Niehoff v. Maynard

United States Court of Appeals
For the First Circuit

No. 01-1153

NORMA J. NIEHOFF, ET AL.,
Plaintiffs, Appellees,

v.

KENNETH L. MAYNARD AND LONG RIDGE ASSOCIATES L.P.,
Defendants, Appellants.

No. 01-1154

NORMA J. NIEHOFF, ET AL.,
Plaintiffs, Appellants,

v.

KENNETH L. MAYNARD AND LONG RIDGE ASSOCIATES L.P.,
Defendants, Appellees.
_____________________

APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Mary M. Lisi, U.S. District Judge.]

Before
Selya, Circuit Judge,
Stahl, Senior Circuit Judge, and
Lipez, Circuit Judge.

Marcus E. Cohn, with whom Leigh-Ann M. Patterson, Nixon
Peabody LLP, W. Mark Russo, and Ferrucci Russo P.C. were on brief,
for defendants.
Robert D. Fine, with whom Annie Talbot and Chace Ruttenberg &
Freedman, LLP were on brief, for plaintiffs.

August 9, 2002
 STAHL, Senior Circuit Judge. Defendant Kenneth L.

Maynard appeals from the decision of the district court that the

claims of seven plaintiff-investors, which would otherwise be time-

barred, were still viable due to tolling of the statute of

limitations. After a thorough review of the record, we affirm.

I.

After a three-day bench trial, the district court found

that Maynard breached the limited partnership agreement between him

and the seven plaintiffs and breached his fiduciary obligations to

them, and awarded each of the plaintiffs damages commensurate with
their original investment. The court denied, however, the

plaintiffs' request for punitive damages. On appeal, Maynard does
not challenge the court's findings of liability. Rather, he
insists only that the court erred in rejecting his statute of

limitations defense. For their part, the plaintiffs appeal from
the denial of punitive damages. In order to comprehend fully the
issues raised by these appeals, we recount the factual background

as developed in the record of the proceedings below.
In October 1987, Maynard purchased 178.8 acres of land in
Charlestown, Rhode Island (Property). In 1988, Maynard formed a

limited partnership to develop townhouse condominiums on the
Property. The partnership, which was called Long Ridge Associates
Limited Partnership (Partnership), was formed under Delaware law.

The partnership agreement (Partnership Agreement) designated
Maynard as the general partner and provided that he would turn over

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to the Partnership his interest in the Property, to which he

assigned a value of $1.8 million.

Maynard decided to issue a private offering to solicit
investments to fund construction of the condominiums. To that end,

he distributed a Private Offering Memorandum (POM) in or about

December 1988 with details about the construction of an 89-unit
townhouse development on the Property (Project). The partnership

was structured so that an investor could become a limited partner

by subscribing to a "limited partnership unit," or a portion

thereof. The POM stated that eighteen limited partnership units

were being offered at a price of $100,000 per unit. According to

the POM, however, the offering was made on an all-or-nothing basis,

meaning that the deal would go through only if all eighteen units
were subscribed by November 1, 1989.1 Therefore, unless all

eighteen units were sold by November 1, 1989, the offering was to

be withdrawn and the money refunded to the investors.
The POM obligated Maynard to hold the proceeds from the

offering until the partnership was fully subscribed.2 In addition,

1
The POM stated in relevant part:

This offering will be withdrawn if the
Partnership has not received subscriptions for
all of the Units on or before March 1, 1989,
unless extended by the General Partner to a
date not later than November 1, 1989, at which
time the General Partner will have the option
to acquire all (but not less than all) unsold
Units on the same terms and conditions as such
Units are offered hereby.
2
Specifically, the POM provided:

The proceeds of the offering will be received

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the Partnership Agreement required Maynard to provide the limited

partners with financial disclosures on an annual basis, including

a balance sheet, profit and loss statement, and a statement showing
Partner distributions. The Partnership Agreement further required

that "all of the books of account of the Partnership . . . at all

times be maintained at the principal office of the Partnership" and
"be open to the inspection and examination" of the limited

partners.

The plaintiffs - Norma J. Niehoff, Arlene Klughart, A.

Stephen Melcher, Lee Frascino, Victor J. and Roseanna Cubelli

Melone, and John Canzanella - are limited partners in the

Partnership.3 All had prior investment experience, and at least

three of them -- Victor Melone, Norma Niehoff and Lee Frascino --
had invested previously with Maynard in connection with various New

and held for the benefit of investors in the
offering and will be retained after closing to
be used only for the purposes set forth herein
under the caption "Use of Proceeds". In the
event the offering is not completed or if the
transactions referred to herein are not
consummated for any reason, then all
subscription payments will be refunded to
subscribers without interest and without
deduction.
3
As a prerequisite to investing in the Partnership,
individuals had to possess a certain level of sophistication and
experience in financial matters. Specifically, the POM provided
that "subscriptions to the Partnership are being offered on a
private basis to persons who it is believed prior to any sale have
such knowledge and experience in financial and business matters
that they are capable of evaluating the merits and risks of the
investment." The parties agree that the plaintiffs satisfied this
requirement.

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York-based real estate limited partnerships during the mid-1980s,

which had apparently been successful ventures.

Canzanella was the first to invest in the Partnership in
October 1988, followed by Niehoff, the Melones and Melcher in

November 1988. Frascino invested in February 1989. As of November

1, 1989, the subscription deadline, only 6.4 of the eighteen units
had been sold. Subsequently, Klughart invested in February 1990,

bringing the aggregate of the plaintiffs' investment to 6.9 of the

eighteen units of the Limited Partnership.

Although Maynard was obligated under the POM to refund

the plaintiffs' money because the partnership was not fully

subscribed by the November 1, 1989 subscription deadline, he failed

to do so. Instead, in March 1990, Maynard subscribed to the
remaining 11.1 unsold units himself and executed a Limited Partner

Signature Page, which bound him to "all of the terms of the Limited

Partnership Agreement of Long Ridge Associates," including a
provision that "[p]ayment for each Unit shall be made in cash." As

payment for these 11.1 units, Maynard paid via paper transfer

$500,000 (which was due him from the Partnership for the Property)

and, notwithstanding his obligation to make a cash payment,

executed a promissory note for the remaining $610,000. None of

Maynard's machinations were revealed contemporaneously to the

plaintiffs.

In March 1990, Maynard failed to deliver any financial

reports to the limited partners, contrary to his contractual duty

to do so by that date. On December 14, 1990, Melone sent a letter

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to Maynard inquiring about the status of the investment and

suggesting that the provision of such information was "most

overdue." Despite Melone's request, Maynard did not send out any
financial reports at that time.

Throughout the latter part of 1990 and into the early

part of 1991, several plaintiffs made telephone calls to Maynard,
seeking information about the status of the Project. Maynard

explained to them that the Project was "construction-ready," but

that there had been delays because of the regulatory approval

process and a lawsuit brought by the Narragansett Indian tribe.

On February 28, 1991, Maynard sent an eighteen-page

letter to the plaintiffs to "report on the current status of the

Long Ridge Townhouse project and to describe the events that have
brought us to the current point." In this letter, Maynard informed

plaintiffs that construction of the townhouses had not yet begun.

Maynard explained this delay by recounting the progress on various
preliminaries, including the permitting process and the surveying,

engineering and land planning work. In addition, he described the

particulars of a lawsuit brought by the Narragansett Indians

against Maynard to block the Project. He also attributed the

delays to a depressed real estate market and the resulting

difficulty in obtaining a construction loan. As to financial

matters, Maynard reassured the plaintiffs that the equity in the

Project, including land and development expenses, stood at

approximately $3.0 million. He stated that, while he was "looking

aggressively for a way to make something happen," he insisted that

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he was "not going to take action that would jeopardize this equity,

part of which secure[d] [the plaintiffs'] investment."

In 1993, Niehoff paid a visit to Maynard at his home in
Charlestown, the principal place of business of the Partnership and

the site of its books. Niehoff asserts that she went there

specifically to examine the financial statements; however, Maynard
told her the statements would not be ready until December 1993 and

that he would send them to her at that time. To allay her

concerns, Maynard took Niehoff to visit the project site.

Despite his promises, Maynard failed to send Niehoff any

financial reports in December 1993. As a result, Niehoff sent a

letter in January 1994 expressing her desire to extract her

investment from the Partnership and communicating her frustration
with the lack of financial information provided to the limited

partners. In this letter, she emphasized that she found Maynard's

"casual approach to the considerable sums of money placed in good
faith with [him] very disconcerting." Further, she told him that

she was "shocked" that he had not followed up on his promise to

send formal financial reports and claimed that "this extended

blackout has exacerbated [her] concerns considerably."

The Melones likewise met with Maynard in 1993 at his

home. They too expressed their concerns to him about not receiving

any financial information about the Project up until that point.

Maynard reassured them that he would send them the information.

Once again, however, Maynard failed to follow through on this

promise. In January 1994, the Melones sent Maynard a letter in

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which they reiterated their concerns about the Project and

expressed their frustration with Maynard's apparent "disregard

. . . for the money entrusted to [him]." They indicated that they
were "amazed" that Maynard thought that investors such as

themselves, with a combined exposure of $200,000, would be

"complacent." In the face of Maynard's "cavalier" attitude, wrote
the Melones, "[t]hat can no longer be the case."

In June 1995, Maynard sent a five-page letter to

plaintiffs responding to inquiries about the status of the Project.

In this "report," however, Maynard failed to provide specific

financials for the Project and instead stated only that, as to an

estimate of the value of the investment, he believed "it

appropriate to place a present value equal to your original
investment." In addition, in response to the plaintiffs'

inquiries, Maynard admitted at trial that he had informed at least

some of them that issuing financial reports before the Partnership
had started business would be "meaningless" and that financial

reports would be issued only when the Partnership commenced its

business of constructing and selling condominiums.

On March 31, 1998, six of the seven plaintiffs filed this

diversity action against the Partnership and Maynard (in both his

individual capacity and as general partner of the Partnership).4

On August 14, 1998, the plaintiffs amended their complaint to add

a seventh plaintiff, John Canzanella. In addition to seeking an

4
Due to the fact that Maynard and the Partnership are for all
practical purposes one and the same, we shall refer simply to
Maynard when discussing the defendants.

-8-
accounting, the plaintiffs asserted four claims: (1) breach of

contract; (2) fraud and misrepresentation; (3) breach of fiduciary

duty under the Limited Partnership Agreement; and (4) breach of
fiduciary duty under ERISA, 29 U.S.C. § 1105. The plaintiffs

alleged, inter alia, that Maynard, in his capacity as general

partner, had "diverted the funds entrusted to him by the plaintiffs
for his personal purposes" and had failed and refused to "render an

accounting of the finances" of the Partnership in violation of the

Partnership Agreement. They also alleged that Maynard failed "to

contribute to [the Partnership] real property in Charlestown, Rhode

Island," although he promised such a conveyance in 1988.

Plaintiffs sought an accounting, removal of Maynard as general

partner, and an immediate transfer of the Property. In his answer,
Maynard raised the statute of limitations as a defense.

During discovery, Maynard produced all of the

Partnership's financial documents, books of account, and records,
including copies of the Partnership's bank statements, checks and

wire transfers to the Partnership by all plaintiffs, all checks

written by the Partnership, documents relating to various

expenditures, invoices, and contracts related to development work.

According to the plaintiffs, these documents revealed to them, for

the first time, the fact that (1) contrary to his contractual

obligations under the POM, Maynard failed to refund plaintiffs'

investments in 1989 even though the offering had not been fully

subscribed by the November 1, 1989 deadline set forth in the POM;

(2) Maynard's March 1990 purchase of the balance of the

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unsubscribed shares of the offering violated the terms of the POM;

and (3) the plaintiffs' funds had been spent immediately in 1988

and 1989, rather than being held in escrow pending full
subscription, as required by the POM. After these discoveries, the

plaintiffs amended their complaint to "clarif[y] Count III," the

breach of contract claim. The plaintiffs did not assert any new or
additional causes of action, but rather sought to incorporate in

their complaint the additional facts they had learned.

The parties subsequently filed cross-motions for summary

judgment. The court -- adopting in part the recommendations of the

magistrate judge to whom the motions had initially been referred --

entered summary judgment for Maynard on the claim for breach of

fiduciary obligation under ERISA and on the claim that Maynard
failed to transfer the Property to the Partnership. The court

denied summary judgment on the remaining claims of diversion of

funds, breach of contract, breach of fiduciary duty and an
accounting, reserving these claims for trial.

A three-day bench trial commenced on December 6, 2000.

At the close of the case, Maynard moved for judgment as a matter of

law as to all plaintiffs and all counts arguing, inter alia, that

the plaintiffs' claims were barred by the statute of limitations.

The district court denied these motions. Ruling from the bench on

December 14, 2000, the court awarded judgment for the plaintiffs on

the claims of breach of contract and breach of fiduciary duty.

With respect to the breach of contract claim, the court found that

the POM was "essentially a contract between the parties," and that

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Maynard breached the terms of that contract by (1) failing to

purchase his 11.1 units by the November 1, 1989 subscription

deadline on the same terms and conditions as those under which the
plaintiffs purchased their units; and (2) by retaining the

plaintiffs' funds after the subscription deadline when the

Partnership was not fully subscribed.5 The court found that this
conduct constituted wrongful self-dealing, and thus a breach of the

fiduciary duty owed by Maynard to the plaintiffs pursuant to the

POM.

As to the statute of limitations defense, the court

identified the statute of limitations under Delaware law, which is

three years.6 It then determined that the plaintiffs' action

accrued on November 2, 1989, immediately after the subscription
deadline.7 Because the plaintiffs' complaint was not filed until

March 31, 1998 - more than eight years after the cause of action

accrued - the court acknowledged that, absent tolling, their claims
would be time-barred.

5
With respect to Klughart, who did not invest until February
6, 1990 (i.e., after the subscription deadline), the court found
that Maynard should never have accepted her money, and that, in any
event, he breached his obligation to her by not refunding her
money.
6
Although the POM itself is silent as to which state's law
should apply, the district court applied Delaware law pursuant to
the express provisions of the Limited Partnership Agreement. In
their appeals, the parties take no issue with the district court's
choice of law determination.
7
As to Klughart's action, the court found that her claims
accrued on February 6, 1990, the day that Maynard improperly
accepted her investment.

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 After hearing all of the evidence, however, the district

court concluded that the statute of limitations should be tolled

until March 1999, when the plaintiffs obtained during discovery the
financial documents that revealed Maynard's wrongful conduct.

Thus, the district court ruled, the claims were not time-barred.

In reaching this conclusion, the court found that Maynard, as a
fiduciary, had been required to make timely disclosures of facts

material to the plaintiffs' contractual rights and that his failure

to do so constituted "misrepresentation by omission." The court

also found that Maynard had engaged in fraudulent concealment by

misdirecting attention away from the internal state of affairs of

the Partnership to external forces that were causing delays in the

Project. The court also found that Maynard had engaged in wrongful
self-dealing, which the plaintiffs "did not know and could not know

. . . until they made their discovery in the course of this

litigation." Finally, it determined that "the plaintiffs' failure
to be more aggressive in their pursuit of their claims was

justified in light of the misrepresentations by omission and the

misrepresentations regarding certain impediments to the viability

of the partnership."

The court then awarded each plaintiff damages in the

amount of his or her original investment, plus interest. It denied

plaintiffs' claims for an accounting, attorneys' fees and punitive

damages, finding that the plaintiffs had failed to meet their

burden of demonstrating malice, which the court found to be a

prerequisite for punitive damages under Delaware law. Maynard

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filed an appeal attacking the judgment solely with regard to the

statute of limitations issue. The plaintiffs cross-appealed,

seeking punitive damages.
II.

As a preliminary matter, we address the standard of

review. A determination that equitable tolling is appropriate
involves a mixed question of law and fact. Under either First

Circuit or Delaware law, a district court's ruling on a mixed

question is entitled to deference to the extent that it hinges on

factual determinations but must be reviewed de novo with respect to

the legal standard employed. In United States v. 15 Bosworth

Street, 236 F.3d 50 (1st Cir. 2001), for example, this court ruled

that, "[w]hen a district court conducts a bench trial, its legal
determinations engender de novo review. . . . In contrast, the

court's factual findings are entitled to considerable deference."

Id. at 53 (citations omitted). However, "when a trial court bases
its findings of fact on an inaccurate appraisal of controlling

legal principles, the rationale for deference evaporates entirely."
Id. at 54.

Similarly, in Bergersen v. Commissioner, 109 F.3d 56, 61

(1st Cir. 1997), we observed that the term "'mixed question' is
something of a misnomer; once the raw facts are determined (and

such determinations are normally reviewed only for clear error),

deciding which legal label to apply to those facts is a normative

issue -- strictly speaking, a legal issue." Even with that said,

however, we recognized that "the fact-finder closer to the evidence

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may still have a superior 'feel'; and the value of precedent is

limited, since the next shake of the kaleidoscope will produce a

different fact pattern." Therefore, in Bergensen, the court
ultimately decided that "some deference should be afforded to the

[lower court's] ultimate determination" on the mixed question. Id.

The Delaware Supreme Court articulated a similar rule in
Klang v. Smith's Food & Drug Ctrs., Inc., 702 A.2d 150 (Del. 1997).

In that case, the court found that the question of whether a

board's disclosures to shareholders were accurate was a mixed

question of law and fact, "requiring an assessment of the

inferences a reasonable shareholder would draw and the significance

of those inferences to the individual shareholder." Id. at 156.

In such cases, "[i]f the trial court's findings are sufficiently
supported by the record and are the products of an orderly and

logical deductive process, we will accept them, even though

independently we might have reached an opposite conclusion." Id.

at 156-57 (internal quotations omitted).

As these two standards are virtually identical from a

substantive point of view, we find any choice of law question

regarding the standard of review to be purely academic and

unnecessary to the resolution of this case. Therefore, as we

proceed to review the decision below, we will stringently examine

the legal grounds upon which the district judge based her decision,

but adopt a more generous view when examining her factual

determinations and, assuming no legal error, the conclusions she

drew therefrom.

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 III.

Delaware law provides that claims for breach of fiduciary

duty and breach of contract have a three year statute of
limitations. See Del. Code tit. 10, § 8106. Absent concealment or

fraud, a cause of action accrues at the moment of the wrongful act,

even if the plaintiffs are ignorant of the wrong. See David B.

Lilly Co. v. Fisher, 18 F.3d 1112, 1117 (3d Cir. 1994). The

district court properly noted that under general Delaware law

principles, the claims of six of the plaintiffs accrued on November

2, 1989, the date set out in the POM as the subscription deadline.

As explained supra, Klughart's claim accrued on February 6, 1990.

This lawsuit was not filed until 1998. Therefore, as the district

court properly noted, absent tolling, the plaintiffs would be
barred from recovering against Maynard.

The POM explicitly stated that Maynard was "accountable

to the limited partners as a fiduciary and must exercise good faith
and integrity in handling partnership affairs." Based on this

provision, the district court, citing Bovay v. H.M. Byllesby & Co.,

38 A.2d 808, 813 (Del. 1944), found Maynard to be a fiduciary under

Delaware law, meaning that he "was under a duty to exercise the

utmost good faith in his transactions with these Plaintiffs." We

make a special note of this finding because Maynard's status as a

fiduciary not only has consequences regarding the substantive duty

owed to the plaintiffs, but also has ramifications for the tolling

analysis.

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 In Bovay, the defendants, who were accused of enriching

themselves at the expense of the company, raised a statute of

limitations defense. Assessing the propriety of this defense, the
Delaware Supreme Court observed:

Sound public policy requires the acts of
corporate officers and directors in dealing
with the corporation to be viewed with a
reasonable strictness. Where suit is brought
in equity to compel them to account for loss
or damage resulting to the corporation through
passive neglect of duty, without more, the
argument that they ought not to be deprived of
the benefit of the statute of limitations is
not without weight; but where they are
required to answer for wrongful acts of
commission by which they have enriched
themselves to the injury of the corporation, a
court of conscience will not regard such acts
as mere torts, but as serious breaches of
trust, and will point the moral and make clear
the principle that corporate officers and
directors, while not in strictness trustees,
will, in such case, be treated as though they
were in fact trustees of an express and
subsisting trust, and without the protection
of the statute of limitations, especially
where insolvency of the corporation is the
result of their wrongdoing.

Id. at 820. Relying heavily on this language, plaintiffs insist

that Bovay precludes fiduciaries such as Maynard from ever

defending themselves against claims of wrongful self-dealing by

invoking the statute of limitations. See also Laventhol,

Krekstein, Horwath & Horwath v. Tuckman, 372 A.2d 168, 170 (Del.

1976) ("In brief, the benefit of the statute of limitations will be

denied to a corporate fiduciary who has engaged in fraudulent self-

dealing.").

A review of Delaware jurisprudence post-Bovay indicates

that the legal landscape is slightly more complicated. In one of

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the first significant post-Bovay cases, Bokat v. Getty Oil Co., 262

A.2d 246 (1970), the plaintiffs had actual knowledge of all the

acts allegedly giving rise to liability for more than three years
before they brought their claims against the defendant. Under

these circumstances, the Delaware Supreme Court ruled that the

tolling principles of Bovay would not preserve their claims. Id.

at 251.

A few years later, the Delaware Chancery Court explained

that Bovay would only be available in limited circumstances.

Taking Bovay and its progeny together, the
rule can be summarized thus: The statute of
limitations applies to derivative actions
which seek recovery of damages or other
essentially legal relief; however, in
extraordinary cases which involve, as a
minimum, allegations of fraudulent
self-dealing, the benefit of the statute will
be denied to those corporate officers and
directors who profited personally from their
misconduct.

Halpern v. Barran, 313 A.2d 139, 142 (Del. Ch. 1973). Because the
plaintiffs had "not alleged that any of the individual defendants

personally profited from breaches of fiduciary duty which they are
said to have committed," the court ruled that "the exception to the

statute of limitations expressed in Bovay does not apply to them."

Id. at 143. The court then noted that fraudulent concealment could

provide an independent basis for tolling the statute of

limitations. Specifically, "[w]here there has been fraudulent

concealment from a plaintiff, the statute is suspended only until

his rights are discovered or until they could have been discovered

by the exercise of reasonable diligence." Id. In order to show

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fraudulent concealment, however, the Halpern court insisted that a

plaintiff must demonstrate that the defendant committed an

affirmative act of concealment, "some 'actual artifice' which
prevents a plaintiff from gaining knowledge of the facts, or some

misrepresentation which is intended to put the plaintiff off the

trail of inquiry." Id. Put bluntly, a plaintiff cannot rest his
case solely on his ignorance of the relevant facts.

Twenty years later, in Kahn v. Seaboard Corp., 625 A.2d

269 (Del. Ch. 1993), another Delaware Chancery Court judge rejected

the notion that fraudulent concealment is the only circumstance

that may toll the running of the statute, suggesting that the court

"has long exercised a certain discretion in applying the statute of

limitations in cases involving fraud for example, even where
affirmative acts of concealment have not been alleged." Id. at

275. Rather, fraud by a fiduciary -- "one who, because he has

legal power over the property of others, has fiduciary obligations
to those others" -- may also provide grounds for tolling the

statute of limitations. Id. at 276.

The court delineated the compelling reasons why the

formula for balancing the equities must be different when the

parties were previously involved in a fiduciary relationship:

In functional terms there are good reasons why
a corporate stockholder ought to be treated
differently than a plaintiff who is a stranger
to the defendant from whom he seeks
compensation for a tort. That good reason
arises out of the assigned roles of
stockholder and director in our corporation
law. The corporate shareholder commits
capital to the supervision and management of
the corporate board. In doing so the

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 stockholder becomes dependent upon the skill
and loyalty of those in control of the
corporate enterprise. Legally sanctioned
relationships of dependence and trust are
important for the law to enforce for both
instrumental and expressive reasons. Given
the fiduciary duties that the law imposes upon
the relationship among those serving as
corporate directors, stockholders are entitled
to rely on the good faith of the directors
when they act with respect to the
corporation's property or processes. There
is, of course, great social utility in the
willingness of some to trust others in this
way.

Since trust and good faith are the essence of
this relationship, it would be corrosive and
contradictory for the law to punish reasonable
reliance on that good faith by applying the
statute of limitations woodenly or
automatically to alleged self-interested
violations of trust. It does not, in my
opinion, do so. Reasonable reliance upon the
competence and good faith of others who have
assumed legal responsibilities towards a
plaintiff have not infrequently been held
sufficient to toll the running of an
applicable statute of limitations.

Id. at 275. The court also noted, albeit in a footnote, that the
failure of a plaintiff to detect the existence of a claim may be

excused where he or she "reasonably relies upon the competence and
good faith of one with special skills or knowledge who accepts a

legal responsibility towards the plaintiff," citing professional

malpractice claims as an example. Id. at 275 n.5.8

8
See also In re Dean Witter P'ship Litig., No. CIV.A. 14816,
1998 WL 442456, at *6 (Del. Ch. July 17, 1998) (noting that
wrongful self-dealing may warrant equitable tolling "even in the
absence of actual fraudulent concealment, where a plaintiff
reasonably relies on the competence and good faith of a fiduciary")
(citing Yaw v. Talley, No. CIV.A. 12882, 1994 WL 89019, at *5-*6
(Del. Ch. Mar. 7, 1994)).

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 The Kahn court explained that, in Bokat, the court

distinguished Bovay on the ground that the Bokat plaintiff had

actual knowledge of the defendant's wrongdoing whereas the Bovay

plaintiff had been ignorant of the defendant's misconduct.

Although Bokat's significance originally stemmed from its decision

to apply the statute of limitations to an equitable rather than a
legal claim, the Kahn court noted an "implicit secondary holding"

of Bokat, which provided that "the statute does not run against the

plaintiff until he or she knew or had reason to know of the facts

alleged to give rise to the wrong." Id. at 276-77.

These cases demonstrate that Delaware courts have

specified two specific sets of circumstances that can trigger

equitable tolling. In the first, a fiduciary is charged with
unfair self-dealing; in the second, a defendant fraudulently

conceals facts that are essential to the plaintiff's cause of

action. In re MAXXAM, Inc./ Federated Dev. Shareholders Litig.,

Nos. CIV.A. 12111, 12353, 1995 WL 376942, at *5 (Del. Ch. June 21,

1995). The Chancery Court's analysis in Litman v. Prudential Bache

Props., Inc., No. CIV.A. 12137, 1994 WL 30529 (Del. Ch. Jan. 14,

1994), also strongly supports the view that, while substantially

similar with regard to the analysis employed, the two types of

tolling are distinct:

Plaintiffs assert that Kahn stands for the
proposition that when the doctrine of
equitable tolling arises, no affirmative
fraudulent act by the defendant need be shown.
I do not read Kahn quite so broadly. The
facts in Kahn involved a fiduciary
relationship between the defendants and the
plaintiffs. In addition, the plaintiffs

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 alleged self-dealing by the defendants.
Allegations of self-dealing significantly
taint the fiduciary relationship. They
implicate serious breaches of loyalty and
often raise the legal analysis to a higher
level than ordinary breaches of care. See,
e.g., In re Tri-Star Pictures, Inc., Litig.,
Del. Supr., Cons. C.A. No. 9577, Moore, J.
(Nov. 24, 1993), Op. at 4 ("a breach of the
duty of loyalty requir[es] that the
defendants' actions be judged by principles of
entire fairness. . . . [T]his shifts the
burden to the defendants to prove 'the most
scrupulous inherent fairness of the bargain'"
(citations omitted)). As a result, I cannot
read Kahn as holding that, in every situation
in which it is implicated, the doctrine of
equitable tolling will serve to toll a
limitations period, regardless of whether
affirmative acts of fraud by the defendants
are shown. Rather, I think the better rule,
and the one Chancellor Allen intended, is that
a limitations period may be tolled absent
allegations of affirmative acts of concealment
by the defendants, where the parties to the
litigation stand in a fiduciary relationship
to each other and where the plaintiff alleges
self-dealing. This does not take away from
the fact that the doctrine of equitable
tolling still acts to toll a limitations
period. In situations that do not involve
self-dealing, equitable tolling operates in
much the same way as the doctrine of
fraudulent concealment. Both theories operate
to toll a limitations period when the
defendant has engaged in certain acts that
would prevent the plaintiff from discovering
the alleged wrongs.

Id. at *3.

In this case, the district court's ruling suggests that

it found both types of tolling appropriate. First, it ruled that

Maynard was a fiduciary who engaged in wrongful self-dealing.9

9
See Cont'l Ins. Co. v. Rutledge & Co., 750 A.2d 1219, 1237
(Del. Ch. 2000) (defining wrongful self-dealing as the use of one's
"position as general partner and [of one's] ability to control the
terms of transactions, to invest limited partnership funds for

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Under these circumstances, the court was entitled to exercise its

discretion to prevent "any attempt to use the statute as a cover

for fraud." Kahn, 625 A.2d at 275 (quoting Sparks v. Farmers'

Bank, 3 Del. Ch. 274, 306 (1869)). Second, the district court

found that Maynard fraudulently concealed information from the

plaintiffs, leading them down the wrong path and delaying them from
learning that their rights were in jeopardy. Tolling under the

first test implicitly includes a balancing of equities. Plaintiffs

can benefit from tolling until such point as other equitable

considerations (in the nature of laches) preclude them from

recovering. Such considerations include whether the plaintiff

failed to act promptly upon learning of the fiduciary's wrongdoing

and/or whether the plaintiff's failure to discover the wrongdoing
was unreasonable. See In re MAXXAM, Inc., 1995 WL 376942, at *6.

The second test explicitly includes a "reasonableness" prong by

inquiring whether the plaintiff knew or should have known the
information that the defendant was attempting to conceal. See

Litman, 1994 WL 30529, at *3; see also In re Dean Witter P'ship

Litig., No. CIV.A. 14816, 1998 WL 442456 (Del. Ch. July 17, 1998).

The first equitable doctrine, stemming from Bovay and as

explained by the court in Halpern, suggests that, in "extraordinary

cases which involve, as a minimum, allegations of fraudulent

self-dealing," 313 A.2d at 142, a plaintiff who is duped by a

fiduciary is given far more leeway than a plaintiff who is

[one's] own gain, as opposed to investing for the benefit of the
limited partnership").

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victimized by someone in an arm's length transaction.10 If the

plaintiff can demonstrate that the defendant was a fiduciary who

engaged in wrongful self-dealing, the test for equitable tolling is
satisfied. The decision to toll the running of the limitations

period, as well as the decision over how much tolling is equitable

in any particular case, is committed, within wide limits, to the
discretion of the trial judge. In light of the policy concerns so

articulately expressed in Kahn, 625 A.2d at 275, we find no error

with the district court's decision to apply equitable tolling in

this case. This decision rested on factual findings that are sound

and therefore falls well within the authority granted under

Delaware law. Many of the plaintiffs had invested with Maynard

previously and had no reason to believe that he was pulling a scam.
His representations as to the external difficulties delaying

progress in the Project all were verifiable, to varying degrees,

which the district court found could lead reasonable investors to
believe that the asserted problems were the sole causes for the

delay. Maynard's claim that all the plaintiffs needed to do was

ask to look at the books is disingenuous to the extent that the

Project was being operated out of Maynard's home. The plaintiffs

who went there to visit Maynard should not be expected to pilfer

through his personal file cabinet in order to find the materials

10
Plaintiffs suggest that a fiduciary-defendant is precluded
indefinitely from raising a statute of limitations defense.
Whether one calls it statute of limitations or laches or
unreasonable delay, a defendant is always entitled to argue to the
court that a plaintiff has waited too long to vindicate his or her
rights.

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that were ultimately handed over in discovery (i.e., the materials

that revealed Maynard's wrongdoing).

The guiding principle behind the doctrine of equitable
tolling is that the law should be used to achieve some

approximation of justice rather than to perpetrate fraud. "To

credit the defendants' anti-tolling argument would seriously
diminish the [investors'] entitlement to rely on the good faith of

their corporate fiduciaries, and create the precise corrosive

effect that the Chancellor in Kahn v. Seaboard Corp. quite properly

held must be avoided." In re MAXXAM, Inc., 1995 WL 376942, at *8.

The district court judge properly determined that the equities in

this case demanded that tolling be applied. Had these plaintiffs

waited twenty years to sue, this case would obviously have a
different feel. To the extent that this decision required a

judgment call on the part of the district court, we find that its

judgment in this case was within the realm of its discretion.
Considering the fact that the more general equitable

tolling doctrine provides an adequate basis to affirm, we need not

discuss whether fraudulent concealment tolling would also be

appropriate. We thus find it unnecessary to revisit the issue of

whether the attention of each individual defendant was diverted by

the misrepresentations that Maynard made. We are satisfied with

the district court's conclusion that Maynard's hands were

sufficiently dirty to deprive him of the statute of limitations

defense.

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 IV.

We turn briefly to the issue of punitive damages. The

district court explained its decision to deny the plaintiffs'
request for punitive damages as follows:

As a general rule, punitive damages are not
recoverable for breach of contract under
Delaware law. Under Delaware law, punitive
damages for breach of fiduciary duty may be
awarded, but only upon proof that the
Defendant acted maliciously for the purpose of
injuring the Plaintiff.

In this regard, the Plaintiff carries an
extraordinary burden because punitive damages
are awarded not as compensation, but as
punishment to the wrongdoer for willful or
wanton conduct. While I certainly do not
condone Mr. Maynard's conduct in this case --
in particular, I refer to my findings with
respect to his misrepresentations and his
self-dealing -- I find that the Plaintiffs
have not met their burden of demonstrating
malice. And while the end result of Mr.
Maynard's conduct resulted in a deprivation of
Plaintiffs' money for a significant period of
time, there's no proof that he withheld the
money out of malice for the purpose of
injuring them.

The plaintiffs argue that the district court erroneously

required them to demonstrate malice before it would even consider

awarding punitive damages. Maynard does not specifically challenge

the plaintiffs' suggestion that the lower court applied a test more

demanding than that required by Delaware law with regard to

punitive damages. Rather, Maynard insists that even had malice

been shown, the question of whether to award punitive damages is
committed to the discretion of the district court judge, subject

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only to abuse of discretion review. See Jardel Co. v. Hughes, 523

A.2d 518, 527-28 (Del. 1987).

According to Littleton v. Young, 608 A.2d 728 (Del. 1992)
(table) (available at 1992 WL 21125), "[t]he standard which governs

the award of punitive damages in Delaware is well settled. . . . In

actions arising ex contractu, punitive damages may be assessed if
the breach of contract is characterized by willfulness or malice."

Id. at *2.11 Whatever the subtle differences between willfulness

and malice may be, we need not explore them here. The district

court properly apprehended the standard for punitive damages, as

explained in Littleton, and to the extent that the facts in this

case, in its mind, did not rise to the level of willfulness or

malice, we find no abuse of discretion.
V.

For all of the foregoing reasons, we affirm.

11
Cloroben Chemical Corp. v. Comegys, 464 A.2d 887, 891 (Del.
1983), offered by the plaintiffs in support of their argument that
the district court applied the wrong legal standard, dealt with a
tort rather than a contract action, and is therefore inapposite.
The Littleton standard for assessing punitive damages in contract
cases such as this one offers clear guidance.

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