Jeffrey Perelman v. Raymond Perelman

NOT PRECEDENTIAL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