Jeffrey Norman v. David Elkin
2017 U.S. App. LEXIS 10467
| 3rd Cir. | 2017Background
- US MobilComm (USM) was a Delaware corporation co-founded by Norman (25% owner) and Elkin (75%) to acquire and sell 220 MHz FCC licenses; Elkin ran day-to-day operations.
- In a Phase II FCC auction, licenses won by USM were later registered in the name of The Elkin Group (TEG), a company Elkin owned; proceeds were used in part to repay amounts characterized as shareholder loans to Elkin.
- Norman suspected wrongdoing after receiving tax K-1s, a 2002 phone call with Elkin acknowledging sales/distributions, a December 2002 letter from Elkin that understated payments to Elkin, and then pursued a books-and-records inspection under 8 Del. C. § 220 (filed Nov. 2004; Chancery Court ordered disclosure Oct. 2005).
- Norman sued (removed to federal court) asserting multiple claims including breach of an oral capital-contribution/equity agreement (three theories), conversion/usurpation, fraud (based on the December 2002 Letter), breach of fiduciary duty, and unjust enrichment; two trials produced jury verdicts for Norman that were later largely vacated by the District Court on statute-of-limitations and sufficiency grounds.
- The District Court applied Delaware choice rules and the Delaware borrowing statute to select Pennsylvania limitations periods for most non-contract claims, tolled limitations until plaintiff had inquiry notice, but declined to allow § 220 litigation to toll where inquiry notice preceded the § 220 filing; it vacated certain jury awards (including fraud and some contract damages) and ordered a limited retrial; subsequent rulings again entered judgment for Elkin on timeliness grounds.
- On appeal, the Third Circuit affirmed judgment as a matter of law for fraud (insufficient proof of separate damages), held the District Court erred in treating § 220 tolling as categorically unavailable once a plaintiff had inquiry notice, and reinstated that at least nominal damages for the breach via the Shareholder Loan Agreement must stand; it remanded for reconsideration of tolling and timeliness of other claims.
Issues
| Issue | Plaintiff's Argument (Norman) | Defendant's Argument (Elkin) | Held |
|---|---|---|---|
| Whether Delaware or Pennsylvania statute of limitations governs non-contract claims | Apply Delaware law under the internal affairs doctrine (so Delaware limitations) | Delaware borrowing statute requires applying shorter foreign statute (Pennsylvania) | District Court applied Delaware law to invoke borrowing statute and applied Pennsylvania periods; Third Circuit affirmed that choice approach |
| Whether filing a § 220 books-and-records action tolls the statute of limitations when plaintiff had prior inquiry notice | § 220 action should toll limitations (and Delaware courts have tolled during § 220 pendency); successful Chancery § 220 supports tolling | Tolling inappropriate where plaintiff already had inquiry notice before filing § 220 | Third Circuit: categorical rule barring tolling when inquiry notice existed is wrong; § 220 may toll limitations at court's discretion; remanded to reconsider tolling and timeliness |
| Whether breach via execution of Shareholder Loan Agreement supported only nominal damages (and whether verdict should be vacated) | The Agreement recharacterized Elkin’s contributions and breached the oral capital agreement; even if damages are uncertain, nominal damages are available | No independent damages proven from mere execution of the Agreement; therefore judgment should be for defendant | Court erred to vacate jury award of nominal damages; breach via the Agreement stands and nominal damages must be reinstated; remand to address other timeliness questions |
| Whether fraud claim had sufficient evidence of damages separate from contract damages | December 2002 Letter understated payments and was fraudulent; damages flow from that misrepresentation | Any damages stem from prior improper distributions, not from the December 2002 Letter; fraud damages must be separate and particularized | Affirmed judgment for Elkin: Norman failed to prove fraud damages separate and apart from contract/benefit-of-bargain losses; fraud JML appropriate |
| Whether conversion claim should survive sufficiency review | Norman argued licenses were misappropriated to TEG and he suffered conversion damages | Elkin argued insufficient proof of a convertible property interest and of damages | Third Circuit found Elkin’s sufficiency argument waived on appeal for inadequate briefing; conversion issue not decided on merits |
Key Cases Cited
- Bovay v. H.M. Byllesby & Co., 38 A.2d 808 (Del. 1944) (equitable tolling/laches may apply in cases of fiduciary self-dealing)
- Borden v. Sinskey, 530 F.2d 478 (3d Cir. 1976) (interpreting Bovay exception for controlling shareholder misconduct)
- Cantor v. Perelman, 414 F.3d 430 (3d Cir. 2005) (discussing laches/tolling in corporate fiduciary self-dealing cases)
- Citigroup Inc. v. AHW Inv. P’ship, 140 A.3d 1125 (Del. 2016) (scope of internal affairs doctrine for corporate disputes)
- Klehr v. A.O. Smith Corp., 521 U.S. 179 (1997) (plaintiff may not use later acts to bootstrap recovery for earlier time‑barred injuries)
- Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153 (3d Cir. 1993) (standard for judgment as a matter of law/sufficiency review)