Joslin v. Shareholder Services Group
| Citation | 948 F.Supp. 627 |
| Decision Date | 28 October 1996 |
| Docket Number | Civil Action No. H-96-0537. |
| Parties | Dennis JOSLIN, Plaintiff, v. The SHAREHOLDER SERVICES GROUP, Actuarial Computer Technology, Inc., and John Thomas Pass, Defendants. |
| Court | U.S. District Court — Southern District of Texas |
James Haralson Pearson, Pearson & Pearson, Houston, TX, for Plaintiff.
Jeffry J. Cotner, Gibbs & Bruns, Houston, TX, for Defendant.
MEMORANDUM AND ORDER GRANTING MOTION TO DISMISS
The Court considers the defendants' motion to dismiss the plaintiff's complaint for failure to state a claim upon which relief can be granted. Based upon a review of the complaint and the facts as alleged by the plaintiff, as well as the responses and briefs by both parties, the Court grants the defendants' motion to dismiss.
The plaintiff in this suit, Dennis Joslin, purchased from the Federal Deposit Insurance Corporation (FDIC) a promissory note and a security interest in shares of stock pledged as collateral for the note. The stock consisted of 22,904 shares of stock in Distributive Network of America, Inc. (Distributive), which had merged with a subsidiary of The Shareholder Services Group (TSSG) to form Actuarial Computer Technology, Inc. (ACTI). The FDIC had acquired the note and the security interest when it was appointed receiver for the defunct Metropolitan National Bank (Metropolitan). The note, made payable to Metropolitan, was executed by John Thomas Pass for the principal amount of $300,252.97. The note matured in 1990, but remained unpaid while Pass was engaged in bankruptcy proceedings. When Pass was discharged from bankruptcy in 1991, the debt was also discharged as a personal obligation. However, the FDIC's lien on the stock survived the discharge, and in 1992, the bankruptcy court permitted the FDIC to foreclose its lien.
Unbeknownst to the FDIC, on October 29, 1993, Pass presented TSSG with an affidavit claiming that the original stock certificates had been mislaid, lost, stolen, or destroyed and sought payment for the stock. He also failed to mention the FDIC's lien on the stock. TSSG paid Pass a total of $97,000 for the stock, without knowledge that the original stock certificates were in the possession of the FDIC.
At issue in this case is the written restriction on alienation printed on the face of the stock certificates. The restriction states,
OR "BLUE SKY" LAW OF ONE OR MORE STATE JURISDICTIONS.
The question for resolution is whether the Metropolitan Bank, and later the FDIC and the plaintiff, received any interest in the stock when Pass pledged the stock to the bank in violation of this express restriction.
The plaintiff seeks a declaratory judgment that he is the owner of the stock certificates. He also seeks all dividends and stock splits that have accrued since the FDIC acquired the shares. In the alternative, the plaintiff requests an accounting of all monies paid by or to the defendants and a judgment against the defendants, jointly and severally, for that amount. The plaintiff also prays for a foreclosure of his security interest.
The defendants,1 TSSG and ACTI, counter that the plaintiff's complaint on its face shows that he is not a stockholder entitled to any relief because his claim to the stock is only as an assignee, having taken the stock as collateral for a loan. Because of the stock restriction that conspicuously appears on the face of the stock certificates, the bank never received a valid pledge and the plaintiff acquired no greater rights than the bank.
The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. The Court initially denied the motion, but upon reconsideration, is of the opinion that the motion should be granted. In considering whether to grant a motion to dismiss, a court considers the allegations in the complaint, as well as any attached exhibits. Burch v. Apalachee Community Mental Health Services, Inc., 840 F.2d 797, 798 (11th Cir.1988); 5A Wright & Miller, Federal Practice and Procedure § 357 (1990); see also Case v. State Farm Mutual Automobile Insurance Co., 294 F.2d 676, 676-77 (5th Cir.1961) (). The court must construe the complaint in the light most favorable to the plaintiff, taking the allegations as true. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Miller v. Stanmore, 636 F.2d 986, 988 (5th Cir.1981). Because courts disfavor motions to dismiss for failure to state a claim, Kaiser Aluminum & Chemical Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir.1982), it must appear "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957).
In the instant case, the plaintiff's allegations are immaterial and fail to state a claim, if he never obtained an interest in the stock. Pass's pledge of the stock to Metropolitan Bank, in violation of the express restriction on the face of the stock certificates, requires this Court to determine whether any interest in the stock passed to Metropolitan and, subsequently, to the plaintiff when he purchased the instruments.
To determine whether any interest in the stock passed to Metropolitan, and eventually to the plaintiff, the Court must first determine whether Pass violated the restriction on the face of the stock certificates when he pledged the certificates to Metropolitan as collateral for his note. Assuming that the restriction is enforceable under Delaware law, what is the effect of the violation on subsequent takers of the certificates? The Court begins with a discussion of whether the stock restriction was violated.
The stock certificates provide, in boldface, capitalized type on the front of the certificates, that the shares shall not be "SOLD, TRANSFERRED, PLEDGED OR ASSIGNED WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY." When Pass gave the certificates to Metropolitan as collateral for the note, he undoubtedly "pledged" them to the bank. A "pledge" is a "bailment of goods to a creditor as a security for some debt or engagement," or "a security interest in a chattel or intangible represented by an indispensable instrument ..., the interest being created by a bailment for the purpose of securing the payment of a debt or the performance of some other duty." Black's Law Dictionary 1038 (5th ed. 1979). Therefore, Pass pledged the stock certificates to the bank to secure his promissory note. And, in the absence of any claim that the company consented to the pledge, the Court concludes that the stock restriction was violated.
The validity of any stock restriction is determined according to the law of the state of incorporation. B & H Warehouse, Inc. v. Atlas Van Lines, Inc., 490 F.2d 818, 821 (5th Cir.1974). In this case, the parties agree that the law of Delaware governs because the company in question is a Delaware corporation. In the area of corporate stock restrictions, the state of Delaware has the most permissive law in the country. See Joseph E. Seagram & Sons, Inc. v. Conoco, Inc., 519 F.Supp. 506, 512 (D.Del.1981) (quoting Ernest Folk, The Delaware General Corporation Law 197-98 (1972)). The Delaware Code provides:
(a) A written restriction on the transfer or registration of transfer of a security of a corporation, if permitted by this section and noted conspicuously on the certificate representing the security ... may be enforced against the holder of the restricted security or any successor or transferee of the holder.... Unless noted conspicuously on the certificate representing the security ... a restriction, even though permitted by this section, is ineffective except against a person with actual knowledge of the restriction.
Del.Code Ann. tit. 8, § 202(a).
There is no doubt that the restriction on the stock in question is "noted conspicuously" on the stock certificate. Under Delaware's Uniform Commercial Code a term is "conspicuous" when it is written so Del. Code Ann. tit. 6, § 1-201(10). Because the stock restriction at bar appears in bold, capital letters on the front of each stock certificate, a reasonable person examining the stock certificates could not overlook the restrictive words on the face of the instruments. Thus, the stock restriction appears valid and enforceable.
The determination of the validity of the restriction is further buttressed by the express provision requiring corporate consent prior to the transfer of stock:
(c) A restriction on the transfer of securities of a corporation is permitted by this section if it:
. . . . .
(3) Requires the corporation or the holders of any class of securities of the corporation to consent to any proposed transfer of the restricted securities or to approve the proposed transferee of the restricted securities....
Id. § 202(c)(3). The restriction prohibits the transfer or assignment of the stock without the prior written consent of the company.
The plaintiff argues that the stock restriction does not satisfy Delaware law because it is unclear and ambiguous. However, the plaintiff makes only conclusory statements to this...
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...exempt from any registration requirements as a nonpublic offering under section 4(1) of the Act). But see Joslin v. Shareholder Servs. Grp., 948 F.Supp. 627, 634–35 (S.D.Tex.1996) (holding that pledge of stock in violation of certificate restriction related to the 1933 Securities Act passed......
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