Magna Equities II, LLC v Writ Media Group Inc.

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Magna Equities II, LLC v Writ Media Group Inc. 2017 NY Slip Op 30627(U) March 30, 2017 Supreme Court, New York County Docket Number: 653808/2016 Judge: O. Peter Sherwood Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [*FILED: NEW YORK COUNTY CLERK 04/04/2017 10:00 AM 1] NYSCEF DOC. NO. 87 INDEX NO. 653808/2016 RECEIVED NYSCEF: 04/04/2017 'I 11 i SUPREME COURT OF THE STATE OF NEW YORK , COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 49 IJ .' lj ----· ---------------------------------------x ~ . MAGNA EQUITIES II, LLC, and ,, HANOVER HOLDINGS I, LLC, d I{ IJ 'I i ,,I ,i ,, Plaintiffs, 11I - against ,j 'DECISION AND ORDER I. Index No. 653808/2016 1 ~Mot. Seq. NoS.: 001and002 I wru;r MEDIA GROUP INC., ' ! ' I SIG~ATURE STOCK TRANSFER, INC. and PAC~FIC STOCK TRANSFER COMPANY, ,, c· Defendants. - - - _.,_ - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - -- -X IL 0. PETER SHERWOOD, J.: ii ,; 1: Vi I FACTS 11 . ;, , A; these are motions to dismiss, the following facts are taken frf m the Complftint and are accepted as true. Plaintiffs Magna Equities II, LLC (Magna) and Hanover Holdings I, LLC I , I 11 ' (Han©ver) are the same entity, as Hanover's name was changed to Magna (Complaint at~~ 8-9). DefeJdant Writ Media Group, Inc. (Writ) is a publicly traded comJby. Signature Stock Trans~er, Inc. (Signature) and Pacific Stock Transfer Company (Pajific) are secur~ties transfer :'1 ' ' ' . ~e~s. I\ I ij ' ~ .; I; P~suant to a securities purchase agreement, Writ sold Hanover\ia convertible promissory note J1so giving Hanover a perfected security interest in certain ass~ts of Writ ,, 11 (id.,~~ 14-15). The ribte gives Hanover the right to convert the unpaid principal intb shares of Writ common 'I 11 stocki j(id., ~ 20). To exercise this right, Hanover had to deliver a Nitice of Con~ersion to Writ ~· 21 ). 1 (id., Writ then has three trading days to deliver the certificaies (id., Magnk entered into three more securities purchase agreement with notes ~ 21 ). 1 Subsequently, ~rit (id.,~~ 26, 38, 50). :~ssociated with those transactions (together with the first pro~issory note, the Notes) ' p The righ~s. conta\ned similar convers.ion . . . It .· , . On July 10, 2014, Wnt sent Signature a letter mstructmg 1t to reserve shares of Wnt, and to issue !uch shares upon receipt of Hanover's conversion notice (id., f~ 62-64). In the event Signature resigns as Writ's transfer agent, Writ agreed to designate :h replacementiagent, which If ,I 1! II would agree to be bound by the terms of the instructions. Hanover is a third party beneficiary of :1 Page 1of14 2 of 15 [*FILED: NEW YORK COUNTY CLERK 04/04/2017 10:00 AM 2] ' NYSCEF DOC. NO. 87 I I I . • I INDEX NO. 653808/2016 RECEIVED NYSCEF: 04/04/2017 the instructions (id., ii 66). Writ subsequently issued similar letters las to the othe~ three notes ·I I ,: ! (toge!her, the Transfer Agent Instructions). 1 O~ June 20, 2016, plaintiffs delivered the First Notice of Conv~rsion to Writ ~nd Signature, ~laintiffs deliJered the SecoJd Notice of Conversion to Writ and Signature, seeking 705,9~2 shares of ~rit common stock) No objections were made, but Signature did not issue the sh~es. Instead Signature seekihg 835,065 shares of Writ common stock. On June 29, 2016, 1 , referr~d plaintiffs to Pacific, Writ's new transfer agent'as of Marchb7, 2015, whibh also failed to I\ . issue :~he shares. Plaintiffs now asserts the following claims: 1~ Ii Breach of contract (the Notes) against Writ for failing to ho~or the Notic~~ of Conversion 1i (seeking money damages) :I 2i Breach of contract (the Notes) against Writ for failing to horor the Notic~~ of Conversion i (alternatively, seeking specific performance) ' 3- Conversion against all defendants for failure to deliver the share of Writ stock I . 4~ Violation of UCC §§ 8-401 and 407 against Signature for failure to issue the shares 1 5~ ' Violation ofUCC §§ 8-401 and 407 against Pacific for failJe to issue the'.shares 6-' Negligence against Pacific for failure to obtain all relevant ttansfer agent ihstructions I' I 7_: Declaratory Judgment that plaintiffs are the owners of sharek of Writ stock 8_i Breach of contract (the Notes) against Writ, seeking attorne~s' fees and c~sts 9..J Permanent Iniunction- to convert the notes into shares of stJck :1 " . : . . Ii . , 1~- Reple~in of the shares . . . I\ . ' ; . . I In motion sequence number 001, Pacific seeks dismissal of <;tll claims addressed to it, i.e. the Third, Fifth and Sixth Causes of Action. In motion sequence m1mber 002, Writ and Signature seek dismissal of the complaint for lack of proper servicel!of process. ,i II~ , !i ARGUMENTS A. Motion 001- Pacific's Motion to Dismiss 1. Motion i\ 1 j\ l· '• i ~ ' P~cific moved to dismiss the complaint as to it on the ground of'failure to ser'Ve it properly, pursu~nt to CPLR § 311, as plaintiffs merely mailed the complaint ~o Pacific. P~qific abandoned 'I !j 1, '•' this claim after plaintiffs effected personal service on September 30~ 2016. I I ! Page 2of14 3 of 15 •. [*FILED: NEW YORK COUNTY CLERK 04/04/2017 10:00 AM 3] NYSCEF DOC. NO. 87 I '! INDEX NO. 653808/2016 RECEIVED NYSCEF: 04/04/2017 ' . P~cific also argues that the c'ourt lacks jurisdiction 'over PacificJ( as Pacific do~s no and has no busiri~ss presence in New York (id at 5). Nor, according to Pacifig, is it subiect :o specific J i . . d..ict1on, under N ew Y ork' s 1 . 1r transacted no business in Juris ong-arm statute, CPLR 302 as it has t 11 complaid~ (id at 7). In fact, what plain~iffs really complain of is Pacific's nonfeasance, which happe~ed, if it happened, at New;('ork State which relates to the subject matter of the Pacific's principal place of business in Las Vegas, Nevada, and no~ ,in New York (id at 8). 1 Ffnally, Pacific asserts that plaintiffs have failed to allege a claib against it, : 11 ~s Pacific was ' merely an agent of Writ, and so cannot be held liable for nonfeasan,be (id at 9, citing Lenhart : i ' Altschuler Assoc., Inc. v Benjamin, 28 Misc 2d 602, 603 [Sup Ct, Nassau County ·1961]["The iI , ~I gene~~l rule is that no action will lie against a stock transfer agent ..!!· . for the wrongful or 11 Ii , _ unjustified neglect or refusal to register or transfer stock at the request of the holder thereof. .[A] i 11 stock:transfer agent is the agent of the corporation by which it is e~ployed, and owes no affiniative duty to a stockholder. It, therefore, incurs no personal l~~bility to him by refusing to make !the transfer at his request"]). Further, Pacific claims notable liable pursuan~ to the Uniform 1 d I Comfercial Code, as Article 8 refers to a transfer agent's failure to! register the transfer of securities, but does not cover the issuance of new securities (Memo'lat 10, 12-13).: As the transfer I l s t 1 agent do not have an obligation to issue new securities, holders ofbonvertible notes, such as plainiiiffs here, sometimes demand irrevocable transfer agent instruJtions, so the:ttansfer agent is contr!ctually bound (id at 10-11 ). As Pacific was not a party to th~ irrevocable_ l'ransfer Agent Instnictions involving Writ stock, or to the Notes, it is not bound b~ the instructions. Acco~dingly, Pacific contends it had no common law, statutory or c~ntractual obligation to plain~iffs, and the claims against it should be dismissed. 11 - 2. Opposition - - 'I : Plaintiffs argue the court has general personal jurisdiction o~er Pacific based on the I Ii "exceptional" circumstances carve-out in Daimler AG v Bauman (1134 S Ct 746, 748 [2014]) (see Opp ~t 4 nl) Pacific's history of doing business with New York colpanies, making stock I ' .II . transfers (implicating the New York Stock Exchange) and sponsonfg confierence~' m N ew y ork , show!a "continuous and systematic course of' doing business' that [Pacific] is de~med 'present' in Nel York" (id at 5 nl, quoting TransasiaCommodities Ltd v /Jewlead JMEd LLC, 45 Misc 'i 11 I ~ I 11 - J 3d 12l 7(A) [NY Sup 2014]). Plaintiffs also argue that Pacific reaches into New York, as shareholders may log on through Pacific's website to access their a6count information, update 11 I\ Page 3of14 4 of 15 [*FILED: NEW YORK COUNTY CLERK 04/04/2017 10:00 AM 4] NYSCEF DOC. NO. 87 INDEX NO. 653808/2016 RECEIVED NYSCEF: 04/04/2017 their other information, print statements and other reports, and place proxy votes (Opp at 6). Further, twenty-three companies in New York State are associated with Pacific, as well as the stock exchange itself, indicating that Pacific must do significant business in New York. Finally, Pacific has listed Continental Stock Transfer, a company located in New York City which was, or would be, performing Pacific's transfer agent functions. Plaintiffs also contend the conduct described above makes Pacific amenible to subject matter jurisdiction, pursuant to CPLR 302(a) (Opp at 8-9). Plaintiffs argue the conduct complained of in this action is connected to Pacific's actions in New York because the City is important to the stock market, Pacific had an agent doing transfers in New York, and "work related to the transfer of shares would be handled in New York" (id at 9). Finally, plaintiffs argue the forum selection clause in the Notes specify a New York venue and gives this court jurisdiction over Pacific (id. at 9-10). Although a non-signatory to the Notes, Pacific may be bound to the forum selection clause because it has "a sufficiently close relationship with the signatory and the dispute to which the forum selection clause applies" (Opp at 10, quoting SRT Capital Ltd v Soleil Capital Ltd., 2016 NY Slip Op 30593[U], 8 [Sup Ct, New York County 2016]). Pacific was aware of Writ's and Signature's obligations, making it foreseeable that Pacific would be party to any related dispute, and making Pacific subject to the forum selection clause (Opp at 10-11). As to the claims being asserted, plaintiffs argue they have adequately stated claims against Pacific. Regarding the UCC claim, plaintiffs maintain that UCC 8-401 applies to the issuance of new security certificates, in addition to the explicit requirements regarding the transfer of securities (id at 12). Plaintiffs rely on a Delaware case in which the court decided that the "defendant's argument that the registration of a transfer is not equivalent to the issuance of a new certificate ignores the realities of the securities transfer process. Where certificated stock is transferred, the issuance of a new certificate to the transferee is normally an integral step in that process. . . . Given those commercial realities, 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, including, where applicable, the issuance of a new certificate." (Bender v Memory Metals, Inc., 514 A2d 1109, 1115 [Del Ch 1986]). As to the lack of contractual privity between Pacific and plaintiffs, the UCC does not require privity. It places the transfer agent in the shoes of the issuer (Opp at 13). Concerning plaintiffs failure to present a Page 4of14 5 of 15 [*FILED: NEW YORK COUNTY CLERK 04/04/2017 10:00 AM 5] NYSCEF DOC. NO. 87 ·, ' INDEX NO. 653808/2016 : i RECEIVED NYSCEF: 04/04/2017 Ii ii I! I~ I: ~ ' 1 stock certificate, UCC 8-40l(a) applies to an instruction regarding lhe transfer of an ·I I' uncer:tificated security (id at 13-14, quoting UCC 8-401[a]). conve~sion because a wrongful ! Plaintiffs argue they have properly stated a claim for · , f:a1 1 to tum over a stock certificate constitutes conversion of the urF certi~cate (Opp at 14). . i, Plaintiffs also argue they have. properly Ii ~hares . represented by the sta{~d a cause of ~ction for negligence because Pacific has a duty to register a transfer of securities, and there is no "Ii I • disti9ction between registration and issuance of stock (id at 15). Al1 oral argument on the motidn, plaintiffs' counsel stated that this duty may be found in thel:ucc. Pacific had a duty to I · ii 1 make' sure it obtained all of Writ's transfer agent instruction, and itlfailed to do so, which was i ~: negligent to Writ and which interfered with plaintiffs' rights (id). ;: 3. Reply , Pacific emphasizes there is a difference between cancelling 11 ' 11 !b existing stock certificate ,'! . and i~suing a new one as part of tµe process of transferring stock frbm one holder•tO another, and i: , . I issuirlg new stock, which is what plaintiffs seek here (Reply at 1). Pacific had no 'statutory obligAtion to issue new stock, which is why plaintiffs required Wriilto issue the irrevocable 'I .: instruction letter to Signature, Pacific's predecessor. Pacific had b~bn given no such instruction :1 l (id). 'Article 8 of the UCC does not create a duty for a transfer age1h to obey an iii.vestor's 1 direction to issue shares (id at 2). That is a matter which affects no~just the transferor and the transferee, but the interests of every stockholder (id.). Both New Ybrk and '. II ,; 'I Dela~are law allow j only tpe corporation, itself, to authorize the issuance of new stock (id. at 3). While plaintiffs confl~te the ideas of not owning stock and owning uncertificated stJck, the latte~ condition meanJ the entity lacks a certificate, because ownership is recorded i'h the corporation's books and records (id. at 5). The owner of uncertificated stock still owns stoc~. Here, plaintiffs owned a convekible note. They were not owners of securities whether certiAcated or uncehificated. I II They did not own securities at all,' as defined by Article 8 of the UCC. ' , • 11 : As to jurisdiction, Pacific denies having a "permanent and cbntinuous presence" in New I II ~ ~ York ~uch that it is subject to general personal jurisdiction (id at 7)'. It argues that, according to . . Daimler AG, the proper question ~s "whether that corporation's affi~~iations with the State are so contiJuous and systematic as to render it essentially at home in the forum State" (134 S. Ct. 746, I 11 , 761 [2014]) and whether "the defendant has a permanent and continbous presence in the state, as oppos~d to merely occasional or casual contact with th~ state" (Ho1[g v RDCP H;ldings, Inc., 11 Page 5of14. j1 11 1· 6 of 15 [*FILED: NEW YORK COUNTY CLERK 04/04/2017 10:00 AM 6] ij NYSCEF DOC. NO. 87 I .: I INDEX NO. 653808/2016 RECEIVED NYSCEF: 04/04/2017 I I i I ' l I i I I . 5t 20 16 , iNY Misc LEXIS 3450, at *6 (I Dept, Sept 26, 2016). For tliis purpose, courts have . I considered where an entity is incorporated, and the location of its (see, J~incipal place ~[business k.g., Magdalena v Lins, 123 AD3d 600, 601 [1st Dept 2014][giting Daimler]). I 1 ; 1 J As far as plaintiffs argue for long-arm jurisdiction, Pacific ~rgues that an~ relationship it had With Continental Stock Transfer is irrelevant to this case, as th~ plaintiffs have not identified I any r~levant action or inaction by Pacific that occurred in New Yo~k (Opp at 9). ' 11 • . i 1 B. Motion 002- Writ and Signature's Motion to Dismiss . I . Writ and Signature (Writ Defendants) move to dismiss the claims against them on the ineffecti~e. 1 Pursuant'to CPLR 312a, se~ice by mail must include two copies of the Statement of Sen!~ce by Mail arid groutld that plaintiffs service by mail was insufficient.and Acknbwledgement of Receipt by Mail of Summons and Complaint'ilor Summons ~ith Notice I ·· (Writ !Memo at 3, citing CPLR 312-a). The Notice ofServ.ice and the Acknowl~dgement were 1· : W~it Defendan~~ argue that sttict compliance with ~he terms of the rule is required, and so service is fatally flawe~~ (Writ Memo at 4-5). 1 not i1cluded in the envelope delivered by plaintiff. I i! '] ·. After the motion was filed and within the 120 days provide4 by CPLR 306-b for '11 11 comp letion of service of process, plaintiffs filed affidavits as to seryice on both Writ and 1 Signa~ure (NYSCEF Docs. No. 80 and 81) performed ~n October 3'lland 4, 20I6;·respectively, 11 ' '11 . thereby rendering this motion moot. I •I III. DISCUSSION (Motion Sequence Number 001) "ii 1! If '! Ii· A. Jurisdiction i: I 1. General Jurisdiction [; · 1 G~neral jurisdiction permits a court to exercise personal jurisdicltion over a defendant in its Ii · . "home" forum based on the defendant's overall contacts with that forum. The United States ·i · "' · 1ct1on . · Suprer-ie Court has hel d t h at, m order 1or a court to assert genera1J1itns d. · over a nonres1·dent 1 L defenaant, the plaintiff must establish that the defendant has a state subsi~ntial presen~e in the forum ~o that the exercise of jurisdiction over the defendant would cJmport with traditional :· : l' I notioJs of fair play and substantial justice (see World-wide Volkswdgen Corp. v Woodson, 444 J If 1 US 286, 292 [1980], citing Intl. Shoe Co. v Washington, 326 US 310, 316 [1945]): New York law isl essentially the same. With respect to CPLR 301; "the I . I 1 authori~y of the New York courts to i \ Coun~el for Writ and Signature failed to appear for oral argument on the motiods. Their motion is being decided j[ on the apers. f 1 Page 6 of 14 If !i d Ii II 7 of 15 I J, [*FILED: NEW YORK COUNTY CLERK 04/04/2017 10:00 AM 7] NYSCEF DOC. NO. 87 ii exerdise jurisdiction over a '~ . " ; INDEX NO. 653808/2016 RECEIVED NYSCEF: 04/04/2017 :! i I :i ' forei~n corporation is based solely upoA the fact th~t the defendant is engaled in such a continuous and systematic course or doing busiJbss here as to warrant "a Ii • ·J '1 · findifug of its presence in thisjurjsdiction" (Laufer v Ostro, 55 NY1d 305 309-10 [1982] II \! " [bracfets, quotation marks and ci~ations omitted]). ' ' Iq 2014, the U.S. Supreme Court modified the "continuous andilsystemic" standard in its . . anal~~is of general jurisdiction (see Daimler AG, . 'I .. 134 SCt 746). In ihat case, Daidiler AG; a Ge~an corporation, was sued bY; Argentinian residents alleging thit its Argentihfan subsidiary ' " :11. i '. " com~itted tortious acts in Argentina. The suit was br9ught in a fe~eral court in. California based on services performed in California by Daimler's U.S. subsidiary, 'M,BUSA (see td. at 750-51). The Juestion before.the Supreme.Court was "whether Daimler's afftliations with California are i " ' :I I: suffidient to subject it to the general (all purpose) personaljurisdictjon of that State's courts"'(id. 11 ;· f r. =J : .: at 75~). In its analysis, the Supreme Court stated that '~only a limite.~ set of affiliations with a ~j :~ I; forun} will render a defendant amenable to all-purposejurisdiction there" (id. at 7p0). "For an !i :1 ' :1 ·~ ·;i ., • ~. - individual, the paradigm forum f~r the exercise of general jurisdicdbn is the indi:vidtial's ~ . . domi~ile" and "[w ]ith respect to a,. corporation, the place of incorporation and principal place of d . :I " busi4ss" are the paradigm bases for general jurisdiction (id. [citati~ns omitted, qtiotation ma~ks in orikinal]). In so holding, the Supreme Court disagreed with the ' ·" f~rmulation that would·allow 'I the e~ercise of general jurisdiction in every state in which a corporation "engage~',in a .I 'I I subst~tial, continuous, and syste~atic course of business," charact'brizing such ~formulation as 1! :! " "unac:Ceptably grasping" (id.). " .i Ii ' · q ~ '. While Daimler left open a po~sibility that, in exceptional circun'b.stances, "a cbrporation's ii . I . opera~ions in a forum other than its formal place of incorporation o~~principal pla~e of business ij ;: ' may oe so substantial and of such: a nature as to render·the corporat~on at home i,n,:that State," 'I '' " ,, , such &ontacts n:iust be truly exceptional (id. at 756, 76l n19, citing Perkins v Benguet Consol. II ' •l ' Min. to., 342 US 437 [1952]). In Perkins, the defend'j.nt entity, "a.bompanyinc6tporated under :1 " l the la:lvs of the Philippines, where it operated gold and isilver mines;" was unable to continue"" I I operaiions in the Philippines for a. period (Daimler, 131 SCt at : ! 756)~ ;J "[I]ts • " presia~nt moved to ; r I. Ohio,llwhere he kept an office, maintained the company's files, and pversaw the company s ' . activihes" (id., citing Perkins, 342 US at 448). Ohio • 11 h~d become "~he corporati6ri s principal, if 1 tempJrary;place of business" (Daimler, 134 SCt at 756, quoting KJeton v Hustle; Magazine,. I; .. ' !i ~ J :f Inc., 465 US 770, 780, nl 1). I Page 7of14. 8 of 15 [*FILED: NEW YORK COUNTY CLERK 04/04/2017 10:00 AM 8] NYSCEF DOC. NO. 87 INDEX NO. 653808/2016 RECEIVED NYSCEF: 04/04/2017 :i Ii :] •. I • .• Jiere, the alleged contacts of defendant Pacific with New York '!~o not approach the level of the e~ceptional circumstances de~cribed in Perkins. Having a web~ite, hiring~ igent in New York~ and sponsoring conference~ in New York are not such subst~tial operatiotls that Paci:{ic is lj i ., rendered "at home" in New York:. !I i 2. Specific Jurisdiction 1 :. .l , A court may exercise personal jurisdiction over a nondomid~liary if it transacts business , I .. . withih the state, supplies goods or services in the state; commits a tbrtious act i~:.the state or . II .. I : . il • ' I 'I • : j l il ~ engages m among other enumerated acts (CPLR 302[a:] [1] and [2]). An occas10Iial, or even a i! . ' single, act may be enough to subject a corporation to specific jurisq~ction for suits relating to that 1 ti ' ' :;i ' 11 'l ' J I ' ' in-sta'.~e activity (see In re Estate QfStettiner, 46 NYS3d 608, 614-!:5 [1st Dept 2017] citing i I Interryational Shoe Co. v Washington, 326 US 310, 318 [1945]; Daimler, 134 SCtat 754, 9S NY2d 210, 214-216 [2000]). Pl~intiffs argue ihe conduct comp~ained of in this action is co~ected to Pacific'~ a¢tions in Nei York becaJs~ the City is LaMJrca v Pak-Mor Mfg. Co., impo~ant to the stock market, Pabific hadan agent doing transfers in New Yorkl. kd "work ~ :i , r! ,, relate:a to the transfer of shares would be handled in New York." Plaintiffs rely !! I ' t . 'on Gasarch v ~? 1 Ormdnd Indus., Inc. (346 F Supp:550 [SDNY 1972]), ~n which the JJnited States District Court for th~ Southern District of New York held that a "wrongful refusailto transfer is~ tortious act 11 Ii I~ " , ~ which'. under CPLR § 302 may be;imputed to Ormand tendering it ~benable to shit in New . ,:I ·. York':: where the plaintiff presented his certificates to the defendant·fs New Yorktfansfer agetit, and ttje agent refused to make the.requested transfer, at the defenda~t's instructio~ (id. at 55 l- 'i ·. i ; 53). Gasarch relied, in part on Kanton v US Plastics, Inc. (248 F Slipp 353 [DNJ jl 965]). -In. it KantJn, a New Jersey transfer l ag~nt for the defendant acted on ord~rs from its p;ihcipal, the ·. defen~ant, and declined to make the requested transfer:(id. at 360). i;That court nbted the "cause of action asserted here resulted frbm the orders given by Plastics [d~fendant] to Registrar [the II \I •' .• ! transfl;!r agent], which were intended to be carried out in New Jersey, and were in fact executed i i ' 'i' here" !l(id. ). ~j !! ' : Here, the plaintiffs do not allege they sought the certificates'.:from a transfer agent in New , I ~] . ·'. ~; : i York.'i They do not allege Pacific 'instructed its New York transfer ~gent to do ariYthing in l ' . relatiJn to the certificates at issue:iin this case. Nothing is alleged td have actually' happened in ti ,: . ·:1 ' New¥ ork, and the plaintiffs cite ho support for their argument thatifiurisdiction rh!lY be based on . '! I i Page 8of14 · 9 of 15 ; . ' r [*FILED: NEW YORK COUNTY CLERK 04/04/2017 10:00 AM 9] ,, ·, I i NYSCEF DOC. NO. 87 INDEX NO. 653808/2016 RECEIVED NYSCEF: 04/04/2017 ,: i! :; ' i . ,: , · ' ~ :I . i . '. an e~ent (issuance of the shares) that would have happened in Ne~' York, had Pacific acted as ~l: • Ii • J plamt1ffs wanted. ·11 ' 3. Contractual Jurisdiction , As to plaintiffs' assertion that Pacific is subject to the foruJ selection clause in the Notes ' ' ii ' l ' ='l \. ' New i!York courts have held that non-signatories may be bound by s,uch a clause if they are "clos~ly related" to the signatory:party, "as well as to the dispute itielf such thati' it was · "reas~nably foreseeable" that it would be bound by the forum seled~ion clause" (fate & Lyle ! Ii • . Ingredients Americas, Inc. v White/ox Tech. USA, Inc., 98 AD3d 4(])1, 403 [1st Dept 2012]). In Tate . bLyle, the non-signatory w~s a signatory's parent company, ihich had be~b intimately ;j I ' ; ,1 ; invo1yed in many phases of the agreement at issue, including in de~iding to bring ~the suit in that ,i . case Cid). The non-signatory's "involvement in this matter was far lmore than a pb-ent 1 t! ' Jf ; f comp~y's mere approval of a contract. After making all the critical decisions fcir :its subsidiary 'I <I in thi~ matter from the signing of!the contract to the commencemetjt of litigation, '[the parent] ,, : ,I · canntjt seriously argue that it was not reasonably foreseeable that t~e forum the c~ntract it approved, would not be asserted against it" (id.). :I sele~tion clause in In ~he case relied 1upon by th~ it ~; i .1 ; : plaintiffs, SRT Capital Ltd v. Soleil Capital Ltd, "the non-signator:Y [was] a principal of the !i ' signatory company and played an active role in the transaction" (2q16 WL 118~ 1~1 fNYSup ], 4, Pacifi~!is not a closely Pacific was not involved when the transactio'b was cons~inated, and it 1 2016 lNY Slip Op. 30593[U], 8 [Sup Ct, New York County 2016])., ! Here, 1 relatcda entity to Writ. n , 'I was Jot reasonably foreseeable that Pacific would be bound by the •:Iforum selection clause in.the " • . , • 1 Notd. The fact that Pacific may pave received copies of the Notes;lwhen it began acting as m~ke it subject to them. The claims against Pacifi~ must be dismissed for a lack of jdrisdiction. . . 'I Writ'k transfer agent, does not ,. : 1 Even if Pacific . we subject to New York jurisdiction, it would still be dismissed, as !plaintiffs hav~ failed to state i '] ~ an ac~ionable claim against Pacific. I 1: i! B. Failure to State a· Claim 1. . ucc ' i ,j ,I , Pacific argues that plaintiffs have failed to state a claim agaipst it becaus~ transfer agents 1l i .'~ .; ! ;. i1 ' do not owe obligations to shareholders under commonfaw, Article,~ of the UCC only creates an i! • oblig*tion to shareholders for tr~sfer agents to execute transfers. If does not create an I Page 9of14 10 of 15 [*FILED: NEW YORK COUNTY CLERK 04/04/2017 10:00 Ii AM 10] , 1' '-~~~~~~.l.-~~~~~~~~~~~~~~~~~~~~~~---t111~_, NYSCEF DOC. NO. 87 I; II RECEIVED NYSCEF: 04/04/2017 I! : INDEX NO. 653808/2016 Ii , oblig~tion to issue new shares, and Pacific is not contractually boutd by the Note;s or the I i' irrev9cable transfer agent instructions signed by Writ and Signaturt · Plaintiffs rely on Uniform Commercial Code Law § 8-407, l~hich provides: 1: "A person acting as authenticating trustee, tran.sfer agent, rJgistrar, or other agent for an issuer in the registration of a transfer of its securitiesJr in the issue of new security certificates or uncertificated securities; or in the caftcellation of surrendered security certificates has the same obligation to the holder or owner of ' a certificated or uncertificated security with regard to the p~icular functions performed as the issuer has in regard to those functions." 11 ! i . This ~ection and 8-401 refer to transfers of securities. The parties qispute whether they apply 1 II simil~ly to the issuance of new securities. Plaintiffs contend that issuance is covered, since 1 . 1 issuitlg a new certificate is part of the transfer process. Pacific diff~rentiates between the issu4ce of a new certificate to tr~sfer ownership of previously is~~ed stock and :the issuance of i' 'I a certii.ficate representing new stock. Plaintiffs rely on two Delaware cases, Bender v Memory 11 · • . 'I . Metals, Inc. (514 A2d 1109, 1115 [Del Ch 1986]) and CAMP Corp;'I Advisors AB 'v Protegrity Ii • :j 11 ' . Inc. (C.A. No 18676-NC, 2001 Del Ch LEXIS 133 at 13-21 [Ch Oc;tober 30, 2001]). In Bender, , . 'I . the c6urt held that the act of registering a transfer "to include those!jministerial acts that normally accorppany such registration, including, where applicable, the issuance of a new certificate" (id.). How~ver, the plaintiff in Bender was already a stockholder. 2 She ~as seeking the. issuance of a new clertificate for her stock, as her existing certificate contained re~trictive language .. Here, while! plaintiffs may have had a contractual right to securities, they ,kid not already hold I . : In this case, the parties see the transaction from different pe~spectives. P'acific perceives securities. . 1 plaintiffs as asking it to create new shares, thereby raising the num~er of existing shares in Writ. Plaintffs describe the transaction as a mere transfer of shares from ifwrit to plaintiffs and points to thel structure of the Notes as support for their position. Pursuant to the Notes, section 1.3, Writ ! . . . . . . ·. was require d to reserve shares to cover a potentia1 conversion by p Iiiamt1'ff:s, m d'1catmg that the translction being proposed required merely a transfer of shares fro~ Writ to than ihe creation of new shares, a~ argued by Pacific. plai~tiffs, rather However, ac~ording to the ~omplaint, n . I! 'I Ii ~ I CAMP Corp. was no different. There plaintiff was "the record owner of and h~;Id a certificate of common stock ofDefendant" CAMP Corp. Advisors, Inc., 2001 Del Ch LEX]S 133 at *I. 2 . · Page 10 of 14 I' I! Ii I! 1,; I· 11 of 15 1i ,, for 1,250,000 shares [*FILED: NEW YORK COUNTY CLERK 04/04/2017 10:00 AM 11] NYSCEF DOC. NO. 87 !j ' ' i ! INDEX NO. 653808/2016 •I ' RECEIVED NYSCEF: 04/04/2017 '' ' Writiihas stated that there are no available shares to transfer (Complaint, if7) and- Writ has not II .· II aske~ Pacific (as opposed to Sigqature) to transfer sto9kto plaintif1rs. • . , Pacific also argues that plaintiffs have not arti~ulated a clai~ under UCC 8-401, as they did dbt present a certificated security, or other documentation to 'I . . In th~:s regard, UCC § 8-401 provides: • s~bw ownershiplof securiti~s. :i . · l ,j "(a) If a certificated security in registered form is presented!ito an issuer with a request to register transfer or an instruction is presented to ~ issuer with a request to register transfer of an u,ncertificated security·, the issuer sball register the .! . transfer as requested if: . , (1) under the terms of the security the person seeking registration of transfer is eligible to have the security registered in its nam~; i ' (2) the indorsement or instruction is made by the appropriate person or by an agent who has actual authority to act on behalf of the apt1>ropriate persop; (3) reasonable assurance is given that the indorseme"ht or instruction is ! ' ~i· '' genuine and authorized (Section 8-402); :i · (4) any applicable,,Iaw relating to the collection oft~1xes has been!~omplied with; ' l (5) the transfer does not violate any restriction on trd,nsfer imposed by the · :I · 11 issuer in accordance with .Section 8-204; (6) a demand that the issuer not register, transfer hasjnot become effective under Section 8-403, or the issuer has complied with Sectiop 8-403(b) but1no legal process or indemnity bond is obtained as provided in $.ection 8-403(d); and (7) the transfer is in fact rightful or is to a protected purchaser" · ',1l ',! '•I' In the Complaint, plaintiffs make·no specific allegations about what they presented to Pacific, :I , relyiri;g, instead, on the transfer agent instructions securities at issue were issu~d r : to Signature, and arguing that the uncertific~ted, so plaintiffs' ins,truction to rJgister the tran~fer qualified, and tAe lack of the presentation of a certificate is not fatal. HowevJr, plaintiffs mke no lj . rl . ' alleg~tions or arguments regarding the other required diements of 8t401. Plaintif~s' claim based on AJicle 8 of the UCC shall be disinissed. ·( 2. Negligence The elements of a negligehce claim are "( 1) the existence o~ a duty on d~f~ndant's part as ~1 : t - to platntiff; (2) a breach of this duty; and (3) injury to the plaintiff ~s a result thereof' (Akins v 1: ' ' Glen.S. Falls City Schoof Dist., 53 NY2d 325, 333 [1981 ]). Ii :! , f : 'ii. Plaintif~~ "I appear to argue two separate ' 1:! . event~ of negligence: that Pacific !had a duty to register; the transfer ,pf securities "';hich it failed to :1 . do; arid that Pacific had an obligation to Writ to review the i! ~ Page 11of14 12 of 15 ~f i docume~tation relate~!to ' ' ! this [*FILED: NEW YORK COUNTY CLERK 04/04/2017 10:00 AM 12] NYSCEF DOC. NO. 87 'i INDEX NO. 653808/2016 ! RECEIVED NYSCEF: 04/04/2017 i ' 11 ,. l ', / ' ' ! H trans~ction, but failed to do so, thereby infringing on plaintiffs' rights (Opp at 15)~ Neither 11 argument is viable. i I! , The case relied upon by the plaintiffs, Campbell v Liberty ~rans/er Co., itlvolves two theor~es ofnegligenc~ (CV-02-3084, 2006 WL 3751529, at *17, 2do6 US Dist L~XIS 91568 'I . .., I i - :1, : 1 [ED~Y Dec. 19, 2006]). Campbell involved a failure :of Liberty Tfansfer Co. (Li,berty) to II '· · , . • ,. process the transfer of shares of Panther Mountain Water Park, Ind (PMWP) whibh Campbell i ; : ' sold ~n the open market. Liberty refused to perform the transfer otj the ground th~t Campbell's stock'icertificate should have been marked "restricted" ,when Libert~ issued it to c;ampbell. • :l 1! i .' Libe~y subsequently made the transfer, and Campbell sued for the loss in marketlvalue during 1 the pJriod of delay (id. at *6). The court noted the distinction betJben nonfeasanbe and ij • ' misfeasance, explaining that a 1 ; 'i' ' :! w~ich "refusal to transfer constitutes nonfeasance ... is arJuably non-actionable under a separate common law theory of negligence. However, the s~tuation is otherwise as to· Liberty's issuance of the share certificate [to Campbell] absJnt the required re~trictive ·!i legend, coupled with the seemingly feeble efforts thereafterlito assure that Campbell knew of the mistake. Those shortcomings entail tlie a.ctual perfo~ance of a recognized 'duty, viz. the issuance of stock, but in a negligent manner with re~ulting harm !o a third party. As such, misfeasance is implicated. And misfeasance was at common lawJ'and remains, a recognized basis for a law.suit by a shareholder against a tra~sfer agent" , ' j . :1 'i at *17). 11 (id. !I :I ·:' I. I !!i ' . Plaintiffs' claim here is not based on misfeasance, which is~ duty performed badly. It is 1 based on Pacific's nonfeasance, P'acific's alleged 'i • fail~e to transferi~hares from W~it to plai~tiffs. i Insofar as plaintiffs argue that Pacific's misfeasance was its failure fl .' ··i and 4erify that transfer agent instructions specifically issued to Wf.it were i! t' I ' to review theJ'iles from Writ ·•1 obtaih~d" (Opp at J ' ·. i 15), shch a failure is not the cause of plaintiffs' injury. ~t 3. Conversion , "The tort of conversion is .established when one who owns ld has a right ' ! '1 ~o possession ·'' ' of pe~:sonal property proves that the property is in the unauthorized 'possession of ~other who has adted to exclude the rights of the owner" (Republic of Haiti v D~valier, 211AD2d379, 384 I I' [1st tjept 1995]). The elements ' o~ conversion are (1) plaintiffs pos~essory righ(or interest i°. certaih property and (2) defendant's dominion over the' property or !nterference with it in ,, .· ·1 , 11 derog~tion ' ,' : ' of plaintiffs rights (Colavitov New York Organ Donor !fetwork, Inc., 8 NY3d 43 , l' I' ' [2006a; see also Employers' Fire fns. Co. v Cotton, 245 NY 102 [1~27]). A plaintiff need only I Page 12of14 i 13 of 15 . ~I I! ! [*FILED: NEW YORK COUNTY CLERK 04/04/2017 10:00 AM 13] : NYSCEF DOC. NO. 87 alleg~ I ' INDEX NO. 653808/2016 RECEIVED NYSCEF: 04/04/2017 . : I f . 'I and prove that the defendant interfered with plaintiff's right Ito possess the property. The 11 defe~dant does not have to have taken the property or benefitted from it (Hillcrest Homes, LLC v Albi~ n Mobile Homes, Inc., 1 I not b~ ! 117 NYS2d 755 (4th Dept 2014). Ho!ever, a conve~sion claim may 'I ; maintained where damages are merely sought for a breach of contract (see Sutton Park ;1 Dev. Trading Corp. v Guerin & Guerin, 297 AD 2d 430, 432 [3d ~ept 2002]). I . . 'I : Plaintiffs argue that "a wrongful refusal to transfer stock is in essence a conversion" (Opp ., : I at 14;' quoting Gasarch v Ormand Indus., Inc., 346 F Supp 550, 552 [SDNY 1972] [citing • . . :i .; Kanton v US. Plastics, Inc., 248 F Supp 353, 360 [DNJ 1965]). For the predicate wrongful acts, plain~iffs point to their Complaint, in which they allege, in conclusiry and vague fashion, that :1 I Pacific did "engage in the unauthorized and wrongful exercise of dominion or control over the share~ of common stock ... and interfere[d] with ... Plaintiffs' ab~olute, exclusi~e, and :; ' . ~l ' :' unco~ditional right to possession and ownership of such shares of Writ common stock" (CoJplaint, i-1 112). As it is not alleged that Pacific ever held Writ i ~tock owned by plaintiffs or c· 'I · · · .i:: • • • .c: · th at it ever receive d an mstruct1on 1rom its prmc1pa1 to execute a tn:tns1er m th e ·.c: 1orm o f a 1 1 • !I" I ·i :1 . trans~er agent instruction, or otherwise), plaintiffs have not alleged :racts to support the conclhsion that the refusal to transfer was wrongful. Accordingly, it is hereby : ORDERED that the motion of defendant, Pacific Stock Tr~sfer Company, to dismiss the cdmplaint herein (motion sequence number 001) is GRANTEDl!and the complaint is dismi~sed in its entirety as against said defendant, with costs and di~bursements to said defendant • as 1· ta~~d by the Clerk of the Court, and the Clerk is directed to ente~!judgment accordingly in I . •I 1 favor •of said defendant; and it is further 'i 1, ·: ORDERED that the motion to dismiss of defendants Writ ~edia Group;' Inc. (Writ) and ·, 11 i Signature Stock Transfer, Inc. (Signature) to dismiss the complaint '.~s DENIED as.moot; and it is i . fl . Ii further :I ORDERED that the action is severed and continued against! the remaining defendants · I · · .i:: Wnt and s·ignature; an d it is 1urth er l 1 :1 I ;\ i Ii II Ii II I! I. Page 13of14 14 of 15 [*FILED: NEW YORK COUNTY CLERK 04/04/2017 10:00 AM 14] ' I INDEX NO. 653808/2016 1 NYSCEF DOC. NO. 87 RECEIVED NYSCEF: 04/04/2017 II I! !I • I' ORDERED that the action shall now bear the following c~btion: I SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK -----------------------------------------------------------------------t---------MA GNA EQUITIES II, AND HANOVER HOLDINGS I, tLC, T Plaintiffs i,i -against- •. '• JI WRITE MEDIA GROUP INC. AND SIGNATURE STOCK I! II TRANSFER, INC., i'. Defendants I • Ii 1; ., . Ji .1t . ------------------------------------------------------------------------·"----------; and'' is furth er . ORDERED that defendants Writ and Signature shall file alswers days ,I I! ' withi~ twenty (20) ' bf the date of this order; and it is further ' I ! ORDERED that counsel for the remaining parties shall apfar for a preiiijiinary conference on Tuesday, May 16, 2017 at 10:30 AM in Part 49, Courtroom 252, 60 Centre Street, New ~ork, New York; and it is further i : ORDERED that counsel for the moving party in motionse4uence numbet 001 shall : I i serve,'a copy of this order with notice of entry upon the County Clerk (Room 141B) and the Cler~: of the Trial Support Office (Room 158), who are directed to +ark the courtls records to I reflect the change in the caption herein. I~ I• ,! This constitutes the decision and order of the court. .i'I' ,, I DAT~D: March 30, 2017 Page 14of14 15 of 15 '{