Castro v. ITT Corp.

• Decision Date: 08 February 1991
• Docket Number: No. 11531,11531
• Citation: 598 A.2d 674
• Parties: 16 UCC Rep.Serv.2d 771 Victor Fernandez CASTRO, et al., Petitioners, v. ITT CORPORATION (a Delaware corporation), Respondent. Civ. A. . Submitted:
• Court: Court of Chancery of Delaware

Page 674

598 A.2d 674

16 UCC Rep.Serv.2d 771

Victor Fernandez CASTRO, et al., Petitioners, v. ITT CORPORATION (a Delaware corporation), Respondent.

Civ. A. No. 11531.

Court of Chancery of Delaware New Castle County.

Submitted: Feb. 8, 1991.

Decided: May 30, 1991.

Revised: May 31, 1991.

Bertram S. Halberstadt, Wier & Halberstadt, Wilmington (Harry A. Ezratty, and Philip E. Roberts, San Juan, Puerto Rico, Ismael Marrero, Hato Rey, Puerto Rico, of counsel), for petitioners.

Allen M. Terrell, Jr., and David L. Finger, Richards, Layton & Finger, Wilmington, for respondent.

OPINION

ALLEN, Chancellor.

Cross motions for summary judgment have been presented in this action seeking to compel a Delaware corporation to issue stock certificates and to pay cash dividends that the issuer has accumulated and holds for the owner of the shares in question. The shares are registered in the name of a Cuban partnership, Fernandez Castro and Company, S en C. Petitioners assert in the affidavit of Victor Fernandez Castro that they constitute all of the general partners (or the heirs of the general partners) of Fernandez Castro and Company, S en C (the "Partnership"); that the Partnership was seized, without compensation, by the government of the Republic of Cuba in 1962; and that they are the true owners of property held in the United States in the name of the Partnership.

More specifically, according to the affidavit of Mr. Fernandez Castro, the relevant facts appear as follows:

On March 7, 1962, armed representatives of the revolutionary government of Cuba arrived at the Partnership's place of business in Havana and, purporting to act by law and as part of a general seizure of the paper and printing industry, forcibly seized the Partnership in the name of the Republic of Cuba. No compensation was paid.

Fernandez Castro and Company, S en C had been in business since 1851. At the time of the seizure there were three general partners of the Partnership: Victor Fernandez Castro (the petitioner), his uncle, Manuel Fernandez Gonzalez, and his cousin, Gonzalo Rodriguez Lopez. The Partnership had a limited (silent) partner: Eladio Blanco Fernandez. According to the petitioners, each general partner held a 30% interest in the Partnership, and Eladio Fernandez held a 10% interest.

In the 1920s the Partnership had started investing in a small way in the shares of International Telegraph & Telephone Corporation (now ITT Corporation). By the time of the Cuban government's seizure, the Partnership owned some 2,226 shares of ITT common stock which were registered in the name of the Partnership. The certificates were held by Mr. Blanco Fernandez for the Partnership, but he, it is said, had no beneficial interest in them.

Within a few months of the seizure, Mr. Fernandez Castro emigrated to the United States and thereafter became a citizen of this country. The other petitioners in this action are alleged to be the heirs of his two relatives who were the other general partners in the Partnership.

Following the establishment of the revolutionary government in Cuba and its seizure of the Partnership, the United States government, in July 1963, froze all assets of Cuban nationals or entities located in the United States. Thereafter, in 1968, ITT declared a two-for-one stock dividend. Because of the blocking order, however, it has never delivered that stock dividend, or later cash dividends on the original 2,226 shares, to the Partnership but has held them, apparently in a segregated account. Now held by ITT are 2,226 dividend shares and more than $180,000 (as of 1989) in cash dividends.

In July 1989, Mr. Fernandez Castro succeeded in having the U.S. Treasury Department's Office of Foreign Asset Control issue an unblocking license ¹ stating in part:

ITT Corporation is hereby authorized to unblock one-forth ( 1/4) of the shares and all accumulated dividends thereon, of ITT common stock registered in the name of "Fernandez Castro y Compania S en C" and distribute the 1,113 shares and related dividend income to Victor Fernandez Castro. ²

On March 2, 1990, a similar license was issued to the wife (Marina P. Rodriguez) and daughter (Ana Rodriguez) of Gonzalo Rodriguez Lopez (who died in Cuba in 1966), covering 1,113 ITT shares plus 25% of accumulated dividends.

On June 1, 1990, the Estate of Manuel Fernandez Gonzalez (who died in Spain in 1979) was granted a similar license for 1,113 shares and appurtenant dividends. The license listed six individuals as beneficiaries of the estate to whom ITT was permitted to make payments.

At the time the petition was filed, it was alleged that over the years no claims or communications had been made to ITT with respect to these shares by anyone other than petitioners. ³

Petitioners have demanded that ITT transfer the property in question to them as authorized by the Department of Treasury licenses. The Company declined to do so. It insisted that petitioners furnish it with a surety bond that would fully protect it in the event that a later owner should appear. At the same time, the Company acknowledged that such a bond was not commercially available where property affected by a Cuban seizure was involved.

Petitioners then initiated this action.

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Petitioners characterize their suit as one arising under Section 168 of the Delaware General Corporation Law. That section provides a procedure by which the "lawful owner" of shares can compel the issuance of new certificates upon proof that his certificates have been lost, stolen or destroyed. As a condition to such relief, Section 168 requires the court to fix a bond in an amount thought sufficient to protect the corporation. The statute limits the liability of the corporation to other claimants thereafter.

Petitioners' core position is that they can prove themselves to be the equitable owners of the original shares; that those shares are property located in the U.S. (i.e., in Delaware); and that the United States Constitution requires that the confiscatory act of the Cuban government be denied any extraterritorial effect in this country. Thus, they conclude that under these circumstances, ITT and this court are obligated to recognize them as the lawful owners of the partnership's property located in the U.S. If their claim to beneficial ownership is provable, they say, then to fail to recognize it would be to accord an illicit seizure the dignity of a valid act of state, something courts in similar cases have refused to do.

The corporation resists the relief, asserting that since petitioners are not the registered owners of the Company's stock, it is under no obligation to recognize their "equitable" claims to ownership. Secondly, the Company asserts this court has no jurisdiction over this matter because this matter is essentially one to determine legal title to property over which, they say, Chancery has historically not assumed jurisdiction. Finally, respondent asserts that the Republic of Cuba is an entity with an interest in this action in whose absence the claim must be dismissed.

For the reasons that follow, I conclude that petitioners are entitled to an adjudication in this court of their claimed right to the issuance of certificates for the ITT stock in issue here. That is, I cannot accept respondent's assertion that one who is not a registered owner of stock has no standing to bring a Section 168 action. I also reject the assertion that this court has no subject matter jurisdiction with respect to this claim ⁴ and that the Republic of Cuba is an indispensable party to this litigation. Thus, I conclude that respondent's motion for summary judgment must be denied. With respect to petitioners' motion, I conclude that the matter has not been put into an appropriate posture procedurally in order to determine factually, the claim to "lawful owner[ship]," 8 Del.C. § 168, or the appropriate bond, if such claim is established.

I.

I turn first to the question whether the fact that the original shares are registered to a foreign entity and not to petitioners precludes the relief sought.

In a number of circumstances the Delaware corporation law permits a corporation to rely exclusively upon its stock ledger in order to determine who are its stockholders. See, e.g., 8 Del.C. § 219(c) (stock ledger "shall be the only evidence as to who are the stockholders entitled ... to vote ..."); 8 Del.C. § 220 (defining stockholders entitled to inspect books and records as "a stockholder of record"); and 8 Del.C. § 222(b) (notices to stockholders). This rule of expediency, however, does not pertain to rights under Section 168. The language of that section makes it apparent that the "owners" that have rights under that section are not limited to "registered owners." Section 168 provides in part as follows:

(a) If a corporation refuses to issue new uncertificated shares or a new certificate of stock in place of a certificate theretofore issued by it ... alleged to have been lost, stolen or destroyed, the owner of the lost, stolen or destroyed certificate or his legal representatives may apply to the Court of Chancery for an order requiring the corporation to show cause why it should not issue new uncertificated shares or a new certificate of stock in place of the certificate so lost, stolen or destroyed.

* * * * * *

(b) If, upon hearing, the court is satisfied that the petitioner is the lawful owner of the number of shares of capital stock, or any part thereof, described in the petition, and that the certificate therefor has been lost, stolen or destroyed, and no sufficient cause has been shown why new uncertificated shares or a new certificate should not be issued in place thereof, it shall make an order requiring the corporation to issue and deliver to the petitioner new uncertificated shares or a new certificate for such shares. (emphasis added)

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The statutory language "owner" or "lawful owner," when read against other provisions of the...