UNITED STATES COURT OF APPEALS
Filed 1/10/96
TENTH CIRCUIT
____________________
AMERICAN SECURITIES TRANSFER )
INCORPORATED, )
)
Plaintiff-Appellee, )
)
v. ) No. 95-1021
) (D.Ct. No. 93-B-1432)
PANTHEON INDUSTRIES, INC., ) (D. Colorado)
)
Defendant-Appellee, )
)
A.R.G.I., INCORP., and )
PRINCETON AMERICAN CORPORATION, )
)
Defendants-Appellants )
___________________
ORDER AND JUDGMENT *
___________________
Before BRISCOE, COFFIN ** and BARRETT, Circuit Judges.
___________________
Plaintiff American Securities Transfer, Inc. (AST) brought
this interpleader action to resolve conflicting claims to a
certificate representing 2 million shares of common stock of
Pantheon Industries, Inc. The shares were issued to defendant
A.R.G.I. Incorp. (ARGI), which assigned them to a predecessor of
defendant Princeton American Corp. ARGI subsequently asked AST,
*
This order and judgment is not binding precedent, except
under the doctrines of law of the case, res judicata, and
collateral estoppel. The court generally disfavors the citation of
orders and judgment; nevertheless, an order and judgment may be
cited under the terms and conditions of 10th Cir. R. 36.3.
**
The Honorable Frank M. Coffin, United States Senior Circuit
Judge for the First Circuit, sitting by designation.
Pantheon's stock transfer agent, to reissue the certificate after
removing a restriction against transfer from its face. Pantheon,
however, directed AST not to remove the restriction, and claimed
that the certificate was invalid because the consideration for it
never had been paid. Caught in the middle, AST filed this action
pursuant to 28 U.S.C. §§ 1335, 1397 and 2361. The district court
concluded that, for different reasons, neither ARGI nor Princeton
could obtain relief, and it awarded possession of the stock
certificate to Pantheon. ARGI and Princeton appeal, arguing that
the court unfairly created a Catch-22 by denying both of them --
the transferor and the transferee of the certificate -- the right
to pursue a recovery. Having carefully reviewed the record, we
conclude that the perceived dissonance in the judgment is largely
attributable to appellants. We consequently affirm the court's
decision on damages. We remand, however, for further inquiry on
the limited question of who is entitled to possession of the
certificate.
I. Background
AST, as Pantheon's stock transfer agent, issued the disputed
certificate to ARGI in March 1990. Although the certificate bore
a restrictive legend barring transfer except in certain specified
circumstances, ARGI in 1991 assigned it to a company (Minco) that
shortly thereafter sold its assets to Princeton. ARGI's
consideration for the certificate included a $40,000 promissory
note on which no payments ever were made.
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In August 1992, Pantheon advised AST that the certificate had
been issued in error and directed AST to cancel it. AST responded
that it could not cancel the certificate, but would place a stop
transfer order against it. The following year, ARGI submitted the
certificate to AST and requested that a new one be issued without
the restrictive legend. Informed of the request by AST, Pantheon
directed that the certificate not be re-issued or transferred
because ARGI's promissory note had not been paid. To resolve the
competing claims, AST filed this interpleader action, naming ARGI,
Princeton and Pantheon as defendants.
Each of the defendants added its own claims. ARGI and
Princeton filed a counterclaim seeking damages from AST for a
breach of the Colorado counterpart to Article 8 of the Uniform
Commercial Code, which imposes a duty on an issuer or transfer
agent to register the transfer of securities as requested if
certain preconditions are met. See Colo. Rev. Stat. § 4-8-401.
ARGI and Princeton also filed crossclaims against Pantheon, matched
by cross-claims filed by Pantheon against them.
Following motions for summary judgment filed by all parties,
the district court on December 2, 1994, granted judgment for
Pantheon and AST on Princeton's UCC claim. 871 F. Supp. 400, 407.
It concluded that, based on the undisputed evidence, AST owed no
statutory duty to Princeton because only ARGI had requested the
certificate's reissuance. It therefore dismissed Princeton's UCC
claim, but held that the other parties' claims involved factual
disputes that could not be resolved on summary judgment.
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On December 7, Pantheon, ARGI and Princeton stipulated to the
dismissal of various claims brought by each of them. The next day,
Pantheon filed a motion seeking to amend its crossclaims to request
specific performance, rather than rescission, as the remedy on its
breach of contract claim. ARGI and Princeton objected to this
proposed change, and a hearing was held on the Motion to Amend on
December 14.
During the course of that hearing, a discussion took place
concerning a proposed claim by Pantheon for attorney's fees against
ARGI and Princeton. Princeton's counsel expressed his belief that
Princeton had been dismissed from the case as a result of the
district court's December 2 summary judgment ruling. When it
appeared that the decision had left pending one of Princeton's
claims for relief, the company's counsel moved to dismiss that
claim as well. Pantheon's counsel initially objected, noting that
it had little hope of obtaining attorney's fees from ARGI, which
was bankrupt. Later, however, he agreed to consent to Princeton's
dismissal "if they are willing to throw out any claim with
prejudice, so we are not going to have an appeal on this down the
road."
The following colloquy then took place:
COURT: You are willing to dismiss any claims Princeton
may have against either ASTI or Pantheon with prejudice?
STRAUSS (Princeton's attorney): That's correct, your
Honor. Because we truthfully [] thought that had already
been accomplished by the Court's order for summary
judgment.
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COURT: Mr. Helfrich [Pantheon's attorney], will you
accept that?
HELFRICH: I will, your Honor.
COURT: All right. At this time we will dismiss all
claims that Princeton may have against ASTI and Pantheon
Industries, Inc. with prejudice.
Transcript, Hearing on Motion to Amend, at 20.
The court also allowed Pantheon to amend its contract claim to
seek specific performance. In succession on the next two days,
December 15 and 16, Pantheon and AST filed new motions for judgment
on the pleadings or for summary judgment against ARGI. They argued
that, having assigned the certificate to Princeton -- which no
longer was a party in the case -- ARGI had no compensable loss.
ARGI filed an opposition.
On December 19, the morning that the trial was scheduled to
commence, the district court, after carefully considering all
arguments, granted AST and Pantheon's motions. It reasoned that
ARGI had requested as a remedy only damages, not possession of the
certificate, and that because it had transferred the stock to
Princeton it incurred no damages from the refusal by AST and
Pantheon to reissue the certificate without the legend barring
transfer. Accordingly, the court entered judgment in favor of AST
and Pantheon, and awarded possession of the certificate to
Pantheon, the only remaining claimant. The court denied ARGI and
Princeton's post-judgment motions, and this appeal followed.
II. Discussion
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Throughout this case, appellants have focused primarily on
their effort to obtain damages from AST and Pantheon based on AST's
refusal to reissue the stock certificate without the restrictive
legend. The district court concluded that Princeton could not
bring such a claim because it had made no request of AST respecting
the certificate, and so there was no obligation running from AST to
Princeton. Notwithstanding its counsel's assertions to the
contrary, in the clear and explicit language quoted above,
Princeton subsequently (at the December 14th hearing) gave up with
prejudice all claims against AST and Pantheon. 1 We therefore think
it beyond debate that Princeton has no remaining stake in this
case, having abandoned the right to appeal the December 2nd ruling
that AST had no duty to it.
We thus turn to ARGI. Its primary contention is that AST and
Pantheon cannot have it both ways: they cannot rely on Princeton's
lack of standing, the principle that underlay the court's December
2 summary judgment decision, while maintaining two weeks later that
the assignment to Princeton divested ARGI of its standing. This
depiction of the district court's rulings is, however, both overly
simplistic and incorrect.
It is true that the district court held that Princeton lacked
standing to bring a UCC claim against AST based on a lack of duty.
At the hearing on December 14, however, the court did not rule that
1
Indeed, Princeton's lawyer also stated that "Princeton will
assert whatever rights it believes it has against ARGI depending on
how this case comes out." Hearing at 20.
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ARGI lacked standing to assert an interest in the certificate.
Rather, the court explicitly noted that the problem was not one of
standing but of the form of ARGI's requested relief:
While A.R.G.I. may have standing to assert a claim,
it doesn't mean that under the undisputed facts of this
case it has any ability to obtain judgment as a matter of
law, because when it assigned its rights, its beneficial
interest in this stock certificate to Minco [whose assets
were purchased by Princeton], it assigned any right to
damages that might be asserted either for a claim of
violation of the Uniform Commercial Code, 4-8-401, or for
breach of contract.
In other words, the court found that, whatever the merits of a
claim for equitable relief, there was no basis for a damages award.
Consistent with the focus on damages, counsel attempted to
rectify the problem by offering a ratification by Princeton of
ARGI's damages request and also sought to demonstrate an assignment
of the stock certificate back to ARGI from Princeton. The court
indicated that a ratification by Princeton would be of no avail
2
since Princeton had forsaken all of its claims, while ARGI
presented no evidence that a re-assignment had taken place. The
court was unwilling to permit a possible future re-assignment to
derail the proceedings.
We think the court properly handled the damages issue. Having
successfully transferred the certificate (and thus having received
2
Although the joint counsel for ARGI and Princeton argued
that he had not intended at the December 14th hearing to give up
the right to appeal the court's summary judgment decision against
Princeton, the language we have quoted above is unequivocal. The
attorney may not have intended the consequences of a full dismissal
with prejudice of Princeton's claims, but we cannot fault the
district court for holding him to his word.
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whatever consideration it had demanded), ARGI is in no position to
seek damages based on AST's failure to remove the restrictive
legend barring transfer. It is Princeton who now suffers any
consequences from the restriction on the certificate. ARGI,
moreover, does not attempt on appeal to identify a compensable
injury of its own, but simply reiterates that it should have been
allowed to retrieve a damages claim from Princeton through either
ratification or re-assignment. We disagree, for the reasons
expressed by the district court.
We reject ARGI and Princeton's suggestion that this conclusion
casts them as the victims of a Catch-22. Had Princeton not removed
itself from the case -- completely and voluntarily -- it might have
been able to ratify ARGI's damages action or to seek review of the
December 2 ruling that it was not a proper plaintiff on the UCC
claim. Although Princeton's decision to dismiss all claims may
have resulted in part from a mistaken belief that ARGI's right to
request damages was uncontested, it was at least partially animated
by a desire to negate the basis for Pantheon's request to add a
claim for attorney's fees. Indeed, as noted above, Pantheon
initially objected to the dismissal. With respect to damages,
therefore, the problem for ARGI and Princeton is not that the
court's rulings boxed them into a corner. ARGI and Princeton set
their own course, and the court simply held them to it. 3
3
We acknowledge that the district court seemed to accept that
ARGI had a viable damages claim when it dismissed Princeton's UCC
claim on December 2, and neither Pantheon nor AST argued otherwise.
We cannot fault the court, however, for failing to recognize at
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We also must consider, however, the court's simultaneous
conclusion that disposition of the damages issue requires awarding
the stock certificate to Pantheon. The court found that ARGI made
no request for possession of the certificate or for other equitable
relief. Resolution of the damages issue therefore ended its
interest in the litigation, and left pending only Pantheon and its
claim of entitlement to the stock. Without considering the merits
of that claim, the court ordered release of the certificate to
Pantheon and authorized it to cancel the certificate on its books.
Whether to affirm this aspect of the judgment has proven to be
a close call. On the one hand, ARGI at no time explicitly asked
the district court for return of the certificate or elimination of
the restrictive legend as a remedy. During the December 19th
hearing, the court three times expressed its view that ARGI had
never sought equitable relief, and observed that "the distinction
between having sought equitable relief on the one hand and a claim
for damages on the other is . . . crucial." It repeated the
thought near the end of the hearing:
that early juncture a flaw that no one had pointed out. We think
it likely and understandable that no one focused on ARGI's position
with respect to damages until after Princeton was out of the case.
Indeed, Pantheon and AST arguably gave ARGI the benefit of the
doubt in assuming its right to pursue damages on behalf of
Princeton so long as Princeton remained a party. Once Princeton
gave up its claims, ARGI could seek damages in this action only on
its own behalf. Although the earlier treatment of ARGI's claims
may have lulled counsel into dismissing Princeton from the case,
Pantheon and AST did not instigate that action. In short, we think
it entirely appropriate to place on ARGI and Princeton the
responsibility for protecting their own interests.
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As I said, counsel, you all are sophisticated
commercial counsel. This is not a situation where we
have unsophisticated pro se parties. There are choices
made along the road when you come to the forks in
litigation. One of those choices that could have been
made was to seek equitable relief, and you didn't do it.
Hearing, at 29.
Counsel never responded that its pleadings did, in fact,
demonstrate a request for injunctive relief, focusing instead on
its argument that ARGI was a proper party to seek damages. In its
post-judgment filings and brief on appeal, ARGI's position remained
opaque. It did not expressly claim that the district court should
have viewed its pleadings to include an implicit demand for
equitable relief, stressing instead that the court erred in failing
to read its answer as claiming an interest in the certificate. The
court, however, did not deny that ARGI had asserted an "interest"
in the certificate; the problem was that it could not obtain the
only relief the court believed it had sought -- damages.
Indeed, ARGI acknowledged that it did not seek equitable
relief, asserting in its appellate brief that a party is not
required to seek equitable relief in an interpleader action.
Though this may be a correct statement of the authorities, see,
e.g., Loretto Literary & Benevolent Instit. v. Blue Diamond Coal
Co., 444 A.2d 256, 259 (Del. Ch. 1982); Rhodes, M., Transfer of
Stock §§ 22:4-22:9 (6th ed. 1985), it facially supports the
district court's judgment. Plaintiffs challenging a wrongful
refusal to transfer stock may bring either an action at law for
damages or an action for equitable relief. Id. Since appellants
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emphatically assert entitlement to damages, it would seem that they
concede that they did not ask for other relief.
While this view of the case gives us an appreciation for the
district court's determination, we are reluctant, for various
reasons, to resolve this aspect of the dispute on the basis of
default. First, the nature of the damages requested here is
significant. A plaintiff who chooses a legal, rather than
equitable, remedy may recover the market value of the shares at the
time of the wrongful action "just as in the ordinary case of
conversion," Loretto, 444 A.2d at 259. See also Transfer of Stock
§ 22:9. Even in an equitable action, however, incidental damages
may be awarded for a loss caused by the wrongful delay in
transferring stock.
In the final paragraph of their UCC claim for relief (Amended
Counterclaim, ¶ 15), appellants allege that they have incurred
damages "in the nature of the diminution in market value of the
said shares since June 18, 1993, loss of potential profits." Even
AST acknowledges in its brief as appellee that this formulation
logically indicates "that ARGI seeks possession of the Certificate
plus damages measured by the value at the time of presentment to
AST less the value of the Certificate at the date of trial."
Restated somewhat more directly, the damages asserted here appear
to be for incidental loss associated with an implicit claim for
possession, and not for full value based on conversion of the
certificate. Thus, the pleadings, though far from ideal, fairly
may be read to claim entitlement to the certificate. Indeed, AST,
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which has no interest in the certificate itself, all but admits
that any other reading would be erroneous.
Second, counsel's failure to make this point to the district
court during the colloquy on December 19th, while not entirely
excusable, must be considered in perspective. AST and Pantheon's
motions had been filed only a few days earlier, essentially on the
eve of trial. As the district court recognized, the motions were
untimely, and normal practice would have entitled appellants to
substantially more time to respond. Counsel's focus in that time-
compressed circumstance naturally was on preserving the damage
claims. In addition, while ARGI's response to the final summary
judgment motion and its motion to amend or alter judgment are not
models of clarity, it is fair to say that both highlight ARGI's
status as shareholder of record and at least hint that ARGI's claim
of an interest in the certificate embraced a request for its
possession. 4 In short, there is good reason for hesitancy in
declaring default.
Third, and most crucial, is that the district court awarded
the certificate to Pantheon without any review of its substantive
argument that the certificate was invalid for lack of
consideration. No one, however, contests that ARGI is the
4
ARGI's imprecision is somewhat understandable in light of
Pantheon's motion, which argued that ARGI had made no claim at all
to the certificate. AST's motion, by contrast, stated:
At best, ARGI may assert entitlement to reissuance
of the Certificate without any legend subject to the
competing claim asserted by Pantheon to the Certificate.
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shareholder of record, and Pantheon is conspicuous by its absence
on this appeal. Taking all of these circumstances into account, we
believe the best course of action is to remand the case to the
district court for consideration of the merits of the right of
possession. 5
We have considered appellants' remaining arguments, and find
them to be without merit.
Affirmed in part, vacated and remanded in part. Each party is
to bear its own costs. 6
Entered for the Court:
Frank M. Coffin, Senior Circuit Judge
5
Such a remand will not involve any claim for damages,
including those that typically may be associated with equitable
relief, since we are affirming the court's determination that
ARGI's successful assignment of the certificate forecloses monetary
relief based on delay in reissuing or transferring it. We
recognize that appellants may have no interest in pursuing
possession, however, in light of counsel's statement at oral
argument that the stock essentially was worthless at the time of
trial. The court, of course, should consult with the parties
before proceeding.
6
Appellants' motion for leave to file second supplemental
appendix is granted.
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