American Securities Transfer v. PANTHEON INDUST., Civ. A. No. 93-B-1432.

• Decision Date: 02 December 1994
• Docket Number: Civ. A. No. 93-B-1432.
• Citation: 871 F. Supp. 400
• Parties: AMERICAN SECURITIES TRANSFER, INCORPORATED, Plaintiff, v. PANTHEON INDUSTRIES, INC., a Colorado corporation; A.R.G.I., Incorp., an Arizona corporation; and Princeton American Corporation, an Arizona corporation, Defendants.
• Court: U.S. District Court — District of Colorado

871 F. Supp. 400

AMERICAN SECURITIES TRANSFER, INCORPORATED, Plaintiff, v. PANTHEON INDUSTRIES, INC., a Colorado corporation; A.R.G.I., Incorp., an Arizona corporation; and Princeton American Corporation, an Arizona corporation, Defendants.

Civ. A. No. 93-B-1432.

United States District Court, D. Colorado.

December 2, 1994.

Patrick J. Russell, Denver, CO, for plaintiff.

Richard S. Strauss, Hochstadt, Straw & Stauss, P.C., Denver, CO, for defendants A.R.G.I. and Princeton American.

Miles M. Gersh, James S. Helfrich, Gersh & Danielson, Denver, CO, for defendant Pantheon Industries.

MEMORANDUM OPINION AND ORDER

BABCOCK, District Judge.

Plaintiff American Securities Transfer, Incorporated (AST) filed this interpleader action to determine the ownership to stock certificate no. 2770 (the certificate), issued to defendant A.R.G.I., Incorporated (A.R.G.I.) and representing 2,000,000 shares of Pantheon Industries, Inc. (Pantheon) common stock when issued. AST asserts no interest in the certificate. A.R.G.I. and Princeton American Corporation (Princeton) (collectively A & P) bring one counterclaim against AST alleging that AST violated § 4-8-401, 2 C.R.S. (1992) and, thus, they are entitled to damages. A & P also assert this claim against Pantheon. In addition, they assert cross-claims against Pantheon for breach of contract, state and federal securities fraud, and exemplary damages. Similarly, Pantheon asserts cross-claims against A.R.G.I. for federal securities fraud, common law fraud, and lack of standing. It also brings a claim against Princeton for violation of Rule 144 of the Securities and Exchange Commission.

AST and Pantheon move for summary judgment on A & P's claim that they violated § 4-8-401. A & P cross-move for partial summary judgment against AST and Pantheon on this same claim. Pantheon also moves for partial summary judgment seeking a declaration that it is the rightful claimant to the stock certificate at issue. These motions are briefed fully and oral argument is unnecessary. For all the reasons set forth below, AST's and Pantheon's motions will be granted to the extent of Princeton's § 4-8-401 claim. Because genuine issues of material fact otherwise exist, the remaining motions will be denied.

I.

Summary judgment shall be granted if the pleadings, depositions, answers to interrogatories, admissions, or affidavits show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The nonmoving party has the burden of showing that there are issues of material fact to be determined. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A party seeking summary judgment bears the initial burden of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, interrogatories, and admissions on file together with affidavits if any, which it believes demonstrate the absence of genuine issues for trial. Celotex, 477 U.S. at 323, 106 S.Ct. at 2552-53; Mares v. ConAgra Poultry Co., Inc., 971 F.2d 492, 494 (10th Cir.1992). Once a properly supported summary judgment motion is made, the opposing party may not rest on the allegations contained in his complaint, but must respond with specific facts showing the existence of a genuine factual issue to be tried. Otteson v. U.S., 622 F.2d 516, 519 (10th Cir.1980); Fed.R.Civ.P. 56(e).

II.

The following facts are undisputed. AST and Pantheon are corporations organized and existing under the laws of the State of Colorado. Scheduling Order, "Undisputed Facts" (the Order), ¶ 1. AST is Pantheon's stock transfer agent. Order, ¶ 2. In February 1990, Pantheon and Minco American Corporation (Minco) discussed a potential merger of their companies. Order, ¶ 3. Dale Eyman (Eyman) and David Smith (Smith), as Minco's officers and directors, were primarily responsible for the merger negotiations. Id. At this time, Pantheon owed its auditors, Toback & Co. (Toback) approximately $55,000. Id. at ¶ 4.

AST issued the certificate to A.R.G.I. on March 12, 1990 pursuant to instructions received from Pantheon. Affidavit of Kellie D. Watson, AST's senior vice president (Watson affid.), ¶¶ 3 and 4. This certificate contains a restrictive legend which reads:

The shares represented by this Certificate have not been registered under the Securities Act of 1933 (the Act) and are "restricted securities" as that term is defined in Rule 144 under the Act. The shares may not be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Act or pursuant to an exemption from registration under the Act, the availability of which is to be established to the satisfaction of the Company.

A.R.G.I.'s and Princeton's Cross-Motion (A & P motion), exh. A. The certificate also states on its face that the shares of common stock are "fully paid and nonassessable". Id. Several days earlier, Eyman, on behalf of A.R.G.I., executed an investment letter acknowledging the restrictive legend. AST's exh. A. Eyman is and was A.R.G.I.'s sole officer and director. Deposition of Dale Edward Eyman, Jr. (Dep. Eyman), p. 108. On February 28, 1990, A.R.G.I. issued a $40,000 promissory note (the A.R.G.I. note) to the order of Pantheon's wholly-owned subsidiary, Pantheon Studios, Inc. (Pantheon Studios). The A.R.G.I. note is also signed by Dale Eyman, on behalf of A.R.G.I. Pantheon's exh. E. A.R.G.I. has made no payments on its note. Pantheon's exh. O — A.R.G.I.'s answer to interrogatory No. 4.

Notwithstanding the certificate's restrictive legend, A.R.G.I. purportedly assigned and transferred the certificate to Minco on February 28, 1991. Pantheon's exh. T. Approximately two months later, Minco sold its assets to Princeton. Pantheon's exh. U. Smith and Eyman are also officers and directors of Princeton. Dep. Eyman, pp. 109-10.

In a letter dated August 18, 1992, Pantheon advised AST that the certificate was issued in error and instructed AST to cancel it. Order, ¶ 8; Pantheon's exh. X. In response, AST advised Pantheon that it was unable to cancel the certificate but would place a stop transfer order against it. Pantheon's exh. Y and Watson affid., ¶ 6. Enclosed in a May 11, 1993 letter, A.R.G.I. submitted the certificate to AST and requested that a new stock certificate be issued to A.R.G.I. without the restrictive legend (the reissuance request). Pantheon's exh. Z. In a May 19, 1993 letter, AST notified Pantheon of A.R.G.I.'s request and informed it that the transfer would be completed unless AST received, within thirty days, a court order precluding the transfer or an indemnity bond protecting AST against any loss. Order, ¶ 14; Watson affid., ¶ 9 and attached exh. F. On May 21, 1993, Pantheon responded by phone and in writing instructing AST not to transfer the shares. Order, ¶ 15; Watson affid., ¶¶ 9 and 10. AST then advised A.R.G.I. of Pantheon's position and transmitted via facsimile the pertinent documents. Watson affid., ¶ 13. Watson told A.R.G.I. to obtain a legal opinion which addresses all points raised in Pantheon's letter. Id. and attached exh. H. On June 15, 1993, Watson received a letter via facsimile from T. Michael Daggett (Daggett), A.R.G.I.'s attorney. Id. at ¶ 14 and attached exh. I. This letter along with Pantheon's instructions were forwarded to AST's legal counsel. Id. at ¶ 15. AST received neither a court order precluding A.R.G.I.'s reissuance request nor a surety bond. Id. at ¶ 16. Nevertheless, AST did not proceed with the reissuance request. Id. Instead, AST brought this interpleader action.

III.

A.

The first question raised is whether AST breached its duties under Article 8 of the Uniform Commercial Code. Because the issuer, Pantheon, is a Colorado corporation, Colorado law governs. § 4-8-106, 2 C.R.S. (1992). Under C.R.S. § 4-8-401(1), an issuer has a duty to register the transfer of securities as requested if certain preconditions are met. Dempsey-Tegeler & Co. v. Otis Oil & Gas Corp., 293 F.Supp. 1383, 1385 (D.Colo. 1968). Section 4-8-401 provides in relevant part:

Duty of issuer to register transfer ...

(1) If a certified security in registered form is presented to the issuer with a request to register transfer or an instruction is presented to the issuer with a request to register transfer ... the issuer shall register the transfer ... as requested if:

(a) The security is indorsed or the instruction was originated by the appropriate person ...; and

(b) Reasonable assurance is given that those indorsements or instructions are genuine and effective ...; and

(c) The issuer has no duty as to adverse claims or has discharged the duty (section 4-8-403); and

(d) Any applicable law relating to the collection of taxes has been complied with; and

(e) The transfer ... is in fact rightful or is to a bona fide purchaser.

(2) If an issuer is under a duty to register a transfer ... of a security, the issuer is also liable to the person presenting a certificated security or an instruction for registration or his principal for loss resulting from any unreasonable delay in registration or from failure or refusal to register the transfer ...

Official comment 3 states that "if any of the preconditions do not exist, there is no duty to register the transfer." Pursuant to § 4-8-406, a coextensive duty is imposed upon a transfer agent to register a transfer request. The provisions of §§ 401 and 406 apply to the request to reissue the certificate here as this is a predicate for transfer of the certificate. Bender v. Memory Metals, Inc., 514 A.2d 1109, 1115 (Del.Ch.1986); Kenler v. Canal Nat. Bank, 489 F.2d 482, 485 (1st Cir.1973).

The parties address two of the above conditions in their motions — §§ 401(1)(c) and (e). A & P argues that Pantheon's August 18, 1992 letter did not give rise to an "adverse claim" upon which AST had a duty to inquire under § 401(1)(c). However, they concede,...