The opinion of the court was delivered by: BONSAL
Plaintiff Travis Investment Company (plaintiff), a Colorado partnership, instituted this diversity action against defendants Harwyn Publishing Corporation (Harwyn) and Bankers Trust Company (Bankers), both New York corporations, for damages resulting from an alleged failure to transfer shares of Class A common stock of Harwyn (Harwyn stock). The action was discontinued as against Bankers before trial.
In the pretrial order, filed on November 15, 1966, the parties stipulated that the following facts were not in dispute:
1. Travis is a money lender. On or about October 10, 1963, the plaintiff loaned $25,000 to one, Jay Cohan, a resident of Denver, originally secured by 3800 shares of Harwyn stock of which 1000 shares were subsequently returned to Mr. Cohan. On January 8, 1964, the plaintiff similarly loaned $25,000 to one, Stanley M. Singer, originally secured by 3200 shares of Harwyn stock, subsequently increased to 5300. The promissory notes given by Messrs. Cohan and Singer to the plaintiff each contained a provision that, upon any default, the plaintiff might sell the collateral at public or private sale or on any broker's board without any demand or notice to the borrower.
Prior to the 1st of February, 1964, both of said notes were in default, and the plaintiff, being the holder thereof, became entitled, as between itself and the borrowers, to sell said Harwyn stock pursuant to the terms of said notes.
At all times herein mentioned, Bankers was transfer agent of Harwyn's stock.
2. On or about February 20, 1964, Bankers, as transfer agent for Harwyn, received written notification from the New York Regional Office of the Securities and Exchange Commission (S.E.C.) that it (the S.E.C.) had reason to believe that shares of Harwyn stock might appear upon the market which were owned by persons in a control relationship with Harwyn and which persons might attempt to sell such shares without registration and without the availability of an exemption under the Securities Act of 1933. Bankers was requested to notify the S.E.C. in respect of any request for transfer of any of Harwyn stock. At or about the same time the S.E.C. had advised Harwyn that it had reason to believe that a control group located in Denver, Colorado, Boston, Massachusetts, and Canada was unlawfully seeking to sell shares of Harwyn stock in the over-the-counter market and requested Harwyn to advise the S.E.C. of any request for transfer of any shares originating from any of those areas prior to transfer.
3. About February 21, 1964, Travis delivered its certificates for 8100 shares of Harwyn stock to Bache & Co. (Bache), its broker, with a request that Bache sell the same as rapidly as it could, but from time to time, in an orderly manner, so as to realize as favorable prices as might be possible.
4. On February 21, 1964, Mr. Charles D. Halsey, a General Partner of Bache, spoke with Bankers and with Mr. Soloway of Gartenberg & Ellenoff, attorneys for Harwyn, and asked whether there had been any transfer stops placed against any shares of Harwyn stock. On February 25, 1964, Mr. Halsey sent a list to Mr. Soloway setting forth the names in which the certificates making up the 8100 shares of Harwyn stock were registered and the certificate numbers of each such certificate. On the same day, Mr. Soloway advised Mr. Halsey that Harwyn would require a writing setting forth the name of the beneficial owner of each of the shares covered by the list and further particulars concerning ownership.
5. On February 26, 1964, Bache delivered certificates for 1000 shares thereof, together with certificates for 300 shares owned by persons other than the plaintiff, to Bankers for transfer into Bache's street name. Simultaneously, Mr. Halsey advised Mr. Soloway that he could not disclose the name of the owner of the 8100 shares until he received permission from Bache's customer but requested that the certificates be checked by number for any infirmity. Mr. Soloway, in turn, advised Mr. Halsey that such name was a prerequisite to transfer.
6. On February 28, 1964, Harwyn notified Bankers to make no transfers whatever of Harwyn's shares without prior advice to and further instructions from Harwyn, sending a copy of such letter to the S.E.C.
7. On March 6, 1964, Louis G. Isaacson, Esq., attorney for the plaintiff in Denver, wrote Mr. Soloway, as attorney for Harwyn, stating that he (Isaacson) represented the plaintiff; that he had been advised that Harwyn had refused to transfer the shares; and that, unless any stop order was immediately removed, and the shares transferred, an action would be commenced on behalf of the plaintiff for the damages suffered. Such letter disclosed the name of the plaintiff as the owner of the shares.
8. On March 10, 1964, Mr. Soloway wrote Mr. Isaacson stating that there were questions as to whether the shares referred to in Mr. Isaacson's letter were "controlled shares" and claiming to have requested Mr. Halsey to obtain the facts surrounding the ownership of said shares and an opinion from counsel for the plaintiff in respect of the possibility that the shares were being offered by members of a control group.
9. On March 12, 1964, Mr. Soloway instructed Bankers to make no transfers unless and until an opinion by counsel for any prospective transferor had been received, which set forth all of the details of ownership and included an opinion that the shares were not being offered by a member of a "control group" within the meaning of the Securities Act of 1933.
10. On March 16, 1964, Bache requested that the 1300 shares, which had been put in for transfer, be returned, and they were so returned.
11. During all of this time Harwyn kept the Regional Office of the S.E.C. advised as to all of the facts and events referred to above.
12. The bid and asked prices for shares of Harwyn stock on the over-the-counter market, as reported by the National Quotation Bureau, were as follows:
Bid Prices Asked Prices
1964 High Low High Low
FEBRUARY 25 9 8 10 9
FEBRUARY 26 8 8 9 9
FEBRUARY 27 8 1/2 7 3/4 9 1/4 8 3/4
MARCH 6 8 3/4 8 1/4 9 1/4 ...