The opinion of the court was delivered by: AUGELLI
In this action plaintiff Bernard S. Kanton, claiming to be the owner and holder of 10,920 shares of Class A stock of defendant United States Plastics, Inc. (Plastics), moves by way of summary judgment for a mandatory injunction to compel Plastics and its transfer agent, defendant Registrar & Transfer Company (Registrar), to effect a transfer of said stock.
Kanton is a New York resident, Plastics a Florida corporation, and Registrar a New Jersey corporation.
Jurisdiction is invoked on the basis of diversity of citizenship and allegation of the requisite amount in controversy. Additionally plaintiff alleges the action involves a question arising under the Securities Act of 1933, 15 U.S.C.A. § 77a et seq., and also that jurisdiction may be founded on section 27 of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78aa.
In opposition to plaintiff's motion, defendants move to dismiss the action for a number of reasons, including lack of jurisdiction and improper venue. For a better understanding of the several issues involved in the case, a recital of the relevant facts disclosed by the moving papers seems appropriate at this point.
Plaintiff's verified complaint in this case was filed on March 24, 1965. It appears therefrom and from the exhibits annexed thereto, that in February 1962, plaintiff purchased from Edward R. Scharps, president of Plastics, from Scharps' personal holdings, 10,000 shares of Plastics Class B convertible stock for $27,500.00. The purchase was made for investment purposes and a legend to that effect appeared on the face of the certificate.
In February 1962, plaintiff was employed by Plastics as its special counsel. This relationship continued until November 1964, at which time it was terminated because of certain differences that had arisen between plaintiff and Scharps. Following this change in status, plaintiff determined to dispose of his Plastics stock, and under date of January 26, 1965, he obtained an opinion of counsel, concurred in by a "no action" letter of the Securities and Exchange Commission dated March 8, 1965, that plaintiff was free to dispose of his Plastics stock either publicly or privately without registration under the Securities Act of 1933.
On March 10, 1965, counsel for plaintiff forwarded to Registrar, properly endorsed for transfer, certificate JU1763 for 10,400 shares, and certificate JU3252 for 522 shares of Plastics stock, with a covering letter requesting that 10,900 of said shares be issued in the name of Torsal Company, a nominee of plaintiff, and 22 shares in the name of plaintiff. Also enclosed with the certificates was the opinion letter of plaintiff's counsel dated January 26, 1965 and the "no action" letter of the Securities and Exchange Commission dated March 8, 1965. A prompt transfer of the stock was requested.
On March 18, 1965, counsel for plaintiff sent a telegram to Registrar complaining about the delay in effecting the transfer, and threatening to hold Registrar responsible for any damages resulting from its failure to transfer promptly. On the following day, March 19, Registrar sent a telegram to plaintiff's counsel stating that it had wired its principal, Plastics, and that a prompt reply was anticipated. On March 24, 1965, Registrar returned plaintiff's stock certificates to plaintiff's lawyer, with a letter stating that it was doing so because as transfer agent it was not permitted to make the requested transfer due to instructions received from Plastics.
Because of the refusal to register a transfer of his stock, plaintiff charges both defendants with an unlawful conversion of same, and in this connection alleges that on March 19, 1965, Class A common stock of Plastics was selling for approximately $30.00 a share. Plaintiff claims he has no adequate remedy at law to perfect legal title to the shares in question in his nominee, and asks this Court for an injunctive order directing defendants to transfer the shares of Plastics stock as requested by plaintiff, or, in the alternative, for a judgment against the defendants for $327,000.00, the alleged value of the shares as of March 19, 1965.
Registrar filed a verified answer, with exhibits annexed, which discloses that the services of Registrar, as transfer agent for Plastics, was terminated as of the close of business on March 30, 1965, after the filing of plaintiff's complaint in this Court, and that the transfer agent now acting for Plastics is the First National Bank of Miami. Since it no longer is the transfer agent for Plastics, Registrar says the relief sought against it by way of injunction has become moot and should, therefore, be denied.
Registrar also claims it was justified in refusing to register the transfer because it had notice of an adverse claim with respect to the stock, and that by reason thereof it was under a duty to make inquiry concerning the matter under applicable provisions of the Uniform Commercial Code, N.J.S.A. 12A:8-101 et seq. Registrar alleges it was conducting such inquiry when this action was commenced less than two weeks after it received the stock for transfer from plaintiff on March 10, 1965. Registrar contends that under the Code it had thirty days within which to complete its inquiry or to obtain an indemnity bond, but that before the expiration of such period its authority to act as transfer agent for Plastics had terminated.
Another asserted justification for its action urged by Registrar is that the stock submitted to it for transfer had not been registered under the Securities Act of 1933, and that this raised a question as to whether a transfer could be made on the basis of the "no action" letter furnished by plaintiff. In this connection Registrar points to a letter of the Securities and Exchange Commission dated April 12, 1965, obtained by Scharps' New York lawyer, in which it is stated that the opinion given in a "no action" letter "is not binding in a court of law on the question of the liability of an issuer for permitting a sale of its securities without registration under the Securities Act of 1933, nor would such an opinion preclude an issuer from maintaining that a sale of its unregistered securities by a stockholder would be in violation of Section 5 of the Securities Act of 1933."
A further contention made by Registrar is that the matter in controversy does not exceed the sum of $10,000.00 and that, therefore, this Court does not have jurisdiction over the subject matter of the action.
Finally, Registrar contends that venue has been improperly laid in this District because it was not the general agent of Plastics, nor was Plastics doing business in New Jersey, and that under such circumstances the most convenient forum to dispose of the action would be the United States District Court in Florida, where both Plastics and its new transfer agent are located. Registrar also calls this Court's attention to the fact that an action has been commenced in the federal court in Florida involving the same issues encompassed by this action, and suggests that this action should be transferred to that court, where all of the issues can be tried and final disposition made of the case.
A word about the Florida litigation. It appears that on March 24, 1965, the same day the action in this Court was commenced, a complaint was filed by Scharps in the United States District Court for the Southern District of Florida, Miami Division, against his corporation, Plastics, and Kanton, plaintiff in this case. In that action, Scharps sought to rescind the sale of Plastics stock he had made to Kanton on the ground that such sale was induced by certain false and fraudulent representations made by Kanton to Scharps in connection with that transaction.
All parties in Florida moved for partial summary judgments. All were denied. Scharps wanted the court to direct Plastics to make no change in the record ownership of the Plastics stock standing in the name of Kanton; Plastics asked for an order that would authorize and direct it to keep the record ownership of said shares in Kanton's name; and Kanton, by his motion, sought a determination that Scharps was not entitled to the ...