Fraudulent Transfer of Corporate Assets Statute of Limitations Tolling Effect of Books and Records Action Inquiry Notice
Norman v. Elkin, PICS Case No. 17-0981 (3Cir. June 13, 2017) Jordan, J. (40 pages).
Prior inquiry notice did not act as a categorical bar to a books and records action's tolling of limitations periods. Order of the district court reversed.
Jeffrey Norman appealed the district court's orders overturning jury verdicts in his favor on a variety of tort and contract claims against appellee David Elkin, after the district court concluded that appellant's claims were barred under the applicable statutes of limitations. The parties formed US MobilComm Inc. to acquire, manage, and sell radio frequency licenses sold by the FCC, with appellant having a 25 percent stake and appellee the remaining 75 percent stake. Neither party met their promised capital requirement, and appellee reduced appellant's capital contribution after determining appellant had spent USM funds on personal matters. Appellee then proportionally reduced his capital contribution, treating any capital contributed above that amount as a loan.
Although appellant's initial primary responsibility at USM was to acquire, aggregate, and manage licenses, by 1996 appellant's day-to-day involvement ceased, and appellee continued to manage the company. At a subsequent FCC auction of new licenses, appellee won several licenses on behalf of USM, but those rights were registered in the name of The Elkin Group, another company owned by appellee, who claimed USM did not have the funds to bid without TEG's assistance.
Appellee purportedly made loans to USM in the amount of $690,000. USM subsequently sold off many of its licenses, and prioritized repayment of appellee's loans without giving appellant any money. Appellant then filed suit to compel inspection of USM's books and records. Although appellee opposed the suit, the Delaware Chancery Court ultimately compelled USM to disclosed the requested records. Appellant subsequently filed the present suit, asserting various tort and contract claims against appellee and USM and TEG. Appellant alleged that appellee failed to pay appellant his pro rata share of proceeds, refused to maintain his full capital contribution, and improperly caused USM to enter the loan agreement.
Appellee moved to dismiss the complaint based on the statutes of limitations, but the district court initially accepted appellant's argument that the limitations periods were tolled due to appellee's alleged wrongdoing and concealment of facts. The district court overturned appellant's verdicts on appellee's post-trial motions, ruling that USM's letters to appellant and publicly available information was sufficient to put appellant on inquiry notice such that appellant's subsequent books and records action did not toll the limitations period.