Potok, F. v. Rebh, R.
Potok, F. v. Rebh, R. No. 444 EDA 2015
| Pa. Super. Ct. | Apr 13, 2017Background
- Fred Potok, minority shareholder and trustee of Floorgraphics, Inc. (FGI), sued after FGI sold assets to competitor News America for $29.5 million; Potok alleged Individual Defendants (majority shareholders/officers) breached fiduciary duties by allocating $12 million as “personal goodwill” to themselves.
- Transaction components required by News America included an asset (not stock) sale, mutual releases, no allocation of proceeds to settle existing New Jersey litigation, non-competes, and consulting agreements with Individual Defendants.
- An appraisal by Ladenburg (retained at News America’s request) produced an allocation different from the parties’ initial allocation; the parties proceeded with the agreed price and particular allocations, and proceeds retained by FGI were reinvested rather than distributed.
- Potok sued for breach of fiduciary duty, aiding and abetting (against News America), and conspiracy; after discovery, News America moved for summary judgment arguing lack of evidence it knew of any fiduciary breach.
- The trial court granted summary judgment for News America, concluding Potok produced no evidence of News America’s actual knowledge of a breach; the court found the $29.5 million price and most allocations reasonable but held the $12 million “personal goodwill” allocation improper and ordered disgorgement from Individual Defendants to FGI (parties later settled, leaving only the News America appeal issue).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether News America can be liable for aiding and abetting a breach of fiduciary duty without evidence it had actual knowledge of the breach | Potok: circumstantial evidence (transaction structure, large personal consideration, indemnity demands) permits inference News America knew of and participated in an illicit quid pro quo | News America: no record evidence of actual knowledge; business reasons for terms (eliminate competitor, acquire contracts, secure non-competes); speculation insufficient | Court: Summary judgment affirmed — plaintiff failed to produce evidence of News America’s actual knowledge, so aiding-and-abetting claim cannot survive |
| Whether the transaction’s structure and allocations support an inference of News America’s knowledge | Potok: disproportionate allocations and terms show knowing participation and a scheme to avoid liability for New Jersey suit | News America: allocations were subject to an independent appraisal it required; terms served legitimate business objectives; no proof of collusion | Court: Structure and appraisal record support conclusion that inference of knowledge would be speculative; insufficient to create genuine issue of material fact |
| Whether summary judgment was improper under Nanty‑Glo (circumstantial evidence can defeat summary judgment) | Potok: Nanty‑Glo permits circumstantial inferences about state of mind at summary judgment stage | News America: Nanty‑Glo does not excuse the need for evidence; speculation is insufficient | Court: Nanty‑Glo not violated; nonmoving party must produce evidence from which a jury could legally find actual knowledge; Potok produced none |
Key Cases Cited
- Reinoso v. Heritage Warminster SPE LLC, 108 A.3d 80 (Pa. Super. 2015) (standard of review for summary judgment explained)
- InfoSage, Inc. v. Mellon Ventures, L.P., 896 A.2d 606 (Pa. Super. 2006) (nonmoving party must produce evidence sufficient for a jury verdict to avoid summary judgment)
- Ertel v. Patriot‑News Co., 674 A.2d 1038 (Pa. 1996) (summary judgment procedure intended to dispose of meritless claims that lack evidentiary support)
- Koken v. Steinberg, 825 A.2d 723 (Pa. Cmwlth. 2003) (elements of aiding and abetting a breach of fiduciary duty require actual knowledge)
- Nanty‑Glo v. American Surety Co., 163 A. 523 (Pa. 1932) (circumstantial evidence can be considered but does not eliminate need for evidentiary support)
- Crescent/Mach I Partners, L.P. v. Turner, 846 A.2d 963 (Del. Ch. 2000) (on motions to dismiss, courts may infer non‑fiduciary’s knowing participation where fiduciary breach is inherently wrongful)