DELAWARE SUPREME COURT EXPANDS SHAREHOLDER PROTECTIONS
Companies and Transfer Agents May Be Sued for Wrongful “Escheatment”

New York, NY – In a groundbreaking decision, the Delaware Supreme Court ruled shareholders may sue corporations and transfer agents that determine incorrectly that shares are abandoned. 

Adopting arguments made by Phillips Nizer LLP on four never-before-addressed questions of Delaware law, (1) the court agreed with A. W. Financial Services S.A. (AWF), the plaintiffs, that over 30,000 shares they owned in Empire Resources Inc. (Empire), one of the defendants, were escheated by Empire and the transfer agents even though the required dormancy period of five years had not elapsed, ruling that a new three-year period imposed in 2008 is not retroactive, (2) the court reasoned that common law or statutory causes of action against parties involved in an escheat transaction are not superseded by the Escheat Statute, agreeing with AWF’s allegations of negligence and conversion, opening the door for breach of fiduciary claims, (3) the court eliminated the defendants’ claims for immunity for escheating private property to the state, holding that the companies and the transfer agents are only immune if the security is registered to the state in good faith, and (4) the court agreed with the plaintiff’s argument that the defendants bear the burden of proving a good faith effort was made because good faith is an affirmative defense. 

Jon Schuyler Brooks, a Phillips Nizer litigation partner, argued the case on behalf of AWF, a French investment company.  The ruling in the en banc proceeding is potentially far-reaching as it affects every publicly-traded company and its shareholders.

Background:
In September 2007, the plaintiffs in this case, A.W. Financial Services S.A. (AWF) filed suit in the Southern District Court of New York (SDNY) against Empire Resources, Inc. (Empire), the American Stock Transfer & Trust Co. and Affiliated computer Services Inc., the company that unearthed the stock, of unlawfully transferring over 30,000 shares owned by AWF in Empire to the State of Delaware.  The defendants claim the plaintiff’s stock was abandoned, a charge the plaintiffs vigorously denied.  After the stock was transferred, the share price increased from $4 to more than $32 per share to a total value of more than $870,000.  The Delaware Supreme Court answered all four questions certified by the SDNY in AWF’s favor.  The ruling enables the plaintiffs to pursue the defendants for damages.

About Phillips Nizer LLP:
Phillips Nizer LLP been engaged in a wide-ranging practice of domestic and international law for over 80 years.  Established by world-renowned trial attorney Louis Nizer, the firm consists of lawyers who are well-respected leaders in their fields.  The firm’s principal office is in New York City, with additional offices in Garden City, Long Island and Hackensack, New Jersey.  To learn more about Phillips Nizer LLP, please visit: www.phillipsnizer.com. 

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