James P. KERRIGAN, Plaintiff-Appellant, v. AMERICAN ORTHODONTICS CORPORATION, Defendant-Appellee.
No. 91-1962.
United States Court of Appeals, Seventh Circuit.
Argued Feb. 27, 1992. Decided April 7, 1992.
Given Illinois’ narrow reading of the tort‘s first element, we cannot believe that a demotion would be any more actionable than a claim of constructive discharge. Recognizing a retaliation tort for actions short of termination could subject employers to torrents of unwarranted and vexatious suits filed by disgruntled employees at every juncture in the employment process. And why stop at demotions? If, as Ludwig argues, a demotion raises the same policy concerns as a termination, so too would transfers, alterations in job duties, and perhaps even disciplinary proceedings. The potential for expansion of this type of litigation is enormous. Surely, the Illinois Supreme Court would not have described retaliatory discharge in such bright-line language had it intended the tort to be so all-encompassing.
Ludwig‘s second challenge fares no better. A review of the record makes it patently obvious that there were no genuine issues of material fact as to whether she was actually fired: she was never formally discharged; her name was kept on a timecard; she continued to receive the same salary she had earned as administrative assistant to the manager; she was assigned a clerical task on the day following her demotion; she submitted three doctor‘s slips excusing her absences from work; and she continued to receive sick pay for two weeks after the date she unilaterally considered herself “terminated.” In short, no reasonable jury could find that Ludwig‘s employment relationship with Kinney had been severed by the company.
We likewise reject Ludwig‘s invitation to certify to the Illinois Supreme Court her question about the validity of an action for retaliatory demotion. A question of Illinois law will be certified only when (1) the question is determinative of the case and, (2) when there is no clear controlling precedent. Collins Co., Ltd. v. Carboline Co., 837 F.2d 299, 303 (7th Cir.1988). Ludwig‘s claim fails the second part of this conjunctive test. As we have already discussed above, the Illinois courts have uniformly refused any expansion of the tort of retaliatory discharge, particularly with regards to the element of actual termination. We could receive no signal clearer than that.
The district court‘s grant of summary judgment in favor of the defendants is therefore AFFIRMED, and the plaintiff‘s motion for certification pursuant to
Michael B. Apfeld, argued, Jane C. Schlicht, Godfrey & Kahn, Milwaukee, Wis., for American Orthodontics Corp.
Before CUMMINGS and EASTERBROOK, Circuit Judges, and SHADUR, District Judge.*
EASTERBROOK, Circuit Judge.
David A. Hoffman purchased some shares in American Orthodontics Corporation. In 1971 he sold 50 of these shares to James P. Kerrigan, a fellow dentist. Hoffman retained the certificates as Kerrigan‘s (undisclosed) agent and remained the registered owner on the books of Orthodontics. The record does not reveal why Hoffman did not transfer the shares to Kerrigan. Counsel suggested at oral argument that such an arrangement was common, designed to make it appear that Orthodontics had fewer investors than the 15 that would have triggered reporting and perhaps registration requirements under Wisconsin law. Kerrigan came to regret letting Hoffman keep the shares, for Hoffman redeemed the stock in 1986, receiving $112,500. Kerrigan has a worthless judgment against Hoffman, who filed a petition in bankruptcy. Kerrigan sought, but did not obtain, a judgment against the solvent Orthodontics.
Orthodontics contends that the jury‘s verdict necessarily defeats Kerrigan‘s remaining claims. This would be so only if contributory negligence were a defense to conversion. Orthodontics has not drawn our attention to a decision so holding, and this omission is not an oversight. Many cases hold that contributory negligence is not a defense. E.g., Row v. Home Savings Bank, 306 Mass. 522, 29 N.E.2d 552 (1940); Lund‘s, Inc. v. Chemical Bank, 870 F.2d 840, 850 (2d Cir.1989) (discussing how the UCC changed the common law). Conversion grew out of trover, and the paradigm was a finder keeping lost goods. Prosser & Keeton on the Law of Torts § 15 (5th ed. 1984). Negligence could not be a defense without abolishing the tort, for in most cases the owner‘s loss of the property could be called negligent. Conversion is an intentional tort, id. at 92-93; Refrigeration Sales Co. v. Mitchell-Jackson, Inc., 770 F.2d 98, 101 (7th Cir. 1985), and as a rule the victim‘s contributory negligence is no defense to intentional torts, Restatement (2d) of Torts § 481 (1965). Perhaps this is why the Uniform Commercial Code contains a special rule absolving agents and bailees of liability for conversion when they act in good faith (that is, with honesty in fact,
Is wrongful redemption of stock conversion? Surprisingly, Kerrigan does not cite a case in any jurisdiction holding that it is. We found only one: Shidler v. All American Life & Financial Corp., 775 F.2d 917, 925-26 (8th Cir.1985), says that Iowa would treat wrongful redemption as conversion. Here lies something of a conceptual problem. Conversion is unprivileged interference with the owner‘s possession and enjoyment of a chattel. A corporation accordingly may convert stock by refusing to register a transfer to the owner; refusal to record the change prevents the buyer from having the benefits of ownership. Restatement § 242 comment e; Prosser & Keeton at 91 & n. 30 (collecting cases). Redemption and cancellation of the stock is at least potentially different. Stock represents a claim against corporate assets. By redeeming stock, a corporation does not acquire an ownership interest in itself. Rather, the remaining investors acquire larger proportionate stakes in a smaller pie. The transaction is a wash for both the other investors and the firm (as an
All of this is no more than an interesting detour, however. Hoffman was the registered owner of the Orthodontics stock. The Uniform Commercial Code overrides the common law and authorizes corporations to treat the registered owners of stock as the rightful owners. Section 8-207(1) provides:
Prior to due presentment for registration of transfer of a certificated security in registered form, the issuer or indenture trustee may treat the registered owner as the person exclusively entitled to vote, to receive notifications, and otherwise to exercise all the rights and powers of an owner.
One of the “rights and powers of an owner” of Orthodontics’ stock was to surrender the shares for redemption. This Hoffman did, and
Agents hold significant quantities of securities. Brokers hold for customers; street-name corporations hold stock for the convenience (or to disguise the identity) of the beneficial owners; trustees hold for their beneficiaries; the list is extensive. Not all of these agents are trustworthy, and even when they are there will be a gap between changes in an agent‘s authority and the communication of those changes to the transfer agent. Issuers daily pay dividends, count votes, redeem stock, and so on. If every dispute about an agent‘s authority could be litigated against the issuer, the potential liabilities would be considerable--and the issuer is not well placed to know who the true owner is. Persons may send the issuer letters (as Kerrigan did) claiming to be the owners, but how are the issuers to know?
Because issuers may treat registered owners as the real owners, it is important that persons seeking to become registered owners demonstrate the bona fides of their claims. This is where
Orthodontics did not “transfer” any stock to new hands. Hoffman was the registered owner for the entire period. As registered owner, he exercised one of the rights of ownership.
Kerrigan left the stock with Hoffman for 15 years. Kerrigan never asked Orthodontics to transfer ownership of the shares to him. Orthodontics accordingly treated Hoffman as the owner;
AFFIRMED.
SHADUR, District Judge, concurring.
Both the holding and the analysis of the ultimate issues contained in the court‘s opinion are literally and figuratively right on the money. Indeed, the opinion unsnarls many of the needless complexities that have been presented by the litigants, instead focusing on and resolving the core issues posed in this case rather than exploring several of the byways invited by the parties’ advocacy.
Only a few words should be said about what the opinion accurately characterizes as “an interesting detour.” Because the issue that is posed by the opinion‘s dictum on that score-the potential or lack of potential for any corporate liability for conversion of the corporation‘s own stock by an improper redemption-may recur in the future, it seems appropriate to reflect a different perspective on that subject. Hence this brief concurrence.
Conversion essentially depends not on benefit to the converter but on detriment to the owner. To be sure, when a thief (for example) converts an owner‘s property, he or she does so to make it his or her own--indeed, there is a special label of “conversion to his own use” that has been established by
Just so, the fact that the redemption of stock involves a zero-sum game as to the redeeming corporation does not at all foreclose the conclusion that a wrongful redemption by that corporation may be a conversion. When the spotlight of legal analysis is turned instead on the impact upon the rightful owner (that is, the assumed rightful owner for purposes of this discussion), there has indeed been the exercise of dominion by the corporation over the owner‘s property (comprising the bundle of rights to dividends and the proceeds of redemption or liquidation as well as the intangible right of voting the stock)-and that exercise of dominion has imposed the type of harm on the owner that the law finds compensable.
Hence there is no conceptual roadblock to a corporation‘s being mulcted in damages for the conversion of its own stock via redemption to the detriment of the rightful owner. Recognition of such a claim by the Eighth Circuit in Shidler v. All American Life & Financial Corp., 775 F.2d 917, 925-26 (8th Cir.1985), citing and quoting as it did 4 William Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 1969, at 697 (Charles Keating rev.1985), seems entirely sound.
What dooms Dr. Kerrigan‘s claim against American Orthodontics here is not, then, the wrongful-exercise-of-dominion component of the conversion claim, but rather the fact that the plaintiff in a conversion action must be the rightful owner of the asset. If the issue were one of Kerrigan‘s rights as against Dr. Hoffman, Kerrigan would have had no problem in adding a claim in conversion to the other grounds of Hoffman‘s liability: As between them, Kerrigan owned the 50 shares and Hoffman was his nominee.
As to American Orthodontics, however, Kerrigan‘s mere letter notification of his claim of ownership without a demand for transfer into his own name is not enough. As the court‘s opinion accurately states,