Official Committee of Equity Security Holders v. Nvidia Corp. et al

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1
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION
In re 	Case No. 02-55795-RLE
Chapter 11
3DFX INTERACTIVE, INC., a
California corporation,
Debtor.
__________________________________
OFFICIAL COMMITTEE OF EQUITY
SECURITY HOLDERS, on its own
behalf, and on behalf of the
bankruptcy estate of
3DFX INTERACTIVE, INC.,
a California corporation, 	Adv. Pro. No. 06-5115
Plaintiff,
vs.
nVIDIA CORPORATION, a Delaware
corporation; et al.,
Defendants.
__________________________________
MEMORANDUM DECISION RE CROSS-MOTIONS FOR SUMMARY JUDGMENT
The following constitutes the
Memorandum Decision of the Court.
Signed January 06, 2009
________________________________________
Roger L. Efremsky
U.S. Bankruptcy Judge	________________________________________
Entered on Docket
January 06, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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28 1 Capitalized terms not otherwise defined have the meanings given
to them in the APA.
2	[3dfx/EqCmte/nVidia/06-5115.SJDecis]
Before the Court for decision are the cross-motions for
summary judgment brought by plaintiff, the Official Committee of
Equity Security Holders (the “Equity Committee”) and defendants,
nVidia Corporation and nVidia US Investment Company (collectively,
“nVidia”). 	The motions are directed at the first three claims for
declaratory relief in the Equity Committee’s First Amended
Complaint in this adversary proceeding (the “FAC” and the “Section
1.3 Action”). 	The motions have been fully briefed and argued.
I. INTRODUCTION
In December 2000, 3dfx Interactive, Inc. (“3dfx” or “Debtor”)
entered into an asset purchase agreement with nVidia (the “APA” and
the “Transaction”). 1 	The Transaction closed in April 2001. 	Under
the APA, nVidia paid 3dfx cash of $70 million (the “Cash
Consideration”) for Specified Assets, and upon satisfaction of
certain conditions, agreed to provide shares of nVidia common stock
(the “Stock Consideration”). 	As of October 2002, when 3dfx filed
bankruptcy, the conditions for delivery of the Stock Consideration
had not been satisfied and the Stock Consideration had not been
delivered to 3dfx.
In February 2003, William A. Brandt, Jr., the chapter 11
trustee of Debtor’s estate, sued nVidia to avoid the Transaction as
a fraudulent conveyance (the “Trustee” and the “Trustee’s Adversary
Proceeding”). 	In March 2006, the Equity Committee filed its
chapter 11 plan (the “Equity Committee Plan”) and was thereafter
granted derivative standing to bring the Section 1.3 Action in
connection with confirmation of its Plan. 	The goal of the Equity
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2 The following abbreviations are used here: “TA Docket” refers
to the docket in the Trustee’s Adversary Proceeding, A.P. 03-5079; “EC
Docket” refers to the docket in this adversary proceeding; “MC Docket”
refers to the docket in the main case, chapter 11 case 02-55795. The
Court takes judicial notice of matters in each of these to the extent
relied upon herein.
3	[3dfx/EqCmte/nVidia/06-5115.SJDecis]
Committee’s Plan is to satisfy the conditions contained in the APA
for the delivery of the Stock Consideration to the estate.
As of May 1, 2006, the estate had two adversary proceedings
pending against nVidia - the Trustee’s seeking to avoid the
Transaction as a fraudulent conveyance, and the Equity Committee’s
seeking to assume the APA and enforce it in conjunction with
confirmation of its Plan. 	The Trustee’s Adversary Proceeding went
to trial in March 2007, and in September 2008, judgment was entered
in favor of nVidia. 	TA Docket no. 524. 2
For the reasons discussed herein, summary judgment in favor of
nVidia is appropriate.
II. STATEMENT OF FACTS
A. Background Regarding 3dfx and nVidia
1. The Asset Purchase Agreement
In December 2000, 3dfx and nVidia entered into the APA
pursuant to which nVidia purchased Specified Assets from 3dfx,
nVidia and 3dfx agreed to settle their pending patent litigation,
and 3dfx agreed, upon completion of the purchase of the Specified
Assets, to dissolve. 	EC Docket no. 109, Ex. A. 	The Transaction is
described in detail in the Memorandum Decision filed April 30,
2008, in the Trustee’s Adversary Proceeding. 	TA Docket no. 499.
The facts stated in the Memorandum Decision are incorporated herein
by reference.
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4	[3dfx/EqCmte/nVidia/06-5115.SJDecis]
Pursuant to § 1.2 of the APA, nVidia agreed to pay the $70
million Cash Consideration, and agreed, upon satisfaction of the
conditions set forth in § 1.3 of the APA, to provide 3dfx with the
Stock Consideration consisting of one million shares of nVidia
common stock. 	The Stock Consideration was subject to adjustment
and since December 2000, has increased to six million shares. 	See
§ 1.4(c).
Section 1.3(a) provided that the Stock Consideration would be
issued promptly following the Closing but was only deliverable upon
the completion of the winding-up of 3dfx’s business pursuant to its
Plan of Dissolution and certification that all 3dfx’s Liabilities
had been paid in full or otherwise provided for (in a manner
satisfactory to nVidia) from sources other than the Stock
Consideration. 	Section 1.3 also provided that upon certain
conditions, 3dfx was permitted to request a Post-Closing Advance of
up to half the Stock Consideration up to a maximum of $25 million
(calculated at $50 per share), if this was necessary and sufficient
to enable 3dfx to pay its Liabilities in full. 	EC Docket no. 109,
Ex. A, p. 3-4.
There was no Post-Closing Advance, although nVidia and 3dfx
management discussed it. 	They also discussed the possibility of,
and disagreed about, whether 3dfx could issue preferred stock or
employ some other means to raise the funds to complete payment of
3dfx’s Liabilities and thereby satisfy the conditions to receipt of
the Stock Consideration.
2. The Closing and the Closing Agreement
3dfx obtained shareholder approval of the Transaction and its
Plan of Dissolution. 	nVidia contends that by mid-April 2001 it had
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3 nVidia contends the following sections of the APA are relevant
on this point: § 1.3; § 2.12; § 2.29; § 4.2; § 4.8; § 10.3; and
§ 10.4.
5	[3dfx/EqCmte/nVidia/06-5115.SJDecis]
no obligation to proceed with the Closing because certain material
representations and warranties made by 3dfx in the APA were
inaccurate. 3 	Nonetheless, nVidia and 3dfx proceeded with the
Closing and the Transaction closed in April 2001 with the APA
modified by the terms of the Closing Agreement. 	EC Docket no. 109,
Ex. B.
The Closing Agreement provided that the Closing could occur in
three phases. 	In the first phase, the Cash Consideration was to be
paid. 	In the second phase, 3dfx could have received all of part of
the Post-Closing Advance, and in the third phase, 3dfx could have
received the Stock Consideration, less the amount of any Post-
Closing Advance. 	EC Docket no. 109, Ex. B. 	nVidia paid the Cash
Consideration at the April 2001 Closing, but the second and third
phases had not occurred before 3dfx filed its chapter 11 case in
October 2002.
3. 3dfx Files Bankruptcy
3dfx filed this chapter 11 case on October 15, 2002. 	Its pre-
petition liabilities are approximately $27 million. 	MC Docket no.
1099. 	The schedules, statement of financial affairs and the
monthly operating reports also indicate there are few - if
any - assets other than the prospect of recovery in litigation
against nVidia. 	Debtor’s Schedule B (Personal Property) lists a
$33 million contingent claim against nVidia. 	Debtor’s Schedule G
(Executory Contracts and Unexpired Leases) does not list the APA.
MC Docket no. 1.
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4 3dfx took the same position in its proxy statement filed with
the SEC on February 15, 2001. See EC Docket no. 109, Ex. C, p. 21-23.
The 	Trustee 	is 	assumed 	to 	have 	exercised 	his 	business 	judgment 	in
choosing the optimal litigation strategy and in analyzing whether the
APA was an executory contract and, if so, the benefits to the estate
and 	claims 	against 	it 	that 	would 	flow 	from 	a 	decision 	to 	assume 	or
reject.
6	[3dfx/EqCmte/nVidia/06-5115.SJDecis]
B. 	The Trustee’s Adversary Proceeding
1. The Trustee’s Allegations and Positions
In February 2003, the Trustee filed the Trustee’s Adversary
Proceeding against nVidia, alleging, among other claims, that the
Transaction amounted to a fraudulent conveyance. 	TA Docket no. 4.
The Trustee argued that nVidia had acquired property from 3dfx
worth at least $140 million. 	Because nVidia had paid only $70
million, by definition, it had paid less than reasonably equivalent
value in the Transaction. 	TA Docket no. 499.
In response to nVidia’s interrogatories, the Trustee took the
position that 3dfx had “forfeited its rights” to the Stock
Consideration because 3dfx had been unable to settle all its
creditors’ claims for $95 million (made up of the $70 million Cash
Consideration and the Post-Closing Advance of up to $25 million).
EC Docket no. 107, Varian Dec., Ex. A. 	The Trustee’s responses
also stated that if the Liabilities “exceeded $95 million (which
they did), 3dfx was not entitled to receive any stock compensation
whatsoever.” 	EC Docket no. 107, Varian Dec., Ex. B. 4 	His
responses also stated that 3dfx entered into the Transaction
knowing that its liabilities exceeded its assets and that it would
be unable to pay creditors with the $95 million potentially
available to 3dfx under the APA. 	EC Docket no. 107, Varian Dec.,
Ex. B.
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5 On 	the 	eve 	of 	trial, 	the 	Equity 	Committee 	sought 	leave 	to
intervene by “joining” the Trustee’s complaint. Both nVidia and the
Trustee opposed this request and the Court denied it. TA Docket nos.
286, 345, 349, 358, 387.
7	[3dfx/EqCmte/nVidia/06-5115.SJDecis]
2. Trial in the Trustee’s Adversary Proceeding
In January 2007, the Court issued its Pre-trial Order setting
a trial date. 	TA Docket no. 253. 	Trial on the issues identified
in the Pre-trial Order took place in March 2007. 5 	The Court issued
a Memorandum Decision in April 2008 in which it concluded that the
value of what was transferred was $30 million and nVidia had paid
reasonably equivalent value for what it acquired in the
Transaction. 	TA Docket no. 499, p. 85-87.
3. Judgment in the Trustee’s Adversary Proceeding
The remaining claims for relief in the Trustee’s Adversary
Proceeding have now been resolved by summary judgment and on
September 11, 2008, judgment was entered in nVidia’s favor. 	TA
Docket nos. 499, 500, 522, 524. 	The Trustee’s appeal is pending in
the District Court. 	TA docket no. 527.
C. Background Regarding the Equity Committee
1. Appointment of the Equity Committee and its Plan
In February 2006, the Equity Committee was formed and retained
counsel. 	MC Docket nos. 739, 740, 741, 750, 755. 	In March 2006,
the Equity Committee filed the Equity Committee Plan. 	MC Docket
nos. 772, 1000. 	In theory, the Equity Committee’s Plan is
structured to satisfy the conditions to nVidia’s obligation under
the APA to deliver the Stock Consideration to the estate. 	EC
Docket no. 54, FAC ¶28; MC Docket no. 1000, § VI - VII.
2. The Equity Committee is Granted Derivative Standing
In April 2006, the Equity Committee sought and was granted
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6 The 	fourth, 	fifth 	and 	sixth 	claims 	of 	the 	FAC 	seek 	judicial
determinations 	that: 	(1) 	any 	breaches 	under 	the 	APA 	do 	not 	excuse
nVidia’s 	obligation 	to 	deliver 	the 	Stock 	Consideration; 	(2) 	any
defaults by 3dfx are either curable or are not required to be cured
and compensated for; and (3) the APA can be assumed. EC Docket no. 54.
8	[3dfx/EqCmte/nVidia/06-5115.SJDecis]
derivative standing to pursue the Section 1.3 Action on behalf of
the estate. 	MC Docket no. 828.
3. The Section 1.3 Action
On May 1, 2006, the Equity Committee commenced the Section 1.3
Action. 	On September 12, 2006, the Equity Committee filed the FAC.
The FAC states six claims for declaratory relief based on the
disputed status of the APA and the Stock Consideration. 	Only the
first three claims in the FAC are proceeding at this time. 	EC
Docket no. 79.
In the first three claims for relief, the Equity Committee
seeks declarations that: (1) the APA has not been terminated by its
own terms, by operation of law or equity, or for any other reason;
(2) the APA and Debtor’s rights therein became property of the
estate; and (3) the APA is an executory contract. 	EC Docket no.
54. 6
nVidia’s answer denies that the Equity Committee is entitled
to the declaratory relief sought and states affirmative defenses,
including laches, statute of limitations, judicial estoppel,
standing, expiration of the APA, ripeness, election of remedies,
and claim splitting. 	EC Docket no. 79.
4. The Equity Committee’s Financing Commitment
In January 2007, the Court granted the Equity Committee’s
Motion for Order Approving Investor Protections for Harbinger
Capital Partners Master Fund I, Ltd. for Proposed Investment in
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Connection with Equity Committee’s Chapter 11 Plan (the “Investor
Protection Motion” and “Harbinger”). 	MC Docket nos. 982, 1004,
1005. 	In March 2007, the Court entered an Order approving the
commitment letter between Harbinger and the Equity Committee in
connection with Harbinger’s proposed preferred stock investment
under the Equity Committee’s Plan (the “Commitment Letter”). 	MC
Docket nos. 1004, 1025.
According to the Equity Committee’s Plan and the Harbinger
Commitment Letter, Debtor will issue preferred stock and Harbinger
will purchase this preferred stock for an aggregate purchase price
of up to $51.5 million. 	MC Docket no. 1004, ¶3. 	The Commitment
Letter includes two key conditions to the Harbinger investment: (1)
there must be an order granting the Equity Committee each prayer
for relief in the FAC; and (2) nVidia must deliver stock with a
total value on the final closing date (as defined therein) of not
less than 1.15 times $55 million (i.e., $63.25 million). 	MC Docket
no. 1004, ¶8(f) and ¶9(d).
5. The Fluctuating Value of the Stock Consideration
The value of nVidia’s common stock has fluctuated throughout
the time period relevant to this chapter 11 case. 	In addition, the
original one million shares specified in § 1.3 of the APA have now
increased to six million shares. 	The Equity Committee stated that
the Stock Consideration had a value of more than $100 million when
it sought derivative standing in March 2006, and stated it had a
value of $140 million when it sought approval of its financing
//
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7 According to the Equity Committee, when the Trustee brought his
Adversary 	Proceeding 	against 	nVidia, 	the 	Stock 	Consideration 	was
“worth 	but 	a 	small 	fraction” 	of 	what 	it 	was 	worth 	when 	the 	Equity
Committee began this Action. 	MC Docket no. 782, p. 5.
10	[3dfx/EqCmte/nVidia/06-5115.SJDecis]
commitment in December 2006. 7 	MC docket nos. 782, 982. 	nVidia’s
opposition to the Equity Committee’s motion for summary judgment
states that the Stock Consideration had decreased in value to
approximately $54 million as of October 3, 2008. 	EC Docket no.
120, Ex. D (closing price on October 3, 2008 of $9.03/share).
III. DISCUSSION
A. Summary Judgment Standard
Summary judgment is proper when the pleadings, the discovery
and disclosure materials on file, and any affidavits show that
there is no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law. 	Fed. R. Civ. P.
56(c) applicable here by Fed. R. Bankr. P. 7056. 	An issue is
“genuine” only if there is an evidentiary basis on which a
reasonable fact finder could find for the nonmoving party.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). 	A
dispute is “material” only if it could affect the outcome of the
suit under governing law. 	Id. 	At the summary judgment stage, the
court does not weigh the evidence and determine the truth of the
matter, but determines whether there is a genuine issue for trial.
Id. at 249.
As plaintiff and moving party - with the burden of proof at
trial - the Equity Committee must come forward with evidence which
would entitle it to a directed verdict if the evidence went
uncontroverted at trial. 	Miller v. Glenn Miller Prod., Inc., 454
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F.3d 975, 987 (9th Cir. 2006) (citing C.A.R. Transp. Brokerage Co.,
Inc. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000)).
As defendant and moving party, nVidia has both the initial burden
of production and the ultimate burden of persuasion on its motion
for summary judgment. 	nVidia must either produce evidence negating
an essential element of the Equity Committee’s claims or show that
the Equity Committee does not have enough evidence of an essential
element to carry its ultimate burden of persuasion at trial.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Nissan Fire &
Marine Ins. Co., Ltd. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir.
2000). 	If nVidia satisfies this initial burden of production, the
Equity Committee must set forth specific facts showing that there
remains a genuine issue for trial. Fed. R. Civ. P. 56(e); Nissan
Fire & Marine, 210 F.3d at 1103. 	The Equity Committee must present
significant probative evidence that a genuine issue of fact exists.
Liberty Lobby, 477 U.S. at 255. 	In ruling on either motion, the
evidence offered by the opposing party is to be believed and all
reasonable inferences are to be drawn in its favor. 	Liberty Lobby,
477 U.S. at 255.
The court must rule on each party’s motion on an individual
and separate basis, determining, for each side, whether a judgment
may be entered in accordance with the Rule 56 standard. 	Both
motions must be denied if the court finds that there is a genuine
issue of material fact. 	If there is no genuine issue and one or
the other party is entitled to prevail as a matter of law, the
Court will render judgment. 	Fair Housing Council of Riverside
County, Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001);
10A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal
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8 Unless otherwise indicated, all chapter and section references
are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, enacted prior to
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,
Pub. L. 109-8, Apr. 20, 2005, 119 Stat. 23.
12	[3dfx/EqCmte/nVidia/06-5115.SJDecis]
Practice and Procedure § 2720, at 335-36 (3d ed. 1998).
B. The Equity Committee’s Motion for Summary Judgment
The Equity Committee argues that there are no material
disputed facts and it is entitled to judgment as a matter of law
that: (1) the APA has not been terminated; (2) the APA became
property of the estate under Bankruptcy Code § 541 8; and (3) the
APA is an executory contract under the controlling Ninth Circuit
definition. 	EC Docket nos. 91 - 93. 	nVidia’s opposition disputes
each of these contentions. 	EC Docket nos. 115 - 120.
C. nVidia’s Motion for Summary Judgment
nVidia argues that: (1) the Section 1.3 Action is time-barred;
(2) pre-petition material breaches by Debtor terminated the APA;
(3) the estate has no enforceable contract right to any of the
Stock Consideration; (4) the APA is not an executory contract; (5)
the Equity Committee has no standing; and (6) this case involves
impermissible claim splitting. 	EC Docket nos. 107 - 109.
The Equity Committee’s opposition to nVidia’s motion disputes
each of nVidia’s contentions and stresses that it has independent
standing, its claims are not time-barred, and claim splitting is
not an issue. 	EC Docket nos. 110 - 111.
The Court will consider nVidia’s motion first.
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D. Relationship between the Equity Committee and the Trustee
1. The Claims for Relief in the FAC are Property of the
Estate
The commencement of a bankruptcy case creates an estate.
Bankruptcy Code § 541(a). 	The “property of the estate” includes
all “legal or equitable interests of the debtor in property as of
the commencement of the case.” 	Bankruptcy Code § 541(a)(1). 	The
estate created pursuant to § 541(a) includes causes of action
belonging to the debtor at the time the case is commenced; the
estate succeeds to no more or greater causes of action against
third parties than those held by the debtor. 	Foothill Capital
Corp. v. Clare’s Food Market, Inc. (In re Coupon Clearing Serv.
Inc.), 113 F.3d 1091, 1099 (9th Cir. 1997) (estate succeeds to
debtor’s rights); In re Crown Vantage, Inc., 2003 WL 25257821, *6
(N.D. Cal. 2003), aff’d, 198 Fed. Appx. 597 (9th Cir. 2006) (noting
that legislative history of § 541 indicates section not intended to
expand debtor’s rights against others more than they existed at
commencement of case, noting also that claims time-barred as to
debtor are time-barred as to trustee).
The Trustee is the representative of the estate with the
capacity to sue or be sued. 	Bankruptcy Code § 323. 	The Trustee
has the duty to pursue causes of action that are in the best
interest of the estate. 	Bankruptcy Code § 704(a), § 1106(a);
Liberty Mut. Ins. Co. v. Official Unsecured Creditors’ Comm. of
Spaulding Composites Co. (In re Spaulding Composites Co.), 207 B.R.
899, 904 (9th Cir. BAP 1997) (trustee or debtor in possession has
obligation to pursue all actions that are in the best interests of
creditors and the estate).
//
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2. Derivative Standing does not Confer Ownership of the
Claims for Relief in the FAC
There is no explicit authority in the Bankruptcy Code for a
committee to initiate adversary proceedings but it is clear that in
certain situations, a committee may be permitted to proceed as the
Equity Committee is proceeding here - with derivative standing. 	In
re Spaulding Composites Co. Inc., 207 B.R. at 903-04 (direct and
derivative standing distinguished; court may approve derivative
standing for a party other than the trustee or debtor-in-possession
to pursue the estate’s litigation). 	This derivative standing, a
salutary element of the chapter 11 process, does not confer
ownership of the claims on the party proceeding in that capacity.
See Official Committee of Equity Security Holders v. Official
Committee of Unsecured Creditors (In re Adelphia Comm’s Corp.), 544
F.3d 420 (2d Cir. 2008) (equity committee’s assertion that
derivative standing conferred ownership of claims rejected).
3. The Equity Committee and the Trustee are the Same
Party
The Equity Committee argues that it should not be viewed as
the same party as the Trustee because each has taken distinct
positions and has utilized unrelated counsel to prosecute disparate
causes of action seeking incompatible forms of relief. 	According
to the Equity Committee, because of this, it is not bound by any of
the prior positions taken by the Trustee, by any of this Court’s
factual or legal findings as to the Trustee, or by the statute of
limitations applicable to the Trustee. 	EC Docket no. 110, ¶21; no.
125, ¶4. 	While the Equity Committee does not clearly articulate
it, implicit in this argument is the apparent position that the
Equity Committee owes a fiduciary duty to its constituents and no
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9 The 	Order 	granting 	standing 	states 	the 	“Equity 	Committee 	is
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one else. 	However, when the Committee undertook this Section 1.3
Action, the scope of its fiduciary duty expanded - it is now acting
as a fiduciary on behalf of Debtor’s estate. 9
In Cheng v. K&S Diversified Investments, Inc. (In re Cheng),
308 B.R. 448 (9th Cir. BAP 2004), the Ninth Circuit Bankruptcy
Appellate Panel discussed the possibly adverse interests and
inconsistent positions taken by a debtor - acting for its own
interest in protecting a homestead exemption, and acting in the
interest of creditors and as a trustee in objecting to claims. 	The
court stated it was fundamental that it was permissible to take
these inconsistent positions when the debtor acted in these
different capacities. 	The court relied on the Restatement (Second)
of Judgments § 36 (hereafter, the “Restatement”), which provides
that a person acting in multiple capacities is ordinarily permitted
to take inconsistent positions “without triggering claim or issue
preclusion.” 	In re Cheng, 308 B.R. at 455. 	This rule is “designed
to safeguard the integrity of the representative functions by
fostering fidelity to the beneficiaries of representative
functions.” 	Id.; see also Restatement § 36, cmt a.
This is not the situation presented in this case. 	Here, the
Equity Committee is acting on behalf of the estate, and is acting
on behalf of the same constituents as the Trustee. 	The Trustee, in
effect, and the Court in granting derivative standing, deputized
the Equity Committee to act as the Trustee’s agent on behalf of the
estate. 	The Equity Committee is thus appearing in this Section 1.3
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Action in the same capacity as the Trustee - as the representative
of the estate on behalf of the same beneficiaries. 	The Equity
Committee’s description of the relationship between this case and
the Trustee’s Adversary Proceeding confirms this: it described the
two cases as “aimed at achieving similar goals - satisfaction of
the defendants’ economic obligations to the Debtor’s estate -
albeit through different means.” 	EC Docket no. 125, p.5, n. 7.
Like Prometheus bound, the Equity Committee is chained to the
Trustee. 	Because the Equity Committee and the Trustee are acting
in the same capacity, they may not take inconsistent positions and
the standard rules of claim and issue preclusion will apply. 	In re
Cheng, 308 B.R. at 455.
E. Claim Preclusion
nVidia argues that the Section 1.3 Action is barred as
improper claim splitting. 	Relying on the definitions in
Restatement § 24 and § 25 applicable in the Ninth Circuit, nVidia
contends that because a final judgment has been entered in nVidia’s
favor in the Trustee’s Adversary Proceeding, the doctrine of claim
splitting - a part of the doctrine of claim preclusion - prevents
the Section 1.3 Action from proceeding.
The Equity Committee responds that it is free to proceed
because the Section 1.3 Action and the Trustee’s Adversary
Proceeding are “distinct causes of action based on different legal
theories,” and although they could have been adjudicated together,
the Court chose “to have them pursued separately but
simultaneously” and their claims do not have to be reduced to
judgment in the same suit. 	EC Docket no. 110, p. 13:1-12.
//
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10 Restatement § 24 provides: “(1) When a valid and final judgment
rendered in an action extinguishes the plaintiff’s claim pursuant to
the 	rules 	of 	merger 	or 	bar 	(see 	§§ 	18, 	19), 	the 	claim 	extinguished
includes all rights of the plaintiff to remedies against the defendant
with 	respect 	to 	all 	or 	any 	part 	of 	the 	transaction, 	or 	series 	of
connected 	transactions, 	out 	of 	which 	the 	action 	arose[;] 	(2) 	What
factual 	grouping 	constitutes 	a 	‘transaction’, 	and 	what 	groupings
constitute 	a 	‘series’, 	are 	to 	be 	determined 	pragmatically, 	giving
weight 	to 	such 	considerations 	as 	whether 	the 	facts 	are 	related 	in
time, 	space, 	origin, 	or 	motivation, 	whether 	they 	form 	a 	convenient
trial 	unit, 	and 	whether 	their 	treatment 	as 	a 	unit 	conforms 	to 	the
parties’ expectations or business understanding or usage.”
11 Restatement 	§ 	25 	provides: 	“The 	rule 	of 	§ 	24 	applies 	to
extinguish 	a 	claim 	by 	a 	plaintiff 	against 	a 	defendant 	even 	though
plaintiff is prepared in the second action (1) to present evidence or
grounds or theories of the case not presented in the first action, or
(2) 	to 	seek 	remedies 	or 	forms 	of 	relief 	not 	demanded 	in 	the 	first
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1. The Rules Regarding Merger, Bar and Claim Splitting
According to the Restatement, the doctrine of claim preclusion
subdivides into the doctrines of merger, bar and the general rule
against claim splitting. 	Alary v. Sims (In re Assoc. Vintage
Group, Inc.), 283 B.R. 549, 555 (9th Cir. BAP 2002). 	Under the
general rule of merger, a valid and final personal judgment in
favor of a plaintiff extinguishes the entire claim - it is merged
into the judgment. 	“The plaintiff cannot thereafter maintain an
action on the original claim or any part thereof.” 	Restatement
§ 18. 	The general rule of bar provides that “a valid and final
personal judgment rendered in favor of the defendant bars another
action by the plaintiff on the same claim.” 	Restatement § 19. 	The
rules of merger and bar are reinforced by the general rule
concerning splitting: the extinguished claim extends to all rights
of the plaintiff to remedies against the defendant with respect to
all or any part of the transaction out of which the claim arose.
Restatement § 24. 10 	The consequence of the general rule concerning
splitting is stated in Restatement § 25. 11 	A plaintiff cannot
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assert, in a separate action, new evidence, grounds, theories,
remedies or forms of relief related to the initial claim.
2. Applicable Definition of Claim
Before applying claim preclusion, one must first define the
underlying claim and then analyze whether the claim asserted in the
second action constitutes the same “claim” for claim preclusion
purposes. 	The Ninth Circuit has adopted the principles of the
Restatement in defining what constitutes the same claim for claim
preclusion purposes. 	In re Assoc. Vintage Group, Inc., 283 B.R. at
557; Goldstein v. Griffing (In re Goldstein), 297 B.R. 766, 769-770
(Bankr. D. Ariz. 2003) (relying on four criteria stated in Harris
v. Jacobs, 621 F.2d 341, 343 (9th Cir. 1980) for determining
dimensions of claim).
The Ninth Circuit test to determine a “claim” for purposes of
the merger and bar doctrines and application of the rule concerning
splitting requires consideration of: (1) whether rights or
interests established in the prior judgment would be destroyed or
impaired by prosecution of the second action; (2) whether
substantially the same evidence is presented in the two actions;
(3) whether the two suits involve infringement of the same rights;
and (4) whether the two suits arise out of the same transactional
nucleus of facts. 	Harris v. Jacobs, 621 F.2d at 343; Costantini v.
Trans World Airlines, 681 F.2d 1199, 1201 (9th Cir. 1982); In re
Assoc. Vintage Group, Inc., 283 B.R. at 558.
//
//
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3. The Four Factors for Finding Same Claim are Met
Although the test cannot be applied mechanically and no one
factor is dispositive, the most important factor is the fourth -
whether there is a transactional nucleus of facts. 	Costantini, 681
F.2d at 1201-02. 	This determination requires a pragmatic case-by-
case analysis. 	In re Assoc. Vintage Group, Inc., 283 B.R. at 558;
In re George, 318 B.R. 729 (9th Cir. BAP 2004)(debtors litigated
Bankruptcy Code § 365 lease rejection issues to conclusion, then
litigated lease issues in federal court on additional theories,
debtor’s third action in bankruptcy court on Bankruptcy Code § 525
theory was barred because it was part of the same claim arising
from the same transactional group of facts under Restatement
definitions).
Under the Ninth Circuit test, and the Restatement definition
of a claim, there is no question that the same transactional
nucleus of facts is involved in this Section 1.3 Action as was
involved in the Trustee’s Adversary Proceeding. 	Each action
involves an interpretation of the APA and the rights and remedies
flowing from it just as each action in In re George involved an
interpretation of the parties’ lease and the rights and remedies
arising from that relationship. 	In other words, each case involves
the same transactional nucleus of facts.
The second and third factors (whether there is an overlap of
evidence and whether the same rights are infringed) are also
present here. 	The primary evidence in this Section 1.3 Action
overlaps to a significant degree with the evidence offered in the
Trustee’s Adversary Proceeding. 	The focus in this Section 1.3
Action is the APA itself as it was in the Trustee’s Adversary
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Proceeding. 	The same rights are also infringed. 	As the Equity
Committee itself articulates, it is the right to have nVidia
satisfy its “economic obligations” to the estate either through
delivery of the Stock Consideration or through payment of what the
Trustee claimed was the reasonably equivalent value for what nVidia
acquired in the Transaction. 	It does not matter that the Equity
Committee’s action is based on a bankruptcy theory. 	Nor does it
matter that the remedy sought is different. 	What matters is each
seeks redress for alleged injury to the same right through
inconsistent and competing theories. 	See Restatement § 25 (new
theory of case is paradigm example of what is extinguished under
doctrine of claim preclusion).
The first factor is also met here. 	Rights or interests
established in the judgment in the Trustee’s Adversary Proceeding
would be destroyed or impaired by prosecution of the Section 1.3
Action. 	In the broadest sense, the judgment established nVidia’s
rights regarding the APA and the Transaction. 	To revisit that
territory under the Equity Committee’s theories necessarily impairs
nVidia’s right to finality as to all possible theories for recovery
and remedies arising from the Transaction.
4. None of the Exceptions to Claim Splitting Apply
The only exceptions to the general rule concerning claim
splitting relevant to this matter are those stated in Restatement
§ 26(a) and (b). 	Restatement § 26(a) provides that the general
rule against splitting a claim does not operate if “the parties
have agreed in terms or effect that the plaintiff may split his
claim, or the defendant has acquiesced therein.” 	Without question,
nVidia did not agree or acquiesce. 	It protested at every
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opportunity.
Restatement § 26(b) provides that the general rule does not
operate if the court has reserved the plaintiff’s right to the
second action. 	To the extent the Equity Committee argues that the
Court may have permitted the splitting of these claims, the
Committee errs. 	The Court granted the Equity Committee’s request
for derivative standing before a trial date had been set in the
Trustee’s Adversary Proceeding and at a point in the chapter 11
case when it appeared competing chapter 11 plans would be under
consideration. 	See MC Docket nos. 745, 746, 1000. 	Comments made
by the Court and parties at the hearing at which standing was
discussed show that a central premise of the Court’s ruling was its
and the parties’ understanding that there would be only one
judgment, and once that judgment was entered, the remaining
adversary proceeding - whether the Trustee’s or the Equity
Committee’s - would cease. 	See MC Docket no. 827, p.10-14.
The grant of derivative standing to file this Section 1.3
Action did not encompass permission to split the claim or a
reservation of this right. 	It was simply a recognition that the
Federal Rules of Civil Procedure allow a party to take inconsistent
positions in one pleading. 	See Fed. R. Civ. P. 8(d)(2), applicable
herein by Fed. R. Bankr. P. 7008 (permits a party to set out two or
more statements of a claim or defense “alternatively or
hypothetically”); see also Rule 8(d)(3) (permits a party to state
as many claims as it has, “regardless of consistency”). 	Contrary
to the Equity Committee’s assertion, now that an unfavorable
judgment has been entered in the Trustee’s Adversary Proceeding, an
entirely different set of rules comes into play.
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5. Claim Preclusion Applies on this Record
Application of the doctrine of claim preclusion requires: (1)
the identity of claims (defined as a party’s right to pursue
remedies with respect to all or any part of the transaction); (2) a
final judgment on the merits; and (3) privity between the parties.
Hansen v. Moore (In re Moore), 368 B.R. 868, 879 (9th Cir. BAP
2007) (citing Tahoe Sierra Preservation Council, Inc. v. Tahoe
Regional Planning Agency, 322 F.3d 1064 (9th Cir. 2003) for factors
and noting that privity includes any relationship in which there is
substantial identity between parties). 	All three requisite factors
are present here.
First, as discussed, under the applicable transactional test,
the claim asserted by the Equity Committee in the Section 1.3
Action is the same claim as was asserted by the Trustee in his
Adversary Proceeding. 	Second, there is a final judgment in the
Trustee’s Adversary Proceeding. 	Third, the Equity Committee and
the Trustee are acting in the same representative capacity and are
the same party for claim preclusion analysis. 	Because claim
preclusion treats a judgment as the full measure of relief to be
accorded to the same parties on the same claim or cause action,
nVidia is entitled to summary judgment.
F. The APA is not an Executory Contract
nVidia argues that the APA was not an executory contract under
the applicable definition when 3dfx filed bankruptcy in October
2002 because nVidia had fully performed its material obligations:
it had paid the $70 million Cash Consideration and dismissed the
patent litigation. 	The Equity Committee counters that the APA
remained an executory contract and identifies various obligations
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under the APA which it claims were both material and unperformed as
of the petition date. 	For a variety of reasons, the Court
concludes that the APA was not an executory contract when 3dfx
filed this chapter 11 case.
1. Definition of Executory Contract
An executory contract is one under which the obligations of
both parties are so far unperformed that the failure of either to
complete performance would constitute a material breach excusing
the performance of the other. 	Unsecured Creditors Comm. v.
Southmark Corp. (In re Robert L. Helms Constr. & Dev.), 139 F.3d
702, 705 (9th Cir. 1998). 	The law applicable to the contract is
used to analyze whether a party’s failure to perform its remaining
obligations would amount to a material breach. 	In re Cochise
College Park, Inc., 703 F.2d 1339, 1348, n.4 (9th Cir. 1983).
Delaware law applies to the APA. 	See § 11.8.
Delaware courts generally follow the Restatement (Second) of
Contracts § 241 in defining whether a breach is material. 	Norfolk
Southern Railway Co. v. Basell USA Inc., 512 F.3d 86, 92 (3rd Cir.
2008) (collecting cases). 	The Restatement § 241 factors are: (1)
the extent to which the injured party will be deprived of the
benefit he reasonably expected; (2) the extent to which the injured
party can be compensated for the part of the benefit of which he
will be deprived; (3) the extent to which the party failing to
perform will suffer forfeiture; (4) the likelihood that the party
failing to perform will cure his failure, taking account of all the
circumstances including reasonable assurances; and (5) the extent
to which the behavior of the party failing to perform comports with
standards of good faith and fair dealing.
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Whether a breach of a contract is material is generally a
question of fact. 	Id. at 93. 	However, “if the materiality
question in a given case admits of only one reasonable answer
(because the evidence on the point is either undisputed or
sufficiently lopsided), then the court must intervene and address
what is ordinarily a factual question as a question of law.” 	Id.
(internal quotation marks omitted). 	The Court believes it is
appropriate to intervene at this point and deal with materiality as
a question of law.
2. The APA Was Not Listed on Debtor’s Schedule G
Debtor was required to file schedules when this case was
commenced. 	Each of the schedules is to be prepared carefully,
completely and accurately. 	Cusano v. Klein, 264 F.3d 936, 946-49
(9th Cir. 2001). 	Official Form 6, Schedule G (“Executory Contracts
and Unexpired Leases”) requires a listing of all executory
contracts and unexpired leases. 	“Every contract to which the
debtor is party is encompassed by the scheduling obligation. 	A
contract is either in the asset/liability category or in the
executory contract category . . . every contract is required to
appear somewhere on the schedules.” 	Diamond Z Trailer, Inc. v. JZ
L.L.C. (In re JZ L.L.C.), 371 B.R. 412, 417 (9th Cir. BAP 2007)
(regardless of whether law is unsettled on the question of whether
and when a particular contract becomes property of the estate, an
executory contract must still be scheduled; schedules require full,
candid, and complete reporting of facts to avoid truncating review
process and usurping role of court).
The Schedule G filed by 3dfx did not identify the APA as an
executory contract. 	MC Docket no. 1. 	While the fact that Debtor
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failed to list the APA on its Schedule G is not, of itself, fatal,
it is indicative of Debtor’s view of the APA. 	Debtor did list a
“final nVidia payment” of $33 million on its Schedule B (“Personal
Property”) under the category for “other contingent and
unliquidated claims of every nature.” 12
3. Remaining Performance by nVidia
The obligation to deliver the Stock Consideration was nVidia’s
only remaining material obligation when this bankruptcy case was
filed. 	However, it was conditional. 	Section 1.3 states the Stock
Consideration “shall only become deliverable . . . upon and subject
to” the conditions stated in that section and “in no event will any
portion of the Stock Consideration become payable unless and until”
nVidia is satisfied that 3dfx “has first paid in full or otherwise
provided for” all Liabilities. 	This condition had not occurred as
of the petition date. 	See TA Docket no. 499, p. 19-20, 29:21-24,
76:12-14.
Conditional obligations do not render a contract executory.
Marcus & Millichap, Inc. v. Munple, Ltd. (In re Munple, Ltd.), 866
F.2d 1129, 1130-1131 (9th Cir. 1989) (provision conditioning
payment of broker’s commission on closing of sale did not make
contract executory, commission was earned when buyer procured).
nVidia’s performance under § 1.3 was not due on the petition date
and cannot render the APA executory.
The Equity Committee identifies what it considers a non-
exclusive list of other material unperformed obligations of both
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parties. 	See EC Docket no. 91, ¶41. 	The obligations identified
for nVidia are in § 9.1(c), § 9.3, § 10, and § 4 of the Closing
Agreement. 	Section 9.1(c) provides that nVidia’s representations
and warranties in § 3 of the APA expire not later than the date the
Stock Consideration is delivered. 	The representations and
warranties in § 3 are that the nVidia corporations are duly
organized, they have authority to enter into the Transaction,
copies of SEC filings have been delivered to 3dfx, appropriate
consents have been obtained, the Transaction does not violate
nVidia’s bylaws, the issuance of stock is valid, no commissions are
owed other than to Morgan Stanley. 	There is no evidence on the
record that any of these remained unperformed as of the petition
date. 	It appears unlikely that these steps - generally corporate
housekeeping matters - remained unperformed when the Transaction
documents were signed in December 2000 and the Transaction closed
in April 2001. 	To the extent they were unperformed, they were not
material.
Section 9.3 gives nVidia the right to offset any amount that
may be owed to it against future payment obligations. 	This
provision does not create an obligation in nVidia. 	Section 10,
entitled post-closing covenants, contains one obligation for nVidia
- that it consult with 3dfx before issuing any press release or
public statement. 	As a matter of law, this obligation is not
material in the context of this case. 	Finally, in § 4 of the
Closing Agreement the parties agreed that 3dfx could continue to
use its trademarked name solely for the purpose of winding up its
operation as set forth in the Plan of Dissolution until two years
after the April 2001 Closing Date or completion of liquidation,
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13 The Committee also argues that because nVidia filed a proof of
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whichever was earlier. 	As a matter of law, in the context of this
case, this provision is not material and does not render the APA
executory.
The Equity Committee does not address in any real way the
question of materiality of the obligations it identifies for nVidia
- it simply insists these sections and other unspecified sections
render the APA executory. 	This is insufficient to meet its burden
of proving that the APA is an executory contract. 	On the contrary,
the Court finds that, as a matter of law, a failure to perform
under any of these provisions would not amount to a material breach
of the APA by nVidia and they do not support a conclusion that the
APA is an executory contract. 13
4. Remaining Performance by 3dfx
The Equity Committee also lists what it argues are the
unperformed obligations of 3dfx. 	See APA § 1.3, § 9.2(i)-(vi),
§ 9.5, and § 10. 	Because the Court has determined that no material
performance remained on nVidia’s part, an analysis of Debtor’s
remaining obligations is unnecessary.
When this case was commenced, nVidia had no remaining
performance the failure of which would have resulted in a breach of
such magnitude that it would have excused any remaining performance
on 3dfx’s part. 	Accordingly, the APA is not an executory contract.
For this reason, nVidia is entitled to summary judgment on the
third claim for relief in the FAC.
//
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G. Statute of Limitations
1. The Parties’ Respective Positions
nVidia argues that summary judgment is warranted because the
Section 1.3 Action, filed on May 1, 2006, is time-barred. 	nVidia
contends that pre-petition, 3dfx management knew that nVidia took
the position that the APA precluded 3dfx from issuing preferred
stock (as the Committee’s Plan contemplates) in order to satisfy
the conditions to receipt of the Stock Consideration. 	nVidia
argues that claims for relief, such as those asserted in this
Section 1.3 Action, accrued at the time this disagreement surfaced.
nVidia claims that even as permitted under Bankruptcy Code
§ 108(a), the statute of limitations ran no later than October 15,
2004 - two years after the order for relief in this case.
The Equity Committee contends that it is “simply absurd” to
suggest that the statute of limitations applies to it as it would
to the Trustee. 	EC Docket no. 110, ¶27.
2. The Statute of Limitations Applicable to the Trustee
Applies to the Equity Committee
If an applicable statute of limitations prevents Debtor (or
the Trustee) from pursuing a cause of action, it also prevents the
Equity Committee in this case from doing so. 	Official Committee v.
Clark (In re Nat’l Forge Co.), 344 B.R. 340 (W.D. Pa. 2006)
(committee’s claims for unlawful stock redemption time-barred under
applicable state law, summary judgment granted to defendants on
statute of limitations defense); Creditors’ Committee of Gaslight
Club, Inc. v. Fredricks (In re Gaslight Club, Inc.), 167 B.R. 507
(Bankr. N.D. Ill. 1994) (committee’s claims for breach of fiduciary
duty time-barred under applicable state law).
The Equity Committee also contends that any knowledge of
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Debtor’s former principals cannot be imputed to it. 	In the Equity
Committee’s view, no statute of limitations would begin to run
until after its appointment. 	EC Docket no. 110, ¶26-27. 	On the
contrary, because the Equity Committee is acting on behalf of the
estate in seeking declaratory relief, knowledge of Debtor’s former
principals is imputed to it as it would have been imputed to the
Trustee. 	In re Nat’l Forge Co., 344 B.R. at 375 (discussing
discovery rule for statute of limitations, unrebutted evidence of
management’s knowledge of alleged malfeasance supported accrual of
cause of action pre-petition).
3. Fact that Equity Committee is a Plan Proponent does
not Free it of the Normal Constraints
The Equity Committee asserts that it did not, in fact, need
the order granting it derivative standing. 	According to the Equity
Committee, its claims for declaratory relief regarding the
Transaction are impervious to attack on statute of limitations
grounds (or any other grounds) because it is acting as the
proponent of its Plan and its ultimate goal is assumption of the
APA as an executory contract. 	EC Docket no. 110, ¶26-27.
It is true that Bankruptcy Code § 1109 provides that the
Committee “may raise and may appear and be heard on any issue in a
case under this chapter” and it is true that Bankruptcy Code
§ 1103(c)(5) allows a committee to perform “such other services as
are in the interest of those represented.” 	It is also true that
Bankruptcy Code § 365(a) allows a trustee, subject to court
approval, to assume or reject any executory contract of the debtor,
and Bankruptcy Code § 365(d)(2) allows assumption or rejection “at
any time before the confirmation of a plan.” 	Nevertheless, there
is no authority for the proposition that these sections - as
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generous and expansive as they appear to be - grant the Equity
Committee license to pursue causes of action belonging to the
estate free from the normal constraints that would apply to any
other litigant acting on behalf of a bankruptcy estate.
The second and third causes of action in the FAC are premised
on concepts in Bankruptcy Code § 541 and § 365 (i.e., the APA is
“property of the estate,” and is an “executory contract”). 	These
bankruptcy concepts are not applied in a vacuum. 	Substantive state
law provides the context for their application. 	While the Equity
Committee approach focusing only on the bankruptcy concepts may at
first be compelling, upon reflection, the invitation to divorce the
analysis of these causes of action from underlying substantive
contract law must be declined.
At heart, the FAC seeks a determination from the Court that
performance of the APA may be ordered. 	While the relief is phrased
in terms of assumption of an executory contract under Bankruptcy
Code § 365, it necessarily involves analysis of the contract
principles under Delaware law, including any applicable statute of
limitations. 	The fact that the Equity Committee seeks to confirm a
plan that is premised upon assumption (and performance) of the APA
does not provide it with an entirely new body of law devoid of the
substantive or procedural constraints that would apply to Debtor or
the Trustee. 	See Butner v. U.S., 440 U.S. 48, 57 (1979) (property
interests are created and defined by state law; unless some federal
interest requires different result, no reason to analyze
differently because of bankruptcy proceeding).
The Court recognizes that if assumption of the APA as an
executory contract had been sought by motion as a contested matter
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14 nVidia acknowledged at oral argument that it mistakenly stated
that 	under 	its 	theory, 	the 	last 	date 	for 	filing 	this 	Action 	was
October 15, 2005 rather than October 15, 2004 - two years after the
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under Fed. R. Bankr. P. 9014, a statute of limitations, per se,
would not be germane and the primary focus would be the merits of
the relief sought, including any temporal considerations that would
preclude assumption under state law. 	However, since the instant
context is an adversary proceeding, it is a relevant consideration
- in addition to the substantive issues.
4. What Is the Appropriate Statute of Limitations?
The APA is governed by Delaware law. 	EC Docket no. 109, Ex.
A, APA § 11.8. 	Delaware has a three year statute of limitations
for breach of contract actions. 	10 Del. C. § 8106. 	This three
year statute of limitations applies to a declaratory relief action
based on a contract. 	Ambase Corp. v. City Inv. Co., 2001 WL
167698, * 4 (Del. Ch. 2001) (Delaware’s three year limitations
period applied to injunctive and declaratory relief claims based on
a breach of contract theory); NVF Co. v. New Castle County, 276
B.R. 340, 351 (D. Del. 2002), aff’d, 61 Fed. Appx. 778 (3rd Cir.
2003) (Delaware’s three year limitations period applied to breach
of contract claim and applied by analogy for laches analysis).
Bankruptcy Code § 108(a) provides that if applicable law fixes
a period of time within which the debtor may commence an action,
and such period has not expired before the date of the filing of
the petition, the trustee may commence such action only before the
later of (1) the end of such period . . . ; or (2) two years after
the order for relief. 14
//
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5. When Does a Cause of Action Accrue?
The statute of limitations begins to run when proper parties
are in existence, capable of suing and being sued, and a cause of
action exists capable of being sued on. 	Keller v. Pres., etc.
Farmers Bank, 24 A.2d 539, 541 (Del. Super. 1942). 	A cause of
action accrues for statute of limitations purposes at the time of
the wrongful act, even if the plaintiff is ignorant of the cause of
action. 	In re Dean Witter P’ship Litig., 1998 WL 442456, *4 (Del.
Ch. 1998). 	The limitations period begins to run when the plaintiff
is objectively aware of the facts giving rise to the wrong. 	At
that point, a plaintiff is on inquiry notice. 	Dean Witter, at *6.
Inquiry notice does not require full knowledge of the material
facts. 	Plaintiffs are on inquiry notice when they have sufficient
knowledge to “raise their suspicions to the point where persons of
ordinary intelligence and prudence would commence an investigation
that, if pursued, would lead to the discovery of injury.” 	Dean
Witter, at *6; Pomeranz v. Museum Partners, L.P., 2005 WL 217039,
*2 (Del. Ch. 2005) (party’s awareness of possibly injurious effect
put party on inquiry notice for purpose of accrual of cause of
action); In re Nat’l Forge Co., 344 B.R. at 376 (discussing
discovery rule for accrual of causes of action and tolling rules;
statute of limitations barred committee’s causes of action because
alleged malfeasance was discoverable by debtor’s management).
6. Sufficiency of Notice for Accrual of Cause of Action
The evidence offered by nVidia to show notice of the accrual
of the causes of action asserted by the Equity Committee is
deposition and trial testimony of Christine Hoberg, nVidia’s former
chief executive officer at the relevant time period given in
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15 The 	Equity 	Committee’s 	objection 	to 	nVidia’s 	evidence 	is
overruled. The evidence is not offered for an impermissible hearsay
purpose but is instead offered to show notice. Marsee v. United States
Tobacco 	Co.,866 	F.2d 	319,325-6 	(10th 	Cir. 	1989)(hearsay 	rule
irrelevant where publications admitted to show notice); Neal-Lomax v.
Las 	Vegas 	Metropolitan 	Police 	Dept., 	574 	F. 	Supp.2d 	1170, 	1183 	(D.
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have been offered for non-hearsay purpose of showing inquiry notice).
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connection with the Trustee’s Adversary Proceeding. 15 	Hoberg
testified regarding an e-mail message dated August 24, 2001 she had
sent to Richard Heddleson, the former chief financial officer of
3dfx regarding a proposed financing. 	The e-mail read “Based on the
conversations with both our attorneys and [CEO of nVidia] Jensen
[Huang], we will not support a deal like the one you proposed over
lunch the other day (i.e. some form of preferred stock or loan from
board or major shareholders to cover the remaining liabilities) so
3dfx could get the entire one million shares for distribution.” 	EC
Docket no. 107, Varian Dec., Ex. C, deposition transcript of
February 25, 2004, pp. 201:21-202:2. 	She also testified at her
deposition regarding a subsequent proposal (April 2002) to issue
preferred stock:
I believe[d] that doing that kind of a transaction was
precluded under the [APA] because I believed the [APA] did not
allow any change in the debt or equity structure of 3dfx
outside the ordinary course of business . . . [Heddelson]
disagreed with my interpretation of the contract . . . and I
said . . . why don’t we have the lawyers look into it because
it really is a legal call. 	And I never heard from him again
about that.
EC Docket no. 107, Kramer Dec., Ex. A, deposition transcript from
August 13, 2004, pp. 600:8-601:14.
This is sufficient notice that a dispute existed which could
have been litigated by the parties in existence at that time.
There was an objective disagreement as to whether a preferred stock
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16 The Trustee’s counsel was also aware of these positions due to
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issuance was permitted under the APA and a clear suggestion that
the parties’ respective lawyers analyze the question. 	Based on
this evidence, 3dfx management was aware of facts that would have
permitted it to sue for declaratory relief (or some other form of
relief) as early as August 2001 or at least as of April 2002. 	If
April 2002 is considered the relevant date, the statute of
limitations ran at the latest by April 2005. 16
Viewing the facts offered by nVidia in the light most
favorable to the Equity Committee, the Equity Committee has failed
to meet its burden to raise a triable issue of fact on this record.
The Section 1.3 Action is couched in bankruptcy terminology but it
is grounded in state contract law and is designed to compel
performance of the APA. 	Viewed in this light, the claims accrued
at the earliest in August 2001 and at the latest in April 2002.
Because the Section 1.3 Action was not filed until May 1, 2006, it
is time-barred and summary judgment in nVidia’s favor is
appropriate.
IV. CONCLUSION
For all of the foregoing reasons, the Court finds that claim
preclusion applies and summary judgment in nVidia’s favor is
warranted as to the first three claims for relief in the FAC. 	The
Court also finds that the APA is not an executory contract and
summary judgment in nVidia’s favor is warranted as to the third
claim for relief in the FAC. 	Finally, the Court also finds the
Section 1.3 Action is time-barred by the applicable statute of
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limitations. 	As a result, nVidia is entitled to summary judgment
as a matter of law.
Because nVidia is entitled to summary judgment, the Equity
Committee’s motion necessarily fails and the Court denies it with
prejudice.
Counsel for nVidia is requested to submit an appropriate order
approved as to form by counsel for the Equity Committee.
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Adversary No. 	06-5115
Court Service List - by ecf or mail:
Fred Holden, Esq.
Robert P. Varian, Esq.
Karen Johnson-McKewan, Esq.
Orrick Herrington & Sutcliffe LLP
The Orrick Building
405 Howard St.
San Francisco, CA 94105-2669
Eric D. Goldberg, Esq.
Margreta M. Morgulas, Esq.
Stutman, Treister & Glatt
1901 Ave of the Stars, 12th floor
Los Angeles, CA 90067
Nanette Dumas, Esq.
Office of the U. S. Trustee
280 So. First Street, Rm. 268
San Jose, CA 95113-3099
Robert E. Izmirian, Esq.
Peter G. Bertrand, Esq.
Kim Y. Arnone
Buchalter Nemer
333 Market Street, 25 th Floor
San Francisco, CA 94105-2130
Aron M. Oliner , Esq.
Duane Morris
1 Market, Spear Tower, #2000
San Francisco, CA 94105-2130
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