The opinion of the court was delivered by: Lowell A. Reed, Jr., Senior District Judge.
Before the Court is the motion to dismiss of defendants David
L. Nelson, Cornelius A. Ferris, Premkumar Uppaluru, Aeneas
Venture Corporation, Edelson Technology Partners II, L.P.,
Olivetti Holding, N.V., Technologies for Information &
Publishing, L.P., ASCII Corporation, Cirrus Logic, Inc. and Intel
Corporation (collectively referred to as the "Former Fluent
Shareholders").*fn1 Based on the following, the motion will be
This case is the third generation lawsuit springing from a
breach of contract dispute between plaintiff ProtoComm
Corporation ("ProtoComm") and Fluent, Inc., now Novell Advanced
Services ("Fluent"). In January of 1993, ProtoComm filed a
lawsuit against Fluent alleging a breach of an agreement to
develop a video server software. ("ProtoComm I"). On July 24,
1996, a jury returned a verdict in ProtoComm I in favor of
ProtoComm and against Fluent for $12.5 million. The verdict was
affirmed by the Court of Appeals for the Third Circuit on October
The details of ProtoComm I and the lawsuit that followed,
ProtoComm II, have been extensively reported by this Court and
will not be repeated here. The following facts are pertinent to
the resolution of the pending motions and are gleaned from the
allegations of the complaint in this litigation, ProtoComm III.
ProtoComm alleges that while litigation in ProtoComm I was
pending, Novell, Inc. ("Novell") and Fluent made plans for
Novell's acquisition of Fluent. In letters of intent dated in the
spring of 1993, Novell and Fluent indicated that Novell would
acquire all the assets and obligations of Fluent through a
merger. (Complaint ¶¶ 21-23). According to an agreement approved
by Fluent's board of directors on June 4, 1993, Fluent would be
the surviving corporation of the merger as a wholly owned
subsidiary of Novell. (Complaint ¶ 24). The agreement also
provided that as a condition precedent to the merger, ProtoComm
I must have been resolved. (Complaint ¶ 25). The shareholders of
Fluent were informed of this condition precedent in a proxy
statement around June 4, 1993. (Complaint ¶ 26).
ProtoComm alleges that despite this condition precedent, the
merger was consummated on July 7, 1993. (Complaint ¶ 28).
However, the merger was restructured as a stock
acquisition/merger, whereby Novell purchased all of Fluent's
stock for approximately $17.5 million which was paid directly to
the shareholders, not to Fluent's treasury. (Complaint ¶ 29).
ProtoComm alleges that Novell took complete control over Fluent's
assets and made all key decision with respect to Fluent's
business after the stock acquisition. (Complaint ¶ 57).
Count I and Count V allege claims against the Former Fluent
Shareholders and are the only counts at issue in the pending
motion. Count I is a claim for fraudulent transfer. ProtoComm
alleges that the actions of Novell, Fluent, and the Former Fluent
Shareholders were done with "the actual intent to hinder, delay
or defraud ProtoComm in the collection of its $12.5 million
judgment against Fluent." (Complaint ¶ 38). Further, ProtoComm
alleges that the defendants knew that restructuring the merger
into a stock acquisition would leave Fluent with "no or
unreasonably small assets and capital and with no ability to pay
its obligation to ProtoComm." (Complaint ¶ 40).
Count V is a claim for wrongful dividends. ProtoComm alleges
that although the transaction was characterized as a stock
acquisition, in reality, Novell acquired all of the assets of
Fluent without paying money into Fluent's treasury. (Complaint ¶
70). Because Novell paid the money to the shareholders of Fluent,
ProtoComm alleges that the payment amounted to a payment of
dividends that were not paid out of Fluent's surplus or net
profits and which left Fluent with no assets, with unreasonably
small capital, and unable to meet its obligation to ProtoComm.
(Complaint ¶¶ 72-74).
II. PRINCIPAL ARGUMENTS OF THE PARTIES
First, the Former Fluent Shareholders argue that the claims
against them should be dismissed as barred by the statute of
limitations. In addition, the Former Fluent Shareholders argue
that the allegations against them for fraudulent conveyance do
not state a claim upon which relief may be granted because
ProtoComm did not allege a transfer of assets that involved the
Former Fluent Shareholders, only a sale of stock. Similarly, the
Former Fluent Shareholders argue that the claim for wrongful
dividend should be dismissed for failure to state a claim because
ProtoComm did not allege that Fluent paid a dividend or
distribution to them in connection with the stock transaction.
ProtoComm contends that its claims are not barred by the
statute of limitation because the applicable two year limitation
period began to run when it obtained a judgment against Fluent
and not from the date of the alleged fraudulent conveyance. As
for the claims for fraudulent conveyance and wrongful dividend,
ProtoComm argues that while the transaction between Novell and
the Former Fluent Shareholders was a sale of stock only, the
court should collapse all of the transactions among Fluent, the
Former Fluent Shareholders, and Novell into one integrated
transaction to determine whether its allegations are sufficient
to state a claim.
III. STANDARD FOR A MOTION TO DISMISS*fn2
A. Pennsylvania Uniform Fraudulent Conveyances Act*fn4
Section 359 of PAUFCA,*fn5 entitled "Rights of creditors whose
claims have matured," provides in pertinent part:
(1) Where a conveyance or obligation is fraudulent as
to a creditor, such creditor, when his claim has
matured, may, as against any person except a
purchaser for fair consideration without knowledge of
the fraud at the time of the purchase, or one who ...