Branerton Corp. v. United States Corp.

Steuer, J.

The defendant is the transfer agent for the stock of Tintair, Inc. Tintair had issued 10,000 shares of its stock to Simon, its president. These shares were acquired for investment purposes and were not registered with the Securities and Exchange Commission (SEC). In 1968 defendant received a request to transfer these shares to Kaplan. Defendant refused to do so until it was given an opinion of counsel for Tintair. This letter stated that the stock was to be used for collateral security and that shortly, when the loan was repaid, the stock would be transferred back to Simon. Defendant then transferred the shares. The stock was pledged for a loan from plaintiff to a company named A. I. C. A. I. C. defaulted on the loan and plaintiff foreclosed on the security. Later plaintiff sold 2,000 of the shares but the buyer refused delivery on the ground that this was unregistered stock. Plaintiff thereupon sold all the shares to Lindner, its president, and requested defendant to transfer them to him. Defendant refused unless plaintiff procured a “ no action ” letter from the SEC showing that the SEC regarded the transfer as permissible. Plaintiff instead brought this action seeking a mandatory injunction directing defendant to transfer the shares and for damages for failure to do so. Plaintiff sought and obtained a temporary injunction directing transfer, and defendant has complied with it. Plaintiff then brought on this motion for summary judgment on its cause of action for damages.

Special Term concluded that the decision on the temporary injunction made the law of the case and established plaintiff’s right to damages. We cannot agree with this determination. The temporary injunction was granted here for the purpose of minimizing any loss that might arise from the further decline in market value of a volatile stock. As such, it is largely in the nature of maintaining the status quo. An injunction for that purpose does not make the law of the case, and in fact is of no moment at all as regards the merits (Walker Mem. Baptist Church v. Saunders, 285 N. Y. 462, 474). It should further be noted that no inference can be drawn from defendant’s compliance with the injunctive order rather than its appealing. Defendant has no interest in whether or not the stock should be transferred other than its own protection in the event of an illegal or improper transfer. The order of the court provides that protection as it was made after adequate contest.

On the merits, this being a motion for summary judgment the facts must be taken as sworn to by defendant. So that it appears that the stock in question was never registered and that defendant knew it. Accordingly defendant could well have been under a prohibition against transferring the stock. Whether or not plaintiff was aware of the restriction does not appear conclusively, but even if it was not it is not determinative (Travis Inv. Co. v. Harwyn Pub. Corp., 288 F. Supp. 519, 526). The issue is whether the transfer agent had reasonable grounds for belief that the transfer would be one forbidden by law. Whether that belief was engendered by a positive statement from the SEC, as in the Harwyn case, or came from other sources may go to the weight of the claim that the belief existed, but it certainly does not establish the contrary. Likewise an issue exists as to plaintiff’s knowledge of the qualifications to transfer of the stock. As these facts are peculiarly within plaintiff’s knowledge, summary judgment is not in order.

Order entered September 3, 1969, granting summary judgment should be reversed on the law and judgment entered September 5,1969, vacated with costs to appellant.

Eager, J. P., Capozzoli and Markewioh, JJ., concur.

Order entered on September 3,1969, unanimously reversed on the law, and the judgment entered on September 5,1969, vacated, with $50 costs and disbursements to the appellant.