Court Opinion

ID: 1087033
Source: CourtListenerOpinion
Date Created: 2013-10-25 17:00:36.592691+00
Date Added: 2024-06-11T13:22:23.678357
License: Public Domain

NOT PRECEDENTIAL

                UNITED STATES COURT OF APPEALS
                     FOR THE THIRD CIRCUIT

                             _____________

                              No. 13-2521
                             _____________

                        JEFFREY E. PERELMAN,
 In His Individual Capacity and as Trustee of the Alison R. Perelman Trust;
FRANK KATZ, In His Capacity as Trustee of the Alison R. Perelman Trust;
            JEP MANAGEMENT, INC., a Delaware Corporation

                                    v.

          RAYMOND G. PERELMAN; RONALD PERELMAN

                      RAYMOND G. PERELMAN,
                                      Appellant

             On Appeal from the United States District Court
                for the Eastern District of Pennsylvania
                           (No. 2-09-cv-04792)
               District Judge: Hon. Mary A. McLaughlin

                             _____________

                              No. 13-2658
                             _____________

                      RAYMOND G. PERELMAN,
                                     Appellant

                                    v.

                            ARLIN ADAMS
                     On Appeal from the United States District Court
                        for the Eastern District of Pennsylvania
                                  (No. 2-12-cv-07071)
                       District Judge: Hon. Eduardo C. Robreno
                                     ___________

                     Submitted Pursuant to Third Circuit LAR 34.1(a)
                                  September 23, 2013

          Before: CHAGARES, VANASKIE, and SHWARTZ, Circuit Judges.

                                 (Filed: October 25, 2013)
                                      ____________

                                        OPINION
                                      ____________

CHAGARES, Circuit Judge.

       We consider together two related cases filed separately in the United States

District Court for the Eastern District of Pennsylvania. The first — our case number 13-

2521 — concerns counterclaims raised by Raymond G. Perelman against his son, Jeffrey

Perelman, Marsha Perelman (Jeffrey Perelman’s wife), and Frank Katz (collectively, the

“counterclaim defendants”).1 Perelman’s counterclaims alleged fraud in the execution of

an agreement transferring businesses from Perelman to Jeffrey Perelman, and alleged

breach of an express trust for the benefit of Alison Perelman, Perelman’s granddaughter.

The District Court granted the motion of the counterclaim defendants to dismiss the

complaint, holding that the doctrine of res judicata and applicable statutes of limitations

barred Perelman’s counterclaims.

1
  Throughout this opinion, we refer to Raymond Perelman by his last name and to his
son by his full name, Jeffrey Perelman.
                                              2
       The second case — our case number 13-2658 — concerns the complaint filed by

Perelman against his former attorney, Arlin Adams, which alleged fraud and other

misconduct related to Adams’s representation of Perelman in the transaction with Jeffrey

Perelman. The District Court likewise granted Adams’s motion to dismiss the complaint

on statute of limitations and res judicata grounds. Perelman appeals the decisions of both

District Courts. For the reasons that follow, we will affirm both dismissal orders.

                                              I.

                                             A.

       We write solely for the parties’ benefit and thus recite only the facts essential to

our disposition, assuming that the facts alleged by Perelman are true. Perelman owned a

number of businesses that he operated with his son, Jeffrey, until the late 1980s. At that

time, Jeffrey Perelman wanted to take over as Chief Executive Officer and urged his

father to retire. Perelman declined, and Jeffrey Perelman resigned from his father’s

companies. Perelman later agreed to transfer thirteen subsidiary companies to his son in

exchange for a payment of $24 million. Perelman then retained Adams, who was also a

friend, and his law firm, Schnader, Harrison, Segal & Lewis (“Schnader”),2 to execute the

transaction. Perelman had several conditions for the transfer: that it have no tax

consequences for him; that half of the stock in the companies be transferred to a trust for

Perelman’s granddaughter Alison for which Adams would act as the Trustee; and that

Jeffrey Perelman’s wife would renounce any claim to the transferred companies.

2
  Adams practiced law at Schnader during all time periods relevant to Perelman’s
complaint.
                                              3
       The transfer occurred in 1990 through Stock Purchase Agreements prepared by

Adams and an associate attorney from Schnader. Those agreements required Jeffrey

Perelman to pay approximately $24 million by certified check to his father at the close of

the transaction. Perelman was not present at the closing and relied on Adams, who

understood his wishes, to represent his interests. At the closing, Adams allowed Jeffrey

Perelman to take possession of the companies. However, Perelman alleges, Jeffrey

Perelman never paid the required $24 million for the companies and the trust was set up

principally for the benefit of Jeffrey Perelman, not for Perelman’s granddaughter. Jeffery

Perelman is trustee, along with Frank Katz. Jeffrey Perelman transferred the Stock

Certificates of the companies to himself, with the permission and aid of Adams. After

the closing, Adams drafted a letter to interested banks stating that ownership had properly

transferred to Jeffrey Perelman.

       In 2007, Perelman expressed his concerns about the transfer to Adams and the

Schnader associate who had assisted him. The associate assured Perelman that his wishes

regarding the transaction had been carried out. Perelman then requested copies of the

transfer documents and was shocked to discover that his granddaughter was not

specifically provided for in the trust. In 2010, Perelman received the purchase

agreements and other documents related to the sale and learned that Jeffrey Perelman had

never paid for the companies. Perelman also recently learned that Adams had served as a

paid advisor to Jeffrey Perelman’s management company, which he had formed to

operate the thirteen companies transferred in the 1990 transaction.

                                            4
                                              B.

       Perelman has also been involved in several state-court actions related to the

transactions at issue in the two federal cases currently before us. First, he filed suit

against Jeffrey Perelman in October 2009 in the Court of Common Pleas of Philadelphia

County alleging fraud, breach of contract, and several related claims. The court

dismissed the complaint, and the Superior Court of Pennsylvania affirmed. Second,

Perelman filed a malpractice action against Schnader in December 2009 in the Court of

Common Pleas of Philadelphia County. The defendant moved for judgment on the

pleadings; the court granted the motion and the Superior Court of Pennsylvania affirmed.

Finally, Perelman filed a petition in the Court of Common Pleas of Montgomery County,

Orphans’ Court Division in August 2011 seeking to revoke or revise and reform the trust

formed as a result of the 1990 transaction.3 The petition named several respondents,

including Jeffrey Perelman, Marsha Perelman, Frank Katz, and Arlin Adams. The court

granted Jeffrey Perelman’s and Adams’s motions for judgment on the pleadings, holding

that the outcome of the Philadelphia County litigation barred Perelman’s petition and

dismissing the petition with prejudice.

       In 2009, Jeffrey Perelman filed a lawsuit against Perelman in the United States

District Court for the Eastern District of Pennsylvania, and Perelman filed counterclaims

alleging fraud in the execution of the underlying transfer agreement and seeking the

imposition of an express trust for the benefit of Alison Perelman. The District Court

3
 Perelman also filed a second orphan’s court action, which was dismissed for lack of
jurisdiction.
                                               5
dismissed the counterclaims and dismissed the rest of the case as moot. In 2012,

Perelman filed a lawsuit against Adams in the District Court for the Southern District of

Florida, which was transferred to the Eastern District of Pennsylvania, alleging breach of

contract, professional negligence, fraudulent misrepresentation, fraudulent concealment,

and fraud related to the 1990 transaction and legal malpractice, breach of contract, and

breach of fiduciary duty related to a will Schnader’s attorneys prepared for Perelman’s

wife, Ruth, in 2010.4 The District Court dismissed the complaint in that lawsuit with

prejudice. Perelman timely appealed both dismissal orders.

                                             II.5

       We exercise plenary review over a district court’s grant of a Rule 12(b)(6) motion

to dismiss. Fleisher v. Standard Ins. Co., 679 F.3d 116, 120 (3d Cir. 2012). “To survive a

motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to

state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (quotation marks omitted). “A claim has facial 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. at 678. Though “detailed factual

allegations” are not required, a complaint must do more than simply provide “labels and

conclusions,” or “a formulaic recitation of the elements of a cause of action.” Bell Atl.

Corp. v. Twombly, 550 U.S. 544, 555 (2007).

4
   Perelman’s amended complaint alleges irregularities with respect to the preparation of
the 2010 will but Perelman does not pursue arguments related to the preparation of the
will on appeal.
5
   The District Court had jurisdiction over Perelman’s complaint pursuant to 28 U.S.C.
§ 1332. We exercise jurisdiction over Perelman’s appeal pursuant to 28 U.S.C. § 1291.
                                              6
                                              III.

                                              A.

        We first consider the District Court’s dismissal of Perelman’s counterclaims

against Jeffrey Perelman. The District Court held that Perelman’s claim of fraud in the

execution is barred by the doctrine of res judicata because state-court decisions at the trial

and appellate levels either addressed Perelman’s claims directly or “arose from the same

transaction or series of transactions as the claims resolved” in the state-court actions.

Appendix in Perelman v. Perelman (“Perelman App.”) 19. Furthermore, the District

Court held that the claim concerning imposition of an express trust was barred by

applicable statutes of limitations.

        We agree that the doctrine of res judicata bars Perelman’s counterclaim of fraud in

the execution. Following the Supreme Court’s decision in Semtek International Inc. v.

Lockheed Martin Corp., 531 U.S. 497 (2001), this Court held that “[i]n a diversity action,

we apply the preclusion rules of the forum state, unless they are incompatible with

federal interests.” Houbigant, Inc. v. Fed. Ins. Co., 374 F.3d 192, 205 (3d Cir. 2004).6

Accordingly, as this is a diversity case, and Pennsylvania is the forum state, we apply

Pennsylvania’s law of preclusion.

        Under Pennsylvania law, in order for the doctrine of res judicata to bar a

subsequent action, that action and the relevant prior action must share four conditions:

“(1) identity of the thing sued upon or for; (2) identity of the causes of action; (3) identity

of the persons or parties to the action; and (4) identity of the quality or capacity of the

6
    The parties assume and we agree that Pennsylvania law applies to this action.
                                               7
parties suing or being sued.” Unified Sportsmen of Pa. v. Pa. Game Comm’n (PGC), 950
A.2d 1120, 1128 (Pa. Commw. Ct. 2008). In the instant case, as far as Perelman’s fraud

allegation against Jeffrey Perelman is concerned, Perelman contests the District Court’s

ruling that this counterclaim is barred by res judicata. Perelman contends that the fraud-

in-the-inducement claim decided in the state-court action is distinct from the fraud-in-the-

execution allegation we address here, which Perelman raised as a counterclaim in the

federal lawsuit filed against him by Jeffrey Perelman and the other counterclaim

defendants. That is, Perelman argues that the second element of the res judicata test —

identity of causes of action — is not met.

       We disagree. Pennsylvania case law provides that “[i]dentity of two causes of

action may be determined by considering the similarity in the acts complained of and the

demand for recovery as well as the identity of the witnesses, documents and facts

alleged.” Dempsey v. Cessna Aircraft Co., 653 A.2d 679, 681 (Pa. Super. 1995). Here,

certainly, the “witnesses, documents and facts” alleged as part of Perelman’s fraud in the

inducement claim are identical to those alleged in conjunction with the fraud in the

execution claim. Moreover, the “acts complained of” are markedly similar. As the

District Court noted, “[Perelman’s] pleadings in the First Philadelphia County Action and

his counterclaims here rely upon the same central theory: that he and Jeffrey made an

Oral Agreement which was not reflected in the separate written agreements, and that this

Oral Agreement should be enforced.” Perelman App. 17. Indeed, “a number of

counterclaims pled by Raymond [Perelman] are identical, or practically identical, to his

claims in the First Philadelphia County Action.” Id. For example, the complaint filed by

                                             8
Perelman against Jeffrey Perelman in the Court of Common Pleas of Philadelphia County

in 2009 alleges the following: “Mr. Perelman entered into an agreement with Jeffrey to

transfer the Business Interests . . . conditioned on, inter alia, Jeffrey’s transferring fifty

percent of the Business Interests to a trust meeting the requirements set forth above for

the benefit of his children”; however, “Jeffrey breached that agreement,” and “induced

his father to transfer the Business Interests to him by representing to Mr. Perelman that he

would transfer fifty percent of the Business Interests to a trust meeting the requirements,”

so that Perelman, “now 92 years old . . . , as a consequence of this fraud, has realized that

his plans . . . have been frustrated.” Perelman App. 303-04.

       The fraud counterclaim of the federal action likewise alleges that “Jeffrey

misrepresented to Raymond that he agreed to and would abide by Raymond’s

requirements” for the transfer of Business Interests. Perelman App. 116. “Jeffrey and

Marsha induced Raymond to transfer the Business Interests to Jeffrey by misrepresenting

to him that all of Raymond’s requirements would be satisfied,” so that Perelman, now

“92 years old,” “as a consequence of his reliance on Marsha’s and Jeffrey’s

misrepresentations, . . . has realized that his plans to ensure that Alison . . . will not have

the financial security Raymond wished” have been frustrated and Raymond also is not

certain that the Business Interests will “remain in the family.” Id. 116-17. The

counterclaim for fraud in the inducement contains essentially the same allegations. Id.

117-19.

       We therefore hold that, notwithstanding the legal distinction between fraud in the

execution and fraud in the inducement — a “subtle distinction,” as Perelman himself

                                                9
points out, Perelman Br. 24 — the two causes of action against Jeffrey Perelman meet the

identity requirement as defined by Pennsylvania law. For issues that “were part of the

same cause of action,” like the fraud claims raised here, “[c]laim preclusion applies not

only to issues litigated in the first proceeding but also to issues which should have been

previously litigated.” Malone v. W. Marlborough Twp. Bd. of Supervisors, 603 A.2d
708, 711 (Pa. Commw. Ct. 1992). Given that Perelman’s federal counterclaims concern

precisely the same alleged misrepresentations about precisely the same transfer of the

same business interests, and allege the same harms and seek the same remedies, we hold

that Pennsylvania law provides that Perelman’s fraud in the execution claim was

previously litigated. Accordingly, we agree with the District Court that Perelman’s

counterclaim of fraud in the execution against Jeffrey Perelman is barred by Pennsylvania

preclusion law.7

       Perelman also challenges the dismissal of his claim to impose an express trust

against Jeffrey Perelman and Katz on the basis that that claim was barred by the statute of

limitations under Pennsylvania law. Before addressing Perelman’s arguments relating to

the District Court’s statute of limitations analysis, we note that the District Court

dismissed the claim for an express trust against Jeffrey Perelman not based on any statute

of limitations, but rather on res judicata grounds. We agree with the District Court that,

7
  We agree with the District Court that Perelman's fraud in the execution claim against
Marsha is time-barred, Perelman App. 27, and that Perelman is collaterally estopped from
relying on the discovery rule to toll the statute. Perelman App. 25. Moreover, in this
appeal, Perelman makes no specific arguments concerning Marsha apart from those he
made against the other counterclaim defendants and thus our analysis concerning the
claims against them apply to her as well.
                                              10
for reasons similar to those discussed above, the state court’s dismissal of Perelman’s

express trust claim against Jeffrey Perelman and the subsequent appellate decisions

upholding that dismissal bar Perelman from re-litigating an express trust claim against his

son in this Court. Accordingly, we will affirm the District Court’s dismissal of the

express trust claim as to Jeffrey Perelman.

                                              B.

       This leaves only the express trust claim against Katz.   Both Katz and Jeffrey

Perelman are sued in this federal case as co-trustees of an express trust, although Katz

was not a named defendant in the Philadelphia County Court of Common Pleas action.

The doctrine of res judicata bars not only future suits between the same parties, but also

future suits between the same parties and those in privity with them. See In re Iulo, 766
A.2d 335, 337 (Pa. 2001); Thompson v. Karastan Rug Mills, 323 A.2d 341, 345 (Pa.

Super. Ct. 1974). If Katz is in privity with Jeffrey Perelman for the purposes of the

express trust claim, then, that claim against Katz would be equally barred. “Privity is

broadly defined as mutual or successive relationships to the same right of property, or

such an identification of interest of one person with another as to represent the same legal

right.” Montella v. Berkheimer Assocs., 690 A.2d 802, 804 (Pa. Commw. Ct. 1997)

(quotation marks omitted). Because the co-trustees of a trust sued in their capacities as

trustees would meet this definition, we find that Katz and Jeffrey Perelman were in

privity with each other. Accordingly, the express trust claim is precluded against both

Katz and Perelman and we will affirm the dismissal of that claim in its entirety.

                                              11
                                             IV.

        We turn now to the District Court’s dismissal of Perelman’s complaint against

Adams. Perelman argues that, because he did not discover until 2010 that consideration

was not paid, the District Court improperly applied the discovery rule and erroneously

concluded that the doctrine of fraudulent concealment did not apply. He contests the

District Court’s conclusion that a reasonable person who was “shocked and dismayed” by

the 2007 discovery would have “requested and reviewed the Agreements with dispatch to

ensure that his intended terms, including the $24 million payment, had not been met in a

closely related transaction.”

        Defendants may raise a statute of limitations defense in a 12(b)(6) motion to

dismiss 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) (quotation marks omitted). The time bar must be evident on the face

of the complaint for the complaint to create a basis for dismissal. Id.; see also Rycoline

Prods., Inc. v. C & W Unlimited, 109 F.3d 883, 886 (3d Cir.1997). In diversity actions

like the present action, federal courts apply the substantive law of the forum state, which

includes state statutes of limitations. Lafferty v. St. Riel, 495 F.3d 72, 76 (3d Cir. 2007).

In Pennsylvania, a four-year limitations period governs a breach of contract claim, 42 Pa.

Cons. Stat. § 5525, and a two-year period governs tort claims of professional negligence,

fraudulent misrepresentation, fraudulent concealment, and fraud, 42 Pa. Cons. Stat. §

5524.

                                             12
       Courts will apply the discovery rule to toll the statute of limitations when “the

injured party is unable, despite the exercise of due diligence, to know of his injury or its

cause.” Knopick v. Connelly, 639 F.3d 600, 609 (3d Cir. 2011) (applying Pennsylvania

law). A court considering a plaintiff’s request to apply the rule “must address the ability

of the damaged party, exercising reasonable diligence, to ascertain that he has been

injured and by what cause.” Fine v. Checcio, 870 A.2d 850, 858 (Pa. 2005). Though the

reasonable diligence test accounts for the different capacities of different plaintiffs, the

test is nonetheless an objective one. Kach v. Hose, 589 F.3d 626, 642 n.17 (3d Cir.

2009). The question of reasonable diligence is ordinarily a matter for the factfinder.

Fine, 870 A.2d at 858-59. However, a court may decide the issue when “the facts are so

clear that reasonable minds cannot differ [and] the commencement of the limitation

period [may] be determined as a matter of law.” Knopick, 639 F.3d at 611 (quotation

marks omitted); see also Gleason v. Borough of Moosic, 15 A.3d 479, 485 (Pa. 2011).

       The doctrine of fraudulent concealment “provides that the defendant may not

invoke the statute of limitations, if through fraud or concealment, he causes the plaintiff

to relax his vigilance or deviate from his right of inquiry into the facts.” Fine, 870 A.2d

at 860. A plaintiff who seeks equitable tolling based on the doctrine of fraudulent

concealment bears “the burden of proving fraudulent concealment by clear, precise, and

convincing evidence.” Id. Pennsylvania courts apply a standard of “reasonable

diligence” — a statute of limitations tolled by fraudulent concealment will begin to run

“when the injured party knows or reasonably should know of his injury and its cause.”

Id. at 861.

                                              13
       In support of his assertion that the discovery rule should be applied to toll the

limitations period, Perelman contends that he did not learn until 2010 that the required

$24 million was not paid during the 1990 transaction. He also emphasizes that none of

his lawsuits sought unpaid consideration and argues that he regularly hired attorneys to

effectuate business deals and therefore reasonably relied on Adams’s counsel. We agree

with the District Court that Perelman has not pled sufficient facts to toll the statute of

limitations. In light of the amount of money at issue and given Perelman’s admission in

his complaint that he became so concerned about the transaction in 2007 that he

requested the documents relevant to the 1990 transaction, we cannot conclude that a

person in Perelman’s position, exercising reasonable diligence, would not have

discovered the absence of $24 million. Perelman’s regular reliance on attorneys to

execute business transactions did not deprive him of his capacity to discover that $24

million had not been transferred as required.

       Perelman’s argument that the doctrine of fraudulent concealment applies to toll the

limitations period cannot succeed for similar reasons. He relies heavily on a district court

decision in a bankruptcy case. In Schwartz v. Pierucci, the District Court for the Eastern

District of Pennsylvania held that when a “fiduciary commits an act of fraud against his

principal, the statute of limitations will be tolled, since the very position the fiduciary is

in[] prohibits the principal from uncovering the fraud.” 60 B.R. 397, 403 (E.D. Pa.

1986). However, we have warned that “the existence of a fiduciary, lawyer-client

relationship” will not “alone preclude judgment as a matter of law,” though the

relationship may suffice, in some circumstances, to “trigger application of the discovery

                                               14
rule.” In re Mushroom Transp. Co., Inc., 382 F.3d 325, 342-43 & n.11 (3d Cir. 2004). In

other words, though the relationship may be “pertinent to the question of when a

plaintiff’s duty to investigate arose,” the relationship is not dispositive. Id. at 343

(quotation marks omitted). A plaintiff who seeks application of the fraudulent

concealment doctrine must still present “clear, precise, and convincing evidence.” Fine,

870 A.2d at 860.

       In the case against Adams, Perelman has pled no facts that suggest an affirmative

act of fraud or concealment by Adams. The amended complaint simply states that

Adams understood the conditions of the transaction. As the District Court pointed out,

Adams readily turned over “all the transfer documents and the trust agreement,”

Appendix to Perelman v. Adams 35, when Perelman requested them in 2007. Perelman

contends that he only discovered the lack of payment, however, after he received the

purchase agreements in 2010. We agree with the District Court that a reasonably diligent

person, “shocked and dismayed,” id., in 2007 that his wishes with respect to the trust had

not been carried out, would not have waited three more years before viewing the

purchase agreements. Perelman’s complaint does not allege any facts with respect to the

three-year lapse between the 2007 meeting and his 2010 discoveries. At the motion to

dismiss stage, a plaintiff who seeks to invoke equitable tolling need only “plead the

applicability of the doctrine.” See Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d
1380, 1391 (3d Cir. 1994) (holding that a plaintiff who pled in her complaint that her law

firm actively misled her in support of her request for application of the discovery rule had

sufficiently pled the application of the doctrine). Here, however, Perelman has not made

                                              15
any allegations in his complaint that would support application of the fraudulent

concealment doctrine or of the discovery rule.

        We thus conclude that, at the latest, the statute of limitations began to run in 2007,

when Perelman became concerned about the transaction. As a result, the longest

applicable limitations period, the four-year period that governs breach of contract actions,

expired in 2011, before Perelman filed the instant complaint in September 2012. The

District Court correctly concluded that Perelman’s claims are time-barred.8

                                              V.

        For the foregoing reasons, we will affirm the order of the District Court that

granted the counterclaim defendants’ motion to dismiss in case number 13-2521, and the

order of the District Court that granted Adams’s motion to dismiss in case number 13-

2658.

8
  Because we conclude that Perelman’s causes of action against Adams were time-
barred, we do not address the parties’ arguments about the potential application of the
doctrine of res judicata in this case.
                                              16