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A.W. Financial Services, S.A. v. Empire Resources

September 30, 2010

A.W. FINANCIAL SERVICES, S.A., AS SUCCESSOR IN INTEREST TO TERTIAIRE INVESTISSEMENT, S.A., PLAINTIFF,
v.
EMPIRE RESOURCES, INC., AMERICAN STOCK TRANSFER & TRUST COMPANY, AND AFFILIATED COMPUTER SERVICES, INC., DEFENDANTS.



The opinion of the court was delivered by: Sidney H. Stein, U.S. District Judge.

OPINION & ORDER

This diversity action involves the escheatment of stock to the State of Delaware. Plaintiff A.W. Financial Services, S.A., a foreign corporation, owned shares of Empire Resources, Inc., a Delaware corporation. After A.W. Financial's shares of Empire were turned over to the State of Delaware as escheated property, A.W. Financial brought this action against three defendants alleging that the escheatment of its stock violated Delaware escheat law. The first named defendant, Empire, issued the escheated stock. The second named defendant, American Stock Transfer & Trust Co., had a contract with Empire to serve as Empire's transfer agent and to keep track of Empire's shareholders. The third named defendant, Affiliated Computer Services, Inc., worked with American Stock to find escheated shares and, through a contract with the State of Delaware, allegedly sold A.W. Financial's shares of Empire after they had been turned over to the State.

A.W. Financial asserts a number of claims for relief, including negligence, breach of contract, failure to register plaintiff's shares, breach of fiduciary duties, and conversion. A.W. Financial seeks compensatory damages from all defendants and specific performance from Empire.

Defendants have moved pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss all of A.W. Financial's claims for failure to state a claim for relief. Defendant Affiliated Computer Services also maintains it is entitled to sovereign immunity because it was acting as an agent for the State of Delaware. In January 2009, this Court certified a number of questions to the Delaware Supreme Court. Having the benefit of that court's answers those questions, this Court now decides defendants' motions to dismiss.

I. BACKGROUND

The following facts are taken from the Amended Complaint and are presumed to be true for the purposes of this motion. Familiarity with this Court's prior opinion, A.W. Fin. Servs., S.A. v. Empire Res., Inc., No. 07 Civ. 8491, 2009 U.S. Dist. LEXIS 6510 (S.D.N.Y. Jan. 29, 2009), and the Delaware Supreme Court's subsequent opinion, A.W. Fin. Servs., S.A. v. Empire Res., Inc., 981 A.2d 1114 (Del. 2009), is presumed.

In 1994, Tertiaire Investissement S.A. purchased forty shares of Integrated Technology USA, Inc. (Am. Compl. ¶ 7.) Integrated Technology later merged with Empire, and as a result of the merger, Tertiaire's forty shares of Integrated Technology became 30,426 shares of Empire.

By 2000, "Tertiaire Investissement S.A." had become "Tertiaire Development S.A." ("Tertiare"), and the company wrote to Empire "inquiring about its shares." (Id. ¶ 10.) Tertiaire received a response from American Stock, Empire's transfer agent, stating: "[We] acknowledge your recent letter regarding the loss of the above certificates [IT0065], against which we have placed a 'STOP TRANSFER' notation on our records." (Id. ¶ 11.) American Stock then asked Tertiaire to submit an "Affidavit of Loss and Indemnity Agreement" and to purchase a surety bond. (Id. ¶ 13.) These steps were required, American Stock said, before it would provide a replacement certificate for Tertiaire's shares.

In fact, Tertiaire had not lost its original stock certificate; it had never received one in the first place. (Id. ¶ 12.) Nevertheless, Tertiaire agreed to submit the requested affidavit and to purchase the surety bond. (Id. ¶¶ 13-14.) Tertiaire received a replacement certificate from American Stock less than a week later. (Id. ¶ 16.)

In 2004, four years and five months after Tertiaire obtained the replacement stock certificate and approximately five years after the merger of Integrated Technology and Empire, Tertiaire's shares of Empire were turned over to the State of Delaware as escheated property. (Id. ¶¶ 13, 16-17.) As alleged in the Amended Complaint, plaintiff's Empire shares were "escheated by Empire, through its authorized agent [American Stock] to the State of Delaware, through [Affiliated Computer]." (Id. ¶ 22.)

It is apparent from the Amended Complaint and moving papers that A.W. Financial-the successor in interest to Tertiaire-does not know how or why defendants determined that Tertiaire's shares of Empire had become escheatable. A.W. Financial also lacks information about what role each defendant played in the escheatment and how ownership of the shares was transferred to Delaware. In particular, the Amended Complaint is silent about whether the shares were transferred to Delaware using a duplicate stock certificate or by some other means. At a court conference, counsel for American Stock also expressed uncertainty about how Tertiaire's shares were transferred to Delaware but did represent to the Court that the shares were not transferred by means of a duplicate stock certificate. (Hr'g Tr. dated January 27, 2009 at 17:10-16.)

What is clear, at least as alleged in the Amended Complaint, is that A.W. Financial wrote to Empire in 2006 asking that its shares be re-registered under its new name, "A.W. Financial Services S.A." (Id. ¶ 19.) Shortly thereafter, A.W. Financial learned "through serial conversations and correspondence with Empire, [American Stock,] and [Affiliated Computer]... that the Empire shares owned by Tertiaire had been escheated by Empire, through its authorized agent [American Stock] to the State of Delaware, through [Affiliated Computer]." (Id. ¶ 21.)

A.W. Financial then brought this action claiming that its shares of Empire were turned over to the State of Delaware in violation of Delaware's escheat law. A.W. Financial initially argued-and the Delaware Supreme Court has confirmed-that under the law that existed at the time A.W. Financial's shares were turned over to the State of Delaware, stock must have been dormant for at least five years before it could be considered escheatable to the State of Delaware within the meaning of the statute.*fn1

(Id. ¶ 25.) Thus, according to facts alleged in the Amended Complaint, the period of dormancy had not yet elapsed when defendants delivered the shares to Delaware, as the shares were escheated only four years and five months after the replacement certificate was issued. (Id. ¶ 25.)

In addition, A.W. Financial maintains that its address should have been stored in defendants' records. When Tertiaire submitted the affidavit of loss to obtain a replacement stock certificate, the affidavit stated that Tertiaire was "presently known as Tertiaire Development, S.A." and that its address was "47 Rue de Chaillot, Paris 75116." (Id. ¶ 15.) Had defendants checked their records, A.W. Financial claims, they would have discovered Tertiaire's contact information and concluded that the stock was not escheatable. Thus, A.W. Financial cites defendants' alleged failure to check their records as a further reason that the escheatment of stock was wrongful.

Nevertheless, A.W. Financial has not lost the entire value of its stock: it appears that A.W. Financial contacted Delaware about its escheated shares, and Delaware remitted to A.W. Financial the money Delaware made in selling them. That fact is not explicitly alleged in the Amended Complaint, but it appears in defendants' moving papers, and A.W. Financial does not dispute it. (See Mem. in Supp. of Empire's Renewed Mot. to Dismiss the Am. Compl. at 6.) Now, A.W. Financial brings this action to recover additional compensation beyond what it has already obtained from Delaware. The amount A.W. seeks-$870,487-is the "the difference between the value of the shares when liquidated by the State of Delaware... and when [A.W. Financial] first inquired about selling them." (Am. Compl. ¶ 28.)

II. DISCUSSION

A. Motion to Dismiss Standard and Choice of Law

On a Rule 12(b)(6) motion to dismiss for failure to state a claim, a court assumes the truth of all facts asserted in the complaint and draws all reasonable inferences from those facts in favor of the plaintiff. See Global Network Commc'ns, Inc. v. City of New York, 458 F.3d 150, 154 ...


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