Some Claims Tossed in $136 Million Stock Case

SAN FRANCISCO (CN) – A federal judge dismissed several claims against Franklin Resources and its former CEO Charles B. Johnson, who are blamed for the loss or theft of $136 million in shares and dividends.
Anthony P. Miele III sued Johnson and Franklin Resources on Jan. 14, demanding the reissuance of 2.5 million “ lost or stolen ” shares, $19 million in dividends and damages for fraudulent concealment, breach of fiduciary duty, negligence and other claims.
U.S. Magistrate Judge Laurel Beeler on Tuesday dismissed with prejudice most of Miele’s claims against Franklin Resources and all claims against Johnson. But Beeler allowed Miele to proceed with claims that Franklin Resources breached its fiduciary duty under Delaware law and violated Delaware securities laws.
Miele III and his father, Anthony P. Miele Jr., owned shares of stock in Franklin Resources through a joint trust. Miele Jr. said he received 4,000 shares in 1973 in return for loaning Franklin Resources $100,000 during a time of financial struggle for the company.
Over time, the shares paid dividends and were split, accumulating $186,496.88 in uncashed dividend checks and 140,625 shares by 1991, Miele claims.
Since then, more stock splits resulted in the trust owning 2,531,250 shares and $19,637,578 in dividends by the end of 2014. The closing share price of $54 on Jan. 8 valued the shares at more than $136 million, Miele said.
According to the Aug. 18 ruling, Johnson recalled receiving a report around 1991 that shares and dividends in the Miele trust account were about to escheat to the state of New Jersey because correspondence sent to Miele was returned as undeliverable.
Miele said Johnson then delegated the task of ensuring those shares were properly delivered to Eugene Mulvihill, even though Mulvihill’s company, Mayflower, had been accused of stock manipulation and fraud, and Mulvihill convicted of numerous crimes, including forgery, and barred from the securities industry for life.
Miele claimed Mulvihill gave him some money in 1990 but never told him the source of it or that he owned shares and dividends.
On June 17, 1991, an application for a replacement stock certificate was submitted, redirecting all of Miele’s future shares and dividends to FN Wolf & Co., successor to the assets of Mulvihill’s former company, Mayflower.
In 2012, Johnson contacted Miele III’s sister to inquire if her family ever received the stock shares and dividends, according the ruling.
Miele later learned that another man, (nonparty) John Steinbach, signed Miele’s signature to a document for Mulvihill. When speaking with Mulvihill about the issue on Oct. 27, 2012, Miele said, Mulvihill warned him that if he investigated the matter, Mulvihill would “‘hire a Russian hit man” to kill him and his family. Mulvihill died 10 days after that conversation, according to Miele.
One year later, Steinbach invited Miele to a golf outing, where he told Miele that he “ought to leave things from the past alone” and that “people did a lot of things back then that they don’t want brought back up,” according to Miele.
Beeler dismissed with prejudice Miele’s claims for breach of fiduciary duty, negligence, fraudulent concealment and negligent prevention of assistance. Because all allegations against Johnson were dismissed, he was removed as a defendant.
But Beeler allowed Miele to press his claims for replacement of a lost or stolen share certificate and for wrongful transfer of shares under Delaware law. She found that Miele filed those claims within Delaware’s 3-year statute of limitations, citing Miele’s claim that he first learned about the missing shares in October 2012.
Beeler said Miele’s claims of negligence and negligent prevention of assistance under California law are barred by the state’s 2-year statute of limitations.
Miele’s fraudulent concealment claim under California law falls within the state’s 3-year limit, but Beeler dismissed it on other grounds, finding Miele failed to present facts to support his claim that Johnson or Franklin Resources knew that shares had been transferred illegally.
“Mr. Miele III never alleges any factual support for his claim that Mr. Johnson or Franklin Resources knew that the shares had been transferred illegally (as opposed to legally),” Beeler wrote. “He also cites no authority showing that Mr. Johnson or Franklin Resources had a duty to disclose this information to him.”
In a separate Aug. 18 ruling , Beeler denied Franklin Resources’ motions for sanctions against Miele’s counsel. It claimed the attorneys filed a frivolous complaint and refused to turn over exculpatory documents.
“The court cannot conclude on record that Mr. Miele III’s counsel unreasonably and vexatiously multiplied the proceedings by making defendants’ counsel wait until discovery opens to obtain documents relevant to this action,” Beeler wrote.
Miele is represented by Jeffery Liddle of Liddle Robinson in New York City. Franklin Resources and Johnson are represented by Nanci Nishimura of Cotchette Pitre & McCarthy, of Burlingame, Calif.

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