Stalnaker v. Computershare Trust Company et al
MEMORANDUM AND ORDER that the bankruptcy court's judgment (Bankruptcy Court Filing 74) is affirmed. Judgment shall be entered by separate document. Ordered by Senior Judge Richard G. Kopf. (MBM)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
IN THE MATTER OF:
RANDY S. RICKER and
PAULA D. RICKER,
THOMAS D. STALNAKER,
Trustee of the Randy S. and Paula D.
Ricker Chapter 7 Bankruptcy Estate,
CASE NO. 8:14CV322
Bankruptcy Case No. 08-83110
Adversary Proceeding No. 11-08098
MEMORANDUM AND ORDER
Thomas D. Stalnaker, trustee for the bankruptcy estate of Randy S. and Paula
D. Ricker, appeals from a final judgment entered by the bankruptcy court on
September 22, 2014 (Bankruptcy Court Filing 74), which dismissed with prejudice
all claims alleged by the trustee in an adversary proceeding brought against
Computershare Trust Company, Inc. The bankruptcy court granted Computershare’s
motion for summary judgment and denied the trustee’s motion for partial summary
judgment. Having carefully reviewed the parties’ briefs and the designated record on
appeal,1 I conclude that the bankruptcy court’s judgment should be affirmed.
I find that oral argument is not needed because the facts and legal arguments
are adequately presented in the briefs and record and the decisional process would not
be significantly aided by oral argument. See Bankruptcy Rule 8019(b)(3).
Standard of Review
In bankruptcy proceedings, the district court acts as an appellate court and
applies the same standard of review as the court of appeals. See Contemporary
Industries Corp. v. Frost, 564 F.3d 981, 984 8th Cir. 2009). The court reviews the
bankruptcy court’s grant of summary judgment de novo. See Ritchie Capital
Management, LLC v. Stoebner, 779 F.3d 857, 860 (8th Cir. 2015). A choice of law
determination is also reviewed de novo. Northwest Airlines, Inc. v. Astraea Aviation
Services, Inc., 111 F.3d 1386, 1392 (8th Cir. 1997).
“Summary judgment was properly granted if, assuming all reasonable
inferences favorable to the non-moving party, there is no genuine [dispute] as to any
material fact and the moving party is entitled to judgment as a matter of law. Where
[as here] the unresolved issues are primarily legal rather than factual, summary
judgment is particularly appropriate.” Ritchie Capital Mgmt., 779 F. 3d at 861
(quoting In re Cochrane, 124 F.3d 978, 981-82 (8th Cir. 1997)).
The Rickers, who are Nebraska residents, filed their Chapter 7 petition in the
United States Bankruptcy Court for the District of Nebraska on December 2, 2008.
It is claimed they were forced into bankruptcy after Computershare, a transfer agent
for Reclamation Consulting and Applications, Inc. (“RCAI”), refused to deliver
unrestricted shares of RCAI stock they had purchased for themselves and others.
Computershare and RCAI are both Colorado corporations.
The trustee filed a complaint against Computershare in the bankruptcy court
on October 7, 2011, alleging common law claims for conversion, breach of fiduciary
duty, and tortious interference with business relationship and expectancy, as well as
a federal claim for securities fraud. Damages in excess of $2 million are alleged.
Computershare moved for summary judgment on February 12, 2014, asserting
that the common law claims have been displaced by the Uniform Commercial Code,
and that the federal claim is barred by the statute of limitations. Computershare further
asserted that any UCC claim would barred by a 3-year statute of limitations under
Colorado law (as opposed to a 4-year statute of limitations under Nebraska law).
The trustee filed a motion for partial summary judgment on the conversion claim on
March 26, 2014.
In a memorandum and order entered on September 22, 2014, the bankruptcy
court applied Nebraska choice of law rules and determined that the trustee’s common
law claims are substantively based on Colorado law. The court reached this conclusion
after weighing the factors set forth in Restatement (Second) of Conflicts of Laws §§
6 and 145. The court then ruled that the common law claims have been displaced by
the UCC’s Article 8 (“Investment Securities”), Part 4 (“Registration”), and stated that
amending the complaint to allege a UCC violation would be futile because all actions
arising under the UCC in Colorado must be filed within 3 years after the cause of
action accrues. Applying a discovery rule, the court found that the claims had accrued,
at the latest, on June 19, 2008, by which time Computershare had denied requests for
delivery of all stock certificates at issue. The court held that subsequent demands for
delivery of the same certificates were immaterial because Colorado does not recognize
the continuing tort doctrine in the context of UCC claims. With regard to the federal
securities fraud claim, the bankruptcy court ruled that a 2-year statute of limitations
also commenced running no later than June 19, 2008.
On appeal, the trustee argues that (1) Nebraska substantive law governs the
common law claims because Nebraska has a more significant relationship to this
controversy than Colorado, and Nebraska’s interests outweigh those of Colorado; (2)
under Neb. Rev. Stat. § 25-3203(2), Nebraska’s 4-year statute of limitations applies;
(3) the statute of limitations did not begin to run until sometime after October 7, 2008;
(4) the continuing tort doctrine applies; (5) the federal securities fraud claim did not
accrue before December 2009; and (6) summary judgment should be entered against
Computershare on the conversion claim. In his reply brief, the trustee denies that the
UCC applies to any claims and asserts that (1) the Rickers did not request a transfer
of shares and (2) Computershare was not acting as a transfer agent.
The bankruptcy court found that “by alleging common law claims – breach of
fiduciary duty, conversion and tortious interference with business relationship/
expectancy – the Trustee is seeking a remedy for Computershare’s alleged failure to
promptly transfer RCAI shares to Ricker” (bankruptcy court filing 72, at p. 13), and
it concluded that these common law claims are displaced2 by Section 8-401 of the
Uniform Commercial Code, which provides:
(a) If a certificated security3 in registered form4 is presented to an issuer
with a request to register transfer ..., the issuer shall register the transfer
as requested if ... [seven listed preconditions exist].
“Unless displaced by the particular provisions of [the Uniform Commercial
Code], the principles of law and equity, including the law merchant and the law
relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation,
duress, coercion, mistake, bankruptcy, or other validating or invalidating cause
supplement its provisions.” Neb. Rev. Stat. U.C.C. § 1-103(b); Colo. Rev. Stat. §
“Certificated security” means a security that is represented by a certificate.
Neb. Rev. Stat. U.C.C. § 8-102(a)(4); Colo. Rev. Stat. § 4-8-102(a)(4).
“Registered form,” as applied to a certificated security, means a form in
(i) the security certificate specifies a person entitled to the security; and
(ii) a transfer of the security may be registered upon books maintained
for that purpose by or on behalf of the issuer, or the security certificate
Neb. Rev. Stat. U.C.C. § 8-102(a)(13); Colo. Rev. Stat. § 4-8-102(a)(13).
(b) If an issuer is under a duty to register a transfer of a security, the
issuer is liable to a person presenting a certificated security ... for loss
resulting from unreasonable delay in registration or failure or refusal to
register the transfer.
Neb. Rev. Stat. U.C.C. § 8-401; Colo. Rev. Stat. § 4-8-401. Although Computershare
is not an “issuer,” see Neb. Rev. Stat. U.C.C. § 8-201 (defining “issuer”); Colo. Rev.
Stat. § 4-8-201 (same), “[a] person acting as authenticating trustee, transfer agent,
registrar, or other agent for an issuer in the registration of a transfer of its securities,
[or] in the issue of new security certificates or uncertificated securities, ... has the
same obligation to the holder or owner of a certificated or uncertificated security with
regard to the particular functions performed as the issuer has in regard to those
functions.” Neb. Rev. Stat. U.C.C. § 8-407; Colo. Rev. Stat. § 4-8-407.
The Rickers deny that they ever requested Computershare to transfer any
shares, and argue that they “only made a request for Computershare to provide them
the certificates for the shares they already owned” (Filing No. 9, at CM/ECF p. 6).
Randy Ricker states in an affidavit, however, that between January 23, 2003, and
June 19, 2008, he “made written demand upon Computershare for the unrestricted
issuance of” several stock certificates (Bankruptcy Court Filing No. 48, ¶¶ 10-31).
One of the preconditions for registration of a transfer under U.C.C. § 8-401 is that
“the transfer does not violate any restriction on transfer imposed by the issuer in
accordance with section 8-204.” Neb. Rev. Stat. U.C.C. § 8-401(a)(5); Colo. Rev. Stat.
There is a split of authority on the question of whether a request for the issuance
of an unrestricted certificate is covered by U.C.C. § 8-401. Compare, e.g., Guilfoyle
“A restriction on transfer of a certificated security is ineffective against a
person without knowledge of the restriction unless the restriction is noted
conspicuously on the certificate.... Refusal by an issuer to register a transfer on the
basis of an unnoted restriction would be a violation of the issuer’s duty to register
under Section 8-401.” U.C.C. § 8-204, comment 2.
v. Olde Monmouth Stock Transfer Co., Inc., 335 P.3d 190, 195 (Nev. 2014)
(recognizing that § 8-401 “can apply to legend removal requests”); In re Marriage of
Devick, 735 N.E.2d 153, 160 (Ill.App.Ct. 2000) (concluding that “section 8-401 of the
UCC is applicable to the imposition of restrictive legends on stock certificates”);
Bender v. Memory Metals, Inc., 514 A.2d 1109, 1115 (Del. Ch. 1986) (holding that
“it is reasonable to construe the term ‘register the transfer,’ as used in § 8-401 of the
UCC, to include those ministerial acts that normally accompany such registration”),
with, e.g., Midwest Inv. Partners, LLC v. Standard Metals Processing, Inc., No.
3:14CV38, 2015 WL 566942, at *3 (S.D.Ind. Feb. 11, 2015) (“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.”); Steranko v. Inforex, Inc.,
362 N.E.2d 222, 236 (Mass.App.Ct. 1977) (“[W]e do not agree that the bank's refusal
to remove the restrictive legends from Steranko’s shares qualifies as a refusal to
‘register a transfer’ under the terms of section 8-401(2).”).
The Nebraska Supreme Court has not addressed this issue, but the Colorado
Supreme Court has held that U.C.C. § 8-401 is applicable because “[a] request by a
registered owner and his transferee to issue a new security certificate specifying the
transferee as the person entitled to the security therefore implicitly includes, or in
effect amounts to, a request to register the transfer.” Clancy Systems Intern., Inc. v.
Salazar, 177 P.3d 1235, 1236 (Colo. 2008); see also Ajjarapu v. AE Biofuels, Inc., 728
F.Supp.2d 1154, 1164 (D.Colo. 2010) (following Clancy Sys. Int’l in case involving
transfer agent’s failure to remove restrictive legend); American Securities Transfer,
Inc. v. Pantheon Industries, Inc., 871 F.Supp. 400, 404 (D.Colo.1994) (transfer agent
had duty under Colo. Rev. Stat. § 4-8-401 to honor request for removal of restrictive
legend from stock certificate).6
The trustee’s additional argument that Computershare was not acting as a
transfer agent because RCAI allegedly was a sham corporation requires no discussion,
other than to state that the shares were issued by RCAI.
If, as found by the bankruptcy court, Colorado substantive law applies in this
case, then all of the common law claims alleged by the trustee are preempted by the
Uniform Commercial Code. See Clancy Sys. Int’l, 177 P.3d at 1236 (holding that
Colo. Rev. Stat. § 4-8-401 “not only imposes liability on an issuer of securities for
loss resulting from its unreasonable delay in removing a restrictive legend from a
reissued certificate, but also displaces common law remedies for the same loss”);
Ajjarapu, 728 F.Supp.2d at 1164 (under Colorado law, U.C.C. § 8-401(b) displaced
plaintiffs’ common law tort claims of conversion and breach of fiduciary duty for
issuer’s refusal to reissue plaintiffs’ shares without restrictive legend). I conclude that
the bankruptcy court properly analyzed the choice-of-law question, and that little
additional discussion is required.
As the bankruptcy court correctly recognized, “[t]he bankruptcy court applies
the choice of law rules of the state in which it sits.” In re Payless Cashways, 203 F.3d
1081, 1084 (8th Cir. 2000). The Nebraska Supreme Court applies the Restatement’s
“most significant relationship” test to determine the applicable law for tort claims. See
Erickson v. U-Haul Int’l, 767 N.W.2d 765, 772-73 (Neb. 2009); Restatement (Second)
of Conflict of Laws §§ 6 and 145. I find no fault with the bankruptcy court’s
assessment of the relevant contacts under § 145, or the choice-of-law principles stated
in § 6, to conclude that Colorado law should apply. In particular, I note, as did the
bankruptcy court, that the Uniform Commercial Code’s Article 8 choice-of-law
provision specifies that “[t]he local law of the issuer’s jurisdiction ... governs ... the
rights and duties of the issuer with respect to registration of transfer ....” Neb. Rev.
Stat. U.C.C. § 8-110(a)(2); Colo. Rev. Stat. § 4-8-110(a)(2). “The principal policy
reflected in the choice of law rules in subsection (a) [of section 8-110] is that an issuer
and others should be able to look to a single body of law on the matters specified in
subsection (a), rather than having to look to the law of all of the different jurisdictions
in which security holders may reside.” U.C.C. § 8-110, comment 2.
Nebraska has adopted a version of the Uniform Conflict of Laws Limitations
Act (“UCLLA”), Neb. Rev. Stat. §§ 25-3201 to 25-3207, which applies to claims
accruing after July 14, 2006. The Act contains a “borrowing statute” which generally
provides that if, as in this case, “a claim is substantively based ... [u]pon the law of
one other state, the limitation period of that state applies ....” Neb. Rev. Stat. § 253203(1)(a)(i). There are only two exceptions to this general rule: First, “[i]f the court
determines that the limitation period of another state applicable under section 25-3203
... is substantially different from the limitation period of [Nebraska] and has not
afforded a fair opportunity to sue upon, or imposes an unfair burden in defending
against, the claim, the limitation period of [Nebraska] applies.” Neb. Rev. Stat. §
25-3205. The trustee does not rely upon this exception. Second, “[i]f a cause of action
arises outside of [Nebraska] and the action is barred under the applicable statute of
limitations of the place where it arose, the action may be maintained in [Nebraska] if
the plaintiff is a resident of [Nebraska] who has owned the cause of action since it
accrued and the cause of action is not barred under the applicable statute of limitations
of [Nebraska].” Neb. Rev. Stat. § 25-3203(2). Although the trustee now claims the
benefit of this “resident plaintiff” exception, no such argument was made before the
bankruptcy court in response to Computershare’s motion for summary judgment.
However, the bankruptcy court made an express finding that § 25-3203(2) is
“inapplicable because the [bankruptcy] estate has not owned the causes of action since
they accrued” (Bankruptcy Court Filing No. 72, at p. 12, n. 9).
Computershare contends the trustee waived the argument by failing to raise it
before the bankruptcy court. Among the cases cited by Computershare is First Bank
Investors’ Trust v. Tarkio College, 129 F.3d 471 (8th Cir. 1997), in which the Court
of Appeals affirmed a district court ruling that a creditor’s alternative claim for
interest was foreclosed on appeal due to the creditor’s failure to raise the argument
during the bankruptcy proceedings and it had not addressed by the bankruptcy court.
After noting that the stating the general rule that an appellate court “will not consider
issues not presented to the bankruptcy court in the first instance,” the Eighth Circuit
stated that an issue may be considered for the first time on appeal “when the argument
involves a purely legal issue in which no additional evidence or argument would affect
the outcome of the case, or where manifest injustice might otherwise result.” Id. at 477
(citations omitted). Because the applicability of § 25-3203(2) involves a purely legal
issue that was raised by the bankruptcy court sua sponte,7 I believe the issue is
properly presented on appeal.
With the filing of the Chapter 7 petition, any choses of action belonging to the
Rickers became the property of the bankruptcy estate. See 11 U.S.C. § 541(a)(1); In
re Mehlhaff 491 B.R. 898, 902 (8th Cir. BAP 2013) (“Section 541(a) includes causes
of action existing at the time of the commencement of the bankruptcy case.”). “And,
upon the filing of a bankruptcy petition, the trustee steps into the debtor’s shoes and
takes whatever interests the debtor has on the petition date.” Id.
The trustee contends “[t]his action was brought on the Rickers’ behalf” (Filing
No. 7, at CM/ECF p. 20), but this is not true. Although “[t]he trustee steps into the
shoes of the debtor for the purposes of asserting or maintaining the debtor’s causes of
action,” the causes of action “become property of the estate.” In re B.J. McAdams,
Inc., 66 F.3d 931, 935 (8th Cir. 1995) (quoting In re Rare Coin Galleries of America,
Inc., 862 F.2d 896, 901 (1st Cir. 1988)). “[O]nce a bankruptcy petition is filed, the
debtor loses standing to pursue any cause of action which accrued prior to the
bankruptcy filing.” Forrest v. Eilenstine, 554 N.W.2d 802, 807 (Neb.App. 1996).
In short, there is a change in ownership of the causes of action for purposes of Neb.
Rev. Stat. § 25-3203(2). Under § 25-2303(1), therefore, a claim alleged under Colo.
Rev. Stat. § 4-8-401 would be barred by a 3-year statute of limitations. See Colo. Rev.
Stat. § 13-80-101(1)(a).
The trustee next argues that the tort claims did not accrue until at least three
years before this action was filed on October 7, 2011. As discussed by the bankruptcy
court, the evidence conclusively establishes that all claims accrued no later than
June 19, 2008. The trustee also argues that the running of the statute of limitations was
While the trustee did not claim the benefit of the “resident plaintiff” exception,
neither did Computershare reference the UCLLA in support of its argument before the
bankruptcy court the Colorado statute of limitations applies.
tolled by the continuing tort doctrine, but Colorado limits the application of this
doctrine to employment cases. See Tara Woods Ltd. Partnership v. Fannie Mae, 731
F.Supp.2d 1103, 1120 (D.Colo. 2010); Polk v. Hergert Land & Cattle Co., 5 P.3d 402,
405 (Colo.App. 2000). It clearly has no application to the non-pleaded U.C.C. claim.
Finally, the trustee argues that the federal securities law claim did not accrue until
December 2009 (about a year after the petition in bankruptcy was filed). There is not
sufficient evidence to support this claim. To the contrary, as found by the bankruptcy
court, a reasonably diligent plaintiff would have discovered the facts constituting the
alleged violation no later than June 2008. The claim is therefore barred by the 2-year
statute of limitations. See 28 U.S.C. § 1658(b)(1).
All tort claims alleged by the trustee are displaced by the Uniform Commercial
Code, and a claim brought under U.C.C. § 8-401 would be barred by the applicable
statute of limitations. The federal securities law claim is also time-barred.
IT IS ORDERED that the bankruptcy court’s judgment (Bankruptcy Court
Filing 74) is affirmed. Judgment shall be entered by separate document.
July 21, 2015.
BY THE COURT:
s/ Richard G. Kopf
Senior United States District Judge
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