United States District Court, D. Massachusetts
MEMORANDUM AND ORDER ON DEFENDANTS' MOTION TO
ALLISON D. BURROUGHS U.S. DISTRICT JUDGE
who were former shareholders of a biotechnology company,
allege that the Defendants wrongfully escheated their shares
to the state of Delaware, on the erroneous assumption that
Plaintiffs' shares had been abandoned. Before the Court
is Defendants' Motion to Stay this action, pending the
resolution of a related litigation filed in the state of
Delaware. [ECF No. 35]. Defendants urge the Court to stay
this case based on the abstention doctrines set forth in
Colorado River Water Conservation District v. United
States, 424 U.S. 800 (1976); Burford v. Sun Oil
Co., 319 U.S. 315 (1943); and/or Railroad Commission
of Texas v. Pullman Co., 312 U.S. 496 (1941). For the
reasons set forth in this Memorandum and Order,
Defendants' Motion is DENIED without prejudice
to renew after the close of discovery.
FACTUAL AND PROCEDURAL BACKGROUND
Facts Alleged in the Complaint
JLI Invest S.A. (“JLI”) and LIN Invest S.A.
(“LIN”) (together, “Plaintiffs”) are
Belgian entities with principal places of business in
Brussels. JLI is 99.99% owned by Dr. Gilles Gosselin and
0.01% by Dr. Jean Louis Imbach. LIN is 99.99% owned by Dr.
Imbach, and 0.01% by Dr. Gosselin.
1997, Dr. Gosselin and Dr. Imbach headed a research team that
synthesized a new Hepatitis B drug. The following year, Dr.
Imbach, Dr. Gosselin, and others founded a biopharmaceutical
company called Idenix Pharmaceuticals, Inc.
(“Idenix”), to develop the drug in collaboration
with Novartis Pharma AG and other entities. Plaintiffs allege
that Drs. Gosselin and Imbach were key participants in
Idenix's business and were well known to Idenix senior
management, including top executives and directors.
was organized as a Delaware corporation, with a principal
place of business in Cambridge, Massachusetts. LIN owned 320,
000 shares of Idenix, and JLI owned 240, 000 shares.
Plaintiffs allege, upon information and belief, that they
were among the largest Idenix shareholders, and that Idenix
was aware that Dr. Gosselin and Dr. Imbach had created JLI
and LIN to hold their shares in the company. Plaintiffs
contend that at all relevant times, they had physical
possession of their stock certificates.
in 2005, Defendant Computershare acted as Idenix's stock
transfer agent. In addition to providing transfer agent
services, Computershare also agreed to provide services
related to the escheatment of Idenix's abandoned or
unclaimed securities. Those services included, for example,
locating lost shareholders, communicating with shareholders
to prevent escheatment of shares, and determining whether any
Idenix shares had been abandoned. Plaintiffs contend that, as
shareholders of Idenix, they were the third party
beneficiaries of Computershare's agreement with Idenix.
further allege that at all relevant times, both Computershare
and Idenix had written records of Plaintiffs' mailing
addresses in Brussels. They also contend that Idenix
periodically communicated with and sent correspondence to
Plaintiffs regarding their shares, and that no such
correspondence sent to Plaintiffs was ever returned to Idenix
or Computershare as undeliverable.
Delaware's state escheat statute, holders of unclaimed or
abandoned property subject to Delaware's jurisdiction are
required to report and remit such property to the State of
Delaware. See 12 Del. C. §§ 1199, 1201.
Plaintiffs allege that in November 2008, Computershare,
acting as Idenix's agent, erroneously reported to the
State of Delaware that Plaintiffs' 560, 000 shares of
Idenix had been “abandoned” and constituted
“unclaimed property.” On January 2, 2009,
Computershare escheated Plaintiffs' shares to the State
of Delaware. Neither Computershare nor Idenix attempted to
contact Plaintiffs prior to escheating their shares, despite
the fact that Idenix and Computershare had been in regular
contact with Plaintiffs on other matters. Nor did the State
of Delaware contact Plaintiffs to inform them that their
shares were about to be, or had been, escheated.
did not learn that their shares had been escheated until
March 30, 2011, after Plaintiffs made inquiries to
Computershare about their stock. According to Plaintiffs,
Computershare and Idenix attempted to justify the escheat by
pointing to a June 30, 2008 amendment to the Delaware
Escheats Law, see 12 Del. C. § 1198(9), which
changed the rules governing the report and escheat of
unclaimed property. Plaintiffs argue that Computershare and
Indenix's interpretation of these amendments is
incorrect, and that their escheat of Plaintiffs' shares
was done unlawfully and in bad faith. They allege that
neither Computershare nor Idenix ever contacted Plaintiffs to
alert them of a change in Delaware's unclaimed property
laws that would result in the automatic escheat of shares
unless immediate action were taken. In fact, Plaintiffs
allege that Computershare sent periodic securities account
statements to them and other shareholders, which
affirmatively stated that “No action on your part is
required, unless you wish to deposit your existing
certificates, sell or request a certificate, or transfer your
book-entry shares.” See Complaint [ECF No. 10]
(“Compl.”) ¶ 53. Plaintiffs also allege, on
information and belief, that Computershare did not begin
including any type of disclosure to shareholders regarding
the potential escheat of shares until 2014, long after
Plaintiffs' shares had been escheated.
also contend that when Computershare finally informed them,
in March of 2011, that their shares had been escheated, the
information Computershare communicated was incorrect.
Specifically, Computershare erroneously reported that
Plaintiffs' shares had been escheated to the Commonwealth
of Massachusetts. As a result of this misinformation,
Plaintiffs expended substantial time, effort, and expense in
trying to determine the whereabouts of their shares.
Plaintiffs learned that their shares had actually been
escheated to the State of Delaware, they filed a claim with
the Delaware Office of Unclaimed Property
(“DOUP”) in September 2012. The DOUP requested
documentation from Plaintiffs, which they provided in October
and December of 2012.
the same time period, Plaintiffs requested documentation from
Computershare and Idenix, including proof that their shares
had been escheated. Computershare and Idenix did not
immediately respond to Plaintiffs' requests, and were
delinquent in providing the requested assistance. As a
result, Plaintiffs were not able to obtain proof that their
shares had been escheated to Delaware until May 2014.
October 2014, Plaintiffs further learned that the State of
Delaware had liquidated their shares. Delaware reported that
it had sold the shares in a series of transactions between
March 24, 2009, and April 6, 2009, shortly after the shares
were escheated. JLI's shares were sold for $726, 792.00,
and LIN's shares were sold for $969,
allege that these amounts do not reflect, and are in fact
substantially lower than, the true value of Plaintiffs'
shares, because at the time the shares were liquidated, very
few investors were buying or selling Idenix stock. As proof
that their shares were undervalued at the time of
liquidation, Plaintiffs note that in June 2014, Idenix
entered into an agreement with Defendant Merck & Co.,
Inc. (“Merck”), under which Merck would acquire
Idenix for $24.50 per share in cash. Plaintiffs allege that
had their shares not been wrongfully escheated, they would
have been eligible to participate in-and would have
participated in-this tender offer. The tender offer was
completed on August 4, 2014, at which time all existing
Idenix shares were cancelled and converted into the right to
receive cash, equal to the $24.50 per share offer. Plaintiffs
contend that if their shares had not been escheated, LIN
would have received $7, 840, 000 for its 320, 000 shares and
JLI would have been entitled to receive $5, 880, 000 for its
240, 000 shares pursuant to the Merck tender offer.
Plaintiffs' Administrative Appeal before the Delaware Tax
learning that their shares had been escheated to Delaware,
Plaintiffs have been pursuing a claim before the DOUP. In
March 2015, Plaintiffs submitted a completed claim form,
which requested that the DOUP provide Plaintiffs with their
560, 000 shares of Idenix stock, or the current fair market
value thereof, which-based on the Merck tender offer-is $13,
March 31, 2015, the DOUP informed Plaintiffs that while it
would not pay them the requested $13, 720, 000, it would
refund Plaintiffs in the amount of $1, 695, 851.75, which
represented the actual proceeds earned through the 2009 sale
of Plaintiffs' Idenix stock. Plaintiffs accepted a check
under protest, and the State of Delaware agreed that
Plaintiffs' acceptance of these funds would not prejudice
their rights to pursue their claims for the remainder.
Delaware law, a property owner dissatisfied with the
determination of its claim by the Delaware State Escheator
may appeal that determination to the Delaware Tax Appeal
Board (the “TAB”). See 12 Del. C. §
1146(b). Accordingly, on July 28, 2015, Plaintiffs filed a
Petition with the TAB, challenging the Delaware State
Escheator's determination that Plaintiffs were only
entitled to the $1, 695, 851.75 in proceeds from the 2009
sale of their stock. See Declaration of Savvas A.
Foukas [ECF No. 37] (“Foukas Decl.”), Ex. C. The
Petition, which names only the Delaware State Escheator as a
defendant, asserts eleven claims for relief, including that
the Escheator violated the Delaware Escheats Law; the federal
common law; Plaintiffs' due process rights under the
United States Constitution and the Delaware state
constitution; the Takings Clauses of both constitutions; the
federal Commerce Clause; and the Friendship, Establishment
and Navigation Treaty between the United States and Belgium
(the “FEN Treaty”). See id. The Petition
further alleges that the State Escheator is liable for
negligence and conversion. In addition to damages, Plaintiffs
request injunctive and declaratory relief.
present time, discovery in the TAB proceeding appears to be
complete, and the parties are currently briefing the matter.
See Joint Status Report [ECF No. 58]. Briefing will
be complete on October 28, 2016, and the TAB is expected to
issue a decision sometime thereafter. See id. After
the TAB renders a decision, either party may appeal that
decision to the Delaware Court of Chancery. See 12
Del. C. § 1146(c).
The Delaware Chancery Lawsuit
and apart from their claim before the TAB, Plaintiffs filed
an additional lawsuit in the Delaware Court of Chancery on
July 9, 2015. See Foukas Decl., Ex. A (the
“Chancery action”). The defendants in the
Chancery action are several Delaware state officials in their
individual and official capacities. See id.
of Plaintiffs' complaint alleges that the Defendants
violated the Delaware Escheats law because, inter
alia, (1) Plaintiffs' shares were not “lost or
abandoned”; (2) the law does not permit the escheat of
foreign-owned shares; (3) defendants retroactively applied
the 2008 amendment to the Esc*heat Law to Plaintiffs; (4)
defendants were not acting in good faith when they liquidated
Plaintiffs' shares; (5) defendants failed to publish the
fact that Plaintiffs' shares had been escheated, and
failed to pay Plaintiffs fair market value for their
property; and (6) defendants unduly delayed in processing
Plaintiffs' claims with respect to their shares, and
provided Plaintiffs with false or incorrect information.
Count II, Plaintiffs allege that the escheat of their shares
violated the federal common law, which prevents ...