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Kolber v. Body Central Corp.

United States District Court, Third Circuit

September 19, 2013

GEORGE KOLBER, , Plaintiffs,
v.
BODY CENTRAL CORP. and JULIE DAVIS, Defendants.

Carl D. Neff, Esq., FOX ROTHSCHILD, LLP, Wilmington, DE; Michael J. Canning, Esq. Matthew N. Fiorovanti, Esq. GIORDANO, HALLERAN & CIESLA, Attorneys for Plaintiffs.

Robert W. Whetzel, Esq., RICHARDS, LAYTON & FINGER, P.A., Wilmington, DE; Scott D. Richburg, Esq., FOLEY & LARDNER, LLP, Jacksonville, FL. Attorneys for Defendants.

ANDREWS, U.S. DISTRICT JUDGE:

Presently before the court is Defendants' motion to dismiss the first amended complaint. Plaintiffs filed their initial complaint on August 18, 2011. (D.I. 1). Defendants moved to dismiss (D.I. 14, 17), and the Court granted the motion, dismissing the complaint without prejudice. (D.I. 30). See Kolber v. Body Central Corp., 2012 WL 3095324 (D. Del. July 30, 2012). Plaintiffs filed an amended complaint on August 13, 2012. (D.I. 32). In the Amended Complaint, plaintiffs assert five claims against Body Central: violation of 6 Del. C § 8-401, conversion and trover, breach of implied-in-fact contract, tortious interference with implied contractual relations, and respondeat superior. Plaintiffs assert an additional five claims against both Body Central and Ms. Davis: tortious interference with prospective business advantage, negligence, equitable fraud, securities fraud, and legal fraud.

Defendants have moved to dismiss the Amended Complaint. (D.I. 35). The matter is fully briefed (D.I. 36, 39, 42). For the reasons that follow, the Court will grant defendants' motion to dismiss the Amended Complaint and dismiss plaintiffs' claims with prejudice.

I. FACTUAL ALLEGATIONS

The relevant facts largely have not changed from the original complaint. Mr. Kolber owned 176, 858 shares of common stock of Body Central individually and beneficially through the other two Plaintiffs. (D.I. 32 at ¶¶ 2, 21). The shares contained a restrictive legend, which provided that the securities had not been registered under the Securities Act of 1933. (Id. at ¶ 52). The shares were also subject to a "lock-up agreement, " which prohibited the holder from selling, announcing the intention to sell or transferring any shares of Body Central's stock before the expiration of the lock-up period. (Id. at ¶¶ 46-47). The lock-up period initially was scheduled to expire May 11, 2011 but was extended to May 31, 2011. (Id. at ¶¶ 53, 55).

On May 19, 2011, Plaintiffs' counsel e-mailed Ms. Davis, general counsel for Body Central, to confirm that the lock-up period would expire May 31, 2011 and to advise that they "wished to start the process to have the restrictive legends removed from [their] share certificates." (Id. at ¶ 82). Plaintiffs' counsel also inquired about the appropriate contact person regarding legend removal. (Id.). Ms. Davis responded on May 23, 2011 and confirmed that the lock-up period would expire on May 31, 2011 and advised that she was the appropriate contact person. (Id. ¶¶ 91-92). Plaintiffs' counsel followed up the next day to ask about the specific procedures for obtaining the removal of the restrictive legends. (Id. at ¶103). It is undisputed that Ms. Davis did not respond to the May 24, 2011 e-mail. (Id. at 105; D.I. 15 at 5).

At 10:56 am on May 31, 2011, Plaintiffs' counsel again e-mailed Ms. Davis and advised that Plaintiffs desired to have the restrictive legends removed from their share certificates and asked that Ms. Davis respond to the questions in the May 24 e-mail. (D.I. 32 at ^| 110). Ms. Davis did not respond to that e-mail. However, Foley & Lardner, Body Central's outside counsel, issued an opinion to the transfer agent, which provided that the restrictive legend could be removed from the shares pursuant to SEC Rule 144. (Id. at ¶132). Because the opinion was not issued until one minute before the close of trading and without any prior indication that it would be forthcoming, Plaintiffs allege that they were "never in a position to sell their shares on May 31, 2011." (Id. at 141). Plaintiffs allege Body Central stock was selling for $23.75 to $25 per share on May 31, 2011. (Id. ¶¶ at 12-15). Plaintiffs sold their shares on June 10, 2011, on which day the closing price was $20.39. (Id. at lfl[ 164-65). Plaintiffs further allege that, as a result of Body Central's failure to respond to Plaintiffs' requests for information and Plaintiffs' inability to sell their shares immediately upon expiration of the lock-up period, Plaintiffs suffered a significant loss in the value of their shares. (Id. at ¶¶151, 166).

II. DECISION

A. Violation of 6 Del C. § 8-401 (against Body Central)

In the first count of the Amended Complaint, Plaintiffs re-allege a claim for violation of 6 Del. C. § 8-401. 6 Del. C. § 8-401 provides, in part, that "[where] an issuer is under a duty to register a transfer of a security, the issuer is liable ... for loss resulting from unreasonable delay in registration or failure or refusal to register the transfer." 6 Del. C. § 8-401 (b). As the Court stated in its July 30, 2012 opinion, the only "essential first step" that had to occur before the restrictive legends could be removed was that a Rule 144 opinion letter be provided to the transfer agent. See Bender v. Memory Metals, Inc., 514 A.2d 1109, 1115 (Del. Ch. 1986).

As in the original Complaint, Plaintiffs still "do not allege that Body Central or Ms. Davis delayed in registering the transfer once Plaintiffs actually requested that the restrictive legend be removed on May 31, 2011." (D.I. 30 at 5). Plaintiffs instead continue to argue that responding to an e-mail is an essential predicate to registration of a transfer but cite no legal authority for this proposition. The only cite they provide is to a publication on the SEC's website, which states that "[t]o begin the legend removal process, an investor should contact the company that issued the securities, or the transfer agent for the securities, to ask about the procedures for removing a legend." U.S. Securities and Exchange Commission, Rule 144: Selling Restricted and Controlled Securities, http://www.sec.gov/investor/pubs/rule144.htm (last visited Sept. 18, 2013). The SEC publication expressly states that "[i]t is neither a legal interpretation nor a statement of SEC policy" and further states that "[s]tate law, not federal law, covers disputes about the removal of legends." (Id.). The SEC publication, therefore, is not relevant to this issue and does not change the Court's determination that responding to Plaintiffs' e-mails was not an "essential first step" that had to occur before the restrictive legends could be removed.

The only "essential first step" that had to occur before the restrictive legends could be removed was that a Rule 144 opinion letter had to be provided to the transfer agent. See Bender, 514 A.2d at 1115. The allegations in the Amended Complaint establish that Body Central caused its outside counsel to provide a Rule 144 opinion letter to the transfer agent on the same day Plaintiffs requested it. Therefore, there was no "unreasonable delay." Plaintiffs also argue that, even if Body Central's duties arose only after Plaintiffs advised on May 31 that they wanted the legends removed, "Defendants' delay in notifying Plaintiffs that the letter was forthcoming until 3:59 pm was unreasonable." (D.I. 39 at 6-7). As the Court has already ruled, there was no duty for Defendants to respond to Plaintiffs' inquiries before the Rule 144 opinion was issued. There was no unreasonable delay.

Accordingly, Count 1 of the Amended Complaint is dismissed.

B. Tortious Interference with Prospective Business Advantage (against Body Central and Ms. Davis)

In the second count of the Amended Complaint, Plaintiffs assert a claim for tortious interference with prospective business advantage. Plaintiffs' allegation that "Defendants knew, or should have known, that Plaintiffs intended to sell their shares of common stock of Body Central following the expiration of the lock-up period at the opening of the market for trading on May 31, 2011" remains conclusory and not supported by the factual allegations. (D.I. 32 at ΒΆ181). While alleging that Defendants knew that they intended to sell their shares, they also allege that Plaintiffs did not know whether they would do so. "Plaintiffs did not unequivocally state that they intended to sell their shares immediately on May 31, 2011, as ...


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