Broadcort Capital Corporation and First Affiliated Securities, Inc., Plaintiffs/counter v. Charles F. Brumfiel, Defendant/counter

Citations: 944 F.2d 271; 1991 U.S. App. LEXIS 20583; 1991 WL 166134Docket: 89-2183

Court: Court of Appeals for the First Circuit; September 3, 1991; Federal Appellate Court

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Charles F. Brumfiel appealed the judgment of the district court, which awarded First Affiliated Securities (FAS) $300,000 for debts related to Brumfiel's trading account. Brumfiel contested the court's interpretation of Local Rule 32(j)(6) regarding mediation awards and claimed that his counterclaims were unjustly dismissed under Federal Rule of Civil Procedure 9(b). The court found that the district court misinterpreted Local Rule 32(j)(6) and reversed the decision, remanding the case for further proceedings.

In 1987, Brumfiel opened a securities account with FAS, where Broadcort Capital Corporation served as the clearing broker. Following significant losses on "Black Monday," Brumfiel owed FAS approximately $300,000, resulting in the liquidation of his account. FAS and Broadcort sued for the debt, while Brumfiel counterclaimed, alleging negligent execution of trades by FAS, misrepresentation of transaction completion, improper account liquidation, and excessive fees.

In January 1988, Broadcort was dismissed from the case. A mediation panel ultimately determined that FAS was owed $300,000, while Brumfiel had a claim of $340,000 against FAS and no claim against Broadcort. Brumfiel accepted the panel's evaluations, whereas FAS accepted only the judgment against Brumfiel and rejected his claim against it. Consequently, the case proceeded to trial per Local Rule 32(j)(2), where a magistrate judge concluded that only Brumfiel's claim against FAS was to be tried, supporting her view with the mediation panel's separate evaluations. The district court adopted this recommendation.

Broadcort and FAS filed motions to dismiss Brumfiel's counterclaim for failure to state a claim and to deny him the chance to file a second amended counterclaim, citing non-compliance with the specificity requirements of Federal Rule of Civil Procedure 9(b). The district court referred these motions to a magistrate judge, who recommended granting them based on the inadequacy of Brumfiel's pleadings despite his pro se status, which rendered a coherent defense impossible. The magistrate also noted potential prejudice against Broadcort and FAS if Brumfiel were allowed to submit new pleadings. The district court adopted the magistrate's recommendations and denied Brumfiel’s subsequent motions for rehearing and to amend his counterclaim, prompting Brumfiel to appeal.

On appeal, it was determined that the magistrate misinterpreted local mediation rules regarding the acceptance and rejection of claims by multiple parties. Specifically, Local Rule 32(j)(6)(A) allows each party to accept or reject all or part of the mediation panel's evaluations, but the magistrate incorrectly concluded that there were no multiple parties involved. The case's caption, which listed both Broadcort and FAS as plaintiffs against Brumfiel, indicated the presence of multiple parties. The appellate court highlighted that the mediation rules and Michigan State Court Rules support the necessity for a trial on all claims when part of the mediation evaluation is rejected, thus mandating a trial on the claims between FAS and Brumfiel. 

Consequently, the appellate court reversed the district court's decision and remanded the case, instructing it to reconsider Brumfiel's right to amend his counterclaim. The court emphasized that Brumfiel's failure to respond to the mediation panel's decision regarding Broadcort did not negate his rights concerning the claim against FAS. The dismissal of Broadcort from the appeal was noted, as was the magistrate's finding regarding Brumfiel's acceptance of the mediation panel's decision concerning Broadcort.