ALLISON D. BURROUGHS, 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;
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.
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.
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.
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.
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).
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.
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.
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 misstatements and omissions to their detriment, and that Defendants are liable for the resulting $12 million in damages.
As relief, Plaintiffs request compensatory, multiple, and punitive damages, attorneys' fees, costs, and pre and post-judgment interest.
On September 29, 2016, Idenix and Merck filed a Motion to Dismiss for Failure to State a Claim [ECF No. 66], and an accompanying Memorandum of Law in Support [ECF No. 67] and Declaration [ECF No. 68].
"Affirmative defenses, such as the statute of limitations, may be raised in a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), provided that the facts establishing the defense [are] clear `on the face of the plaintiff's pleadings.'"
In short, Defendants argue that all of Plaintiffs' causes of action, except negligent misrepresentation,
The Court must first determine whether the laws of Massachusetts or Delaware provide the statute of limitations for each state law cause of action. In making this determination, the Court applies the choice of law rules of the forum state, in this case, Massachusetts.
Parties agree that Massachusetts law applies to Plaintiffs' contract-based claims, breach of contract (Count IV) and breach of implied covenant of good faith and fair dealing (Count V). Under Massachusetts law, the statute of limitations for contract claims is six years.
Plaintiffs argue that Massachusetts law provides the applicable statute of limitations period for the tort-based claims because the majority of factors weigh in its favor. Namely, two of the Defendants are residents of Massachusetts and the wrongful conduct in this case occurred in Massachusetts. Defendants, on the other hand, argue that Delaware law applies to the tortbased claims (Counts I, III, VI, VIII, and X) because the causes of action involve Delaware companies and an alleged wrongful escheatment under Delaware law.
In this case, many of the acts on which the claims are based took place in Massachusetts and were undertaken by Massachusetts residents, which implicate strong local interests. The tortbased claims, however, with the exception of negligent misrepresentation, are based on the allegedly wrongful escheatment of Plaintiffs' shares under Delaware Escheats Law. Thus, this case is distinguishable from many other cases involving tort-based claims because the tortious actions alleged in this case are inextricably tied to a particular state's law in that it is the Defendants' supposed compliance with the Delaware Escheats Law that gave rise to all of the causes of action in this case. Moreover, the shares were escheated to the state of Delaware, which has already given Plaintiffs some payment in connection with the escheatment, and ultimately liquidated in the state of Delaware, all of which gives Delaware a very significant interest in the resolution of relevant issues, including what qualifies as a proper escheatment under the Delaware Escheats law and whether that is constitutional. Moreover, Idenix is formed under the laws of Delaware. To the extent that the tort-based claims, like breach of fiduciary duty and conversion, involve the internal affairs of a corporation, "the law of the State of incorporation governs claims concerning the internal affairs of a corporation."
Under Delaware (and Massachusetts) law, tort actions, including the state securities law claims, have a three-year limitations period. Del. Code tit. 10, § 8106(a); Mass. Gen. Laws ch. 260, § 2A. With respect to the securities law claims, Massachusetts General Laws Chapter 260, § 2A provides the statute of limitation for statutory violations based in tort.
If the Chapter 93A claim is viable, which is not addressed in this Memorandum, it has a limitations period of four years.
The Court must next determine when the causes of action accrued, or in other words, whether the injury underlying Plaintiffs' causes of action was the escheatment or the liquidation of Plaintiffs' shares. Plaintiffs argue that the causes of action did not accrue until they learned of the appreciable harm (the liquidation of their shares) that resulted from Defendants' wrongful conduct (the escheatment). Defendants argue that Plaintiffs' conception of harm confuses injury and damages and that because the injury was the escheatment as alleged in the Amended Complaint, the subsequent liquidation of the shares may be relevant to assessing damages but not to the accrual date for statute of limitations purposes.
Under Massachusetts law, "[c]auses of action in contract and tort generally accrue at the time of breach or injury."
In this case, the injury and breach that triggered the statute of limitations under both Massachusetts and Delaware law was the Defendants' allegedly wrongful escheatment of Plaintiffs' shares on January 2, 2009. A wrongful escheatment gives rise to causes of action against private parties.
Plaintiffs argue that "Massachusetts courts are unequivocal: the event that triggers the statute of limitations is the discovery by a plaintiff that it has sustained `appreciable harm,' not the mere discovery of a defendant's wrongful conduct." This argument, however, conflates the date of the injury with the discovery rule, which can delay the accrual date for statute of limitations purposes under certain circumstances, but does not determine when an injury occurred. Further, crediting Plaintiffs' analysis would require this Court to conclude that wrongful escheatment itself is not an injury or a harm. Regardless of whether a wrongful escheatment inevitably constitutes a harm, Plaintiffs' Amended Complaint makes clear that the injury they allegedly suffered was the wrongful escheatment, which ultimately led to the wrongful liquidation of their shares at an undervalued price. Even a case cited by Plaintiffs notes that "appreciable harm" occurs even if "the full extent and nature of that harm has not been and cannot be established immediately."
In this case, the wrongful escheatment that triggered the statute of limitations for most of the claims under both Delaware and Massachusetts law happened on January 2, 2009. The one exception is Plaintiffs' claim for negligent representation which is based on representations about the escheatment made on March 30, 2011. Thus, the negligent misrepresentation claim did not accrue until March 30, 2011 at the earliest.
Accordingly, unless the discovery rule applies (discussed below), all of Plaintiffs' state law claims are time-barred. The complaint was filed on March 30, 2015. To be timely, the tortbased claims, except negligent misrepresentation, would have had to be filed by January 2012; the negligent misrepresentation claim by March 2014; the contract-based claims by January 2015; and the 93A claim by January 2013. Even if liquidation provided the date of accrual, all claims, except the contract-based ones, would still be time-barred.
As the parties acknowledge, Massachusetts law provides the statute of limitations for the contract-based claims and the 93A claim. Massachusetts has a discovery rule that tolls the statute of limitations under certain circumstances. The discovery rule applies only when the injury was inherently unknowable.
Thus, for purposes of this case, the discovery rule only tolls the statute of limitations until a plaintiff is on inquiry notice.
To make this determination, "Massachusetts discovery rules require an individualized fact-intensive inquiry."
The Court finds that that it is premature at this stage to determine whether the discovery rule applies without the benefit of relevant discovery. Here, Plaintiffs allege that they received explicit instructions from Defendants that shareholders need not take any affirmative actions regarding their shares. There are no additional facts about the circumstances of the holding of the shares from which the Court can infer whether the escheatment was inherently knowable or unknowable around January 2, 2009 or, if not knowable then, when it might have become knowable. Defendants argue only that Plaintiffs could have inquired. But, given the facts available, the Court could reasonably infer that there were no circumstances that would have rationally caused Plaintiffs to think to inquire into the status of their shares.
Delaware law, which the Court applies to the tort-based claims, has a discovery rule that can toll the statute of limitations if the injury was inherently unknowable and the plaintiff was blamelessly ignorant of the injury.
The fact that Plaintiffs believed that their shares were escheated to Massachusetts, rather than Delaware, does not change the fact that they knew by March 30, 2011 that their shares had been escheated. It is possible, although the Court cannot conclude so on these facts, that Plaintiffs were even on inquiry notice before March 30, 2011. Accordingly, making all reasonable inferences in favor of Plaintiffs at this stage and based on the record currently before the Court, the accrual of the statute of limitations for Plaintiffs' tort-based claims could not be delayed beyond March 30, 2011, the date Plaintiffs learned of the escheatment. Because tort claims under Delaware law have a three-year statute of limitations, Plaintiffs' tort-based claims had to be filed by March 30, 2014 to be timely even if the discovery rule applied. Because the action was not initiated until March 2015, Plaintiffs' tort-based claims, with the exception of negligent misrepresentation, are time-barred.
Plaintiffs' negligent misrepresentation claim (Count X) is based on the allegation that the Defendants provided misinformation in March 2011 about the state to which their shares were escheated. The accrual date is different, but the same analysis involving Delaware's discovery rule applies. At this stage and on these facts, however, the Court cannot determine whether Delaware's discovery rule might apply to save Plaintiffs' negligent misrepresentation claim. Therefore, the claim will not be dismissed at this time.
The Court addresses the statute of limitations inquiry for the § 1983 claim (Count IX) separately because its accrual is governed by federal, rather than state, law.
In this case, the wrongful appropriation took place on the day that Defendants escheated Plaintiffs' shares, or January 2, 2009. Given that the nature of shares is inherently different from the nature of real property, however, it is unclear on these facts whether Plaintiffs had reason to know of the escheatment on January 2, 2009. It is clear, however, that Plaintiffs knew of the injury (the escheatment) by March 30, 2011. This determination is not altered by the fact that Plaintiffs did not know at that time whether the shares were escheated to Delaware or Massachusetts. For accrual of a § 1983 claim to be triggered, "[t]he knowledge required is not notice of every fact which must eventually be proved in support of a claim, but rather knowledge that an injury has occurred."
A § 1983 claim "borrows the appropriate state law governing limitations unless contrary to federal law,"
For the foregoing reason, Defendants' Motions to Dismiss on statute of limitations grounds [ECF Nos. 66, 70] are