VISIONARY ED. TECH. HOLDINGS GRP., INC. v. ISSUER DIRECT CORP., 2023 NCBC 65

STATE OF NORTH CAROLINA
WAKE COUNTY
IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
23 CVS 20101
VISIONARY EDUCATION
TECHNOLOGY HOLDINGS
GROUP, INC.; FAN ZHOU; and 3888
INVESTMENT GROUP, LTD,
Plaintiffs,
v.
ISSUER DIRECT CORPORATION,
d/b/a DIRECT TRANSFER,
Defendant.
ORDER AND OPINION
ON PLAINTIFFS’ STANDING
Lewis Brisbois Bisgaard & Smith LLP, by Christopher Derrenbacher,
Clint A. Corrie, and Travis J. Cox, for Plaintiffs Visionary Education
Technology Holdings Group, Inc., Fan Zhou, and 3888 Investment
Group, Ltd.
McAngus, Goudelock & Courie, PLLC, by Robin A. Seelbach and Michael
Gruman, 	for 	Defendant 	Issuer 	Direct 	Corporation 	d/b/a 	Direct
Transfer.
Conrad, Judge.
1. 	Visionary 	Education 	Technology 	Holdings 	Group, 	Inc. 	is 	a 	Canadian
company that offers technology services to high schools and colleges. 	Earlier this
year, Visionary and its majority shareholder, Fan Zhou, filed a lawsuit in Canada
against former directors Yiu Bun Chan and Thomas Traves for breach of contract.
There, Visionary and Zhou have asked the Canadian court to order Chan and Traves
to return shares of Visionary’s stock that were transferred to them in May 2022.
Visionary Ed. Tech. Holdings Grp., Inc. v. Issuer Direct Corp., 2023 NCBC 65.

2. 	This is a sister lawsuit to that one. Here, Visionary and Zhou* have jointly
sued Visionary’s transfer agent, Issuer Direct Corporation, under section 25-8-403 of
North Carolina’s Uniform Commercial Code. 	The impetus for this second litigation
is the fear that Chan and Traves will try to sell their shares before the Canadian
litigation ends. To stop that from happening, Visionary and Zhou seek, first, an order
barring Issuer Direct from removing restrictions on the shares and registering a
transfer if and when Chan and Traves make such a request and, second, a declaration
that Issuer Direct cannot be liable to Chan and Traves for refusing a request to
register transfer.
3. 	But the Court cannot do what Visionary and Zhou ask. 	For reasons
discussed below, they do not have standing to seek relief under section 25-8-403, and
as a result, the Court lacks jurisdiction.
4. 	A brief background will help frame the discussion. In early 2022, Visionary
made an initial public offering (“IPO”) and began listing shares on the NASDAQ stock
exchange. 	Just before the IPO, Zhou transferred over 3.3 million of her shares to
Chan and Traves, ostensibly to induce them to take a more active role at Visionary.
Chan and Traves allegedly agreed that they would need to return the shares if they
failed to meet various performance goals. 	They also signed a lock-up agreement in
which they promised not to sell their shares for one year from the date of the IPO. As
the lock-up period wound down in May 2023, Visionary instructed Issuer Direct to
place a stop transfer order on the stock certificates in the names of Chan and Traves,
* Zhou’s personal holding company—3888 Investment Group, Ltd.—is also a named plaintiff.
For simplicity, the Court will refer to the plaintiffs as Visionary and Zhou.

claiming that they had not met their performance goals and therefore had no right to
retain the shares. 	A month later, Traves asked Issuer Direct what he needed to do
to remove the restrictions on his shares but took no further action. (See Compl. ¶¶ 10,
11, 15, 17, 18, 21, 23, ECF No. 3.)
5. 	Aware of Traves’s inquiry, Visionary and Zhou sued Issuer Direct and
immediately moved for a preliminary injunction under section 25-8-403(d)(1). (ECF
No. 3 at 18–20.) 	Issuer Direct took no position on the motion on the ground that it
must maintain neutrality in the underlying dispute between Visionary and Zhou, on
one side, and Chan and Traves, on the other.
6. 	At 	a 	hearing, 	the 	Court 	observed 	that 	section 	25-8-403 	allows 	an
“appropriate person” to demand that an issuer’s transfer agent not register transfer
of a security and that a related statute defines “appropriate person” to mean the
security’s registered owner. 	See N.C.G.S. §§ 25-8-107(a), -403(a). When counsel for
Visionary and Zhou conceded that they are not the registered owners of the shares at
issue, the Court questioned their standing, called for supplemental briefing, and
noted that a lack of standing may necessitate dismissal of the action. (See ECF No.
18.) The Court held a second hearing on 18 September 2023 after receiving Visionary
and Zhou’s supplemental brief.
7. 	Section 25-8-403, though dense, is clear and unambiguous. In simple terms,
it allows the registered owner of a security to demand that an issuer—or, as in this
case, the issuer’s transfer agent—not register a transfer of that security and then sets
out the shifting obligations placed upon the registered owner and transfer agent once

a demand has been made. 	See N.C.G.S. § 25-8-403; see also id. § 25-8-407 (stating
that a transfer agent has “the same obligation” as the issuer with respect to
registration of transfer). The purpose of the statute is to help a registered owner stop
a sham registration request by a trickster when, for example, a stock certificate has
been lost or misplaced. See id. § 25-8-403 cmt. 2. The statute does not allow anyone
other than the registered owner to make a demand. Nor does it let others, including
the issuer or past owner of the shares, interfere with the registered owner’s own right
to request registration of a transfer, which is what Visionary and Zhou are trying to
do here. See id. § 25-8-403 cmt. 1 (“[Section 25-8-403] permits the registered owner—
but not third parties—to demand that the issuer not register a transfer.”).
8. 	A closer look at the text bears this out. 	Subsection (a) explains who may
initiate a demand and how to do so. It states that “an appropriate person to make an
indorsement or originate an instruction may demand that the [transfer agent] not
register transfer of a security” and specifies the form that the demand must take. Id.
§ 25-8-403(a) (emphasis added). The phrase “appropriate person” is a defined term.
For purposes of an indorsement, it means “the person specified by a security
certificate . . . to be entitled to the security.” Id. § 25-8-107(a)(1). For purposes of an
instruction, it means “the registered owner of an uncertificated security.” 	Id.
§ 25-8-107(a)(2). 	These are two ways of saying the same thing: for certificated and
uncertificated securities, the appropriate person to make a demand is the registered
owner. See id. § 25-8-107 cmt. 2 (referring to “appropriate person” as “the person who
is actually designated as the person entitled to the security”).

9. 	Subsection (b) explains what a transfer agent must do when faced with a
registration request after having received a demand from the registered owner not to
register a transfer. In a nutshell, the transfer agent must give notice to both parties:
notice of the registration request to the registered owner and notice of the owner’s
demand to the person seeking registration. Then the transfer agent must “withhold
registration of transfer for a period” of up to thirty days—a temporary freeze designed
to give the registered owner enough time to go to court to seek an injunction. 	Id.
§ 25-8-403(b), (c).
10. 	Subsection (d) addresses the transfer agent’s liability. 	The transfer agent
“is not liable to a person who initiated a demand” not to “register transfer for any
loss” resulting from registration “if the person who initiated the demand does not”
obtain a court order “enjoining the [transfer agent] from registering the transfer” in
a timely fashion. 	Id. § 25-8-403(d)(1). 	Put another way, a registered owner who
wishes to stop a transfer agent from registering a transfer must not only make a
demand under subsection (a) but also get a court order under subsection (d)(1). If the
registered owner does not, then he or she cannot recover against the transfer agent
for losses caused by registration (assuming, of course, that the transfer agent hasn’t
done anything unlawful otherwise).
11. 	By their own admission, Visionary and Zhou are not the registered owners
of the shares at issue. Their complaint states, without equivocation, that the shares
are “registered in the name” of Chan and Traves. (Compl. ¶ 51; see also Compl. ¶ 18
(stating that “Chan and Traves were the registered owner of the 9.5% shares of

Visionary” at the time of the IPO).) Their pleading in the Canadian lawsuit says the
same thing. 	(See Compl. Ex. B at 5 (“Therefore, as at the date of the listing of
Visionary on Nasdaq (i.e., May 17, 2022), Chan and Traves are the registered owner
of the 9.5% shares of Visionary.”).) And their counsel confirmed as much during the
first hearing. 	For the first time in their supplemental brief, they contradict those
statements and argue that Zhou is the registered owner—not because the shares have
been returned to her but because Chan and Traves failed to meet the performance
goals that underlay the share transfer. 	But her affidavit refutes that assertion and
confirms what is in the pleadings. In her words, the shares remain “in the name of
Chan and Traves,” and she and Visionary hope to “regain and or cancel the shares”
through the Canadian lawsuit. (Zhou Aff. ¶¶ 25, 27, ECF No. 5.)
12. 	As a result, Visionary and Zhou do not have standing. 	Neither is an
appropriate person under section 25-8-403(a) to initiate a demand not to register a
transfer or under section 25-8-403(d)(1) to obtain an injunction barring Issuer Direct
from registering a transfer. 	For the same reason, neither has standing to seek a
declaration concerning Issuer Direct’s potential liability to Chan and Traves under
section 25-8-403(d)(1). 	Because standing is a jurisdictional necessity, its absence is
fatal to the complaint. 	See, e.g., In re Custodial Law Enf’t Agency Recordings, 287
N.C. App. 566, 576 (2023) (referring to standing as a “threshold issue” that is
“jurisdictional in nature” (citation and quotation marks omitted)); see also CAPM
Corp. Advisors AB v. Protegrity, Inc., 2001 Del. Ch. LEXIS 133, at *22 (Del. Ch. Oct.
30, 2001) (holding, under analogous Delaware version of Uniform Commercial Code,

that alleged beneficial owner of contested shares was not an “appropriate person”
and, thus, “not empowered with the authority to demand that [issuer] not register
transfer”).
13. 	To be clear, the Court has not been asked to decide—and therefore does not
decide—whether an issuer could enforce restrictions on share transfers through other
contractual or statutory means. See N.C.G.S. §§ 25-8-204 & 25-8-401(5) (addressing
effectiveness of restrictions on transfer imposed by the issuer). As framed, Visionary
and Zhou have sought injunctive and declaratory relief under only section 25-8-403.
They lack standing to seek that relief, and the Court lacks jurisdiction to grant it.
14. 	The Court therefore DISMISSES the complaint without prejudice and
DENIES the motion for preliminary injunction.
SO ORDERED, this the 22nd day of September, 2023.
/s/ Adam M. Conrad
Adam M. Conrad
Special Superior Court Judge
for Complex Business Cases