Summary
finding four-month delay untimely under Rule 24
Summary of this case from In re Liquidation of Indem. Ins. Corp.Opinion
C.A. No. 18676-NC
Date Submitted: June 22, 2001
Date Decided: October 30, 2001
Alan J. Stone, Esquire and Yvette C. Fitzgerald, Esquire of Morris, Nichols, Arsht Tunnell, Wilmington, Delaware, Attorneys for Plaintiff CAPM Corp. Advisors AB.
Daniel A. Dreisbach, Esquire and Shannon S. Frazier, Esquire of Richards, Layton Finger, P.A., Wilmington, Delaware, and Martin J. Shuham, Esquire of Holland Knight LLP, Fort Lauderdale, Florida, Attorneys for Defendant Protegrity, Inc.
Richard L. Horwitz, Esquire, Arthur L. Dent, Esquire and Erica L. Niezgoda, Esquire of Potter, Anderson Corroon LLP, Wilmington, Delaware, Attorneys for Proposed Intervenor Gota Lejon Garanti-och Kapital AB.
MEMORADUM OPINION I. Introduction
Plaintiff CAPM Corporate Advisors AB ("CAPM") was the record owner of, and held a certificate for, 1,250,000 shares of common stock of Defendant Protegrity, Inc. ("Protegrity"). CAPM sold 307,000 of those shares and tendered its one certificate to Protegrity's transfer agent with a request that certificates evidencing those sales be issued and delivered to the new owners and that nine certificates be issued and delivered to CAPM evidencing ownership of the 943,000 shares that it retained. Although Protegrity issued and delivered certificates to the purchasers as requested, it caused certificates evidencing CAPM's 943,000 shares to be issued but refused to deliver those certificates to CAPM. CAPM, though its pending motion for summary judgment, seeks possession of the certificates demonstrating its legal ownership of 943,000 shares of Protegrity common stock. Also before the Court is a motion to intervene by Gota Lejon Garanti-och Kapital AB ("Gota Lejon") which claims beneficial ownership of the 943,000 shares of Protegrity stock.
II. Parties
CAPM, a Swedish corporation, is the undisputed record and legal owner of 943,000 shares of Protegrity stock. Protegrity is a Delaware corporation with its principal place of business in Connecticut. Gota Lejon, a Swedish corporation, was one of several entities that formed a syndicate with the purpose of acquiring shares of Protegrity stock. That syndicate included: Domaren I Goteborg AB ("Domaren"), a Swedish insurance company; Lansforsakringar Gavelborg ("LF"), a Swedish insurance company; Gota Lejon; and thee others. Gota Lejon's motion to intervene stems from rights it purports to have in the 943,000 shares of Protegrity stock as a result of its status as the assignee of a put-call agreement between LF and Domaren. MacBay Management, Inc. ("MacBay"), which is not a party to this action, entered into a share sale and purchase agreement with CAPM for the acquisition of the 1,250,000 shares of Protegrity stock that CAPM originally acquired from Protegrity as issuer. Finally, it should be noted that Borje Melin, the president and majority shareholder of Gota Lejon, also serves as a director of Protegrity.
Most of Protegrity's stock is held by Swedish stockholders. Dahl Aff. ¶ 10.
III. Background
Although the parties' versions of the events are not consistent, the facts material to resolution of the pending motions are undisputed.
In mid-July, 1999, CAPM purchased (and took record title to) 1,250,000 shares of Protegrity stock from Domaren for $2.5 million. This transaction was effectuated by CAPM at the request of LF pursuant to a July 2, 1999 written agreement between the two entities that was later augmented by two July 12, 1999 supplements. More specifically, the agreements involved CAPM's having agreed to serve as a commission agent for the financing of a put-call agreement between LF and Domaren under which the former had become obligated to procure 1,250,000 shares of Protegrity stock for the latter. The agreement between CAPM and LF, as modified, also involved LF's having guaranteed the underlying loan secured by CAPM for financing the purchase of the Protegrity stock from Domaren.
Pursuant to the above agreement, CAPM became the legal and record holder of 1,250,000 shares of Protegrity stock on July 14, 1999. This is evidenced by Protegrity's having issued to CAPM a stock certificate representing its ownership in those shares. As the relationship between CAPM and LF (or its assignee, Gota Lejon) apparently deteriorated, CAPM entered into a share sale and purchase agreement with MacBay to cover the loan it had obtained to finance its original acquisition of the 1,250,000 Protegrity shares from Domaren. Under an agreement dated December 20, 1999, MacBay agreed to purchase 1,250,000 Protegrity shares from CAPM.
Protegrity Certificate No. PTY 0031, dated August 10, 1999, was issued in the name of CAPM for 1,250,000 shares of Protegrity stock.
In early 2000, CAPM sold 307,000 shares of its 1,250,000 Protegrity shares to various entities. CAPM subsequently sent Protegrity the one stock certificate in its possession representing the 1,250,000 shares and requested that Protegrity issue nine certificates evidencing a total of 943,000 shares of Protegrity to CAPM and the certificates for the 307,000 shares sold to the various purchasers.
Protegrity's transfer agent issued nine new stock certificates in the name of CAPM representing its 943,000 remaining shares of Protegrity stock, in addition to new certificates in the names of the buyers of the 307,000 shares transferred by CAPM. However, while Protegrity forwarded new certificates representing the ownership of 307,000 shares of Protegrity to the new owners in April of 2000, Protegrity declined to comply with CAPM's requests that Protegrity deliver the nine certificates representing the 943,000 shares for which CAPM remained the lawful and registered owner.
According to Protegrity, "[o]n March 30, 2000, Protegrity's Transfer Agent issued stock certificates in the names of the buyers for 307,000 [s]hares transferred, and nine stock certificates in the name of CAPM, representing the 943,000 shares." Defendant's Response to Plaintiffs Summary Judgment Mot. at 11 ("Defendant's Response").
See id. at 12. More specifically, Protegrity admits that "[CAPM] phoned Protegrity and requested that the certificates for the 943,000 [s]hares be delivered to CAPM. . . . [at which point Protegrity, the issuer, sought instructions from Melin who] instructed Protegrity to continue holding the certificates, per prior agreement between CAPM and Gota Lejon." Id.
Borje Melin, acting in his capacity as president of Gota Lejon, urged Protegrity not to deliver the certificates to CAPM. Mr. Melin sought to justify his request on the basis of a purported agreement between CAPM and Gota Lejon and an alleged disagreement over the beneficial ownership of the shares. The nine stock certificates naming CAPM as the registered and legal owner of the remaining 943,000 Protegrity shares were eventually delivered by Protegrity's senior vice president to Mr. Melin in his capacity as a representative of Gota Lejon at an investors' conference in November of 2000 in an exchange, according to Protegrity, "with the understanding and agreement that Melin accepted the certificates as an agent on behalf of CAPM and the beneficial owner and agreed to hold them in escrow for CAPM and the beneficial owner until the issue would be resolved in Sweden." Accordingly, Protegrity admits having held the certificates at issue despite CAPM's request and having then delivered the nine stock certificates naming CAPM as record owner of the 943,000 shares to Gota Lejon as a result of Gota Lejon's purported status as beneficial owner. Because Protegrity refused to deliver the certificates to CAPM, CAPM filed this action on February 15, 2001.
As noted above, Mr. Melin served both as a director of Protegrity and as the president of Gota Lejon. Mr. Melin's instructions to Protegrity that it hold the certificates registered to CAPM were made in his capacity as agent for Gota Lejon.
See supra note 5.
Defendant's Response at 12.
It should be noted that the above referenced facts (and those that follow) alluding to the relationship between CAPM and Gota Lejon are provided as the context for this dispute: namely, CAPM's partial sale of its Protegrity stock and Protegrity's subsequent refusal to transfer the reissued stock certificates representing its ownership in the remaining 943,000 shares.
Thus, Gota Lejon has been actively involved in the present dispute since its inception and may, at least to a significant extent, be a cause of it. Indeed, Protegrity's position in this case derives from Gota Lejon's purported status as the beneficial owner of the Protegrity shares held by CAPM. Gota Lejon's ongoing relationship with Protegrity has been evident throughout these proceedings. For example, during a February telephone conference on a motion to expedite, Protegrity's counsel advised this Court that he was aware and had been informed by Gota Lejon's counsel in Sweden that Gota Lejon was "prepared and . . . interested in resolving th[e] matter in Sweden without further delay." At a subsequent teleconference in May, Protegrity's counsel stated that Protegrity had discussed with Gota Lejon its recommendation that Gota Lejon "agree to be joined as a party to this action." Notwithstanding the foregoing, Gota Lejon delayed filing its motion to intervene until June 18, 2001, the same day that this Court heard oral argument on CAPM's motion for summary judgment, some four months after the case had been initiated.
Tr. of Feb. 22, 2001 Mot. to Expedite Hearing at 13.
Tr. of May 18, 2001 Teleconference at 2-3.
IV. CAPM's Motion for Summary Judgment
A. The Contentions of the Parties.
CAPM, by its motion for summary judgment, contends that Protegrity breached its statutory duty to "register a transfer" of its shares by having refused to deliver to it the nine stock certificates representing its remaining ownership of 943,000 shares of Protegrity stock. Protegrity asserts that because CAPM did not request that it transfer the certificates to a third party in a transaction involving a change in legal ownership, its inaction did not constitute a failure to register a transfer within the meaning of Delaware law.
CAPM, by its motion for summary judgment, seeks both possession of the certificates and a determination that Protegrity is liable to CAPM for damages resulting from its failure to deliver the certificates. However, I do not reach the question of liability for damages because of the absence, on the record before me, of sufficient undisputed facts to support any finding of damages from the delay, and I will not presume any. Thus, CAPM's motion will be treated as one for partial summary judgment.
Protegrity devotes significant attention to issues concerning the beneficial ownership of the stock and CAPM's status as commission agent for the original agreement between Domaren and LF (or its assignee, Gota Lejon) and CAPM's later transactions in which it sought to divest itself of the shares. However, the narrow issue before the Court on CAPM's motion is whether Protegrity, as an issuer, violated the statutorily prescribed duties it owed CAPM as the uncontested record holder of the 943,000 shares of Protegrity stock. The broader issues determining the rightful beneficial owner of the shares in question need not, and will not, be addressed by the Court on this motion. Specifically, Protegrity argues that: (i) because there was no transfer of the 943,000 shares, it was under no duty to issue new certificates to CAPM; (ii) its delivery of the certificates to Gota Lejon as agent for CAPM met its statutory obligations; (iii) Gota Lejon's request, through Mr. Melin, that the shares not be transferred justified its actions; (iv) Gota Lejon, as a security entitlement holder, has rights superior to those of CAPM as a securities intermediary; and (v) CAPM did not meet its burden of demonstrating its entitlement to replacement of lost or stolen certificates.
B. Applicable Standard.
A party bringing a motion for summary judgment bears the burden of establishing that, when all of the evidence is viewed in the light most favorable to the non-moving party, no material issues of fact exist, and the moving party is entitled to judgment as a matter of law.
See, e.g., United Vanguard Fund, Inc. v. Take Care, Inc., Del. Supr., 693 A.2d 1076, 1079 (1997); Williams v. Geier, Del. Supr., 671 A.2d 1368, 1375-76 (1996).
C. Analysis.
1. 6 Del. C. § 8-401 — "Register the Transfer."
CAPM asserts that § 8-401 of the Uniform Commercial Code placed Protegrity under a duty requiring it to "register a transfer" of its shares when requested by CAPM because CAPM is the registered owner of 943,000 shares of Protegrity stock. The Court must first address Protegrity's argument that, since "CAPM failed to pray relief in [its complaint] under 6 Del. C. § 8-401," the Court may not consider granting the relief sought by CAPM. CAPM's complaint specifically speaks to CAPM's request for (and alleged right under § 8-401 to have) the new certificates issued by Protegrity, in addition to CAPM's request for an order by this Court compelling Protegrity to deliver the reissued stock certificates to CAPM. As such, the § 8-401 issue raised by CAPM on this motion was fairly presented in the complaint and is properly before this Court. I now turn to the merits of that motion.
Del. C. § 8-401.
Defendant's Response at 18.
See Compl. ¶¶ 13-15, where CAPM invoked § 8-401.
Section 8-401(a) provides that "[i]f a certificated security in registered form is presented to an issuer with a request to register transfer. . ., the issuer shall register the transfer as requested if [seven additional showings are made]." Thus, assuming it can meet the threshold requirements of § 8-401(a), CAPM must further demonstrate to this Court that no material issue of fact exists establishing that:
6 Del. C. § 8-401(a) (emphasis added).
(1) under the terms of the security the person seeking registration of transfer is eligible to have the security registered in its name; (2) the endorsement or instruction is made by the appropriate person or by an agent who has actual authority to act on behalf of the appropriate person; (3) reasonable assurance is given that the endorsement or instruction is genuine and authorized (Section 8-402); (4) any applicable law relating to the collection of taxes has been complied with; (5) the transfer does not violate any restriction on transfer imposed by the issuer in accordance with Section 8-204; (6) a demand that the issuer not register transfer has not become effective under Section 8-403, or the issuer has complied with Section 8-403(b) but no legal process or indemnity bond is obtained as provided in Section 8-403(d); and (7) the transfer is in fact rightful or is to a protected purchaser.
Id.
In order to prevail on its motion, CAPM must first demonstrate that Protegrity's failure to comply with CAPM's request that it deliver to CAPM the reissued stock certificates constituted a failure to "register the transfer" within the meaning of § 8-401(a). More specifically, the issue of statutory construction before the Court is whether the statutory mandate imposed on issuers to "register [a] transfer" encompasses the obligation of an issuer to deliver newly reissued certificates to a registered owner upon its request following the sale or other disposition of some, but not all, of its shares.
Protegrity argues that the word "transfer" in § 8-401(a) should be limited to an interpretation involving those situations in which an owner requests that an issuer deliver ( i.e., "transfer") certificates to a third party in a transaction involving an actual change in legal ownership in contrast to those situations, like this one, involving the issuance (i.e., "transfer") of a certificate evidencing reduced holdings to an existing shareholder. Because CAPM is not attempting to "transfer" the 943,000 shares at issue in this case to another person or entity, Protegrity reasons that it breached no duty to CAPM under § 8-401 by having refused to deliver to CAPM the nine reissued certificates. For the reasons set forth below, I disagree.
As addressed infra, it is Protegrity's position that questions involving the issuance of replacement certificates are governed by 8 Del. C. § 168. See also 8 Del. C. § 158.
This is not the first instance in which this Court has construed the pertinent language of § 8-401. In Bender v. Memory Metals, Inc., an issuing corporation refused to return to one of its registered shareholders a copy of her certificate because its president asserted an adverse claim to it. Bender involved a dispute originating out of a transaction in which Memory Metal's president sold 100,000 shares in the corporation to Bender in a private transaction. Because the shares acquired by Bender were not registered under the Securities Act of 1933, affixed to the certificate representing her shares was a restrictive legend limiting the transferability of those shares. When Bender later decided to sell her shares, the corporation refused to provide her with an opinion that the proposed sale fell within one of the exceptions that would have allowed her to proceed with the transaction and additionally refused to remove the legend from her stock certificate. Bender brought suit seeking to compel the corporation to reissue her a new certificate that did not contain the restrictive legend so that she could go forward with the transfer of her stock.
Del. Ch., 514 A.2d 1109 (1986).
See id. at 1111-13.
The issuer in Bender argued, in a fashion remarkably similar to Protegrity's position in this case, that "[s]ince the only duty expressly imposed by § 8-401 is a duty to `register a transfer' of the underlying stock, and since a request to issue a new certificate is not equivalent to a request to register a transfer of the underlying stock," the registered owner could not proceed under that section. The Court rejected this interpretation because it "ignores the realities of the securities transfer process."
Id. at 1115.
Id. The Court observed that "[w]hen certificated stock is transferred, the issuance of a new certificate to the transferee is normally an integral step in that process." Id.
The Court explicitly interpreted the term "register the transfer" as including the issuance of a new certificate when "[g]iven . . . commercial realities, it is reasonable to construe the term `register the transfer', as used in § 8-401 of the UCC, to include those ministerial acts that normally accompany such registration, including, where applicable, the issuance of a new certificate." Protegrity seeks to limit the reach of Bender's construction in two ways. First, it argues that the construction in that case is mere dicta and, as such, is not controlling. Second, it asserts that the holding in Bender is limited to its facts.
Id. (emphasis added).
With respect to Protegrity's argument that Bender's interpretation of § 8-401 was dicta, it bears noting that the construction by the Court in Bender was undertaken in direct response to the defendant's motion to dismiss in that case for failure to state a claim under that section of the Uniform Commercial Code and was the product of considerable analysis. Moreover, another opinion of this Court decided only last year addressed an argument that an issuer had violated § 8-401 as interpreted by Bender in having failed to "register the transfer" of its certificated stock. While the Chancellor rejected the plaintiffs contention that § 8-401 had been contravened, he implicitly embraced Bender's legal precepts (although he distinguished Bender from the case before him based on its facts).
See Leonard Loventhal Account v. Hilton Hotels Corp., Del. Ch., C.A. No. 17803, mem. op. at 21-22, Chandler, C. (Oct. 10, 2000), aff'd, Del. Supr., 780 A.2d 245 (2001).
See id. at 21 n. 37 ("The Court recognized in Bender that `it is reasonable to construe the term "register to transfer," as used in § 8-401 of the UCC, to include those ministerial acts that normally accompany such registration [of transfer], including, where applicable, the issuance of a new certificate."').
Protegrity next argues that Bender must be limited to its facts. I cannot agree. As noted above, the dispute between CAPM and Protegrity is remarkably similar to the one between Bender and Memory Metals. In Bender, the issuing company refused to accommodate the request of one of its registered shareholders to reissue a certificate representing her ownership in the company's shares because the company's president asserted an adverse claim to the underlying securities represented by the certificate in question. In the case now before this Court, Protegrity does not dispute that it has similarly refused to deliver certificates to CAPM because one of Protegrity's directors, in his capacity as officer and controlling shareholder of Gota Lejon, instructed Protegrity not to deliver the certificates to CAPM based on his position that Gota Lejon was the rightful beneficial owner of the underlying shares.
The present dispute illustrates why the interpretation adopted by this Court is a necessary one. Assuming for the moment that this Court were to accept the interpretation advocated by Protegrity, each issuer would be anointed the insurer of every transaction involving the transfer of its shares. Issuers would be placed under a duty to investigate underlying transactions to ensure the absence of any disputes involving beneficial ownership. Even more problematic is the possibility that any party's manifestation of a purported interest in a company's stock could, upon objection, force an issuer to investigate and scrutinize issues of beneficial ownership, thereby handcuffing the registered owner's ability to transfer freely its shares.
Delaware law clearly does not contemplate such a scenario. 6 Del. C. § 8-403 provides that only "a person who is an " appropriate person to make an endorsement or originate an instruction may demand that the issuer not register transfer of a security by communicating to the issuer a notification. An appropriate person to "make an endorsement" is defined as "the person specified by a security certificate . . . to be entitled to the security." Similarly, an appropriate person "with respect to an instruction, [is defined as meaning] the registered owner of an uncertificated security." CAPM — not Gota Lejon — was the entity named on both the original certificate and the nine reissued certificates representing the 943,000 shares of Protegrity stock. Thus, Golta Lejon was neither an "appropriate person to make an endorsement" nor an "appropriate person to originate an instruction" within the meaning of § 8-107 and, therefore, was not empowered with the authority to demand that Protegrity not register transfer of the reissued certificates as requested by CAPM.
"[I]t is clear that the transferee's right to registration, upon compliance with the conditions set forth in § 8-401 is not easily defeated by the issuer, even when presentment of the shares is made in the context of an active dispute as to the validity of the underlying conveyance." DONALD J. WOLFE, JR. MICHAEL A. PITTENGER, CORPORATE AND COMMERCIAL PRACTICE IN THE DELAWARE COURT OF CHANCERY § 8-3[b], at 8-31 (2000) (emphasis added).
6 Del. C. § 8-403 (emphasis added).
As observed in the Official Comments to the Uniform Commercial Code, Comment One to Section 8-403:
[T]he general rule under this Article is that if there has been an effective indorsement or instruction, a person who contends that registration of the transfer would be wrongful should not be able to interfere with the registration process merely by sending notice of the assertion to the issuer. Rather, the claimant must obtain legal process. . . . Section 8-403 is an exception to this general rule. It permits the registered owner — but not third parties — to demand that the issuer not register a transfer. (emphasis added).
Satisfied that the statutory obligation to "register the transfer" includes a duty on the part of an issuer to deliver reissued certificates evidencing the title of the holder of retained securities, I will now turn to the second showing required by this section. As stated above, in order for CAPM to establish that Protegrity breached its duty to register the transfer under § 8-401, it must further establish that no material issue of fact exists regarding whether the seven additional conditions were met. Protegrity does not address the seven separate showings required by § 8-401(a) and Protegrity does not seek to justify why it refused to register the transfer under that section (other than to argue that the section is inapplicable). I will, nevertheless, address each showing in turn.
With respect to § 8-401(a)(I), there is no question that CAPM is the registered owner of the 943,000 shares and, therefore, CAPM, as the "person seeking registration of transfer[,] is eligible to have the security registered in its name." As discussed above, CAPM is the "appropriate person" for the purposes of § 8-401(a)(2) and Protegrity has not raised an issue challenging the authenticity or genuineness of CAPM's instruction that Protegrity deliver to it the certificates as addressed by § 8-401(a)(3). Nor is there any evidence raising a question as to the collection of taxes or that the delivery would violate any restrictions imposed by Protegrity on the transfer of the certificates. As noted above, Gota Lejon lacked the authority as an appropriate person to demand that the issuer not register transfer and, therefore, § 8-403, as it pertains to § 8-401(a)(6), is not material to this case. Finally, I am satisfied from the record and the above discussion that "the transfer [requested by CAPM is] in fact rightful" as required by § 8-401(a)(7).
See id. § 8-401(a)(4).
See id. § 8-401(a)(5).
This view is also bolstered by 6 Del. C. § 8-404, which describes the circumstances under which an issuer may become liable for the wrongful issuance of certificates for its stock. As a general matter, as long as the registration of a transfer is "pursuant to an effective endorsement or instruction," the issuer will not be liable for wrongful registration unless there is a failure to comply with an effective demand not to register the transfer under § 8-403(a), the issuer has been served with legal process enjoining it from registering the transfer, or the issuer acts in collusion with the wrongdoer. The record contains no factual basis suggesting that CAPM and Protegrity were in collusion, or that either Gota Lejon or anyone else had obtained an injunction against delivery of the certificates to CAPM. Also, as observed above, no effective demand under § 8-403(a) was made. As such, Protegrity would not have been exposed to liability if it had issued the certificates to CAPM as requested.
2. 6 Del. C. § 8-501 — CAPM as Securities Intermediary.
Protegrity argues in the alternative that even assuming that this Court were to hold (as it has) that § 8-401 placed it under a duty to deliver the remaining stock certificates to CAPM, Part 5 of Article 8 of the Uniform Commercial Code, which governs the activities of "securities intermediaries," "makes it clear that the entitlement holder, or beneficial owner, of the shares possesses superior title to the record holder [and therefore that Protegrity, as issuer,] had the right and obligation to ensure that its course of conduct in this dispute observed the strictures imposed by Article 8." Thus, Protegrity contends that CAPM, acting as commission agent for LF's assignee (Gota Lejon), acted as a "securities intermediary" within the meaning of Part 5, having held the stock for the benefit of its entitlement holder (Gota Lejon).
Defendant's Response at 22.
Part 5 governs security entitlements and their relationship to securities intermediaries. A "securities intermediary" is defined by 6 Del. C. § 8-102(a)(14) as "(i) a clearing corporation; or (ii) a person, including a bank or broker, that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity." While there can be no reasonable assertion that CAPM falls within the meaning of a securities intermediary as a clearing corporation, the second part of the definition warrants further discussion. "Securities account," as defined by 6 Del. C. § 8-501 (a), comprises "an account to which a financial asset is or may be credited in accordance with an agreement under which the person maintaining the account undertakes to treat the person for whom the account is maintained as entitled to exercise the rights that comprise the financial asset." The questions before me, therefore, appear to be, first, whether the commission agent agreement between CAPM and LF constitutes an arrangement creating a securities account within the meaning of Part 5 and, if so, second, the extent to which such an arrangement relates to the duty of an issuer to register a transfer.
The Official Comments to the Uniform Commercial Code provide that:
Whether an arrangement between a firm and another person concerning a security or other financial asset is "securities account" under this Article depends on whether the firm has undertaken to treat the other person as entitled to exercise the rights that comprise the security or other financial asset.
Official Comment 1, Uniform Commercial Code, Section 501.
The term securities account was intended to cover the relationship between institutional investors and their customers in which the former manages the latter's holdings. The issue here is whether the definition set forth above also encompasses the commission agreement between CAPM and Gota Lejon (as LF's assignee).
The July 2, 1999 "Commission Agreement," as augmented by the two July 12, 1999 supplements, contemplates an arrangement under which CAPM agreed to arrange debt financing for LF for the purchase of the Protegrity shares. That agreement sets forth the "scope and character of the commission" and provides that CAPM will, among other things, arrange bridge financing of approximately $2, 500,000 and undertake to research, advise, and locate potential buyers for LF in carrying out the sale of the Protegrity stock.
Defendant's Response, Ex. 2.
While this type of arrangement may not be the typical one contemplated by Part 5 of Article 8, perhaps under applicable Swedish law, the above-referenced "Commission Agreement" may constitute a relationship that more closely mirrors that of one between a broker and customer. While I am not be persuaded based on the record before me that Swedish law requires such a finding, I cannot authoritatively state that it does not. In any event, however, Part 5 is not determinative of the motion before me.
Even assuming that CAPM is a "securities intermediary" and Gota Lejon is an "entitlement holder" within the meaning of Part 5, the rules in that Part do not affect the duties of Protegrity as issuer of the stock. Protegrity, as issuer of the 943,000 shares in question, does not attempt to categorize its status as either the securities intermediary or the entitlement holder. As recognized by Protegrity, Part 5 imposes a duty on an intermediary to treat the entity for which the stock is held and maintained "as entitled to exercise the rights incident to the security." Part 5 does not address or contemplate the rights or duties of issuers. Instead, I am of the opinion that Part 4 defines the duties and obligations of issuers, while Part 5 is reserved for relationships between securities intermediaries (which can include legal titleholders) and entitlement holders (which can include beneficial owners). In other words, §§ 8-401 and 8-403 expressly confer upon "authorized persons" the requisite standing to demand that an issuer not register a transfer of a given security. Part 5, in contrast, speaks only to the rights of an entitlement holder vis-a-vis its securities intermediary and is, thus, inapposite. Accordingly, Protegrity's attempt to employ Part 5 as a means for justifying its refusal to deliver the certificates fails.
Defendant's Response at 22 (citing 8 Del. C. § 8- 8 Del. C. § 501 (a)).
3. 6 Deli C. § 8-301 — Gota Lejon as CAPM's Agent.
Protegrity next argues that it fulfilled its issuance obligation by having delivered CAPM's nine stock certificates at the investors' conference in Sweden to Mr. Melin on behalf of CAPM in his capacity as a director of Gota Lejon. Protegrity relies on 6 Del. C. § 8-301(a), which reads in relevant part:
Delivery of a certificated security to a purchaser occurs when:
(1) the purchaser acquires possession of the security certificate;
(2) another person, other than a securities intermediary, either acquires possession of the security certificate on behalf of the purchaser or, having previously acquired possession of the certificate, acknowledges that it holds [the certificate] for the purchaser; or
(3) a securities intermediary acting on behalf of the purchaser acquires possession of the security certificate, only if the certificate is in registered form and has been specially endorsed to the purchaser by an effective endorsement.
Protegrity asserts that it delivered the certificates to Gota Lejon as CAPM's agent and argues, consequently, that it satisfied its delivery obligations under § 8-301. In other words, Protegrity claims that the certificates were validly delivered to CAPM when they were delivered to Gota Lejon, acting on behalf of CAPM as its agent. Agency law centers on the authority of one pat to act on behalf of another. Such authority is revocable at the discretion of the principal who can terminate the agency relationship at any time. Assuming for the purposes of Protegrity's constructive delivery argument the existence of an agency relationship between CAPM (as principal) and Gota Lejon (as agent), any authority that may have been vested in Gota Lejon empowering it to accept the certificates on CAPM's behalf was clearly terminated prior to the November 2000 delivery, a fact that had been expressly communicated to Protegrity.
See supra text accompanying note 8.
See Defendant's Response at 23 (stating that "[d]elivery of the Protegrity stock certificates was completed at that time to the record owner and the beneficial owners of the shares, as their interests may be determined").
It should be clear that the agency relationship relevant to analyzing Protegrity's § 8-301 argument is separate and distinct from Protegrity's position that CAPM acted as commission agent for the 943,000 shares it claims were beneficially owned by Gota Lejon. In the latter relationship, Protegrity argues that CAPM served as Gota Lejon's commission agent, holding the shares as the nominal owner for the benefit of its principal, Gota Lejon. In its constructive delivery argument, Protegrity asserts that Gota Lejon served as CAPM's agent and, as a result, was authorized to accept the certificates from Protegrity on CAPM's (its principal's) behalf.
Protegrity admits that CAPM had contacted it and demanded the delivery of the certificates to CAPM prior to the November 2000 delivery to Mr. Melin. Mr. Melin acknowledges that "[Protegrity] informed him that CAPM had phoned Protegrity and requested that the certificates . . . be delivered to CAPM." Again, it is unrefuted that both of these communications occurred before Protegrity's November 2000 delivery of the certificates to Mr. Melin. It is inconsistent and futile, therefore, for Protegrity to assert now, as it does, that Mr. Melin was acting as an agent with the authority to accept the certificates on behalf of CAPM. It is simply an undisputed fact from the present record that Protegrity had ample notice that CAPM had terminated Mr. Melin's authority, to the extent that there may have been such authority, to accept the certificates on its behalf
See Dahl Dep. at 31-32.
Melin Aff. ¶ 28.
4. 8 Del. C. § 168 — Lost or Stolen Certificates.
Protegrity devotes a significant portion of its argument to 8 Del. C. § 168, which governs actions for replacement of lost, stolen, or destroyed certificates. While CAPM initially raised § 168 in its complaint, it has not sought relief under this section in its summary judgment motion, and, accordingly, I need not address the merits of any § 168 claim.
When CAPM filed its complaint, it did not know if the certificates, in the words of 8 Del. C. § 168, were "lost, stolen or destroyed" because Protegrity had delivered them to Gota Lejon, instead of delivering them to CAPM, the legal owner. Having subsequently learned of Protegrity's actions and position, CAPM has made it clear that is not pursuing any relief under § 168.
Accordingly, CAPM is entitled to summary judgment requiring Protegrity to deliver to it the nine certificates evidencing its record ownership of the 943,000 shares.
V. Gota Lejon's Motion to Intervene
Gota Lejon moved for leave to intervene into this case on the day that CAPM's motion for summary judgment was argued. Through its proposed complaint in intervention, Gota Lejon seeks (i) a declaratory judgment establishing that it is the record and beneficial owner of the 943,000 shares of Protegrity stock and, therefore, entitled to registration of the shares in its name; (ii) a mandatory injunction requiring CAPM to execute a stock power directing Protegrity to transfer registration of the shares to Gota Lejon; and (iii) a mandatory injunction directing Protegrity to register the transfer of the shares in Gota Lejon's name. Thus, the relief which Gota Lejon requests is beyond the scope of the issues raised in this litigation in its absence. Gota Lejon has asserted that because it has an interest as the purported rightful beneficial owner in the 943,000 shares, Chancery Court Rule 24(a)(2) entitles it to intervene as of right into the present proceeding to protect its interest in those shares. Alternatively, Gota Lejon posits that it is entitled to permissive intervention in this case under Chancery Court Rule 24(b)(2).
Gota Lejon does not invoke either Court of Chancery Rule 24(a)(1) or 24(b)(1) because there is no applicable statutory authority for intervention, either absolutely or conditionally.
A. Intervention of Right.
As set forth above, Gota Lejon, as the assignee of LF's rights under the put-call agreement between LF and Domaren, claims to be the rightful beneficial owner of the 943,000 shares. As such, it argues that it is entitled to intervene as a matter of right in the present dispute between CAPM and Protegrity. Chancery Court Rule 24(a)(2) provides:
Upon timely application anyone shall be permitted to intervene in an action: . . . (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties.
The dispute between CAPM and Protegrity in which Gota Lejon has sought to intervene involves CAPM's claim that Protegrity breached its statutory duty, as issuer, in having failed to "register a transfer" of the stock certificates representing its registered ownership of the 943,000 shares. Although several ancillary issues and disputes underscore the transactions and dealings among various players leading up to CAPM's application for relief under § 8-401, the only issue before the Court is the appropriateness of Protegrity's refusal to deliver the certificates. In its motion to intervene, Gota Lejon states that "it is clear that [it] claims an interest in the property at issue in the present litigation." Viewed against the backdrop of the dispute before this Court and the realities of this Court's holding, however, I find that Gota Lejon's rights are not, and will not be, affected by the present adjudication of CAPM's § 8-401 claim.
Gota Lejon's Mot. to Intervene at 3.
While CAPM's prayer for relief stemmed from its unrefuted status as the legal and registered owner of the 943,000 shares, Gota Lejon's motion to intervene centers on its claim that it is the rightful beneficial owner of the stock. CAPM's duties to Gota Lejon as commission agent and any doubts regarding the rightful beneficial owner of the 943,000 shares of Protegrity stock were not before this Court and those questions involve the disposition of rights distinct from those existing in the present controversy. The only material issue in this case was the "ministerial" function of delivering the nine certificates to their lawfully registered owner. By definition, the certificates at issue in this case are only representative of the underlying stock. Consequently, the fact that Gota Lejon's interests are not represented in the present litigation is immaterial because the dispute between CAPM and Protegrity does not affect its rights or claims to the ownership of that stock.
Gota Lejon in its proposed complaint in intervention seeks an order mandating transfer of the Protegrity stock to it from CAPM. Any entitlement to that relief derives from Gota Lejon's alleged status as the beneficial owner, and, thus, this aspect of its application is simply another effort to have this Court address the issue of beneficial ownership.
Gota Lejon argues that if I were to rule, as I have, that Protegrity inappropriately failed to "register [the] transfer" by refusing to deliver to CAPM the stock certificates, that "the ability of Gota Lejon to protect its ownership interest could be significantly diminished, as CAPM already has purported to sell the shares . . . to MacBay . . . without the authorization of Gota Lejon." My construction of § 8-401 and my decision granting CAPM relief do not address or affect beneficial ownership of those shares. It is true that CAPM has purported to sell its Protegrity stock to MacBay. MacBay, however, is not even a party in these proceedings and perhaps would be considered indispensable to any determination of beneficial ownership.
Gota Lejon Mot. to Intervene at 3.
Accordingly, Gota Lejon's motion to intervene under Court of Chancery Rule 24(a) is denied.
B. Permissive Intervention.
Gota Lejon argues alternatively that this Court should grant its motion to intervene under Court of Chancery Rule 24(b), which provides:
Upon timely application anyone may be permitted to intervene in an action: . . . (2) when an applicant's claim or defense and the main action have a question of law or fact in common. In exercising its discretion the Court shall consider whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties.
Rule 24(b) requires this Court to consider, in the exercise of its equitable discretion, whether intervention by Gota Lejon will "unduly delay or prejudice the adjudication of the rights of the original pates." In opposition to Gota Lejon's motion, CAPM notes that the company's motion comes some four months into the proceedings and after discovery by both pates has been completed. Moreover, as stated above, Gota Lejon's motion was filed on the very day that this Court heard oral argument on the summary judgment motion presently before it.
Court of Chancery Rule 24(b).
Notwithstanding the cases cited by Gota Lejon as support for its assertion that its motion should not be barred as "untimely," the facts and circumstances of this action require that I find otherwise. "[C]ourts generally have been reluctant to allow intervention when the applicant appears to have been aware of the litigation but has delayed unduly seeking to intervene." Nowhere in its moving papers does Gota Lejon explain or justify its four-month delay in seeking to intervene. Gota Lejon does not, and cannot, argue that it was unaware of the present dispute or that the present dispute changed in tenor to an extent where it felt compelled to intervene after sitting on the sidelines until now. To the contrary, Gota Lejon has loomed in the background of this controversy since its inception. In fact, Gota Lejon has been an active participant in the events leading up to and creating this controversy.
See Agranoff v. Miller, Del. Ch., C.A. No. 16795, Strine, V.C. (Feb. 18, 1999) (bench ruling); Dugan v. Dineen, Del. Ch., C.A. No. 10864, Chandler, V.C. (June 12, 1990).
7C WRIGHT, MILLER KANE, FEDERAL PRACTICE PROCEDURE § 1916, at 430 (2d ed. 1986 Supp. 2001).
"The most important consideration in deciding whether a motion for intervention is untimely is whether the delay in moving for intervention will prejudice the existing parties to the case." Certainly, as is the case here, CAPM would be prejudiced if I were to expand the scope of the present dispute to include an adjudication of the rightful beneficial owner of the shares. CAPM has successfully argued that its rights as registered owner were violated as a result of Protegrity's refusal to deliver the certificates. For me to endeavor, by way of allowing Gota Lejon to intervene, to expand the narrow issue raised by CAPM would force CAPM to remain in these proceedings, engage in further discovery, and prolong this already delayed "expedited" litigation. I recognize that it is completely within Gota Lejon's discretion and right to institute a new proceeding for the resolution of its alleged stake in the Protegrity shares. However, because CAPM's rights would be prejudiced if I were to allow Gota Lejon to seek adjudication of its claim in this present dispute of narrow focus and thereby delay its resolution, I deny Gota Lejon's motion to intervene under Court of Chancery Rule 24(b).
Id. at 435.
Cf. WOLFE PITTENGER, supra note 27 (stating that "as a result of the summary nature of the[se] proceeding[s], attempts to stay the proceeding pending resolution of the adverse claims to ownership have proven unsuccessful").
Although Agranoff and Dugan allowed intervention very late in the judicial process, neither potential intervenor raised a separate and distinct issue of the magnitude of the beneficial ownership claim that Gota Lejon seeks to assert. Both cases emphasize the fact-specific nature of the Court's inquiry. In Dugan, for example, the intervenor had been relying upon a party who capitulated and stipulated to judgment without any significant advance notice to the intervenor. Here, all of the responsibility for the delay in the filing of the intervention motion appears to be the responsibility of Gota Lejon, which as yet has failed to cobble together a plausible explanation for its delay. In both Agranoff and Dugan, the potential for prejudice was the paramount consideration in the Court's timeliness analysis, and, as outlined above, CAPM will be prejudiced, both because of delay and because of having to address additional issues in this forum, if the motion to intervene is granted.
In finding that Gota Lejon's motion to intervene should be denied as untimely and to avoid unduly prejudicing CAPM, I need not address Rule 24(b)'s requirement that there be a common question of law or fact. Nevertheless, the preceding analysis suggests that questions as to the rightful beneficial owner of the shares are different from those issues relating to CAPM's rights as the registered owner of the Protegrity stock to possess the certificates demonstrating such ownership.
VI. Conclusion
I have found that there are no issues of material fact, and I hold that the duties imposed on Protegrity as the issuer of the stock in question included an obligation to deliver to CAPM the certificates evidencing its legal ownership in the shares. Accordingly, CAPM's motion for summary judgment is granted in part, and I direct Protegrity to deliver to CAPM nine certificates evidencing CAPM's registered ownership in the 943,000 shares of Protegrity stock not less than 30 days and not more than 40 days from the date of this opinion. I have delayed the delivery of the certificates to CAPM to allow Gota Lejon the opportunity to assert its claims in an appropriate action before an appropriate tribunal.I have also denied Gota Lejon's motion to intervene.
IT IS SO ORDERED.