Part of Signature Stock Transfer's brief to the US Court of Appeals for the 8th circuit in St. Louis:
ARGUMENT I. Standard of Review This Court reviews a district court's grant of summary judgment de novo and “will affirm if there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” The Court “may affirm on any basis supported by the record.” Summary judgment is appropriate when, viewing the facts and inferences in the light most favorable to the nonmoving party, ‘the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.’ Fed. R. Civ. P. 56(c)(2). The plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A ‘genuine’ issue of material fact exists when ‘there is sufficient evidence favoring
14 the nonmoving party for a jury to return a verdict for that party.’” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 243 (1986). As the District Court correctly noted, ‘Where the unresolved issues are primarily legal rather than factual, summary judgment is particularly appropriate.’ Koehn v. Indian Hills Cmty. Coll., 371 F.3d 394, 396 (8th Cir. 2004).” (JA04366 )(Order at 13-14). II. The District Court Correctly Granted Summary Judgment finding that Signature Stock Transfer did not participate in Fraud. As stated in the complaint, Plaintiff’s claim against SST is a mere generic conclusory allegation of “fraud.” The Eighth Circuit has emphasized that a “pleading that offers merely labels and conclusions or naked assertions devoid of further factual enhancement does not plausibly establish entitlement to relief under any theory.” C.N. v. Willmar Public Schools, 591 F.3d 624, 634-35 (8th Cir. 2010) (quoting Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (Federal Rule of Civil Procedure 8(a)(2) “demands more than an unadorned, the defendant-unlawfully-harmed-me accusation”). Likewise, in the context of a claim of fraud, the Federal Rules of Civil Procedure establish certain basic requirements that “[when] alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). “Although Rule 9(b) allows general allegations of knowledge and intent, “ ‘generally’ is a relative
15 term. ... [Rule 9(b)] does not give [a pleader] license to evade the less rigid—though still operative—strictures of Rule 8.” OmegaGenisis Corporation v. Mayo Foundation for Medical Education and Research, 851 F.3d 800, 804 (8th Cir. 2017), citing, Ashcroft v. Iqbal, 556 U.S. 662, 686-87, 129 S.Ct. 1937 (2009). For “each act or omission alleged,” plaintiff must “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C., § 78u-4(b)(2). See Ind. Elec. Workers’ Pension Trust Fund IBEW, et al. v. Shaw Grouping, et al., 537 F.3d. 527, 532 (5th Cir. 2008). While not specifically plead this way in any of the complaints, COR has asserts that its claim for “fraud” falls under Nebraska’s law of fraudulent misrepresentation. (Appellant’s brief p. 23-24). Under Nebraska law, to prevail in a claim of fraudulent misrepresentation, a plaintiff must establish the following elements: (1) a representation was made; (2) the representation was false; (3) when made, the representation was known to be false or made recklessly without knowledge of its truth and as a positive assertion; (4) the representation was made with the intention that the plaintiff should rely on it; (5) the plaintiff did so rely on it; and (6) the plaintiff suffered damage as a result. deNourie & Yost Homes, LLC v. Frost, 854 N.W.2d 298, 312 (Neb. 2014). As the District Court noted in its statement of relevant State law, “false representations must be the proximate cause of the damage before a party may recover. “Whether the plaintiff exercised ordinary prudence is relevant to whether the plaintiff justifiably relied on the misrepresentation when the means of discovering the truth was in the plaintiff's hands.” Lucky 7, L.L.C. v. THT Realty, L.L.C., 775 N.W.2d 671, 671, 676 (Neb. 2009). In intentional misrepresentation cases, a plaintiff fails to exercise ordinary prudence only when the plaintiff's reliance is wholly unreasonable, given the facts open to the plaintiff's observation and his or her own skill and experience. Id. The District Court correctly found that CORs claim of fraud against SST failed on several of the elements of fraud. First, the District Court correctly noted that “There is no evidence that SST had any actual knowledge that anything was amiss in the transactions at issue.” Opinion p. 27. “[I]n discussing fraud, we have previously noted that scienter, as an aspect of the knowledge requirement of fraud, involves inferences going to the defendant's state of mind. . .” Nieman v. Tri R Angus, Inc., 739 N.W.2d 182, 189 (Neb. 2007), citing, Nielsen v. Adams, 388 N.W.2d 840 (Neb. 1986). If, “the defendant had a reasonable basis to believe that the statement of fact was true, then recovery will be denied.” Nielsen v. Adams, 388 N.W.2d 840, 846 (Neb. 1986). CORs citation to Ferer v. Erickson and Sederstrom, PC., 718 N.W.2d 501 (Neb. 2016) is inapplicable to this matter. COR cites Ferer for the proposition that stock transfer agents are “generally held liable for the improper issue and transfer of certificates, both to the corporation and to
17 persons injured.” (COR brief p.30). What COR failed to cite or discuss was that Ferer dealt with the actual wrongful registration or transfer of shares under Neb.Rev.St. §8-404; that is the name and number of shares, and not fraud. Rather, in a fraudulent misrepresentation case, an agent is liable only for its own tortious conduct. see, Fulk v. McLellan, 498 N.W.2d 90, 97(Neb. 1993). COR’s reliance on Knights of Columbus 3152 vs. KFS BD, Inc., 791 N.W.2d 317 (Neb. 2010) is likewise misplaced. Central to the holding of Knights of Columbus is the acknowledgment that the intent is central to the issue of whether the alleged tortfeaser had knowledge or acted recklessly to create a “false impression.” Id. at 332. The misrepresentation must be “. . . made with the intent that it be understood in its false sense or with reckless disregard as to how it will be understood.” Id. The misrepresentation must be “calculated to deceive.” Id. The intent for COR to understand anything in a “false sense” is conspicuously absent from the facts of this matter, nor were any of SST’s actions reckless. This matter is analogous to S.E.C. v. CMKM Diamonds, Inc., 729 F.3d 1248, 1258-1259 (9th Cir. 2013), wherein the Ninth Circuit noted liability rested only those who were a substantial factor in an improper stock scheme, stating, “[N]ot everyone in the chain of intermediaries between a seller of securities and the ultimate buyer is sufficiently involved in the process to make him responsible for an unlawful distribution.” Id., citing Geiger v. S.E.C., 363 F.3d 481, 487 (D.C
18 Cir. 2004), see accord, Kane v. S.E.C., 842 F.2d 194, 199 (8th Cir. 1988). Rather, “That [a transfer agent] issued large quantities of shares without a restrictive legend after receiving two attorney opinion letters is insufficient, in and of itself, to establish that [the transfer agent] was a substantial factor as a matter of law.” Id. To put it another way, a transfer agent who merely records a large number of shares without restrictive legend cannot be said to have created a false impression. The facts of SST’s actions are not in dispute, merely their application to applicable law. As the District Court correctly noted; “Although a transfer agent can be liable under the U.C.C. for wrongful registration of a security under Neb. Rev. Stat. (U.C.C.) § 8-407, COR made no claim under the U.C.C. and there is no allegation or evidence that the registration was wrongful, invalid or improper. There is no evidence that SST did anything other than that which it was instructed to do.” (JA04380)(Order p. 28) SST was contracted by Calissio to serve as stock transfer agent during the dividend announced in June 1, 2015. SST’s authority was limited to keeping a ledger of the owner to Calissio stock, and in this matter match the name of number of shares to the DWAC already waiting in CORs system from its customers. SST informed FINRA of the dividend and forwarded the dividend money provided to it to DTC, which properly noted that the dividend (and therefore due bills) were for free trading shares outstanding as the record date. Importantly, SST was neither authorized nor ever requested to obtain a CUSIP or apply any sort of restriction on
19 the shares. SST had no knowledge as to whether the shares at issue would be traded and had no knowledge or input on how DTC would credit or debit broker’s accounts. In none of SSTs actions did it make a representation to COR. SST did not solicit customers, promote the stock, structure the conversions, or offer any sort of guarantee to anyone. SST was aware of the transaction and “unnatural particulars” as discussed by COR in its brief, (p. 25). Merely being aware of the debt conversion, however, does not establish that SST played any role in them other than being a scrivener. The facts, even when mischaracterized as they are by COR in an attempt to impute knowledge to SST, do not mask the primary deficiency in CORs claim; reliance. As FINRA Regulatory Notice 09-05 (Jan. 2009) states, "FINRA, the SEC and the courts have repeatedly held that firms cannot rely on outside counsel, clearing firms, transfer agents, issuers, or issuer’s counsel to discharge their obligations to undertake an inquiry. Moreover, the fact that securities have been issued by a transfer agent without a restrictive legend, or have been put into trading status by a clearing firm, does not mean that those securities can be resold immediately and without limitation under the Securities Act.” (JA04367)(Order p. 15) also (JA01161) (emphasis added) SST made no representation upon which COR could rely as a matter of law, which COR itself admitted as it pertains to the issue of the dividend. (JA00589-JA00860) (Salas Transcript 42:21-43:19) (COR did not rely on press release from Calissio but FINRA’s dividend approval).
20 Notwithstanding CORs legal prohibition on reliance on any representation made by SST as the transfer agent is insufficient, the District Court correctly elucidated, “ COR was in possession of the same information as SST. Even assuming that SST made material misstatements, which the evidence does not support, COR had information that would have put it on notice that the information may have been false or misleading, so as to make any reliance on such statements “wholly unreasonable, given the facts open to [COR’s] observation and [its] own skill and experience.” See deNourie & Yost Homes, LLC, 854 N.W.2d at 314. The evidence shows COR failed to exercise reasonable prudence and effectively “close[d its] eyes to what [was] obviously discoverable by [it].” Id. (internal quotation omitted).” (JA04379-JA04380)(Order p. 27-28) COR’s customers prepared heightened risk paperwork for each conversion and presented that paperwork to COR for review and approval. That paperwork was not presented to SST at the time of the conversations, and was known only to COR and its customers. Finally, to prevail under Nebraska law, COR must show it suffered damages as a result of its reliance on a misrepresentation made by SST. All of CORs alleged damages rest entirely on the sale of shares. COR’s heightened risk security review and approval for sale were not dependent, however, on any action by SST. As noted above, COR’s own client acknowledgement form clearly states that sales of the securities “may not be permitted by [COR] until such time that [COR] is satisfied that they are eligible for sale and transfer, without fear of impairment or
21 violation of law or industry rule.” JA00627-710 (Conversion Packets). The CUSIP did not become relevant to CORs damages until the shares were traded. Approval of the shares for trading was wholly and exclusively within the control of COR. Rather COR, and COR alone had the obligation that arose from conversion of debt to shares by Nobilis and Beaufort, both customers of COR’s corresponding firm, Darbie. COR has judgements against Nobilis and Beaufort which cover the damages they claim, none of which arose from actions or omission from SST. CONCLUSION For the forgoing reasons, SST respectfully requests that the Court affirm the District Court’s ruling on Summary Judgement and Judgement in favor of SST. DATED: April 9, 2018 Respectfully Submitted, /s/ Gail E. Boliver Gail E. Boliver (NE#20593) BOLIVER LAW FIRM 8712 W. Dodge Road, Suite 400 Omaha, NE 68114 (402) 392-0107 Telephone (402) 392-1011 Facsimile boliver@boliverlaw.com Attorneys for Signature Stock Transfer, Inc.
22 CERTIFICATE OF COMPLIANCE I certify pursuant to FRAP 32 that the attached Brief of Appellant complies with the typeface and typestyles limitations of FRAP 32(a)(5) and (6) and it is proportionately spaced, has a typeface of 14 points, and complies with the type-volume limitations of FRAP 32(a)(7) because it contains 4,946 words, excluding the portions exempted by FRAP32(f) and 8th Cir. R. 28A(i)(1). Pursuant to 8th Cir. R. 28A(h), this Brief of Appellant have been scanned for viruses and both are virus-free. /s/ Gail E. Boliver
CERTIFICATE OF SERVICE I hereby certify that on April 9, 2018, I electronically filed the foregoing Appellee’s Brief with the Clerk of the Court for the United States Court of Appeals for the Eighth Circuit using the CM/ECF system. I certify that all participants in the case are registered CM/ECF users and that service will be accomplished by the CM/ECF system. /s/ Gail E. Boliver
