Pernick v. Computershare Trust Company, Inc.
ORDER by Judge Philip A. Brimmer on 9/29/15. ORDERED: Computershare's Motion to Dismiss the Complaint Pursuant to Fed. R. Civ. P. 12(b)(6) 56 is GRANTED. ORDERED: This case is dismissed in its entirety.(kpreu)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 13-cv-02975-PAB-KLM
NORMAN L. PERNICK as Chapter 11 Trustee of the Bankruptcy Estate of Industrial
Enterprises of America, Inc., on behalf of itself, the estate and as assignee of its
COMPUTERSHARE TRUST COMPANY, INC.,
This matter is before the Court on the Motion to Dismiss the Complaint Pursuant
to Fed. R. Civ. P. 12(b)(6) [Docket No. 56] filed by defendant Computershare Trust
Company, Inc. (“Computershare”).1 The motion raises the issues of whether a transfer
agent has a duty to investigate the validity of an issuance of stock and whether the
indemnification clause in the contract between the transfer agent and the company is
enforceable. This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332.
Although Computershare states that, in 2007, Computershare Trust Company,
Inc. was merged into Computershare Trust Company, N.A., Docket No. 17, neither
party has filed a motion to amend the caption.
Advanced Bio/Chem, Inc. was established in 2004 and later changed its name to
Industrial Enterprises of America, Inc. (“IEAM”).3 Docket No. 1 at 7, ¶ 23. IEAM was a
publicly traded shell company. Id. Computershare provides transfer agent services for
securities to public corporations and closed-end funds. Id. at 5, ¶ 19. Computershare
acted as the transfer agent for IEAM’s securities at all times relevant. Id.
When it was established in 2004, IEAM’s lone asset was 15 million shares of
The following facts are taken, in part, from the allegations in plaintiff’s complaint.
The factual allegations in plaintiff’s complaint are presumed true unless, as noted
herein, they are conclusory or contradicted by other, more specific allegations. See
Khalik v. United Air Lines, 671 F.3d 1188, 1193 (10th Cir. 2012) (“conclusory and
formulaic recitations” of the elements “are insufficient to survive a motion to dismiss”);
DPWN Holdings (USA), Inc. v. United Air Lines, Inc., 747 F.3d 145, 152 (2d Cir. 2014)
(holding that “general allegations that are contradicted by more specific allegations in
the Complaint” need not be accepted as true (quotation omitted)).
To the extent the following facts are taken from sources outside plaintiff’s
complaint, when considering a motion to dismiss, a court typically disregards facts
supported by documents other than the complaint unless it first converts the motion to
dismiss into a motion for summary judgment. Jackson v. Integra Inc., 952 F.2d 1260,
1261 (10th Cir. 1991). However, a court may consider documents outside of the
complaint on a motion to dismiss in certain instances. Of relevance here is the
exception permitting a court to consider documents that are both central to a plaintiff’s
claims and to which a plaintiff refers in his complaint. GFF Corp. v. Associated
Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir. 1997), as well as documents
subject to judicial notice, including court documents and matters of public record. Tal v.
Hogan, 453 F.3d 1244, 1265 n.24 (10th Cir. 2006); United States v. Jones, 29 F.3d
1549, 1553 (11th Cir. 1994) (“It [is] recognized that a court may take judicial notice of a
document filed in another court not for the truth of the matters asserted in the other
litigation, but rather to establish the fact of such litigation and related filings.” (quotation
omitted)). The Court has examined the documents submitted by the parties that are
attached to or referenced in the complaint and court filings implicitly or explicitly referred
to by the parties and has determined that each of the documents cited in this opinion
may appropriately be referenced by the Court without converting the present motion
into a motion for summary judgment.
For consistency, the Court will refer to this entity as “IEAM.”
restricted stock in Power3 Medical Products (“Power3”), which shares were valued at
$45 million. Id. at 7, ¶ 23. On August 1, 2004, John Mazzuto was appointed a director
of IEAM. Id. On October 7, 2004, IEAM purchased all outstanding stock in EMC
Packaging, Inc. (“EMC”) by paying EMC’s shareholders 2.2 million shares of IEAM
stock. Id. at 7, ¶ 24. On October 15, 2004, Mr. Mazzuto was appointed vice chairman
of IEAM’s board of directors and, on December 15, 2005, Mr. Mazzuto was elected
CEO and president of IEAM. Id. at 7, ¶ 25. James Margulies was IEAM’s CFO and
general counsel. Docket No. 1-5 at 2.
On November 1, 2003, IEAM and Computershare executed the Stock Transfer
Agency Agreement (the “Agreement”) [Docket No. 1-2]. Pursuant to the Agreement,
Computershare was required to provide transfer agent services to IEAM, Docket No. 12 at 3, 18-19, and Computershare received $7,800 per year from IEAM for its services.
Id. at 20.4 The Agreement provides that Computershare shall transfer shares “upon the
presentation to Computershare of stock transfer instructions properly endorsed if
Shares are in uncertificated form. Such . . . transfer instructions shall be accompanied
by such documents as are reasonably necessary to evidence the authority of the
person making the transfer . . . .” Docket No. 1-2 at 5. W ith respect to the transfer of
restricted shares, the Agreement allows Computershare to request a legal opinion from
IEAM’s counsel and further states that “Computershare assumes no responsibility with
respect to the transfer of restricted securities in accordance with such opinion.” Id. at 6.
To the extent plaintiff’s complaint suggests that Computershare earned
commissions for each stock issuance it facilitated, Docket No. 1 at 22, ¶ 94, such a
suggestion is contradicted by the Agreement’s fee schedule. See Docket No. 1-2 at 2021.
The Agreement states that “Computershare may refuse to transfer Shares until it is
satisfied that the requested transfer is legally authorized.” Id.
Article 5 of the Agreement contains a provision limiting Computershare’s liability
(the “exculpatory clause”):
1. The Company agrees that Computershare shall not be liable for any
action taken or omitted to be taken in connection with this Agreement, except
that Computershare shall be liable for direct losses incurred by the Company
arising out of Computershare’s gross negligence or willful misconduct. Any
liability of Computershare shall be limited to the amount of fees paid by the
Company to Computershare in the preceding twelve (12) months for the
Services, it being understood that the Services could not be provided to the
Company by Computershare at the prices set forth herein without the
foregoing liability limitation. Under no circumstances shall Computershare
be liable for any special, indirect, incidental, punitive or consequential loss
or damage of any kind whatsoever (including, but not limited to, lost profits),
even if Computershare has been advised of the possibility of such loss or
damage . . . .
2. Notwithstanding anything to the contrary, Computershare shall not be
liable in connection with
a) The legality of the issue, sale or transfer of any Shares, the sufficiency of
the amount to be received in connection therewith, or the authority of the
Company to request such issuance, sale or transfer;
b) The legality of the purchase of any Shares, the sufficiency of the amount
to be paid in connection therewith, or the authority of the Company to
request such purchase; . . .
e) Acting upon any oral instruction, writing or document reasonably believed
by Computershare to be genuine and to have been given, signed or made
by an Officer . . . .
Id. at 7-8. Article 7 of the Agreement states that IEAM agrees to defend, indemnify,
and hold harmless Computershare from any loss or damage incurred by
Computershare or relating to Computershare’s provision of services; “provided,
however, that no Indemnified Party shall have the right to be indemnified hereunder for
any liability to the extent finally determined by a court of competent jurisdiction that such
Losses have resulted directly from the gross negligence or willful misconduct of such
Indemnified Party.” Id. at 10. The Agreement states that Colorado law governs the
agreement. Id. at 14.
Plaintiff alleges that Computershare owed IEAM various extra-contractual duties.
Plaintiff alleges that Computershare owed IEAM a duty to act in accordance with the
Securities Transfer Association, Inc. (“STA”)5 guidelines (the “STA guidelines”). Docket
No. 1 at 10, ¶ 37. The STA approved the STA guidelines, intending that they be
“implemented uniformly, with the result that most variations in transfer requirements will
be eliminated.” Id. at 11, ¶ 38. Plaintiff also alleges that Computershare owed IEAM a
duty to act in accordance with various provisions of Article 8 of the Uniform Commercial
Code. Id. at 14, ¶ 47.
In November 2004, IEAM issued its 2004 Stock Option Plan (the “Plan”) and, on
January 25, 2005, IEAM filed a form S-8 registration statement for the Plan with the
United States Securities and Exchange Commission (“SEC”).6 Docket No. 1 at 8,
¶¶ 27-28. The Plan permitted IEAM to issue a maximum of 15 million restricted shares
Plaintiff’s complaint does not explain what the STA is, but his allegations
suggest that the STA may be an industry trade group. See Docket No. 1 at 10, ¶ 37.
An S-8 registration statement is filed with the SEC to register “[s]ecurities of the
registrant to be offered under any employee benefit plan to its employees or employees
of its subsidiaries or parents.” Lanfear v. Home Depot, Inc., 679 F.3d 1267, 1273 n.11
(11th Cir. 2012) (quotation omitted). This includes securities offered to officers,
consultants, or advisors who are natural persons who provide bona fide services to the
registrant. United States Securities & Exchange Commission, Form S-8: Registration
Statement Under the Securities Act of 1933, available at
https://www.sec.gov/about/forms/forms-8.pdf (last visited August 14, 2015).
to employees, outside directors, or bona fide consultants. Id. at 8, ¶ 29.
There is some dispute as to whether IEAM provided the Plan to Computershare.
Plaintiff’s complaint does not explicitly allege that IEAM provided the Plan to
Computershare. However, the complaint suggests that the Plan was filed with the SEC
and was therefore publicly available. See id. at 10, ¶ 36 (stating that the Agreement
obligated Computershare to “confirm the authority of the people directing the stock
issuances and check the requirements of the Plan given to them (and filed with the
SEC), and empowered it to require a legal opinion when concerned about impropriety”);
see also Docket No. 56 at 14 (stating that the Plan was filed with the SEC on January
Beginning in January 2005, Mr. Mazzuto and Mr. Margulies directed
Computershare to issue unrestricted plan shares of IEAM stock to ineligible recipients.
Docket No. 1 at 8, ¶ 30. The typical process for issuing these shares was as follows:
Mr. Mazzuto or Mr. Margulies would send a signed letter (collectively, the “issuance
letters”) to Computershare directing it to issue a certain number of IEAM shares to a
particular recipient. See generally Docket No. 1-6. Many of the letters referred to the
Plan and/or the S-8 registration statement. See, e.g., id. at 4 (“Please issue Twenty
Thousand (20,000) shares of [IEAM] common stock pursuant to our [IEAM] 2004 Stock
Option Plan. These shares should be issued free trading via electronic transfer
pursuant to the following instructions pursuant to the previously provided S-8
registration statement dated January 24, 2005”). These letters would sometimes be
accompanied by fabricated minutes from an IEAM board meeting. Docket No. 1 at 8, ¶
31. Computershare would then issue the shares to the recipient nam ed in the issuance
letters (the “recipient”). Id. Most recipients sold the shares on the open market. Id. at
9, ¶ 32. Using this process, Mr. Mazzuto and Mr. Margulies caused the issuance of
approximately 43 million shares of unrestricted IEAM stock between January 24, 2005
and January 16, 2008. Id. at 9, ¶ 31. On or about September 7, 2005, share issuances
exceeded the Plan’s 15 million limit on restricted shares. Id.
Plaintiff alleges that Computershare issued shares regardless of whether board
minutes, counsel opinion, or other confirmation was attached to the issuance letters,
which was in violation of the Agreement and Computershare’s “extra-contractual
duties.” Id. at 8-9, ¶ 31. Plaintiff alleges that Computershare issued unrestricted, freetrading stock, which was contrary to the terms of the Plan, and that 70% of the
recipients were ineligible to receive such shares under the Plan, either because they
were entities or natural persons who did no bona fide work for IEAM. Id. Plaintiff
asserts that IEAM relied on Computershare’s expertise as a transfer agent to ensure
that the stock issuances were proper pursuant to the Plan. Id. at 17, ¶ 60.
Plaintiff alleges that Mr. Mazzuto and Mr. Margulies caused IEAM shares to be
issued pursuant to an illegal scheme (the “Mazzuto scheme”) aimed at manipulating
IEAM’s stock price in order to profit from the illegal transfer and sale of IEAM stock. Id.
at 3-4, ¶¶ 11-13. Plaintiff contends that, through Computershare’s participation, the
Plan was “illegally converted into the means by which unrestricted stock was illicitly
issued to, sold by, and/or sold for the benefit of members of the Mazzuto Scheme.” Id.
at 4, ¶ 14 (emphasis in original). Plaintiff alleges that Computershare was rewarded for
its participation in the scheme through fees, commissions, and incidental fees. Id. at 4-
5, ¶ 16. During Mr. Mazzuto’s time as CEO, approximately 133 million shares of IEAM
stock were traded with a total market value of $450 million. Id. at 17, ¶ 62. By April 30,
2009, the market value of the 133 million shares traded during Mr. Mazzuto’s tenure as
CEO was $0. Id.
During Mr. Mazzuto’s and Mr. Margulies’ tenure with IEAM, Jerome Davis and
Michael Solomon served on IEAM’s board of directors. Id. at 17, ¶ 63. Mr. Davis
testified at Mr. Margulies’ criminal trial that he was unaware of Mr. Mazzuto’s and Mr.
Margulies’ scheme to issue IEAM shares and believed that both individuals took steps
to prevent Mr. Davis from discovering any irregularities. Id. at 17, ¶ 64. Robert Renck,
Jr. took over as IEAM’s president and CEO and remained in those roles until May 2013.
Id. at 17-18, ¶ 65.
On November 14, 2007, an IEAM shareholder brought a class action against
IEAM, Mr. Mazzuto, Mr. Margulies, and other IEAM executives (the “class action”) in the
United States District Court for the Southern District of New York, Mallozzi v. Industrial
Enterprises of America, Inc., No. 07-cv-10321 (S.D.N.Y.) (Docket No. 1). The class
action complaint alleged that IEAM shareholders suffered damages as a result of Mr.
Mazzuto’s and Mr. Margulies’ actions in issuing IEAM shares. Docket No. 1 at 18, ¶ 66.
The named plaintiffs’ second amended complaint asserted claims for violation of
§ 10(b) and § 20(a) of the Securities and Exchange Act. Mallozzi, (Docket No. 120 at
On May 1, 2009, IEAM filed a voluntary Chapter 11 bankruptcy petition in the
United States Bankruptcy Court for the District of Delaware (the “Delaware bankruptcy
court”). Docket No. 1 at 1, ¶ 1; see also In re Indus. Enters. of Am., No. 09-11508-BLS
(Bankr. D. Del. May 1, 2009) (Docket No. 1). On May 11, 2009, the Delaware
bankruptcy court issued an order authorizing the joint administration of IEAM’s
bankruptcy case with other related cases. In re Pitt Penn Holding Co., Inc., No. 0911475-BLS (Bankr. D. Del. May 11, 2009) (Docket No. 21).
On July 7, 2009, the Delaware bankruptcy court granted the named plaintiffs in
the class action relief from the automatic stay for purposes of consummating a
settlement. Mallozzi, Docket No. 109 at 1-2. On December 12, 2010, IEAM and class
members agreed to a settlement (the “class action settlement”). Docket No. 1 at 18, ¶
67. On June 1, 2011, the court in the class action issued an order approv ing the class
action settlement. Mallozzi, (Docket No. 134). Pursuant to Fed. R. Civ. P. 23, the court
certified the class as “all persons who purchased or otherwise acquired any common
stock of IEAM during the period from December 4, 2006 through and including
November 7, 2007, and were damaged thereby.” Id. (Docket No. 134 at 3). 7 Plaintiff
alleges that, by virtue of the class action settlement, “IEAM received an assignment of
all claims belonging to individual class members against all third-parties,” which
includes “any claims against Defendant for the claims alleged herein.” Docket No. 1 at
18, ¶¶ 68-69; see also Mallozzi, (Docket No. 127-1 at 21) (“the Lead Plaintiffs and all
Class members hereby assign to IEAM any and all claims not released by this
settlement that they have or may have against persons other than Defendants which
arose out of or relate to the issuance or transfer of IEAM stock, assets or property”).
The Court refers to individual IEAM shareholders who were subject to the class
action settlement as “class members.”
On April 30, 2011, IEAM filed an adversary proceeding (the “Delaware adversary
proceeding”) against Computershare and three other defendants in the Delaware
bankruptcy court. Docket No. 1 at 1, ¶ 2; Indus. Enters. of Am. v. Computershare Trust
Co., Inc. (“IEAM”), No. 11-51877-BLS (Bankr. D. Del. April 30, 2011) (Docket No. 1).
On January 20, 2012, IEAM filed an amended complaint in the Delaware adversary
proceeding. IEAM, (Docket No. 60).
In May 2013, the Delaware bankruptcy court appointed plaintiff Norman Pernick
as the Chapter 11 Trustee of IEAM. Docket No. 1 at 2, ¶ 5. On August 2, 2013, the
Delaware bankruptcy court dismissed IEAM’s claims against Computershare in the
Delaware adversary proceeding pursuant to the Agreement’s forum selection clause.
Id. at 1-2, ¶ 3. Computershare agreed to waive any statute of limitations arguments it
could not have raised in the adversary proceeding, provided IEAM filed its complaint in
Colorado within 90 days of the Delaware bankruptcy court’s order dismissing the
adversary proceeding. Id.8
Citing the Delaware bankruptcy court’s order dismissing IEAM’s claims against
Computershare, plaintiff’s complaint alleges that the Delaware bankruptcy court held
that the doctrine of equitable tolling tolled the applicable statutes of limitations as to
IEAM’s causes of action against Computershare. Docket No. 1 at 1-2, ¶ 3 (citing
IEAM,(Docket No. 82 at 7, ¶ 13)). Plaintiff’s characterization of the Delaware
bankruptcy court’s order is not entitled to the presumption of truth and, moreover, is
inaccurate. See Toone v. Wells Fargo Bank, N.A., 716 F.3d 516, 521 (10th Cir. 2013)
(holding that, when document referenced in complaint is properly considered, “we
examine the document itself, rather than the complaint's description of it”). The cited
portion of the bankruptcy court’s order does not, strictly speaking, discuss IEAM’s
claims against Computershare, which it had already dismissed pursuant to the forum
selection clause. IEAM, (Docket No. 82 at 5, ¶ 9, id. at 7, ¶ 13). Moreover, even if the
Delaware bankruptcy court intended to apply equitable tolling to IEAM’s claims against
Computershare, the court’s order stated that the doctrine of equitable tolling applied in
IEAM, No. 11-51877-BLS, in the same manner the court applied the doctrine in related
case, In re Pitt Penn Holding Co., No. 11-51880-BLS (Bankr. D. Del.). Id. (Docket No.
Based upon his conduct related to IEAM stock, Mr. Mazzuto was charged in New
York state court with, among other things, grand larceny, scheme to defraud, scheme to
defraud through securities fraud, falsifying business records, conspiracy, and securities
fraud. Docket No. 1 at 5-6, ¶ 20. Mr. Mazzuto pled guilty and was sentenced to prison.
Id. Mr. Mazzuto testified that, as a result of such conduct, he received $10.5 million.
Id. Based upon his conduct related to IEAM stock, Mr. Margulies was charged with
grand larceny, scheme to defraud, scheme to defraud through securities fraud,
falsifying business records, and conspiracy. Id. at 6-7, ¶ 21. Mr. Margulies was found
guilty of those charges at trial and was sentenced to prison. Id. At trial, the evidence
established that Mr. Margulies was issued 717,500 unrestricted shares of IEAM stock,
which he immediately sold on the open market. Id. Mr. Margulies received more than
$5 million as a result of his and Mr. Mazzuto’s conduct related to IEAM stock. Id.
On October 30, 2013, plaintiff filed the present case on behalf of IEAM and as an
assignee of certain of IEAM’s shareholders. Docket No. 1 at 1. Plaintiff asserts
Colorado-law claims against Computershare for fraud, professional negligence,
negligence, constructive fraud/unjust enrichment, and breach of contract (in the
alternative). Id. at 18-22. Plaintiff asserts claims under 11 U.S.C. §§ 544, 548, 550 and
Colo. Rev. Stat. §§ 38-8-105, 38-8-106 for recovery of fees IEAM paid to
Computershare, id. at 23-27. Plaintiff seeks, among other things, restitution from
82 at 7, ¶ 13 n.17). In the related case, the Delaw are bankruptcy court assumed that
equitable tolling applied to toll the accrual of IEAM’s state law claims “until the petition
date.” In re Pitt Penn Holding Co., 484 B.R. 25, 43-44 (Bankr. D. Del. 2012). Thus,
there is no suggestion that the Delaware bankruptcy court applied equitable tolling to
toll the statute of limitations beyond May 1, 2009, when IEAM filed its Chapter 11
Computershare for the full value of the improperly issued shares. Id.
II. STANDARD OF REVIEW
To survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil
Procedure, a complaint must allege enough factual matter that, taken as true, makes
the plaintiff’s “claim to relief . . . plausible on its face.” Khalik v. United Air Lines, 671
F.3d 1188, 1190 (10th Cir. 2012) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). “[W]here the well-pleaded facts do not permit the court to infer more than the
mere possibility of misconduct, the complaint has alleged – but it has not shown – that
the pleader is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (internal
quotation marks and alteration marks omitted); see also Khalik, 671 F.3d at 1190 (“A
plaintiff must nudge [his] claims across the line from conceivable to plausible in order to
survive a motion to dismiss.” (quoting Twombly, 550 U.S. at 570)). If a complaint’s
allegations are “so general that they encompass a wide swath of conduct, much of it
innocent,” then plaintiff has not stated a plausible claim. Khalik, 671 F.3d at 1191
(quotations omitted). Thus, even though modern rules of pleading are somewhat
forgiving, “a complaint still must contain either direct or inferential allegations respecting
all the material elements necessary to sustain a recovery under some viable legal
theory.” Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008) (alteration m arks
A. Class Members’ Claims
It is unclear to what extent plaintiff asserts his claims for relief on behalf of class
member IEAM shareholders. The class members assigned to IEAM any claims they
possessed arising out of or relating to the transfer of IEAM stock, assets, or property,
Mallozzi, (Docket No. 127-1 at 21), which confers upon IEAM the right to bring whatever
claims class members have relating to the transfer of IEAM stock, assets, or property.
The question therefore becomes what claims IEAM can bring on behalf of the class
members or, in other words, what claims the class members have against
Computershare. The complaint does not identify what assigned claims are asserted on
behalf of the class members or articulate a theory by which Computershare is liable to
the class members. Rather, plaintiff alleges only that he brings this case “on behalf of
IEAM and as an assignee of IEAM’s shareholders.” Docket No. 1 at 1.
Computershare argues that, because IEAM shareholders were not party to the
Agreement and because plaintiff has failed to plead that Computershare owed a duty in
tort to IEAM shareholders, plaintiff has failed to state any claims against
Computershare on behalf of the class members. Docket No. 56 at 8, 12.
Computershare argues, in the alternative, that whatever claims plaintiff asserts on
behalf of the class members are derivative in nature. Docket No. 61 at 9. Plaintiff does
not dispute that he cannot assert a claim for breach of contract on behalf of the class
members, but argues that the Uniform Commercial Code (“UCC”) as adopted in
Colorado placed upon Computershare certain duties to IEAM shareholders. Docket
No. 60 at 8-9. Plaintiff’s argument does not, however, address the relevant threshold
question, namely, whether the class members have standing to bring claims against
There are two types of shareholder actions. Derivative actions are those
“brought by a shareholder on behalf of the corporation to recover for harm done to the
corporation.” Cohen v. Mirage Resorts, Inc., 62 P.3d 720, 732 (Nev. 2003) (citing
Kramer v. W. Pac. Indus., 546 A.2d 348, 351 (Del. 1988)); see also Kamen v. Kemper
Fin. Servs., Inc., 500 U.S. 90, 95 (1991) (“The derivative form of action permits an
individual shareholder to bring suit to enforce a corporate cause of action against
officers, directors, and third parties.”) 9 Shareholders may also bring direct actions
against third parties for “injuries done to them in their individual capacities.” Kramer,
546 A.2d at 351 (emphasis and quotations omitted). “Whether a cause of action is
Neither party addresses choice of law with respect to claims asserted on behalf
of the class members. Computershare asserts, and plaintiff does not dispute, that the
class members were not parties to or third party beneficiaries of the Agreement.
Docket No. 56 at 8. Thus, the Agreement’s choice of law provision would not appear to
apply to claims asserted on behalf of class members. Corporations are generally
governed by the laws of the state under which they are organized, CTS Corp. v.
Dynamics Corp. of Am., 481 U.S. 69, 90 (1987), which, in this case, suggests that the
class members’ claims should be evaluated under Nevada law. See Oteng v. Golden
Star Resources, Ltd., 615 F. Supp. 2d 1228, 1237-38 (D. Colo. 200 9) (applying Ghana
law to determine whether plaintiffs could bring shareholder derivative suit on behalf of
Ghanaian corporation). In a diversity action, a federal court applies the choice of law
rules of the state in which it sits. Trierweiler v. Croxton & Trench Holding Corp., 90 F.3d
1523, 1532 (10th Cir. 1996). Colorado courts apply the “most significant relationship”
test to resolve conflict of law issues. AE, Inc. v. Goodyear Tire & Rubber Co., 168 P.3d
507, 508 (Colo. 2007). Colorado courts may also apply the “‘internal affairs’ doctrine,
which provides that the right[s] of a shareholder in a foreign company (including the
right to sue derivatively) are determined by the law of the place where the company is
incorporated.” Oteng, 615 F. Supp. 2d at 1238. The parties assume that Colorado law
applies to all claims asserted in this case. Pursuant to the internal af fairs doctrine, the
fact that IEAM is incorporated under the laws of Nevada suggests that the class
members’ claims should be evaluated under Nevada law. The Court, however, need
not decide whether the class members’ claims should be evaluated under Colorado or
Nevada law because, under the law of either jurisdiction, plaintiff has not stated any
direct claims on behalf of the class members. See Ohanessian v. Pusey, No. 09-cv01113-JLK, 2010 WL 728549, at *1 (D. Colo. Feb. 25, 2010) (“claims premised on
Defendants’ alleged breaches of corporate duties of care and due diligence, which
Plaintiffs claim led to a devaluation of their stock, are derivative in nature under either
California or Colorado law and cannot be maintained in a direct action as pleaded”).
individual or derivative must be determined from the nature of the wrong alleged and
the relief, if any, which could result if plaintiff were to prevail.” Id. at 352. Courts
undertaking such a determination “look to the body of the complaint, not to the plaintiff’s
designation or stated intention.” Id.
Computershare argues that, because derivative claims belong to the corporation,
any derivative claims plaintiff attempts to assert on behalf of the class members are
duplicative of claims asserted on behalf of IEAM. Docket No. 61 at 10. The Court
agrees. By virtue of the fact that plaintiff brings all claims on behalf of IEAM, IEAM has
not refused to assert any rights belonging to the corporation that would otherwise give
rise to a derivative claim. See Kamen, 500 U.S. at 96 (holding that the purpose of the
Fed. R. Civ. P. 23.1 demand requirement is to “affor[d] the directors an opportunity to
exercise their reasonable business judgment and waive a legal right vested in the
corporation [and] it is only when demand is excused that the shareholder enjoys the
right to initiate suit on behalf of his corporation in disregard of the directors’ wishes”
(quotations omitted)). Moreover, to the extent plaintiff attempts to bring a derivative
claim on behalf of the class members, plaintiff fails to satisfy the pleading requirements
of Fed. R. Civ. P. 23.1. Thus, to whatever extent plaintiff attempts to bring derivative
claims on behalf of the class members, such claims are dismissed as duplicative and
for failure to state a claim pursuant to Rule 23.1.
The question therefore becomes whether the facts alleged in plaintiff’s complaint
would confer standing on the class members to bring a direct action against
Computershare. “For a plaintiff to have standing to bring an individual action, he must
be injured directly or independently of the corporation.” Kramer, 546 A.2d at 351
(emphasis in original); see also Franchise Tax Bd. of Cal. v. Alcan Aluminum Ltd., 493
U.S. 331, 336 (1990) (holding that shareholders with “direct, personal interest in a
cause of action” have standing to bring a direct action, even when the corporation’s
rights are also implicated). This requires a plaintiff to establish that “the actions of the
third party that injure the corporation . . . cause[d] him injury as a stockholder, unique to
himself and not suffered by the other stockholders.” Nicholson v. Ash, 800 P.2d 1352,
1357 (Colo. App. 1990). “A shareholder does not acq uire standing to maintain a direct
action when the alleged injury is inflicted on the corporation and the only injury to the
shareholder is the indirect harm which consists of the diminution in the value of his or
her shares.” Lapidus v. Hecht, 232 F.3d 679, 683 (9th Cir. 2000) (citing Elster v. Am.
Airlines, Inc., 100 A.2d 219, 222 (Del. Ch. 1953)); see also Bixler v. Foster, 596 F.3d
751, 757 (10th Cir. 2010) (applying Colorado law and holding that diminution in value of
shares is not a direct and personal injury, but an injury to the corporation). Here,
plaintiff alleges that IEAM shares were traded at a market value of $450 million, but, by
April 2009, “the market value of those shares was $0, representing a cumulative loss to
public shareholders of $450 million.” Docket No. 1 at 17, ¶ 62. The diminution in value
of IEAM shares does not, by itself, constitute an injury sufficient to confer standing on
the class members to assert a direct action. See Bixler, 596 F.3d at 757. Plaintiff’s
breach of contract and tort claims allege that “IEAM suffered monetary losses and
liability including, but not limited to, approximately $88 million from the Computershare
issuances” as well as “monetary losses and liability including, but not limited to, the fees
and commissions earned by Computershare from IEAM.” Docket No. 1 at 20, ¶¶ 81-82;
see also id. at 21, ¶ 87; id. at 22, ¶¶ 92, 96; id. at 23, ¶ 101. Plaintiff’s fraudulent
transfer claims seek the return of fees IEAM paid Computershare. Id. at 24-27. Such
losses are, on their face, losses to IEAM and plaintiff does not identify any facts that
suggest otherwise. Plaintiff’s complaint does not plead facts upon which to conclude
that the shareholders have a direct, personal interest in the claims asserted against
Computershare. Cf. Faro v. Corporate Stock Transfer, Inc., 883 So. 2d 896, 898 (Fla.
Dist. Ct. App. 2004) (holding that, pursuant to Uniform Commercial Code, “wrongful
refusal by the transfer agent to register a requested transfer makes the agent liable to
the damaged shareholder”). Plaintiff does not, for example, allege in support of his
fraud claim that IEAM shareholders relied on any representations made by
Computershare. See, e.g., Docket No. 1 at 20, ¶ 80 (“IEAM justifiably relied on the
material and false representations and/or omissions made by Computershare to its
extraordinary detriment”). Thus, plaintiff has not pled sufficient facts upon which to
conclude that the class members have standing to assert direct claims against
Plaintiff’s argument that Computershare owed the class members a duty in tort
does not compel a different conclusion. Assuming, without deciding, that plaintiff is
correct, direct actions can only be brought where a third party violates a duty owed to a
stockholder and the stockholder suffers an injury “unique to himself and not suffered by
the other stockholders.” See Nicholson, 800 P.2d at 1357. Because plaintif f lacks
standing to bring a direct action against Computershare as an assignee of the class
members, to the extent plaintiff asserts claims for direct injury to the class members,
such claims are dismissed.
B. IEAM’s Claims
1. Negligence and Professional Negligence
a. Article 5 of the Agreement
Computershare argues that plaintiff’s claims for negligence and professional
negligence asserted on behalf of IEAM are barred by Article 5 of the Agreement.
Docket No. 56 at 9. Plaintiff responds by arguing that, under Colorado law, exculpatory
clauses do not provide a shield against willful and wanton negligence and that he has
sufficiently pled that Computershare acted recklessly or purposefully with respect to its
obligations under the UCC, STA guidelines, and Plan. Docket No. 60 at 6-7. T he Court
does not interpret plaintiff’s argument as disputing that the exculpatory clause bars his
claims for negligence and professional negligence; rather, plaintiff appears to contend
that his negligence and professional negligence claims allege that Computershare
engaged in grossly negligent conduct, which is explicitly exempted from the
Agreement’s exculpatory clause.
The Court first considers whether Article 5 is enforceable to relieve
Computershare of liability for conduct constituting ordinary negligence and professional
negligence. “The scope and validity of an exculpatory clause are questions of law.”
McShane v. Stirling Ranch Prop. Owners Assoc., Inc., --- P.3d ----, 2015 WL 1843807,
at *1 (Colo. App. April 23, 2015). Although exculpatory clauses are generally
disfavored in Colorado, they are not void under all circumstances. Squires v.
Breckenridge Outdoor Educ. Ctr., 715 F.3d 867, 872 (10th Cir. 2013). Colorado courts
consider four factors in determining whether an exculpatory clause is enforceable: “(1)
the existence of a duty to the public; (2) the nature of the service performed; (3)
whether the contract was fairly entered into; and (4) whether the intention of the parties
is expressed in clear and unambiguous language.” Jones v. Dressel, 623 P.2d 370,
376 (Colo. 1981); see also Squires, 715 F.3d at 872.
Although neither party addresses these factors, the Court finds that the balance
of factors dictates that the exculpatory clause is enforceable to bar plaintiff’s negligence
and professional negligence claims. As for the first Jones factor, the Colorado
Supreme Court has noted that a public duty is implicated when, among other things, the
party seeking the benefit of an exculpatory clause is in an industry that is “suitable for
public regulation,” performs a service of great importance or a service that is a practical
necessity to members of the public, possesses a decisive advantage in bargaining
strength, or maintains control over the person or property likely to be harmed by the
carelessness of its agents. Jones, 623 P.2d at 376-77 (quoting Tunkl v. Regents of
Univ. of Cal., 383 P.2d 441, 444 (Cal. 1963)). Although the securities industry may, in a
general sense, be heavily regulated, the specific service that Computershare provides
is not a practical necessity to members of the public, a fact which does not give rise to a
disparity in bargaining strength. Thus, this factor weighs in favor of enforcing the
exculpatory clause. Cf. id. at 377; Chadwick v. Colt Ross Outfitters, Inc., 100 P.3d 465,
469 (Colo. 2004) (“Colt Ross provides a recreational service, neither publicly regulated
nor of great public importance”).
As to the second Jones factor, courts inquire as to whether utilizing the service
provided by the party seeking to enforce the exculpatory clause is a matter of choice or
necessity. McShane, 2015 WL 1843807, at *4. Although many corporations now
employ transfer agents, the tasks undertaken by transfer agents can, in the case of
small corporations, be completed by the corporation’s secretary or clerk or, in the case
of large corporations, by a staff dedicated to the task. See Mark S. Rhodes, Transfer of
Stock § 22:1 (7th ed. 2015). Thus, this factor weighs in favor of enforcing the
As to the third Jones factor, “[a] contract is fairly entered into if one party is not
so obviously disadvantaged with respect to bargaining power that the resulting contract
essentially places him at the mercy of the other party’s negligence.” Hamill v. Cheley
Colorado Camps, Inc., 262 P.3d 945, 949 (Colo. App. 2011). Here, plaintiff’s complaint
does not allege any facts suggesting that the services Computershare provided could
not have been obtained elsewhere or that the parties’ bargaining power was otherwise
unequal when they entered into the Agreement. See id. at 949-50. Thus, this factor
weighs in favor of enforcing the exculpatory clause.
As to the fourth Jones factor, an exculpatory clause “need not contain any magic
words to be valid; in particular, it need not specifically refer to waiver of ‘negligence’
claims.” Wycoff v. Grace Cmty. Church of Assemblies of God, 251 P.3d 1260, 1265
(Colo. App. 2010). Rather, the relevant inquiry is whether “the intent of the parties was
to extinguish liability and whether this intent was clearly and unambiguously expressed,”
which requires consideration of the agreement’s actual language, length, and
complication as well as “any likelihood of confusion or failure of a party to recognize the
full extent of the release provisions.” Squires, 715 F.3d at 872-73 (quotations omitted).
Here, Article 5 states that Computershare “shall not be liable for any action taken or
omitted to be taken in connection with this Agreement, except that Computershare shall
be liable for direct losses incurred by the Company arising out of Computershare’s
gross negligence or willful misconduct.” Docket No. 1-2 at 7. Although this provision
does not specifically mention ordinary negligence, the fact that the clause exempts
gross negligence implies that the waiver excuses Computershare from liability for other
types of negligence. Other language in Article 6 reinforces that intent. Article 5, ¶ 2
specifically extinguishes Computershare’s liability for the conduct giving rise to plaintiff’s
negligence and professional negligence claims, namely, “the authority of the Company
to request such issuance” of any shares and “[a]cting upon any oral instruction, writing
or document reasonably believed by Computershare to be genuine and to have been
given, signed or made by an Officer.” Docket No. 1-2 at 8. Thus, because the
agreement explicitly relieves Computershare of liability for the relevant conduct, the
Court finds that the parties intended, through Article 5, to relieve Computershare of
liability for the conduct giving rise to plaintiff’s negligence and professional negligence
claims and did so in a clear and unambiguous manner. See McShane, 2015 WL
1843807, at *5; cf. Wycoff, 251 P.3d at 1265 (rejecting exculpatory clause as void in
part because contractual language “made no reference to the relevant activity”).
Upon review of the Jones factors, the Court finds that the exculpatory provisions
as set forth in Article 5 of the Agreement are valid and enforceable. Plaintiff’s
negligence and professional negligence claims are therefore barred by the Agreement.
b. Duty of Care
Even assuming that Article 5 did not bar plaintiff’s negligence claims, plaintiff
fails to establish the existence of a tort duty upon which to base such claims. A plaintiff
alleging negligence must establish “the existence of a duty, a breach of that duty,
causation, and damages.” Redden v. SCA Colo. Funeral Servs., Inc., 38 P.3d 75, 80
(Colo. 2001). When a plaintiff brings a professional negligence claim, the plaintiff must
demonstrate that “the professional’s conduct fell below the standard of care appropriate
to the profession. . . . In sum, courts require claimants as part of a professional
negligence claim, to establish the appropriate standard of care.” Id. at 81. Thus,
plaintiff must establish the appropriate standard of care with respect to both his
negligence claims. As best the Court can discern from plaintiff’s arguments, plaintiff
takes the position that, prior to issuing any shares at the direction of IEAM officers,
Computershare had a duty to “establish a reasonable basis for believing that (i) the 43
million unrestricted S-8 shares it issued were in the form and amount IEAM was
authorized to issue under the S-8, and (ii) that those shares were being issued and
transferred to eligible recipients.” Docket No. 60 at 13. The Court is not convinced that
plaintiff’s articulation of the claimed duty is sufficiently clear as to establish a workable
standard of care, which is, by itself, a sufficient reason for declining to impose such a
duty on Computershare. The Court will nonetheless consider whether Colorado law
recognizes the claimed duty.
A tort duty may be derived from “a legislative enactment of the standard of
conduct or from a judicially imposed standard.” Dare v. Sobule, 674 P.2d 960, 963
(Colo. 1984). Plaintiff appears to contend that Computershare’s alleged duty is created
by the UCC, STA guidelines, and the Plan. Docket No. 60 at 6. However, plaintiff cites
no statute – and the Court is aware of none – adopting the STA guidelines or stating
that a corporation’s internal stock plan places a duty of care on transfer agents.
Although plaintiff argues that the UCC, specifically Colo. Rev. Stat. § 4-8-208, requires
a transfer agent to “have reasonable grounds to believe that the certified security is in
the form and within the amount the issuer is authorized to issue,” Docket No. 60 at 5,
§ 4-8-208 sets forth the warranties that a transfer agent makes to a purchaser of a
certificated security. See § 4-8-208 (“A person signing a security certificate as
authenticating trustee, registrar, transfer agent, or the like, warrants to a purchaser for
value of the certificated security . . . .”). IEAM was the issuer, not the purchaser, of the
shares at issue in this case; thus, § 4-8-208 does not apply to IEAM’s claims against
Computershare.10 Moreover, § 4-8-208 appears to set forth a transfer agent’s
By its terms, § 4-8-208 applies only to certificated securities, which the UCC
defines as “a security that is represented by a certificate.” § 4-8-102; see also § 4-8102 cmt. (“The term ‘security certificate’ refers to the paper certificates that have
traditionally been used to embody the underlying intangible interest.”); William D.
Hawkland, James S. Rogers & Carl S. Bjerre, Uniform Commercial Code Series § 8208:02 (Frederick H. Miller ed. 2015) (“the rules in section 8-208 are applicable only to
security certificates”). Plaintiff does not allege that the shares at issue were certificated
securities. Cf. § 4-8-102(a)(18) (“‘Uncertificated security’ means a security that is not
represented by a certificate.”); In re Cty. of Orange, 219 B.R. 543, 553 (Bankr. C.D. Cal.
1997) (“The Noteholders have submitted a copy of one of the master certificates . . . as
evidence that the Notes are represented by certificates. Therefore, the Notes are
certificated securities under Revised Article 8, §8102(a)(4).”). Thus, § 4-8-208 is not
applicable to the present dispute. Even in a situation where a transfer agent signs a
security certificate, the notes to § 4-8-208 state that “[a]side f rom questions of
genuiness and excess issue, these parties are not held to certify as to the validity of the
security unless they specifically undertake to do so” and clarify that § 4-8-208 does not
“interfere with proper indemnity arrangements between the issuer and . . . transfer
agents.” § 4-8-208 cmt. 4, 5. These provisions suggest that the parties, through
warranties to a purchaser of certificated securities, not a standard of care under which
the transfer agent must act. The statute does not suggest that the Colorado legislature
intended for § 4-8-208 or any of the other UCC provisions upon which plaintiff relies to
impose a tort duty on transfer agents to guard against the conduct forming the basis of
plaintiff’s tort claims. Thus, plaintiff has failed to identify a legislative enactment of
anything resembling the claimed tort duty.11
When a court imposes a duty of care, “the question is essentially one of fairness
under contemporary standards – that is, would reasonable persons recognize and
agree that a duty of care exists.” Greenberg v. Perkins, 845 P.2d 530, 536 (Colo.
1993). A court should base its determination on factors such as “the risk involved, the
foreseeability and likelihood of injury as weighed against the social utility of the
defendant’s conduct, the magnitude of the burden of guarding against the harm, and
the consequences of placing the burden of a duty on the defendant.” Ryder v. Mitchell,
54 P.3d 885, 890 (Colo. 2002). Courts may also consider “competing individual and
contract, may define the transfer agent’s duties.
Although plaintiff requests permission to amend his complaint to allege a direct
claim under § 4-8-208, plaintiff’s request is perfunctory and unsupported, which, by
itself, is a sufficient reason to deny such a request. See Docket No. 60 at 5 n.9.
Moreover, in the absence of any argument to the contrary, the Court finds that such an
amendment would be futile. Contrary to plaintiff’s claim that he has pled “the relevant
facts and law,” id., there is no suggestion that Computershare issued certificated
securities, which would otherwise place its conduct within the scope of § 4-8-208.
Moreover, plaintiff cannot state a claim under § 4-8-208 on behalf of IEAM because
IEAM was not a purchaser of the shares at issue. And plaintiff cannot state a claim
under § 4-8-208 on behalf of class members because plaintiff does not suggest that
Computershare breached any of § 4-8-208’s warranties with respect to the class
members. Plaintiff’s request to amend his complaint to add a claim pursuant to § 4-8208 is therefore denied.
social interests implicated by the particular facts of the case.” Id. “Upon finding the
existence of a duty, a court must then consider the scope of that duty and define the
applicable standard of care.” Greenberg, 845 P.2d at 536.
Plaintiff, as the party attempting to establish the existence of a duty of care, fails
to address the relevant factors, a failure which is, by itself, a sufficient basis to reject
plaintiff’s argument that the claimed duty exists. As the Tenth Circuit has noted, it is not
incumbent on a court to put the picture of a party’s arguments together or otherwise
advocate on a party’s behalf, and the Court declines to do so in this case. See Bird v.
Regents of N.M. State Univ., --- F. App’x ----, 2015 WL 4646437, at *10 (10th Cir. Aug.
6, 2015) (unpublished). Although at least one treatise considers the STA guidelines to
“represent the custom and practice in the industry,” see Mark S. Rhodes, Transfer of
Stock § 1:6 (7th ed. 2015), plaintiff cites no case – and the Court has found none –
where a court has looked to the STA guidelines to establish a common law tort duty.12
Moreover, although plaintiff’s complaint cites multiple provisions of the STA guidelines,
plaintiff’s brief makes no attempt to identify applicable provisions or explain why they
are applicable to the facts of this case. It is not incumbent upon the Court to perform
such a task on plaintiff’s behalf. To the extent plaintiff argues that the Court should
infer a duty of care from the UCC, the UCC displaces common law claims “whenever
The comments to Okla. Stat. § 8-308 and § 8-304 m ention that the Securities
Transfer Association has promulgated rules dealing with signature guarantees and
endorsements. The comment to § 8-401 states that the rules of the STA serve to
supplement Article 8 of the code and provide guidance to transfer agents. However,
Oklahoma appears to be the only state to explicitly reference the Securities Transfer
Association rules or guidelines, and such references do not provide a basis for
imposing a tort duty under Colorado law.
both the code and the common law would provide a means of recovery for the same
loss,” which further counsels against imposing a duty of care based upon UCC
provisions. See Clancy Sys. Int’l, Inc. v. Salazar, 177 P.3d 1235, 1237 (Colo. 2008).
As discussed above, plaintiff fails to establish that the UCC provisions upon which he
relies apply to tort claims brought by IEAM for Computershare’s failure to ensure that
each share issuance was in compliance with the Plan. See Guilfoyle v. Olde Monmouth
Stock Transfer Co., Inc., 335 P.3d 190, 194-95 (Nev. 2014) (noting that § 8-401 of the
UCC, as enacted in Nevada, makes a transfer agent’s duty to a stockholder for refusal
to register stock “the same as an issuing corporation’s”). Plaintiff provides no support
for his contention that the Plan itself imposes a duty on Computershare. Because
plaintiff fails to identify the source of his claimed duty of care and otherwise fails to
support his position with citation to authority and relevant factual allegations, plaintiff
has not established the existence of his claimed duty. Plaintiff therefore fails to state a
necessary element of his negligence and professional negligence claims, including any
claim that Computershare was grossly negligent.13 Cf. Weil v. First Nat’l Bank of Castle
To the extent plaintiff attempts to assert a claim that Computershare was
grossly negligent, plaintiff does not allege such a claim in his complaint. Moreover,
plaintiff does not provide sufficient facts upon which to conclude that Computershare’s
conduct rises to the level of gross negligence or willful misconduct, thereby falling
outside the Agreement’s exculpatory clause. “Gross negligence is willful and wanton
conduct, that is, action committed recklessly, with conscious disregard for the safety of
others.” Hamill v. Cheley Colo. Camps, Inc., 262 P.3d 945, 954 (Colo. App. 2011).
Plaintiff argues that Computershare was grossly negligent in breaching its obligations
under “(i) Colorado’s UCC, (ii) the STA guidelines, and (iii) the S-8 and the Stock Option
Plan.” Docket No. 60 at 6. However, even assuming, without deciding, that
Computershare possessed a copy of the Plan, plaintiff does not allege that
Computershare knew of or acted in conscious disregard of the Mazzuto scheme during
the time it received the issuance letters. As a result, there are no f acts suggesting that
Computershare knew of or acted recklessly toward the possibility that the issuance
Rock, 983 P.2d 812, 815 (Colo. App. 1999) (dism issing negligence and gross
negligence claims is appropriate where defendant owes no common law duty to
2. Breach of Contract
Plaintiff’s breach of contract claim alleges that Computershare failed to satisfy its
obligations under the Agreement and “did not provide the services it agreed to provide
pursuant to the terms of the agreement.” Docket No. 1 at 23, ¶ 100. Specifically,
plaintiff argues that the issuance letters directed Computershare to issue free trading
shares “pursuant to [IEAM’s] 2004 Stock Option plan” and to issue shares “pursuant to
the previously provided S-8 registration statement dated January 24, 2005.” Id.
(quoting Docket No. 1-6).15 Plaintiff interprets the reference in these letters to the Plan
and to the S-8 registration statement as tantamount to requests that Computershare
ensure that the issuance complied with those documents. Plaintiff contends that
Computershare breached the Agreement by failing to determine such compliance
letters were suspect. Moreover, plaintiff does not allege sufficient facts upon which to
conclude that Computershare knew of or acted recklessly toward the possibility that the
share recipients were not bona-fide consultants for IEAM, and no facts indicating how
Computershare could have acquired such knowledge even if it wanted to. Thus,
plaintiff does not allege sufficient facts to establish a plausible inference that
Computershare knew of or consciously disregarded the possibility that Mr. Mazzuto’s
and Mr. Margulies’ issuance letters were designed to perpetuate a fraud.
Because plaintiff fails to state a claim for gross negligence, the Court need not
reach plaintiff’s argument that Article 5’s damages limitation is void as contrary to public
policy. See Docket No. 60 at 7 n.11.
Plaintiff concedes that the issuance letters did not place on Com putershare a
duty independent of the Agreement, but argues that the Agreement contemplated that
Computershare would act at the direction of issuance letters signed by IEAM’s officers.
Id. at 4 n.5.
because, although the Plan provided for the issuance 15 million restricted shares of
IEAM stock to certain individuals, Computershare issued 43 million unrestricted shares
to individuals who were ineligible recipients under the Plan. Id. at 3-4. Plaintiff argues
that Computershare’s obligation under the contract was to either refuse to issue shares
that conflicted with the Plan or to obtain documents necessary to resolve any such
conflict. Id. at 3-4 n.4.
Computershare argues that plaintiff fails to identify a specific provision of the
Agreement that it breached. Docket No. 61 at 2. Com putershare argues, without
dispute, that plaintiff’s complaint does not allege that Computershare was provided a
copy of the Plan and further argues that the Agreement does not require
Computershare to search IEAM’s public filings for certain documents. Docket No. 56 at
2; see also Docket No. 60 at 3-4. Computershare contends that the Agreement does
not place upon it an obligation to become aware of what restrictions IEAM placed on its
shares, to only issue shares conforming to the Plan, and to refuse to follow IEAM’s
officers’ directives if such directives were contrary to the Plan. Docket No. 56 at 2;
Docket No. 61 at 2-3.
The Court agrees with Computershare. Article 3 of the Agreement, the only
portion of the Agreement upon which plaintiff’s complaint relies, provides that
Computershare shall transfer16 shares “upon the presentation to Computershare of
Computershare argues that Article 3, ¶ 1 applies only to the transfer, not the
issuance, of shares and is therefore inapplicable to the present dispute. Docket No. 56
at 7. The Court is somewhat skeptical of this interpretation of the Agreement. Although
the terms “issuance” and “transfer” may, in some cases, describe different concepts or
processes, Article 3 is entitled “ISSUANCE AND TRANSFER OF SHARES,” but does
not describe a separate process for issuing shares, which suggests that the issuance
stock transfer instructions properly endorsed if Shares are in uncertificated form.”
Docket No. 1-2 at 5. Article 3 further states that “[s]uch . . . transfer instructions shall be
accompanied by such documents as are reasonably necessary to evidence the
authority of the person making the transfer.” Id. The Agreement grants Computershare
the right to place additional requirements on transfer instructions, but not the obligation
to do so. Id.17 Computershare may then, in an exercise of its discretion, “refuse to
transfer Shares until it is satisfied that the requested transfer is legally authorized.” Id.
at 6. Thus, the Agreement focuses on the authority 18 of the person requesting the
transfer as opposed to the propriety of the transfer itself.
Plaintiff does not argue that the issuance letters were not properly endorsed.
Although it is not entirely clear who has the obligation of ensuring that documents
and transfer process are one and the same. Docket No. 1-2 at 5. However, for the
reasons stated below, assuming, as plaintiff suggests, that Article 3, ¶ 1 governs the
transfer and the issuance of shares, plaintiff fails to state a claim that Computershare
breached its obligations under Article 3 of the Agreement.
To the extent plaintiff’s general allegations concerning the content of Article 3
of the Agreement, see Docket No. 1 at 10, ¶ 34, are contradicted by the specific
language of the Agreement, the Court need not and does not presum e the truth of such
allegations. See Toone, 716 F.3d at 521.
The term “authority” as it is used in Article 3, ¶ 1 is not precisely defined. The
fact that the term is used in reference to the “person” making the transfer suggests that
the requisite supporting documentation is aimed at ensuring that the person issuing the
transfer order is who he or she purports to be and has sufficient authority within IEAM
to direct the transfer agent to issue or transfer shares. This interpretation is supported
by the remainder of the Agreement, which directs IEAM to provide Computershare with,
among other things, “A list of the Officers authorized to provide instructions to
Computershare, with specimen signatures of such Officers.” Docket No. 1-2 at 3-4,
¶ 4.h (emphasis added). The term does not therefore suggest that the term “authority”
encompasses the question of whether the company itself has the authority under an
employee benefit plan to issue shares.
sufficiently support the requester’s authority to issue the instructions, by virtue of the
fact that Computershare, at its discretion, may require additional documentation in
support of transfer requests, it appears that it is IEAM who has this obligation, not the
other way around. Although Computershare may refuse to transfer shares if it is not
satisfied that the transfer is legally authorized – which Article 3, ¶ 1 indicates may occur
if Computershare deems the transfer improper, unauthorized, or not in compliance with
Computershare’s procedures –, the agreement does not identify, let alone suggest, a
circumstance where Computershare would be contractually obligated to refuse to
transfer shares. Article 3, ¶ 1 contains no terms suggesting that Computershare is
obligated to investigate each transfer request or that Computershare is obligated to
determine whether a properly endorsed transfer request is in conformance with a
corporation’s employee benefits stock plan. In other words, Article 3 does not contain
any language suggesting that, when the Plan or S-8 registration statement is invoked in
an issuance letter, Computershare is contractually obligated to refuse to issue shares
until it independently determines whether the requested issuance complies with the
Plan or S-8 registration statement. If such an obligation exists in the Agreement,
plaintiff fails to identify it, and no such obligation is apparent to the Court. Article 3 of
the Agreement grants Computershare the right to request more information from IEAM
and the right to refuse to transfer shares, but does not obligate it to do so under the
circumstances alleged in plaintiff’s complaint. Plaintiff fails to identify contractual
provisions suggesting otherwise and, as a result, fails to state a claim for breach of
The remainder of the Agreement is consistent with Computershare’s position.
The scope of services Computershare is obligated to provide is set forth in Schedule A
of the Agreement. Nothing in Schedule A suggests that Computershare will provide a
service by which it independently confirms the propriety of each stock issuance against
an employee stock option plan. See Docket No. 1-2 at 18. 20 Moreover, plaintiff does
not suggest a mechanism or class of documents by which Computershare could
independently ascertain whether, for example, a particular recipient was a “bona fide
consultant” entitled to receive shares under the Plan. See Docket No. 1 at 9, ¶ 31
Plaintiff argues that the Court should interpret the issuance letters as
commanding Computershare to issue shares “only if [the issuance] compl[ies] with the
Stock Option Plan.” Docket No. 60 at 4-5. This interpretation of the issuance letters
defies common sense. Plaintiff alleges that Mr. Mazzuto’s and Mr. Margulies’ goal was
Plaintiff’s complaint cites Article 3, ¶ 2 in support of the allegation that
Computershare may request a legal opinion from IEAM’s counsel before issuing
restricted shares. Docket No. 1 at 10, ¶ 35. Although plaintiff’s complaint alleges that
Article 3, ¶ 2 obligates Computershare to request a legal opinion, id. at 10, ¶ 36, such
allegations are belied by the plain terms of the Agreement, which confer upon
Computershare the right, not the obligation, to request a legal opinion. Moreover,
paragraph two applies to “Shares in certificate form.” Docket No. 1-2 at 6. Plaintiff
does not allege that the shares at issue were certificated. See Colo. Rev. Stat. § 4-8102(4), (18) (defining “certificated” and “uncertificated” securities).
Schedule A of the Agreement states, in relevant part, that Computershare will
maintain records of “restrictions on any Shares of which it has been informed,” Docket
No. 1-2 at 18, but plaintiff does not argue that this provision was breached. As
discussed above, there is no allegation or evidence that IEAM provided Computershare
with the Plan.
to “artificially inflate IEAM’s stock price so that they could illegally cash in on this
through the perversion of IEAM’s S-8 Stock Option Plan.” Docket No. 1 at 6, ¶ 20.
Plaintiff’s interpretation of the issuance letters suggests that Mr. Mazzuto and Mr.
Margulies had a psychologically conflicted, self-confessional intent to cause
Computershare to uncover their scheme. The logical and obvious interpretation of the
letters is the opposite – that Mr. Mazzuto’s and Mr. Margulies’ references to the Plan
and the S-8 registration statement were intended to convey their view that such
documents permitted the issuances. More importantly, plaintiff concedes that the
issuance letters do not themselves place a contractual obligation on plaintiff and, as
discussed above, nothing in the Agreement obligates Computershare to independently
verify the propriety of Mr. Mazzuto’s and Mr. Margulies’ issuance requests against the
Plan. Thus, plaintiff’s argument is without merit.
Plaintiff next argues that the Court should look to the STA guidelines in resolving
any ambiguity in the agreement. Docket No. 60 at 5. Plaintiff’s argument is somewhat
difficult to interpret. To the extent plaintiff argues that the Agreement should be
interpreted in light of the STA guidelines, plaintiff’s argument is unsupported.
Assuming, without deciding, that the STA guidelines are evidence of industry standards,
plaintiff does not identify any particular term in the Agreement that has an alternate
meaning when interpreted in light of the STA guidelines. See Employment Television
Enters., LLC v. Barocas, 100 P.3d 37, 43 (Colo. App. 2004). T hus, plaintiff fails to
show how interpreting the Agreement in light of the STA guidelines would lead to a
Even assuming that plaintiff sufficiently stated a claim that Computershare
breached an obligation under the Agreement, as discussed above, the exculpatory
clause is enforceable and limits Computershare’s liability accordingly. In arguing that
his breach of contract claim does not fall within the exculpatory clause, plaintiff attempts
to characterize his claim as asserting that Computershare failed to follow the
instructions set forth in the issuance letters, and not that Com putershare failed to
ensure that IEAM had the authority to issue the relevant shares. Docket No. 60 at 4
n.7. Plaintiff’s argument is unavailing. Not only does plaintiff fail to identify a
contractual provision supporting his theory of liability, but the issuance letters
themselves do not direct or place a contractual duty on Computershare to refrain from
issuing shares until it is independently satisfied that the issuances complied with the
Plan. See Docket No. 60 at 4 n.5. Because plaintiff’s breach of contract claim arises
from actions taken or not taken in connection with the Agreement and from IEAM –
acting through Mr. Mazzuto and Mr. Margulies – exceeding its authority under the Plan
to issue shares, Article 5, ¶¶ 1 and 2 relieve Computershare of liability for such a claim.
Computershare’s motion to dismiss is granted as to plaintiff’s breach of contract claim.
3. Unjust Enrichment
Plaintiff’s unjust enrichment claim seeks “restitution for the value of the fees and
commissions received by Computershare.” Docket No. 1 at 22, ¶ 96. “Unjust
enrichment is a claim in quasi-contract based on principles of restitution.” W. Ridge
Grp., LLC v. First Trust Co. of Onaga, 414 F. App’x 112, 120 (10th Cir. 2011)
(unpublished) (applying Colorado law). “In general, a party cannot recover for unjust
enrichment by asserting a quasi-contract when an express contract covers the same
subject matter because the express contract precludes any implied-in-law contract.”
Interbank Investments, LLC v. Eagle River Water & Sanitation Dist., 77 P.3d 814, 816
(Colo. App. 2003). Colorado courts recognize two exceptions to this general rule.
“First, a party can recover on a quasi-contract when the implied-in-law contract covers
conduct outside the express contract or matters arising subsequent to the express
contract. Second, a party can recover on a quasi-contract when the party will have no
right under an enforceable contract,” such as “when an express contract failed or was
rescinded.” Id. (citations and quotations omitted).
Plaintiff points out that it is permitted to plead an unjust enrichment claim in the
alternative to its breach of contract claim. Docket No. 60 at 3 n.2. Although it may be
appropriate to assert both a breach of contract claim and an unjust enrichment claim in
the same complaint, see Hemmann Mgmt. Servs. v. Mediacell, Inc., 176 P.3d 856, 860
(Colo. App. 2007), Computershare argues that, because IEAM’s and Computershare’s
relationship is expressly governed by the Agreement, plaintiff cannot bring an unjust
enrichment claim based upon conduct covered by the Agreement. Docket No. 56 at 9.
Plaintiff responds that its unjust enrichment claim “covers conduct outside the express
contract” because, in addition to asserting that Computershare breached the
Agreement, plaintiff also asserts that Computershare violated its duties under the UCC
and state tort law. Docket No. 60 at 3 n.2. Plaintiff’s theory misses the mark. Plaintiff’s
unjust enrichment claim asserts that, in return for its role in facilitating the illegal
issuance of stock, Computershare received fees and commissions at IEAM’s expense.
Docket No. 1 at 22, ¶ 94. Computershare issued stock pursuant to the Agreement.
The Agreement set forth the fees due Computershare for its services. Article 5 of the
Agreement explicitly sets forth the terms under which Computershare is liable for failing
to perform its contractual obligations, including that “[a]ny liability of Computershare
shall be limited to the amount of fees paid by the Company to Computershare in the
preceding twelve (12) months for the Services.” Docket No. 1-2 at 7. Plaintiff does not
allege that its unjust enrichment claim arises based upon conduct that occurred af ter
the contractual relationship between IEAM and Computershare expired. Thus, the
conduct giving rise to plaintiff’s unjust enrichment claim is covered by the Agreement.
See Greenway Nutrients, Inc. v. Blackburn, 33 F. Supp. 3d 1224, 1261-62 (D. Colo.
2014) (“There was an express contract covering any claim for loss of good and services
. . . . Therefore, an unjust enrichment claim for goods or services is precluded”);
Interbank, 77 P.3d at 817 (“the contracts contemplated payment from tap fees to be
collected over time”).
As for the second exception, the threshold determination is not the adequacy of
the remedy under an express contract, but rather its enforceability. Id. at 818-19.
Plaintiff does not assert that any aspect of the Agreement is unenforceable. Thus,
plaintiff’s unjust enrichment claim is precluded by the Agreement. Cf. Rossetti Assocs.,
Inc. v. Santa Fe I25 Denver, LLC, No. 09-cv-00338-WJM-BNB, 2011 WL 834177, at *7
(D. Colo. March 4, 2011) (dismissing breach of contract claim and concluding that,
“because there is an enforceable contract between the two parties, the express contract
precludes the unjust enrichment claim” (citing Interbank, 77 P.3d at 818-19)).
Computershare’s motion to dismiss as to plaintiff’s unjust enrichment claim is
Computershare argues that plaintiff fails to state a claim for fraud. Docket No.
56 at 10. A claim for fraud requires a plaintiff to prove that (1) the defendant knowingly
made a false representation of material fact; (2) plaintiff was unaware of its falsity; (3)
the representation was intended to induce plaintiff to act; and (4) plaintiff was damaged
by acting in reliance on the representation. Vinton v. Virzi, 269 P.3d 1242, 1247 (Colo.
2012). Under Federal Rule of Civil Procedure 9(b), “fraud or mistake” must be pled with
particularity, meaning that a plaintiff must, at the minimum, “set forth the time, place
and contents of the false representation, the identity of the party making the false
statements and the consequences thereof.” United States ex rel. Sikkenga v. Regence
Bluecross Blueshield of Utah, 472 F.3d 702, 727 (10th Cir. 2006) (quoting Koch v. Koch
Indus., 203 F.3d 1202, 1236 (10th Cir. 2000)). Althoug h a plaintiff may plead “[m]alice,
intent, knowledge, and other conditions of a person’s mind” generally, Rule 9(b) “merely
excuses a party from pleading discriminatory intent under an elevated pleading
standard. It does not give him license to evade the less rigid–though still
operative–strictures of Rule 8.” Ashcroft, 556 U.S. at 686-87.
Plaintiff alleges that IEAM reasonably relied on Computershare’s expertise as a
transfer agent to, among other things, “check the types of shares being issued (as well
as the overall among of the shares issued) against the basic terms of [the] Plan.”
Docket No. 1 at 17, ¶ 60. Plaintiff alleges that, “[b]y the simple act of issuing and
transferring the S-8 shares in question, Computershare – as a professional transfer
agency – represented to IEAM that it had checked the credentials of those directing the
issuances, the bona fides of the recipients, and the number of shares authorized, and
that the issuances were, in fact, proper under the Plan.” Id. at 19, ¶ 75. Thus, plaintiff’s
position appears to be that Computershare’s act of issuing stock as directed by the
issuance letters constitutes a representation that the shares “conf ormed in both form
and amount with the S-8 and the Stock Option Plan,” were “being issued and
transferred to eligible recipients,” and conformed to the STA guidelines. Docket No. 60
As to the first element regarding a false representation, plaintiff’s position
contradicts the plain meaning of the issuance letters, as discussed above. Mr. Mazzuto
and Mr. Margulies were not asking Computershare to warrant the legality of the
issuance of the shares. Second, plaintiff’s position is not supported by the terms of the
Agreement, which do not state or imply that Computershare had the responsibility to
conduct the type of investigation that plaintiff alleges. As to the second element
regarding IEAM’s unawareness of the falsity, even assuming that Computershare
explicitly made such representations to IEAM, plaintiff’s allegation that IEAM was
unaware of the falsity of Computershare’s representation is conclusory and
contradicted by more specific allegations. See Docket No. 1 at 19, ¶ 77. “It is longsettled law that if a party claiming fraud has access to information that was equally
available to both parties and would have led to the true facts, that party has no right to
rely on a false representation.” Vinton, 269 P.3d at 1247. IEAM promulgated the Plan,
Docket No. 1 at 8, ¶ 27, and, therefore, had access to the very information that would
have led to the conclusion that the shares issued pursuant to the issuance letters w ere
in contravention of the Plan. Even viewing the facts in the appropriate light, such an
inference does not plausibly flow from plaintiff’s complaint.
As to the third element regarding an intent to induce action, plaintiff does not
explain what action Computershare intended to induce from IEAM. Plaintiff generally
alleges that Computershare’s alleged representations were made “with the intent that
IEAM would rely upon them” or “with the intent that IEAM would rely on its incorrect
knowledge of the true facts.” Docket No. 1 at 20, ¶ 78. However, recognizing that
intent need not be pled with particularity, such allegations are conclusory and, absent
factual allegations establishing what acts the representations were intended to induce,
are insufficient to satisfy this element. See Ashcroft, 556 U.S. at 686-87. Because
plaintiff has failed to adequately plead the first three elements of his fraud claim,
Computershare’s motion as to this claim is granted.
5. Economic Loss Rule
In the alternative, plaintiff’s tort-based claims are barred by the economic loss
rule. The economic loss rule is intended to maintain a boundary between contract law
and tort law. Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1259 (Colo. 2000).
“[A] party suffering only economic loss from the breach of an express or implied
contractual duty may not asset a tort claim for such a breach absent an independent
duty of care under tort law.” Id. at 1264. In order to be considered independent of
contract, a duty of care must satisfy two conditions: “[f]irst, the duty must arise from a
source other than the relevant contract”; and “[s]econd, the duty must not be a duty also
imposed by the contract.” Haynes Trane Serv. Agency, Inc. v. Am. Standard, Inc., 573
F.3d 947, 962 (10th Cir. 2009) (citing Town of Alma v. AZCO Constr., Inc., 10 P.3d
1256, 1259-62 (Colo. 2000)). In other words, “even if the duty would be imposed in the
absence of a contract, it is not independent of a contract that memorializes it.” Id.
(quotation and citation omitted). As discussed above, plaintiff fails to identify a noncontractual, common law or statutory tort duty that governs the acts and omissions
giving rise to plaintiff’s negligence, professional negligence, or unjust enrichment
claims. As to plaintiff’s fraud claim, Colorado courts have held that claims of postcontractual fraud related to the performance of the contract are barred by the economic
loss rule, particularly where, as here, a plaintiff alleges only economic losses. See
Hamon Contractors, Inc. v. Carter & Burgess, Inc., 229 P.3d 282, 293-94 (Colo. App.
Moreover, the purpose of the economic loss rule is to, among other things, allow
the parties to “reliably allocate risks and costs during their bargaining [and] encourage
the parties to build the cost considerations into the contract because they will not be
able to recover economic damages in tort.” BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d
66, 72 (Colo. 2004). Article 5 of the Agreement suggests that, by memorializing
Computershare’s obligations to IEAM and limiting Computershare’s liability therefrom,
Computershare and IEAM engaged in just such an allocation and cost calculation. See
Docket No. 1-2 at 7 (“it being understood that the Services could not be provided to the
Company by Computershare at the prices set forth herein without the foregoing liability
limitation”). Thus, the Court concludes that, in the alternative, the economic loss rule
bars plaintiff’s tort-based claims.
6. Fraudulent Transfer
Plaintiff’s sixth through tenth claims allege that the fees IEAM paid to
Computershare pursuant to the Agreement should be voided as fraudulent transfers.
Docket No. 1 at 25-27. 21 Computershare’s only argument going to the merits of
plaintiff’s fraudulent transfer claims is that plaintiff fails to identify the specific transfers
he seeks to avoid. Docket No. 56 at 5; Docket No. 61 at 11 n.14. Com putershare does
not support its argument with citation to authority or any additional explanation. Courts
hold differing views on the question of whether a plaintiff’s complaint must specifically
identify each allegedly fraudulent transfer by date and amount. See In re Del-Met
Corp., 322 B.R. 781, 795 (Bankr. M.D. Tenn. 2005) (recognizing different approaches
to satisfying Fed. R. Civ. P. 8 in fraudulent transfer actions). Some courts take a strict
approach to this question, holding that a plaintiff bringing a preferential transfer cause
of action must plead “(a) an identification of the nature and amount of each antecedent
debt and (b) an identification of each alleged preference transfer by (i) date, (ii) name of
debtor/transferor, (iii) name of transferee and (iv) the amount of the transfer.” In re
TWA Inc. Post Confirmation Estate, 305 B.R. 228, 232 (Bankr. D. Del. 2004) (quotation
omitted); see also In re Greater Se. Cmty. Hosp. Corp. I, 341 B.R. 91, 105 (Bankr.
The last paragraph of plaintiff’s ninth claim for relief states that the “stock
transfers are avoidable fraudulent transfers and should be avoided under 11 U.S.C.
§ 548(a).” Id. at 26, ¶ 136. Thus, it is somewhat unclear whether this claim asserts that
the fee transfers to Computershare or the stock transfers to various third parties are
avoidable. To the extent plaintiff seeks to set aside any issuance or transfer of stock,
plaintiff does not allege that Computershare was the recipient of any such stock
transfers and would not therefore be a proper defendant as to any claim to recover
shares of IEAM stock. Thus, viewing the facts in the light most favorable to plaintiff, the
Court construes plaintiff’s ninth claim for relief in accordance with plaintiff’s other
fraudulent transfer claims, which seek to avoid fee payments made to Computershare.
D.D.C. 2006) (adopting TWA’s formulation of pleading requirements for § 550 action).
Other courts take a more liberal approach, holding that, under Rule 8’s notice pleading
standard, a complaint must simply allege sufficient facts upon which to conclude that
money was transferred from a debtor to defendant and that the transfer violated the
Uniform Fraudulent Transfer Act. Miller v. Rodak, 2012 WL 3156538, at *2-*3 (D. Utah
Aug. 3, 2012) (rejecting argument that complaint was deficient for failure to identify the
dates of the purported transfers, the amounts of the purported transfers, and the
natures of the purported transfers). The strict approach has been criticized as contrary
to liberal pleading rules – which shift the focus towards discovery and motions for
summary judgment – and as having the unintended consequence of cutting off valid
claims prematurely. In re The IT Grp., Inc., 313 B.R. 370, 373 (Bankr. D. Del. 2004).
The Court finds this criticism of the strict approach persuasive. Moreover, the Court is
unaware of any Tenth Circuit authority favoring the strict approach articulated in TWA
and its progeny and will not therefore adopt it. Here, plaintiff’s complaint does not
identify when IEAM transferred funds to Computershare and the amount of such
transfers, except to allege that, pursuant to the Agreement, Computershare received
$7,800 per year plus incidentals, Docket No. 1 at 9, ¶ 33, and to sug gest that
Computershare received commission for each transaction in which it participated.
Docket No. 1 at 17, ¶ 61. 22 The Agreement’s fee schedule states that, in addition to a
Although plaintiff’s complaint generally alleges that Computershare received
commissions, it does not indicate the number and amount of such commissions and
plaintiff’s brief does not assert that fees IEAM paid in the form of commissions are a
basis for his claims. Moreover, the Agreement’s fee schedule does not appear to
provide for the payment of commissions to Computershare based upon each issuance
of stock. See Docket No. 1-2 at 20-21. Nonetheless, viewing the facts in the light most
one-time setup fee of $1,250, Computershare’s annual $7,800 fee was billed monthly.
Docket No. 1-2 at 20. Plaintiff’s brief, however, states that the fee transfers between
IEAM and Computershare occurred monthly from January 2005 through January 2008.
Docket No. 60 at 16, n.20 (citing Docket No. 1-2; Docket No. 1-4). 23 Thus, plaintiff
appears to take the position that the f ee transfers he seeks to avoid occurred between
January 2005 and January 2008. Plaintiff does not identify any transfers to
Computershare that took place after January 2008. The Court finds that, for purposes
of resolving this motion, plaintiff has stated a plausible claim that, between January
2005 and January 2008, IEAM transferred to Computershare $7,800 in annual fees
each year plus commissions. This is sufficient to state a claim that funds were
transferred from IEAM to Computershare.24 See Miller, 2012 WL 3156538, at *2.
Computershare’s next argument is that plaintiff’s fraudulent transfer claims are
barred by the statute of limitations. Docket No. 56 at 19. Computershare argues that,
favorable to plaintiff, the Court assumes that Computershare received commissions in
addition to its annual fee of $7,800.
Docket No. 1-4 appears to be a list of stock issuances that took place between
January 24, 2005 and January 16, 2008. Viewing plaintiff’s argument charitably,
plaintiff appears to contend that Computershare acted as IEAM’s transfer agent for the
listed transactions and, as a result, received fee payments from IEAM during that time
The Court recognizes that plaintiff brings claims for both actual fraudulent
transfer and constructive fraudulent transfer. Courts in the Tenth Circuit are generally
of the opinion that, whereas claims for actual fraudulent transfer may be subject to Fed.
R. Civ. P. 9(b)’s heightened pleading standard, constructive fraudulent transfer claims
are not subject to Rule 9(b). In re Vaughan Co., Realtors, 481 B.R. 752, 757, 763
(Bankr. D.N.M. 2012). Regardless of which approach is applied in this case, the Court
finds that plaintiff has sufficiently alleged facts regarding the transfers that give rise to
plaintiff’s fraudulent transfer claims.
because plaintiff first asserted fraudulent transfer claims on October 30, 2013 – the day
he filed the present case –, plaintiff’s fraudulent transfer claims are barred by Colo.
Rev. Stat. § 38-8-110 and 11 U.S.C. § 546. Id. at 20. Computershare maintains that,
because plaintiff did not assert any fraudulent transfer claims against it in the Delaware
bankruptcy proceeding, Computershare has not waived any statute of limitations
arguments with respect to such claims. Id. Plaintiff does not dispute that he asserts
fraudulent transfer claims against Computershare for the first time in the present case.
Rather, plaintiff argues that, had he amended his complaint in the Delaware adversary
proceeding to add fraudulent transfer claims, such claims would have related back to
the original complaint filed in the Delaware adversary proceeding pursuant to Fed. R.
Civ. P. 15(c)(1)(B). Docket No. 60 at 17. Computershare replies that plaintiff’s
argument is speculative and that Rule 15(c) would not have permitted the addition of
fraudulent transfer claims in the manner plaintiff suggests. Docket No. 61 at 11. 25 The
Court agrees with Computershare that plaintiff’s argument is speculative in nature, but
will nonetheless consider the merits of plaintiff’s argument.
As a threshold matter, the Court understands plaintiff to argue that his fraudulent
transfer claims are timely in relation to the original complaint in the Delaware adversary
proceeding, see Docket No. 60 at 16-17 n.20, not that such claim s are timely asserted
Plaintiff does not suggest that Computershare could not have disputed the
applicability of Rule 15(c) if plaintiff had requested to amend his complaint in the
Delaware adversary proceeding, and the Court finds no basis for so concluding. Thus,
the Court finds that Computershare’s argument on this issue is not precluded by its
waiver of “any argument based on the applicable statute of limitations to the extent it
could not have raised them in this adversary proceeding.” See In re Pitt Penn, No. 1151877-BLS (Docket No. 82 at 5 (quotation omitted)).
in this case regardless of whether the claims could have been brought in the adversary
proceeding.26 Thus, there appears to be no dispute that, absent the relation back of
Plaintiff’s sixth, seventh, and eighth claims are brought pursuant to the
Colorado Uniform Fraudulent Transfer Act (“CUFTA”). Plaintiff’s sixth and seventh
claims for relief allege that the fee transfers to Computershare are fraudulent pursuant
to Colo. Rev. Stat. § 38-8-105(1)(a) and § 38-8-105(1)(b), respectively, and plaintiff’s
eighth claim for relief is brought pursuant to § 38-8-106(1). Docket No. 1 at 23-25.
Claims under § 38-8-105(1) and § 38-8-106(1) are extinguished unless, as relevant
here, the claim is brought “within four years after the transfer was made or the
obligation was incurred.” § 38-8-110(1)(a)-(b). When, as here, CUFTA claims are
brought pursuant to 11 U.S.C. § 544(b), the CUFTA statute of limitations “applies only
to determine whether the trustee has a viable cause of action as of the bankruptcy filing
date.” See In re Leach, 380 B.R. 25, 29 (Bankr. D.N.M. 2007). Once the bankruptcy
petition is filed, § 546 governs the time for bringing a CUFTA fraudulent transfer action.
Id. at 29-30; see also In re Valley Mortg., Inc., 2013 WL 5314369, at *3 (Bankr. D. Colo.
Sep. 18, 2013); In re Dry Wall Supply, Inc., 111 B.R. 933, 936 (D. Colo. 1990) (“‘Once
the case has commenced, section 546(a) . . . specifies the time within which the trustee
must act under section 544(b)’” (quoting 4 Collier on Bankruptcy ¶ 544.03 (L. King
15th ed. 1989))). Plaintiff’s ninth claim for relief alleges that the fee transfers to
Computershare were fraudulent pursuant to 11 U.S.C. § 548. Docket No. 1 at 26,
¶¶ 131-35. Pursuant to § 548(a)(1), a trustee m ay avoid any transfer of an interest of
the debtor in property or any obligation incurred by the debtor that was made or
incurred on or within two years before the date of the filing of the bankruptcy petition,
provided the transfer satisfies certain conditions. See In re Leach, 380 B.R. at 28
(holding that transfers occurring prior to applicable § 548 limitations period were
barred). Section 546(a) provides that § 544(b) and § 548 actions must be commenced,
as relevant here, before the later of “(A) 2 years after the entry of the order for relief; or
(B) 1 year after the appointment or election of the first trustee . . . if such appointment
or such election occurs before the expiration of the period specified in subparagraph
(A).” § 546(a).
On May 1, 2009, IEAM filed a voluntary Chapter 11 petition, In re Indus. Enters.
of Am, Inc., No. 09-11508-BLS (Docket No. 1), which constitutes an order for relief.
§ 301(b) (“The commencement of a voluntary case under a chapter of this title
constitutes an order for relief under such chapter.”). On May 3, 2013, the Delaware
bankruptcy court appointed plaintiff Chapter 11 trustee. In re Pitt Penn Holding Co.,
No. 09-11475-BLS (Docket No. 1729). Pursuant to § 546(a)(1)(A), all f raudulent
transfer claims were required to be brought by May 1, 2011. Because the appointment
of plaintiff as trustee occurred after May 1, 2011, § 546(a)(1)(B) does not apply to
extend the statute of limitations. Thus, absent the relation back of plaintiff’s sixth,
seventh, eighth, and ninth claims for relief, such claims are not timely asserted in this
proceeding. Plaintiff’s tenth claim for relief, which is brought pursuant to § 550, is
plaintiff’s fraudulent transfer claims to the original complaint filed in the Delaware
adversary proceeding, such claims are untimely asserted for the first time in the present
Fed. R. Civ. P. 15(c)(1)(B), which is applicable to bankruptcy proceedings
pursuant to Fed. R. Bankr. P. 7015, states: “An am endment to a pleading relates back
to the date of the original pleading when . . . the amendment asserts a claim or defense
that arose out of the conduct, transaction, or occurrence set out – or attem pted to be
set out – in the original pleading.”
As a general rule, amendments will relate back if they amplify the facts
previously alleged, correct a technical defect in the prior complaint, assert a
new legal theory of relief, or add another claim arising out of the same facts.
For relation back to apply, there is no additional requirement that the claim
be based on an identical theory of recovery. On the other hand,
amendments generally will not relate back if they interject entirely different
facts, conduct, transactions or occurrences. It is a matter committed to the
district court's sound discretion to decide whether a new claim arises out of
the same transaction or occurrence.
Benton v. Bd. of Cty. Commr’s, No. 06-cv-01406-PSF-MEH, 2007 WL 4105175, at *3
(D. Colo. Nov. 14, 2007); see also Laratta v. Raemisch, No. 12-cv-02079-MSK-KMT,
2014 WL 1237880, at *15 (D. Colo. March 26, 2014) (quoting Benton); In re Bennett
Funding Grp. Inc., 275 B.R. 447, 451 (Bankr. N.D.N.Y. 2001); In re Universal Factoring
Co., Inc., 279 B.R. 297, 303 (Bankr. N.D. Okla. 2002). T he key consideration is
whether the original complaint “gave the Defendant adequate notice of what must be
defended against in the Amended Complaint.” In re Bennett, 275 B.R. at 451
(collecting cases); see also Baldwin Cty. Welcome Ctr. v. Brown, 466 U.S. 147, 149 n.3
(1984) (“The rationale of Rule 15(c) is that a party who has been notified of litigation
concerning a particular occurrence has been given all the notice that statutes of
limitations were intended to provide.”); In re Universal, 279 B.R. at 303 (“‘[T]he courts
also inquire into whether the opposing party has been put on notice regarding the claim
or defense raised by the amended pleading. Only if the original pleading has
performed that function . . . will the amendment be allowed to relate back to prevent the
running of the limitations period in the interim from barring the claim or defense.’”
(quoting 6A Charles Alan Wright et al., Federal Practice & Procedure § 1497 (2d ed.
Plaintiff’s argument that his fraudulent transfer claims relate back to the original
complaint in the Delaware adversary proceeding (the “original complaint”) [IEAM, No.
11-51877-BLS (Docket No. 1)] is flawed for multiple reasons. First, his argument is
perfunctory and unsupported by specific reference to the original complaint. See
Docket No. 60 at 17. Plaintiff does not identify, even with a general citation, any factual
allegations that would place Computershare on notice that it may have to defend
against a fraudulent transfer claim based upon the fees it received pursuant to the
Agreement. Plaintiff’s argument is therefore little more than an implicit invitation for the
Court to parse the original complaint on plaintiff’s behalf in search of support for his
position. The Court declines the invitation. Plaintiff’s failure to support his argument is,
by itself, a sufficient reason to decline to apply the relation back doctrine to plaintiff’s
fraudulent transfer claims.
Second, even assuming that the Court were to nonetheless compare the original
complaint with the facts alleged in support of his fraudulent transfer claims, the
allegations underlying plaintiff’s fraudulent transfer claims are, generally speaking, little
more than a bare recitation of the elements. See Docket No. 1 at 23-26, ¶¶ 102-136.
Thus, it is difficult to determine whether the original complaint “fairly discloses the
general fact situation out of which the [fraudulent transfer] claims arise,” see In re
Universal, 279 B.R. at 303, because the applicable f acts are difficult to discern from the
complaint in the instant case. For example, plaintiff alleges that the Computershare fee
transfers were “made while the debtor was insolvent,” Docket No. 1 at 24, ¶ 108, but
there are no factual allegations supporting a plausible inference that IEAM was
insolvent between January 2005 and January 2008 when the fee transfers are alleged
to have taken place. See In re Sherman, 18 F. App’x 718, 720 (10th Cir. 2001)
(unpublished) (“[t]he Bankruptcy Code defines insolvency as a financial condition such
that the sum of such entity’s debts is greater than all of such entity's property, at fair
valuation, exclusive of exempt property and fraudulent transfers of a type not at issue
here” (quotation omitted)). Moreover, plaintiff alleges that IEAM received less than
reasonably equivalent value for the fees it transferred to Computershare. See, e.g.,
Docket No. 1 at 26, ¶ 135. However, reasonable equivalence is determined “objectively
and from the perspective of the debtor’s creditors, without regard to the subjective
needs or perspectives of the debtor or transferee.” See In re Mercury Cos., Inc., 527
B.R. 438, 447 (D. Colo. 2015) (quotation omitted). This determination generally
involves considering the totality of the circumstances, including the fair market value of
the benefit received, the existence of an arms-length relationship between debtor and
transferee, and a transferee’s good faith. In re Fruehauf Trailer Corp., 444 F.3d 203,
213 (3d Cir. 2006). The factual allegations in the instant complaint do not support a
plausible inference that IEAM did not receive reasonably equivalent value for the fees it
paid Computershare under the relevant test. Thus, because the instant complaint does
not clearly set forth facts supporting plaintiff’s fraudulent transfer claims, it is difficult to
determine whether the original complaint provided Computershare with notice that it
would have to mount a defense as to certain aspects of such claims.
The Court recognizes that, where allegations of fraud are involved, some courts
favor a broad interpretation of the Rule 15(c) relation back standard. See In re
Universal, 279 B.R. at 307. However, even when applying such an interpretation to the
present case, plaintiff’s conclusory and unsupported argument is insufficient to
establish that his fraudulent transfer claims arose out of the same conduct, transaction,
or occurrence set forth in the original complaint. See In re Bennett, 275 B.R. at 452.
Because plaintiff’s sixth, seventh, eighth, and ninth claims for relief do not relate back to
the original complaint pursuant to Fed. R. Civ. P. 15(c)(1)(B), he could not have
asserted such claims in the Delaware adversary proceeding and such claims are barred
by the statute of limitations in the present case. Thus, plaintiff’s sixth, seventh, eighth,
and ninth claims are dismissed.
The Court turns to plaintiff’s tenth claim for relief, which seeks to recover the fee
transfers from Computershare pursuant to § 550(a). To recover under § 550(a), a
plaintiff must establish that a transfer has been avoided under, as relevant here, § 544
or § 548. See In re Jones Storage & Moving, Inc., 2005 WL 2590385, at *2 (Bankr. D.
Kan. April 14, 2005) (setting forth elements of § 550 claim). Because plaintiff’s claims
under § 544 and § 548 are barred by the applicable statute of limitations, plaintiff has
failed to establish the requisite elements of a § 550 claim. See In re Sandoval, 470
B.R. 195, 200 (Bankr. D.N.M. 2012) (“[§ 550] lists the rules that apply when a trustee is
successful in avoiding, among other things, a preference”). Plaintiff’s tenth claim for
relief is therefore dismissed for failure to state a claim.27
For the foregoing reasons, it is
ORDERED that Computershare’s Motion to Dismiss the Complaint Pursuant to
Fed. R. Civ. P. 12(b)(6) [Docket No. 56] is GRANTED. It is further
ORDERED that this case is dismissed in its entirety.
DATED September 29, 2015.
BY THE COURT:
s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge
The Court does not reach Computershare’s remaining arguments, including
Computershare’s argument that the Court should take judicial notice of certain press
releases issued by IEAM. See Docket No. 57 at 2.
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