Canyon Capital Marketing v. Corporate Stock Transfer

Filed 7/11/06 Canyon Capital Marketing v. Corporate Stock Transfer CA4/1

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COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Diego County, John S. Meyer, Judge. Affirmed.

Canyon Capital Marketing, Inc. (Canyon) filed this action against Corporate Stock Transfer, Inc. (Transfer), as the stock transfer agent of Vitallabs, Inc. (Vitallabs), in which Canyon owned 90,000 restricted shares of stock. Canyon's complaint alleged in part that Transfer wrongfully denied its request for the issuance of new, unrestricted shares of Vitallabs so that it could sell the shares to a third party. Canyon appeals a judgment in favor of Transfer on its cause of action for breach of fiduciary duty, contending that the applicable Uniform Commercial Code (UCC) provision establishes the existence of a fiduciary duty of care. We reject Canyon's argument and affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Canyon owned 90,000 shares of stock of Vitallabs, a Nevada corporation. (Although the company has previously used a number of different corporate names and now apparently operates under the name of America Asia Corporation, for ease of reference, we will refer to it as Vitallabs throughout this opinion). Because the shares were not registered under the Securities Act of 1933 (the Act), they bore a legend prohibiting their sale or transfer "except pursuant to an effective registration statement under the Act or pursuant to an exemption from registration under the Act, the availability of which is to be established to the satisfaction of [Vitallabs]."

In July 2001, Canyon sent Transfer, as the designated transfer agent for Vitallabs, a sale package for the shares, requesting that Transfer reissue it new shares not subject to the restrictive legend; the package included a letter from Canyon's counsel opining that the requirements for offering the shares for sale under the Act and the rules promulgated thereunder (particularly Rule 144) had been met, including the requirement that Vitallabs be current with its filings with the Securities and Exchange Commission (the SEC). Transfer forwarded Canyon's request to Vitallabs for approval, but Vitallabs' president, Steve Swank, instructed it not to remove the legend because the "request [does] not meet 144 Rule." Informally, Vitallabs told Transfer in a telephone call that the company was not current with its filings with the SEC. In accordance with Vitallabs' instructions, Transfer returned the sale package and informed Canyon that the transfer could not go forward at that time.

In October 2002, Canyon asked Transfer for copies of any documents it had received in connection with the prior refusal to reissue new shares without the restrictive legend. Transfer faxed Canyon the instructions it had received from Vitallabs in July 2001 and confirmed the informal explanation that it had received from Vitallabs at that time. Canyon resubmitted the share package to Transfer and in November 2002 Vitallabs approved the reissuance of the shares, which as the result of intervening reverse stock splits totaled 6,762 in number, without the restrictive legend.

Canyon filed this action against Transfer, Vitallabs and Swank for negligent misrepresentation, intentional and negligent interference with contract, intentional and negligent interference with prospective economic advantage, breach of fiduciary duty, securities fraud, unlawful business practices and negligence. Canyon's complaint alleged Vitallabs wrongfully instructed Transfer that the July 2001 request failed to comply with Rule 144 and that, by the time the unrestricted shares were issued in late 2002, the stock had suffered a significant decrease in value.

The parties apparently agreed to bifurcate trial on the issue of liability and submitted stipulated facts for that purpose, although Canyon also lodged as exhibits Vitallabs' quarterly and annual reports to the SEC for the year preceding its initial request for the reissuance of unrestricted shares. According to the parties' trial briefs, the only claim Canyon was pursuing against Transfer at the time of trial was for "common law" breach of fiduciary duty, although it argued an additional theory of liability, for breach of statutory duty under the UCC, which was not alleged in its complaint. The court agreed with Transfer's argument that the facts did not support the existence of a fiduciary duty to Canyon and entered judgment in Transfer's favor. Canyon appeals.

DISCUSSION

1. Request for Judicial Notice

Canyon requests that we take judicial notice of a registration statement filed by Vitallabs with the SEC on June 28, 2001 and a declaration submitted in connection with Canyon's application for a default judgment against Vitallabs' president made many months after the court entered the judgment from which this appeal is taken. Because the latter is not properly part of the record on appeal (see generally In re Zeth S. (2003) 31 Cal.4th 396, 405) and the former is irrelevant to the issue of whether Transfer owed Canyon a fiduciary duty, judicial notice is not appropriately taken and thus we deny the request. (See People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2.)

2. Fiduciary Duty

A fiduciary or confidential relationship is "any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he [or she] voluntarily accepts or assumes to accept the confidence, can take no advantage from his [or her] acts relating to the interest of the other party without the latter's knowledge or consent." (Herbert v. Lankershim (1937) 9 Cal.2d 409, 483.) A fiduciary relationship is established by agreement or by law and relates to a specific subject matter (res); such a relationship arises between spouses, a guardian and his ward, a conservator and a conservatee and a trustee and the trust beneficiary. (See Richelle L. v. Roman Catholic Archbishop (2003) 106 Cal.App.4th 257, 271.) Traditional examples of fiduciary relationships in the commercial context arise between business partners, joint venturers, officers or directors of a corporation and the corporation, a principal and its agent and an attorney and his or her client. (Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 30.)

Canyon does not now, nor did it below, cite any persuasive authority to support the existence of a common law fiduciary duty between a stock transfer agent and a shareholder of a company with which the agent had a contractual relationship. In fact, in circumstances where, as here, there is no direct relationship between the parties, the law is to the contrary. (See Mears v. Crocker First Nat. Bank (1950) 97 Cal.App.2d 482, 485 [holding that a stock transfer agent is not liable to a shareholder at common law for wrongfully delaying or refusing to transfer stock because the transfer agent's obligations are to the company only]; also Sanchez v. Lindsey Morden Claims Services, Inc. (1999) 72 Cal.App.4th 249, 253-254 [an independent adjuster engaged by an insurer owes no duty of care to the insured with whom the adjuster has no direct contractual relationship]; Kovich v. Paseo Del Mar Homeowners' Assn. (1996) 41 Cal.App.4th 863, 865-867 [although a homeowners' association has fiduciary obligations relating to its members, it does not have a duty to disclose construction defects to prospective purchasers].)

Perhaps recognizing this difficulty, Canyon relies on the UCC, and the duties imposed on stock transfer agents thereunder, as the basis for arguing that Transfer was its fiduciary. Specifically, Canyon contends that UCC section 8-407 (as codified in Nevada, the state of Vitallabs' incorporation, at Nevada Revised Statutes Annot., § 104.8407) imposes on Transfer the same obligations as Vitallabs with regard to registering stock transfers and, in so doing, makes Transfer its fiduciary.

However, although certain fiduciary relationships are recognized by statute (e.g., Prob. Code, § 2101 [consevator and conservatee]), clearly not every statutorily defined relationship or statutorily imposed duty is fiduciary in nature. Here, Canyon has not cited any persuasive authority to establish that the duties the UCC imposes on a stock transfer agent are fiduciary in nature and, to the extent that Canyon seeks to pursue an independent claim for breach of statutory duties, its complaint does not allege such a theory, nor does the record suggest that it sought, much less obtained, leave to amend to plead such a theory.

Furthermore, the nature of the restrictive legend on the Vitallabs shares suggests that there was no fiduciary obligation owed by Transfer to Canyon. The legend specifies that a person who seeks reissuance of unrestricted shares must establish either that there was "an effective registration statement under the Act" or that the sale of the shares was subject to "an exemption from registration under the Act, the availability of which is to be established to the satisfaction of [Vitallabs]." The stipulated facts show that Canyon's request to Transfer claimed that the sale of the shares was subject to an exemption from the registration requirement and that Transfer declined to reissue unrestricted shares at Vitallabs' express instructions. In the absence of any evidence that Transfer knew those instructions were fraudulent or erroneous and in the absence of any citation to authority establishing that Transfer had a fiduciary obligation to check the validity of its principal's instructions, the trial court correctly concluded that Canyon failed to establish its claim for breach of fiduciary duty.

DISPOSITION

The judgment is affirmed. Transfer is awarded its costs on appeal.

McINTYRE, Acting P.J.

WE CONCUR:

O'ROURKE, J.

IRION, J.

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