Waltzer v. Transidyne General Corp.

• Decision Date: 03 January 1983
• Docket Number: No. 80-1561,80-1561
• Citation: 697 F.2d 130
• Parties: 12 Fed. R. Evid. Serv. 204 Irving M. WALTZER, Plaintiff-Appellee, v. TRANSIDYNE GENERAL CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 130

697 F.2d 130

12 Fed. R. Evid. Serv. 204

Irving M. WALTZER, Plaintiff-Appellee, v. TRANSIDYNE GENERAL CORPORATION, Defendant-Appellant.

No. 80-1561.

United States Court of Appeals,

Sixth Circuit.

Argued Oct. 31, 1982.

Decided Jan. 3, 1983.

Steven B. Haffner (argued), Law Offices of Steven B. Haffner, Allen Zemmol, Southfield, Mich., for defendant-appellant.

Jeffrey G. Heuer, Jaffe, Snider, Raitt, Garratt & Heuer, Brian G. Shannon (argued), Detroit, Mich., for plaintiff-appellee.

Before MERRITT and CONTIE, Circuit Judges, and WEICK, Senior Circuit Judge.

CONTIE, Circuit Judge.

Transidyne General Corporation (Transidyne) appeals from a $121,500 judgment in favor of Irving Waltzer resulting from an alleged breach of a stock subscription contract. Three issues meriting discussion are a statute of limitations question; the propriety of restrictions placed upon the testimony of Allen Zemmol, an attorney of record in this case for Transidyne; and an issue arising under Rule 36 of the Federal Rules of Civil Procedure.

This litigation stems from the formation of Transidyne, a Delaware corporation with its principal place of business in Ann Arbor, Michigan, in 1967 and early 1968. In June, 1967, Howard Diamond, Transidyne's president, met with Waltzer, a New York accountant. By letter dated September 22, 1967, Transidyne offered to sell 10,000 shares of stock at $5.00 per share jointly to Waltzer, Sam Pakula and Robert Feuer. This offer also provided that Waltzer could attend meetings of Transidyne's board of directors and that he could purchase 1,000 additional shares at the same price within one year. The offer required full payment by November 22, 1967. A subsequent letter from Transidyne stated that the amount was due within thirty days after notice, but such notice was never given. Waltzer signed the offer and remitted $5,000 of the total amount due. He has maintained throughout this lawsuit both that the September 22nd document was a valid contract and that under it, he was ultimately entitled to 5,400 shares which he never received.

Transidyne retained Allen Zemmol as legal counsel in October, 1967. Fearing securities laws violations in connection with the earlier transactions, Zemmol suggested that the company hold an investors' meeting in New York on November 20 and 21, 1967. A letter about the upcoming meeting which was sent to potential shareholders stated that Transidyne was attempting to comply with Securities Exchange Commission regulations and that all investors would be required to execute a financing agreement and an investment letter. The notice did not indicate whether signing the new documents would rescind prior agreements.

The parties disagree about what transpired at the meeting. Diamond testified that he spoke directly to Waltzer and that the latter agreed to rescind the September 22nd agreement. Conversely, Waltzer testified that he did not stay long at the one meeting he attended and that he neither was told of, nor agreed to, rescission of the original agreement. Zemmol, who spoke at the investors' meeting, was called as a defense witness. When Zemmol attempted to contradict Waltzer's version of the meeting, however, the district court sustained plaintiff's objection to the testimony.

By letter of December 6, 1967, Transidyne again asked Waltzer to complete the new documents. On December 20, Waltzer and Martin Feuer remitted $25,000 toward the balance due. The company responded that as soon as both the remainder of the balance and the signed documents were received, stock would be issued. After Waltzer paid another $10,000 without submitting the documents, Transidyne demanded on January 11, 1968, that the documents be completed within one week. On January 17th, Transidyne cancelled Waltzer's subscription by letter and refunded $15,000 of his money. On January 18th, Waltzer, Martin Feuer, and Bennett Pakula executed financing agreements and investment letters and remitted the balance due. Waltzer testified that when he received Transidyne's letter on January 22nd or 23rd, he returned the $15,000 check.

On January 26, 1967, the company returned Waltzer's signed documents and checks. Transidyne would not permit him to become a shareholder because the stock option and meeting attendance clauses of the September 22nd agreement granted to Waltzer rights not afforded other stockholders. Waltzer returned the documents and checks and waived these extra rights.

Zemmol and Waltzer conversed by telephone on January 30, 1968. Waltzer denied at trial that he agreed to rescind the September 22nd agreement during that conversation. In early February, 1968, he refused to sign a document tendered by Transidyne which stated that he had so agreed. When Zemmol attempted as a witness to contradict Waltzer's story, the trial judge ruled the testimony inadmissible.

On February 27, 1968, the company's board of directors voted not to accept Waltzer's subscription. Plaintiff received notice of this decision on March 10, 1968. Transidyne sent a refund of $2,000 on March 26. Subsequently, the company's stock split five for one. This suit was filed on March 8, 1974.

The first issue to be considered is whether Waltzer's claim is barred by the statute of limitations. Transidyne argues that the Delaware three-year statute of limitations should apply. If the company is correct, Waltzer's claim is precluded because the alleged breach occurred in 1968 whereas suit was not filed until March 8, 1974. In the alternative, Transidyne contends that even if the court accepts plaintiff's contention that the Michigan six-year statute of limitations applies, Waltzer's action is still barred.

The general rule in diversity cases is that federal courts will follow the conflict of laws rules of the state in which the court sits. Klaxon Co. v. Stentor Electric Manufacturing Co., Inc., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Since this case was tried in Michigan, we look to Michigan law. A Michigan conflicts statute provides:

All actions and rights shall be governed and determined according to the law under which the right accrued, in respect to the limitations of such actions or right of entry. [M.S.A. Sec. 27A.5869, M.C.L.A. Sec. 600.5869 (1977).]

Since this contract to sell stock was made, if at all, in Michigan, rights under the contract arose under Michigan law. Sheerin v. Steele, 240 F.2d 797 (6th Cir.), cert. denied, 353 U.S. 938, 77 S.Ct. 816, 1 L.Ed.2d 760 (1957). Consequently, Michigan's six-year contract statute of limitations, M.S.A. Sec. 27A.5807(8) [M.C.L.A. Sec. 600.5807(8) ], controls this case.

The company's claim that Delaware's statute of limitations applies is unconvincing. Transidyne first argues that Delaware's statute controls because the situs of Transidyne's shares is in Delaware. In suits over title to, or transfer of, shares of stock, the law of the state of situs is said to apply. Assuming without deciding that Transidyne is correct, the point is inapposite because this suit is an action in damages for breach of contract rather than an action to give Waltzer title to shares of Transidyne stock.

Second, the company argues that its capacity to sue and be sued is governed by Delaware law. See Fed.R.Civ. P. 17(b). This point also is irrelevant because this case concerns not Transidyne's general capacity to be sued, but rather its potential liability in a particular case. Thus Michigan's six-year statute of limitations applies to this case.

The parties agree that under Michigan law, the statute began to run on the date of the alleged breach. Cushman v. Avis, 28 Mich.App. 370, 184 N.W.2d 294 (1970). The parties disagree, however, about the date on which the breach occurred. Transidyne argues that the breach, if any, occurred when its board of directors voted not to accept Waltzer's subscription on February 27, 1968. It claims that notice of the breach on March 10, 1968 was not required to activate the statute. Therefore, plaintiff's suit filed on March 8, 1974 was over a week late. On the other hand, Waltzer contends that after he tendered full payment for his shares on January 18, 1968, Transidyne had a reasonable time within which to deliver the stock. He argues that this reasonable time had not yet passed on March 10, 1968. Thus the notice received on that date was a breach by anticipatory repudiation. If Waltzer is correct, his suit was timely filed by two days.

Under Michigan law, the date of accrual of a cause of action for statute of limitations purposes is a question of fact for the jury. Tumey v. City of Detroit, 316 Mich. 400, 411, 25 N.W.2d 571 (1947); Flynn v. McLouth Steel Corp., 55 Mich.App. 669, 223 N.W.2d 297 (1974). Accordingly, we hold that Waltzer's suit was not barred as a matter of law and that the district court properly submitted to the jury the question of the date of the contract breach.

The district court erred, however, when it prohibited Zemmol to contradict Waltzer's testimony. Some additional facts must be stated. Zemmol is an attorney of record in this case who cross-examined Waltzer, the plaintiff's only witness, and who examined Diamond on direct. When Zemmol then tried to take the stand, plaintiff objected on the basis of Michigan Disciplinary Rule 5-102, which provides in part that when an attorney learns after undertaking employment that he ought to be called as a witness on contested matters, he should withdraw from his position as trial counsel. Zemmol had been listed as a witness on a January, 1976 pretrial...