## Facts

- Phillip M. Arceneaux opened a securities account at a brokerage firm’s Clearwater, Florida office in October 1980 after attending a seminar presented by the firm’s broker.
- At or near account opening, Arceneaux signed options-related documents reflecting an objective of “trading profits” and written risk warnings; trial testimony conflicted on his understanding of the strategy and the risks explained to him.
- The account was traded frequently, largely following the broker’s recommendations, with numerous purchases and sales, including options activity.
- After early gains (including approximately $24,000 in November 1980), the account’s value declined substantially over time.
- Arceneaux closed the account on June 1, 1982, with an alleged net loss of about $45,697; the broker earned commissions exceeding $11,000.
- Plaintiffs offered expert testimony that the account’s annualized turnover rate was about eight (sometimes up to ten), that the trading departed markedly from Arceneaux’s prior investment history, and that the trading rate was explainable primarily by commission generation.
- Defendants emphasized Arceneaux’s education, business experience, stated profit-seeking objective, and asserted participation in decision-making to dispute broker control and excessiveness.

## Issues

1. Whether substantial evidence supported the jury’s finding of churning under federal securities law, including excessive trading, broker control, and scienter.
2. Whether the evidence required acceptance of defendants’ affirmative defenses (including waiver, estoppel, ratification, and comparative negligence).
3. Whether the punitive damages awards against the broker and the firm were excessive and required remittitur or a new trial.
4. Whether the district court erred in denying post-trial motions for judgment notwithstanding the verdict and for a new trial.

## Decision

- The court affirmed the judgment entered on the jury verdict for plaintiffs.
- The court held that substantial evidence supported each element of churning: excessive trading, broker control, and scienter.
- The court declined to disturb the jury’s rejection of affirmative defenses, characterizing the disputes as credibility and fact questions for the jury.
- The court upheld punitive damages and affirmed the denial of remittitur, finding no abuse of discretion.
- The court affirmed the denial of post-trial motions, applying a highly deferential standard to jury verdicts supported by substantial evidence.

## Legal Principles

- A churning claim requires proof of: (1) excessive trading in light of the customer’s objectives and needs; (2) broker control over the account (which may be inferred even in a non-discretionary account when the customer routinely follows recommendations); and (3) scienter, shown by intent to defraud or reckless disregard of the customer’s interests.
- Turnover rate and trading frequency, supported by expert analysis, may constitute evidence of excessiveness.
- Scienter may be inferred from trading patterns indicating commission-driven activity and from disparities between customer losses and broker commissions.
- Appellate review of a jury verdict is deferential; credibility choices and resolution of conflicting evidence are for the jury, and post-trial relief is improper absent a verdict against the great weight of the evidence or manifest injustice.
- Punitive damages determinations are reviewed for abuse of discretion; an award is sustained unless it is shown to be grossly excessive under the governing standard.

## Conclusion

The Eleventh Circuit sustained a jury finding that the broker churned the customer’s account, holding that evidence of high turnover, customer deference to recommendations, and commission-motivated trading supported liability and punitive damages, and that the district court properly denied post-trial relief.


Arceneaux v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 767 F.2d 1498 (11th Cir. 1985)