       DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
                             FOURTH DISTRICT

                   OVERSEAS INVESTMENT GROUP,
                            Appellant,

                                     v.

WALL STREET ELECTRONICA, INC. and HERZOG, HEINE, GEDULD,
                         INC.,
                      Appellees.

                              No. 4D13-4310

                            [January 6, 2016]

   Appeal from the Circuit Court for the Seventeenth Judicial Circuit,
Broward County; Carlos A. Rodriguez, Judge; L.T. Case No.
CACE07005785.

  Alan F. Wagner of Wagner, Vaughan & McLaughlin, P.A., Tampa, for
appellant.

   Esther E. Galicia of Fowler White Burnett, P.A., Miami, and Ronald
Shindler of Fowler White Burnett, P.A., Fort Lauderdale, for appellee
Herzog, Heine, Geduld, Inc.

WARNER, J.

   Plaintiff, Overseas Investment Group, appeals from a final summary
judgment entered in favor of the defendant, Herzog, Heine, Geduld, Inc., a
brokerage firm, in connection with Herzog’s liquidation of Overseas’s
margin account. The trial court found that Herzog was not liable to
Overseas for breach of contract and breach of fiduciary duty because by
contract Herzog had sole discretion to liquidate the subject account for its
own protection. We reverse because material issues of fact remain.

   Defendant Wall Street Electronica was a securities broker-dealer. Wall
Street Electronica hired Herzog to perform “back office” functions, such as
clearing and settling securities transactions it had executed. Overseas, a
customer of Wall Street Electronica, opened a brokerage margin account
with Wall Street. Overseas was using a strategy called “selling puts
naked,” which involved selling stock options it did not own. It required the
extension of credit by Herzog, referred to as a “margin.”
   As part of opening the brokerage account, Overseas’s president, Dr.
Samuel Elia, signed a Customer Agreement with Herzog. Section 10 of the
agreement provided:

      The Customer clearly understands that, notwithstanding a
      general policy of giving customers notice of a margin
      deficiency, Herzog is not obligated to request additional
      margin from the Customer in the event the Customer’s
      Account falls below minimum maintenance requirements.
      More importantly, there may be circumstances where Herzog
      will liquidate securities and/or other property in the Account
      without notice to the Customer to ensure that minimum
      maintenance requirements are satisfied.

      . . . Herzog shall have the right in accordance with its
      general    policies     regarding     margin      maintenance
      requirements to require additional collateral or the
      liquidations of any securities and other property whenever in
      Herzog’s discretion it considers it necessary for its
      protection including in the event of, but not limited to:
      the failure of the Customer to promptly meet any call for
      additional collateral . . . . In any such event, Herzog is
      authorized to sell any and all securities and other property in
      any Account of the Customer . . . without demand for margin
      or additional margin, other notice of sale or purchase, or other
      notice or advertisement each of which is expressly waived by
      the Customer.

(Emphasis added). Additionally, section 11 of the agreement provided:
“The Customer agrees to maintain in all accounts with Herzog such
positions and margins as required by all applicable statutes, rules,
regulations, procedures and custom, or as Herzog deems necessary or
advisable. The Customer agrees to promptly satisfy all margin and
maintenance calls.” (Emphasis added). Dr. Elia, having executed the
Customer Agreement, knew that Overseas would be required to maintain
a certain level of margin with Herzog. If the Overseas account fell below
the margin requirement, the company could request additional cash from
Overseas or it could sell sufficient securities itself to raise the cash
necessary to meet the margin requirement.

   The stock market declined on April 10, 2000, and Herzog sent Overseas
two margin maintenance calls requesting additional funds. Overseas
asserts that it met those margin calls and was in compliance as of Friday,
April 14, 2000. On Saturday, April 15, Dr. Elia received a phone call that

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Overseas should expect another margin call. According to Dr. Elia, he
advised Herzog that he was in full compliance, but to avoid confusion
Overseas would increase its cash position by April 22. However, Overseas
contends that on Monday, April 17, the market increased, and Overseas
believed no additional funds would be needed. Herzog nevertheless began
liquidating the Overseas accounts soon after the market opened on April
17 to satisfy the margin call. Specifically, Herzog liquidated Overseas’s
$1,000,000 security portfolio. This liquidation is the basis for the lawsuit.

   Overseas filed suit for breach of contract, fraudulent inducement, and
negligence against Herzog and Wall Street Electronica.1 It alleged that
Herzog had failed to notify it of the impending liquidation in a timely
fashion. It also alleged that it had met the minimum margin requirements,
even though those requirements were not set forth in the agreement.
Overseas alleged that its Wall Street Electronica advisors, as well as the
Herzog website, had provided the means of determining those
requirements. Thus, Overseas alleged that Herzog breached the Customer
Agreement by liquidating the account.

   Herzog moved for summary judgment, contending that there was a
dramatic downturn in the market in April 2000, and Overseas’s account’s
equity went into a deficit. To protect itself, Herzog liquidated the account
to satisfy unmet margin calls. Herzog claimed that the Customer
Agreement authorized it to liquidate the account at any time, with or
without notice.

   Dr. Elia filed an affidavit in opposition, in which he explained
Overseas’s strategy with respect to options. He asserted that the Customer
Agreement allowed Herzog to liquidate the account if it fell below
“minimum maintenance requirements,” but failed to describe what those
requirements were or how they were calculated. Although the agreement
required Overseas to maintain margins as required by “all applicable
statutes, rules, regulations, procedures and custom, or as Herzog deems
necessary or advisable[,]” it never identified the rules or statutes, or what
Herzog would deem necessary or advisable. Further, Dr. Elia asserted that
the agreement merely required margin calls to be satisfied “promptly,”
without giving a time period.


1Overseas initially filed an arbitration claim in August 2000, but it was dismissed
because a hearing was not scheduled. Overseas refiled, but the claim was
dismissed again in January 2007, without prejudice to Overseas pursuing its
claim in court.


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   After receiving several margin calls in 1999, Dr. Elia stated that he
contacted Herzog to determine how it calculated margin requirements.
The manager of Herzog’s margin department described how the minimum
maintenance requirement was calculated and explained Herzog’s
liquidation requirements. Dr. Elia asserted that he had relied upon the
manager’s explanation, based upon which he calculated that the Overseas
account always met the minimum maintenance requirements. And
although the market went down on the Friday before Herzog liquidated the
account, Dr. Elia attested that it went up on Monday morning, putting
Overseas above the margin amount required. Nonetheless, Herzog started
liquidating the account soon after the market opened. Dr. Elia provided
calculations of the maintenance requirements for the account, showing
that it always had a net equity and Herzog was never in danger of losing
any money.

   In response, Herzog filed an affidavit disputing Dr. Elia’s calculations.
The trial court granted summary judgment for Herzog and entered a final
judgment, which Overseas now appeals.

    The standard of appellate review applicable to a grant of summary
judgment is de novo. Volusia Cnty. v. Aberdeen at Ormond Beach, L.P.,
760 So. 2d 126, 130 (Fla. 2000). Summary judgment is proper only if
there is no genuine issue of material fact and the moving party is entitled
to judgment as a matter of law. Id.

    Although Herzog contends that it could liquidate the Overseas account
in its sole discretion under the Customer Agreement, this discretion was
to be exercised “in accordance with its general polices regarding margin
maintenance requirements.” These policies were not defined in the
agreement. Indeed, Herzog had the right to request additional margin from
the customer when the account fell below minimum maintenance
requirements; failure to meet a margin call could result in the liquidation.
However, Dr. Elia contends, based on the manager’s explanation, that the
Overseas account was in full compliance with the minimum margin
requirements and that a proposed Monday liquidation would not occur if
the market opened “up.” Herzog disputes his calculations. Without the
policies or standards regarding the minimum maintenance requirements,
we cannot conclude that there are no remaining issues of material fact.

   Included in the breach of contract action is a claim that Herzog
breached an implied covenant of good faith and fair dealing. Because
Herzog had the discretion to liquidate, without defined standards
governing the exercise of that discretion, an implied covenant of good faith
arose, which can be breached:

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      Florida’s implied covenant of good faith and fair dealing is a
      gap-filling default rule. It is usually raised when a question is
      not resolved by the terms of the contract or when one party
      has the power to make a discretionary decision without
      defined standards.       Where there are no standards for
      exercising discretion, the implied covenant of good faith
      protects    contracting     parties’    reasonable   commercial
      expectations. “Unless no reasonable party in the position of
      [Publix] would have made the same discretionary decision
      [Publix] made, it seems unlikely that its decision would violate
      the covenant of good faith . . . .”

Publix Super Mkts., Inc. v. Wilder Corp. of Del., 876 So. 2d 652, 654-55 (Fla.
2d DCA 2004) (citations omitted) (quoting Sepe v. City of Safety Harbor,
761 So. 2d 1182, 1185 (Fla. 2d DCA 2000)); see also Meruelo v. Mark
Andrew of Palm Beaches, Ltd., 12 So. 3d 247 (Fla. 4th DCA 2009). There
are no defined standards for the exercise of discretion in the Customer
Agreement. Herzog did not file any affidavits showing what the standards
were, whether they were met in this case, or whether liquidation was
necessary for its own protection. As there were disputed issues of material
fact remaining to be resolved, Herzog failed to establish entitlement to
summary judgment.

    For these reasons, we reverse the final summary judgment and remand
for further proceedings.

TAYLOR and FORST, JJ., concur.

                            *         *         *

   Not final until disposition of timely filed motion for rehearing.




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