The billionaire who built Franklin Templeton into one of the world's biggest mutual fund companies survived a lawsuit by the son of an early investor who said he was cheated out of a multimillion-dollar stake in the firm. But a judge said Charles B. Johnson's company will still have to defend itself in court.
U.S. magistrate judge Laurel Beeler of the U.S. District Court in San Francisco on Tuesday dismissed large parts of a lawsuit by Anthony P. Miele III, who said his father was an investor who supported Franklin Templeton Investments during a difficult period in the 1970s with a $100,000 loan in exchange for shares in the company.
Mr. Miele said he was cheated out of the shares that are now worth about $136 million, according to the complaint, following his father's death and a complicated saga.
But lawyers for Franklin Resources Inc., which owns Franklin Templeton, have described Mr. Miele's claims as extortion. And Mr. Johnson, now retired and living in Florida, said earlier this year that the Miele family was “on a fishing expedition for their own negligence.”
Mr. Miele said Mr. Johnson had not upheld his duties by not making an effort to ensure he had received the stock. After learning that Mr. Miele's father died, Mr. Johnson asked a now-deceased broker-dealer executive, who had been barred from the securities industry and convicted of forgery, to ensure the delivery of the stock to his son, according to the complaint.
Mr. Miele, who was a child when his father died, said he never received the assets or learned of their existence, which his lawyers say were illegally transferred. Mr. Miele said he learned about the shares when Mr. Johnson called a family member and said he had “always wondered whether” they got the stock, according to the complaint.
The judge dismissed all of the outstanding claims against Mr. Johnson, saying his actions were not illegal or contrary to his legal responsibilities as an executive. She dismissed some of Mr. Miele's other claims because they were past a statute of limitations and because the court did not find the company had a duty to disclose information it had allegedly concealed about Mr. Miele's shares.
When Mr. Miele learned of the shares, he discussed the situation with the broker-dealer executive allegedly responsible for the shares, Eugene W. Mulvihill, but he was dissuaded from investigating further. According to the complaint, Mr. Mulvihill said his friend “would hire a Russian hit man to kill [Miele III] and your family.” Mr. Mulvihill died 10 days after that 2012 conversation, at 78, of a heart attack.
Franklin Templeton and its service providers “were reluctant to produce any documents” when they were asked to help track down the shares, according to the complaint.
Mark C. Molumphy at Cotchett, Pitre & McCarthy in Burlingame, Calif., which is representing Franklin and Mr. Johnson, said the court was “bound” to accept Mr. Miele's allegations as true at this phase in the case, but he said the court recognized that further facts that come up in the lawsuit “may demonstrate that the only two remaining claims must also be dismissed.”
NARROWING THE CASE
“We are pleased that Mr. Johnson has been vindicated and it is clear that no claims lie against him,” said Mr. Molumphy, in a statement. “Equally, the court issued a careful and reasoned opinion reaching a number of threshold issues regarding the timeliness and plausibility of Mr. Miele's claims against Franklin Resources, significantly narrowing the case against it.”
Separately, the judge dismissed a request by Franklin Templeton to sanction Mr. Miele's lawyer for filing a “frivolous” and harassing lawsuit. In asking for sanctions, a lawyer for Franklin Templeton, Joseph W. Cotchett, had disclosed a letter from Mr. Miele's lawyer asking to resolve the issue before a lawsuit that “may result in the discovery of a substantial amount of information about the history and origin of the claims, which may cast Mr. Johnson, and possibly Franklin, in an unflattering light.” Franklin Templeton said the complaint did not disclose evidence that would show Mr. Miele's lawsuit is without merit. But the judge disagreed.
“The fact that the court dismissed most of Mr. Miele III's claims does not mean that they were legally or factually baseless,” she wrote.
Mr. Johnson, 82, who retired as chairman in 2013, is worth $6.6 billion, according to Forbes magazine. He's also a major owner of the San Francisco Giants baseball team and a philanthropist, giving hundreds of millions to institutions, including his alma mater Yale University. San Mateo, Calif.-based Franklin Templeton, which now manages $867 billion, was founded by his father, Rupert H. Johnson Sr., in 1947.
“This man's stock was stolen,” said Jeffrey L. Liddle at Liddle Robinson in New York, a lawyer for Mr. Miele. “The decision provides a clear path for our client to get his stock and his unpaid dividends. And to that degree, we think the retaining of these claims on the lost or stolen stock certificates is an appropriate way for us to achieve that result on his behalf.”