Usually a defendant has to pay damages only if his or her actions have caused a plaintiff some loss. But brokerage houses are being told repeatedly that they can be slapped for damages if they make unauthorized trades in a customer's account, even if those trades turn a profit.

Earlier this year, the U.S. Court of Appeals in San Francisco approved damages where there was no loss from an overly vigorous policy of buying and selling stocks because the penalties would "inform the brokerage community that churning is a fraud that will violate the securities laws, regardless of the ultimate condition of the client's portfolio."

Last month, the U.S. Court of Appeals in St. Louis came to the same conclusion. The St. Louis judges were considering the case of an 87-year-old South Dakota woman whose account at Merrill Lynch, Pierce, Fenner & Smith gravitated from her longtime account executive to an assistant who began trading it much more vigorously.

In less than three years the broker made more than 100 trades, totaling almost $2 million, in an account with an average value of $144,000. By the time she realized what was happening and complained, the portfolio had, even after deducting $43,468 in commissions, realized a net profit of more than $50,000.

Nonetheless, the jury told Merrill Lynch to pay its customer $100,000 in compensatory damages and an additional $2 million in punitive damages.

On June 15, the appellate judges upheld both awards. They accepted the jury's reasoning that the account would have been worth even more had the unauthorized trades not been made, but the opinion in Davis v. Merrill Lynch makes clear that what really concerned the judges was sending Wall Street a message that brokers cannot ignore their fiduciary duty to customers, even if they think they are making wise investment decisions.

The judges also saw nothing wrong with the punitive damages that were 20 times the amount of the actual loss as calculated by the jury.

Although the U.S. Supreme Court is scheduled to consider next term just when punitive damages become confiscatory, the judges in the Davis case were sure the process there passed constitutional muster.

The jury was given guidelines in assessing punitive damages -- including the amount of compensatory damages but also the enormity of the wrong and the intent of the wrongdoer -- and that keeps the amount from being deemed arbitrary, Judge Theodore McMillan said.

In other cases, courts ruled that:

A company may come under the jurisdiction of a state's courts because of business activities of a predecessor corporation. Even if the corporation now has no dealings within a state, merging with a company that used to sell there puts it within reach of the state's judiciary, the Pennsylvania Superior Court in Philadelphia ruled. (Simmers v. American Cyanamid, June 12) Old tax penalties can be discharged in bankruptcy. The U.S. Court of Appeals in Denver found that although bankruptcy does not let a taxpayer off the hook for underlying taxes that have been long due, it can wipe out the obligation to pay penalties imposed on taxes more than three years overdue. That's what the Tax Code says, but the federal government insists that it is not what Congress meant to say.

What the lawmakers meant is irrelevant, the judges found, when they did not translate that intent into the words of the statute -- and it is particularly inappropriate in tax legislation to let legislative history override the language of that statute.

(Roberts v. U.S., June 27) Employers have to be able to prove that they enforce their rules consistently. The D.C. Court of Appeals threw back a case in which a fired manager of a Burger King restaurant had been denied unemployment compensation.

As the company told it, the firing was for cause -- breaking the rule against keeping the outlet's take in the safe overnight. The manager said the company knew he was not making deposits when the store closed because he had no transportation to the bank and that no one complained until the money was stolen.

The appellate judges complained that hearing examiners too often just take the company's word on such issues, and that merely having an executive say that a rule was consistently enforced is not proof that it was.

(Freeman v. D.C. Dept. of Employment Services, June 6) Men's strengths may be more important than women's strengths. The U.S. Court of Appeals in Cincinnati ruled against charges of sex discrimination over a physical exam for potential firefighters that gave importance to the anaerobic qualities at which males usually excel -- speed and strength -- but ignored stamina and endurance, physical qualities on which women usually score better than men.

It's reasonable for a city to want firefighters who will be better the moment they arrive at a fire, the judges said; if they tire quickly, they can be replaced by fresh troops.

(Zamlen v. Cleveland, June 11)

Daniel B. Moskowitz is a Washington editor for Business Week newsletters.