Melville v. Wantschek
| Decision Date | 31 October 1975 |
| Docket Number | No. 69 Civ. 1617.,69 Civ. 1617. |
| Citation | 403 F. Supp. 439 |
| Parties | Robert L. MELVILLE, Individually and Derivatively in the Right and for the Benefit of Theil, Inc., Plaintiff, v. Walter C. WANTSCHEK et al., Defendants. FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver, Third-party Plaintiff, v. Henry A. SHAPIRO, Esq., et al., Third-party Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Schwenke & Devine, New York City, for plaintiff.
Sahn, Shapiro & Epstein, New York City, for Franklin National Bank.
Konheim, Halpern & Bleiwas, New York City, for Shapiro, Driscoll & Gottschalk on cross claims.
Shapiro, Driscoll & Canzomeri, Franklin Square, N. Y., for Shapiro, Driscoll & Gottschalk on main claim.
Santangelo & Santangelo, New York City, for Theil, Inc. (3d cause).
John Mitchell, New York City, for Theil Inc. (1st & 2d cause), and Wantschek, Sicinski, Rossi, Guttenberg and Walsh.
After six years of pre-trial maneuvering and the fairly recent filing by the plaintiff of an amended complaint and an amended pre-trial order, defendant Franklin National Bank (Federal Deposit Insurance Corporation, as Receiver — hereinafter "Franklin") has moved pursuant to FRCP 56 for summary judgent with respect to the first and second claims against it (the third through sixth claims are not made against said defendant) in plaintiff's amended complaint.
Plaintiff in his first claim against Franklin alleges that Franklin, as transfer agent of Theil, Inc., wilfully, wrongfully, negligently and recklessly has since July 2, 1968 refused to permit plaintiff to sell some 9,888 shares of unregistered Theil stock and that as a result thereof plaintiff has been damaged in the sum of at least $165,000.
In his second claim, plaintiff realleges his first claim and aserts that Franklin wrongfully and fraudulently exercised dominion over and converted to its own use and benefit said 9,888 shares of Theil stock and seeks damages in the sum of $183,000 plus punitive damages in the sum of $500,000.
The following are facts which were stipulated by the parties or as to which there appears to be no dispute:
Plaintiff was and is a citizen of the State of Pennsylvania.
Defendant Theil, Inc. (formerly Theil Publications, Inc.; herein "Theil") was and is a New York corporation with its principal place of business in this State.
On September 23, 1971 Theil filed an assignment for the benefit of creditors in Nassau County, New York.
Franklin was a national banking association organized and existing under the laws of the United States.
On October 8, 1974 the Comptroller of the Currency declared Franklin to be insolvent and designated Federal Deposit Insurance Corporation as Receiver for said bank.
At all relevant times Franklin acted as transfer agent for the shares of stock of Theil pursuant to an appointment dated June 10, 1961.
At all relevant times defendants Henry A. Shapiro, Thomas L. Driscoll, Jr. and Stanley Gottschalk ("Gottschalk") comprised a law partnership doing business as Shapiro, Driscoll & Gottschalk and prior to November 1970 they were and acted as counsel for Theil.
In or about April 1963 plaintiff became employed by Ewing Technical Design, Inc. ("Ewing").
From 1965 through 1967 Ewing was a subsidiary of Theil.
Plaintiff issued the following checks to the following persons in payment for Theil's stock:
Amount of
Seller Date Check
Nathan Abramowitz June 29, 1965 $2,625.00
Louis Sepe June 29, 1965 2,400.00
Louis Sepe Feb. 6, 1966 403.00
Louis Sepe Feb. 6, 1966 40.00
Louis Sepe July 26, 1966 2,000.00
Walter Wantschek May 29, 1967 2,100.00
Plaintiff wrote the following investment letters pertaining to his purchases of Theil stock:
Theil common stock was issued in plaintiff's name as follows:
Investment stops were placed on records of Franklin for plaintiff's shares as follows:
Plaintiff concededly was aware of the contents of the investment letters which he signed.
By letter dated February 7, 1968, plaintiff applied to the Securities and Exchange Commission for a "no-action" letter on the sale of his 11,888 shares of Theil common stock without compliance with the registration requirements of the Securities Act of 1933. In reply thereto in a letter dated February 23, 1968 the Assistant Chief Counsel of the Division of Corporation Finance of the SEC wrote to the plaintiff in pertinent part that:
On March 10, 1968 the plaintiff wrote to Mr. Stanley Gottschalk requesting an opinion letter permitting him to sell 2,000 shares of his Theil stock. Plaintiff, however, did not advise Gottschalk that he had just made an application to the SEC for a "no-action" letter which had been denied.
Based on various representations in plaintiff's letter dated March 10, 1968, regarding his need for money to pay funeral expenses and his shortage of cash, Gottschalk's law firm, by letter dated March 12, 1968 to Franklin, rendered an opinion that the transfer by the plaintiff of 2,000 of these unregistered shares would not constitute a violation of the Securities Act of 1933, as amended.
On March 15, 1968, plaintiff, through his securities broker, submitted to Franklin Certificate CU 603 for 9,888 shares with Mr. Gottschalk's opinion letter of March 12, 1968 and plaintiff sold 2,000 shares of Theil, Inc. stock as follows:
1. March 19, 1968—1,000 shares for $4,880
2. April 11, 1968— 500 shares for $2,554.35
3. April 18, 1968— 500 shares for $2,501.85
__________
Total $9,636.20
On May 31, 1968 plaintiff was discharged by Ewing.
In a letter dated July 2, 1968, plaintiff wrote Gottschalk again requesting his opinion that he was free to sell all of his shares of Theil based on a claim that he had held the shares long enough and that his "circumstances have changed decidedly" in that "in seeking new employment I have found a distinct reluctance on the part of potential employers to hire me because of my stock position with Theil" and in that he had lost his position with Theil.
Even though plaintiff still had not advised Gottschalk that he had made previous application to the SEC for a "no-action" letter which request had been turned down, Gottschalk declined to issue the requested opinion letter and suggested to plaintiff that he apply to the SEC. Plaintiff, however, did not accept this suggestion.
By agreement dated August 7, 1968, plaintiff began a new employment with Numerical Control Program & Education, Inc. ("Numerical") under the terms of which plaintiff's employment was not to commence until October 14, 1968. Plaintiff invested in Numerical, purchasing 15,000 shares at a total price of $13,800 which he obtained by a loan from Philadelphia National Bank. Plaintiff and his wife executed a note evidencing such loan and as security therefor plaintiff pledged 6,000 shares of his Theil stock. In August of 1968 plaintiff, through securities brokers, submitted to Franklin 3,000 of his Theil shares which he had not pledged with the request that registration be transferred from his name. On August 28, 1968, Franklin wrote Gottschalk asking whether the restrictions had been lifted with respect to these 3,000 shares of the plaintiff and on August 29, 1968, Gottschalk replied that to the best of his knowledge the stock continued restricted.
On October 15, 1968, Messrs. Dechert, Price & Rhoads, a distinguished Philadelphia law firm, wrote to Gottschalk on behalf of the plaintiff stating that they had been advised that Gottschalk had taken the position that Mr. Melville was entitled to sell no more than 1% of the outstanding stock of Theil within any six month period which would permit him to sell approximately 3,550 shares on a date after October 18, 1968 and asking Gottschalk to advise Theil's transfer agent (Franklin) of his right to make this sale at that time. There is no indication that Franklin ever received a copy or that it was advised of the contents of such letter.
On October 17, 1968, Mr. Gottschalk wrote to Messrs. Dechert, Price & Rhoads advising them that plaintiff had purchased his stock under a "letter of investment" and that before his firm could write an opinion permitting him to sell the stock "it must be shown that there is a substantial...
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