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Leib v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

461 F. Supp. 951 (1978)

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Leib v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

United States District Court for the Eastern District of Michigan
461 F. Supp. 951 (1978)

  • Written by Sharon Feldman, JD

Facts

Sheldon Leib (plaintiff) was an accountant and tax consultant with an applied-science degree, an accounting certificate, and a brokerage account he controlled. Leib met with John Kulhavi (defendant), a stockbroker at Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill) (defendant), opened a nondiscretionary margin account, and started actively trading. Kulhavi suggested securities and discussed with Leib prices, issuers, and potential profitability. Leib authorized every transaction, read and understood confirmations and monthly statements, and spoke to Kulhavi multiple times a day. After accepting a position that included securities work, Leib transferred the account to his brother as trustee (plaintiff). The parties agreed that Leib would continue to control the account. The account started losing money, and stock had to be sold to meet margin calls. Leib closed the account after its equity dropped to nearly zero. Over the life of the account, Leib purchased almost $300,000 in securities and paid $8,300 in commissions. Leib and his brother sued Merrill and Kulhavi, alleging that Kulhavi churned the account and breached his fiduciary duty by allowing Leib to pursue a heavy trading course that would be unprofitable and excessively trading to generate commissions. The case was tried.

Rule of Law

Issue

Holding and Reasoning (Feikens, J.)

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