Court Opinion

ID: 9395673
Source: CourtListenerOpinion
Date Created: 2023-05-18 16:04:24.7151+00
Date Added: 2024-06-11T17:19:10.547127
License: Public Domain

SUPERIOR COURT
                                 OF THE
                           STATE OF DELAWARE

PAUL R. WALLACE                                          LEONARD L. WILLIAMS JUSTICE CENTER
     JUDGE                                                 500 N. KING STREET, SUITE 10400
                                                            WILMINGTON, DELAWARE 19801
                                                                    (302) 255-0660

                        Date Submitted: April 28, 2023
                         Date Decided: May 18, 2023

Kevin R. Shannon, Esquire                  Deborah S. Birnbach, Esquire
Jaclyn C. Levy, Esquire                    Jennifer Burns Luz, Esquire
Callan R. Jackson, Esquire                 Matthew White, Esquire
POTTER ANDERSON & CORROON LLP              GOODWIN PROCTER LLP
1313 N. Market Street                      100 Northern Avenue
Wilmington, Delaware 19801                 Boston, Massachusetts 02210

Seth Goldman, Esquire                      Samuel T. Hirzel, II, Esquire
Jacob H. Hupart, Esquire                   Kelly E. Rowe, Esquire
MINTZ, LEVIN, COHN, FERRIS,                HEYMAN ENERIO GATTUSO
GLOVSKY AND POPEO, P.C.                    & HIRZEL LLP
919 Third Avenue                           300 Delaware Avenue, Suite 200
New York, New York 10022                   Wilmington, Delaware 19801

Elena C. Norman, Esquire                   Adam C. Ford, Esquire
Mary F. Dugan, Esquire                     FORD O’BRIEN LANDY LLP
Skyler A. C. Speed, Esquire                275 Madison Avenue, 24th Floor
YOUNG CONAWAY STARGATT                     New York, New York 10016
& TAYLOR, LLP
1000 North King Street
Wilmington, Delaware 19801

RE: Gregory J. Parseghian v. Frequency Therapeutics, Inc., et al.
    C.A. No. N22C-08-153 PRW CCLD
    Defendants’ Motion to Dismiss

Dear Counsel:
      This Letter Order resolves Defendants Frequency and Computershare’s
Gregory J. Parseghian v. Frequency Therapeutics, Inc., et al.
C.A. No. N22C-08-153 PRW CCLD
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Motion to Dismiss the Complaint.1
                    I. FACTUAL AND PROCEDURAL BACKGROUND
        Gregory J. Parseghian and Christine M. Parseghian are trustees of two

respective trusts (collectively, the “Trusts”).2 The Trusts hold stock in Frequency

Therapeutics, Inc. (“Frequency”), a biotechnology company.3 The Trusts were early

investors in Frequency before it became a public company.4 When it became a

public company, the Trusts’ Series A preferred stock was transferred to common

stock.5

        Frequency selected Computershare, Inc.’s wholly-owned subsidiary

Computershare Trust Company, N.A. (“Computershare”) to serve as “Frequency’s

corporate transfer agent and provide a suite of investor services.”6           One of

Computershare’s duties as transfer agent was “to register transfers of securities.”7

The “records and accounts of [the Trusts’] shares [in Frequency] were maintained

1
   Computershare and Frequency both moved to dismiss the complaint and submitted a joint
opening brief in support of their motions. D.I. 12, D.I. 13.
2
    Compl. at 1 (D.I. 1).
3
    Id. ¶ 1.
4
    Id. ¶ 22.
5
    Id. ¶¶ 28-29.
6
    Id. ¶¶ 1, 9, 31.
7
    Id. ¶ 31.
Gregory J. Parseghian v. Frequency Therapeutics, Inc., et al.
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by Computershare.”8

         Due to a rise in the stock price, the Trusts decided to sell their shares in

Frequency.9          To affect this sale, on February 2, 2021, the Trusts contacted

Computershare and instructed it to “transfer the [Trusts’] Frequency shares to their

respective accounts at J.P. Morgan.”10

         The Trusts allege that over the next seven weeks Computershare hindered the

Trusts’ attempt to transfer their shares thus prohibiting them from reaching J.P.

Morgan, the broker that was needed to effectuate the sale. The Trusts assert that

Computershare informed them that the account names at J.P. Morgan did not match

the account names at Computershare.11 The Trusts say they fixed the issues (which

they insist were caused by Computershare’s own notation errors) but that

Computershare continued to decline to approve the transfer requests.12

         After seven weeks of attempts—and on the day Frequency’s stock price

8
     Id. ¶ 60.
9
     Id. ¶¶ 57-61.
10
     Id. ¶ 61.
11
   Id. ¶¶ 65, 77-78. In addition to the names not matching exactly, the Trusts assert that
Computershare claimed a ‘transfer of death’ notation on the Trusts’ Computershare accounts
“made it possible that J.P. Morgan was attempting to transfer shares to an account held for different
people” and so it prohibited the transfer. Id. ¶¶ 77-78.
12
     Id. ¶¶ 79-81.
Gregory J. Parseghian v. Frequency Therapeutics, Inc., et al.
C.A. No. N22C-08-153 PRW CCLD
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plummeted (March 24, 2021)—the Trusts say Computershare finally approved the

transfer. 13

         According to the Trusts, Computershare’s actions were the result of a

coordinated campaign between Frequency and Computershare to prohibit or delay

Frequency stockholders from transferring their shares to brokerages so as to prohibit

increased sales activity.14 This, it says: (1) allowed the stock price to artificially

increase; and (2) allowed Frequency executives to sell their stock at those artificially

higher prices.15 In support, the Trusts point to Frequency’s CEO selling over

350,000 shares of Frequency stock between February 1, 2021 and March 1, 2021.16

         In the Complaint, the Trusts pen four claims: breach of the statutory duty of

care against Frequency and Computershare, jointly and severally (Count I);

negligence against Frequency and Computershare, jointly and severally (Count II);

13
     Id. ¶¶ 80-81.
14
     Id. ¶¶ 89-91.
15
    Id. ¶¶ 89-91, 95 (“The only other plausible explanation, alleged here in the alternative, is that
Frequency, with the goal of causing delay, communicated and/or refused to cooperate with
Computershare in order to procure the delay of the transfer of the Plaintiffs’ shares to J.P. Morgan
and prevent their subsequent sale until after Frequency announced the negative news regarding its
Phase 2a study. Frequency and its management knew that announcement spelled the end of its
share value. As a result of their actions and omissions, the Defendants converted the Plaintiffs’
shares and unjustly enriched Frequency.”); id. ¶ 89 (asserting Frequency wanted to give
“management time to profit by selling their shares of the company, while other shareholders could
not”).
16
     Id. ¶ 91.
Gregory J. Parseghian v. Frequency Therapeutics, Inc., et al.
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conversion against Frequency and Computershare, jointly and severally (in the

alternative to Counts I and II) (Count III); unjust enrichment against Frequency and

Computershare, jointly and severally (in the alternative to Counts I and II) (Count

IV).17

         Defendants have moved to dismiss the Complaint under Superior Court Civil

Rules 12(b)(6) and 9(b).

                             II. STANDARD OF REVIEW
         “Under Superior Court Civil Rule 12(b)(6), ‘[t]he legal issue to be decided is,

whether a plaintiff may recover under any reasonably conceivable set of

circumstances susceptible of proof under the complaint.’”18 Under that Rule, the

Court will

         (1) accept all well pleaded factual allegations as true, (2) accept even
         vague allegations as “well pleaded” if they give the opposing party
         notice of the claim, (3) draw all reasonable inferences in favor of the
         non-moving party, and (4) [not dismiss the claims] unless the plaintiff
         would not be entitled to recover under any reasonably conceivable set
         of circumstances.19

         “If any reasonable conception can be formulated to allow Plaintiffs’ recovery,

17
     Id. ¶¶ 96-163.
18
   Vinton v. Grayson, 189 A.3d 695, 700 (Del. Super. Ct. 2018) (alteration in original) (quoting
Super. Ct. Civ. R. 12(b)(6)).
19
   Id. (alteration in original) (quoting Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs.
LLC, 27 A.3d 531, 535 (Del. 2011)).
Gregory J. Parseghian v. Frequency Therapeutics, Inc., et al.
C.A. No. N22C-08-153 PRW CCLD
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the motion must be denied.”20 This is because “[d]ismissal is warranted [only] where

the plaintiff has failed to plead facts supporting an element of the claim, or that under

no reasonable interpretation of the facts alleged could the complaint state a claim for

which relief might be granted.”21

        Under this Court’s Rule 9(b), averments pleading negligence “shall be stated

with particularity.”22 This means, to satisfy Rule 9(b), a negligence claim must state

“(1) what duty, if any, was breached; (2) who breached it; (3) what act or failure to

act breached the duty; and (4) the party upon whom the act was performed.”23

                                      III. DISCUSSION
     A. COMPUTERSHARE WAS NOT A SECURITIES INTERMEDIARY FOR THIS
        TRANSACTION AND THUS THOSE STATUTORY DUTIES IMPOSED ON
        SECURITIES INTERMEDIARIES DO NOT APPLY HERE (COUNT I).

        In Count I, the Trusts assert that Computershare breached its statutory duty of

care in violation of 6 Del. C. §§ 8-506, 8-507, and 8-508.24 The Trusts assert

20
     Id. (citing Cent. Mortg. Co., 27 A.3d at 535).
21
   Hedenberg v. Raber, 2004 WL 2191164, at *1 (Del. Super. Ct. Aug. 20, 2004) (citation
omitted).
22
     Super. Ct. Civ. R. 9(b).
23
   Slade v. Carroll, 2004 WL 440381, at *2 (Del. Super. Ct. Feb. 25, 2004) (citing Myer v. Dyer,
542 A.2d 802, 805 (Del. Super. Ct. 1987)).
24
     Compl. ¶¶ 96-115.
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C.A. No. N22C-08-153 PRW CCLD
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Frequency is jointly and severally liable as Computershare was its agent.25

Defendants assert Count I should be dismissed because Computershare is not a

securities intermediary, so the statute does not apply to it.26 The Trusts insist

Computershare is a securities intermediary.27

        The Trusts aver “Computershare maintained securities accounts for the

Plaintiffs.”28 As proof for this assertion, the Trusts point to an April 2016 letter from

Computershare to the United States Securities and Exchange Commission where it

states “transfer agents are recordkeepers who record the shares held by registered

securityholders on their recordkeeping system and maintain the file of registered

holders[.]”29

        That’s not enough to impose the statutory liability the Trusts suggest. In this

specific transaction Computershare was not a securities intermediary.

25
     Id. ¶ 103.
26
     Mot. to Dismiss at 13-14 (D.I. 13).
27
     Answering Br. at 18 (D.I. 18).
28
     Compl. ¶ 100; Answering Br. at 19.
29
     Compl. ¶ 100 (emphasis in original) (citing letter not included as an exhibit).
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           Six Del. C. §§ 8-506,30 8-507,31 and 8-50832 set out statutory duties imposed

on securities intermediaries.         Under 6 Del. C. § 8-102(a)(14), a securities

intermediary is defined as:

           (i) a clearing corporation; or
           (ii) a person, including a bank or broker, that in the ordinary course of
           its business maintains securities accounts for others and is acting in
           that capacity.33

           The Trusts do not allege that Computershare is a clearing corporation; instead

they assert Computershare satisfies the second definition.34 As stated in the official

comments to the Uniform Commercial Code, “[s]ecurities intermediary means a

person maintaining securities accounts for others.”35 And the official comments list

common examples, such as “clearing corporations holding securities for their

participants, banks acting as securities custodians, and brokers holding securities on

behalf of their customers.”36 A securities account is “an account to which a financial

30
    DEL. CODE ANN. tit. 6, § 8-506 (2021) (duty of securities intermediary to exercise rights as
directed by entitlement holder).
31
    DEL. CODE ANN. tit. 6, § 8-507 (2021) (duty of securities intermediary to comply with
entitlement order).
32
   DEL. CODE ANN. tit. 6, § 8-508 (2021) (duty of securities intermediary to change entitlement
holder’s position to other form of security holding).
33
     DEL. CODE ANN. tit. 6, § 8-102(a)(14) (2021) (emphasis added).
34
     See Compl. ¶ 100; Answering Br. at 19.
35
     UNIFORM COMMERCIAL CODE tit. 6, § 8-102, official cmt. 14.
36
     Id.
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asset is or may be credited in accordance with an agreement under which the person

maintaining the account undertakes to treat the person for whom the account is

maintained as entitled to exercise the rights that comprise the financial asset.”37

        This provision, which is adopted from the Uniform Commercial Code, “was

intended to cover the relationship between institutional investors and their customers

in which the former manages the latter’s holdings.”38

        Separately, while 6 Del. C. § 8-407 does not define “transfer agent,” it states:

        A person acting as authenticating trustee, transfer agent, registrar, or
        other agent for an issuer in the registration of a transfer of its securities,
        in the issue of new security certificates or uncertificated securities, or
        in the cancellation of surrendered security certificates has the same
        obligation to the holder or owner of a certificated or uncertificated
        security with regard to the particular functions performed as the issuer
        has in regard to those functions.39

        Defined in the United States Code40 and case law, a transfer agent is “an

37
     DEL. CODE ANN. tit. 6, § 8-501(a) (2021).
38
   CAPM Corp. v. Protegrity, Inc., 2001 WL 1360122, at *8 (Del. Ch. Oct. 30, 2001); see
UNIFORM COMMERCIAL CODE tit 6., § 8-501, official cmt. 1.
39
     DEL. CODE ANN. tit. 6, § 8-407 (2021).
40
     15 U.S.C. § 78c(a)(25) (2021)
        The term ‘transfer agent’ means any person who engages on behalf of an issuer of
        securities or on behalf of itself as an issuer of securities in (A) countersigning such
        securities upon issuance; (B) monitoring the issuance of such securities with a view
        to preventing unauthorized issuance, a function commonly performed by a person
        called a registrar; (C) registering the transfer of such securities; (D) exchanging or
        converting such securities; or (E) transferring record ownership of securities by
        bookkeeping entry without physical issuance of securities certificates. The term
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C.A. No. N22C-08-153 PRW CCLD
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independent intermediary that facilitate[s] public securities transactions by

performing tasks such as issuing certificates, disbursing dividends, maintaining

ownership records, and distributing proxy voting materials.”41

        The Trusts assert that Computershare maintains the file of the registered

holders, and that this maintenance is synonymous with maintaining securities

accounts for others and acting in that capacity.42 It is not. Maintaining securities

accounts and acting in that capacity “cover[s] the relationship between institutional

investors and their customers in which the former manages the latter’s holdings.”43

It does not cover the relationship between a company’s transfer agent and the

company’s investors. While the transfer agent may be an intermediary, in the

        ‘transfer agent’ does not include any insurance company or separate account which
        performs such functions solely with respect to variable annuity contracts or variable
        life policies which it issues or any registered clearing agency which performs such
        functions solely with respect to options contracts which it issues.
41
    COR Clearing, LLC v. Calissio Res. Gp., Inc., 918 F.3d 579, 584 (8th Cir. 2019); TRANSFER
AGENTS, UNITED STATES SECURITIES AND EXCHANGE COMMISSION: FAST ANSWERS,
https://www.sec.gov/fast-answers/answerstransferagent (last visited May 18, 2023) (stating that
transfer agents perform three main functions: (1) “[i]ssue and cancel certificates to reflect changes
in ownership,” (2) “[a]ct as an intermediary for the company,” and (3) “[h]andle lost, destroyed,
or stolen certificates.”).
        Transfer agents have certain duties imposed on them by the SEC. COR Clearing, LLC v.
Calissio Res. Gp., Inc., 2017 WL 5157607, at *13 (D. Neb. Nov. 6, 2017) (“A transfer agent has
duties imposed by the SEC to ensure the recording is accurate and can fulfill that duty by relying
on corporate resolutions and attorney opinions.”), aff’d 918 F.3d 579 (8th Cir. 2019).
42
    See Answering Br. at 19 (“The Complaint alleges Computershare maintains securities accounts
for others.” (citing Compl. ¶ 100)).
43
     CAPM Corp., 2001 WL 1360122, at *8.
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relationship described here, it is the corporation’s intermediary.44

           The Trusts assert that “Delaware law extends Frequency’s liability for loss

resulting from unreasonable delay or refusal to register [a] transfer to

Computershare, as transfer agent.”45 Here, the Trusts cite to 6 Del. C. §§ 8-407 and

8-401(b) for that proposition.46 But those provisions state only “[a] person acting as

. . . transfer agent . . . has the same obligation to the holder or owner of a certificated

or uncertificated security with regard to the particular functions performed as the

issuer has in regard to those functions.”47 The Trusts brought Count I under 6 Del.

C. §§ 8-506, 8-507, and 8-508, not 6 Del. C. § 8-407. So, to the extent they attempt

to loop in an entirely different and unrelated statutory duty, Count I fails.

44
  TRANSFER AGENTS, UNITED STATES SECURITIES AND EXCHANGE COMMISSION: FAST
ANSWERS, https://www.sec.gov/fast-answers/answerstransferagent (last visited May 18, 2023).
        The Trusts say that the Court of Chancery’s decision in Ohrstrom v. Harris Tr. Co. of New
York, 1998 WL 8849 (Del. Ch. Jan. 8, 1998) supports the theory that an entity can hold multiple
roles such as being both a securities intermediary and a transfer agent. Answering Br. at 19. But
in Ohrstrom, Harris Trust was acting as the transfer agent and stock registrar for one entity and the
exchange agent for the spin-off entity. 1998 WL 8849, at *1. It was not functioning as a securities
intermediary. Separately, the Trusts assert the United States Court of Appeals for the Fourth
Circuit’s decision in Mellon Investor Services, LLC v. Longwood County Garden Centers, Inc.,
265 F. App’x 227 (4th Cir. 2008) is not applicable here because the facts of that case were different.
Answering Br. at 20-21. But Mellon at least implies that a transfer agent cannot be a securities
intermediary. 265 F. App’x at 281 n.9 (“Because the PFG shares were registered directly with [the
corporation] rather than a securities intermediary like a brokerage firm, the direct holding system
rules apply.”).
45
     Compl. ¶ 110.
46
     Id.
47
     DEL. CODE ANN. tit. 6, § 8-407 (2021).
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           Accordingly, Computershare, in this instance, is not a securities intermediary.

Thus Computershare could not have breached 6 Del. C. §§ 8-506, 8-507, and 8-508

here.48

           Thus, the motion to dismiss Count I is GRANTED.

     B. THE COMPLAINT ASSERTS A WELL-PLED CLAIM FOR NEGLIGENCE (COUNT
        II).

           In Count II, the Trusts assert Computershare and Frequency committed

negligence by failing to execute the Trusts’ transfer instruction.49

           In their Complaint, the Trusts assert that Computershare owed a duty to the

Trusts as a bailee, and breached that duty by failing to “exercise reasonable care with

respect to the property under the terms of the bailment.”50 And Computershare’s

failure to exercise reasonable care resulted in “loss or damage to the property.” 51

Additionally, the Trusts assert Frequency is liable as Computershare’s principal.52

48
    Frequency’s liability here is dependent on Computershare’s liability. Because Computershare
could not have breached the statutory provisions at issue, Frequency cannot be jointly and severally
liable for that now-dismissed claim.
49
     Compl. ¶¶ 116-32.
50
     Id. ¶ 121.
51
     Id.
52
     See id. ¶ 118.
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        In their answering brief, the Trusts assert (for the first time53) that

Computershare breached a statutory duty under 6 Del. C. § 8-401 (applicable to

transfer agents through § 8-407) to transfer securities without unreasonable delay;

the Trusts say the 50 days it took Computershare to transfer the shares was

unreasonable.54

        The elements of negligence are: “duty, breach, causation, and harm.”55 Here,

the Trusts seemingly assert two duty theories: common law bailment and 6 Del. C.

§§ 8-401, 8-407.

        “A bailment is defined as a delivery of personal property by one person, the

bailor, to another, the bailee, who holds the property for a certain purpose, usually

under an express or implied-in-fact contract.”56 “If a bailee returns the property in

53
    The Complaint mentions the applicable statute and states “Delaware law extends Frequency’s
liability for loss resulting from unreasonable delay or refusal to register transfer to Computershare,
as transfer agent.” Id. ¶ 110 (citing DEL. CODE ANN. tit. 6, §§ 8-401(b), 8-407). But that statute
is mentioned as supporting only the statutory violation claim, not the negligence claim. See id. ¶¶
116-32.
54
   Answering Br. at 27-28; see DEL. CODE ANN. tit 6, § 8-401(b) (2021) (“If an issuer is under a
duty to register a transfer of a security, the issuer is liable to a person presenting a certificated
security or an instruction for registration or to the person’s principal for loss resulting from
unreasonable delay in registration or failure or refusal to register the transfer.”).
55
     Hudson v. Old Guard Ins. Co., 3 A.3d 246, 250 (Del. 2010) (citations omitted).
56
   Devincentis v. European Performance, Inc., 2012 WL 1646347, at *4 (Del. Super. Ct. Apr. 17,
2012) (citing BLACK’S LAW DICTIONARY, 9th ed. 2009).
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damaged condition, the plaintiff has a choice of remedies.”57

        Delaware has largely adopted Article 8 of the Uniform Commercial Code,58

which includes a statutory duty for issuers to register transfers of securities without

unreasonable delay.59            And that duty is extended to transfer agents via

6 Del. C. § 8-407.60 Accordingly, the statutory duty proscribed on issuers and

transfer agents displaces common law negligence actions for the same conduct.61 So

the common law bailment theory of negligence fails.

        But that does not doom the Trusts’ negligence claim. While Computershare

57
   Id. (citing Celanese Corp. of Am. v. Mayor and Council of Wilmington, 78 A.2d 249, 250-51
(Del. Super. Ct. 1950)).
58
     See 71 Del. Laws ch. 75 (1997).
59
     DEL. CODE ANN. tit. 6, § 8-401(b) (2021).
        If an issuer is under a duty to register a transfer of a security, the issuer is liable to
        a person presenting a certificated security or an instruction for registration or to the
        person’s principal for loss resulting from unreasonable delay in registration or
        failure or refusal to register the transfer.
Defendants argue there is no private right of action under 6 Del. C. §§ 8-506, 8-507, and 8-508.
Mot. to Dismiss at 11-12 & n.6. But in this claim the alleged statutory duty breach can support a
negligence cause of action.
60
    DEL. CODE ANN. tit. 6, § 8-407 (2021) (“A person acting as authenticating trustee, transfer
agent, registrar, or other agent for an issuer in the registration of a transfer of its securities, in the
issue of new security certificates or uncertificated securities, or in the cancellation of surrendered
security certificates has the same obligation to the holder or owner of a certificated or
uncertificated security with regard to the particular functions performed as the issuer has in regard
to those functions.”).
61
     Kolber v. Body Cent. Corp., 967 F.Supp.2d 1061, 1068 (D. Del. 2013).
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is not an issuer,62 it is a transfer agent and 6 Del. C. § 8-407 extends liability for

unreasonable delay in securities transfers to those operators.63

        Defendants say the economic loss doctrine bars the negligence claim.64 The

Trusts counter that the economic loss doctrine does not apply because there is “no

express contract governing Computershare’s conduct with respect to Plaintiffs’

shares.”65

        The economic loss doctrine is a judicially created doctrine that prohibits

“plaintiffs from recovering in tort for losses suffered that are solely economic in

nature.”66 “The driving principle for the rule is the notion that contract law provides

a better and more specific remedy than tort law.”67 At its core, the doctrine

“prohibit[s] a plaintiff from bringing a tort claim ‘where overlapping claims based

62
    Compl. ¶ 137 (“As a transfer agent, Computershare has the same obligation to the holder or
owner of securities (the Plaintiffs) with regard to the particular functions performed as the issuer
(Frequency) has in regard to those functions. 6 Del. C. § 8-407.”).
63
     DEL. CODE ANN. tit. 6, § 8-407 (2021).
64
     Mot. to Dismiss at 29-30.
65
     Answering Br. at 35.
66
    Christiana Marine Serv. Corp. v. Texaco Fuel and Marine Marketing, 2002 WL 1335360, at
*5 (Del. Super. Ct. June 13, 2002) (citing Danforth v. Acorn Structures, Inc., 608 A.2d 1194, 1195
(Del. 1992)).
67
     Brasby v. Morris, 2007 WL 949485, at *6 (Del. Super. Ct. Mar. 29, 2007) (citation omitted).
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in contract adequately address the injury alleged.’”68 “But even where parties are

connected in contract, a tort and contract claim might co-exist if ‘the defendant

breached a duty that is independent of the duties imposed by the contract.’”69

        Defendants rely on J.W. Walker & Sons, Inc. v. Construction Management

Service, Inc.70 for the proposition that the Trusts’ damages for diminution in share

value “is quintessentially economic loss, and Plaintiffs may not recover in tort.”71

But in that case the negligence claim was based on contract.72 Here there is no—

pled or cognizable—contract or breach-of-contract claim.73

        More simply, because a contract did not govern the specific relationship

between the Trusts and Computershare the economic loss doctrine can’t be invoked

here.74

68
   Khushaim v. Tullow, Inc., 2016 WL 3594752, at *4 (Del. Super. Ct. June 27, 2016) (quoting
Brasby, 2007 WL 949485, *6).
69
   Id. (emphasis in original) (quoting McKenna v. Terminex Int’l Co., 2006 WL 1229674, at *2
(Del. Super. Ct. Mar. 13, 2006)).
70
     2008 WL 1891385, at *1 (Del. Super. Ct. Feb. 28, 2008).
71
     Mot. to Dismiss at 29.
72
     J.W. Walker & Sons, Inc., 2008 WL 1891385, at *1 (Del. Super. Ct. Feb. 28, 2008).
73
   The two additional cases cited by Defendants apply New York law and are not helpful here.
Mot. to Dismiss at 30 n.13 (citing King County, Wash. v. IKB Deutsche Industriebank AG, 863
F.Supp.2d 288, 302-04 (S.D.N.Y. 2012) & NCUA Bd. v. Deutsche Bank Nat’l Tr. Co., 410
F.Supp.3d 662, 687-89 (S.D.N.Y. 2019)).
74
    See Council of Unit Owners of Sea Colony East, Phases III, IV, VI and VII Condo. on Behalf
of the Ass’n of Owners v. Carl M. Freeman Assocs., Inc. et al., 1990 WL 177632, at *4 (Del. Super.
Ct. Oct. 16, 1990) (“The decision reflected what is characterized as the Supreme Court’s judgment
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        At this stage, the Trusts successfully plead a claim of negligence via a

statutory duty imposed by 6 Del. C. §§ 8-401, 8-407.

        Defendants say Computershare and Frequency are not in an agency

relationship such that Frequency could be liable for Computershare’s conduct.75 The

Trusts say that Computershare itself said it was Frequency’s agent and made that

representation to the SEC.76

        “The determination of whether an agency relationship exists is normally a

question of fact.”77 And “[t]he party asserting the agency relationship bears the

burden of proving its existence.”78

        Here, the Trusts assert that Computershare was Frequency’s agent and that

Computershare held itself out as such.79 As such, it has brought suit against

that economic loss ‘is essentially the failure of the purchaser to receive the benefit of its bargain-
traditionally the core concern of contract law.’” (quoting East River S.S. Corp. v. Transamerica
Delavul, Inc., 476 U.S. 858, 870 (1986)).
75
     Mot. to Dismiss at 16-18.
76
     Answering Br. at 24-25 (citing Compl. ¶ 32).
77
    Fisher v. Townsends, Inc., 695 A.2d 53, 61 (Del. 1997); see WaveDivision Holdings, LLC v.
Highland Cap. Mgmt., L.P., 49 A.3d 1168, 1177 (Del. 2012) (finding that a contractual “right to
control ‘the overall management’ of the assets” alone is not sufficient on the summary judgment
record to find an agency relationship existed).
78
   Baccellieri v. HDM Furniture Indus., Inc., 2013 WL 1088338, at *3 (Del. Super. Ct. Feb. 28,
2013) (citing Wilson v. Pepper, 1995 WL 562235, at *3 (Del. Super. Ct. Aug. 21, 1995)).
79
     Compl. ¶ 32.
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Frequency for acts it asserts Computershare committed via that relationship.80 To

what extent Computershare was acting as Frequency’s agent is to be determined at

a later date with a fuller record. At this point the Trusts have met their minimal

burden—whether that relationship actually existed is to be determined with facts not

yet in the record.

        Accordingly, the motion to dismiss Count II is DENIED.

     C. THE COMPLAINT ASSERTS AN ADEQUATE CLAIM OF CONVERSION (COUNT
        III).

        In Count III, the Trusts allege, in the alternative to Counts I and II, that

Computershare and Frequency converted the Trusts’ shares by asserting “dominion

and control over the[ir] property.”81

        “Conversion is ‘any distinct act of dominion wrongfully exerted over the

property of another, in denial of [the plaintiff’s] right, or inconsistent with it.’”82 To

successfully plead a conversion of stock claim, the Trusts must show they: (1) “held

a property interest in the stock”; (2) “had a right to possession of the stock”; and

80
    See id. ¶¶ 96-163 (asserting Frequency and Computershare are jointly and severally liable for
the claims made in the Complaint).
81
     Compl. ¶ 150.
82
   Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 889 (Del. Ch. 2009) (alteration in original)
(quoting Drug, Inc. v. Hunt, 168 A. 87, 93 (Del. 1933)).
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(3) that Computershare and/or Frequency converted the Trusts’ stock.83

        The tort of conversion requires intent, but it need not be “a subjectively

wrongful intent.”84

        Defendants say the Trusts “have failed to plead an intentional wrongful act by

either Computershare or Frequency evidencing an intent to permanently deprive

them of their stock.”85 Defendants argue, instead, that the Complaint “allege[s]

nothing more than that Computershare made a reasonable effort to work with

Plaintiffs’ broker to ensure that Plaintiffs’ shares were not wrongfully transferred.”86

        Not so. The Complaint does, at this pleadings stage, sufficiently allege it was

Computershare’s intent to delay or stop the transfer of the Trusts’ shares to J.P.

Morgan. The Complaint’s allegation that Computershare intentionally delayed the

transfer—which, in the Trusts’ belief, was done at Frequency’s direction—is

sufficient to survive this motion.87 Whether the Trusts can prove their theory is to

83
    Arnold v. Soc’y for Sav. Bancorp, Inc., 678 A.2d 533, 536 (Del. 1996) (citing Drug, Inc., 168
A. at 93-94).
84
   Segovia v. Equities First Hldgs., LLC, 2008 WL 2251218, at *19 (Del. Super. Ct. May 30,
2008) (quoting IBM Corp. v. Comdisco, Inc., 1993 WL 259102, at *4 (Del. Super. Ct. June 30,
1993)).
85
     Mot. to Dismiss at 31.
86
     Id. (citing Compl. ¶¶ 61-75).
87
   Compl. ¶ 148 (“Frequency had the power to stop the transfer of shares and did so, both by its
own actions and omissions, and through its transfer agent, Computershare.”).
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be determined, but the Trusts have alleged facts sufficient to put the Defendants “on

notice of the claim being brought against it.”88

        Accordingly, the motion to dismiss Count III is DENIED.

     D. THE TRUSTS CANNOT SATISFY ALL ELEMENTS OF THEIR UNJUST
        ENRICHMENT CLAIM AGAINST THE NAMED DEFENDANTS (COUNT IV).

        In Count IV, the Trusts assert (in the alternative to Counts I and II) that

Frequency and Computershare jointly and severally unjustly enriched themselves at

the expense of the Trusts.89

        “Unjust enrichment is defined as the unjust retention of a benefit to the loss

of another, or the retention of money or property of another against the fundamental

principles of justice or equity and good conscience.”90 To bring a claim for unjust

enrichment “a plaintiff must show[:] (1) gain by one party; (2) loss by another; (3)

that the gain and loss are related; (4) that the first party has retained the gain without

justification; and (5) the absence of a remedy at law.”91 The burden is on the plaintiff

to show the prima facie elements of its unjust enrichment claim are met.92

88
     VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 611 (Del. 2003) (citations omitted).
89
     Compl. ¶¶ 155-63.
90
    Fleer Corp. v. Topps Chewing Gum, Inc., 539 A.2d 1060, 1062 (Del. 1988) (citation and
internal quotation marks omitted).
91
   Great Hill Equity P’rs IV, LP v. SIG Growth Equity Fund I, LLLP, 2018 WL 6311829, at *50
(Del. Ch. Dec. 3, 2018) (citing Nemec v. Shrader, 991 A.2d, 1120, 1130 (Del. 2010)).
92
     See CIT Commc’ns Fin. Corp. v. Level 3 Commc’ns, LLC, 2008 WL 2586694, at *4 (Del.
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        Even if one were to assume all other elements are met, the Trusts have not

successfully pled that Frequency or Computershare were enriched.

        The Trusts suggest that “Frequency was enriched when the Defendants

prevented the Plaintiffs from selling their holdings between February 2, 2021, and

March 24, 2021, without justifiable cause[,]”93 because the delay “artificially limited

the supply of Frequency shares available for purchase, at least in part causing

Frequency’s share price to rise.”94 In their answering brief, the Trusts assert this

temporary stock increase can constitute an enrichment.95 The Trusts then turn to In

re Galena Biopharma, Inc. Derivative Litigation.96 But in Galena Biopharma, the

Oregon federal district court (applying Delaware law) found an enrichment because

the “Selling Defendants sold their stock and received a benefit and allowing them to

retain that benefit would go against fundamental principles of justice, equity, or good

conscience.”97

Super. Ct. June 6, 2008).
93
     Compl. ¶ 158.
94
    Id. ¶ 15; id. ¶ 158 (“The addition of the Plaintiffs’ 71,688 shares to those available to be
purchased would have reduced demand for the shares, lowering the price. . . . Frequency’s actions
helped to artificially sustain Frequency’s high share price.”).
95
     Answering Br. at 39.
96
     83 F.Supp.3d 1047, 1067-68 (D. Or. 2015).
97
     Id. at 1068.
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         Additionally, the Trusts rely on the Court of Chancery’s In re HealthSouth

Corp. Shareholders Litigation98 decision to say that Frequency’s and its CEO’s

benefit was an enrichment satisfying the first element of unjust enrichment.99 But

there, the enrichment was to the defendant directors and officers who allegedly

personally benefited from selling stock.100             Here, Frequency’s CEO is not a

defendant—he was removed when this case pended in the Court of Chancery.101

         The only well-pled enrichment the Trusts claim is to the CEO.102

Accordingly, the Trusts have not carried their burden to show they have met all

prima facie elements of their unjust enrichment claim. So that claim fails on that

basis alone.

         But there’s more. The claim fails too because—unlike what the Trusts suggest

here—a temporary stock increase itself is not an enrichment. If a party uses the

alleged temporary stock increase for some subsequent benefit, then the latter could

98
      845 A.2d 1096, 1106 (Del. Ch. 2003), aff’d, 847 A.2d 1121 (Del. 2004).
99
      Answering Br. at 40.
100
    In re HealthSouth Corp. S’holders Litig., 845 A.2d at 1106 (“It seems obvious that the
plaintiffs have proven that the Buyback unjustly enriched [HealthSouth CEO] Scrushy.”).
101
    Parseghian as trustee of Gregory J. Parseghian Revocable Tr. v. Frequency Therapeutics,
Inc., 2022 WL 2208899, at *7 (Del. Ch. June 21, 2022).
102
    Answering Br. at 38 (“Frequency’s CEO David Lucchino was selling off his own shares and
earning over $10.5 million in the process” (citing Compl. ¶ 91)). At oral argument the Trusts
asserted that Frequency owned its own stock, but this fact is missing from the Complaint. Even if
this statement were included in the Complaint, as explained below, it would still fail.
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be called an enrichment, but that is not the situation here.103 The Trusts allege only

that the temporary increase itself was an enrichment to Frequency; they do not allege

that Frequency took any action on account of or in response to the stock increase.

And the complained-of situation cannot be repeated—the Trusts do not allege the

stock is currently trading at an artificially higher price, and the Trusts’ Frequency

shares are in their respective J.P. Morgan accounts.104

       Accordingly, the Trusts have failed to plead the necessary elements of their

unjust enrichment claim and so the Motion to Dismiss Count IV is GRANTED.

                                    IV. CONCLUSION
       Accordingly, Defendants’ Motion to Dismiss Counts I and IV is GRANTED,

and Defendants’ Motion to Dismiss Counts II and III is DENIED.

       IT IS SO ORDERED.

                                                            _______________________
                                                            Paul R. Wallace, Judge

103
    This is not like Ryan v. Gifford where the Court of Chancery found the retention of a
(potentially unexpired) option even without executing it could constitute an enrichment. 918 A.2d
341, 361 (Del. Ch. 2007). Here, the Trusts don’t argue that Frequency’s alleged possession of its
stock constitutes an enrichment. Nor could they. Instead, they argue that a temporary (unrealized)
increase to that stock price constituted the enrichment itself.
104
    See Ryan, 918 A.2d at 361 (“Further, defendants make no allegations that Gifford is precluded
from exercising these options or that the options have expired.”); see Garfield on behalf of ODP
Corp. v. Allen, 277 A.3d 296, 342 (Del. Ch. 2022) (“Smith currently possesses the right to receive
shares under the Challenged Grants.”); Weiss v. Swanson, 948 A.2d 433, 450 (Del. Ch. 2008)
(“Nothing suggests that the defendants are prevented from exercising their options once they fully
vest.”).