Mergenthaler v. Enzolytics, Inc.
| Docket Number | Civil Action 21-1163-RGA |
| Decision Date | 17 August 2022 |
| Parties | PETER MERGENTHALER, Plaintiff, v. ENZOLYTICS, INC., A DELAWARE CORPORATION, SUCCESSOR IN INTEREST TO ECO PETROLEUM SOLUTIONS, INC., A DELAWARE CORPORATION, SUCCESSOR IN INTEREST TO STRUCTURAL ENHANCEMENTS, INC. A DELAWARE CORPORATION, Defendant. |
| Court | U.S. District Court — District of Delaware |
Jamie L. Edmonson, ROBINSON & COLE LLP, Wilmington, DE; Mark J Kallenbach, Minneapolis, MN. Attorneys for Plaintiff.
Antranig Garibian, GARIBIAN LAW OFFICES, P.C., Wilmington DE. Attorney for Defendant.
Before me is Defendant's motion to dismiss pursuant to Rule 12(b)(6) (D.I. 7) and Plaintiffs cross-motion for the court to set bond and compel Defendant to reissue shares pursuant to Plaintiff posting bond. (D.I. 17). I have reviewed the parties' briefing. (D.I. 8, 17, 20). For the reasons set forth below, Defendant's motion is GRANTED and Plaintiffs cross-motion is DENIED.
Plaintiff Peter Mergenthaler filed suit against Defendant Enzolytics, Inc. (“ENZC”) on August 11, 2021, asserting, “[Defendant] should be ordered to reissue to [Plaintiff] 10,000,000 of its shares” pursuant to 6 Del. C. § 8-405. (D.I. 1 at ¶¶35-51, 51).
Plaintiff states that he owns 10,000,000 shares of ENZC, but that James W. Zimbler engaged in a scheme to fraudulently convert Plaintiffs shares to his and others' ownership. (Id. at ¶¶9-26). Specifically, Plaintiff states that, beginning in 2015, Zimbler orchestrated the fraudulent transfer of Plaintiff s shares in ECOP, which is a predecessor corporation of ENCZ, to Sage Market Advisors (2,500,000 shares), OMS Consulting, Inc. (1,500,000 shares), M. Lamar Outz (1,000,000 shares), and American Asset Management Services Corporation (5,000,000 shares). (Id. at ¶¶3,22-26,40). Zimbler owns American Asset Management Services Corporation, to which 5,000,000 of Plaintiffs shares were transferred. (Id. at ¶¶26, 41). At the time of this transfer, Zimbler was the vice president of ECOP. (Id. at¶37). Zimbler resigned from his position at ECOP on July 6, 2015, after the conversion of Plaintiff s shares. (Id. at 38.)
Defendant requests that this court dismiss Plaintiffs suit pursuant to Rule 12(b)(6) for Plaintiffs failure to comply with 6 Del C. § 8-405. (D.I. 8). In a cross-motion, Plaintiff requests that this court set a sufficient indemnity bond compliant with 6 Del. C. § 8-405(a)(2) and order Defendant to reissue 10,000,000 ENCZ shares to Plaintiff. (D.I. 17 at 1, 7-8).
Rule 8 requires a complainant to provide “a short and plain statement of the claim showing that the pleader is entitled to relief...” Fed.R.Civ.P. 8(a)(2). Rule 12(b)(6) allows the accused party to bring a motion to dismiss the claim for failing to meet this standard. A Rule 12(b)(6) motion may be granted only if, accepting the well-pleaded allegations in the complaint as true and viewing them in the light most favorable to the complainant, a court concludes that those allegations “could not raise a claim of entitlement to relief.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558 (2007).
“Though ‘detailed factual allegations' are not required, a complaint must do more than simply provide Tabeis and conclusions' or ‘a formulaic recitation of the elements of a cause of action.'” Davis v. Abington Mem'l Hosp., 765 F.3d 236, 241 (3d Cir. 2014) (quoting Twombly, 550 U.S. at 555). I am “not required to credit bald assertions or legal conclusions improperly alleged in the complaint.” In re Rockefeller Ctr. Props., Inc. Sec. Litig, 311 F.3d 198, 216 (3d Cir. 2002). A complaint may not be dismissed, however, “for imperfect statement of the legal theory supporting the claim asserted.” See Johnson v. City of Shelby, 574 U.S. 10, 11 (2014).
A complainant must plead facts sufficient to show that a claim has “substantive plausibility.” Id. at 12. That plausibility must be found on the face of the complaint. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A claim has facial plausibility when the [complainant] pleads factual content that allows the court to draw the reasonable inference that the [accused] is liable for the misconduct alleged.” Id. Deciding whether a claim is plausible will be a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679.
I was concerned about whether I had subject matter jurisdiction (D.I. 21), which was alleged to be on the basis of diversity (D.I. 22, 23). Both sides argued that I did, but without citing any actual authority. The issue that I was concerned about was the relief sought- reissuing 10,000,000 shares of stock-did not appear to involve damages; it appeared to be analogous to issuing an injunction. But it appears, not surprisingly, that similar issues have been addressed before, with the conclusion that the value of the shares is the measure of the amount in controversy. Gould v. Artisoft, Inc., 1 F.3d 544, 547 (7th Cir. 1993) (citations omitted); see Madison Stock Transfer, Inc. v. Exlites Holdings International, Inc., 368 F.Supp.3d 460 (E.D. N.Y. 2019). At the time the suit was filed, it appears that ENZC stock was trading at about 16 cents per share, making the amount in controversy about $1,600,000.
To recap, the allegations are that in 2015, a third party converted Plaintiffs 10,000,000 shares of stock to various entities. Plaintiff learned of this in 2018. (D.I. 1 at ¶ 36). Plaintiff started to take some action to recover his converted stock in 2021. (Id. at ¶ 27). Later that year, he filed this suit. Plaintiff requests that I compel ENZC to reissue the shares to him pursuant to 6 Del. C. § 8-405(a)
Under 6 Del C. § 8-405(a), “If an owner of a certificated security, whether in registered or bearer form, claims that the certificate has been lost, destroyed, or wrongfully taken, the issuer shall issue a new certificate if the owner: (1) so requests before the issuer has notice that the certificate has been acquired by a protected purchaser; (2) files with the issuer a sufficient indemnity bond; and (3) satisfies other reasonable requirements imposed by the issuer.”
As to the merits, the case is lightly briefed. Neither side cites a single case interpreting 6 Del. C. § 8-405(a) or any closely analogous statute from any other state.
Defendant argues that this court should dismiss Plaintiffs Complaint because of Plaintiff s “failing to comply with the requirements of 6 Del C. § 8-405.” (D.I. 8 at 4). Particularly, Defendant argues that Plaintiff failed to comply with 6 Del C. § 8-405(a)(2), because, “Plaintiff has not filed any indemnity bond,” and Plaintiffs attempts to excuse himself from this failure are without support from any “statutory provision or legal principle.” (Id. at 5).
In response, Plaintiff argues that he did not need to file an indemnity bond for three reasons. First, Plaintiff argues that he did not need to file an indemnity bond because Defendant has not acted in good faith as is required by 6 Del C. § 1-304 and, instead, has “refus[ed] to communicate” with Plaintiff. (D.I. 17 at 6-7). Plaintiff supports this contention based on allegations included in the declaration of Mark J. Kallenbach, which Plaintiff filed with its opposition brief. (D.I. 17 at 1-4, 6 (citing D.I. 18 (Kallenbach Declaration)); see also D.I. 1 at ¶¶27-30 ()). Second, Plaintiff argues that “no indemnity bond should be required of [Plaintiff]” because “[Defendant] can seek indemnification on [a] Kemark bond[,]” thereby making any bond Plaintiff must file according to 6 Del C. § 8-405(a)(2) redundant. (D.I. 17 at 7; see also D.I. 1 at ¶39). Third, Plaintiff argues, “If all of the protected purchasers [including Sage Market Advisors, OMS Consulting, Inc., and M. Lamar Outz] have sold all of their shares, then no bond should be required.” (D.I. 17 at 7).
I find that Plaintiff failed to comply with 6 Del C. § 8-405(a)(2), and that this failure cannot be excused for the reasons Plaintiff argues.
As to Plaintiffs first argument, I do not find that Plaintiff should be excused from filing an indemnity bond based on Defendant's alleged bad faith conduct. As a preliminary matter, I find that Plaintiff did not plead sufficient factual content in his Complaint to support this argument. (See D.I. 20 at 2-4). Instead, in its opposition briefing, Plaintiff supports his argument by citing facts included in the later-filed Kallenbach Declaration. (See D.I. 17 at 1-4, 7 (citing D.I. 18); see also Hartig Drug Co. Inc. v. Senju Pharm. Co., 836 F.3d 261,273 (3d Cir. 2016) ()). Moreover, the factual allegations included in Plaintiffs Complaint - though not cited in Plaintiffs opposition briefing - do not contain sufficient factual matter to show that Plaintiff acted in bad faith in its communications with Defendant. (See D.I. 1 at ¶¶27-30; see also Ashcroft, 556 U.S. at 678 () (cleaned up)).
Even considering the allegations presented in the Kallenbach...
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