National Family Ins. Co. v. Exchange Nat. Bank of Chicago, 71-1617.
Decision Date | 20 February 1973 |
Docket Number | No. 71-1617.,71-1617. |
Citation | 474 F.2d 237 |
Parties | NATIONAL FAMILY INSURANCE COMPANY, a Minnesota Corporation, Plaintiff-Appellant, v. EXCHANGE NATIONAL BANK OF CHICAGO, a National Banking Association, Defendant-Appellee. |
Court | U.S. Court of Appeals — Seventh Circuit |
Dom J. Rizzi, Frank J. Pause, Chicago, Ill., for plaintiff-appellant.
Edgar Bernhard, Selwyn Zun, Robert W. Gettleman, Chicago, Ill., for defendant-appellee.
Before HASTINGS, Senior Circuit Judge, and FAIRCHILD and PELL, Circuit Judges.
National Family Insurance Company, a Minnesota corporation (National Family), filed this action in the district court against Exchange National Bank of Chicago, a national banking association (Exchange Bank). Plaintiff is an insurance company and at all times herein concerned was 100 per cent reinsured by American Allied Insurance Company (American Allied) at a cost to plaintiff of more than $1,000,000 in premiums. American Allied was one of a group of insurance companies in Minnesota and Illinois owned and controlled by the Phillip Kitzer family. American Allied was adjudged to be insolvent by a Minnesota state court, and a receiver was appointed.
In brief, National Family seeks to recover substantial damages because of heavy losses it sustained by reason of Exchange Bank's alleged fraudulent misrepresentations of the true financial status of plaintiff's 100 per cent reinsurer, American Allied.
The instant appeal is by National Family from an order of the district court dismissing this action against Exchange Bank on the ground that it was barred by the running of the five-year Illinois statute of limitations, Illinois Revised Statutes, chapter 83, § 16 (1969), which provides that an action such as plaintiff's herein "shall be commenced within 5 years next after the cause of action accrued." Plaintiff seeks to avoid this limitation by relying on the "fraudulent concealment" exception set out in Illinois Revised Statutes, chapter 83, § 23 (1969), which provides: "If a person liable to an action fraudulently conceals the cause of such action from the knowledge of the person entitled thereto, the action may be commenced at any time within five years after the person entitled to bring the same discovers that he has such cause of action, and not afterwards." This action having arisen in Illinois and being based upon diversity of citizenship, the Illinois law governing limitations applies. Bernard Food Industries, Inc. v. Dietene Co., 7 Cir., 415 F.2d 1279, 1282 (1969), cert. denied, 397 U.S. 912, 90 S.Ct. 911, 25 L.Ed.2d 92 (1970).
Plaintiff filed its complaint on September 25, 1970, and its notice of demand for jury trial on September 30, 1970. On October 15, 1970, defendant raised the limitations issue by filing its motion to dismiss the complaint on the ground that it failed to state a claim against defendant upon which relief could be granted because of the five-year limitations bar raised by chapter 83, § 16, supra. Thereafter, each party filed numerous exhibits, affidavits, counter-affidavits, depositions and memoranda in support of and in opposition to the motion to dismiss. Subsequently, pursuant to Rule 12(b), Federal Rules of Civil Procedure, Title 28, U.S.C.A., defendant's motion to dismiss was treated as one for summary judgment.
On May 3, 1971, the district court filed its written opinion and order and concluded:
We have carefully reviewed the trial court's memorandum opinion of May 3, 1971. In our judgment it correctly summarizes the nature of the cause of action and the relation of parties thereto, as well as the position of American Allied and the "Kitzer Family" and its activities. The court properly treated the motion to dismiss as one for summary judgment. Sticker Industrial Supply Corp. v. Blaw-Knox Co., 7 Cir., 367 F.2d 744, 745 n.1 (1966).
We have examined the Illinois law cited by the trial court in its written opinion. The court correctly determined that, although the "fraudulent concealment" exception set out in chapter 83, § 23, supra, literally reads that the right of action for concealment of fraud remains for a period of five years from the date plaintiff actually discovers the fraud, yet the Illinois courts have applied the ordinary fraud standards to determine when the cause of action accrues. The applicable statutory period here commences at the time the plaintiff, through ordinary diligence, should have discovered the fraudulent actions causing its injury. "Mere silence of the defendant and mere failure on the part of the complainant to learn of a cause of action do not amount to such fraudulent concealment." Jackson v. Anderson, 355 Ill. 550, 557, 189 N.E. 924, 927 (1934).
The trial court further found that the statutory period of five years was uninterrupted. It noted the complaint charged that the Kitzers and American Allied were customers of defendant Exchange Bank for almost four years from August 1, 1961, through June 5, 1965, and from that logically assumed that all acts of fraudulent representations must have occurred within that period. Insolvency proceedings against American Allied commenced June 10, 1965. Beginning as early as April 12, 1965, and continuing on through September 21, 1965, a total of 27 newspaper articles appeared in the St. Paul-Minneapolis area (where plaintiff is located) questioning various financial dealings of American Allied and reporting a suit against defendant Exchange Bank by the receiver of American Allied. These were attached as exhibits to defendant's motion for dismissal and/or summary judgment. The court specifically found that "this publicity and the insolvent condition of American Allied would alone appear to be sufficient notice."
However, because of plaintiff's counter-showing by affidavit that it was unaware of any fraud on the part of defendant Exchange Bank until 1967, the trial court wisely decided that this conflict was not ripe for summary judgment disposition.
Following the foregoing order of May 3, 1971, certain depositions were taken by plaintiff and additional documentary evidence was filed. The next hearing on the limitations issue was held before the court the afternoon of June 9, 1971. Plaintiff presented the testimony of one witness. Both parties relied on depositions previously taken. The matter was not concluded but was next resumed on the afternoon of June 23, 1971.
The hearing was resumed on the limitations issue previously considered and under the guidelines set out in the earlier order. Certain documents in the Minnesota state court insolvency matter were admitted in evidence, and all counsel were heard at length on the issue before the court. At the conclusion of the hearing the trial court orally announced the following findings and ruling from the bench:
We have examined the record before the district court and understand the district court's interpretation thereof to mean that plaintiff's available information should have been sufficient to have put plaintiff upon notice of its cause of action at a time between June 10 and mid-September 1965. The chronology of events and publicity involving defendant Exchange Bank which, through the exercise of ordinary diligence, should have caused plaintiff National Family to have discovered the fraudulent actions causing its...
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