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Thorne v. Union Pacific Corp.

United States District Court, W.D. Texas, Austin Division

November 21, 2017

JOHN STEPHEN THORNE, Plaintiff,
v.
UNION PACIFIC CORPORATION and UNION PACIFIC RAILROAD COMPANY, Defendants.

          ORDER

          ROBERT PITMAN UNITED STATES DISTRICT JUDGE

         Before the Court are cross-motions for summary judgment filed by Plaintiff John Stephen Thorne, (Dkts. 81, 84, 85), [1] and Defendants Union Pacific Corporation and Union Pacific Railroad Company, (Dkt. 86). Having reviewed the filings, the relevant law, and the factual record, the Court hereby issues the following Order.

         I. BACKGROUND

         Plaintiff John Stephen Thorne (“Plaintiff”) seeks a declaratory judgment establishing the number, class, and present dollar value of shares of stock he allegedly owns in Union Pacific Corporation (“UPC”) or Union Pacific Railroad Company (“UPRR”) (collectively, “Defendants”). (Am. Compl., Dkt. 12, at 13). Plaintiff also seeks a declaration of the Court regarding the cumulative dollar amounts of the dividends and interest earned on his shares, if any. (Id.).

         Plaintiff's argument is predicated on his ownership of a stock certificate (the “Certificate”) issued by the Southern Pacific Railroad Company (“SPRC”) in 1859. (Id. ¶ 17). The Certificate, which bears the number 1656, issued to Mary Key 300 shares of $100 each. (Id. ¶¶ 17-18; Dkt. 12-1). SPRC subsequently underwent several sales, takeovers, and reorganizations. (Am. Compl., Dkt. 12, ¶¶ 19-31; Stip. Facts, Dkt. 56, ¶¶ 19-49, 70-75). Plaintiff maintains that the 300 shares of SPRC stock at issue in this case survived each of those events. (Am. Compl., Dkt. 12, ¶¶ 19-32).

         Plaintiff alleges that, at some time between 1874 and 1893, Ms. Key or her son “gifted, sold, or otherwise properly conveyed”[2] the Certificate to Lansing Stephen (“L.S.”) Thorne, who was hired by Texas & Pacific Railway Company (“T&PRC”)[3] as a brakeman and eventually became vice president and general manager of the company. (Id. ¶¶ 40-41).[4] Plaintiff alleges that the Certificate was thereafter gifted through generations of the Thorne family, culminating in a 2005 gift to Plaintiff (the great-great grandson of L.S. Thorne). (Id. ¶¶ 42-46). He further alleges that the shares have “evolved and grown into a valuable portion of equity” in UPRR or its holding company UPC.[5]

         II. LEGAL STANDARD

         Summary judgment is appropriate under the Federal Rules of Civil Procedure only “if the movant shows there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A dispute is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254 (1986).

         The party moving for summary judgment bears the initial burden of “informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party bears the burden of persuasion at trial, it must also “support its motion with credible evidence . . . that would entitle it to a directed verdict if not controverted at trial.” Id. at 331.

         Once the movant carries its initial burden, the burden shifts to the nonmoving party to establish the existence of a genuine issue for trial. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585-87 (1986); Wise v. E.I. Dupont de Nemours & Co., 58 F.3d 193, 195 (5th Cir. 1995). The non-movant must respond to the motion by presenting evidence indicating there is a genuine issue for trial. Miss. River Basin Alliance v. Westphal, 230 F.3d 170, 174 (5th Cir. 2000). The parties may satisfy their respective burdens by tendering depositions, affidavits, and other competent evidence. Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir. 1992). The Court views the summary judgment evidence in the light most favorable to the non-movant. Rosado v. Deters, 5 F.3d 119, 123 (5th Cir. 1993). “After the non-movant has been given the opportunity to raise a genuine factual issue, if no reasonable juror could find for the non-movant, summary judgment will be granted.” Westphal, 230 F.3d at 174.

         On cross-motions for summary judgment, the court examines each party's motion independently, viewing the evidence and inferences in the light most favorable to the nonmoving party. White Buffalo Ventures, LLC v. Univ. of Tex. at Austin, 420 F.3d 366, 370 (5th Cir. 2005). “Cross-motions for summary judgment will not, in themselves, warrant the Court in granting summary judgment unless one of the parties is entitled to judgment as a matter of law . . . .” Joplin v. Bias, 631 F.2d 1235, 1237 (5th Cir. 1980). Each party may move for summary judgment using different legal theories that rely on different sets of material facts. Bricklayers, Masons & Plasterers Int'l Union of Am. v. Stuart Plastering Co., 512 F.2d 1017, 1023 (5th Cir. 1975). Nonetheless, cross-motions for summary judgment may be probative of the absence of a factual dispute when they reveal a basic agreement concerning what legal theories and material facts are dispositive. See id.

         III. PLAINTIFF'S PARTIAL MOTIONS FOR SUMMARY JUDGMENT [6]

         Plaintiff filed three partial motions for summary judgment: one regarding Defendant's affirmative defenses, (Dkt. 81); one regarding the effect of an 1868 document pertaining to an event referred to herein as the “Hall Sale, ” (Dkt. 84); and one regarding the import of text found on the back of the Certificate, (Dkt. 85).

         Plaintiff's first partial motion for summary judgment seeks to limit Defendants' affirmative defenses to his claims. (First Partial Mot. Summ. J., Dkt. 81). Specifically, Plaintiff asks the Court to restrict Defendants' arguments against the validity of Plaintiff's stock to a single argument regarding an 1868 sale of SPRC assets to a group of creditors led by R. B. Hall (the “Hall Sale”). (Id. at 1-2; Am. Compl., Dkt. 12, ¶¶ 26-27). Plaintiff argues that he is entitled to this relief because Defendants' “sole stated reason for rejecting Plaintiff's tender of [the Certificate] and request for transfer of Defendant[s'] stock certificates in Plaintiff's name has been their position that [the Hall Sale] destroyed the initial shareholder's equity interest.” (Id. at 2). In so arguing, Plaintiff avers that Defendants' refusal to recognize the Certificate “constitutes an ongoing conversion” outside the scope of any permissible qualified refusal. (Id.).

         Several intermediate Texas courts have found that the refusal to recognize rights in corporate stock or issue new stock certificates based on such rights constitutes conversion. See, e.g., First Nat'l Bank v. South Beaumont Land & Imp. Co., 60 Tex.Civ.App. 315, 128 S.W. 436, 437-39 (Tex. Civ. App. 1910, writ ref'd) (holding that a company's failure to recognize a stock certificate constituted conversion). A defense to conversion exists, however, when the person in possession of the demanded property engages in a “qualified refusal”-that is, when they refuse to surrender the property for a reasonable length of time while there is a reasonable doubt about the claimant's right to possession. Stein v. Mauricio, 580 S.W.2d 82, 83 (Tex. Civ. App.-San Antonio 1979, no writ). To successfully rely on qualified refusal, the person in possession of the demanded property must disclose all reasons for the refusal to the alleged owner of the property. Id. (citing 18 Am. Jur. 2d Conversion § 44 (1965); 89 C.J.S. Trover & Conversion § 59 (1955)) (“For a person in possession to rely on a qualified refusal, it is essential that the qualification be disclosed to the owner. The refusal must be stated distinctly, and all reasons for the refusal that are not mentioned at the time of refusal are waived and cannot be later raised.”).

         Here, Plaintiff alleges that Defendants “asserted only the 1868 Hall Sale as the basis for their qualified refusal, ” thereby waiving “all other purported reasons for such refusal.” (First Partial Mot. Summ. J., Dkt. 81, at 7). Defendants make three arguments in response: first, that the affirmative defense of qualified refusal applies only to a claim for conversion, a claim Plaintiff has not brought; second, that qualified refusal is inapplicable here because Defendants contend they do not possess any of Plaintiff's property; and third, that there is a material fact dispute with respect to whether the Defendants' sole basis for rejecting Plaintiff's tender of the Certificate was that the Hall Sale destroyed the initial shareholder's equity interest. (Resp. First Partial Mot. Summ. J., Dkt. 91, at 1).

         Because summary judgment is appropriate only when “the movant shows there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law, ” Fed.R.Civ.P. 56(a), the Court will consider Defendants' third argument first. Defendants maintain that a dispute exists with respect to whether their sole basis for rejecting Plaintiff's tender of the Certificate and request for the equivalent amount in current stock is that the Hall Sale destroyed the initial shareholder's equity interest in the Certificate. Plaintiff's only evidence is (1) an August 3, 2011 email from UPC in-house counsel Timothy Dunning[7] to Plaintiff's former attorney, Ronald Bair, (Dunning-Bair Email, Dkt. 81-1, at 2)[8]; a portion of Plaintiff's own deposition testimony regarding that communication, (Thorne Dep., Dkt. 81-2, at 5)[9]; and “similar responses [by Defendants] to other inquiries over the past 150 years, ” (Dkt. 81-3). (First Partial Mot. Summ. J., Dkt. 81, at 2, 5). However, in the very email cited by Plaintiff, Mr. Dunning references not just the Hall Sale but also (1) other sales in 1860 and 1861, and (2) the 1872 acquisition of SPRC by TPRC. (Dunning-Bair Email, Dkt. 81-1, at 2). Additionally, an email between Plaintiff and Mr. Bair regarding a telephone conversation the latter had with Mr. Dunning notes that Mr. Dunning mentioned not only the Hall Sale but also a stock ledger from 1871 and the 1872 acquisition of SPRC by TPRC. (Bair-Plaintiff Email, Dkt. 86-40, at 2-3). These facts indicate, at the very least, that Defendants may have provided other bases for their refusal. Therefore, with respect to this issue, Plaintiff has failed to show that there is no genuine dispute as to any material fact. As a result, he is not entitled to judgment as a matter of law. Plaintiff's first partial motion for summary judgment, (Dkt. 81), is DENIED.

         For the reasons stated below, see infra Parts IV-V, the Court concludes that Plaintiff's second and third partial motions for summary judgment, (Dkts. 84, 85), are moot. The Court therefore proceeds to an analysis of Defendants' motion.

         IV. DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

         Defendants argue they are entitled to summary judgment on Plaintiff's claims because (1) Plaintiff cannot prove he is the true and rightful owner of the stock interest the Certificate once represented; (2) Plaintiff's claims are barred by the applicable statute of limitations; (3) Plaintiff's claims are barred by laches; (4) the stock in question was extinguished at least 147 years ago, if not before, by various corporate transactions, and (5) Plaintiff has no evidence to establish the declaratory judgments requested. (Defs.' Mot. Summ. J., Dkt. 86, at 1-7). Given the historical nature of Plaintiff's claims, the Court deems it prudent to begin its analysis with Defendant's second and third arguments: the statute of limitations and laches.

         A. Statute of Limitations

         The parties in this matter dispute whether the statute of limitations has run. Both agree that the statute of limitations for a stockholder to assert his rights to recover stock and back dividends is generally four years, with claims accruing once a demand is made by the alleged stockholder and the corporation refuses the demand. Cavitt v. Amsler, 242 S.W. 246, 248 (Tex. Civ. App. Austin 1922, writ dism'd w.o.j.); Yeaman v. Galveston, 167 S.W. 710, 722-23 (Tex. 1914); (Defs.' Mot. Summ. J., Dkt. 86, at 20; Pl.'s Resp., Dkt. 94, at 12). But Defendants assert the Court should interpret that rule in light of other courts' more recent adoption of an “inquiry notice” standard. (Defs.' Mot. Summ. J., Dkt. 86, at 20). Courts using “inquiry notice” evaluate whether a demand by an alleged stockholder is barred by the applicable statute of limitations by considering when the alleged stockholder knew or should have known that her rights were being denied. See, e.g., Whitney v. Guys, Inc., 826 F.3d 1074 (8th Cir. 2016); Egner v. Talbot's, Inc., 214 P.3d 272 (Alaska ...


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