Sperry v. Barggren

Decision Date17 September 1975
Docket NumberNo. 74-1900,74-1900
Citation523 F.2d 708
PartiesVirginia W. SPERRY, Special Administrator of the Estate of Paul A. Munn, Deceased, and Ida Munn, Plaintiffs-Appellants, v. Edwin R. BARGGREN and Edwin D. Barggren, Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

David L. Walther, Milwaukee, Wis., Richard W. Westring, Green Bay, Wis., for plaintiffs-appellants.

William B. Graves, Milwaukee, Wis., for defendants-appellees.

Before TONE and BAUER, Circuit Judges, and CAMPBELL, Senior District Judge. *

TONE, Circuit Judge.

This is an appeal from a summary judgment sustaining the defense of the statute of limitations in an action under section 10(b) of the Securities Act of 1934, 15 U.S.C. § 78j(b), and S.E.C. regulation 10b-5, 17 C.F.R. § 240.10b-5. The principal question presented is whether there is a genuine issue of fact requiring trial.

The pleadings, depositions, and affidavits show the following uncontroverted facts:

The late Paul Munn was employed for many years as a factory foreman by Badger Manufacturing Company of Marinette, Wisconsin. When he retired from that employment in 1964 at the age of 73, he and his wife Ida owned 226 shares of the company's stock. Shortly after his retirement the Munns moved to Florida, where they remained, except for summer vacations in North Carolina, until Mr. Munn's death in 1973.

Edwin D. Barggren owned approximately 70 per cent of Badger's stock. In 1966, his son, Edwin R. Barggren, who was vice president of Badger, visited the Munns in Florida to discuss the possibility of purchasing their stock. Following a series of preliminary negotiations, a contract was entered on May 22, 1967, providing that the younger Barggren would purchase 26 shares of the Munns' stock by June 15 for $200 per share and would be given an option to purchase the remainder of the stock at the same price over the next five years.

In the meanwhile, a subsidiary of Safeguard Industries, Inc. became interested in the possible acquisition of Badger. Initial contacts were made in April of 1967, negotiations were concluded by the end of July, and a purchase agreement was signed on August 2, 1967. Under its terms, Safeguard agreed to purchase the stock of both Barggrens and that held by two other Badger employees for $781 per share. As part of the same transaction, the younger Barggren assigned to Safeguard his rights to purchase the Munns' stock. Shortly before the closing date of August 15, the elder Barggren at the request of the president of Safeguard, asked the Munns whether they would be willing to sell their stock for a single lump sum payment rather than by installments. The Munns subsequently agreed to this request and the stock was sold to Safeguard for $200 per share, discounted to present value.

The total purchase price paid by Safeguard for all Badger stock was $1.5 million. The sale was publicly announced on August 3 in a Wisconsin local newspaper, the Marinette Eagle Star, in a story which carried no mention of the price; on August 11 in Moody's Industrials, a national financial publication, which carried a four-line account indicating the purchase price to be "over $1,000,000"; and on August 25 in the Milwaukee Sentinel In a story referring to the acquisition as "a $1 million transaction." None of the news accounts mentioned the price per share of the stock being sold or the total number of shares subject to sale.

The Munns filed this action against the Barggrens on March 14, 1972, more than four and a half years after the sale of their stock, for violation of section 10(b) of the Securities Act of 1934, 15 U.S.C. § 78j(b), and regulation 10b-5, 17 C.F.R. § 240.10b-5, based on defendants' failure to disclose facts relevant to the value of their shares. Paul Munn having died during the pendency of this action, his personal representative has been substituted as a party. In their original and two amended complaints, plaintiffs alleged, among other things, that they had knowledge of the material facts of the Safeguard negotiations as of August 25, 1967. They later denied this allegation by affidavits, asserting that they did not learn, and with the exercise of due care could not have learned, of the alleged fraud until August of 1970, when a Badger employee told Paul Munn about the story of the transaction he had read in a Wisconsin newspaper several years earlier. The contrary allegations contained in the complaints are erroneous, say the plaintiffs, and were carelessly included in the pleadings at a time when the date of discovery was thought to be unimportant. It was not until Kramer v. Loewi & Co., Inc., 357 F.Supp. 83 (E.D.Wis.1973), decided after the pleadings were drafted, that Wisconsin's three-year limitation period, rather than its general six-year statute of limitations for fraud, was held to apply in 10b-5 actions. 1 The defendants similarly assumed the longer limitation period to be applicable and did not seek to include the statute of limitations as a defense in their amended answer until January of 1974.

Shortly after amending to allege the limitations defense, the defendants filed a motion for judgment on the pleadings based upon that defense. The District Court, at the plaintiffs' request, treated this as a motion for summary judgment accepted supporting documentation from both sides, 2 found that the Munns, with the exercise of due care, could have discovered the alleged fraud before March 14, 1969, the date three years prior to the filing of the complaint, and held that the action was barred.

After a careful review of the record we have concluded that a genuine issue of material fact exists and that the entry of summary judgment was error. We therefore remand the case for trial.

Under the equitable tolling doctrine, which "is read into every federal statute of limitation," Holmberg v. Armbrecht, 327 U.S. 392, 397, 66 S.Ct. 582, 585, 90 L.Ed. 743 (1946), "including state statutes adopted by federal law," Morgan v. Koch, 419 F.2d 993, 997 (7th Cir. 1969), when fraud has been...

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