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Stockbrokersí liability Ė Investors awarded approximately three million dollars in compensatory and punitive damages from broker who wrongfully enforced guarantees obtained fraudulently by one of its advisors; by FranÁois Touchette


(21/2/2007)

Markarian v. CIBC World Markets Inc. (June 14, 2006), 500-05-069668-018 (Sup. Ct. of Q.)

The retired couple Haroutioun and Alice Markarian and their familyís holding company had entrusted their assets to Mr. Migirdic, an investment advisor with CIBC World Markets Inc. (ďCIBCĒ). In 1993, Mr. Migirdic had carried out a great number of highly speculative trades for another of its clients, Ms. Rita Luthi, but had omitted to inform her of the resulting losses. Ms. Luthi, unaware of the fact that her investments had almost vanished, wanted to draw funds from her account. Faced with this problem, Migirdic arranged for the Markarians to guarantee, unbeknownst to them, the overdraft in Ms. Luthiís account. This allowed Migirdic to advance amounts to Ms. Luthi, without having to give her the bad news that he had lost almost all of her investments. In 1994, in order to hide the important overdraft in his own trading account Ė which he had illegally opened under the name of his uncle and unbeknownst to the latter ≠Ė Migirdic, through the same fraudulent stratagem, obtained from the Markariansí holding company a guarantee of the trading losses in that account.

CIBC questioned on a few occasions the incongruous character of the guarantee provided by the Markarians in favour of Ms. Luthiís account, but always relied on and never verified the false explanations provided by Migirdic. These explanations were to the effect that he had obtained a written confirmation from the Markarians that they were fully aware of the fact that they had guaranteed the investment losses in Ms. Luthiís account.

In 2001, Migirdic finally admitted his fraudulent actions to CIBC and admitted that the Markarians were unaware of the fact that they had guaranteed the losses in Ms. Luthiís and in his own account. A few days later, CIBC terminated Migirdic and informed the Markarians that it considered the guarantees to be valid. Then it proceeded to withdraw approximately $1,500,000 from the Markariansí accounts, in execution of these guarantees. In reaction, the Markarians filed suit against CIBC to recover these amounts and other damages. CIBC took warranty proceedings against Migirdic.

The Court ordered CIBC to pay the Markarians and their holding company compensatory damages amounting to almost $1,500,000. CIBC was also condemned to pay the Markarians moral damages in the amount of $50,000 each, punitive damages of $1,500,000 and to reimburse them their legal fees for up to $94,500.

The Court found that Migirdic had obtained the Markariansí signatures on the guarantee documents through lies and trickery, which consequently triggered CIBCís liability as Migirdicís employer.

The Court also ruled that CIBC failed in its duty to monitor and control Migirdicís activities, especially in the light of the fact that Migirdic had committed a plethora of fraudulent and illegal acts over the past years. The Court rejected CIBCís arguments to the effect that the Markarians were the authors of their own misfortune, that they had ratified the guarantees and that in any event, they should have uncovered the fraud well before and alerted CIBC to it. The Court underlined that even CIBC, better equipped than the Markarians, had not been able to detect Migirdicís fraud.

The Court found that CIBC had treated the Markarians with contempt, as if they were responsible for Migirdicís fraud. The Court also noted that CIBC contested all the proceedings, notwithstanding the fact that it was aware that the guarantees were fraudulently obtained. CIBC breached many of the Markariansí fundamental rights, namely the right to dignity, integrity and to the enjoyment and free disposition of their property, thereby justifying moral damages.

CIBCís reprehensible conduct also gave rise to punitive damages in the amount of $1,500,000, the equivalent of the amount that CIBC attempted to illegally appropriate. The Court determined that the award of such damages were necessary in the circumstances, and calculated the amount based on CIBCís financial situation and the deterrent purpose of such damages.

The Court ordered CIBC to reimburse the Markariansí legal fees. The Court found that CIBC had put the Markarians in a situation where they had no other choice but to sue CIBC, whereas CIBC should have sued the Markarians if it believed that the guarantees were valid and enforceable.

Provisional execution of the judgment for an amount of $1,500,000 was ordered, notwithstanding appeal, for fear that CIBC would use appeal proceedings to curb the Markariansí determination. The Court granted CIBCís action in warranty against Migirdic, except with regards to punitive and moral damages. While CIBC appealed the decision, the case was subsequently settled out of Court.