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Rothrock v. Turner

72 U.C.C.2d 103, 2010 WL 2267226 (2010)

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Rothrock v. Turner

United States District Court for the District of Maine

72 U.C.C.2d 103, 2010 WL 2267226 (2010)

Facts

CrossHill Georgetown Capital LLP (CrossHill) loaned Parco Merged Media Corporation (Parco) $600,000. The loan was secured by Parco’s interest in shares of stock in MultiSpectral Solutions, Inc. (MultiSpectral). The stock was represented by a stock certificate. Bruce L. Rothrock, Sr. (defendant), the chair of Parco’s board of directors, purchased CrossHill’s interest in the loan and obtained possession of the MultiSpectral stock certificate. By possessing the stock certificate, Rothrock perfected his security interest in it. A few years later, MultiSpectral merged with another company and offered to redeem its shares for cash. Rothrock gave the MultiSpectral stock certificate to Scott Cohen to submit for redemption. Though Cohen agreed to redeem the shares for Rothrock as his personal agent, Cohen was also Parco’s treasurer. Cohen mailed the stock certificate, which identified Parco as the holder, to a bank with instructions to transmit the funds from the redemption to the holder. Cohen signed the relevant forms as Parco’s treasurer. The bank transferred the funds received from the stock certificate to a bank account owned by Parco. Months later, Parco filed for bankruptcy. Rothrock transferred the funds obtained from the stock certificate from the Parco account to his personal bank account, believing that he was entitled to the funds because of his security interest in the redeemed certificate. The bankruptcy trustee (plaintiff) filed a lawsuit against Rothrock in bankruptcy court, claiming that Rothrock had improperly transferred the funds. The bankruptcy court granted summary judgment for the trustee, holding that Rothrock had lost his perfected security interest in the stock certificate when the stock certificate, which still identified Parco as the holder, was given to the bank by Cohen acting as Parco’s treasurer. Rothrock appealed.

Rule of Law

Issue

Holding and Reasoning (Woodcock, C.J.)

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