PAUL GUILFOYLE, AN INDIVIDUAL; AND CITYPOINT, LLC, A NEW YORK LIMITED LIABILITY COMPANY, Appellants,
OLDE MONMOUTH STOCK TRANSFER COMPANY, CO., INC., Respondent
Appeal from a district court order granting summary judgment. Eighth Judicial District Court, Clark County; Kathleen Delaney and Susan Scann, Judges.
Gordon Silver and Michael N. Feder and Joel Z. Schwarz, Las Vegas; Goodwin Procter, LLP, and Lloyd Winawer, Menlo Park, California, for Appellants.
Lionel Sawyer & Collins and Charles H. McCrea, Jr., and Ketan D. Bhirud, Las Vegas, for Respondent.
Pickering, J. We concur: Gibbons, C.J., Parraguirre, J., Cherry, J., Hardesty, J., Douglas, J., Saitta, J.
BEFORE THE COURT EN BANC.
We consider the liability of a stock transfer agent to a stockholder for giving an allegedly incomplete and misleading answer to a question about its requirements for removing a restrictive legend on his stock. Under NRS 104.8401 and NRS 104.8407 a transfer agent must, on proper request, register a transfer of securities without unreasonable delay. But these statutes do not support liability here because the stockholder did not ask the transfer agent to remove the legend and reissue him clean shares and, without a request to act, the agent's statutory duty to register a requested transfer does not arise. The stockholder's common law claims also fail, because they are not supported by competent evidence. We therefore affirm summary judgment for the transfer agent.
Appellants Paul Guilfoyle and Citypoint, LLC (collectively Guilfoyle), held stock in Pegasus Wireless Corp., a Nevada corporation. Respondent Olde Monmouth Stock Transfer Co., Inc. was the transfer agent for Pegasus. Guilfoyle's stock carried the following legend restricting its sale: " The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended and may not be sold or transferred without registration under said Act or an exemption therefrom." Guilfoyle believed that he had held the stock long enough and met the other requirements needed to qualify his stock for an exemption from registration under Securities and Exchange Commission (SEC) Rule 144, and he asked John Lechner, a restricted securities client advisor at Deutsche Bank Securities, Inc. (DBS), about removing the restrictive legend so the stock could be resold. Lechner in turn asked Barbara Walters, a DBS employee, to look into it. Walters located a telephone number and email address for Pegasus and left word that she wanted " their corporate counsel information . . .
[s]o that we [could] request an opinion to remove the legend."
Key to this appeal, Walters also called and spoke to someone at Olde Monmouth, Pegasus's transfer agent. Walters' call to Olde Monmouth was essentially anonymous. She did not identify herself, the company she worked for, or Guilfoyle, saying only that she was calling from a brokerage firm about a client holding restricted Pegasus stock. Olde Monmouth has no record of the call, and Walters has given varying accounts of it. In her deposition, Walters testified that she said " we were looking to locate corporate counsel" information for Pegasus; in the affidavit she furnished Guilfoyle, Walters avers that she asked Olde Monmouth " to provide the name of counsel from whom it would accept a legal opinion that the restrictive legends could be removed from Pegasus stock certificate." Either way, Olde Monmouth responded by giving her the name and contact information for a lawyer named John Courtade, whom Pegasus had written Olde Monmouth several weeks earlier to designate as its counsel for legend removals under SEC Rule 144.
According to Walters, her telephone conversation with Olde Monmouth was brief, lasting " [m]aybe longer than a minute, not longer than five." When the call ended, Walters called Courtade. He expressed surprise that someone at Olde Monmouth had given her his name and said he could not provide an opinion letter unless directed to do so by Pegasus. Walters did not call Olde Monmouth back to tell them about Courtade's rebuff or communicate with Olde Monmouth again concerning Pegasus stock.
Olde Monmouth has internal written " procedures for removing legends under Rule 144," which, not surprisingly, draw on the Uniform Commercial Code (UCC) provisions governing securities transfers and SEC Rule 144 as written at the time the events in this case occurred. See infra note 2. The procedures require that a registered broker/dealer present the share certificates, properly endorsed, to Olde Monmouth with supporting signature guarantees and documents, including " a completed copy of signed and filed Forms 144," and a seller's certification " stating that the shareholder is not an affiliate of the issuer, nor has been for the preceding 90 days, and that the shares have been beneficially held for at least one year" Additionally, " [t]he share certificate(s) should be accompanied by a legal opinion from the Issued['s] SEC attorney (stating that the sale is not in violation but in fact is in compliance with the exemption from registration requirements of Federal Securities laws)." If all criteria are met, Olde Monmouth " shall immediately remove the legend from the shares and transfer the shares into 'street name." If the request arrives otherwise complete but with no supporting legal opinion, the procedures direct that it be forwarded to the issuer's SEC attorney with a request for " the appropriate legal opinion." Should a request arrive supported by " a legal opinion from someone other than the Issuer's SEC Attorney (an 'outside opinion')," again, the procedures direct that Olde Monmouth " forward all [the] documents to and request [the appropriate] legal opinion from the Issuer's SEC Attorney." Finally, if " the Issuer's SEC Attorney has not responded to the request for approval of the outside legal opinion after 15 days," Olde Monmouth will process the legend removal request based on the outside opinion.
Olde Monmouth did not disclose these internal procedures to Walters or mention that Courtade was the fourth in a series of lawyers Pegasus had designated as SEC counsel over the past year. But DBS client adviser Lechner was a " major player in restricted securities" and Walters, whose job was to " assist in obtaining legend removals from stock," already knew that a Rule 144 opinion from outside counsel might be used to support a request for legend removal. This is shown by Walters' email to Lechner sent the day she spoke to Olde Monmouth and Courtade, wherein Walters relates her lack of success rousing anyone at Pegasus, her unhelpful conversation with Courtade, and a pending dispute between Pegasus and an affiliate's co-founder, Tsao, over Tsao's restricted stock. Noting the lack of industry consensus at that time (2006) over legend removal not connected to an actual sale, she suggests Guilfoyle (and Citypoint) " may want
to solicit their own counsel to render an opinion to remove the legend ...