Burtman v. TECHNICAL CHEMICALS AND PROD.

• Citation: 724 So.2d 672
• Decision Date: 20 January 1999
• Docket Number: No. 98-0712.,98-0712.
• Parties: Maxine BURTMAN, as Trustee, Appellant, v. TECHNICAL CHEMICALS AND PRODUCTS, INC., a Florida corporation, Brian Foremny, and Holland & Knight LLP, a Florida partnership, Appellees.
• Court: Florida District Court of Appeals

724 So.2d 672

Maxine BURTMAN, as Trustee, Appellant, v. TECHNICAL CHEMICALS AND PRODUCTS, INC., a Florida corporation, Brian Foremny, and Holland & Knight LLP, a Florida partnership, Appellees.

No. 98-0712.

District Court of Appeal of Florida, Fourth District.

January 20, 1999.

Donna M. Greenspan of Edwards & Angell, Palm Beach, for appellant.

Dennis A. Nowak, and Karen Levine of Tew & Nowak, Miami, for appellees.

GROSS, J.

The main issue we address in this case is whether under section 678.401, Florida Statutes (1997), a plaintiff may seek injunctive relief in addition to damages for noncompliance with the statute. We hold that a plaintiff may pursue both avenues of relief.

This is an appeal from an order granting a motion to dismiss. We will therefore treat the factual allegations of the amended complaint as true and consider them in the light most favorable to the appellant. See, e.g., Caretta Trucking, Inc. v. Cheoy Lee Shipyards, Ltd., 647 So.2d 1028, 1030 (Fla. 4th DCA 1994)

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In July 1993, appellee Technical Chemicals and Products, Inc. (TCPI) retained attorney John Faro to represent it in a patent proceeding. In August 1993, Faro established the Family Support and Permanent Alimony Irrevocable Trust for Marisa T. Faro ("Trust") to meet his alimony and child support obligations arising from a dissolved marriage. Appellant Maxine Burtman agreed to serve as the trustee of the Trust. In August 1994, Faro and TCPI agreed to modify Faro's fee arrangement so that Faro would receive a stock option to purchase 50,000 shares of TCPI at $4.00 per share after the date of TCPI's initial public offering. In March 1995, Faro transferred the stock option to the Trust and notified TCPI of the transfer. In August 1995, the TCPI stock split two for one, and the option was adjusted to reflect the split, so that it was for 100,000 shares at $2.00 per share.

In December 1995, the trustee partially exercised the option and advised TCPI of her intent to purchase 50,000 shares of stock at $2.00 per share. The trustee tendered $100,000 of the Trust's funds to TCPI and 50,000 shares of stock were issued to the Trust as recorded by Certificate No. F 1355. These shares were issued as restricted shares, which means that they may only be sold pursuant to a registration statement filed with the Security and Exchange Commission (SEC) or under an exemption from registration requirements under applicable securities laws. Consequently, the certificate issued bore the following legend:

The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended and may not be sold, transferred, pledged, hypothecated or otherwise disposed of in the absence of (i) an effective registration statement for such securities under said act or (ii) an opinion of company counsel that such registration is not required.

At the trustee's request, TCPI registered 10,000 shares of stock with the SEC in May 1996, and offered the stock for sale to the public. TCPI paid the proceeds from the sale to the Trust. Certificate No. FN 2035 was issued to represent the remaining 40,000 shares of TCPI stock. The certificate bore the same restrictive legend as is set forth above.

In June 1996, appellant had the opportunity to sell the Trust's remaining 40,000 shares of stock to Chase Securities, Inc. (Chase). The Trust sought TCPI's approval of the proposed private sale to Chase. TCPI's counsel, Brian Foremny and Holland & Knight LLP, advised the Trust to have its counsel prepare an opinion letter addressed to TCPI confirming the availability of an exemption from registration requirements as was required in the restrictive legend. The Trust's lawyer prepared the draft opinion letter as requested.

In July 1996, Foremny and Holland & Knight advised the Trust that TCPI had instructed them to take no action on the Trust's request to obtain the necessary approval to sell the stock. At about the same time, TCPI filed a lawsuit against Faro and the Trust alleging that Faro had committed numerous acts of malpractice and that he had fraudulently transferred the stock option to the Trust. On July 10, 1996, Foremny and Holland & Knight informed the Trust's lawyer that the shares were the subject of the lawsuit filed by TCPI against Faro and the Trust, and that "the proposed sale of shares held for less than one year raised numerous considerations, including whether it was appropriate for TCPI to permit private sales outside of Rule 144." Because the Trust could not obtain an opinion from company counsel under the terms of the restrictive legend, the Trust lost the opportunity to sell the stock in accordance with the written offer from Chase.

SEC Rule 144, 17 C.F.R. § 230.144, provides a "safe harbor" exemption, which, if applicable, allows an individual to sell unregistered securities. The Securities Act of 1933

generally makes it unlawful for any person to sell any security that is not registered unless an exemption from registration is applicable. 15 U.S.C. § 77e(a) and § 77d. Section 4(1) of the Act (§ 15 U.S.C. 77d(1)) provides an exemption for sales made by persons other than an "issuer, underwriter or dealer." Because of the Act's broad definition of the term "underwriter," Rule 144 was adopted to provide a "safe harbor" exemption in certain circumstances in which the seller might otherwise be considered to be an "underwriter." Under that Rule, a sale is exempt if it meets all the requirements of Rule 144.

Bender v. Memory Metals, Inc., 514 A.2d 1109, 1112 n. 5 (Del.Ch.1986). Pursuant to Rule 144, as amended April 29, 1997, restricted shares held for at least one year after payment may be sold into the public trading market, subject to compliance with the manner of sale, notice, and volume limitation provisions of Rule 144.

When the Rule 144 holding period was decreased on April 29, 1997, the Trust had held its 40,000 shares for more than one year, having purchased them on December 15, 1995. The Trust retained the services of the brokerage firm Alex Brown to assist it in selling the Trust's remaining shares of TCPI stock under Rule 144. Because the stock certificate bore the restrictive legend requiring an opinion of company counsel that registration was not required, TCPI's transfer agent would not record a sale of the stock and issue a new certificate to the purchaser free of the restrictive legend.

Alex Brown requested from TCPI and Foremny an opinion of company counsel that pursuant to Rule 144 no registration of the stock was necessary in connection with the Trust's proposed sale of stock. TCPI and Foremny told Alex Brown "that the shares were not saleable because they were subject to a lawsuit." As a result of the refusal to provide the opinion of counsel, the Trust has been unable to sell its TCPI stock.

In December 1997, the Trust filed a four count amended complaint against TCPI, Foremny, and Holland & Knight. Counts I and II were based on section 678.401, Florida Statutes (1997), which provides:

(1) If a certificated 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, pledge, or release, the issuer shall register the transfer, pledge, or release as requested if:

(a) The security is indorsed or the instruction was originated by the appropriate person or persons (s. 678.308);

(b) Reasonable assurance is given that those indorsements or instructions are genuine and effective (s. 678.402);

(c) The issuer has no duty as to adverse claims or has discharged the duty (s. 678.403);

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

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

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

In count I of the amended complaint, the Trust sought injunctive relief compelling appellees to issue an opinion that the Trust's shares need not be registered in order to be transferred. Count II was an action for damages arising from the failure to perform duties required by the statute.

The trial court denied the defendants' motion to dismiss count II of the amended complaint. However, the court granted the motion to dismiss count I for injunctive relief. The court agreed with the defendants that a showing of irreparable harm was required to state a cause of action for injunctive relief under section 678.401; the court reasoned that there could be no showing of irreparable harm because any injury could be fully compensated by money damages.

As a preliminary matter, we note our agreement with a portion of the trial court's ruling implicit in its denial of the motion to dismiss count II. The Trust's request for an opinion of company counsel regarding the Rule 144 exception is covered by section 678.401. The duty imposed by the statute is to register a transfer of stock under certain circumstances. Under the facts as pled, recognition of the applicability of the Rule 144 exemption is a ministerial act that must occur before the securities can be transferred. See Bender, 514 A.2d at 1115

; American Securities Transfer, Inc. v. Pantheon Industries, Inc., 871 F.Supp. 400, 403 (D.Col.1994). Section 678.401 should be read to include such ministerial acts.

The language of section 678.401 supports the conclusion that the statute contemplates entitlement to both injunctive relief and damages in the event of a statutory violation. Section 678.401(1) provides that the issuer "shall register" a transfer if the conditions in subsections (a) through (e) are satisfied. Any "right or obligation"...