EDUARDO C. ROBRENO, District Judge.
Plaintiff Raymond G. Perelman ("Plaintiff") brings this action against his former lawyer and friend, Defendant Arlin Adams ("Defendant"), in connection with a series of business transactions that took place in January 1990.
In the late 1980s, Plaintiff owned a number of businesses, which he operated with his son, Jeffrey Perelman. Am. Compl. ¶ 5. In 1989, Jeffrey resigned from his position in Plaintiff's companies, over a disagreement with his father. Id. After consulting his wife and Defendant, who was Plaintiff's legal counsel, Plaintiff agreed to transfer thirteen subsidiary companies (the "Companies") to Jeffrey under certain material conditions. Id. ¶ 7. Principal among the conditions for this transfer was that half of the stock in the Companies was to be transferred to a trust for the benefit of Plaintiff's granddaughter, Alison Perelman, and that Defendant was to be trustee. Id. In addition, Jeffrey's wife, Marsha, was to renounce any interest in the Companies to be sold to Jeffrey. Id.
Defendant is a lawyer who at all relevant times was an employee
Plaintiff alleges that Jeffrey took possession of the Companies on the date of closing without delivering Plaintiff the purchase price as listed in the purchase agreements. Am. Compl. ¶ 13. He states that as of the date of the filing of the amended complaint, Jeffrey had never paid the required consideration of $24 million. Id. ¶ 14. Furthermore, the Trust which Plaintiff had intended to be set up for the benefit of his granddaughter was instead set up exclusively for the benefit of Jeffrey. Id. ¶ 19.
Plaintiff states that only after receiving a copy of the Agreements and other documents relating to the sale of the Companies, and conducting an investigation in 2010, did he become aware that Jeffrey had taken over the Companies without
Plaintiff now brings suit on the basis of these two alleged injuries. He raises five counts against Defendant: (1) breach of contract; (2) professional negligence; (3) fraudulent misrepresentation; (4) fraudulent concealment; and (5) fraud.
Before proceeding to the merits of Plaintiff's claims, it is worth summarizing the four other legal actions,
In October 2009, Plaintiff commenced an action against Jeffrey for fraud and breach of contract, alleging that the 1990 Trust and Marsha's Renunciation Agreement did not comport with the terms of an oral agreement he had had with his son. Mot. to Dismiss 6. Plaintiff did not allege that Jeffrey had failed to pay the $24 million purchase price contained in their stock purchase agreement. Id. The trial court dismissed Plaintiff's complaint with prejudice, stating that application of the parol evidence rule precluded his claims against Jeffrey. Id. at 7. The Superior Court of Pennsylvania affirmed the decision and the Supreme Court of Pennsylvania denied allocator. Id.
Immediately before Plaintiff filed his first lawsuit in state court, Jeffrey commenced an action in federal court seeking a declaration that Plaintiff had no viable claims against him relating to the 1990 transactions. Mot. to Dismiss 7. Plaintiff filed counterclaims against Jeffrey, seeking, among other things, to reform the Trust. Id. Judge McLaughlin stayed the action, pending a decision from the Superior Court in the First Philadelphia County Action. Id. Upon the resolution of the state court action, Judge McLaughlin lifted the stay and ruled on pending motions. Perelman v. Perelman, No. 09-4792, 2013 WL 1842234 (E.D.Pa. May 2, 2013). She granted Jeffrey's motion to dismiss Plaintiff's counterclaims on the grounds of collateral estoppel, and dismissed his declaratory judgment claim as moot. Id. at *5-*7.
In December 2009, Plaintiff filed a malpractice action against the Schnader Firm for its failure to structure the 1990 transactions in a way that effectuated his intentions regarding Alison's interest in the Trust and Marsha's renunciation. Am. Compl. Ex. K. Plaintiff asserted claims for
The trial court granted the Schnader Firm's motion for judgment on the pleadings based on the expiration of the applicable statute of limitations, finding that the alleged deficiencies in the documents prepared "appeared clearly on the face of the documents." Mot. to Dismiss, Ex. J, Perelman v. Schnader Harrison Segal & Lewis LLP, December Term 2009, No. 0977, at 8, 2010 WL 4064952 (Phila.Com.Pl. Oct. 4, 2010). The Superior Court affirmed and Plaintiff did not seek allocator. Mot. to Dismiss 8.
Before the Superior Court affirmed the trial court's dismissal of Plaintiff's two state court cases, Plaintiff commenced an action in the Montgomery County Orphans' Court. Mot. to Dismiss 9. On August 11, 2011, Plaintiff filed a petition to revoke, or revise and reform the Trust, naming Jeffrey and Defendant, among others, as respondents. Id. In this action, Plaintiff alleged that Jeffrey had never paid the $24 million purchase price. Id. Jeffrey and Defendant moved for judgment on the pleadings and the court granted both motions, holding that Plaintiff's petition was barred by the outcome of the litigation in Philadelphia County. Id.
In considering a motion to dismiss for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6), the court must "accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, and view them in the light most favorable to the non-moving party." DeBenedictis v. Merrill Lynch & Co., Inc., 492 F.3d 209, 215 (3d Cir.2007) (internal citations omitted). In order to withstand a motion to dismiss, a complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 & n. 3, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). This "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555, 127 S.Ct. 1955 (internal citation omitted). Although a plaintiff is entitled to all reasonable inferences from the facts alleged, a plaintiff's legal conclusions are not entitled to deference and the court is "not bound to accept as true a legal conclusion couched as a factual allegation." Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986) (cited with approval in Twombly, 550 U.S. at 555, 127 S.Ct. 1955).
The pleadings must contain sufficient factual allegations so as to state a facially plausible claim for relief. See, e.g., Gelman v. State Farm Mut. Auto. Ins. Co., 583 F.3d 187, 190 (3d Cir.2009). A claim possesses such plausibility "`when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009)). In deciding a Rule 12(b)(6) motion, the Court is to limit its inquiry to the facts alleged in the complaint and its attachments, matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon these documents. See Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994); Pension
The Third Circuit "permits a [statute of] limitations defense to be raised by a motion under Rule 12(b)(6), but only if "the time alleged in the statement of a claim shows that the cause of action has not been brought within the statute of limitations."" Robinson v. Johnson, 313 F.3d 128, 135 (3d Cir.2002) (quoting Hanna v. U.S. Veterans' Admin. Hosp., 514 F.2d 1092, 1094 (3d Cir.1975)). Where the Complaint facially shows noncompliance with the applicable statute of limitations, a motion to dismiss on this ground should be granted. Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 n. 1 (3d Cir.1994).
Defendant moves to dismiss Plaintiff's complaint on the grounds that Plaintiff's claims are time-barred and barred under the doctrine of res judicata. In conducting its analysis, the Court divides Plaintiff's claims based on the underlying injury asserted: (1) that Plaintiff never received $24 million from Jeffrey, and (2) that Alison was not named a beneficiary of the Trust. The Court finds all of Plaintiff's claims to be precluded, but reaches this conclusion through two separate paths of analysis. The Court begins by describing the relevant statutes of limitations and then examines each category of claims independently of each other.
Federal courts sitting in diversity treat statutes of limitations as substantive, and therefore are bound by the applicable state law. Jaworowski v. Ciasulli, 490 F.3d 331, 333 (3d Cir.2007). In this case, Pennsylvania law supplies the rule of decision.
Plaintiff's tort claims—Count II for professional negligence, Count III for fraudulent misrepresentation, Count IV for fraudulent concealment, and Count V for fraud—are governed by a two year statute of limitations. See 42 Pa.C.S. § 5524 (2013). Plaintiff's Count I breach of contract claim is governed by a four-year limitations period. See 42 Pa.C.S. § 5525 (2013). Pennsylvania courts favor the strict application of statutes of limitations. See Glenbrook Leasing Co. v. Beausang, 839 A.2d 437, 441 (Pa.Super.2003), aff'd per curiam, 584 Pa. 129, 881 A.2d 1266 (2005).
Under Pennsylvania law, as a general rule, "the statute of limitations begins to run as soon as the right to institute and maintain a suit arises." Fine v. Checcio, 582 Pa. 253, 870 A.2d 850, 857 (2005) (citing Pocono Int'l Raceway, Inc., 503 Pa. 80, 468 A.2d 468, 471 (1983)). Breach of contract claims begin to accrue on the date of the breach. Packer Soc'y Hill Travel Agency, Inc. v. Presbyterian Univ. of Pa. Med. Ctr., 430 Pa.Super. 625, 635 A.2d 649, 652 (1993). Professional negligence claims begin to accrue upon the occurrence of the breach of a duty. Wachovia Bank, N.A. v. Ferretti, 935 A.2d 565, 574 (Pa.Super.2007). Finally, a claim of fraud begins to accrue when a party knew or should have reasonably known of the injury and its cause. Fine, 870 A.2d at 861.
In this case, it is clear that the breach of contract, the breach of duty, and the injury at issue in Plaintiff's claim of fraud, all occurred in 1990, during the negotiation and execution of the Agreements. Plaintiff argues, however, that the applicable limitations periods should be tolled on the basis of the discovery rule and the doctrine of fraudulent concealment. The Court now considers the applicability of these
Plaintiff claims that only in 2010 did he discover that he never received the $24 million he was allegedly entitled to under the Agreements. Pl.'s Resp. 6. He argues that the statutes of limitations should be tolled between 1990 and 2010. Id. Plaintiff relies on the discovery rule and the doctrine of fraudulent concealment to support his claim.
The Pennsylvania discovery rule "arises from the inability of the injured party, despite the exercise of reasonable diligence, to know of the injury or its cause." Colonna v. Rice, 445 Pa.Super. 1, 664 A.2d 979, 980 (1995). In these instances, the statute of limitations is tolled until the plaintiff learns of the injury. "The discovery rule focuses not on the plaintiff's actual knowledge, but rather on whether the knowledge was known, or through the exercise of diligence, knowable to the plaintiff." Mest v. Cabot Corp., 449 F.3d 502, 511 (3d Cir.2006) (citations and quotations omitted). A plaintiff seeking to apply the discovery rule bears the burden of showing that he exercised reasonable diligence in determining the existence and the cause of his injury. Id. "To demonstrate reasonable diligence, a plaintiff must establish that he pursued the cause of his injury with those qualities of attention, knowledge, intelligence and judgment which society requires of its members." Id. (quotations omitted).
In invoking the rule of discovery, Plaintiff appears to argue that because he was so wealthy, he could not be expected to notice the absence of $24 million. He states, "[w]hile for most the absence of $24 million would cause immediate concern, Raymond Perelman has achieved a level of financial success where the amount was not a large percentage of his total net worth." Pl.'s Resp. 7. Even if true, this argument focuses on Plaintiff's subjective state of mind. Given the objective nature of the reasonable diligence inquiry, see Kach v. Hose, 589 F.3d 626, 642 n. 17 (3d Cir.2009), this argument is unavailing. Apparently recognizing the weakness of this argument, Plaintiff turns to the doctrine of fraudulent concealment to toll the statute of limitations.
The doctrine of fraudulent concealment applies where a defendant has, through fraud or concealment, "cause[d] the plaintiff to relax his vigilance or deviate from his right of inquiry into the facts," such that he is unable to discover his injury or its cause. Fine, 870 A.2d at 860. "The doctrine does not require fraud in the strictest sense encompassing an intent to deceive, but rather, fraud in the broadest sense, which includes an unintentional deception. The plaintiff has the burden of proving fraudulent concealment by clear, precise, and convincing evidence." Id. The plaintiff must show that the defendant committed an affirmative act of concealment upon which the plaintiff justifiably relied. Baselice v. Franciscan Friars Assumption BVM Province, Inc., 879 A.2d 270, 278 (Pa.Sup.Ct.2005). "Like the discovery rule, the fraudulent concealment doctrine does not toll the statute of limitations where the plaintiff knew or should have known of his claim despite the defendant's misrepresentation or omission. Where common sense would lead the plaintiff to question a misrepresentation, the plaintiff cannot reasonably rely on that misrepresentation." Mest v. Cabot Corp.,
Plaintiff argues that in the context of a fiduciary relationship between parties, such as in this case where Defendant acted as his lawyer, the statute of limitations is tolled, where there is fraud alleged and there is an effort to cover up the fraud by the agent, in this case his lawyer. Pl.'s Resp. 8. Plaintiff points to Schwartz v. Pierucci, in arguing that "absent a disclosure [by the fiduciary], the fiduciary commits an act of continual [sic] covering up of the fraud." 60 B.R. 397, 403 (E.D.Pa. 1986). Plaintiff avers that because Defendant did not affirmatively disclose to him the alleged fraud, that is, that he did not receive the $24 million at closing, the statute of limitations should be tolled until he discovered that the money had not been paid, which in this case was at least twenty years from the date of injury. Pl.'s Resp. 8-9. The Court disagrees with Plaintiff's reliance on Schwartz.
In Schwartz, the court did not hold that only a disclosure by a fiduciary stops the tolling of the statute of limitations. Rather, the court stated that under the circumstances present there, there was a question of fact as to whether a bankruptcy trustee could not have discovered that there was a cause of action against a Savings and Loan Association because of the ongoing fraud of the principals. 60 B.R. at 403. Specifically, the court held that two letters sent to the trustee from the counsel for third party creditors could have triggered the trustee's duty to investigate. Id. at 402. This question was left for the jury to decide. Id.
In Gurfein v. Sovereign Group, the plaintiffs, like Plaintiff in this case, argued that in the context of a fiduciary relationship, the cause of action does not accrue until the plaintiff has actual knowledge of the injury. 826 F.Supp. 890, 918 (E.D.Pa. 1993). The plaintiffs similarly relied on Schwartz to make their argument. Id. Judge Pollak explained that Schwartz actually was contrary to the plaintiff's position, because the court had held that "a question of fact remained as to whether certain events triggered the plaintiff's duty to inquire and thus commenced the statute of limitations." Id. Thus, rather than creating an automatic and continuing exception to the discovery rule until the fiduciary had disclosed the fraud, "the presence of a fiduciary relationship would be pertinent to the question of when a plaintiff's duty to investigate arose." Id. at 919 n. 31 (citations omitted) (emphasis added).
This interpretation of Schwartz was adopted by the Third Circuit in In re Mushroom Transp. Co., Inc., 382 F.3d 325, 342 (3d Cir.2004) (citing favorably Gurfein's analysis of Schwartz). There, the court held that a question of fact existed as to whether, in light of the fiduciary relationship between a Chapter 11 debtor-in possession and its counsel, the debtor had exercised reasonable diligence in entrusting administration of estate funds to its counsel and in failing to discover its counsel's embezzlement. Id. at 343. Echoing Gurfein, the court held, "the existence of a fiduciary relationship is relevant to a discovery rule analysis precisely because it entails such a presumptive level of trust in the fiduciary by the principal, that it may take a `smoking gun' to excite searching inquiry on the principal's part into its fiduciary's behavior." Id. at 343. Thus, the rule that emerges from these cases is that while a fiduciary relationship relaxes the duty of diligence, subsequent events, other than the fiduciary's disclosure of the fraud, may put the principal on notice of the need for an increased level of inquiry. Such is the case here.
First, in Plaintiff's amended complaint, there are only vague allegations
Id. ex. F. The Letter does not satisfy Plaintiff's burden to show that Defendant engaged in an affirmative act of concealment. On its face, the Letter says nothing about whether the promised payment of the $24 million for the Companies had been or would be made to Plaintiff.
Second, even if the Letter had assured Plaintiff that the payment had been made, such assurances do not extend beyond 2007 when Plaintiff became aware, "following some unusual behavior by Jeffrey Perelman," (not described in the amended complaint), that Alison had not been named the beneficiary of half of the Company's stock in the Trust agreement. Am. Compl. ¶ 22. Plaintiff himself states that upon receipt and review of the Trust agreement, "he was shocked and dismayed to discover that his granddaughter [Alison] was not specifically provided for in the trust." Id. ¶ 23.
Plaintiff argues, however, that he only received the Agreements (other than the Trust agreement) in 2010, and that it was then that he first discovered that the $24 million payment had never been made. Id. ¶ 24. Plaintiff does not aver that he requested or took any action to obtain and review the Agreements earlier; nor does he claim that Defendant or Jeffrey Perelman refused to provide or delayed the production of the Agreements until 2010. A reasonable person, "shocked and dismayed" by the discovery in 2007 that an important and substantial provision relating to the family trust had not been included, would have requested and reviewed the Agreements with dispatch to ensure that his intended terms, including the $24 million payment, had been met in a closely related transaction. At this point, if not earlier, Plaintiff was on notice of the need for a "searching inquiry" into his fiduciary's actions. See In re: Mushroom Transp. Co., Inc., 382 F.3d at 343. Plaintiff's conduct between 2007 and 2010 did not satisfy this duty of inquiry. Therefore, at the absolute latest, the statute of limitations on Plaintiff's claims began to run in 2007.
Given the circumstances, the limitations period to bring Counts II through V therefore would have expired in 2009, and the period to bring Count I would have expired in 2011. Plaintiff, having filed his
Under the same analysis applied above to the $24 million missing payment, the statute of limitations would bar Plaintiff's claims relating to the failure to designate Alison as a beneficiary of the Trust. However, the Court need not address this claim here because the claim has already been litigated. Accordingly, all of Plaintiff's claims regarding the Trust are precluded under the doctrine of res judicata, or claim preclusion, as they were litigated between the Schnader Firm, Defendant's employer, and Plaintiff in the Second Philadelphia County Action.
The doctrine of res judicata requires federal courts to give state court judgments the same preclusive effect that the issuing state courts would give them, and therefore requires the federal courts to apply the state court's law of preclusion. Parsons Steel, Inc. v. First Ala. Bank, 474 U.S. 518, 523, 106 S.Ct. 768, 88 L.Ed.2d 877 (1986). The parties agree that in this case, Pennsylvania's law of preclusion applies.
"Under Pennsylvania law, the doctrine of res judicata holds that a final valid judgment upon the merits by a court of competent jurisdiction bars any future suit between the parties or their privies, on the same cause of action." Allegheny Intern., Inc. v. Allegheny Ludlum Steel Corp., 40 F.3d 1416, 1429 (3d Cir.1994) (internal quotations and citations omitted). Res judicata bars not only claims actually litigated in prior proceedings, but also claims which could have been litigated because they arose out of the same transaction or series of transactions. Elkadrawy v. Vanguard Group, Inc., 584 F.3d 169, 174 (3d Cir.2009) ("A claim extinguished by res judicata `includes all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction or series of connected transactions, out of which the action arose.'") (citation omitted); Post v. Hartford Ins. Co., 501 F.3d 154, 169 (3d Cir.2007). Application of the doctrine, "does not depend on the specific legal theory invoked, but rather the essential similarity of the underlying events giving rise to the various claims." Elkadrawy, 584 F.3d at 173.
Generally, parties are considered to be in privity if one is vicariously responsible for the conduct of another, such as a principal and an agent. Day v. Volkswagenwerk Aktiengesellschaft, 318 Pa.Super. 225, 234, 464 A.2d 1313 (1983) (finding principals and agents to be parties in privity for purposes of applying principles of res judicata). In this case, it is undisputed that at all relevant times, Defendant was an employee of the Schnader Firm. As such, Defendant was in privity with it.
Plaintiff relies on Atkinson,
Under these circumstances, Plaintiff is estopped from claiming that Defendant was not an agent of the Schnader Firm. The Third Circuit has held that federal judicial estoppel law applies in diversity cases. G-I Holdings, Inc. v. Reliance Ins. Co., 586 F.3d 247, 261 (3d Cir. 2009). A court's decision to apply judicial estoppel is not subject to "inflexible prerequisites or an exhaustive formula," New Hampshire v. Maine, 532 U.S. 742, 751, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001). However, the Third Circuit has stated three threshold requirements for applying the doctrine: (1) "the party in question must have adopted irreconcilably inconsistent positions"; (2) "the party must have adopted these positions in `bad faith'"; and (3) "there must be a showing that judicial estoppel is tailored to address the harm and that no lesser sanction would be sufficient." Chao v. Roy's Const., Inc., 517 F.3d 180, 186 n. 5 (3d Cir.2008). The court has stated that application of the doctrine "is only appropriate when the inconsistent positions are tantamount to a knowing misrepresentation to or even fraud on the court." Krystal Cadillac-Oldsmobile GMC Truck, Inc. v. General Motors Corp., 337 F.3d 314 (3d Cir.2003) (internal citations and quotations omitted).
In prior litigation, Plaintiff has consistently treated Defendant as an agent of the Schnader Firm. In fact, Plaintiff's theory in the Second Philadelphia County Litigation against the Schnader Firm was that Defendant's acts should be imputed to it. For example, in his brief in support of his appeal to the Superior Court of Pennsylvania, Plaintiff describes Defendant as "Arlin Adams (`Adams') of the Schnader firm." Appellant's Br. 7, No. 1662 EDA 2010, 2010 WL 6817570 (Pa.Super. Nov. 29, 2010). In describing "the repeated assurances by Schnader," that the 1990 transactions conformed to his requirements, Plaintiff pointed to the letter authored
Finding that Defendant, as an employee, was in privity with the Schnader Firm, the Court holds that Plaintiff is precluded from bringing all of his claims relating to the failure to designate Alison as a beneficiary of the Trust. In the Second Philadelphia County Action, Plaintiff brought claims of breach of contract, negligence, and breach of fiduciary duty. Here, Plaintiff alleges two of the same claims but also adds claims of fraudulent misrepresentation, fraudulent concealment, and fraud. In December 2009, when Plaintiff filed his complaint in the Philadelphia Court of Common Pleas, he had already uncovered the basis for the claims of fraud relating to the creation of the Trust, which he now pursues. Therefore, though the three claims of fraud were not actually litigated in the Second Philadelphia County Action, they are nonetheless barred because they could have been brought at that time. See Elkadrawy, 584 F.3d at 174.
Having determined that all of Plaintiff's claims are either time-barred or barred under the doctrine of res judicata, the Court will dismiss Plaintiff's complaint with prejudice. The dismissal will hopefully put an end to the seemingly endless litigation among members of this unhappy family involving these related claims. An appropriate order will follow.
571 F.3d 299, 312 (3d Cir.2009). Here it is clear that the second category applies, as Defendant was an employee of the law firm. Plaintiff has no support for the claim that only general partners are in privity with their law firms.
