Barry v. Barry

• Decision Date: 19 April 1996
• Docket Number: No. 95-1494,95-1494
• Parties: Sandra BARRY, also known as Sandra Barry Lieberman, an individual, Appellant, v. Charles L. BARRY, Melanie G. Barry, Lawrence Swartz, Marcia Barry Swartz, Twin City Fan and Blower Company, a Minnesota corporation, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 375

78 F.3d 375

34 Fed.R.Serv.3d 841

Sandra BARRY, also known as Sandra Barry Lieberman, an individual, Appellant, v. Charles L. BARRY, Melanie G. Barry, Lawrence Swartz, Marcia Barry Swartz, Twin City Fan and Blower Company, a Minnesota corporation, Appellees.

No. 95-1494.

United States Court of Appeals,

Eighth Circuit.

Submitted Oct. 17, 1995.

Decided March 12, 1996.

Rehearing and Suggestion for Rehearing En Banc Denied April

19, 1996.

Appeal from the United States District Court for the District of Minnesota; Michael Davis, Judge.

Jeff I. Ross, Minneapolis, Minnesota, argued (Lawrence T. Hoffman and Rolf E. Gilbertson, on the brief), for appellant.

Roger J. Magnuson, Minneapolis, Minnesota, argued (David Y. Trevor and Clifford S. Anderson, on the brief), for appellees.

Before McMILLIAN, BOWMAN, and WOLLMAN, Circuit Judges.

WOLLMAN, Circuit Judge.

Sandra Barry Lieberman appeals the district court's grant of summary judgment to defendants on her claims for fraud, breach of fiduciary duty, and breach of contract surrounding the sale of her shares of stock in a family-owned business. Because we find that factual questions remain, we reverse and remand for a jury determination of the issues.

I.

Lieberman owned one-third of the shares of stock in Twin City Fan and Blower Company (Twin City), a Minnesota corporation founded by her father. Lieberman's brother, Charles Barry, and his wife, Melanie Barry, and Lieberman's sister, Marcia Barry Swartz, and her husband, Lawrence Swartz (the Barrys), owned the remaining shares in equal proportions. Charles Barry and Lawrence Swartz managed the company. Lieberman, who lived in California where she worked as a special education teacher, had no involvement in the company.

In May 1983, Lieberman received a telephone call and a letter from Richard Fitzgerald, Twin City's attorney, informing her that the company was losing money and that the managing shareholders were contemplating moving the company to South Dakota, which would require additional capital input by the shareholders and increased personal financial risks. The letter advised Lieberman not to undertake those risks, as she was not involved in the management of the company, and recommended that she sell her shares of the stock to Twin City. The letter suggested that Twin City would buy Lieberman's stock for a $335,000 lump sum payment due in ten years, plus an additional $25,000 every year until the lump sum payment was made.

Lieberman retained California and Minnesota attorneys while she considered her options. Twin City provided Lieberman's attorneys with financial statements that showed a 1982 loss of $138,865 and an "Internal Mgmt Report" for 1983 that showed losses in each of the first five months of the year totalling $168,895. Lieberman was reluctant to sell her shares, however, because her father had stressed to her never to sell.

In June 1983, the Barrys sent Lieberman notice of a Twin City shareholder meeting and announced a merger plan under which Lieberman would receive $125,000 for her 5,000 shares and informed her that she could pursue her dissenting shareholder's rights under Minnesota law. Believing that she was being forced to sell her shares and that she would receive less under the Minnesota dissenter's rights statute than the Barrys had originally offered based on the financial information she had been given, Lieberman accepted the terms set out in Fitzgerald's original letter.

In October 1983, Lieberman signed a stock redemption agreement to sell her stock according to the terms stated in the letter. The agreement included a general release clause. It also provided that if the Barrys undertook certain stock transactions Lieberman's note would become immediately due, with Lieberman to then receive 10% of any profits in excess of $1 million. Lieberman's mother agreed to guarantee Twin City's note to Lieberman. Lieberman's mother also placed one-third of her estate in an irrevocable trust for Lieberman.

In 1988, without informing Lieberman, the Barrys initiated a series of transactions that affected the corporate structure of Twin City and which resulted in the Barrys owning stock in their same proportion in another corporation, which will be discussed in greater detail in Section V. In 1990, Twin City paid Lieberman the $335,000 lump sum that was due in 1993.

In 1991, Lieberman received a call from Charles Barry, who told her that he had bought out the Swartzes' stock for $15 million. This led Lieberman to investigate whether she was entitled to additional consideration under the terms of the stock redemption agreement. Lieberman found that in 1983 Twin City had submitted financial statements to South Dakota bond underwriters showing figures for the company's operations different from those which she had been given. The numbers submitted to the underwriters showed that Twin City had actually made a profit from January to May of 1983, whereas the numbers Lieberman had been given showed a loss for the company during each of those months. She also discovered the company's 1988 stock transactions.

Lieberman then brought this action against the Barrys and Twin City, alleging seven causes of action. The district court granted summary judgment to the Barrys and Twin City on all except the breach of contract claim. The court found that the six-year statute of limitations barred Lieberman's remaining claims, including her fraud and breach of fiduciary duty claims, because "through the exercise of reasonable diligence plaintiff could have discovered those alleged misrepresentations more than six years prior to commencement of this action." The court additionally held that the claims would be barred by the release Lieberman signed, finding that because the statute of limitations barred her fraud claim, Lieberman could not claim that the stock redemption agreement was unenforceable. The court denied summary judgment, however, on Lieberman's breach of contract claim relating to Twin City's 1988 transactions, after finding that a question of fact existed as to whether the corporate changes that took place in 1988 were included in the contract language and required a determination of the parties' intent.

After the case was transferred to another judge, however, the court granted the Barrys and Twin City summary judgment on the breach of contract claim as well, finding that because ownership of the stock did not change, the reorganization was not a "sale" within the plain meaning of the word. Lieberman appeals only the dismissal of her fraud, breach of fiduciary duty, and breach of contract claims.

We review the district court's grant of summary judgment de novo, and we will affirm if the evidence, viewed in the light most favorable to the non-moving party, shows that no dispute of material fact exists and that the moving party is entitled to judgment as a matter of law. Michalski v. Bank of America Ariz., 66 F.3d 993, 995 (8th Cir.1995). Because this is a diversity case, we also review de novo the district court's interpretation of state law. Id. (citing Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 1221, 113 L.Ed.2d 190 (1991)).

II.

We first address Lieberman's motion to strike supplemental documents submitted to this court by the Barrys and Twin City. These documents were not part of the record before the district court when it entered its order granting partial summary judgment. We will consider only evidentiary materials that were before the trial court at the time the summary judgment ruling was made. Fed.R.App.P. 10(a); Amerinet, Inc. v. Xerox Corp., 972 F.2d 1483, 1489-90 (8th Cir.1992), cert. denied, 506 U.S. 1080, 113 S.Ct. 1048, 122 L.Ed.2d 356 (1993). Excluded from the appellate record is evidence that was submitted to the trial court subsequent to the ruling. United States East Telecommun. v. U.S. West Commun. Servs., Inc., 38 F.3d 1289, 1301 (2d Cir.1994). Although the district court had the right to change its previous summary judgment ruling until the order was final, see Fed.R.Civ.P. 54(b), it did not do so; thus, the district court did not address the significance of the additional information to the statute of limitations and release issues.

Those cases which hold that we may expand the record on appeal are readily distinguishable. In Dakota Industries, Inc. v. Dakota Sportswear, Inc., 988 F.2d 61, 63-64 (8th Cir.1993), we allowed the parties to expand the record because the parties had not had a chance to complete discovery and because one party's misrepresentation left the district court with an incomplete picture. We noted that the authority to enlarge a record is rarely exercised and constitutes a narrow exception to the general rule that it is only the record made before the district court which the appellate court may consider. Id. at 63. In Miller v. Benson, 51 F.3d 166, 168 (8th Cir.1995), we allowed the pro se appellant to expand the record because he did not learn that the district court had not received his motion until after that court dismissed his case.

The Barrys and Twin City offer no reason why the records they now wish to submit were not submitted with the initial motion for summary judgment. We thus grant Lieberman's motion to strike portions of Barrys' and Twin City's addendum and appendix, and we will not consider the arguments which rely on the stricken evidence.

III.

We next address the Barrys' and Twin City's argument that Lieberman's fraud claim is barred by Minnesota's six-year limitations period for such claims. See Minn.Stat. § 541.05, subd. 1(6) (1992). We find that a factual question exists as to whether Lieberman could have discovered with reasonable diligence that Barrys gave her false financial figures.

The six-year limitations period begins to run when a plaintiff knew or should have known of the fraud. See Estate of Jones v. Kvamme, 449 N.W.2d 428, 431 (Minn.1989). The question of when discovery could...