Miele v. Frankl (In re in Res., Inc.)

• Decision Date: 18 August 2015
• Docket Number: Case No. 3:15-cv-00199-LB
• Court: U.S. District Court — Northern District of California
• Parties: ANTHONY P. MIELE, III, Plaintiff, v. FRANKLIN RESOURCES, INC., et al., Defendants.

ANTHONY P. MIELE, III, Plaintiff, v. FRANKLIN RESOURCES, INC., et al., Defendants.

Case No. 3:15-cv-00199-LB

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION San Francisco Division

August 18, 2015

ORDER GRANTING IN PART AND DENYING IN PART THE DEFENDANTS' MOTION TO DISMISS MR. MIELE III'S FIRST AMENDED COMPLAINT

[Re: ECF No. 19]

INTRODUCTION

In this diversity case, the plaintiff, Anthony P. Miele III, sued Franklin Resources, Inc. ("Franklin Resources"), an investment management organization, and its former President, Chief Executive Officer, and Chairman of the Board, Charles Johnson, for claims arising out of Franklin Resources's and Mr. Johnson's alleged failure to safeguard Mr. Miele III's shares of Franklin Resources that he asserts were transferred in the 1990s without his consent and that now would be worth approximately $136,000,000. (First Amended Complaint ("FAC"), ECF No. 17 ¶ 28.¹) The defendants assert that Mr. Miele III's claims are meritless and time-barred and move to dismiss them. (Motion, ECF No. 19.) The court grants in part and denies in part their motion.

STATEMENT

I. MR. MIELE III'S ALLEGATIONS

A. Mr. Miele III Acquires Shares of Franklin Resources

Franklin Resources was founded by Mr. Johnson's father in November 1947. (FAC ¶ 28.) In 1957, Mr. Johnson became Franklin Resources's President and Chief Executive Officer. (Id. ¶ 29.)

Years later, to expand the company, Mr. Johnson raised capital through an initial public offering ("IPO"). (Id.) Mr. Johnson engaged Mayflower Securities ("Mayflower"), which was owned by Eugene Mulvihill, to underwrite the IPO. (Id. ¶ 31.) On August 6, 1971, Franklin Resources sold 120,000 shares of common stock in its IPO for $5.00 per share. (Id.) In 1972, Franklin Resources used the capital raised from the IPO to acquire Winfield & Co. Inc. ("Winfield"), an investment firm with nearly twice the assets of Franklin Resources. (Id. ¶ 33.)

Despite the expansion, Franklin Resources struggled financially in 1972 and 1973. (Id. ¶ 36.) In 1973, Mr. Johnson contacted Mr. Mulvihill to obtain a loan. (Id. ¶ 37.) Mr. Mulvihill, apparently with the assistance of Mayflower's President, Robert Brennan, informed Mr. Johnson that they could arrange for Mr. Mulvihill's friend (and Mr. Miele III's father), Anthony Miele Jr., to make the loan. (Id.) In 1973, Mr. Miele Jr. was the controlling shareholder of both PCI International, Inc., and Pollution Control Industries, Inc., which were located at One Fairfield Crescent, West Caldwell, New Jersey, and was part owner of Modern Transportation Co. and A & S Transportation Co., which were located at 75 Jacobus Avenue, South Kearny, New Jersey. (Id. ¶ 39.) All of Mr. Miele Jr.'s companies were involved in the waste-management and sludge business in New Jersey and the Philadelphia metropolitan area. (Id.)

Mr. Miele Jr. loaned $100,000 to Franklin Resources at a meeting attended by Mr. Miele Jr., Mr. Johnson, Mr. Mulvihill, and Mr. Brennan. (Id. ¶ 41.) According to Mr. Johnson, the loan proceeds were used to solidify the Winfield acquisition. (Id.) No documentation of that loan appears to exist, but Mr. Johnson has stated that the loan was made pursuant to a promissory note and listed on the public books and records of Franklin Resources as part of its capital structure. (Id. ¶ 42.)

Mr. Miele Jr. received 4,000 shares of Franklin Resources as a "bonus" for making the loan.(Id.) The stock certificate for the 4,000 shares of Franklin Resources was numbered NU-02763 and dated March 15, 1973 and reflected that the shares were owned by "Anthony P. Miele Jr. TTEE Anthony P. Miele III," a trust formed no later than September 28, 1972, for the benefit of Mr. Miele III, who was two or three years old at the time. (Id. ¶¶ 5, 21, 44.) The stock certificate was "stamped to show restrictions on transfer." (Id. ¶¶ 44, 116.) On March 15, 1973, the shares were valued at approximately $100,000. (Id. ¶ 44.) Franklin Resources's records also indicate that the shares were owned by "Anthony P. Miele Jr. TTEE Anthony P. Miele III" and that the shares were "voted" at a Franklin Resources's shareholders' meeting on March 21, 1974. (Id. ¶ 45.) The address of record for the voted shares was Modern Transportation Co., 75 Jacobus Avenue, South Kearny, New Jersey 07032. (Id.)

On November 8, 1974, Mr. Miele Jr. died at age 39. (Id. ¶ 46.) He was survived by his wife, Evelyn, and three children, Mr. Miele III (three), Veronica (two), and Matthew (nine months). (Id.) After Mr. Miele Jr.'s death, the 4,000-share stock certificate numbered NU-02763 was held by McCarter & English, LLP, the law firm representing the Miele Jr. Estate, either in a safety deposit box opened for the Miele Jr. Estate, or at the firm's offices, until the windup of the Miele Jr. Estate in 1983. (Id. ¶ 47.)

Over time the 4,000 shares paid dividends, and additional shares were issued in the name of "Anthony P. Miele Jr. TTEE Anthony P. Miele III" due to stock splits. (Id. ¶ 48.) The first stock split, a 5-for-4 split, resulted in a 1,000-share stock certificate's being issued to "Anthony P. Miele Jr. TTEE Anthony P. Miele III" on April 7, 1982. (Id.) (This brings the total shares owned by "Anthony P. Miele Jr. TTEE Anthony P. Miele III" to 5,000.) This stock certificate bore a stamp reading "[t]he shares represented by this certificate have not been registered under the Securities Act of 1933, as amended. The shares have been acquired for investment and may not be sold, transferred or assigned in the absence of an effective registration statement for these shares under the Securities Act of 1933 as amended, or an opinion of the Company's counsel that registration is not required under said Act." (Id.)

By March 4, 1991, after more stock splits, The Bank of New York ("BoNY"), the transfer agent for Franklin Resources, held $186,496.88 in uncashed dividend checks for the "Anthony P.Miele Jr. TTEE Anthony P. Miele III" account, "stock certificates in [its] vaults represent[ed] 128,125 shares," and its "records reflect[ed] 12,500 shares held by the shareholder" for a "total position [of] 140,625 [shares]." (Id. ¶ 49.) Due to more stock splits since March 4, 1991, the 140,625 shares in 1991 have become 2,531,250 shares of Franklin Resources today. (Id. ¶ 50.) Additional dividends issued after March 4, 1991 total $20,202,937.63 as of April 20, 2015. (Id.) Based on the January 8, 2015 closing share price of approximately $54.00, the total value of the shares exceeds $136,000,000. (Id.; see also id. ¶ 118.) Neither the $20,202,937.63 in dividends nor the 2,531,250 shares has ever been delivered to Mr. Miele III. (Id. ¶ 51; see also id. ¶ 118.)

Mr. Miele III had not been receiving correspondence from Franklin Resources, and apparently the dividend checks were returned to BoNY. (Id. ¶ 74.) On July 21, 1989, Harmon E. Burns, then Secretary of Franklin Resources, wrote to Richard Hanrahan, an Assistant Treasurer of BoNY, stating that written correspondence addressed to "Anthony P. Miele Jr.," who by that time had been deceased for almost fifteen years, was returned by the post office. (Id.) The next year, on February 1, 1990, Mr. Burns again wrote to Mr. Hanrahan because some of the proxy cards that had been addressed and mailed to Franklin Resources's shareholders were returned by the post office. (Id. ¶ 75.) Mr. Burns asked Mr. Hanrahan to take appropriate steps to ascertain or verify correct new addresses for the shareholders whose proxy cards had been returned. (Id.) Among those returned was the proxy card addressed and mailed to "Anthony P. Miele Jr. TTEE Anthony P. Miele III." (Id.) About one month later, on March 4, 1991, Mr. Hanrahan replied to Mr. Burns. (Id. ¶ 76.) He stated that the address that BoNY had on file for "Anthony P. Miele Jr. TTEE Anthony P. Miele III" was the 160 South Livingston Avenue address. (Id.) He also stated that the Social Security number related to the account was that of Mr. Miele III. (Id.) Additionally, Mr. Hanrahan stated that the "Anthony P. Miele Jr. TTEE Anthony P. Miele III" account contained outstanding dividend checks from January 13, 1984 through January 15, 1991 totaling $186,496.88, and that 128,125 shares of Franklin Resources were held for the account in BoNY's vaults. (Id.) He further stated that BoNY's records reflected that "Anthony P. Miele Jr. TTEE Anthony P. Miele III" also held 12,500 additional shares, thus bringing the total shares owned to 140,625. (Id.) Finally, Mr. Hanrahan told Mr. Burns that BoNY would be happy to help FranklinResources locate Mr. Miele III. (Id.) Nevertheless, neither Franklin Resources nor Mr. Johnson used their information or BoNY's resources to locate Mr. Miele III. (Id. ¶ 78.)

Mr. Johnson recollected that, at some point, he received a report from BoNY telling him that the shares and dividends in the "Anthony P. Miele Jr. TTEE Anthony P. Miele III" account would escheat to the State of New Jersey because correspondence had been returned as undeliverable. (Id. ¶ 77.) This recollection is supported by an August 8, 1991 notice in which Mr. Hanrahan explains to Mr. Burns when property would escheat to the State. (Id.) When Mr. Johnson learned that the shares and dividends owned by "Anthony P. Miele Jr. TTEE Anthony P. Miele III" would escheat to the State of New Jersey, he contacted Mr. Mulvihill in an attempt to locate Mr. Miele Jr. (Id. ¶ 80.) It was then that Mr. Johnson learned for the first time that Mr. Miele Jr. had died years earlier. (Id. ¶ 82.) According to Mr. Miele III, Mr. Johnson then "delegated" to Mr. Mulvihill the responsibility for ensuring that the shares were delivered to Mr. Miele III. (Id.) Mr. Johnson did this despite the well-publicized facts that Mr. Mulvihill's company, Mayflower, had been accused of stock manipulation and fraud, that Mr. Mulvihill had been convicted of numerous crimes, including forgery, and had been barred from the securities industry for life, and that...