United States District Court, D. Delaware
JEFFREY M. NORMAN, Plaintiff,
DAVID W. ELKJN, et al, Defendants, US MOBILECOMM, INC., Nominal Defendant.
A. Felice, BAILEY & GLASSER LLP, Wilmington, DE Attorneys
A. Dorey, Adam V. Orlacchio, and Craig Haring, BLANK ROME
LLP, Wilmington, DE Gerald Chalphin, Gerald Chalphin Law
Office, Philadelphia, PA Attorneys for Defendants.
U.S. DISTRICT JUDGE.
case comes before the Court on remand from the Third Circuit.
Defendants David W. Elkin ("Elkin"), Richard M.
Shorin ("Shorin"), The Elkin Group, Inc.
("TEG"), and U.S. Mobilcomm, Inc. ("USM")
(collectively, "Defendants") seek judgment as a
matter of law pursuant to Federal Rule of Civil Procedure
50(b) regarding Plaintiff Jeffrey M. Norman's
("Norman" or "Plaintiff) remanded claims.
(D.I. 301) The issues before the Court on remand have been
fully briefed. (D.I. 313, 315, 316, 318, 319, 321) For the
reasons discussed below, the Court will grant Defendants'
motion to the extent that it will enter judgment in
Elkin's favor on Norman's claims for (i) breach of
contract based on Elkin's failure to make pro rata
distributions of the proceeds of the sale of USM's assets
in 2001, (ii) conversion, (iii) usurpation of corporate
opportunities, (iv) breach of the fiduciary duty of loyalty,
(v) breach of the duty of disclosure, (vi) unjust enrichment,
and (vii) declaratory judgment. However, the Court will also
enter judgment in Norman's favor on Norman's (i)
breach of contract claim based on Elkin's execution of
the Shareholder Loan Agreement ("SLA") and (ii) for
Elkin's failure to distribute the proceeds from the sale
of USM's assets on a pro rata basis in 2002, as well as
(iii) attendant damages for those claims.
13, 2009, a jury returned a verdict in Norman's favor on
Norman's breach of contract,  fraud, and conversion
claims. (See D.I. 118) Norman was awarded
$1 in nominal damages on his breach of contract claim, $105,
756 in compensatory damages and $48, 000 in punitive damages
on his fraud claim, and $38, 062 in compensatory damages on
his conversion claim. (See D.I. 118) Following
trial, Elkin moved for judgment as a matter of law, arguing
that Norman's claims were barred by the applicable
statute of limitations. See Norman v. Elkin, 726
F.Supp.2d 464, 469 (D. Del. 2010) ("Norman IF).
Former Judge Joseph J. Farnan, Jr. largely agreed with Elkin
and held that all of Norman's claims were time-barred
except for Norman's second and third theories of breach
of contract (alleging execution of the SLA and failure to
make pro rata distributions, respectively). (See
Id. at 470-76) Judge Farnan entered an Amended Judgment
consistent with that decision. (See D.I. 158)
resolution of additional motions filed by both
Norman and Elkin, the Court held a second jury
trial on Norman's two remaining breach of contract
theories. The jury again found in Norman's favor and
awarded him $1 in nominal damages based on Elkin's
execution of the SLA and $73, 180.17 in compensatory damages
for Elkin's failure to make pro rata
distributions. (See D.I. 246) Elkin again moved for
judgment as a matter of law. The Court again agreed with
Elkin and entered judgment in his favor on both theories.
See Norman v. Elkin, 2015 WL 4886049, at *2-3 (D.
Del. Aug. 14, 2015) ("Norman IV"). As to
Norman's SLA-based claim, the Court concluded that Norman
had failed to present evidence he was damaged by Elkin's
actions independent of his other theory of breach (i.e.,
independent of Elkin's failure to make pro
rata distributions). See Id. at
*2. The Court also agreed with Elkin that
Norman's breach of contract claim for failure to make
pro rata distributions of the proceeds from the sale
of USM assets was barred by the applicable statute of
limitations. See Id. at *2-3. The Court concluded
Norman had been on inquiry notice of his claims since
"before December 2, 2002," and that the statute of
limitations was not tolled during the pendency of
Norman's § 220 action in the Delaware Court of
Chancery and, thus, his claim was time-barred. See
Id. Consistent with that decision, the Court vacated the
jury's verdict and entered final judgement in Elkin's
favor. (See D.I. 285)
appealed. So did Elkin, based on the sufficiency of the
evidence supporting Norman's fraud and conversion claims.
See Norman v. Elkin, 860 F.3d 111, 121 (3d Cir.
2017) ("Norman V). The Third Circuit affirmed
on alternative grounds the Court's decision to enter
judgement in Elkin's favor on his fraud claim, but
vacated entry of judgment in Elkin's favor on all other
claims. See Id. at 131. The case was remanded for
two purposes: (1) for the Court to reinstate the jury verdict
and award of nominal damages for Norman's SLA-based
breach of contract claim and (2) for the Court to determine
whether § 220 tolling should apply to Norman's
claims, and, if so, whether Norman's remaining
claims are timely. See Id.
Facts Relating to Norman's Remaining Claims
Elkin and Norman Found USM and Acquire Phase I
and 1992, the FCC granted first-wave ("Phase I")
220 MHZ licenses by lottery. Norman and Elkin founded USM for
the purpose of aggregating and selling these licenses.
(See D.I. 315 Ex. 3 ¶ A) Norman and Elkin were
USM's sole shareholders.
primarily Norman's responsibility to acquire Phase I
licenses. After the acquisition phase ended, Norman's
day-to-day involvement in USM ended. Elkin continued to
manage USM's affairs.
Acquisition of Phase II Licenses
1998, the FCC announced a competitive auction of "Phase
II" licenses. Elkin registered USM with the FCC as a
qualified bidder for Auction 18. (See D.I. 315 Ex. 3
¶ Y; id Ex. 4 at 97; D.I. 318 at 4) Elkin also
registered TEG, his own company, as a qualified bidder for
Auction 24. (See D.I. 315 Ex. 3 ¶¶ AA-BB)
Elkin testified that it was necessary to register TEG as a
qualified bidder because USM did not have adequate funding to
participate in the auctions, yet USM needed to ensure the
Phase II licenses - which overlapped with the Phase I
licenses owned by USM - ended up in "friendly
hands." (D.I. 315 Ex. 2 at 106-07)
the rights to several Phase II licenses in Auction 18, and
TEG won the rights to a single Phase II license in Auction
24. (See D.I. 315 Ex. 3 ¶ AA; D.I. 315 Ex. 4 at
101) Elkin subsequently transferred USM's rights in Phase
II licenses to TEG. (See D.I. 315 Ex. 4 at 107) Some
FCC notices listed USM as the winning bidder of the Phase II
licenses, while others referred to TEG as the owner of the
licenses. See Norman V, 860 F.3d at 116.
"closely monitored" the FCC auction. Id.
After the auction closed, Norman emailed Elkin asking for
information about Auction 18. (See D.I. 315 Ex. 4 at
102-03) Elkin did not respond. (See id.)
Elkin Executes the SLA
Norman and Elkin founded USM, they entered into an oral
agreement regarding capitalization of the company. To meet
USM's $1M capital requirement, Norman was to contribute
$250, 000 and Elkin was to contribute $750, 000.
(See D.I. 315 Ex. 3 ¶ D)
between 1995 and 2002, Elkin - without seeking Norman's
approval - caused USM to enter into the SLA, pursuant to
which USM agreed to treat any amount Elkin contributed above
his capital requirement as a loan. Elkin continued to make
contributions to USM. USM's "Shareholder Loan
Schedule" lists Elkin's contributions as totaling
over $600, 000, with certain contributions listed as loans.
(See D.I. 315 Ex. 7 at 2)
Sale of Licenses and Distributions to Elkin
1999 to 2001, Elkin sold off USM's and TEG's
licenses. (See D.I. 315 Ex. 4 ¶¶ CC-EE,
GG, JJ, KK, MM) USM used the proceeds from these sales to
repay Elkin's loans, so that its creditors would be paid
before distributions were made to holders of equity. See
Norman IV, 2015 WL 4886049, at * 1. Over the course of
two years, Elkin caused USM to pay out distributions to Elkin
totaling $615, 026. (See D.I. 315 Ex. 4 ¶¶
SS-YY) Norman was paid nothing. (See D.I. 315 Ex.4
Norman Learns of License Sales and Distributions
received federal income tax K-l forms from USM for the tax
years 2000 and 2001 that declared USM had realized a capital
gain. (See D.I. 315 Ex. 4 ¶ RR; id.
Ex. 9 at 19; id. Ex. 10 at 21) The forms did not
specify what had been sold, nor did they list any shareholder
loans or distributions. (See D.I. 315 Ex. 9 at
19-20; id. Ex. 10 at 21-22; see also D.I.
315 Ex. 9 at 4:19; id. Ex. 10 at 4:19) (reporting no
"Loans from shareholders" on USM tax return Form
1120S for 2000 and 2001) "However, in a deposition,
Norman admitted that, 'a capital gain, by definition . .
. has to be sale of a license." Norman V, 860
F.3d at 117 (quoting App. at 512).
summer of 2002, Norman called Elkin ("Summer 2002
Call"). During the Summer 2002 Call, Elkin told Norman
that some of USM's licenses had been sold and that Elkin
had taken a distribution. (See D.I. 315 Ex. 6 at
251-52) When Norman pressed Elkin about why Norman had not
also received a distribution, Elkin told him, "Oh, it
wasn't your turn." (Id. at 252) Norman
asked Elkin to send him more information about the sales but
never received it. (See id.)
October 2, 2002, Norman's attorney sent Elkin a letter
requesting information pursuant to 8 Del. C. § 220
"about the sale or other disposition of any assets or
stock of [USM] over the past three (3) years, and the
distribution or use of any proceeds of any such sales or
dispositions." (D.I. 315 Ex. 12) ("October 2002
Letter") Two months later, on December 3, 2002, Elkin
sent Norman a letter acknowledging that USM had sold the
licenses "it owned," that the net proceeds from
those sales totaled $479, 708, and that $380, 588 of the
proceeds had been used for the "Repayment of Shareholder
Loans." (D.I. 315 Ex. 13 at 1) ("December 2002
Letter") The December 2002 Letter also included purchase
and sale agreements revealing that TEG had sold Phase II
licenses. See Norman V, 860 F.3d at 117. Nearly a
year later, in October 2003, USM sent Norman's attorney a
letter that included a copy of the SLA and Shareholder Loan
Schedule. (See D.I. 315 Ex. 7) ("October 2003
Norman Files His § 220 Action and Subsequent
November 16, 2004, Norman filed a § 220 action in the
Delaware Court of Chancery, to compel USM to allow him to
inspect the company's books and records. At a hearing in
August 2005, former Vice Chancellor Parsons found "there
[was] a credible basis here for inferring possible
mismanagement and wrongdoing on the part of Mr. Elkin,"
including by executing self-dealing transactions with no
notice to Norman, the minority shareholder. (See
D.I. 315 Ex. 16 at 219) The Chancery Court granted
Norman's § 220 request on October 2, 2005. Based on
his successful § 220 action, Norman was able to obtain a
number of documents related to his subsequent claims against
Elkin. Norman filed suit against Elkin in the Court of
Chancery on December 5, 2005. (D.I.I) Elkin then removed the
action to this Court. (Id.)
as a matter of law is appropriate if "the court finds
that a reasonable jury would not have a legally sufficient
evidentiary basis to find for [a] party" on an issue.
Fed.R.Civ.P. 50(a)(1). "Entry of judgment as a matter of
law is a sparingly invoked remedy," one "granted
only if, viewing the evidence in the light most favorable to
the nonmovant and giving it the advantage of every fair and
reasonable inference, there is insufficient evidence from
which a jury reasonably could find liability." Marra
v. Phila. Housing Auth., 497 F.3d 286, 300 (3d Cir.2007)
(internal quotation marks omitted).
prevail on a renewed motion for judgment as a matter of law
following a jury trial, the moving party "must show that
the jury's findings, presumed or express, are not
supported by substantial evidence or, if they were, that the
legal conclusions implied [by] the jury's verdict cannot
in law be supported by those findings." Pannu v.
Iolab Corp.,155 F.3d 1344, 1348 (Fed. Cir. 1998)
(internal quotation marks omitted).
"'Substantial' evidence is such relevant
evidence from the record taken as a whole as might be
acceptable by a reasonable mind ...