Klehr v. A.O. Smith Corp., 95-1355

• Citation: 87 F.3d 231
• Decision Date: 06 June 1996
• Docket Number: No. 95-1355,95-1355
• Parties: RICO Bus.Disp.Guide 9056 Marvin KLEHR and Mary Klehr; Plaintiffs-Appellants, William G. Olson, Intervenor, v. A.O. SMITH CORPORATION; A.O. Smith Harvestore Products, Inc., Jointly and Severally, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

Page 231

87 F.3d 231

RICO Bus.Disp.Guide 9056

Marvin KLEHR and Mary Klehr; Plaintiffs-Appellants William G. Olson, Intervenor, v. A.O. SMITH CORPORATION; A.O. Smith Harvestore Products Inc., Jointly and Severally, Defendants-Appellees.

No. 95-1355.

United States Court of Appeals,

Eighth Circuit.

Submitted Oct. 18, 1995.

Decided June 6, 1996.

James Anthony Vick, Nashville, TN, argued (Charles A. Bird, on the brief), for appellant.

Blake Shepard, Jr., Minneapolis, MN, argued (David K. Schmitt and Frederick W. Morris, on the brief), for appellee.

Before FAGG, HEANEY, and HANSEN, Circuit Judges.

HANSEN, Circuit Judge.

Marvin Klehr and Mary Klehr (Klehrs) appeal from the district court's ¹ entry of summary judgment against them on their various Minnesota state law and Racketeer Influenced and Corrupt Organizations Act ("RICO") claims. These claims are premised upon alleged misrepresentations made by defendant A.O. Smith Harvestore Products, Inc., a subsidiary of defendant A.O. Smith Corporation (collectively "AOSHPI"), and AOSHPI's authorized local dealer, MVBA Harvestore Systems, concerning a Harvestore silo that the Klehrs purchased. The district court ruled that the Klehrs' claims were barred by the statute of limitations. Klehr v. A.O. Smith Corp., 875 F.Supp. 1342 (D.Minn.1995). We affirm.

I.

The Klehrs operate a dairy farm in Minnesota. In approximately 1974, they purchased a Harvestore silo manufactured and marketed by AOSHPI and sold by MVBA. Richard Deutsch, a salesman for MVBA, provided the Klehrs with information about Harvestore silos before and after the Klehrs purchased the Harvestore, and he also served as their local contact when they had problems with the unit.

The fulcrum for the Klehrs' claims relates to certain representations made by AOSHPI concerning a Harvestore silo's unique "oxygen limiting" feature. Marvin Klehr was an experienced dairy farmer and knew that mold and spoilage in livestock feed are caused due to the feed's exposure to oxygen, and that moldy and spoiled feed would be harmful to his dairy herd if fed to it. According to the Klehrs, AOSHPI represented that because the Harvestore silos were sealed, feed stored in the unit would have almost no exposure to oxygen, thereby virtually eliminating problems with moldy or spoiled feed. ² This would result in higher feed quality, which in turn would eliminate the need to add protein supplements to the herd's daily feed ration. It would also improve the health of the herd and increase milk production at a rate of three to five pounds of milk per cow per day. All of these purported benefits would ultimately increase the profitability of the Klehrs' dairy operation. Although a Harvestore silo was considerably more expensive than a conventional stave silo, which the Klehrs also considered purchasing, it was explained to the Klehrs that Harvestore's unique "oxygen limiting" feature justified the higher cost of the unit and that the unit would pay for itself in four to five years. The Klehrs recognized, however, that all of the promised virtues of a Harvestore unit hinged upon the efficacy of the structure's "oxygen-limiting" feature.

Despite AOSHPI's representations, the Klehrs experienced a myriad of problems after the Harvestore unit was installed. In July and August of 1976, Marvin Klehr observed white chunks of mold in the haylage ³ he removed from the unit. He contacted Deutsch, who assured him that the mold was normal and simply the product of a minute quantity of oxygen that entered the top hatch of the unit when it was being filled. ⁴ Deutsch explained that the Klehrs could expect a thin layer of mold each time the Harvestore was filled because of the small amount of oxygen that would flow into the unit during the filling process. The Klehrs accepted this explanation.

In the spring of 1977, Marvin Klehr again noticed chunks of mold in the feed and also observed that the feed had become unusually dark brown and smelled musty. Marvin Klehr loaded the spoiled feed into a manure spreader and dumped it on one of his fields. Marvin Klehr made the same observations in the spring of 1978 and undertook the same action. This process was repeated each spring, with the amount of moldy or spoiled feed always ranging from one to two manure spreader loads. ⁵

The Klehrs' dairy herd also began suffering from various health problems after the Klehrs started feeding the herd haylage stored in the structure. Some of the health problems had not previously afflicted the herd, while other maladies began occurring with much greater frequency. These ailments included: displaced abomasums or "twisted stomachs," "foot problems," swelling and bruises around the joints in the cows' hind legs, cows "going off feed," unusually thin and unthrifty cows, cows having rough hair coats and dull eyes, a higher rate of uterine infections, and more diarrhea and digestive problems than normal. Further, the Klehrs' herd began having certain breeding and reproductive problems, such as poor conception rates, longer calving intervals, and spontaneous abortions.

Additionally, the Klehrs never realized the numerous benefits AOSHPI represented the Harvestore unit would provide, namely, an increase in milk production, elimination of protein supplements, and ultimately, an increase in profitability of the dairy operation. In fact, although their dairy operation had been profitable prior to their purchase of the Harvestore, the Klehrs experienced financial hardship after they started using the Harvestore. Despite all of this, the Klehrs never questioned Deutsch about the inability to eliminate protein supplements or the lack of increase in milk production or profitability until 1990. The Klehrs did consult a number of nutritionists and veterinarians during the years after they purchased the Harvestore concerning several of the herd's health and reproductive problems, but they never asked these consultants whether the Harvestore could have been the source of the problems. Finally, the Klehrs did not examine records which they possessed which would have illustrated to them that their herd's milk production was below that of other local herds and that the herd's milk production and the profitability of the dairy operation had not increased since the Harvestore was installed.

In 1991, Marvin Klehr saw an article in a Minneapolis, Minnesota, newspaper regarding a claim concerning a Harvestore unit that had been made against AOSHPI in Minnesota state court. Marvin Klehr subsequently contacted a University of Minnesota veterinarian, Dr. William Olson, about a health problem with his herd; in April of 1991, Dr. Olson visited the Klehrs' farm. Dr. Olson and Marvin Klehr subsequently looked inside the Harvestore and observed large amounts of moldy and spoiled feed. This was the first time that Marvin Klehr had looked inside the Harvestore unit when feed was still being stored in the unit.

The Klehrs later commenced this action on August 27, 1993, alleging Minnesota common law fraud and negligent representation claims, violations of certain Minnesota consumer statutes, and violations of RICO. AOSHPI moved for summary judgment on each claim arguing, inter alia, that the claims were barred by the statute of limitations. The district court granted AOSHPI's motions. Klehr, 875 F.Supp. at 1345. The Klehrs appeal.

II.

We review de novo the district court's grant of summary judgment. Maitland v. University of Minn., 43 F.3d 357, 360 (8th Cir.1994). Summary judgment is appropriate if the record, when viewed in the light most favorable to the nonmoving party, reveals that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).

A.

We turn our attention first to the Klehrs' Minnesota common law fraud claims, which are governed by a six-year statute of limitations. See Minn.Stat. Ann. § 541.05, subd. 1(6) (West 1988). ⁶ Under this statute, the cause of action accrues, thereby triggering the limitations period, upon "the discovery by the aggrieved party of the facts constituting the fraud." Id.

The Minnesota Supreme Court has construed this statute as imposing a standard of objective reasonableness upon a plaintiff to discover the facts constituting the fraud. Bustad v. Bustad, 263 Minn. 238, 116 N.W.2d 552, 555 (1962). "[T]he facts constituting the fraud are deemed to have been discovered when, with reasonable diligence, they could and ought to have been discovered." Blegen v. Monarch Life Ins. Co., 365 N.W.2d 356, 357 (Minn.Ct.App.1985) (quotations omitted). "A plaintiff must exercise reasonable diligence when he or she has notice of a possible cause of action for fraud." Buller v. A.O. Smith Harvestore Prods., Inc., 518 N.W.2d 537, 542 (Minn.1994). A " 'party need not know the details of the evidence establishing a cause of action, only that the cause of action exists' " in order for the limitations period to commence. Id. (quoting Hydra-Mac, Inc. v. Onan Corp., 450 N.W.2d 913, 919 (Minn.1990)). A failure to actually discover the fraud will not toll the limitations period if such a failure is inconsistent with this reasonable diligence standard. Blegen, 365 N.W.2d at 357.

The Klehrs bear the burden of showing that they did not, and that with reasonable diligence they could not, discover the facts constituting the fraud earlier than August 27, 1987, six years prior to the time this action was filed. Id. A plaintiff's due diligence in the statute of limitations context is ordinarily a question of fact. Hines v. A.O. Smith Harvestore Prods. Inc., 880 F.2d 995, 999 (8th Cir.1989). Where the evidence leaves no room for reasonable minds to differ on the issue, however, the court may properly resolve the issue as a matter of law. Miles v. A.O. Smith Harvestore Prods., Inc., 992 F.2d 813, 817 (8th Cir.1993).

The Klehrs argue that they did not become aware of the facts constituting the fraud until April of 19...