Say you received part interest in a stock certificate representing 2.7 million shares. You got it in partial satisfaction of a contingent fee you earned in settlement of lawsuit. You value your stock interest at $12 million. But after taking the interest you learn that the issuing company cancelled the shares. You demand re-issuance; the transfer agent and the company both refuse. What do you do?
If your name is Arthur Tifford – "the owner of the eponymous corporate plaintiff," Arthur W. Tifford, PA — you sue for conversion and civil conspiracy.
And Mr. Tifford did indeed sue. He claimed that transfer agent Manhattan Transfer Registrar, the issuer Tandem Nevada, and several Tandem affiliates and officers conspired to and did convert Tifford's interest in Tandem Nevada stock certificate no. TE 1069.
But the district court granted summary judgment for defendants, concluding that a Nevada state court's 2005 order directing cancellation of the shares invalidated Tifford's acquisition in 2006 of its interest in TE 1069. The court also held that the Nevada order operated in rem (bound anybody with a claim to the stock) and therefore barred Tifford's claim under principles of res judicata (or claim preclusion).
The Fifth Circuit reversed. Their Unanimous Honors believed that genuine issues of material fact existed on several key issues, including whether Tifford took its stock interest in good faith and therefore qualified as a bona fide purchaser for value. (You'll recall that the law preserves claims by a BFP to enforce a property interest that the BFP acquires without notice of an impairment to that interest — here, the order that directed cancellation of the Tandem Nevada shares). The court also ruled that the Nevada order didn't operate in rem and therefore didn't affect the claims of non-parties such as Tifford. Claim preclusion thus didn't apply. Arthur W. Tifford, PA v. Tandem Energy Corp., No. 08-50413 (5th Cir. Mar. 11, 2009).
Blawgletter notes that Circuit Judge DeMoss wrote an engaging and thorough opinion. Highlights include the "eponymous" statement above, a "pump and dump" scheme allegedly involving a "securities fraud felon", an argument that "Tifford should have smelled a rat", and an incisive analysis of Texas and Nevada law. Kudos.
