Norris v. Wirtz

• Decision Date: 11 June 1987
• Docket Number: 86-2176,Nos. 86-2112,s. 86-2112
• Citation: 818 F.2d 1329
• Parties: Fed. Sec. L. Rep. P 93,251 Susan Mary NORRIS, Plaintiff-Appellee, Cross-Appellant, v. William W. WIRTZ, et al., Defendants-Appellants, Cross-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1329

818 F.2d 1329

Fed. Sec. L. Rep. P 93,251

Susan Mary NORRIS, Plaintiff-Appellee, Cross-Appellant, v. William W. WIRTZ, et al., Defendants-Appellants, Cross-Appellees.

Nos. 86-2112, 86-2176.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 23, 1987.

Decided May 11, 1987.

Rehearing and Rehearing En Banc Denied June 11, 1987.

Matthew F. Kennelly, Cotsirilos & Crowley, Ltd., Chicago, Ill., for defendants-appellants, cross-appellees.

Francis J. Higgins, Bell-Boyd-Lloyd, Chicago, Ill., for plaintiff-appellee, cross-appellant.

Before BAUER, Chief Judge, and CUDAHY and EASTERBROOK, Circuit Judges.

EASTERBROOK, Circuit Judge.

In 1967 and 1968 Susan Mary Norris, an adult beneficiary of her father's testamentary trust, consented to three sales of assets of the trust. On December 24, 1980, she filed this suit under Sec. 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j(b), arguing that her consent had been procured by fraud. We held in Norris v. Wirtz, 719 F.2d 256 (7th Cir.1983), that the complaint stated a claim. A jury trial was held on remand, and the jury concluded that Susan Norris was the victim of fraud. The district judge fixed damages at more than $800,000. We conclude that the suit is barred by the statute of limitations.

The sales were arranged by William W. Wirtz, and each purchaser was a corporation in which he had an interest. The assets in question were James Norris's shares of stock in close corporations--St. Louis Arena Corp., Arena Bowl, Inc., and Judge & Dolph, Ltd.--which had been owned jointly by the Norris and Wirtz families. St. Louis Arena and Arena Bowl repurchased their own stock, paying cash to the Norris estate (which was holding the assets pending the funding of the trusts); Wirtz Corp. bought the Judge & Dolph stock on behalf of the Wirtz family. In each case the price was "book value", the corporation's accounting net worth divided by the number of shares outstanding; in no case was there an independent appraisal. William Wirtz had a conflict of interest because he was interested (as an investor in the buyers) in paying the lowest possible price, yet as Susan Norris's trustee and co-executor of James Norris's estate he was supposed to obtain the highest possible price. The corporations operate commercial businesses--St. Louis Arena Corp., for example, owns a large sports arena in St. Louis--so that the income stream is a more plausible starting point than the firm's book value as the basis of an estimate of worth.

Susan Norris knew these things or could have discovered them readily. The Wirtz family did not hide its interest in the corporations, and the Norris family well knew that the two families were the joint owners. The Wirtzes held their interest through Wirtz Corp., which owned most of the remaining stock in the three corporations, and in which William and his father Arthur M. Wirtz owned stock. The Wirtz family did not hide the nature of the companies or the lack of an independent appraisal; Susan Norris was given balance sheets, which were the sole stated basis of the valuation. The conflict of interest was apparent not only from the identity of the trustee but also from the language of James Norris's will, which appointed William Wirtz and Mary Norris, James's wife, as co-executors of the estate. (Because there are three Norrises--James, Mary, and Susan--and two Wirtzes--William and Arthur--we use first names for everyone from here on.) The will ordered the executors to hold or liquidate the stock as prudent, recognizing that either could be "to the best interests of Arthur M. Wirtz, and his family members, as well as to my estate and the trusts created hereunder, for which reason the Trustee" was given broad discretionary powers. Susan had or readily could have had in 1967 copies of the will, lists of the investors in each corporation, and other documents. Although she was 18 in 1967 and the transactions were substantial--her interest in the residuary trust was worth more than $4 million--she did not ask for additional documents or seek professional advice. She signed, apparently without thinking, what William and Mary asked her to sign. (In the case of Judge & Dolph, her approval was oral or nonexistent; memories conflict.) She claims, and the jury must have found, that not until more than 10 years later were her eyes opened to the injury done her by payment for the stock at book value.

The district court asked the jury whether Susan had tarried too long. In framing the instructions, the district court started from the proposition that the Blue Sky law of Illinois supplies the statute of limitations, in this case the three years provided by Ill.Rev.Stat. ch. 121 1/2 p 137.13 D. See Suslick v. Rothschild Securities Corp., 741 F.2d 1000, 1004 (7th Cir.1984); Parrent v. Midwest Rug Mills, Inc., 455 F.2d 123, 125-27 (7th Cir.1972). The court concluded that the running of the time may be postponed by equitable considerations, either fraudulent concealment or the fact that William was Susan's trustee. The court looked to state law to find tolling principles--despite the many holdings of this court that federal law supplies the tolling doctrines, see Suslick, 741 F.2d at 1004; Parrent, 455 F.2d at 128; Goldstandt v. Bear, Stearns & Co., 522 F.2d 1265, 1268-69 (7th Cir.1975); Tomera v. Galt, 511 F.2d 504, 509 (7th Cir.1975)--and held that Susan's status as the beneficiary of a trust tolled the running of the statute until she learned (or in the exercise of due diligence could have learned) of the trustee's treachery. Susan bore the burden of persuasion on these matters. E.g., General Builders Supply Co. v. River Hill Coal Venture, 796 F.2d 8 (1st Cir.1986). The court rejected Susan's argument that only a declaration by the trustee that (a) he has committed a fraud, or (b) he is no longer serving as a trustee, would start the three-year period. The instructions to the jury accordingly called on it to determine whether Susan learned of the fraud before December 24, 1977, or, if she was put on inquiry before that date, whether she exercised due diligence but still could not discover the truth. The jury returned a single, special verdict to this compound question; it must have found that Susan neither knew of nor in the exercise of reasonable diligence could have discovered the fraud before the critical date.

On a post-trial motion for judgment notwithstanding the verdict, the district court concluded that although "there was much evidence that plaintiff did not act with due diligence" there was still enough evidence in Susan's favor to permit a rational jury to come to the conclusion it did. The defendants, who do not challenge the legal principles reflected in the charge to the jury, assert that the evidence of Susan's diligence is insufficient to support the jury's answer. Susan, however, defends her verdict on the theory that the time has yet to begin running, because William never announced his deceit. Susan claims that the law of trusts in Illinois supplies this tolling rule.

The view that state tolling rules apply when a federal court adopts a state statute of limitations has the support of Board of Regents v. Tomanio, 446 U.S. 478, 483-86, 100 S.Ct. 1790, 1794-96, 64 L.Ed.2d 440 (1980), and Johnson v. Railway Express Agency, 421 U.S. 454, 463-64, 95 S.Ct. 1716, 1721-22, 44 L.Ed.2d 295 (1975), which seem dispositive. Tomanio and Johnson hold that when federal law incorporates state limitations law, it incorporates the whole law including tolling rules. Our earlier, contrary holdings were based on Campbell v. Haverhill, 155 U.S. 610, 15 S.Ct. 217, 39 L.Ed. 280 (1895), and Holmberg v. Armbrecht, 327 U.S. 392, 66 S.Ct. 582, 90 L.Ed. 743 (1946). These cases refer to the role of state law without, however, distinguishing absorption of the period of limitations from selection of the commencement date; therefore they do not directly support use of a federal tolling rule, although they hint at one. Yet in Suslick, decided after Tomanio, we intimated that plaintiffs may have things both ways, saying at 741 F.2d at 1004 that a "federal doctrine of equitable tolling is available" in addition to the state doctrines incorporated under the authority of Tomanio and Johnson. (Mercifully, Susan does not ask us to "stack" tolling rules in this case, so we need not decide whether this is permissible.)

This is one tottering parapet of a ramshackle edifice. Deciding which features of state periods of limitation to adopt for which federal statutes wastes untold hours. Tellis v. United States Fidelity & Guaranty Co., 805 F.2d 741, 747 (7th Cir.1986) (Ripple, J., dissenting). Never has the process been more enervating than in securities law. There are many potentially analogous state statutes, with variations for different kinds of securities offenses and different circumstances that might toll the period of limitations. Both the bar and scholars have found the subject vexing and have pleaded, with a unanimity rare in the law, for help. E.g., Louis Loss, Fundamentals of Securities Regulation 1164-75 (1983); Thomas Lee Hazen, The Law of Securities Regulation Sec. 13.8 & n. 2 (1985) (collecting authority); Report of the Task Force on Statute of Limitations for Implied Actions, 41 Bus.Law. 645 (1986). As the ABA's Committee on Federal Regulation of Securities observed, id. at 646-47, 656-57, the courts of appeals disagree on every possible question about limitations periods in securities cases. Only Congress or the Supreme Court can bring uniformity and predictability to this field; we have vowed to stand pat rather than make things worse by exchanging one conflict for another. Teamsters Local 282 Pension Trust Fund v. Angelos, 815 F.2d 452, 455 (7th Cir.1987). Still, to the extent there is uncertainty about how to employ existing doctrines, we must take into account the interests of uniform application and the plan of the securities acts.

That plan...