Wolverine Flagship Fund Trading Limited Vs. ( 2016 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0654-14T1
WOLVERINE FLAGSHIP FUND TRADING
LIMITED, WHITEBOX CONCENTRATED
CONVERTIBLE ARBITRAGE PARTNERS, APPROVED FOR PUBLICATION
L.P., WHITEBOX MULTI-STRATEGY
PARTNERS, L.P. and PANDORA March 11, 2016
SELECT PARTNERS, L.P.,
APPELLATE DIVISION
Plaintiffs-Appellants,
v.
AMERICAN ORIENTAL BIOENGINEERING,
INC., AOXING PHARMACEUTICAL COMPANY,
INC. and OLDE MONMOUTH STOCK TRANSFER
CO., INC.,
Defendants-Respondents.
________________________________________________
Argued November 4, 2015 – Decided March 11, 2016
Before Judges Yannotti, St. John and
Vernoia.
On appeal from Superior Court of New Jersey,
Chancery Division, Essex County, Docket No.
C-275-13.
Michael T. Hensley argued the cause for
appellants (Bressler, Amery & Ross,
attorneys; Mr. Hensley and Lauren Fenton-
Valdivia, on the brief).
Respondents have not filed a brief.
The opinion of the court was delivered by
ST. JOHN, J.A.D.
Plaintiffs, Wolverine Flagship Fund Trading Limited, a
Cayman Islands corporation, Whitebox Concentrated Convertible
Arbitrage Partners, L.P., a British Virgin Islands Limited
Partnership, Whitebox Multi-Strategy Partners, L.P., a British
Virgin Islands Limited Partnership, and Pandora Select Partners,
L.P., a British Virgin Islands Limited Partnership (collectively
plaintiffs), appeal from the Chancery Division's order denying
injunctive relief. We affirm.
I.
Plaintiffs contend that they collectively own $19,210,000
in outstanding principal amount of 5.00% convertible senior
notes (the notes), issued by defendant American Oriental
Bioengineering, Inc. (AOB), a Nevada corporation. The notes
were issued pursuant to an Indenture between AOB and Wells Fargo
Bank, National Association as trustee, dated July 15, 2008 (the
Indenture). Pursuant to the Indenture, payment of the notes was
an unconditional obligation of AOB, and the notes would mature
in 2015. However, the notes were not secured by any collateral
and Section 11.11 of the Indenture provided, "[n]othing in this
Indenture or in the [notes], expressed or implied, shall be
construed to constitute a security interest under the Uniform
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Commercial code or similar legislation . . . in any
jurisdiction."
In 2013, plaintiffs brought suit in the Law Division,
Docket No. ESX-L-275-13, against AOB asserting that it was in
default under the Indenture for non-payment of the notes and
other covenant defaults. AOB did not defend that action, and on
August 13, 2013, a $21,096,347.81 default final judgment was
entered against it. Following entry of the judgment, plaintiffs
discovered that the only significant asset held by AOB was a
33.7% interest in Aoxing Pharmaceutical Company, Inc. (Aoxing)
held in certificate form. Aoxing is a Florida corporation with
its headquarters in Jersey City. Olde Monmouth Stock Transfer
Co., Inc. is the stock transfer agent for Aoxing.
On December 3, 2013, plaintiffs filed a complaint in the
Chancery Division against AOB, Aoxing, and Olde Monmouth. The
complaint sought an injunction ordering Olde Monmouth and Aoxing
to cancel the certificated shares held by AOB, reissue them in
defendant's name, and deliver them into the actual possession of
the sheriff for execution. Plaintiffs allege that the
certificates are being held in the People's Republic of China.
Neither AOB nor Aoxing defended the suit. The only action
taken by Olde Monmouth was its accession to a consent order
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enjoining it from "transferring, canceling, amending or in any
way disposing of the Shares" until otherwise ordered.
On August 22, 2014, the judge issued an order denying
plaintiffs' requested injunction, but reaffirming the earlier
consent order and order of default. It is from that August 22,
2014 order that plaintiffs appeal.
II.
On appeal, plaintiffs argue that the Chancery Division
incorrectly interpreted Uniform Commercial Code (UCC) 8-112, as
adopted by this state at N.J.S.A. 12A:8-112, to require actual
seizure of certificated shares owned by a debtor before a
creditor can reach the debtor's interest in those certificated
shares. Having reviewed the arguments in light of the
applicable law, we affirm the order of the Chancery Division.
A trial court's interpretation of a pertinent statute
concerns questions of law. See Chase Bank USA, N.A. v.
Staffenberg, 419 N.J. Super. 386, 396 (App. Div. 2011). We
therefore review such a determination de novo. See, e.g.,
Manalapan Realty v. Twp. Comm. of Manalapan, 140 N.J. 366, 378
(1995).
In 1997, New Jersey adopted the UCC rules concerning the
process by which a creditor can reach certificated securities
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owned by a debtor. See L. 1997, c. 252. UCC 8-112 was codified
as N.J.S.A. 12A:8-112, which provides in pertinent part:
a. The interest of a debtor in a
certificated security may be reached by a
creditor only by actual seizure of the
security certificate by the officer making
the attachment or levy, except as otherwise
provided in subsection d. of this section.
However, a certificated security for which
the certificate has been surrendered to the
issuer may be reached by a creditor by legal
process upon the issuer.
. . . .
d. The interest of a debtor in a
certificated security for which the
certificate is in the possession of a
secured party, or in an uncertificated
security registered in the name of a secured
party, or a security entitlement maintained
in the name of a secured party, may be
reached by a creditor by legal process upon
the secured party.
e. A creditor whose debtor is the owner of
a certificated security, uncertificated
security, or security entitlement is
entitled to aid from a court of competent
jurisdiction, by injunction or otherwise, in
reaching the certificated security,
uncertificated security, or security
entitlement or in satisfying the claim by
means allowed at law or in equity in regard
to property that cannot readily be reached
by other legal process.
"Our primary goal in interpreting a statute is to determine
the Legislature's intent." In re Raymour and Flanigan
Furniture, 405 N.J. Super. 367, 381 (App. Div. 2009).
Generally, the language of the statute is the best indicator of
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the legislature's intent. See DiProspero v. Penn, 183 N.J. 477,
492 (2005). "We ascribe to the statutory words their ordinary
meaning and significance, and read them in context with related
provisions so as to give sense to the legislation as a whole."
Ibid. (citations omitted). We only look to extrinsic evidence
"if there is ambiguity in the statutory language that leads to
more than one plausible interpretation." Ibid.Subsection (a) of N.J.S.A. 12A:8-112 does not, on its face,
present any ambiguities. The subsection consists of a general
rule and two exceptions. The general rule is that "a
certificated security may be reached by a creditor only by
actual seizure of the security certificate." N.J.S.A. 12A:8-
112(a). The two exceptions apply where the certificate has been
surrendered by the debtor to the issuer, or "as otherwise
provided in subsection d." Ibid.Common sense dictates that the Legislature's use of the
restrictive term "only" in stating the general rule, followed by
the naming of two exceptions, implies that the two exceptions
named are the only exceptions applicable to the subsection.
This interpretation is also consistent with the maxim expressio
unius est exclusio alterius, which stands for the proposition
that explicitly naming one or more things implies the exclusion
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of all other things. See Evans v. Atlantic City Bd. of Educ.,
404 N.J. Super. 87, 92 (App. Div. 2008).
Plaintiffs contend that subsection (e) of N.J.S.A. 12A:8-
112 is properly interpreted to permit the use of any means
"allowed at law or in equity" to satisfy a claim. In support of
this argument, plaintiffs point out that subsection (e) contains
a disjunctive phrase, entitling a creditor to the aid of the
court "in reaching the certificated security . . . or in
satisfying the claim in regard to property that cannot readily
be reached . . . ." N.J.S.A. 12A:8-112(e) (emphasis added).
From this, plaintiffs argue that section (e) requires the court
to use its broad equitable powers in two distinct situations:
either to reach a certificated security, or alternatively, when
a certificated security cannot be reached.
This interpretation would make subsection (e) function as
an additional (and very broad) exception to the possession
requirement in subsection (a). Indeed, under such an
interpretation, the exception contained in (e) would swallow the
general rule set forth in (a).
When two sections of a statute appear to conflict with each
other, "we must read the provisions in pari materia, construing
them 'together as a unitary and harmonious whole.'" Timber Glen
Phase III, LLC v. Township of Hamilton, 441 N.J. Super. 514, 522
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(App. Div. 2015) (quoting Am. Fire & Cas. Co. v. N.J. Div. of
Taxation, 189 N.J. 65, 80 (2006)). "'Every reasonable
construction should be applied' to assure each section is
meaningful." Ibid. (internal quotation marks omitted) (quoting
Twp. of Mahwah v. Bergen Cnty. Bd. of Taxation, 98 N.J. 268, 281
(1985), cert. denied, 471 U.S. 1136, 105 S. Ct. 2677, 86 L. Ed.
2d 696 (1985)). In light of this principle, the broad equitable
and legal remedies permitted under subsection (e) should stop
short of any remedy that circumvents the actual seizure
requirement of subsection (a).
This approach is similar to the interpretation adopted by
the Eleventh Circuit in First National Bank v. Dyes, 638 S.W. 2d
957, 958 (1982). In that case, plaintiff obtained a judgment
against her ex-husband for 600 certificated shares in the Dr.
Pepper Company. Ibid. Plaintiff's husband never transferred
the shares. Ibid. The district court looked to section 8.317
of the Texas Business and Commercial Code,1 and in particular, to
1
The statute, which has since been repealed, followed the
Uniform Stock Transfer Act and read as follows:
(a) No attachment or levy upon a security or
any share or other interest evidenced
thereby which is outstanding shall be valid
until the security is actually seized by the
officer making the attachment or levy but a
security which has been surrendered to the
(continued)
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the second subsection, entitling a creditor to "such aid . . .
as is allowed at law or in equity." Id. at 959-60.
Consequently, the district court ordered the Dr. Pepper Company
and First National Bank to cancel defendant's certificated
shares, and reissue them in plaintiff's name. Id. at 958.
The Eleventh Circuit reversed, holding the statute "affords
a creditor a means of gaining control of a certificate or other
security from the owner or holder thereof, not the issuer." Id.
at 959. The court noted the purpose of the seizure requirement
is to prevent the fraudulent transfer of cancelled certificates,
and held that the statute "provides no right to the issuance of
a new certificate when the old one cannot be reached." Ibid.Similarly, in Detox Industries, Inc. v. Gullet, a judgment
debtor placed his only asset, certificated shares of Detox
(continued)
issuer may be attached or levied upon at the
source.
(b) A creditor, whose debtor is the owner of
a security shall be entitled to such aid
from courts of appropriate jurisdiction, by
injunction or otherwise, in reaching such
security or in satisfying the claim by means
thereof as is allowed at law or in equity in
regard to property which cannot readily be
attached or levied upon by ordinary legal
process.
[Tex. Bus. & Com. Code. § 8.317 (1968),
repealed Sept. 1, 1995.]
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Industries, in the hands of his son. 770 S.W. 2d 954, 955 (Tex.
App. 1989). The son, in turn, took the shares outside the
state, and could not be located. Ibid. The trial court ordered
Detox Industries to cancel defendant's shares and reissue new
shares in the name of the receiver. A Texas appellate court
reversed, holding that a turnover order can only be issued
against the debtor, or a third party, that is in actual
possession of the certificates. Id. at 958.
Plaintiffs rely upon two published cases in support of
their argument. First, plaintiffs cite the Second Circuit Court
of Appeals in Inter-Regional Financial Group, Inc. v. Hashemi,
562 F.2d 152, 155 (2d Cir. 1977), cert. denied, 434 U.S. 1046,
98 S. Ct. 892, 54 L. Ed. 2d 798 (1978), for the proposition that
subsection N.J.S.A. 12A:8-112(e) acts as a further exception to
the seizure requirement in subsection (a). However, in that
case, the trial court actually only enjoined the debtor to turn
over certificated securities to the sheriff for execution.
Ibid. This is consistent with a narrow interpretation of
subsection (e), and does not support the proposition that the
court can reissue the certificated shares owned by a debtor.
Plaintiffs also cite House v. Williams, 573 So. 2d 1012(Fla. Dist. Ct. App. 5th Dist. 1991), in which a judgment
creditor sought to attach a debtor's certificated shares in a
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privately-held, family-owned company. Id. at 1012-13. The
defendant in that case claimed he did not know where the
certificates were located. Ibid. Consequently, the court
ordered the corporation to issue new certificates in defendant's
name, and deliver them to the sheriff for execution. Ibid. An
appellate court upheld the order without explaining its
reasoning. Ibid. The court's omission of any explanation or
analysis seriously limits the persuasiveness of the opinion.
Lastly, plaintiffs argue concern for public policy and
justice demands reversal. We agree that, by affirming the
chancery court's order in this case, plaintiffs would be
foreclosed from pursuing one avenue of recovery for a
substantial debt. However, the policy considerations in this
case cut both ways. The purpose of the actual seizure
requirement in N.J.S.A. 12A:8-112 is to prevent fraudulent
transfers of cancelled stock certificates to innocent third
parties. This is illustrated by a comment to N.J.S.A. 12A:8-
112:
In dealing with certificated securities the
instrument itself is the vital thing, and
therefore a valid levy cannot be made unless
all possibility of the certificate's
wrongfully finding its way into a
transferee's hands has been removed. This
can be accomplished only when the
certificate is in the possession of a public
officer, the issuer, or an independent third
party. A debtor who has been enjoined can
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still transfer the security in contempt of
court. Therefore, although injunctive
relief is provided in subsection (e) so that
creditors may use this method to gain
control of the certificated security, the
security certificate itself must be reached
to constitute a proper levy whenever the
debtor has possession.
[N.J.S.A. 12A:8-112 cmt. 1 (citation
omitted).]
Plaintiffs maintain that this rationale dates from the pre-
internet age, and that potential buyers of cancelled
certificates can be put on record notice by publishing advisory
notices on the internet. However, N.J.S.A. 12A:8-112 was
adopted in 1997, thus plaintiffs' contention that the
Legislature could not have comprehended the usefulness of the
internet in providing record notice is dubious. See N.J.S.A.
12A:8-112. Furthermore, we have neither the authority to enact
such a notice requirement, nor the expertise to determine the
sufficiency of such a requirement. See Roman Check Cashing v.
N.J. Dep't of Banking & Ins., 169 N.J. 105, 111 (2001).
In sum, we conclude that the Chancery Division judge
correctly found that, under N.J.S.A. 2A:8-112(a), actual seizure
of certificated shares is required before a creditor may reach a
debtor's interest in those shares.
Affirmed.
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