MIDWEST INVESTMENT PARTNERS, LLC v. STANDARD METALS PROCESSING, INC.

Filing 38

ORDER granting 31 Motion for Summary Judgment. See Order for details. Signed by Magistrate Judge William G. Hussmann, Jr., on 2/11/2015. (NRN)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
EVANSVILLE DIVISION
MIDWEST INVESTMENT PARTNERS,
LLC,
Plaintiff,
v.
STANDARD METALS PROCESSING,
INC.,
Defendant.

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3:14-cv-38-WGH-SEB

ENTRY ON DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
This matter is before me, William G. Hussmann, Jr., United States
Magistrate Judge, on Defendant Standard Metal Processing, Inc.’s Motion for
Summary Judgment (Filing No. 31), the parties’ consent (Filing No. 21), and
Judge Barker’s Order of Reference (Filing No. 22). The motion is fully briefed.
(See Filing No. 32; Filing No. 35; Filing No. 37.) Having considered the Motion,
the parties’ submissions, and relevant law, and being duly advised, I hereby
GRANT the Motion.
I.

Summary Judgment Standard
A court must grant summary judgment on a claim or defense “where the

admissible evidence shows that there is no genuine dispute as to any material
fact and that the moving party is entitled to judgment as a matter of law.”
Bunn v. Khoury Enters., Inc., 753 F.3d 676, 681 (7th Cir. 2014); Fed. R. Civ. P.
56(a). A fact is “material” if it “might affect the outcome of the suit under the

governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). And
a factual dispute is “genuine”—precluding summary judgment—“only when the
evidence could support a reasonable jury’s verdict for the non-moving party.”
Crawford v. Countrywide Home Loans, Inc., 647 F.3d 642, 650 (7th Cir. 2011).
The movant “bears an initial burden of proving there is ‘no material
question of fact with respect to an essential element of the non-moving party’s
case.’” MMG Fin. Corp. v. Midwest Amusements Park, LLC, 630 F.3d 651, 657
(7th Cir. 2011) (quoting Delta Consulting Grp., Inc. v. R. Randle Constr., Inc.,
554 F.3d 1133, 1137 (7th Cir. 2009)). That burden is formidable, and courts
should exercise caution in granting summary judgment. See Anderson, 477
U.S. at 255. If the movant succeeds, the nonmovant then must present
“evidence raising a genuine issue of material fact.” MMG Fin. Corp., 630 F.3d at
657. The nonmovant need not “clearly prove” his case to avoid summary
judgment; he can survive by raising evidence of specific facts that would
“permit” a jury to decide in his favor. Williams v. City of Chicago, 733 F.3d 749,
760 (7th Cir. 2013).
“At summary judgment a court may not assess the credibility of
witnesses, choose between competing inferences or balance the relative weight
of conflicting evidence; it must view all the evidence in the record in the light
most favorable to the non-moving party and resolve all factual disputes in favor
of the non-moving party.” Abdullahi v. City of Madison, 423 F.3d 763, 773 (7th
Cir. 2005) (citing Anderson, 477 U.S. at 255). Effectively, the movant asks “the
court to apply the law to only the [nonmovant]’s version” of the events. See

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Norris v. Bain, No. 1:04-cv-1545-DFH-TAB, 2006 WL 753131, at *1 (S.D. Ind.
Mar. 21, 2006).
II.

Facts and Procedural History
Plaintiff Midwest Investment Partners, LLC purchased stock in

Defendant Standard Metals Processing, Inc. on August 18, 2011. (Filing No. 12 at ¶ 6; Filing No. 14 at ¶ 6.) Midwest explains that its purchase was exempt
from registration with the Securities and Exchange Commission. (See Filing
No. 1-2 at ¶ 7.) But, because the sale was not registered, Standard issued
Midwest’s stock certificate with a “restrictive legend” printed on the back.
(Filing No. 1-2 at ¶¶ 8–9; Filing No. 14 at ¶ 9.)
The legend explains that the shares represented by the certificate “have
not been registered” because they were “acquired for investment and without a
view to their distribution . . . .” (Filing No. 1-2 at ¶ 9; Filing No. 14 at ¶ 9.)
The legend further states that the shares may not be resold until one of two
criteria is met. First, the parties may register the shares under the Securities
Act. (Filing No. 1-2 at ¶ 9; Filing No. 14 at ¶ 9.) Or, second, Standard must be
satisfied—based on the opinion of an attorney—that the resale is exempt from
registration. (Filing No. 1-2 at ¶ 9; Filing No. 14 at ¶ 9.)
By late 2013, Midwest sought to sell its shares in Standard. Believing it
qualified to resell its shares without registration, Midwest asked Standard to
issue a new certificate with no restrictive legend. Standard initially was
amenable to that plan, but it subsequently communicated to Midwest that its
broker refused to issue a new certificate without a letter from an attorney

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opining that Midwest was entitled to resell without restriction. (See Filing No.
35-2 at ECF p. 1; Filing No. 32-1 at ECF p. 1.) Standard also communicated
that it could not issue an opinion letter because Standard would have to “make
certain representations about Midwest Investment Partners, which Standard
. . . cannot do under the circumstances.” (See Filing No. 32-1 at ECF p. 1.)
Standard invited Midwest to seek an opinion letter from a qualified
attorney and furnished a template. (See Filing No. 35-2 at ECF p. 1; Filing No.
32-1 at ECF pp. 1–3.) The parties have continued to exchange correspondence
about securing an opinion letter (see Filing No. 35-3 at ECF pp. 1–6), but
Midwest has not yet presented one to Standard.
On March 17, 2014, Midwest initiated this lawsuit. (See Filing No. 1-2 at
ECF p. 3.) Midwest asks the Court to enjoin Standard “to issue new stock
certificates without any transfer restriction” based on Indiana Code § 26-1-8.1401. (See id. at ¶¶ 14–15.) Midwest also seeks damages on the theory that
Standard’s refusal to issue new certificates robbed Midwest of the opportunity
to sell its shares at a higher price than it could take now. (See id. at ¶¶ 17–18.)
Standard has moved for summary judgment, arguing that Midwest’s case
has been undone by its failure to present an opinion letter.
III.

Discussion
Indiana Code § 26-1-8.1-401 obligates the issuer “of a certificated

security in registered form” to register a transfer of the security on request of
the holder if seven criteria are satisfied. Because the matter is before the Court
on diversity jurisdiction (see Filing No. 1 at ¶ 1), I must determine how the

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Indiana Supreme Court would apply this statute. NES Rentals Holdings, Inc. v.
Steine Cold Storage, Inc., 714 F.3d 449, 452 (7th Cir. 2013). Unfortunately,
application of this provision is not well-developed. No Indiana appellate
opinion cites the statute. Alas, I stand in the unenviable position of guessing
how the Indiana Supreme Court would resolve this matter by looking to
decisions from other jurisdictions, the parties’ submissions, and my own sense
of the statute.
The statute’s language presents no indication that it was designed to
offer the relief Midwest seeks. Section 26-1-8.1-401 decrees that, if certain
criteria are satisfied, “the issuer shall register the transfer . . . .” Under the
legend’s terms, Midwest could sell its shares if it registered the transaction,
and the statute seems to present a vehicle for compelling Standard to register
the transaction. But Midwest does not seek to compel Standard to register a
sale; it seeks to compel Standard to issue a new, unrestricted certificate.
If Indiana’s legislature aimed to create a judicial forum for compelling
removal of restrictive legends, it very simply could have included that language
in the statute or drafted a separate provision to that effect. By the time
Indiana enacted § 26-1-8.1-401 in 1995, this issue had been litigated in other
jurisdictions. See Bender v. Memory Metals, Inc., 514 A.2d 1109, 1115 (Del.
Ch. 1986). But neither the language of the statute nor the identical,
corresponding section of the Uniform Commercial Code—nor the official
comments to either—addresses anything but registration of transactions. See
Ind. Code § 26-1-8.1-401; U.C.C. § 8-401 (1994).

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As Midwest notes, a Delaware court applying an analogous statutory
provision has held otherwise. To view the statute as dealing exclusively with
registration, that court opined, “ignores the realities of the securities transfer
process.” Bender, 514 A.2d at 1115. Because issuance of an unrestricted
certificate “is normally the essential first step” in any transfer of stock, “it is
reasonable to construe the term ‘register the transfer’ . . . to include those
ministerial acts that normally accompany such registration, including, where
applicable, the issuance of a new certificate.” Id. Accord. Clancy Sys. Int’l, Inc.
v. Salazar, 177 P.3d 1235, 1237–39 (Colo. 2008).
Even so, I decline to compel Standard to issue a clean certificate under
§ 26-1-8.1-401. Neither the Indiana legislature nor the framers of the UCC
cared to address restrictive legends in their statutes or reference Bender in
their official comments. And, even if Bender’s reasoning is sound, its
application would become thorny. The statute compels an issuer to register a
transfer only if the “transfer is in fact rightful or is to a protected purchaser.”
Ind. Code § 26-1-8.1-401(a)(7). And without an opinion letter, an issuer would
seem to lack any basis for concluding that a transfer would rightly comply with
securities regulations.
I understand the opinion-letter requirement to be a commonly-employed
safeguard designed to limit the issuer’s liability by enabling the issuer to
confirm that transfers of its stock will conform to registration regulations. It
would seem curious, then, to interpret § 26-1-8.1-401 as creating a judicial
forum to fulfill what easily could be accomplished between the parties. It

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seems the more efficient system would be to compel removal of the legend only
after the shareholder has presented a valid opinion letter and the issuer still
refuses to issue clean certificates—and then on a breach of contract theory
instead of under § 26-1-8.1-401.1 Midwests’s argument that the legend has
become unnecessary because Midwest now qualifies for an exemption
illustrates this point: Without an opinion letter, Standard has no way of
knowing that Midwest has qualified for an exemption and mooted the legend.
I credit Midwest’s sound argument that Standard has waived its
affirmative defense of unclean hands—Standard’s lone defense on summary
judgment—by failing to cite the defense in its Answer as required by Federal
Rule of Civil Procedure 8(c)(1).2 But summary judgment remains appropriate
even under these strange circumstances. I find that only two factual questions
here are material: whether the restrictive legend calls for production of an
opinion letter, and whether an opinion letter has been produced.3 And
Midwest neither challenges the contents of the legend nor asserts that it has

1

Midwest argues that Standard should be compelled to issue new certificates because
it reneged on its original promise to do so. (See Filing No. 35 at ECF pp. 10–12.) But
this argument is irrelevant because Midwest seeks relief under the statute and not for
breach of a contract.
2

Standard cites Seventh Circuit precedent stating very plainly that unclean hands is a
doctrine barring equitable relief, not an affirmative defense that must be pled. See Bell
& Howell Co. v. Bliss, 262 F. 131, 135 (7th Cir. 1919). But that decision predates
enactment of the Federal Rules, and subsequent decisions have identified unclean
hands as an affirmative defense. See, e.g., Wilk v. Am. Med. Ass’n, 719 F.2d 207, 232
(7th Cir. 1983).
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I also acknowledge Midwest’s argument that Standard relies on an e-mail that has
not been authenticated and therefore would be inadmissible. Although the e-mails the
parties have submitted provide context for the dispute, they are not proof of either
material factual question, so their inadmissibility is not dispositive.

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produced an opinion letter. Neither material fact is disputed, and—because
the statute under which Midwest seeks relief cannot provide it—Standard is
entitled to judgment as a matter of law on both counts.
IV.

Conclusion
For the foregoing reasons, I GRANT Standard’s Motion.
This result does not leave Midwest without a remedy: It may present

Standard a letter from an attorney opining that resale would be exempt from
registration. Standard would appear obliged by the terms of the legend to
remove the restriction upon receipt of an appropriate letter. In a subsequent
action for breach of contract which might be brought after tendering an opinion
letter, a court certainly would scrutinize whether Standard has acted in good
faith in refusing to remove the restriction.

SO ORDERED this 11th day of February, 2015.

Served electronically on all ECF-registered counsel of record.

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