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PENTECH INTERN. v. WALL ST. CLEARING CO.

September 4, 1991

PENTECH INTERNATIONAL, INC., INTERPLEADER PLAINTIFF,
v.
WALL STREET CLEARING CO., BEURET & COMPANY, LTD., SHAREHOLDERS AND CONSULTANTS OF BEURET & COMPANY, LTD., AND HELMUT MEISTER, DEFENDANTS.



The opinion of the court was delivered by: Whitman Knapp, District Judge.

OPINION & ORDER

This interpleader action was commenced by Pentech International, Inc. ("Pentech") to settle competing claims to an underwriter's warrant entitling its holder to purchase Pentech securities. The warrant was issued in June 1987 to Beuret & Company, Ltd. ("Beuret"), a securities broker-dealer that subsequently deposited the warrant in a proprietary account it maintained with its clearing broker, Wall Street Clearing Co. ("Wall Street").

The defendant-claimants include: Wall Street, which contends that it acquired a perfected security interest in the entire Warrant at — among other times — the time of the deposit; seven shareholders of Beuret, each of whom asserts a contractual interest in a portion of the warrant arising from an agreement made at the time he acquired the stock (the "Shareholders"); and Helmut Meister, a former Beuret employee, who asserts a claim to a portion of the warrant arising from his employment agreement ("Meister"). Although the now-defunct Beuret was named by Pentech as a defendant-claimant, no appearance has been entered on its behalf.

In addition, two tort claims have been asserted, both of which arise primarily from an attempt by Wall Street to acquire the Entire warrant for itself: (1) the Shareholders assert against Wall Street a tortious interference with contract claim, contending that it improperly interfered with their contractual rights to portions of the warrant; and (2) Wall Street asserts against Pentech a claim for breach of fiduciary duty arising from Pentech's refusal to reissue the warrant to Wall Street.

Discovery having been completed, the matter is now before us on motions for summary judgment by all of the parties: the claimants each assert that they are entitled as a matter of law to prevail on their alleged rights of partial or full ownership of the warrant; and Pentech claims that as a matter of law the warrant should be returned to the now-defunct Beuret. In addition, both Wall Street and Pentech seek dismissal of the tort claims asserted against them.

For reasons that follow, we conclude that Wall Street is entitled to the warrant subject to claims of the Shareholders and Meister as provided below. We dismiss both tort claims.

BACKGROUND

Beuret, a Delaware corporation, was a broker dealer that, in addition to providing brokerage services to its clients, also performed underwriting services in connection with public offerings.

Beuret counted among its shareholders Gerard Fallon, Irwin Hochberg, Herbert Nevyas, Irwin Rosenbaum, Herbert Rubin, Laurence Winston, and Anthony Giglio (to whom we shall refer collectively as the "Shareholders"). With the exception of Giglio, they claim to have acquired their shares pursuant to agreements alleged to have been entered into during 1986. It is alleged that each such purchase agreement provided that as long as the purchaser remained a shareholder of Beuret, Beuret would assign to him a specified percentage of any warrants it received in connection with any public offering it underwrote. Giglio, on the other hand, became a shareholder in 1985. Pursuant to an amended shareholder agreement entered into and amended on November 1, 1985 and June 3, 1986, respectively, Beuret agreed to assign to Giglio 12.5% of any underwriter's warrants it received. The percentages claimed by these shareholders are set forth in the following schedule:

                  Fallon              1.0%
                  Hochberg            0.5%
                  Nevyas              2.0%
                  Rosenbaum           0.5%
                  Rubin               1.0%
                  Winston             1.5%
                  Giglio             12.5%

In the spring of 1987, Beuret performed underwriting services for Pentech, in exchange for which Beuret received as part compensation the underwriter's warrant (the "Warrant") which is the res in this interpleader action. The Warrant was issued on June 12, 1987, and entitles its holder to purchase 50,000 underwriter's "units" at $6.30 per unit. Each unit consists of five shares of Pentech common stock and one option entitling the holder to purchase one additional share for $1.50.

The Warrant's terms also include a transfer restriction which prohibited until June 5, 1989 transfer, sale, assignment, or hypothecation of the Warrant to anyone other than officers of Beuret (the "Restriction").*fn1 The Warrant further provides that it shall be "governed by, and construed in accordance with, the laws of the State of New York, without giving effect to any principles of conflicts of law." Exh. 10, Brody Affid., ¶ 9.

On June 25, approximately two weeks after the Warrant had been issued, Beuret agreed in writing to assign 820 units of the Warrant to Meister, its employee, provided that he remain — as he did — in its employ through December 31 of that, year.

By late 1987, Beuret had met with severe financial difficulties due in part to the October stock market collapse. Maucere Dep. at 94. It appealed to its clearing broker, Wall Street, for financial assistance. In response, Wall Street entered into certain subordinated loan agreements in December pursuant to which it lent to Beuret close to $1 million.*fn2

Beuret's debt to Wall Street was enlarged by virtue of its obligations under their clearing agreement, which required Beuret to indemnify Wall Street for amounts owed on "introduced accounts" (i.e. accounts of customers Beuret had introduced to Wall Street). By early 1988, the amounts so owed numbered in the millions.*fn3

Beuret's financial situation continued so to deteriorate that by February it appeared it might have to go out of business. Maucere Dep. at 103. While Beuret concentrated on raising additional capital, Wall Street — well aware of Beuret's financial distress — began requesting of it some sort of "protection". Several meetings were held between Beuret's chief executive officer, John Maucere and Wall Street's chief executive officer, Denis Kelleher, executive vice-president John Gabriel, and president Richard Walter Lee. An oral agreement was ultimately reached pursuant to which Beuret agreed to deposit into its proprietary trading account at Wall Street six underwriter's warrants — including the Warrant here at issue — that had been issued to it by various investment banking clients. Unlike the Warrant here at issue, at least three of the others — including one that later became the subject of state court litigation*fn4 — were not subject to any restriction on transfer at the time of delivery. Gabriel Dep. at 105-06; Exh. A to Exh. 4, Brody Affid. in Further Support, at 2. According to Kelleher, the deposit was intended to provide Wall Street with "additional protection" and "to give us a better feeling of comfort while [Beuret was] in the process of organizing to do [a] public offering." Kelleher Dep. at 14, Exh. 28 to Brody Affid.

The Warrant — along with the five others — was delivered to Wall Street on February 10. Each warrant was accompanied by a transfer form signed by Maucere, who had left blank the space for designating the transferee. The warrants were then deposited in Beuret's proprietary trading account.

Around the same time, Wall Street began to learn of the various claims to portions of the Warrant asserted in this litigation. During the course of the discussions that had preceded its delivery, Maucere made known to Wall Street that various Beuret employees — including Meister — were entitled under their employment agreements to portions of each of the warrants. In fact, before delivering them, Maucere attempted to extract from Wall Street a promise that such commitments would be honored. As he testified:

  I had to stand consistent in my desire and
  consistent in my representations to my employees,
  in particular those people that pulled the sled
  every day, so to speak, not the shareholders, but
  the people who pulled the sled every day, that
  they would get their warrants.

Maucere Dep. at 103.*fn5 However, according to Maucere, Kelleher resisted reducing any such promise to writing. Maucere Dep. at 103, 135.

Instead, it appears, Wall Street sought to secure for itself a written statement from Beuret expressly disclaiming all third party interests in the warrants. To this end, it presented to Maucere a proposed ...


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