Shaw v. Empire Stock Transfer Inc.
381 F. Supp. 3d 286
S.D. Ill.2019Background
- Shaw, a New York resident, contracted with ROI (Nevada corp.) to provide marketing services for one year beginning May 2014 in exchange for 500,000 ROI shares that would vest/unrestrict in May 2015.
- Shaw alleges he performed, but never received the share certificates; Empire, ROI's transfer agent (Nevada corp.), confirmed issuance by account statement and told Shaw it mailed the certificates to a law firm.
- Shaw alleges the certificates were returned to ROI and that Empire, at ROI's direction, later cancelled the shares (Shaw discovered cancellation in Jan. 2017).
- Shaw pursued arbitration against ROI and obtained an award and confirmed judgment; he cannot collect and alleges the shares were delisted and became worthless; he contends timely sale was prevented by Empire’s failure to reissue clear certificates.
- Shaw sued Empire in diversity for conversion and related claims (unjust enrichment, constructive trust, conspiracy, aiding and abetting); Empire moved to dismiss under Rule 12(b)(6).
- The court dismissed Shaw’s complaint for failure to plead statutory entitlement to removal of the restrictive legend and related statutory claim, granted leave to amend the conversion claim to add statutory grounds, and dismissed duplicative claims with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Empire is liable for conversion for failing to deliver or reissue clear certificates | Shaw contends Empire exercised dominion over his certificates by failing to deliver/reissue and cancelling shares | Empire contends Shaw lacks a proper claim to the shares and that its records show it mailed the certificates | Conversion claim as pleaded is deficient because it fails to allege statutory entitlement to removal of the restrictive legend; dismissal without prejudice to amend and assert statutory claim |
| Whether statutory regime (UCC/Nevada law) displaces common-law remedies | Shaw relies on common-law conversion plus statutory rights implied | Empire argues statutory scheme governs and limits claims | Court holds statutory regime governs the core claim (legend removal/issuance) and conversion claim depends on adequately pleading statutory entitlement; statutory and common-law claims can be analyzed together but plaintiff must plead the statute-based entitlement |
| Whether Shaw's claims are time-barred | N/A (Shaw argues timely upon demand/refusal in Nov 2015) | Empire argues three-year statute of limitations bars suit | Court finds claim timely; allegations show conversion/cancellation occurred in Nov 2015, within limitations |
| Whether ancillary claims (unjust enrichment, constructive trust, aiding and abetting, conspiracy) survive | Shaw asserts these theories for relief | Empire contends they are duplicative/derivative of statutory and conversion claims | Court dismisses these claims with prejudice as duplicative or improper (constructive trust is a remedy; conspiracy not independent tort in NY) |
| Leave to amend | Shaw requests leave to amend if dismissal granted | Empire opposes futile amendment | Court grants leave to amend conversion claim to add statutory claim; denies leave to replead dismissed duplicative claims |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: plausibility required)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state a plausible claim)
- Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400 (2d Cir. 2006) (definition of conversion)
- Guilfoyle v. Olde Monmouth Stock Transfer Co., 335 P.3d 190 (Nev. 2014) (NRS § 104.8401 applies to requests to remove restrictive legends)
- Bender v. Memory Metals, Inc., 514 A.2d 1109 (Del. Ch. 1986) (recognition of wrongful refusal to issue stock certificate as cognizable claim)