Anthony Miele, III v. Franklin Resources, Inc. ( 2018 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS NOV 23 2018
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
ANTHONY P. MIELE III, No. 17-16030
Plaintiff-Appellant, D.C. No. 3:15-cv-00199-LB
v.
MEMORANDUM*
FRANKLIN RESOURCES, INC.;
CHARLES B. JOHNSON,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of California
Laurel D. Beeler, Magistrate Judge, Presiding
Argued and Submitted October 11, 2018
San Francisco, California
Before: TASHIMA and MURGUIA, Circuit Judges, and CHATIGNY,** District
Judge.
Plaintiff-Appellant Anthony P. Miele III brings this diversity action against
Defendants-Appellees Franklin Resources, Inc. (“Franklin”), and its former Chief
Executive Officer, Charles B. Johnson, seeking relief under Delaware law for the
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Robert N. Chatigny, United States District Judge for
the District of Connecticut, sitting by designation.
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defendants’ mishandling of his shares of Franklin common stock. The District
Court granted summary judgment to Franklin after concluding that Miele’s claims
are time-barred, and granted Johnson’s motion to dismiss on the ground that
Johnson had not breached his fiduciary duty to Miele. We assume the parties’
familiarity with the facts and procedural history. After de novo review, we affirm.
See John Doe 1 v. Abbott Labs., 571 F.3d 930, 933 (9th Cir. 2009).
I. Claims Against Franklin
Miele brings claims against Franklin for (1) wrongful registration of
securities, 6 Del. C. § 8-404; and (2) replacement of lost, destroyed, or wrongfully
taken security certificates, 6 Del. C. § 8-405. Franklin relies on 6 Del. C. § 8-406,
which provides an affirmative defense to both claims. Section 8-406 provides: “If
a security certificate has been lost, apparently destroyed, or wrongfully taken, and
the owner fails to notify the issuer of that fact within a reasonable time after the
owner has notice of it and the issuer registers a transfer of the security before
receiving notification, the owner may not assert against the issuer a claim for
registering the transfer under Section 8-404 or a claim to a new security certificate
under Section 8-405.” Franklin contends that Miele had notice of the loss,
apparent destruction, or wrongful taking of his Franklin shares in 1992, more than
two decades before he notified Franklin. Miele replies that he did not have notice
until 2012 or 2013. Based on careful analysis of the extensive summary judgment
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record, the District Court concluded that Miele had notice in 1992 by virtue of a
letter he received from the Internal Revenue Service, that he failed to notify
Franklin within a reasonable time, and that Franklin was therefore entitled to
summary judgment under § 8-406. We affirm for substantially the same reasons
stated by the District Court.
Delaware law provides that a person has notice of a fact if “[f]rom all the
facts and circumstances known to the person at the time in question,” the person
“has reason to know that it exists.” 6 Del. C. § 1-202(a)(3); see also Hercules Inc.
v. Leu Tr. & Banking (Bahamas) Ltd., 611 A.2d 476, 484 (Del. 1992) (observing
that a person has “reason to know” of a fact “when he or she possesses information
from which a person of reasonable intelligence . . . would infer that the fact in
question exists”) . The IRS notice Miele received in 1992 informed him that he
owed taxes on over $40,000 of dividends from Franklin shares. The notice put him
in possession of information from which a person of reasonable intelligence would
infer that he owned Franklin shares entitling him to significant dividends, which he
had not received. Hercules, 611 A.2d at 484. At that time, Miele had “reason to
know” that any Franklin shares he owned had been “lost, apparently destroyed, or
wrongfully taken.” 6 Del. C. §§ 1-202(a)(3), 8-406.1
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The District Court concluded that 6 Del. C. § 8-406’s clock begins to
run when a plaintiff receives inquiry notice. Miele v. Franklin Res., Inc., No. 15-
CV-00199-LB, 2017 WL 1407703, at *19-24 (N.D. Cal. Apr. 20, 2017). A
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The District Court therefore correctly concluded that 6 Del. C. § 8-406 bars
Miele’s claims against Franklin. Miele’s more than two-decade delay in notifying
Franklin of his loss was unreasonable. Furthermore, unrebutted record evidence
establishes that Franklin registered a transfer of the securities. Miele disputes that
a transfer occurred, but he does not proffer a plausible alternative explanation for
his removal from the list of Franklin shareholders or the precipitous decline in his
number of Franklin shares to zero. Cf. 17 C.F.R. § 240.17Ad-11 (requiring
transfer agents to periodically reconcile records). Miele argues that 6 Del. C. § 8-
406 applies only when a plaintiff discovers a loss, apparent destruction, or
wrongful taking of shares before a transfer is registered. However, his argument
has no support in the statute’s language or in Delaware case law. See 6 Del. C. §
plaintiff is placed on inquiry notice when, under the circumstances, “persons of
ordinary intelligence and prudence would have facts sufficient to put them on
inquiry which, if pursued, would lead to the discovery of the injury.” In re Dean
Witter P’ship Litig., No. Civ. A. 14816, 1998 WL 442456, at *7 (Del Ch. July 17,
1998) (emphasis in original). The parties dispute whether inquiry and constructive
notice are distinct, and if so, which standard applies. See, e.g., Ibanez v. Farmers
Underwriters Ass’n, 534 P.2d 1336, 1340 (Cal. 1975) (noting that the California
counterpart to Del. C. § 8-406 “contemplates . . . constructive notice”) (citing
Weller v. Am. Tel. & Tel. Co., 290 A.2d 842, 845 (Del. Ch. 1972)); In re Tyson
Foods, Inc., 919 A.2d 563, 585 (Del Ch. 2007) (stating that the plaintiff was on
“inquiry notice” “where the plaintiff was objectively aware, or should have been
aware, of facts giving rise to the wrong”). However, we need not decide which
notice standard governs under § 1-202(a)(3) because the summary judgment record
establishes that Miele had “reason to know” of his claims in 1992, whether
analyzed under a constructive or inquiry notice standard. 6 Del. C. § 1-202(a)(3).
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8-406 (requiring that the issuer register a transfer before the issuer receives
notification of plaintiff’s claim); Weller v. Am. Tel. & Tel. Co., 290 A.2d 842, 843-
45 (Del. Ch. 1972) (considering New York equivalent of Del. C. § 8-406 when
plaintiff learned of theft of securities after transfer was registered).2
II. Claim Against Johnson
The District Court correctly dismissed Miele’s breach of fiduciary duty
claim against Johnson. Officers of a Delaware corporation such as Franklin owe
duties of care and loyalty to the corporation and its shareholders. Gantler v.
Stephens, 965 A.2d 695, 708-09 (Del. 2009). Miele’s contention that Johnson
should have contacted him directly about his Franklin shares is divorced from any
business decision and therefore falls outside the scope of Johnson’s duty of care.
See In re Walt Disney Co. Derivative Litig., 907 A.2d 693, 749-50 (Del. Ch. 2005).
Nor has Miele shown a breach of the duty of loyalty, which “[e]ssentially” requires
that “the best interest of the corporation and its shareholders takes precedence over
any interest possessed by a director, officer or controlling shareholder and not
2
Miele asserts that the District Court erred by resolving several factual
disputes against him. However, any such disputes are immaterial. See Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247–48 (1986) (“[T]he mere existence of some
alleged factual dispute between the parties will not defeat an otherwise properly
supported motion for summary judgment; the requirement is that there be no
genuine issue of material fact.”).
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shared by the stockholders generally.” Cede & Co. v. Technicolor, Inc., 634 A.2d
345, 361 (Del. 1993) (emphasis omitted).
AFFIRMED.
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