Dan Arnold v. KJD Real Estate, et al
Filed Nonprecedential Disposition PER CURIAM. AFFIRMED. Richard A. Posner, Circuit Judge; Daniel A. Manion, Circuit Judge and Ann Claire Williams, Circuit Judge. [6829781-1]  [15-2990, 15-2991]
To be cited only in accordance with Fed. R. App. P. 32.1
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Argued January 5, 2017
Decided March 30, 2017
RICHARD A. POSNER , Circuit Judge
DANIEL A. MANION, Circuit Judge
ANN CLAIRE WILLIAMS, Circuit Judge
Nos. 15‐2990 & 15‐2991
DAN K. ARNOLD, a Florida resident,
Appeals from the United States District
Court for the Southern District of
KJD REAL ESTATE, LLC, an Illinois
Limited Liability Company,
Nancy J. Rosenstengel,
GEISSLER ROOFING COMPANY, INC.
and D&D PROPERTY MANAGEMENT
O R D E R
Plaintiff Dan Arnold brought this interpleader action against three entities—
Geissler Roofing, D&D Property Management, and KJD Real Estate—to resolve
Nos. 15‐2990 & 15‐2991
conflicting claims to stock held by Arnold. KJD’s claim is based on an agreement to
purchase the stock from Arnold in 2007, while Geissler and D&D’s claim rests on a 2008
state court default judgment requiring Arnold to transfer the stock to them. The district
court held a bench trial and in a thorough and well‐reasoned opinion concluded that
Geissler and D&D were the stock’s rightful owners. We affirm. Because Arnold never
delivered the stock to KJD, the 2007 purchase agreement was ineffectual, and Geissler
and D&D have superior title based on the 2008 default judgment.
This case has a long and convoluted history; we recount here only what is
necessary for the resolution of this appeal. Dan Arnold was a former officer of Geissler
Roofing Co., Inc. (Geissler), and D&D Property Management, Inc. (D&D), and he
owned a large amount of stock in each. In April 2007, Arnold agreed to sell that stock to
KJD Real Estate, LLC (KJD) for $290,000. KJD is a competitor of Geissler’s that often
bids against it on roofing contracts. KJD paid Arnold an initial amount of $100,000, but
the deal fell through because Arnold never delivered the stock to KJD. Arnold’s
agreement with KJD also violated a transfer restriction on the Geissler stock that
required Arnold to offer that stock back to Geissler before agreeing to sell it outside the
corporation.1 A year later, in April 2008, an Illinois state court entered a default
judgment requiring Arnold to transfer the Geissler and D&D stocks back to Geissler
and D&D.2 That judgment was upheld on appeal.
In 2010 Arnold filed a Rule 22 interpleader action against KJD, Geissler, and
D&D in federal court to determine the defendants’ respective rights to the stock.3 The
district court held a bench trial and initially dismissed the action for lack of subject
matter jurisdiction. Arnold appealed, and we reversed. See Arnold v. KJD Real Est., LLC,
1 The D&D stock did not have a transfer restriction.
2 The default judgment specifically ordered Arnold to comply with an earlier 2006 settlement in which
Arnold agreed to transfer the stock to Geissler and D&D in exchange for $207,500. Arnold eventually
transferred the stock to Geissler and D&D following a subsequent Illinois state court order in 2012.
3 Federal Rule of Civil Procedure 22 provides that “[p]ersons with claims that may expose a plaintiff to
double or multiple liability may be joined as defendants and required to interplead.” Fed. R. Civ. P.
Nos. 15‐2990 & 15‐2991
752 F.3d 700 (7th Cir. 2014) (finding diversity jurisdiction and remanding for further
Reaching the merits on remand, the district court ruled that Geissler and D&D
had superior title to the stock based on the 2008 state court default judgment. The court
gave two reasons for rejecting KJD’s competing claim based on its 2007 purchase
agreement: (1) the agreement did not effect a valid transfer because Arnold never
delivered the stock to KJD; and (2) with respect to the Geissler stock only, the
agreement was ineffectual because Arnold failed to comply with the relevant transfer
restriction. The court also ordered Arnold to return to KJD its initial $100,000 payment
for the stock it never received. Arnold and KJD appeal.
In an appeal from a bench trial, we review for clear error the district court’s
factual findings and its applications of law to those findings. Furry v. United States, 712
F.3d 988, 992 (7th Cir. 2013). We will not disturb the district court’s conclusions as long
as they are “plausible in light of the record viewed in its entirety.” Reynolds v.
Tangherlini, 737 F.3d 1093, 1104 (7th Cir. 2013). The parties agree that the substantive
law of Illinois applies. See Aeroground, Inc. v. CenterPoint Props. Trust, 738 F.3d 810, 813
(7th Cir. 2013).
Viewing the record in its entirety, we see no clear error in the district court’s
conclusion that Geissler and D&D have the strongest claim to the disputed stock.
Although KJD was “first in time”—it agreed to purchase the stock in 2007—a purchase
agreement does not by itself effect a transfer. See Friedrich v. Mottaz, 294 F.3d 864, 868
(7th Cir. 2002). Rather, a valid transfer occurs only if the stock is delivered to the
purchaser. Id.; 810 Ill. Comp. Stat. Ann. 5/8‐104(a). Delivery occurs when the purchaser
acquires possession of the stock certificates, or (in the case of an uncertificated stock)
when the issuer registers the purchaser as the registered owner. 810 Ill. Comp. Stat.
Ann. 5/8‐301(a)–(b). It is undisputed that Arnold never delivered the stock to KJD. At no
point did KJD take possession of the stock certificates, nor was KJD ever registered as
the owner. As a result, KJD’s purchase agreement did not effect a valid transfer, and the
district court did not clearly err in concluding that the Illinois default judgment gave
Geissler and D&D a superior right to the stock.
Nos. 15‐2990 & 15‐2991
Nor did the district court err in finding that Arnold was not authorized to
transfer the Geissler stock to KJD without first offering it back to Geissler in accordance
with the relevant transfer restriction. Restrictions upon the transfer of corporate stock
are permissible if they are “reasonable and not contrary to any law or public policy.”
Rench v. Leihser, 487 N.E.2d 1201, 1202 (Ill. App. Ct. 1986). Geissler is a closely held
corporation with just a few shareholders; the restriction at issue was therefore a
reasonable measure designed to prevent outside competitors (such as KJD) from
gaining access to sensitive proprietary information that could be used against Geissler’s
interests.4 The restriction wasn’t against any law or public policy either. Indeed, Illinois
law expressly permits right‐of‐first‐refusal transfer restrictions of the sort seen here. 805
Ill. Comp. Stat. Ann. 5/6.55(c)(1). The district court thus properly rejected KJD’s claim to
the Geissler stock for the additional reason that KJD’s purchase agreement violated a
valid transfer restriction.5
The district court did not clearly err in determining that Geissler and D&D have
a superior claim to the disputed stock. KJD’s claim is based on an ineffectual purchase
agreement; Geissler and D&D’s claim rests on a valid court order upheld on appeal. The
judgment of the district court is AFFIRMED.
4 The need for such protection was not illusory. As a competitor in the construction and roofing business,
KJD wasted little time in trying to inspect Geissler’s books and records after entering into its purchase
agreement with Arnold.
5 Arnold and KJD raise several arguments challenging the Geissler restriction’s enforceability. We have
considered these arguments and find them meritless.
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