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JLI Invest S.A. v. Computershare Trust Co., N.A.

United States District Court, D. Massachusetts

January 23, 2017

JLI INVEST S.A., and LIN INVEST S.A., Plaintiffs,
v.
COMPUTERSHARE TRUST COMPANY, N.A., et al. Defendants.

          MEMORANDUM AND ORDER

          ALLISON D. BURROUGHS U.S. DISTRICT JUDGE.

         On March 30, 2015, Plaintiffs JLI Invest S.A. (“JLI”) and LIN Invest S.A. (“LIN”) (together, “Plaintiffs”) filed a complaint against Computershare;[1] Indenix Pharmaceuticals, Inc. (“Idenix”), Merck & Co., Inc. and Imperial Blue Corporation (together, “Merck”) (collectively, “Defendants”). Currently pending before the Court are (1) Idenix and Merck's and (2) Computershare's Motions to Dismiss Plaintiffs' claims on the statute of limitations grounds [ECF Nos. 66, 70].[2] For the reasons stated below, Defendants' motions to dismiss [ECF Nos. 66, 70] are GRANTED IN PART AND DENIED IN PART only with respect to the statute of limitations issues.

         I. BACKGROUND

         a. Factual Background

         For the purposes of the instant Memorandum and Order, only the background relevant to the statute of limitations issues is included. In deciding a motion to dismiss, the Court treats all well-pleaded facts in the operative complaint as true and makes all reasonable inferences in favor of the plaintiff. United States ex rel. Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 383 (1st Cir. 2011). The following facts are taken from Plaintiffs' First Amended Complaint [ECF No. 10 (“Compl.”)].

         Idenix is a biopharmaceutical company engaged in the discovery and development of drugs for treatment of human viral diseases. Based on the Amended Complaint, Idenix is incorporated in Delaware with its principal place of business in Massachusetts. Merck is a pharmaceutical company incorporated in New Jersey with its principal place of business in New Jersey. In 2014, Merck acquired Idenix. Imperial Blue is a wholly owned subsidiary of Merck. Computershare Investor Services, LLC is a Delaware limited liability company, and Computershare Inc. is a Delaware corporation. Computershare Trust Company is a trust company formed under United States law and is a citizen of Massachusetts. It acted as Idenix's transfer agent during the relevant time periods. The Computershare defendants each have their principal place of business in Massachusetts.

         Plaintiffs allege on information and belief that Equiserve acted as Idenix's transfer agent until 2005, at which point Equiserve was acquired by Computershare. After the 2005 acquisition, Computershare acted as Idenix's transfer agent, which included escheat services for Idenix's abandoned or unclaimed securities. The escheat services included finding lost shareholders, communicating with shareholders to prevent escheatment, and determining whether Idenix shares constituted unclaimed property. Plaintiffs were intended third-party beneficiaries of Computershare's contract with Idenix for these escheat services.

         Plaintiffs JLI and LIN are Belgian entities formed by Dr. Gilles Gosselin and Dr. Jean Louis Imbach to hold their shares in Idenix. In 1997, Imbach and Gosselin were part of a research team that synthesized a new drug found to be active against Hepatitis B. Idenix was established in 1998 to help develop the drug. JLI owned 240, 000 shares of Idenix and LIN owned 320, 000 shares of Idenix. The Amended Complaint alleges that Idenix was aware of the relationship between Gosselin, Imbach, JLI, and LIN.

         Under 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 Del. Code tit. 12, §§ 1199, 1201. In November 2008, Computershare, acting as agent of Idenix, reported to the state of Delaware that the 560, 000 shares of Idenix owned by Plaintiffs has been abandoned and constituted unclaimed property. On January 2, 2009, JLI's and LIN's shares in Idenix were escheated to the state of Delaware. The Amended Complaint alleges that “the escheat of such shares was not required or permitted.” Compl. ¶ 37.

         Through 2009, Plaintiffs allege that Computershare and Idenix had Plaintiffs' proper mailing addresses and actually sent correspondence to Plaintiffs regarding their shares, which was never returned as undeliverable. Furthermore, Gosselin, on behalf of LIN, worked with Idenix at least through 2011 and had regular contact with it as part of this relationship. Imbach, on behalf of JLI, worked with Idenix at least through 2006 and had regular contact with it as part of this relationship. Specifically, the Amended Complaint notes that LIN entered into a consulting agreement with Idenix that explicitly acknowledged LIN's shares in Idenix, was executed on January 1, 2007, and was terminated in March 2011. Similarly, JLI entered into a consulting agreement with Idenix that explicitly acknowledged JLI's shares in Idenix, was executed on January 1, 2003, and was terminated on December 31, 2006. Idenix made regular payments to both JLI and LIN under these agreements that they received and cashed. Furthermore, Plaintiffs received periodic account statements related to their shares that specifically noted “[n]o action on your part is required.” Compl. ¶ 53.[3] Plaintiffs state that they were nonetheless never contacted about the possible escheatment of their shares, and that Defendants failed to undertake the required due diligence prior to escheatment. In short, Plaintiffs were completely blind-sided by the escheatment.

         Sometime between March 23, 2009 and April 6, 2009, the state of Delaware liquidated Plaintiffs' shares for a total of $1, 695, 851.75. During that time, according to Plaintiffs, the market for Idenix stock was fairly illiquid and comprised of approximately 50 shareholders. Accordingly, they argue that the sale in 2009 did not represent the true value of their shares.

         It was not until March 30, 2011, upon their own inquiry, that Plaintiffs were informed that their shares had been escheated. At the time, however, Computershare informed them that the shares has been escheated to the state of Massachusetts. On July 9, 2012, Computershare informed Plaintiffs that their shares had actually been escheated to Delaware. In September 2012, Plaintiffs began to pursue a claim with the Delaware Office of Unclaimed Property to recover their shares. Plaintiffs argue, however, that because of Computershare's and Idenix's “lack of responsiveness and assistance, ” they were not able to confirm that their shares had actually been escheated to Delaware until May 2014, and only learned of the liquidation in October 2014. Compl. ¶ 62. In 2014, Merck acquired Idenix at $24.50 per share. Plaintiffs aver that they would have participated in the tender offer had their shares not been escheated. Under the Merck tender offer, Plaintiffs' total shares would have been worth over $12 million. On June 8, 2015, Plaintiffs received a check from Delaware in the amount of $1, 695, 851.75, equal to the amount their shares were sold for.

         b. Procedural Background Relevant to Statute of Limitations Issues

         Plaintiffs initiated this lawsuit on March 30, 2015. They filed an Amended Complaint on July 23, 2015. [ECF No. 10]. The Amended Complaint alleges the following causes of action: negligence (Count I); Massachusetts Chapter 93A violation (II); conversion (III); breach of contract (IV); breach of covenant of good faith and fair dealing (V); breach of fiduciary duty (VI); violations of Massachusetts and Delaware state securities law (VIII); § 1983 violation (IX); and negligent misrepresentation (X).[4] Throughout, for ease of reference, Counts I, III, VI, VIII and X will be collectively referred to as the “tort-based claims” and Counts IV and V as the “contract-based claims.”

         Count I asserts a negligence claim against all Defendants, on the grounds that Computershare and Idenix breached their duties of care to Plaintiff shareholders by, inter alia: (1) wrongfully escheating Plaintiffs' shares; (2) failing to conduct due diligence prior to the escheat, in violation of state and federal law, including 17 C.F.R. § 240.17Ad-17; (3) failing to contact Plaintiffs before escheating their shares, even though Defendants knew how to contact Plaintiffs; (4) in Computershare's case, failing to inquire with Idenix regarding Plaintiffs' contact information and their relationship with Idenix, and in Idenix's case, failing to inform Computershare of such contact information and relationships; (5) failing to provide sufficient information to the State of Delaware to enable Delaware to return Plaintiffs' shares to them; (6) failing to notify Plaintiffs that their shares would be or had been escheated; (7) misrepresenting to Plaintiffs that their shares had been escheated to Massachusetts, which caused a lengthy delay in Plaintiffs' efforts to recover their shares; and (8) failing to disclose to Plaintiffs in any written document that their shares could be subject to escheat under certain circumstances, that the relevant state law on such issues had changed, or that the changes to the law would result in the automatic escheat of Plaintiffs' shares unless immediate action was taken. Plaintiffs further contend that Merck, as successor in interest to Idenix, is liable for Idenix's negligent acts and omissions. Plaintiffs allege that as a result of the Defendants' negligence, Plaintiffs lost over $12 million.

         Count II alleges that Defendants violated Massachusetts General Laws Chapter 93A, § 2 by willingly, knowingly, and recklessly engaging in unfair and/or deceptive acts or practices. The factual allegations supporting the Chapter 93A claim in Count II are similar to those alleged in Count I.

         Count III alleges that all Defendants are liable for conversion. In Count IV, Plaintiffs assert a claim for breach of contract, on the grounds that they were the third-party beneficiaries of the contract between Computershare and Idenix, including any indemnity provisions therein. Plaintiffs contend that both parties breached their respective obligations under the contract, and that Plaintiffs were damaged as a result. Similarly, Count V alleges that the Defendants breached the implied covenant of good faith and fair dealing associated with that contract, in an effort to deprive Plaintiffs of the benefit of the contract.

         Count VI alleges that Idenix and Merck breached their fiduciary duties to the Plaintiffs, to safeguard and protect their shares, to maintain accurate books and records, to avoid making untrue statements of material fact or material omissions, and to refrain from engaging in any practice or course of business that would operate as a deceit. Plaintiffs contend that Idenix knew or should have known that Plaintiffs had not, in fact, abandoned their shares, based on its regular contacts with the Plaintiffs. They also contend that Idenix and its officers failed to inform Plaintiffs of material, non-public information, namely that the company was on the brink of an acquisition, and unfairly profited from the sale and liquidation of Plaintiffs' shares prior to the Merck tender offer.

         In Count VIII, Plaintiffs allege that the Defendants violated their statutory duties under Massachusetts and Delaware state securities laws, to ensure that securities were not wrongly transferred from one person to another. See Mass. Gen. Laws ch. 106, §§ 8-404, 8-405; Del. Code tit. 6, §§ 8-404, 8-405.

         Count IX alleges that all Defendants violated 42 U.S.C. § 1983, insofar as Computershare and Idenix “had a symbiotic and intertwined relationship with Delaware, ” such that Delaware, Computershare, and Idenix “jointly participated in the escheat” of Plaintiffs' shares. See Compl. ¶¶ 144-59. Accordingly, Plaintiffs contend that Defendants' wrongful acts were taken under “color of state law, ” subjecting them to liability under 42 U.S.C. § 1983.

         Finally, Count X alleges that Defendants are liable for negligent misrepresentation, based on Computershare's erroneous statement that Plaintiffs' shares had been escheated to Massachusetts. Plaintiffs also allege that Computershare negligently and recklessly concealed material facts which they were under a legal duty to communicate. Plaintiffs contend that they relied on these ...


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