The Complex Commercial Litigation Division of Delaware’s Superior Court recently issued a ruling on a motion for summary judgment that, while nominally addressing the application of the statute of limitations to dismiss claims related to the escheatment of shares of stock to the state of Delaware, provides lessons for investors about the level of attention and diligence they should apply to managing their financial affairs. In Saunders v. Lightwave Logic, C.A. No. N23C-05-120 (Oct. 17, 2024), Judge Paul Wallace was faced with a factual scenario that would appear capable of repetition—and often—that ultimately ended with a stockholder’s shares in Lightwave Logic being escheated to the state and sold, despite the reality that the plaintiff’s stock certificate was safely ensconced in a home safe.

The plaintiff purchased his 55,000 shares of Lightwave stock in 2013 and received them in the mail at his then-current address. Within a year of purchasing the shares, however, the plaintiff moved and did not inform Lightwave of his new address—although mail going to the previous address was forwarded by the postal service for “at least a year.” The discovery record in the litigation showed that the plaintiff “monitored his Lightwave shares via Google and through occasional country club chats with individuals, including a former Lightwave board member, Lightwave’s CEO, and Lightwave’s COO.” The court noted that “there is no record of the plaintiff taking any further action regarding his Lightwave share at any point from 2013 to 2021.”

The discovery record, as found by the court on this motion, however, also showed that: Lightwave mailed annual meeting notices and instructions to Plaintiff in 2014, 2015, and 2016; Lightwave sent the plaintiff a dormant account letter in October 2016 that “warned him of a then-looming escheatment and how to avoid it;” and in January 2017 the plaintiff’s shares were “escheated—that is, transferred from Lightwave … to the Delaware Office of Unclaimed Property (OUP),” with the OUP sending “at least one outreach notice in March of 2017 to notify the plaintiff that his shares had been escheated.”

Unfortunately for the plaintiff, these notices all went to his former address, and he claimed to have never received them. From February 2017 until September 2021, the escheated shares were listed on the UOP’s searchable website, but “in the interim, consistent with then-extant Delaware law, the state sold the escheated shares for $69,298 in June 2017.”

In July 2021, when the plaintiff went to open a brokerage account to hold his Lightwave shares, he learned for the first time that his shares had been escheated and sold—despite his possession of a stock certificate saying otherwise. The OUP sent him a check for $69,298 in September 2021, but the plaintiff never cashed the check, complaining that the shares were worth more that the price obtained by the OUP upon the sale of the shares. Rather, the plaintiff claimed “that he would have sold his shares on Dec.10, 2021, for $19.56 per share, totaling approximately $1,075,800—which happens to be Lightwave shares’ highest daily recorded value since being listed on NASDAQ.”

“A year after refusing the OUP’s payment, and more than five years after his shares were escheated,” Plaintiff filed this litigation containing counts for negligence and conversion related to the escheatment of his shares of Lightwave stock. After a limited discovery period, the defendants moved for summary judgment, arguing that the plaintiffs claims were barred by the applicable three-year statute of limitations.

In opposing the motion, the plaintiff argued that the “inherently unknowable injury” doctrine tolled the statute of limitations for the time that his injury was unknown to him, and that “he was blamelessly ignorant of it.” To receive the benefit of the tolling period provided by that doctrine, the plaintiff needed to show there were “no observable or objective factors to put the plaintiff on notice of an injury … .” The court ultimately found, however, that “the escheatment of plaintiff’s Lightwave shares wasn’t inherently unknowable as that is understood under Delaware law.”

The court acknowledged that while the result might seem unduly harsh, it found “for claims affecting financial instruments and transactions, other federal and state courts are hesitant to apply the inherently unknowable exception; there’s a finality imperative for those instruments and transactions that isn’t present in the malpractice claims closer to the doctrine’s origin.” Thus, to “permit the inherently knowable exception to extend as asked could disrupt the subsequent commercial transactions or expose a corporation to additional liability when there is not suggestion that it has done anything but follow state law and well-accepted norms of keeping record of its shares.”

So, now with the benefit of hindsight this ruling provides, what should stockholders do to avoid this situation for themselves? The most obvious answer is that if your mailing address changes, be sure you have communicated that to all that need to know. While that would be a fairly straight-forward task where shares of stock are held in a brokerage account with an institution, that might not be so obvious when a stock certificate is sitting in a home safe. It would seem that the next place this stockholder might have realized something was amiss was when he did not receive annual reports from Lightwave. It would appear that the court believes that such silence from the company should spur inquiry by the stockholder about why that silence exists. Maybe outreach to investor relations would be in order at that point? Finally, perhaps it would not be a bad practice to log on to the OUP website (or the applicable agency for your state or states where you had assets) once a year to see if there are escheated assets in your name—maybe make it a New Year’s Day tradition. You never know, you might find assets in your name you forgot you owned!

Reprinted with permission from Delaware Business Court Insider, © ALM Media Properties LLC. All rights reserved.