918 F.3d 579
8th Cir.2019Background
- Calissio Resources declared a large cash dividend (payable Aug 17 to record holders on June 30). FINRA set an ex-dividend date after the payment date due to the dividend size.
- After the record date, holders Nobilis and Beaufort (N&B) converted promissory notes into >400M new Calissio shares; Calissio instructed the transfer agent (SST) to issue those post‑record shares under the same CUSIP as existing shares.
- DTC’s automated system treated the new shares as dividend‑eligible (same CUSIP), so on the payment date DTC allocated due‑bill debits and credits: COR’s DTC account was debited ~$3.7M while several broker defendants’ accounts were credited that amount and passed credits to their customers.
- COR (a clearing firm) sued Calissio (defaulted), SST (transfer agent), and several broker clearing firms for fraud, conversion, and unjust enrichment; the district court granted summary judgment for SST and the Broker Defendants applying Nebraska law.
- On appeal the Eighth Circuit reviewed summary judgment de novo and affirmed dismissal of COR’s fraud claim against SST and conversion and unjust enrichment claims against the Broker Defendants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fraud claim against SST | SST knowingly issued post‑record shares under same CUSIP, causing DTC to misallocate due bills; SST intended COR to rely and harmed COR | SST merely followed issuer instruction and relied on attorney opinions; no false material representation or knowledge of resulting DTC error; COR could not reasonably rely on SST | Affirmed: COR failed to prove SST made a material false representation or that COR reasonably relied on SST |
| Conversion against Broker Defendants | Brokers wrongfully exercised dominion by receiving and retaining due‑bill credits that originated from COR’s DTC debit | Brokers merely received DTC credits as pass‑throughs and immediately credited customers; intermediaries held entitlements for account holders under UCC; no right of immediate possession by COR | Affirmed: No conversion—brokers acted as pass‑through agents; COR’s remedy lies against sellers/N&B or DTC, not buyers or broker pass‑throughs |
| Unjust enrichment against Broker Defendants | Brokers were unjustly enriched by retaining due‑bill benefits attributable to COR | Brokers passed credits to their customers; recipients were made whole for sellers’ misrepresentations, so no unjust enrichment | Affirmed: No unjust enrichment—credits were passed through and recipients were not unjustly enriched |
Key Cases Cited
- Klaers v. St. Peter, 942 F.2d 535 (8th Cir. 1991) (standard of review for summary judgment)
- Silco, Inc. v. United States, 779 F.2d 282 (5th Cir. 1986) (FINRA/DTC practice of postponing ex‑date for large cash dividends)
- CMKM Diamonds, Inc. v. SEC, 729 F.3d 1248 (9th Cir. 2013) (transfer agents relying on attorney opinion letters not liable for distribution issues)
- Geiger v. SEC, 363 F.3d 481 (D.C. Cir. 2004) (not all intermediaries in chain are responsible for unlawful distributions)
- Platte Valley Bank v. Tetra Fin. Grp., LLC, 682 F.3d 1078 (8th Cir. 2012) (actions consistent with UCC purposes defeat conversion claim in securities intermediary context)
- deNourie & Yost Homes, LLC v. Frost, 854 N.W.2d 298 (Neb. 2014) (reasonable reliance standard in Nebraska fraud law)