Cantor v. Perelman

Opinions of the United
2005 Decisions States Court of Appeals
for the Third Circuit

7-12-2005

Cantor v. Perelman
Precedential or Non-Precedential: Precedential

Docket No. 04-1790

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 PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

NOS. 04-1790/2896

RONALD CANTOR; IVAN SNYDER;
JAMES A. SCARPONE, as Trustees of
the MAFCO Litigation Trust,

Appellants

v.

RONALD O. PERELMAN; MAFCO HOLDINGS, INC.;
MACANDREWS & FORBES HOLDINGS, INC.;
ANDREWS GROUP INCORPORATED;
WILLIAM C. BEVINS; DONALD G. DRAPKIN

On Appeal From the United States District Court
For the District of Delaware
(D.C. Civil Action No. 97-cv-00586)
District Judge: Hon. Kent Jordan

Argued February 14, 2005

BEFORE: SLOVITER, ALDISERT and STAPLETON,
Circuit Judges
 (Opinion Filed July 12, 2005 )

Edward A. Friedman (Argued)
Andrew W. Goldwater
Robert D. Kaplan
Daniel B. Rapport
Friedman, Kaplan, Seiler & Adelman
1633 Broadway
New York, NY 10019
and
Emily A. Stubbs
Friedman, Kaplan, Seiler & Adelman
One Gateway Center
25th Floor
Newark, NJ 07102
and
Lawrence C. Ashby
Philip Trainer, Jr.
Ashby & Geddes
222 Delaware Avenue - 17th Floor
P.O. Box 1150
Wilmington, DE 19899
Attorneys for Appellants

Robert E. Zimet (Argued)
Skadden, Arps, Slate, Meagher & Flom
Four Times Square
New York, NY 10036
Attorney for Appellees

2
 OPINION OF THE COURT

STAPLETON, Circuit Judge:

The trustees of the MAFCO Litigation Trust (“plaintiffs”)1
appeal an order denying their motion for partial summary judgment
against defendant Ronald O. Perelman and granting cross-motions for
summary judgment in favor of defendants Perelman, MAFCO
Holdings, Inc., MacAndrews & Forbes Holdings, Inc., Andrews
Group, Incorporated, William C. Bevins, and Donald G. Drapkin.
The District Court held that plaintiffs had failed to tender sufficient
evidence to support a finding of a breach of fiduciary duty on the part
of defendants. We will reverse in part, affirm in part, and remand for
further proceedings.

I. BACKGROUND

A. The Players

Financier Ronald O. Perelman (“Perelman”) was at all
relevant times a director of Marvel Entertainment Co., Inc.
(“Marvel”), and Chairman of Marvel’s board. Through a chain of
wholly-owned corporations (the “Marvel Holding Companies”),
Perelman also owned a controlling interest in Marvel. The Marvel

1
The MAFCO Litigation Trust was established pursuant to the
plan of reorganization in the Marvel bankruptcy cases to pursue
Marvel’s claims against the defendants.

3
Holding Companies consisted of Mafco Holdings Inc. (“Mafco”),
which owned 100% of MacAndrews & Forbes Holdings Inc.
(“MacAndrews & Forbes”), which in turn owned 100% of Marvel III
Holdings Inc. (“Marvel III”), which owned 100% of Marvel (Parent)
Holdings Inc. (“Marvel Parent”), which owned 100% of Marvel
Holdings Inc. (“Marvel Holdings”). Marvel Parent and Marvel
Holdings together held 60% to 80% of Marvel’s publicly traded,
outstanding shares during the relevant period.

Bevins was a director and CEO of Marvel, a director of each
of the Marvel Holding Companies, and Vice-Chairman of
MacAndrews & Forbes. Drapkin was a director of Marvel, a director
of each of the Marvel Holding Companies, and Vice-Chairman of
MacAndrews & Forbes. Perelman, Bevins and Drapkin were three
of the four members of the Executive Committee of the Marvel
board. Perelman, Bevins and Drapkin also together comprised the
entire board of each of the Marvel Holding Companies. Because the
individual defendants hold these positions and Perelman’s control of
the Marvel Holding Companies is acknowledged, Perelman, Bevins,
Drapkin and the Marvel Holding Companies in most instances are
referred to collectively as “the defendants” in the following
discussion.

B. The Notes

During 1993 and 1994, the defendants caused the Marvel
Holding Companies to issue three tranches of notes. The first tranche
was issued by Marvel Holdings in April 1993 (the “Marvel Holdings
Notes”). The second tranche was issued by Marvel Parent in October
1993 (“Marvel Parent Notes”). The third tranche was issued by
Marvel III in February 1994 (“the Marvel III Notes”, and collectively
with the Marvel Holdings Notes and the Marvel Parent Notes, the
“Notes”). All of the defendants’ stock in Marvel was pledged as

4
collateral for the Notes. The Notes were non-recourse debt.

The defendants received $553.5 million from the three
issuances. None of the proceeds went to Marvel or were used for
Marvel’s benefit. The defendants used Marvel resources to market
and sell the Notes. They caused Marvel’s senior management, for
example, to participate in “road shows” to market the Notes to
potential investors. App. at 1593, 1603, 1840-65.

C. The Restrictions in the Note Indentures

In each of the Note Indentures, the issuing company commits
itself to prevent Marvel from taking certain actions (“the
restrictions”):

1. Restriction on issuing debt: Section 4.04 of each Indenture
provides that, with the exception of seven categories of debt listed in
the section, the issuing company “shall not permit Marvel or any
Subsidiary of Marvel to issue, directly or indirectly, any debt, unless”
a certain financial ratio is met.

2. Restriction on issuing equity: Section 4.04(c) of each
Indenture provides that the issuing company “shall not permit Marvel
to issue any preferred stock,” except under specified circumstances;

3. Restriction on share ownership: Section 4.09(a) of each
Indenture provides that the Marvel Holding Companies shall continue
to hold a majority of Marvel’s voting shares (i.e., restricting Marvel’s
ability to issue stock that might dilute Perelman’s stake); and

4. Restriction on making “Restricted Payments”: Section
4.05 of each Indenture provides that the issuing company “shall not
permit” any of its subsidiaries (including, e.g., Marvel) to make

5
Restricted Payments as defined by the Indenture (including dividends
and stock buybacks).

The defendants’ underwriter advised that these restrictions
were “necessary to market the” Notes. App. at 1628.

D. Marvel’s Bankruptcy

Marvel filed a voluntary petition for relief under Chapter 11
of the Bankruptcy Code on December 27, 1996. The Note holders
have not been repaid.

E. The District Court Proceedings

Plaintiffs brought this action, claiming that the defendants
breached their fiduciary duty to Marvel by agreeing to impose the
restrictions of the Notes on Marvel. They sought “disgorgement” of
the $558 million obtained by the defendants in the Notes transactions
as well as damages.

The District Court referred this action to a Magistrate Judge
under 28 U.S.C. § 636(b). The plaintiffs moved for partial summary
judgment against defendant Perelman, and the defendants moved for
summary judgment on all claims against them. The Magistrate Judge
issued a Memorandum and Order (the “Report”) recommending that
the District Court deny plaintiffs’ motion and grant summary
judgment to the defendants on all of plaintiffs’ claims.

In her Report, the Magistrate Judge found that:

(a) the Marvel Holding Companies were acting at the
direction of Perelman when they issued the Notes;

6
 (b) in the Indentures, the Marvel Holding Companies agreed
to impose restrictions on certain corporate actions of Marvel,
including limitations on Marvel’s ability to engage in debt
and equity financing;

(c) Marvel did not receive any of the proceeds of the Note
transactions; and

(d) Perelman at all relevant times owed a fiduciary duty to
Marvel and its minority stockholders.

The Magistrate Judge nevertheless concluded that the
defendants did not breach their duty of loyalty. Relying on Bragger
v. Budacz, 1994 WL 698609 (Del. Ch. Dec. 7, 1994), the Magistrate
Judge accepted the defendants’ contention that the Note transactions
merely amounted to “potential conflicting loyalties” and that an actual
conflict “never materialized” because Marvel “did not attempt to
perform or refrain from one of the prohibited acts.” App. at 19.

The District Court adopted the Magistrate Judge’s Report “in
all respects.” App. at 6-9. Relying upon Sinclair Oil Corp. v. Levien,
280 A.2d 717 (Del. 1971), the District Court agreed with the
Magistrate Judge that under Delaware law it was the Plaintiff’s
burden to show that “Perelman had caused Marvel ‘to act in such a
way’ that he benefitted at Marvel’s expense,” App. at 8, and that
“Perelman’s potential conflicting loyalties between Marvel and the
holding companies ‘never materialized and cannot form the basis for
a breach of fiduciary duty.’” App. at 9.2

2
The District Court had subject matter jurisdiction over this action
pursuant to 28 U.S.C. § 1334(b), because this action was related to
the Marvel bankruptcy. This Court has jurisdiction over this appeal
pursuant to 28 U.S.C. § 1291, because it is an appeal from a final

7
 II. THE DISTRICT COURT’S SUMMARY JUDGMENTS
IN FAVOR OF DEFENDANTS

A. The Unjust Enrichment Claim

Applying Delaware law, the District Court held that to
succeed plaintiffs “must show that Perelman caused Marvel to act in
such a way that he benefitted at Marvel’s expense.” App. at 8, citing
Sinclair Oil Corp., 280 A.2d at 717. We agree that such a showing
would justify an award for breach of fiduciary duty, but this is an
unduly restrictive view of the duty of loyalty imposed by the
Delaware corporation law.3 Where, as here, the record will support

judgment.
The standard of review in an appeal from an order resolving
cross-motions for summary judgment is plenary. Int’l Union, United
Mine Workers of Am. v. Racho Trucking Co., 897 F.2d 1248, 1252
(3d Cir. 1990). This Court applies the test provided in Federal Rule
of Civil Procedure 56(c): (a) is there no genuine issue of material fact,
and (b) is one party entitled to judgment as a matter of law? Id.
3
The District Court relied upon Sinclair Oil Corp. for the
proposition that “self-dealing occurs when the parent, by virtue of its
domination of the subsidiary, causes the subsidiary to act in such a
way that the parent receives something from the subsidiary to the
exclusion of, and detriment to, the minority stockholders of the
subsidiary.” However, we do not read Sinclair Oil Corp. to hold that
a breach of fiduciary duty can never occur under Delaware corporate
law without a detriment to the beneficiary. Nor do we read Bragger,
the only case relied upon by the Magistrate Judge, to so hold. In
Bragger, the defendant director also sat as a director of another
corporation that could have competing interests. The Court of
Chancery held that being subject to these potentially conflicting

8
a finding that the defendants exploited their fiduciary position for
personal gain, summary judgment is inappropriate. Such exploitation
would constitute a breach of fiduciary duty and that breach would
justify an unjust enrichment award without regard to whether the
fiduciary caused the beneficiary to act to its detriment.

The record before us would support a finding that Perelman’s
companies received $553.5 million in financing they would not
otherwise have been able to secure by committing to prevent Marvel
from taking certain actions and by utilizing Marvel’s corporate
resources to market that financing. And, given the nature of the
restrictions imposed, the commitment was one that could be
effectuated only by exercising the defendants’ control of Marvel’s
board of directors. This is thus not a case in which a fiduciary
allegedly sold stockholder votes that it was entitled to cast in its own
interest. This is a case involving an alleged sale of director votes.

A corporate fiduciary receiving a “personal benefit not
received by the shareholders generally” is a “classic” example of a
breach of the duty of loyalty. Cede & Co. v. Technicolor, Inc., 634

fiduciary duties was not actionable in the absence of a situation in
which there was an actual conflict and the defendant served the
interest of one to the detriment of the other. The plaintiffs in this case
do not fault the individual defendants for sitting simultaneously on
the boards of Marvel and the Marvel holding companies. Rather, they
charge that those defendants imposed restrictions on Marvel in order
to benefit themselves.
Neither the Magistrate’s report nor the District Court’s
opinion makes reference to a usurpation of corporate opportunity
claim. This appears to have been occasioned by the plaintiffs’ failure
to advance such a theory before them. We do not regard that theory
as being appropriately before us.

9
A.2d 345, 362 (Del. 1993). As the Supreme Court of Delaware
explained in a similar situation in Thorpe By Castleman v. Cerbco,
Inc., 676 A.2d 436 (Del. 1996):

Delaware law dictates that the scope of recovery for a
breach of the duty of loyalty is not to be determined
narrowly. Although this Court in In re Tri-Star
Pictures, Inc., Litig., Del. Supr., 634 A.2d 319 (1993).
was addressing disclosure violations, we reasoned
from a more general standard concerning the duty of
loyalty:

“[T]he absence of specific damage to
a beneficiary is not the sole test for
determining disloyalty by one
occupying a fiduciary position. It is an
act of disloyalty for a fiduciary to
profit personally from the use of
information secured in a confidential
relationship, even if such profit or
advantage is not gained at the expense
of the fiduciary. The result is
nonetheless one of unjust enrichment
which will not be countenanced by a
Court of Equity.” Oberly v. Kirby,
Del. Supr. 592 A.2d 445, 463 (1991).

***

The strict imposition of penalties under Delaware law
are designed to discourage disloyalty.

The rule, i n v e t e r at e and

10
 uncompromising in its rigidity, does
not rest upon the narrow ground of
injury or damage to the corporation
resulting from a betrayal of
confidence, but upon a broader
foundation of a wise public policy
that, for the purpose of removing all
temptation, extinguishes all possibility
of profit flowing from a breach of the
confidence imposed by the fiduciary
relation.

Guth v. Loft, Inc., Del. Supr., 5 A.2d 503, 510 (1939).

Id. at 445.4

Defendants’ insistence that Marvel was not a party to the
Indentures and, accordingly, was not bound by their terms, is not a
full answer to plaintiffs’ claims. In the prospectuses necessary to
market the Notes, the defendants not only described the restrictions,
which are said to “limit . . . Marvel,” but also stressed that Perelman
was “able to direct and control the policies of” Marvel. See, e.g.,
App. at 1037, 1137, 1166. A trier of fact could well view this as a
recognition by the defendants that their promises to prevent Marvel

4
As the Court of Chancery has cogently put it, if a director
“secure[s] more advantageous treatment by a promise, express or
implied, that he will promote [a prospective] buyer’s interest in the
corporation, it is obviously the case that the premium is the fruit of a
breach of fiduciary duty and may be impressed with a constructive
trust.” Citron v. Steego Corp., 1998 WL 94738 (Del. Ch. 1988).
This result thus does not turn on whether the corporation took action
to its detriment.

11
from taking the actions in the restrictive covenants were credible and
would be relied upon by Note purchasers only because Perleman had
the power to carry out those promises and had committed himself to
do so. Based on the fact that defendants were advised by their
underwriters that the restrictions were necessary to the success of the
issuances and the fact that the Notes were successfully marketed, a
trier of fact could further conclude that the defendants were
successful in convincing the marketplace that they would in fact
“prevent” Marvel from taking the forbidden actions. The success of
these offerings tends to show that it was not necessary to the
financing for Marvel to be a party to the Indentures or for Note
holders to be able to sue Marvel for specific performance of the
restrictions.

For much the same reason, it is also no answer for the
defendants to say that there was never a proposal before the board to
take action contrary to the restrictions and that they would have taken
measures to deal with the conflict of interest problem had such an
occasion arisen. A trier of fact could well conclude on this record
that the restrictions began to affect Marvel when the Notes were
issued, that measures to deal with the conflict of interest should have
been taken before the restrictions were proposed, and that the
restrictions were responsible for the fact that no proposal for their
violation ever came before the Marvel board.

Having concluded that plaintiffs may be able to require the
defendants to account for their unjust enrichment at the time of the
issuance of the respective Notes, we do not suggest, as plaintiffs
contend, that defendants should necessarily be required to pay $553
million. They received their financing in return for a commitment to
repay in the future and pledges of stock which they themselves
owned. As a result, an unjust enrichment award of $553 million
could result in a windfall. The defendants did not contend in support

12
of their motions for summary judgment that the plaintiffs were not
able to submit evidence of unjust enrichment and the issue of the
extent of any unjust enrichment is, accordingly, not before us. For
that reason, it would not be appropriate for us to restrict plaintiffs’
proof on remand. We note only that plaintiffs should at least have the
opportunity to establish through expert testimony what the defendants
would have had to pay Marvel, after arm’s length bargaining, for the
restrictions defendants secured without compensation. See Boyer v.
Wilmington Materials, Inc., 754 A.2d 881 (Del. Ch. 1999).5

B. The Damage Claims

In addition, the District Court erred in concluding that there
is no material dispute of fact as to whether the Note restrictions
caused Marvel injury.

The defendants insist that the restriction in Marvel’s own
credit agreements during the period from 1992 through to the fall of
1996 were more constraining than those found in the Note Indentures.
Their expert, Professor Holthausen, so opined. There is also evidence
that Marvel was able to raise $600 million during this period to
finance an aggressive acquisition campaign.

On the other hand, there is evidence in the record from which
a trier of fact could conclude that, but for the Indenture restrictions,
a Marvel management acting in its best interest would have had a

5
We reject plaintiffs’ argument that the amount of unjust
enrichment defendants received should take into account the fact that
the subsequent bankruptcies of defendants resulted in their not having
to repay the loans evidenced by the Notes. Any unjust enrichment
occurred at the time of the issuance of the Notes and must be
evaluated as of that point in time.

13
different and more favorable capital structure. As plaintiffs’ expert
investment banker, William Purcell, points out, Prof. Holthausen
reached his conclusion that Marvel was not injured by the Indentures
restrictions by comparing the coverage ratios there set forth to those
in Marvel’s bank credit agreements. This analysis assumes that
Marvel’s capital structure would have remained the same in the
absence of the Indenture restrictions. Dr. Purcell provided an
alternative analysis, however, which would provide a basis for
concluding that Marvel did suffer injury from those restrictions. He
expressed the following opinions, for example:

[I]t is my opinion that the economic harm to Marvel
caused by the restrictions in the Indentures cannot be
assessed without considering the effect of those
restrictive covenants on Marvel’s capital structure,
and Marvel’s likely capital structure in the absence of
those restrictions.

Based upon my experience as an investment banker,
in the absence of the Holding Company debt made
possible by Section 4.04 and other restrictions relating
to Marvel, it would have been extremely unlikely that
Marvel would have financed its aggressive acquisition
program almost entirely with commercial bank debt.
Rather, Marvel probably would have financed its
acquisition program with a combination of long-term
debt and equity, which would have afforded
significant advantages over bank debt.

***

It is my opinion that Marvel could have received an
investment-grade (i.e., BBB or Baa) rating for a long-

14
 term debt financing in 1993 and the first half of 1994,
and that such a financing would have been well
received in the market. . . . Moreover, the terms
available in the public market for investment-grade
debt during 1993 and 1994 were very favorable, and
such an issue would have benefited Marvel greatly
from both a liquidity and a restrictive covenant point
of view.

***

It is my opinion that, in the absence of the restrictive
covenants and the Holding Company debt made
possible thereby, the issuance of common stock would
have been another attractive financing alternative for
Marvel during the 1993 - 1994 period that would have
been well-received by the markets. The cost of
money to Marvel would have been very low, there
would have been little or no dilution in reported
earnings per share, Marvel could have retired bank
debt which would thus be available for future
acquisitions and contingencies, and its stated
stockholders’ equity per share could have increased.

App. at 2396, 2399-2401 (footnotes omitted).

We do not suggest that these portions of the record reflect the
only material disputes of fact regarding the issue of whether Marvel
was injured by the restrictions. We hold, however, that they are
sufficient to preclude summary judgment for the defendants on their
damage claim.

C. Timeliness of Suit

15
 The defendants insist that all of plaintiffs’ claims are barred
by 10 Del. Code Ann. § 8106,6 a three-year statute of limitations, and
urge us, if necessary, to affirm their summary judgments on this
alternative basis. Plaintiffs’ response is two-fold: laches, rather than
limitations, should govern the timeliness of their unjust enrichment
claim and, in any event, the statute of limitations was tolled until they
knew or should have known of the defendants’ breaches of fiduciary
duty.

1. The Unjust Enrichment Claims

The Supreme Court of Delaware explained the relationship of
laches and limitations as follows in Laventhol, Krekstein, Horwath &
Horwath v. Tuckman, 372 A.2d 168, 169-70 (Del. 1976):

Generally speaking, an action in the Court of

6
10 Del. Code Ann. § 8106 provides:

No action to recover damages for trespass, no action
to regain possession of personal chattels, no action to
recover damages for the detention of personal chattels,
no action to recover a debt not evidenced by a record
or by an instrument under seal, no action based on a
detailed statement of the mutual demands in the
nature of debit and credit between parties arising out
of contractual or fiduciary relations, no action based
on a promise, no action based on a statute, and no
action to recover damages caused by an injury
unaccompanied with force or resulting indirectly from
the act of the defendant shall be brought after the
expiration of 3 years from the accruing of the cause of
such action. . . .

16
Chancery for damages or other relief which is legal in
nature is subject to the statute of limitations rather
than the equitable doctrine of laches. Bokat v. Getty
Oil Company supra. There is, however, an established
exception to this principle which denies its protection
to those who owe a fiduciary duty to a corporation. In
brief, the benefit of the statute of limitations will be
denied to a corporate fiduciary who has engaged in
fraudulent self-dealing. Bovay v. H.M. Byllesby &
Co., supra; Halpern v. Barran, Del. Ch., 313 A.2d
139 (1973). In Bovay, Chief Justice Layton said this:

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

17
 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 . . . .

The issue in Laventhol was whether the “Bovay exception” to
the general rule should be applied in a situation where the defendants
were accountants who were “not alleged to have wrongfully diverted
corporate assets for their own benefit” but who “knowingly join[ed]
a fiduciary in an enterprise” that enriched the fiduciary. The Court
held that the “enlargement of the Bovay exception [to cover the
accountants] was both logical and proper.” Laventhol, 372 A.2d at
171.

Our survey of the Delaware cases decided since Laventhol
provides no persuasive basis for believing that the Bovay exception
to the general rule is no longer viable, at least as applied to situations
in which a fiduciary has enriched himself by breaching his fiduciary
duty. Accordingly, we hold that the timeliness of plaintiffs’ unjust
enrichment claims are to be determined by the doctrine of laches.
“The essential elements of laches are: (i) plaintiff must have
knowledge of the claim, and (ii) there must be prejudice to the
defendant arising from an unreasonable delay by plaintiff in bringing
the claim.” Fike v. Ruger, 752 A.2d 112, 113 (Del. 2000). We find
no evidence in this record that would support a finding that the
defendants were prejudiced by the failure of the plaintiffs to earlier
file suit. The prejudice they assert is that “[d]ue to the silence of
plaintiffs’ predecessors-in-interest, defendants lost the opportunity to
adjust the note offerings in response to the arguments plaintiffs now

18
belatedly raise.” Appellees’ Br. at 76.7 We have found no Delaware
case suggesting that this is the kind of prejudice that will support a
laches defense. The suggestion, as we understand it, is that if the
plaintiffs had warned the defendants that by burdening Marvel they
were deriving an improper benefit, the defendants would not have
pursued that course of action in the same way. But, if plaintiffs prove
the case, the defendants surely were aware that they were deriving a
benefit by burdening Marvel, and their failure to avoid a breach of

7
They suggest:

For example:

Before the notes were issued, defendants could have
amended or altered the terms of the indenture in
response to any stockholder complaint.

Defendants could have negotiated with an
independent committee of directors for Marvel to be
bound by the terms of the indentures in exchange for
a fee.

Defendants could have left the terms of the indentures
alone and set up in advance a special committee to
consider any transaction that implicated the terms of
the indenture.

Defendants could have petitioned for a declaratory
judgment, which would have resolved this dispute
before the pledged shares were irretrievably
committed.

Appellees’ Br. at 76-77.

19
fiduciary duty cannot be attributed to the failure of plaintiffs to bring
suit earlier.

2. The Damage Claims

Plaintiffs acknowledge that, to the extent they seek damages
for the defendants’ alleged breach of fiduciary duty, § 8106
determines the timeliness of their claims. They correctly assert,
however, that a Delaware court of equity will toll the statute until
such time as a reasonably diligent and attentive stockholder knew or
had reason to know the facts alleged to constitute the breach of
fiduciary duty. See, e.g., Tobacco and Allied Stocks, Inc. v.
Transamerica Corp., 143 F. Supp. 323, 328-29 (D. Del. 1956). With
respect to the third issuance of Notes, plaintiffs insist that the three-
year statute has not run even without the benefit of tolling.

(a). The Marvel III Issuance

The Marvel III issuance occurred on February 15, 1994, and
plaintiffs’ breach of fiduciary duty damage claim with respect to those
Notes occurred no earlier than that date. Accordingly, the three-year
limitations period prescribed by § 8106 had not expired when
Marvel’s bankruptcy was filed on December 27, 1996. Under 11
U.S.C. § 108(a), when a debtor files a bankruptcy petition, the statute
of limitations for all claims not then barred is extended for two years.
For this reason, the damage claim with respect to the Marvel III
issuance was timely filed by the plaintiffs on October 30, 1997.

(b). The Marvel Holding Notes

Plaintiffs contend that the limitations period for their damage
claims with respect to the issuance of the Marvel Holding Notes on
April 22, 1993, was tolled until the terms of those Notes were

20
disclosed in a Marvel SEC filing on March 30, 1994. The record
indicates, however, that all Marvel shareholders were notified of the
terms of these Notes – including the restrictive covenants – on April
16, 1993, when a tender offer statement was mailed to each of them
and filed with Marvel’s required filings at the SEC. Attached to the
SEC filing was a copy of the Indenture. This put Marvel and its
stockholders at least on inquiry notice and forecloses equitable tolling
beyond that date as a matter of law.

(c). The Parent Notes

The Parent Notes were issued on October 20, 1993. Here also
the plaintiffs insist that the limitations period for their damage claim
was equitably tolled until the terms of these Notes were disclosed in
a Marvel SEC filing on March 30, 1994. The defendants respond that
plaintiffs were put on inquiry notice by the Parent July 2, 1993, filing
with the SEC in connection with the issuance of the Parent Notes and
by media coverage of that issuance which should have led any
interested person to that filing.

We have found no case law suggesting to us that the Delaware
courts would regard a non-Marvel SEC filing as putting plaintiffs on
notice as a matter of law even when combined with media coverage
commenting on the event giving rise to the filing (albeit without
reference to the restrictive covenants). Moreover, we reject
defendants’ suggestion that Marvel and its stockholders, being on
notice of the issuance of the Marvel Holding Notes, should have
expected that other Perelman companies would do the same thing
again.

The Delaware courts have recognized that equitable tolling
may involve a fact intensive inquiry to determine when a reasonable
person in plaintiffs’ position knew or should have known of the

21
claim. See, e.g., Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d
312 (Del. 2004). We conclude that such an inquiry is appropriate
here and that material disputes of fact preclude summary judgment
for either side.

III. THE DISTRICT COURT’S DENIAL OF PARTIAL
SUMMARY JUDGMENT TO PLAINTIFFS

Plaintiffs moved for partial summary judgment against
defendant Perelman on their unjust enrichment claim. As we have
explained, the basis of this claim is that he secured $553.5 million in
financing for himself and his companies by committing to prevent
Marvel from taking any of the actions set forth in the restrictive
covenants. As we have also explained, there is substantial evidence
tending to support this claim. The covenants themselves contain
express commitments to do just that, the prospectuses stress that
Perelman is in a position to control what Marvel does, and there is
evidence that the defendants’ underwriter regarded the covenants as
essential to the success of the issuances.

Perelman has an alternative explanation, however, regarding
the effect of the covenants and the testimony that they were essential
to the success of the Note issuances. The only significance of the
covenants, Perelman insists, is that any violation constituted an event
of default which, if left uncured, would entitle the Notes holders to
take control of Marvel. The reality of the matter, Perelman contends,
is that potential Note purchasers would insist upon having the
covenants not because the covenants provided assurance that Marvel
would refrain from taking the stipulated actions, but rather because
they provided assurance that the Note holders could seize control if
Marvel did. Under this view, there was no expectation that the
Marvel board would do anything other than function as an
independent body, and the sole potential effect of the covenants on

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Marvel was the possibility that they might occasion a change in its
stockholders.

The current record contains some support for Perelman’s
view. In their depositions, for example, Perelman, Drapkin and
Bevins each testified that Marvel’s board was expected to act
independently and that the covenants were expected to have no effect
whatever on Marvel. There is also evidence tending to show that
Marvel’s board did in fact act independently when financial
misfortune struck in 1996.

We conclude that there is a material dispute of fact as to
whether Perelman exploited his fiduciary position for personal gain
when he caused the Notes to be issued. Accordingly, summary
judgment for plaintiffs would have been inappropriate on this record.
We note as well that plaintiffs have not provided a record that would
support an unjust enrichment award in the face amount of the Notes.

IV. CONCLUSION

The summary judgments entered by the District Court in favor
of the defendants on plaintiffs’ unjust enrichment claims will be
reversed. We will also reverse those summary judgments in favor of
defendants on plaintiffs’ damage claims with respect to the issuance
of the Parent Notes and the Marvel III Notes. We will affirm the
summary judgments in favor of the defendants on plaintiffs’ damage
claim arising from the Marvel Holdings Note issuance. Finally, we
will affirm the District Court’s refusal to enter summary judgment in
plaintiffs’ favor. This matter will be remanded for further
proceedings consistent with this opinion.

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