kumho Tire, 526 U.S. at 150 (explaining that the
1
To the extent Rollins claims that the jury’s damages verdict
was not supported by the evidence, we disagree. In contrast to
Hermann’s testimony that Rollins never selected suitable
investments for Parmenter’s account, Rollins testified that his
investment selections for the account were always appropriate--
both during the months of its initial buildup and after it had
climbed in value. The jury could have reached its verdict, for
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gatekeeping inquiry for expert testimony “must be tied to the facts
of a particular case” (internal quotation marks omitted)).
Moreover, Rollins thoroughly challenged Hermann’s methods through
cross-examination. See United States v. Moreland, 437 F.3d 424,
431 (4th Cir.), cert. denied, 126 S. Ct. 2054 (2006).
III.
Rollins next asserts that the district court should have
granted his motion for a new trial on the ground that false
evidence was admitted against him. See Fed. R. Civ. P. 59; Conner
v. Schrader-Bridgeport Int’l, Inc., 227 F.3d 179, 200 (4th Cir.
2000). The decision whether to grant a new trial “rests with the
sound discretion of the district court, and we review this decision
for a clear abuse of discretion.” Bristol Steel & Iron Works, Inc.
v. Bethlehem Steel Corp., 41 F.3d 182, 186 (4th Cir. 1994).
Indeed, this decision “is not reviewable upon appeal, save in the
example, by crediting Rollins’ testimony that the investments
initially were suitable but accepting Hermann’s testimony that the
investments were inappropriate once the account value had
increased. Indeed, Hermann admitted that Rollins had done “a very
good job” building up Parmenter’s account during its initial
months, J.A. 432, and testified that Rollins’ more serious breach
was his failure to take corrective action after the account value
had risen. Further, Rollins conceded that Parmenter’s investment
objectives could have been achieved had he shifted her funds into
more conservative investments when the account value was near its
peak. Finally, the damages award was within the range identified
by Hermann.
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most exceptional circumstances.” Id. (internal quotation marks
omitted).
During questioning by Parmenter’s counsel, Rollins was asked
about the accuracy of information he had provided to the SEC in a
required annual filing. Specifically, counsel showed Rollins his
most recent filing and directed him to a question about whether he
was involved in pending litigation, which Rollins had answered
“NO.” J.A. 1185. Rollins stated that his answer to that question
was “clearly, wrong.” Id. at 313. Further, in response to later
questioning by his own attorney, Rollins testified that his
response to the SEC question was an “oversight” and that the filing
was being amended to disclose pending lawsuits against him. Id. at
542. After trial, however, Rollins reviewed the instructions and
definitions for the SEC filing and discovered that the question at
issue did not require him to list private civil actions, and
therefore that he had answered the question accurately.
Rollins argues that the admission of this false evidence was
prejudicial and warrants a new trial. We conclude, however, that
the district court did not abuse its broad discretion in denying a
new trial. Assuming that Rollins was surprised by the questions
about the SEC filing and that his failure to correct the record
before the end of trial was excusable, any prejudice to Rollins was
not so great as to require a new trial. Although Parmenter
introduced evidence concerning the SEC filing to impeach Rollins’
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credibility, this evidence was minor in relation to the overall
evidence presented against him.2 Parmenter introduced extensive
evidence concerning Rollins’ numerous alleged breaches of legal and
professional duties. In addition, Rollins admitted that he had
made another error on the same SEC filing by failing to indicate
that providing investment advice was his primary business.3
IV.
For the reasons set forth above, we affirm the judgment of the
district court.
AFFIRMED
2
There is no indication that Parmenter or her counsel
intentionally presented false evidence.
3
Rollins also contends that the district court erroneously
failed to instruct the jury on various affirmative defenses
relating to Parmenter’s conduct in connection with her investment
losses. Based on the record, we conclude that the district court
did not err in declining to instruct the jury on these defenses.
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