UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA
January 17, 2012
HAMISH ANGUS, PLAINTIFF,
TRANSNATIONAL AUTOMOTIVE GROUP, INC., A NEVADA CORPORATION;
HOLLADAY STOCK TRANSFER, INC., A NEVADA CORPORATION; AND
STEPHEN WILSHINSKY, DEFENDANTS.
The opinion of the court was delivered by: Margaret M. Morrow United States District Judge
FINDINGS OF FACT AND CONCLUSIONS LAW
Hamish Angus filed this action on January 8, 2009, naming
Transnational Automotive Group, Inc. ("TAG"), Holladay Stock Transfer,
Inc. ("Holladay"), and Stephen Wilshinsky as defendants.*fn1
On June 15, 2009, the court denied defendants' motion to
dismiss the amended complaint for non-joinder of a necessary and
indispensable party and failure to state a claim on
which relief could be granted.*fn2 On September 20,
2010, the court denied Wilshinsky's motion for partial summary
The case was tried to the court on January 4 through 7, 2011.
Thereafter, the parties submitted written trial briefs.*fn4
Having considered the evidence presented, the arguments of
counsel, and the parties' trial briefs, the court makes the following
findings of fact and conclusions of law pursuant to Rule 52 of the
Federal Rules of Civil Procedure.
I. FINDINGS OF FACT
A. TAG's Founding and the Agreement with Angus
1. Plaintiff Angus is a corporate development consultant who resides in Vancouver, British Columbia. Defendant Wilshinsky is a California citizen who is a licensed securities broker. Defendant TAG is a Nevada corporation. Defendant Holladay is stock transfer agency incorporated in Nevada.*fn5
2. In the fall of 2005, Parker Automotive Group ("PAG") agreed to purchase Apache Motor Corp. ("Apache"), a shell corporation that had no active line of business and was trading on the over-the-counter bulletin board. PAG had a business plan to operate an intercity bus service in the Republic of Cameroon, but was in need of capital. PAG acquired Apache on December 30, 2005, so that PAG could raise capital as a publicly traded entity. The transaction was what is known as a "reverse merger."*fn6 Following the reverse merger, PAG changed its corporate name to TAG.*fn7
3. The Agreement and Plan of Exchange filed with the Securities and Exchange Commission ("SEC"), provided for a share issuance and exchange of 240 shares of Apache for every 1 share of PAG, or a total of approximately 24 million shares. The owners of Apache were to receive cash in exchange for their shares. The agreement contemplated that those shares would not be retired but returned to treasury for reissuance to new TAG investors.*fn8
4. As of January 24, 2006, TAG's initial officers were Joseph Parker (CEO), Dan Goldman (CFO) and Christine Cerisse (Corporate Secretary). Parker, Goldman, William T. Jacobsen, Ralph J. Thomson and Adam Jenn were TAG's directors. Christine Cerisse negotiated the reverse merger with PAG on Apache's behalf.*fn9
5. During the fourth quarter of 2005, before the reverse merger, Goldman engaged Angus to provide certain corporate development services for PAG. Angus' responsibilities included assisting PAG in attracting start-up capital investors, recruiting and hiring employees and developing the company's brand. Parker approved of Angus' engagement. Angus' agreement with Goldman called for existing shareholders of Apache ("the Apache Group") to transfer 3 million free trading shares to Angus.*fn10
6. Because the 3 million shares Angus was to receive had already been issued to the Apache Group, TAG needed to buy the shares from the Apache Group in order to transfer them to Angus. The Apache Group agreed to sell the shares to TAG upon the payment to them collectively of $400,000.*fn11 Cerisse understood that once the Apache Group received $400,000, the shares would be released to Goldman for distribution to Angus.*fn12
7. On December 30, 2005, the same day as the reverse merger, stock certificate 842 was issued to Angus for 350,000 free trading TAG shares.*fn13 These 350,000 shares were transferred from an original Apache shareholder into "Angus' name to be held [in escrow] pending th[e] closing of th[e] agreement [for pyament of $400,000] at a future date."*fn14
B. TAG Seeks Investment From the Wilshinsky Group
8. In January 2006, TAG prepared a private placement memorandum to sell up to 10 million shares of TAG common stock for $.50 per share. These shares were to be sold as restricted, non-publicly traded securities subject to sale pursuant to SEC Rule 144. In February, TAG reduced the price to $.48 per share.*fn15
9. Angus contacted Jevon King of Qualico Capital in Vancouver, British Columbia about the opportunity to invest in TAG. King, in turn, contacted Wilshinsky, and put Wilshinsky in contact with Parker. This contact resulted in Wilshinsky and a group of investors he controlled (the "Wilshinsky Group") investing roughly $1 million in March 2006, which investment grew to "[w]ell over $4 million" by the end of the summer of 2006. In exchange for this investment, the Wilshinsky Group acquired 4.5 million shares of TAG stock on March 9, 2006.*fn16
10. In March 2006, TAG's stock transfer agent, Holladay, was instructed to transfer 2.65 million shares of TAG common stock from Apache Group shareholders to Angus. Those shares, which were free trading, were represented by stock certificate numbers 2018, 2019 and 2020, dated March 20, 2006. Angus was identified on each certificate as the stockholder. The certificates were recorded in the TAG stock transfer journal maintained by Holladay. Angus did not take physical possession of the three certificates, which remained in Cerisse's custody for "safekeeping."*fn17
11. Cerisse held certificates 2018 through 2020 in escrow, awaiting the occurrence of two events: (1) payment of the cash balance due the Apache Group and (2) Angus' performance of his corporate development duties to Goldman's satisfaction.*fn18 There was no written escrow agreement.*fn19
12. At the same time that the certificates 2018 through 2020 were prepared for Angus, Cerisse instructed Holladay to transfer stock certificates numbers 2007 through 2017 to members of the Wilshinsky Group. Certificates 2007 through 2017 were delivered to Wilshinsky for distribution to the members of the Wilshinsky Group. The Wilshinsky Group shares were not held in escrow.*fn20
13. Wilshinsky believed that his group's "initial investment was going to be used toward the purchase of [ ] buses" because "[t]hat's . . . what [he] discussed with Joe Parker and with Harry Stokes because they were on a short timetable to start -- to acquire the vehicles from China."*fn21 Wilshinsky was not aware at the time of the initial investment that Cerisse was still owed $400,000 on the shell.*fn22 TAG did not spend any portion of the funds invested by the Wilshinsky Group during the spring and summer of 2006 to pay the $400,000 owed to the Apache Group.*fn23
C. Wilshinsky Group's Second Investment and Conditions
14. In late June or early July 2006, Wilshinsky and Parker took a trip to China to show Wilshinsky "the contacts that [TAG] had in China, . . . the strength of [TAG's] business relationships and . . . [its] partners in China, and to let him know that the people [TAG was] working with in China were strong and had the capability of fulfilling the contracts. . . ."*fn24
15. In August 2006, there was a Board of Directors meeting concerning the financial condition of the company. At the time, the company had significant obligations, including a commitment to purchases buses from China, the cost of a plant and staff in Cameroon, and the cost of an office lease and employees in the United States. The company was running out of money.*fn25
16. At approximately this same time, Wilshinsky first became aware of TAG's financial situation, including the fact that members of the Apache Group was still owed approximately $400,000 for their interest in the shell.*fn26 Cerisse was quite concerned that the payment had not been made.*fn27 Wilshinsky also found out from his co-investor Seid Sadat that Parker had loaned himself $184,000 from TAG's general assets, that Goldman had given himself a $40,000 bonus, and there were arrearages in salaries totaling almost $600,000 that had been paid out but had not been disclosed to shareholders.*fn28
17. Shortly thereafter, Wilshinsky visited Seattle and confronted Parker. "He said that he was not satisfied with the management of the corporation, [Parker's] management of the corporation, and the direction of the company. He felt that it wasn't going fast enough. He had deep personal reservations about [Parker's] ability to manage the company and specifically told me that -- in fact, he threatened. He said . . . we want [Parker] to leave the company. [Parker's] not doing this the way [Wilshinsky] wanted [him] to do it. And if [Parker won't] do this, [Wilshinsky] will sue the company, and [ ] sue [Parker], and [ ] take it over. In fact, . . . his pretty close to exact words were, 'We can do this the hard way, or we can do this the easy way.'" When asked why Wilshinsky said he would sue the company, Parker testified that Wilshinsky "felt that the funds were being misused. . . ."*fn29 Wilshinsky acknowledged that he had threatened Parker. He said he told Parker that he was "going to sue him. [He] was going to go up the street to the State Attorney General and report what [Parker] had done. . . . What he did in taking out moneys, in setting up a side business to receive commissions on a company that he was the Chairman and president of was wrong."*fn30 Wilshinsky continued: "You could say it was embezzlement[.]"*fn31
18. Despite these concerns, in August 2006, the Wilshinsky Group agreed to invest more money in the company. It agreed to make an additional investment in TAG because "[i]f somebody didn't make an [additional] investment, all that had been invested [previously] would have been lost."*fn32 The Wilshinsky Group imposed the following conditions, among others, on its additional investment: (1) Parker and Goldman were to resign as officers and directors of TAG. (2) TAG's outstanding share capital was to be reduced to 35 million shares by having Parker and Goldman surrender approximately 18 million of the 24 million shares issued to them. (3) The approximately $400,000 owed to the Apache Group would be paid.*fn33
19. TAG held a Board of Directors' Meeting on August 22, 2006, at which the directors --
Parker, Goldman, Jenn, and Thompson -- and three individuals -- Cerisse, Wilshinsky, and Sadat -- were present.*fn34 Parker said that Wilshinsky wanted to propose "changes in management, capitalization of the Company and reorganization." Sadat presented the eleven-point proposal, which included a $1.5 million investment by the Wilshinsky Group in return for the changes noted above, among others. The minutes of the meeting report that "Joe [Parker] stated that 1.5 million was a very generous offer and asked about the time frame on the funding. . . . Joe [Parker] said he personally endorse[d] Steve [Wilshinsky's] offer. . . . It is painful for the Company today, but it will be better in the long run." The minutes stated that Wilshinsky would "handle the restructuring of the shares," and would "go over that [subject] with [Cerisse] . . . and [Goldman] separately." Wilshinsky, Cerisse and Goldman would then "recommend what is [was to be] given back in stock and [what was to] be replaced by the issuance of warrants." The minutes stated that Wilshinsky did not believe the restructuring of the stock was "a Board matter," and that he felt it should be done "privately." The minutes noted that Wilshinsky "said the surrender of the 17.6 Million shares and the change of the Board was contingent upon [Cerisse] and the other shareholders [approving] the proposed share restructuring."*fn35 At the time he made this proposal, Wilshinksy believed that Cerisse "was in control of all the shares. . . [i]ncluding Mr. Angus's," as this is what Cerisse had represented to him.*fn36 The Board approved Wilshinsky's proposal unanimously.*fn37
20. A week or two after the August 22, 2006 Board meeting, Cerisse had a conversation with Angus about the stock restructure proposal. She explained "that all of the shareholders, including the founder shareholders and the shareholder consultants brought in by Dan Goldman . . . and of course Dan Goldman and Mr. Parker, everybody would have shares that would be cancelled or reduced if they had not been issued yet, and that that amount . . . would be agreed between [Wilshinsky] and those individuals and that they would be getting some warrants for the portion of the shares cancelled." Cerisse and Angus met over coffee to discuss this; Wilshinsky happened to call Angus during the meeting. Angus "got up and walked away, [and] talked on his cell phone" to Wilshinsky.*fn38
21. Angus testified that during the call, Wilshinsky told him "that everyone needed to recapitalize and agree to do so out of the previous shareholders and people involved in the company so the company would look attractive enough for OPIC to become involved in larger financings. . . . [Wilshinsky] told [Angus] that he wanted [Angus] to take a million and a half shares and a million and a half warrants, and [Angus] told him to put it in writing and [Angus] would get back to him."*fn39 Testifying to the same conversation, Wilshinsky stated that he "recall[ed] the conversation about [Angus] receiving 500,000 shares." Wilshinsky said he called Angus to "confirm[ ] with him what Christine Cerisse had spoken to [Wilshinsky] about, [i.e.,] that [Angus] would receive 500,000 shares." Wilshinsky testified that Angus confirmed that "his shares were going to go down to 500,000" and said that Angus did not ask him "to put that in writing[.]" Wilshinsky also noted that he and Angus discussed the fact that "the company was going to be issuing everybody that was taking a reduction warrants" with an "exercise price" of "a dollar and a half."*fn40 He said that Angus agreed to receive 2 million warrants.*fn41
22. After speaking with Wilshinsky, Angus returned to Cerisse. When he "came back to the table," Angus told Cerisse "that Mr. Wilshinsky had called him and asked him if he would agree to take less shares than what he had been promised by Mr. Goldman, and he would be getting less shares and he would be getting some warrants."*fn42 Cerisse later learned from Wilshinsky that Angus had agreed to reduce his stockholding to 500,000 shares, and to receive 2,000,000 warrants.*fn43
D. Holladay Executes the Stock Transfer
23. On October 26, 2006, Holladay received a letter from an entity named Davlaur Equities, SA, accompanied by original TAG share certificate numbers 847, 844, 845, 2048, 2052, 2042, 2018, 2019, 2020, 848, 2032, 2033, 2034, 2035 and 811, all of which had been held by Cerisse.*fn44 Sharon Owen and Tom Laucks, co-owners of defendant Holladay, testified that their company had a long-standing relationship with Cerisse.*fn45 The letter Holladay received, however, was not signed by Cerisse, but by an individual named Lorenzo Oliva. Oliva was not an officer, director or employee of TAG.*fn46 Owen and Laucks testified that Lorenzo Oliva was an individual of whom they had heard, but whose title and authority was unknown to them.*fn47 Owen stated, however, that at the time of the transfer, she would have been "more familiar with" Oliva. She also noted that the letter instructed her to send the certificates to James Vandeberg, whom she "kn[e]w as part of this company, [TAG's] attorney."*fn48 Owen stated that she understood the instruction from Oliva to be effective because Holladay had "ha[d] some communication with [Vandeberg] that [Holladay] w[as] to work with this Lorenzo Oliva."*fn49 Laucks testified that Oliva "had something to do with [TAG] -- I don't know what he was. But he acted as an escrow agent for Transnational Automotive in more than one situation."*fn50
24. Oliva's letter stated that certificates 2018, 2019 and 2020, held in Angus' name, as well as two other certificates, held in the names of Paul Marek and Cumblico Beach Inc., "ha[d] never been delivered or deposited, and that [Davlaur] ha[d] been instructed to return the shares to the original owners."*fn51 Oliva instructed Holladay to cancel stock certificates, 2018 (650,000 shares), 2019 (1 million shares) and 2020 (1 million shares), issued in the name of Hamish Angus, and "reissue shares in the original owners' names."*fn52 The original owners of the shares were: Eagle Transport (95,404 shares), Clinica Natural Limited (154,596 shares), Midian Investments, S.A. (250,000 shares), Davlaur Equities (1,400,000 shares), and Angus (150,000 shares).*fn53 Once the shares were reissued in the original owners' names, the letter instructed Holladay to transfer the shares to the following entities: Gatineau Pension Fund (1,100,000 shares) and Davlaur Equities (1,400,000 shares), Mazel Trust (2 million shares) and Moshe Wilshinsky (500,000 shares).*fn54
25. Holladay executed this instruction on or about November 3, 2006. Holladay had issued share certificate numbers 2018, 2019 and 2020 to Angus on March 9, 2006. Angus had not endorsed the certificates for transfer, and the certificates did not have any medallion signature guarantees*fn55 on them. The certificates were delivered to Holladay without any documentation signed by Angus evidencing his consent to Davlaur's transfer instructions. Holladay did not request further documentation before executing the Oliva instruction.*fn56
26. Laucks testified that he was "personally aware" that Angus' shares were "never delivered or deposited" because "there was constant communication between the company, meaning Vandeberg and Holladay, about these specific certificates. . . . [F]rom the original transfer, [Holladay] was informed that the company was planning some kind of merger, and [Holladay] was going to get a whole bunch of certificates. . . . That's how [Laucks] knew that these specific ones . . . were supposedly going to an escrow agent."*fn57
27. Laucks stated that "the important part . . . [was] that they were all signed. They were all signature guaranteed. They were presented by Davlaur Equities, which meant that they were freely negotiable instruments, and Davlaur had the power of them because they had them. . . . [Laucks] recall[ed] . . . [that] the Angus certificates were sent back by the escrow agent because the . . . contractual obligation was wasn't met. So it was the escrow agent's responsibility to send them back to be . . . returned to the original owners, which means this transfer was rescinded, or . . . extinguished. It never happened. They [were to] go back to the rightful signature guaranteed certificates."*fn58
28. When asked why Holladay cancelled Angus' certifications without any endorsement, Laucks stated that the shares were not cancelled; rather, he stated, "[Holladay] rescinded the original transfer, which means it never happened. So this was gone. It was reversed. The ownership went back to the original certificates that had proper signature guarantees and signatures, and then the instructions were changed."*fn59 Laucks said he believed the letter from Oliva was an effective and valid instruction because Holladay "created the original transfer. [Holladay] w[as] informed that the transfer was going to Davlaur Equities and that it was going to be held in escrow. And when [Holladay] received those certificates back, and [he and Owen] had communication from the company attorney, and [they] were told that this part of the transfer, the escrow agent had the responsibility to rescind these certificates because the contractual obligation had not been completed. And so the certificates were reversed, rescinded, put in -- [they were] given new instructions for them, and they were returned to the corporate attorney under Davlaur and Vandeberg's communication."*fn60
29. Angus' expert, Jeff Gottfredson, testified that the transfers of
share certificate numbers 2018, 2019, and 2020 "were not done in
conformity with industry practice and standard procedure in the
transfer agency business in that they did not have an en[d]or[s]ement
by Mr. Angus. . . . There was no signature guarantee on the
certificates."*fn61 Gottfredson stated that "allowing
the transfer to go forward without [Angus'] signature did not meet the
standards for stock transfer companies" because "[t]here[ was] no
evidence that Mr. Angus released his interest in the
certificates."*fn62 On cross-examination, Gottfredson
testified that in the case of an escrow, "the transfer agent [does
not] require any endorsement on th[e] certificates[.]"*fn63
He also conceded that "[i]f the counsel for Transnational had
advised that Davlaur Equities was presenting certificates for transfer
in an escrow situation and that Holladay should follow those
instructions," Gottfredson would have been "satisf[ied]" that "Davlaur
had authority to present the[ ] certificates."*fn64
E. Board Does Not Approve Issuance of Warrants
30. On November 7, 2006, Cerisse prepared a Board resolution regarding the issuance of warrants to several shareholders, including Angus. Pursuant to the resolution, Angus would have received 2,000,000 warrants to purchase shares at $1.50.*fn65 The Board did not approve the issuance of warrants, however, because Sadat withdrew his support for the resolution.*fn66 Angus never received any warrants.*fn67
F. Angus Files an Affidavit of Lost Certificate and Demands Compensation
31. In early 2007, Angus contacted Holladay about his certificates. Angus told Laucks that "he [had] lost" "certificates 2092 and 85. . . . And that [Holladay] had the wrong address or whoever sent them to him had the wrong address, that they were never delivered. So [Laucks] e-mailed him two affidavits . . . to fill out, get [the] signature guaranteed, and return to [Holladay]."*fn68 On February 9, 2007, Angus "sent [Holladay] the[ ] affidavits, and [Holladay] replaced [Angus'] two other certificates and returned them." The affidavit stated that Angus had lost certificates 2092 (worth 150,000 shares) and 895 (worth 350,000 shares), for a total of 500,000 shares.*fn69 Angus testified at the time that he "didn't complain to Holladay that [he] w[as] supposed to be getting more than 500,000 shares" because he "figured that because that was all that was there, . . . that was all [he] would ever get."*fn70
32. Angus received 500,000 shares of TAG common stock and sold the shares in open market trades.*fn71 From February to July 2007, he sold 200,000 to 230,000 shares and received proceeds of $200,000 to $220,000.*fn72 He sold the remainder of the 500,000 shares for 48 or 45 cents per share.*fn73
33. During the spring of 2007, Angus, through counsel, demanded compensation for the value of stock certificates 2018-2020, or in the alternative, for reissuance of 2.5 million shares of TAG stock. TAG refused this demand.*fn74
II. CONCLUSIONS OF LAW
A. Legal Standard Governing Conversion (Against TAG and Wilshinsky)
34. "A conversion occurs where the defendant wrongfully exercises dominion over the property of another."*fn75 Bank of N.Y. v. Fremont Gen. Corp., 523 F.3d 902, 914 (9th Cir. 2008) (citing Greka Integrated, Inc. v. Lowrey, 133 Cal.App.4th 1572, 1581 (2005), in turn citing Farmers Ins. Exch. v. Zerin, 53 Cal.App.4th 445, 451 (1997)); see also 5 B. Witkin, SUMMARY OF CAL. LAW, Torts § 699 (10th ed. 2005). To prove conversion, a plaintiff must show: (1) that he owned or had a right to possess the property at the time of the conversion; (2) that defendant disposed of plaintiff's property or converted the property by a wrongful act; and (3) that he suffered damages as a result. Fremont, 523 F.3d at 914 (citing Messerall v. Fulwider, 199 Cal.App.3d 1324, 1329 (1988)); Zerin, 53 Cal.App.4th at 451-52 (setting forth the elements of a conversion claim)).
35. A plaintiff asserting a conversion claim must also prove that he did not consent to defendant's exercise of dominion over the property. Fremont, 523 F.3d at 914 (citing Farrington v. A. Teichert & Son, Inc., 59 Cal.App.2d 468, 474 (1943) (holding that no conversion claim will lie where the property owner consented to the removal of his personal property), and Tavernier v. Maes, 242 Cal.App.2d 532, 552 (1966) ("As to intentional invasions of the plaintiff's interests, his consent negatives the wrongful element of the defendant's act, and prevents the existence of a tort. 'The absence of lawful consent,' said Mr. Justice Holmes, 'is part of the definition of an assault.' The same is true of . . . conversion . . ." (citations omitted)). "[T]he law is well settled that there can be no conversion where an owner either expressly or impliedly assents to or ratifies the taking, use or disposition of his property." Fremont, 523 F.3d at 914 (quoting Farrington, 59 Cal.App.2d at 474).
B. Whether Plaintiff Proved the Elements of a Conversion Claim by a Preponderance of the Evidence
36. Angus failed to prove by a preponderance of the evidence that he had a right to possess the share certificates and the stock they represented at the time of the alleged conversion.*fn76
When Angus entered into an agreement with Goldman and Parker to provide corporate development services to the company that was to become TAG, he was promised that he would receive shares then held by existing shareholders known as the Apache Group. Transfer of those shares to Angus was conditioned on a $400,000 payment to the Apache Group. Cerisse held the shares for Angus in escrow until that condition was satisfied.*fn77
37. In March 2006, when the Wilshinsky Group invested $2.1 million in TAG, the members of the Apache Group expected that they would be paid the $400,000 they were owed for the shell.*fn78 This did not happen, however.*fn79 Cerisse, therefore, continued to hold the shares that had been promised to Angus in escrow.
38. By the time the Apache Group was finally paid the $400,000 it was owed -- in October 2006 -- conditions had been imposed by the Wilshinsky Group that affected the number of shares Angus was to receive. Specifically, the Wilshinsky Group agreed to invest an additional $1.5 million in TAG conditioned on a global restructuring of TAG's stock that would reduce the total number of outstanding shares to 35 million. All of the original shareholders were to accept a reduction in the number of shares they held, so as to permit an increase in the number of shares held by the Wilshinsky Group. Shareholders whose shares were to be reduced were to receive warrants to purchase additional shares of TAG stock at a price of $1.50 per share.
39. The court finds that during an August 2006 telephone conversation with Wilshinsky and an in-person meeting with Cerisse, Angus agreed to reduce his shares to 500,000, and to receive 1.5 million warrants to purchase shares at $1.50 per share. He thus consented to defendants' exercise of dominion over his share certificates and the stock they represented.
40. The court appreciates that Angus testified he did not agree to the share reduction. The court, however, found the testimony of Wilshinsky and Cerisse more credible on this point. Numerous witnesses testified that, given TAG's financial condition at the time, all shares of TAG stock, including Angus' shares, would have been worthless without the additional infusion of capital by the Wilshinsky Group. It was this reality, in part, that led Parker and Goldman to agree to surrender 18 million of their 24 million shares, and that led Cerisse and other shareholders to agree to a global restructuring that would reduce their shares as well. As TAG's corporate development consultant, Angus knew of the company's difficult financial situation. The court therefore finds Wilshinsky's and Cerisse's testimony that Angus consented to the reduction in shares more credible than Angus' testimony that he did not.*fn80
41. As a result, the court concludes that Angus failed to prove by a preponderance of the evidence that he was entitled to possession of the 2.5 million shares he contends were converted on November 3, 2006. Because the court finds that Angus consented to the transfer of the shares, it finds in favor of defendants TAG and Wilshinsky on Angus' conversion claim.*fn81
C. Legal Standard Governing Tortious Interference With Contract (Against Wilshinsky)
42. Under California law, the elements of a "cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts intended or designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage." Pacific Gas & Electric Co. v. Bear Stearns & Co., 50 Cal.3d 1118, 1126 (1990); see Quelimane Co. v. Stewart Title Guaranty Co. 19 Cal.4th 26, 55 (1998); see also Fremont, 523 F.3d at 909 (citing Reeves v. Hanlon, 33 Cal.4th 1140, 1148 (2004)).
43. As respects the third element of the claim, "[n]o liability can arise unless [defendant's] alleged wrongful or unjustified conduct caused the breach." Fremont, 523 F.3d at 909 (citing Weiss v. Marcus, 51 Cal.App.3d 590, 601 (1975), and Augustine v. Trucco, 124 Cal.App.2d 229, 245-46 (1954)). In intentional tort cases, California uses the "substantial factor" test to determine whether causation exists. Fremont, 523 F.3d at 909 (citing Franklin v. Dynamic Details, Inc., 116 Cal.App.4th 375, 391 (2004) (applying the substantial factor test in an intentional interference with contractual relations action, and noting that "a cause of . . . damage . . . is something that is a substantial factor in bringing about an injury, damage, loss or harm")). "The substantial factor standard generally produces the same results as does the 'but for' rule of causation which states that a defendant's conduct is a cause of the injury if the injury would not have occurred 'but for' that conduct." Fremont, 523 F.3d at 909 (quoting Rutherford v. Owens-Illinois, Inc., 16 Cal.4th 953, 969 (1997)).
44. California law defines "substantial" expansively, and courts have cautioned against placing "undue emphasis" on the ordinary meaning of the word. Rutherford, 16 Cal.4th at 969 ("Undue emphasis should not be placed on the term 'substantial.' For example, the substantial factor standard, formulated to aid plaintiffs as a broader rule of causality than the 'but for' test, has been invoked by defendants whose conduct is clearly a 'but for' cause of plaintiff's injury but is nevertheless urged as an insubstantial contribution to the injury. Misused in this way, the substantial factor test 'undermines the principles of comparative negligence, under which a party is responsible for his or her share of negligence and the harm caused thereby'" (citations omitted)); see also U.S. Fid. & Guar. Co. v. Am. Employer's Ins. Co., 159 Cal.App.3d 277, 285 (1984) ("The critical question as to causation in intentional torts is whether the actor's conduct is a substantial factor in bringing about the type of harm which he intended from his original act. [N]o consideration is given to the fact that after the event it appears highly extraordinary that it should have brought about such harm or that the actor's conduct has created a situation harmless unless acted upon by other forces for which the actor is not responsible"(internal citations and some punctuation omitted)).
45. A plaintiff may establish intent to disrupt a contractual relationship by inference or by presenting direct evidence of defendant's intention. Fremont, 523 F.3d at 909. "Thus, the jury may 'infer culpable intent from conduct 'substantially certain' to interfere with the contract [or prospective relationship].'" Savage v. Pac. Gas & Elec. Co., 21 Cal.App.4th 434, 449 (1993) (quoting Seaman's Direct Buying Service, Inc. v. Standard Oil Co., 36 Cal.3d 752, 765-67 (1984)).
46. Unlike intentional interference with prospective economic advantage, discussed infra, "wrongfulness" is not an element of intentional interference with contract. "Because interference with an existing contract receives greater solicitude than does interference with prospective economic advantage, it is not necessary that the defendant's conduct be wrongful apart from the interference with the contract itself." Quelimane Co., 19 Cal.4th at 55 (internal citation omitted); see also Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1158 (2003); Woods v. Fox Broadcasting Sub., Inc., 129 Cal.App.4th 344, 349 (2005).
D. Whether Plaintiff Proved the Elements of a Tortious Interference with Contract Claim by a Preponderance of the Evidence
47. Defendants do not dispute that Angus had a contractual relationship with TAG or that Wilshinsky knew about the contractual relationship.*fn82 The court, therefore, concludes that Angus proved these elements of the claim by a preponderance of the evidence.
48. Because the court has concluded that Angus consented to a reduction in the number of shares he held to 500,000, however, it finds that he agreed to a modification of the terms of the contract, such that the later transfer of his shares did not constitute a breach of that contract. "An essential element of a contract interference claim is proof that the defendant's conduct actually disrupted or breached the plaintiff's contract." Woods, 129 Cal.App.4th at 356 (citing Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 514 n. 5 (1994)). In an action to recover damages for inducing a breach of contract, plaintiff "'must establish, by the evidence, that the contract which otherwise would have been performed, was breached and abandoned by reason of'" defendant's conduct. Allen v. Powell, 248 Cal.App.2d 502, 507 (1967) (citing Hill v. Progress Co., 79 Cal.App.2d 771, 780 (1947)). Because at the time of the transfer of shares, Angus' contractual relationship with TAG entitled him only to 500,000 shares, he failed to prove any actual breach of that contract.
49. Even had Angus not consented to the share transfer, the court
would find that he failed to prove by a preponderance of the evidence
that the contract "otherwise would have been performed[.]" The
evidence clearly showed that Angus' receipt of his shares was
conditioned on the payment of the $400,000 cash balance due to members
of the Apache Group. By the beginning of October 2006, this condition
had not yet been satisfied. Angus failed to prove that without the
Wilshinsky Group's additional investment, the $400,000 cost of the
shell could have been paid, and the escrow condition satisfied.
Indeed, the evidence presented suggests otherwise. All witnesses
agreed that TAG's financial situation in the fall of 2006 was dire.
TAG was unable to meet any of its financial commitments, including the
$400,000 payment to the Apache Group. TAG was having trouble
recruiting additional investment funds. In fact, Wilshinsky testified
that his group agreed to make an additional investment in TAG only
because "[i]f somebody didn't make an [additional] investment, all
that had been invested [previously] would have been lost."*fn83
This testimony makes clear that the Wilshinsky Group agreed
to make the additional investment in an attempt to salvage the $5 million already
invested. As the Wilshinsky Group had been TAG's primary investor
prior to the fall of 2006, no other investor would have had the same
interest in funding a company in TAG's shaky financial situation. More
importantly, none of the testimony indicated that there was any other
possible source of funds to pay the Apache Group and satisfy the
escrow condition, such that Angus would have been entitled to receive
3 million shares.
50. For all of these reasons, therefore, Angus' claim for tortious interference with contract fails.
E. Legal Standard Governing Tortious Interference with Prospective Business Advantage (Against Wilshinsky)
51. The elements of the tort of intentional interference with prospective economic advantage are similar to the elements of an intentional interference with contract claim; the exception is that proof of a legally binding contract is not required. Pacific Gas & Electric Co.,50 Cal.3d at 1126. "The chief practical distinction between interference with contract and interference with prospective economic advantage is that a broader range of privilege to interfere is recognized when the relationship or economic advantage interfered with is only prospective." Id. Thus, a plaintiff pleading such a claim must establish: "(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant." Korea Supply Co., 29 Cal.4th at 1153-54 (internal quotations omitted).
52. Like the tort of intentional interference with contract, intentional interference with prospective economic advantage does not require a specific intent to interfere; it is sufficient that defendant knew that interference was certain or substantially certain to result from his action. Id. at 1156-57. Unlike interference with contract, however, a plaintiff seeking to recover for intentional interference with prospective economic relations must "prove as part of its case-in-chief that the defendant not only knowingly interfered with the plaintiff's expectancy, but engaged in conduct that was wrongful by some legal measure other than the fact of interference itself." Della Penna v. Toyota Motor Sales, U.S.A., Inc., 11 Cal.4th 376, 393 (1995). An act is independently wrongful "if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard." Korea Supply Co.,29 Cal.4th at 1159; SC Manufactured Homes, Inc. v. Canyon View Estates, Inc., 148 Cal.App.4th 663, 673 n. 7 (2007) ("The plaintiff must also prove that the defendant engaged in an independently wrongful act in disrupting the relationship. . . . In this regard, an act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard," quoting Reeves, 33 Cal.4th at 1152 n. 6 (citations and quotation marks omitted)). See also LiMandri v. Judkins, 52 Cal.App.4th 326, 340-41 (1997) ("Della Penna did not specify what sort of conduct would qualify as 'wrongful' apart from the interference itself. Justice Mosk's concurring opinion in Della Penna suggested the wrongfulness requirement would be satisfied by conduct that is independently tortious or a restraint of trade" (citations omitted)).
53. "The tort of negligent interference with prospective economic advantage is established where a plaintiff demonstrates that (1) an economic relationship existed between the plaintiff and a third party which contained a reasonably probable future economic benefit or advantage to plaintiff; (2) the defendant knew of the existence of the relationship and was aware or should have been aware that if it did not act with due care its actions would interfere with this relationship and cause plaintiff to lose in whole or in part the probable future economic benefit or advantage of the relationship; (3) the defendant was negligent; and (4) such negligence caused damage to plaintiff in that the relationship was actually interfered with or disrupted and plaintiff lost in whole or in part the economic benefits or advantage reasonably expected from the relationship." North American Chemical Co. v. Superior Court, 59 Cal.App.4th 764, 786 (1997).
54. As a general matter, a party is liable for negligence only where he owes a duty of care to plaintiff or to a class of which plaintiff is a member. J'Aire Corp. v. Gregory, 24 Cal.3d 799, 803 (1979). A duty of care can arise through a statute or contract, or be premised on the general nature of the activity in which defendant engaged or the parties' relationship. Id. In the context of the tort of negligent interference with prospective economic advantage, the J'Aire Court required that there be proof that "a special relationship exists between the parties. . . ." Id. at 804.
55. To determine whether there was a "special relationship" between the parties, the Court directed that six factors be balanced: "(1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to the plaintiff, (3) the degree of certainty that the plaintiff suffered injury, (4) the closeness of the connection between the defendant's conduct and the injury suffered, (5) the moral blame attached to the defendant's conduct and (6) the policy of preventing future harm." Id. (citing Biakanja v. Irving, 49 Cal.2d 647, 650 (1958)).
56. Courts have found special relationships in a variety of contexts. As the California Supreme Court observed in Aas v. Superior Court, 24 Cal.4th 627, 644-45 (2000)
"To mention just a few, courts have relied on J'Aire to assess a chemical manufacturer's claim against a transportation company for business losses caused by the contamination of its product in shipment (North American Chemical Co. v. Superior Court [(1995] . . . 59 Cal.App.4th 764, 781 785 . . . ); a dairy's claim against the manufacturer of an allegedly defective milking machine for lost profits and property damage (Ott v. Alfa-Laval Agri, Inc. (1995) 31 Cal.App.4th 1439, 1448-1457 . . .); a construction lender/ mortgagee's claim against a builder for construction defects (Sumitomo Bank v. Taurus Developers, Inc.,  . . . 185 Cal.App.3d 211, 223-226 . . .); an abalone packer's claim for lost profits against the manufacturer of unusable cans (Ales-Peratis Foods Internat., Inc. v. American Can Co. (1985) 164 Cal.App.3d 277, 284-290 . . .); and real estate investors' claims for the cost of repairing construction defects in an apartment building (Huang v. Garner,  . . . 157 Cal.App.3d 404, 422-425. . .).
Courts have applied J'Aire in cases where privity exists as well as cases where it does not. Aas, 24 Cal.4th at 645.
F. Whether Plaintiff Has Proven the Elements of Tortious Interference with Prospective Business Advantage by a Preponderance of the Evidence
57. For the reasons stated above, the court concludes that Angus failed to prove by a preponderance of the evidence that Wilshinsky's conduct caused an actual disruption in the economic benefit or advantage that Angus reasonably expected from the relationship with TAG. While there was an economic relationship between Angus and TAG about which Wilshinsky knew, it was not, as of October 2006, an economic relationship from which Angus was likely to receive any future economic benefit or advantage. Stated differently, absent the Wilshinsky Group's further investment in TAG, it is not probable that Angus would have derived any future economic benefit or advantage from his relationship with TAG, as the company would have been unable to meet its financial obligations and would likely have become insolvent. This alone merits judgment in favor of Wilshinsky on both Angus' intentional and negligent interference claims.
58. The court also finds, however, that even had Angus not consented to a reduction in his number of shares, and even had he proved that the escrow conditions could have been satisfied without the Wilshinsky Group's investment (which he did not), he failed to prove by a preponderance of the evidence that Wilshinsky's conduct was independently wrongful. Angus cited two acts that he asserts were independently wrongful: (1) Wilshinsky's conversion of Angus' 2.5 million shares; and (2) Wilshinsky's threats of litigation. Angus contends that both of these alleged acts were independently wrongful because they were "unlawful, that is, . . . proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard." Korea Supply Co.,29 Cal.4th at 1159.
59. Courts have found that the commission of a separate tort satisfies the requirement that there be an independently wrongful act. See, e.g., Monex Deposit Co. v. Gilliam, 680 F.Supp.2d 1148, 1163 (C.D. Cal. 2010) ("[Plaintiff] argues that the intentional acts were independently wrongful because they constituted the tort of attempted extortion. As the Court has determined that [plaintiff] is entitled to summary judgment on its attempted extortion claim against [the defendant], the independently wrongful requirement is satisfied with respect to him"); see also Korea Supply Co., 29 Cal.4th at 1159 ("It follows that the tort may be satisfied by intentional interference with prospective economic advantage by independently tortious means[,]" quoting Della Penna, 11 Cal.4th at 408 (Mosk, J., concurring) (emphasis original)). Cf. Weststeyn Dairy 2 v. Eades Commodities Co., 280 F.Supp.2d 1044, 1090 (E.D. Cal. 2003) (considering whether defendant's alleged conversion of plaintiffs' funds held in trust constituted independently wrongful conduct, and finding that, since the evidence did not support plaintiff's conversion claim, its claim for interference with prospective economic advantage failed as well).
60. Courts have also found that inappropriate threats of litigation will support a claim for tortious interference with prospective economic advantage.*fn84 Cf. Reid-Ashman Mfg, Inc. v. Swanson Semiconductor Service, L.L.C., No. C-06-4693 JCS, 2007 WL 1394427, *12 (N.D. Cal. May 10, 2007) ("The only question remaining [regarding plaintiff's tortious interference with prospective business advantage claim] is whether the alleged conduct is 'independently wrongful.' The Court concludes that by alleging that Reid-Ashman has engaged in sham litigation, it has met this requirement. . . . [U]nfounded litigation has been held by California courts to be independently wrongful," citing PMC, Inc. v. Saban Entm't, Inc., 45 Cal.App.4th 579, 602 (1996) ("Commonly included among improper means are actions which are independently actionable, violations of federal or state law or unethical business practices, e.g., violence, misrepresentation, unfounded litigation, defamation, trade libel or trade mark infringement"), disapproved of on other grounds in Korea Supply Co., 29 Cal.4th at 1159 n.. 11). See also, e.g., Emack v. Kane, 34 F. 46, 52 (C.C.N.D. Ill. 1888) (holding that the court had jurisdiction to restrain defendant from intimidating plaintiff by threatening to bring suit where the threat was not made in good faith, and noting that "[t]he average business man undoubtedly dreads, and avoids, if he can, a lawsuit of any kind. . .").
61. As the court has found in favor of Wilshinsky on plaintiff's conversion claim, Wilshinsky's alleged conversion of the 2.5 million shares cannot support Angus' claim for intentional interference with prospective business advantage.
62. Likewise, the court finds that Angus failed to prove by a preponderance of the evidence that Wilshinsky's conduct in threatening to sue Parker for mismanagement or bring criminal charges against him was independently wrongful. To prevail on this claim, Angus would have had to show by a preponderance of the evidence that Wilshinsky's threat was unfounded or not made in good faith. He failed to do so. The only evidence Angus proffered suggesting that Wilshinsky's threat was unfounded was the equivocal testimony of Parker regarding his conduct. When asked if there was "any substance to the accusation[s]" regarding his financial mismanagement or improprieties "in [his] mind[,]" Parker testified "No, sir."*fn85 But later, when describing why he agreed to Wilshinsky's conditions, Parker stated that "[w]hat the situation was was that if we didn't leave, that there would be lawsuits, founded or unfounded, that would essentially cause the -- any hope of finance for the corporation to dry up for any number of months."*fn86 Thus, even Parker's own testimony indicates that there was a possibility that "founded" lawsuits might have been brought regarding his mismanagement of the company. This aspect of Parker's testimony is consistent with the testimony of Wilshinsky and Sadat, each of whom testified regarding the personal loans Parker had taken and the improper relationship between TAG and a consulting firm Parker owned.*fn87 Furthermore, the minutes of the August 22, 2006 Board meeting, demonstrate general concern regarding "some legal liability involved with the past actions taken by Joe [Parker]."*fn88
63. In light of the evidence presented, the court concludes that Angus failed to prove by a preponderance of the evidence that Wilshinsky's threat of litigation was "unfounded" and thus failed to prove that such conduct was independently wrongful. His intentional interference with prospective economic advantage fails for this reason, as well as for the reason that the evidence showed that there was no probability that Angus would derive any future economic benefit from his relationship with TAG as of October 2006.
64. As respects Angus' claim for negligent interference with prospective economic advantage, the court has already noted that it fails because Angus did not prove that it was probable, as of October 2006, that he would have derived future economic benefit from his relationship with TAG. Assuming, without deciding, that Wilshinsky owed Angus a duty of care,*fn89 the claim also fails because Angus failed to prove that Wilshinsky acted negligently. Wilshinsky approached Angus, explained that his group was prepared to make an additional investment in TAG in exchange for a restructuring of the company's stock that would give them a greater percentage interest in TAG. He and the other investors were prepared to provide more funding to keep TAG in business. Wilshinsky asked Angus to consent to the restructuring. As the court has found, Angus gave his consent. Wilshinsky thus acted with reasonable care in causing the restructuring to be carried out.
G. Legal Standard Governing Wrongful Transfer of Stock Under Nevada Revised Statutes, N.R.S. §§104.8110(4), 104.8404 and 104.8407 (Against TAG and Holladay)*fn90
65. N.R.S. §104.8404(1) provides that "an issuer is liable for wrongful registration of transfer if the issuer has registered a transfer of a security to a person not entitled to it, and the transfer was registered: (a) Pursuant to an ineffective endorsement or instruction; . . . or (d) By an issuer acting in collusion with the wrongdoer." 66. The comment to Uniform Commercial Code § 8-404, upon which N.R.S. §104.8404 is based, notes that "Subsection (a)(1) provides that an issuer is liable if it registers transfer pursuant to an endorsement or instruction that was not effective. For example, an issuer that registers transfer on a forged endorsement is liable to the registered owner. The fact that the issuer had no reason to suspect that the endorsement was forged or that the issuer obtained the ordinary assurances . . . does not relieve the issuer from liability. The reason that issuers obtain signature guaranties and other assurances is that they are liable for wrongful registration."
67. N.R.S. §104.8407 provides that "[a] person acting as . . . transfer agent . . . for an issuer in the registration of a transfer of its securities, in the issue of new security certificates or uncertificated securities or in the cancellation of surrendered security certificates has the same obligation to the holder or owner of a certificated or uncertificated security with regard to the particular functions performed as the issuer has in regard to those functions."
68. The comment to Uniform Commercial Code § 8-407, upon which N.R.S. §104.8407 is based, noted that "[t]ransfer agents, registrars, and the like are here expressly held liable both to the issuer and to the owner for wrongful refusal to register a transfer as well as for wrongful registration of a transfer in any case within the scope of their respective functions where the issuer would itself be liable. Those cases which have regarded these parties solely as agents of the issuer and have therefore refused to recognize their liability to the owner for mere non-feasance, i.e., refusal to register a transfer, are rejected."
H. Whether Plaintiff Proved the Elements of Wrongful Transfer of Stock Under Nevada Revised Statutes, N.R.S. §§104.8110(4), 104.8404 and 104.8407 by a Preponderance of the Evidence
69. As the court has found that Angus consented to the reduction in his shares, he failed to prove by a preponderance of the evidence that TAG authorized the transfer of a security to "a person not entitled to it[.]" As a result, defendants TAG and Holladay are entitled to judgment in their favor on plaintiff's claim for wrongful transfer of stock.
70. Even had Angus not consented to the share transfer, the court concludes that defendants acted pursuant to an effective instruction from Cerisse, the escrow holder. Angus' expert Gottfredson testified on cross examination that in the case of an escrow, "the transfer agent [does not] require any endorsement on th[e] certificates[.]"*fn91 He further stated that "[i]f the counsel for Transnational had advised that Davlaur Equities was presenting certificates for transfer in an escrow situation and that Holladay should follow those instructions" Gottfredson would have been "satisf[ied]" that "Davlaur had authority to present the[ ] certificates."*fn92
71. Gottfredson's opinions corroborate the testimony of Owen and Laucks (1) that when Laucks received Oliva's instructions, he believed the letter to be a direction from an escrow holder; and (2) that because Holladay rescinded a prior transfer of undelivered shares upon the instruction of an escrow holder, due to failure of the escrow conditions, the transfer agent did not need Angus' endorsement.
72. With regard to Oliva's authority to instruct Holladay to make the transfer, Owen and Laucks both testified that their company had a long-standing relationship with Cerisse.*fn93
Vandeberg testified that he believed Cerisse controlled Davlaur Equities.*fn94 Cerisse, of course, had been holding Angus' shares in escrow pending TAG's payment of $400,000 to the Apache Group. Owen testified that Oliva's letter instructed her to send the certificates to Vandeberg, whom she "kn[e]w as part of this company, [TAG's] attorney."*fn95 She also stated that Holladay "ha[d] some communication with [Vandeberg] that [Holladay] w[as] to work with this Lorenzo Oliva."*fn96 Laucks testified that he knew Oliva "had something to do with [TAG] -- [although he didn't] know wh[o] [Oliva] was[,] [he knew that Oliva had] acted as an escrow agent for Transnational Automotive in more than one situation."*fn97 Laucks stated that he believed the letter from Oliva was an effective and valid instruction because Holladay had "created the original transfer. [Holladay] w[as] informed that the transfer was going to Davlaur Equities and that it was going to be held in escrow. And when [Holladay] received those certificates back, and [he and Owen] had communication from the company attorney, and [they] were told that [for] this part of the transfer, the escrow agent had the responsibility to rescind these certificates because the contractual obligation had not been completed. And so the certificates were reversed, rescinded, put in -- given new instructions for them, and they were returned to the corporate attorney under Davlaur and Vandeberg's communication."*fn98
73. Laucks testified that he was "personally aware" that Angus' shares were "never delivered or deposited" because "there was constant communication between the company, meaning Vandeberg and Holladay, about these specific certificates. . . . That's how [Laucks] knew that these specific ones . . . were supposedly going to an escrow agent."*fn99 He noted that "the important part [was] that [the certificates] were all signed. They were all signature guaranteed. They were presented by Davlaur Equities, which meant that they were freely negotiable instruments, and Davlaur had the power of them because they had them. . . . [Laucks] recall[ed] . . . [that] the Angus certificates were sent back by the escrow agent because the . . . contractual obligation was wasn't met. So it was the escrow agent's responsibility to send them back to be . . . returned to the original owners, which means this transfer was rescinded[ ] or . . . extinguished. It never happened. [So the shares went] back to the rightful signature guaranteed certificates."*fn100 When asked to clarify why Holladay would cancel Angus' certificates without an endorsement from Angus, Laucks stated that he "didn't cancel [them]. [Rather, Holladay] rescinded the original transfer, which mean[t] it never happened. . . . It was reversed. The ownership went back to the original certificates that had proper signature guarantees and signatures, and then the instructions were changed."*fn101
74. Based on this testimony, as well as the testimony of Angus' expert, the court concludes that Holladay acted on instructions from the entity holding the shares in escrow, and properly returned the shares to the original owners on the instructions of the escrow holder. Angus failed to demonstrate by a preponderance of the evidence that defendants acted below the standard of care in failing to require an endorsement by him with signature guarantee before returning the shares to Vandeberg in trust for Davlaur Equities and Gatineau Pension Plan.
75. Finally, the court concludes that Angus failed to prove by a preponderance of the evidence that defendants TAG and Holladay violated N.R.S. §104.8404(1) by "acting in collusion with the wrongdoer." Angus contends that Cerisse, TAG's corporate secretary, "collu[ded] with Wilshinsky to deliver the Angus shares to Wilshinsky's nominees as part of Wilshinsky's scheme[ ] to take over TAG. . . ." He asserts that she "acted on Wilshinsky's instruction to transfer the Angus Shares to Wilshinsky's two proxies. . . ," and notes that her "motivation was simple[ -- ] [m]oney[ -- ] [as] [s]he stood to gain most of the $400,000 that would flow into the company if Wilshinsky's group made further investment."*fn102 It thus appears that Angus contends Wilshinsky was the "wrongdoer" with whom TAG, through Cerisse, "act[ed] in collusion" for purposes of N.R.S. §104.8404(1).
76. Neither party cited any authority defining what a "wrongdoer" is for purposes of §104.8404(1), and the court has found none. According the term its ordinary meaning, however, it would appear that the "wrongdoer" is one who attempts to secure a transfer of shares to which he or it is not entitled. This understanding is supported by the statute's use of the word "collude," which means to act together or conspire to achieve a fraudulent, illegal, or deceitful purpose.*fn103 To conclude that Wilshinsky was a "wrongdoer," one would have to conclude that he and his group of investors had no right to any of Angus' shares. The court has found, however, that Angus consented to a reduction in the number of shares he held to 500,000, and that the purpose of the share restructuring was to provide additional shares for the Wilshinsky Group in recognition of its infusion of an additional $1.5 million into TAG. Both Cerisse and Wilshinsky testified that they understood Angus had agreed to the reduction, and the court found their testimony more credible than Angus' testimony to the contrary. The court thus cannot find that Wilshinsky was a "wrongdoer," or that he and Cerisse "colluded" to deprive Angus of shares to which he was otherwise entitled.
77. For the reasons stated, therefore, the court concludes that Angus' claim for wrongful transfer of securities fails.
I. Legal Standard Governing Negligence (Against Holladay)
78. To prove negligence under California law, a plaintiff must establish: "(1) defendant's legal duty of care toward plaintiff, (2) defendant's breach of that duty, (3) damage or injury to plaintiff, and (4) a causal relationship between defendant's negligence and plaintiff's damages." Palm v. United States, 835 F.Supp. 512, 520 (N.D. Cal. 1993); see also Krawitz v. Rusch, 209 Cal.App.3d 957, 963 (1989) ("For a negligence cause of action, the plaintiff must allege a duty, a breach of that duty, and injury to the plaintiff as a proximate result of that breach"); Peter W. v. San Francisco Unified Sch. Dist., 60 Cal.App.3d 814, 820 (1976) ("According to the familiar California formula, the allegations requisite to a cause of action for negligence are (1) facts showing a duty of care in the defendant, (2) negligence constituting a breach of the duty, and (3) injury to the plaintiff as a proximate result").
J. Whether Plaintiff Proved the Elements of a Negligence Claim by a Preponderance of the Evidence
79. For the same reasons that the court concludes Holladay did not wrongfully transfer Angus' shares, it finds that Angus failed to prove by a preponderance of the evidence that Holladay breached any duty it may have owed him as a shareholder.*fn104 Angus asserts that the transfer agent's conduct fell below the standard of care because Holladay transferred stock pursuant to an ineffective instruction and without proper endorsement. As even Angus' expert testified, however, in the case of an escrow, "the transfer agent [does not] require any endorsement on th[e] certificates[.]"*fn105 The expert also stated that "[i]f the counsel for Transnational had advised that Davlaur Equities was presenting certificates for transfer in an escrow situation and that Holladay should follow those instructions," Gottfredson would have been "satisf[ied]" that "Davlaur had authority to present the[ ] certificates."*fn106 As the court has found these facts to be true -- that Holladay acted pursuant to the instructions of an escrow holder, and that Vandeberg informed Holladay that Oliva had the authority to instruct the transfer -- the court concludes that Angus failed to prove that Holladay's conduct fell below the standard of care for a stock transfer agent.
80. Gottfredson suggested that he personally would have asked to see a written escrow agreement. When asked whether the fact that Holladay failed to request a written escrow agreement meant that its conduct fell below the standard of care, however, he noted that "[t]here are no guidelines specifically stated for doing escrows for transfer agencies."*fn107
Gottfredson noted that "[t]he transfer agency transfers stock. They don't get involved in natural escrow except pursuant to the instructions of the escrow."*fn108 This testimony indicates that, despite Holladay's failure to ask for a copy of a written escrow agreement, it did not breach a duty of care to Angus.
81. In addition, Gottfredson's testimony on cross-examination undercut his earlier opinion that transferring the certificates to Vandeberg violated the standard of care because Gottfredson "could find no reference [in the records he reviewed] to Jim Vandeberg as corporate counsel for the issuer."*fn109 Gottfredson was asked whether, "[i]f [he] had known that Mr. Vandeberg was in fact the corporate counsel for the issuer over a period of years, [he] would still" believe a transfer to Vandeberg to be a breach of the standard of care. Gottfredson answered somewhat non-responsively: "Familiarity is no excuse for [not] doing the job or . . . following through on the procedures. If you stick with the procedures and whoever presents to you, make them go through the same set of procedures and same mechanics that you require everyone to, you'll generally be -- it will always work out." Defense counsel asked Gottfredson to clarify whether he believed "it [was] a violation of the standard of care, if [Holladay] kn[e]w that Mr. Vandeberg's the attorney for the company, [not] to go and find out if he's the attorney for the company[.]" Gottfredson responded: "No, it's not, no. I mean, it's not, but it's something I would still do. I'd call the issuer up, say is it okay to do this. I have these instructions. Is that consistent with what your understanding of what you want to have happen." Gottfredson stated that, in this regard, he "would go higher than the standard of care[.]"*fn110
82. As Angus has proffered no other testimony that Holladay breached the standard of care, and as Gottfredson himself testified that Holladay did not violate the standard of care under the facts as the court has found them to be, the court concludes that Angus failed to meet his burden of proof on the negligence claim.
For the reasons stated, the court will enter judgment in defendants' favor on all causes of action.