Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-07-02764/USCOURTS-ca8-07-02764-0/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 

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United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 07-2764

___________

Peter B. Dunning, for himself and as *

representative and attorney-in-fact *

for his grandchildren; David B. *

Dunning; Claire Baker, Rachael *

Baker; Timothy Baker; Meghan E. *

Dunning; Charles B. Dunning; *

Bailey W. Dunning; Corey Steven *

Sheehan; Hazel R. Dunning, *

* Appeal from the United States

Plaintiffs-Appellants, * District Court for the Southern

* District of Iowa.

v. *

*

Gregory J. Bush; Lawrence P. Bush; *

Joseph D. Bush; Barbara S. Johnson; *

Thomas M. Bush; Peter A. Bush; *

Mary P. Walsh; Francis P. McCarthy, *

*

Defendants-Appellees. *

___________

Submitted: March 13, 2008

Filed: August 5, 2008

___________

Before MURPHY, BRIGHT and BENTON, Circuit Judges.

___________

BRIGHT, Circuit Judge.

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Dunning, et al. v. Bush, et al., No. 3:05-cv-00050-JAJ-RAW (S.D. Ia. July 26,

2007).

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This lawsuit arises from the sale of a 50% interest in a holding company, Twin

City Mineral Corp. (“Twin City”), by Appellants, Peter Dunning and various family

members (collectively “Dunning”) to the owners of the other 50% interest, Appellees

Gregory Bush, Francis McCarthy and others (collectively “Defendants”). Dunning,

dissatisfied with the amount he received in connection with the sale of his interest,

seeks damages or avoidance of the contract or certain contract terms by asserting the

following claims of fraud and other improper conduct against Defendants: fraudulent

concealment, affirmative misrepresentation, rescission, breach of fiduciary duty,

securities fraud, insider trading, and breach of contract. The district court granted

summary judgment in favor of Defendants on all of Dunning’s claims. In doing so,

the district court also struck the Dunning supplemental report by expert witness,

William Allen (“Supplemental Allen Report”). Dunning appeals. 

We have jurisdiction pursuant to 28 U.S.C. § 1291 and affirm in part, reverse

in part, and remand for further proceedings consistent with this opinion. Specifically,

we affirm the dismissal of Dunning’s common law fraud and securities fraud claims.

We, however, reverse the dismissal of the remainder of Dunning’s claims. We also

reverse the district court’s order striking the Supplemental Allen Report by an expert

witness.

I. Facts and Procedural History

We adopt, with minor changes, the statement of facts and procedural history as

stated by the district court in its unpublished order and opinion dated July 26, 2007.1

Twin City Mineral Corp. (“Twin City”) is a holding company that

owned 50 percent of the outstanding membership interests in Superior

Minerals Company, L.L.C. (“Superior”), a Colorado limited liability

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company. Plaintiff Peter Dunning started Twin City in 1987 and ran its

day-to-day operations until 2002. The directors of Twin City during

2003 were Peter Dunning, David Dunning, Gregory Bush and Francis

McCarthy, until the Dunnings resigned as directors in August of 2003.

Prior to December 8, 2003, Twin City owned 50 percent of the

outstanding membership interests in Superior. Twin City is a Minnesota

corporation.

Between June 1991 and August 2003, Aggregate Industries North

Central Region, Inc., a subsidiary of Aggregate Industries, Inc. (referred

to collectively as “Aggregate”), a publicly traded company

headquartered in London, England, owned the remaining 50 percent

interest in Superior. Prior to August 8, 2003, plaintiffs owned 50 percent

(30,000 shares) of Twin City and defendants (along with Jack Bush and

Charlie Burke) owned the other 50 percent (30,000 shares). Each

shareholder group had two directors. Certain shareholders were actively

involved in business operations.

Twin City’s principal business operations were conducted by

Superior. Superior was engaged in the business of processing calcium

carbonate into products necessary for various manufacturers in the

roofing materials, animal feed, plastic and other industries in the upper

Midwest and Canada. The calcium carbonate was purchased from

Linwood Mining & Materials Corp. (“Linwood”), which was also owned

by defendants. Superior also processed steel mill slag into slag cement

for various Portland cement companies. Superior had successfully

exploited these markets since the early 1990s. During the calendar year

of 2000, as a result of the economic downturn it[sic] the United States

economy, the financial results of Superior began to deteriorate and

Superior did not earn profits during 2001 and 2002. Superior’s losses in

2001 and 2002 were also due in part to a joint venture between Superior

and Lehigh, which resulted in significant losses to Superior.

Consequentially, the economic circumstances of Twin City deteriorated

as well. Further, Superior’s banking arrangement was tenuous during the

last half of 2002 and first part of 2003. Significant capital contributions

to Superior were required from Peter Dunning, defendants and

Aggregate in order for Superior to maintain its banking relationship with

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U.S. Bank during 2002 and 2003. Peter Dunning did not participate in

the capital contributions in 2003.

Superior was operated by a management committee having the

effective duties and responsibilities of a board of directors. For several

years prior to August 2003, the membership of this committee consisted

of eight members – four from Twin City and four from Aggregate. Peter

Dunning was on the management committee of Superior until the time

he signed the Stock Purchase Agreement. However, Peter Dunning

attended no meetings of the management committee in 2003. David

Dunning attended a management committee meeting on February 19,

2003. Other Twin City members of the Superior management committee

were David Dunning, Gregory Bush and Francis McCarthy.

Rather than make these capital contributions, Peter Dunning

decided to sell his family’s interest in Twin City. Further, Peter Dunning

wished to retire from Superior and move to Vail, Colorado. Peter

Dunning was also aware that Superior’s financing would be coming due

in September 2003. Defendant Greg Bush encouraged Peter Dunning to

stay in the business and not sell his interest. Defendants offered to sell

their interest in Twin City to Peter Dunning. Peter Dunning felt such

discussions were not serious and, therefore, the parties began

negotiations to sell plaintiffs’ interest in Twin City. Dunning’s

replacement, Don Vry, was hired and trained. Dunning became inactive

in the day-to-day management of Superior prior to January 2003.

In January 2003, discussions began between Peter Dunning and

representatives of the McCarthy-Bush defendants regarding the potential

sale of the plaintiffs’ shares of stock in Twin City. Plaintiffs were

represented in the negotiations by attorney Michael Giudicessi of the

Faegre & Benson law firm, who negotiated the terms and conditions of

the Stock Purchase Agreement on plaintiffs’ behalf. Defendants were

represented by attorney James Mezvinsky. Eventually, the parties

entered into a Stock Purchase Agreement, under which plaintiffs sold

their interest in Twin City. Peter Dunning reviewed the entire Stock

Purchase Agreement with his attorney before he signed it, and was not

aware of anything that was left out of the Agreement that he requested

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his attorney to include. The Stock Purchase Agreement was specifically

tailored to the particular transaction between the parties.

The Stock Purchase Agreement contains an integration clause that

states that it “constitutes the entire agreement among the parties with

respect to the matters covered hereby and supersedes all previous

written, oral or implied understandings among them with respect to such

matters.” The clause continues, “[n]o representation, warranty, promise

or understanding shall be binding against a party unless set forth herein.”

During a telephone conference on or about July 29, 2003, between

and among Peter Dunning, Greg Bush, Frank McCarthy and their

respective attorneys, a general discussion of the business affairs and

contract provisions of the Stock Purchase Agreement took place.

Subsequently, Section 1.4 of the Stock Purchase Agreement was first

mentioned around the end of July 2003, and was first drafted by

defendants’ attorneys on July 30, 2003. Peter Dunning discussed

Section 1.4 of the Stock Purchase Agreement with his attorney and read

the Stock Purchase Agreement before he signed it. Section 1.4 was

discussed and included in the Stock Purchase Agreement as a result of

Peter Dunning’s desire to protect his earning stream in the event that

defendants or one of their companies purchased Aggregate’s interest in

Superior.

At about this same time, representatives of Aggregate were

negotiating a resolution of the Superior/Lehigh joint venture. By July

20, 2003, Aggregate had notified the defendants of the essential terms of

a potential resolution whereby Lehigh would cancel Superior’s debt.

Lehigh would retain assets used in the joint venture, Superior would

receive 5,500 tons of cement per year for five years, and Aggregate

would receive a guaranteed supply of cement at market price for a term

of years. Peter Dunning knew that a resolution was being negotiated and

that Superior’s relationship with Lehigh was affecting Superior’s

financial position in a negative fashion. Defendants did not disclose the

status of the negotiations between Aggregate and Lehigh to Peter

Dunning and Dunning did not inquire further about it. Negotiations

continued throughout the fall of 2003 and were finalized in a settlement

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agreement dated November 17, 2003. The cement due to Superior under

the agreement was assigned to Aggregate as part of Superior’s

redemption of Aggregate’s stock in Superior. Using GAAP, Aggregate

valued the cement at $1,582,767. Superior purchased Aggregate’s

interest in Superior by way of a redemption on December 8, 2003. The

Superior Redemption Agreement defined Superior as the “Buyer” and

Aggregate as the “Seller” and provides that Aggregate “wishes to sell”

its interest in Superior.

Section 1.1 of the Superior Redemption Agreement states:

1.1 Redemption and Sale of Interests. Upon

the terms and conditions, for the

consideration specified in Section 1.2

below, and subject to the conditions of this

Agreement, Buyer agrees to purchase from

the Seller, and Seller agrees to sell,

transfer, convey and deliver to the Buyer,

or its nominee, all of the Interests, which

as of the Closing Date shall be free and

clear of all liens or encumbrances of any

nature.

Section 1.2 of the Superior Redemption Agreement states:

1.2 Purchase Price. The total consideration for

the Interests shall be Nine Hundred Fifty

Thousand Dollars ($950,000), plus

assignment of the Cement Supply

Agreement dated September 15, 2003

(“Cement Supply Agreement”) attached

hereto as Exhibit 1.2. The money portion

of the Purchase Price for the Interests shall

be payable at Closing, as herein defined,

by wire transfer or in certified funds.

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Other facts are related in this opinion.

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One week after the plaintiffs signed the Stock Purchase

Agreement and before closing, defendant Frank McCarthy told U.S.

Bank that Superior intended to pay off its loans and terminate its

relationship with U.S. Bank. Superior’s loan application with its new

lender, THE National Bank, was prepared on August 26, 2003, approved

on September 11, 2003, and closed on September 15, 2003.

The common stock of Twin City owned by the plaintiffs were

securities within the meaning of Section 502.102(19) of the Iowa

Securities Act. The purchase of the plaintiffs’ stock by the defendants

was consummated in the state of Iowa.

Defendants notified Peter Dunning of the transaction between

Aggregate and Superior shortly after it was complete, and defendants

claimed that this transaction triggered Section 1.4 of the Stock Purchase

Agreement. Based upon this, plaintiffs’ shares would be re-priced at

approximately $1,266,000. Aggregate valued the Free Cement Contract

at $2,346,000 using accounting standards used in the United Kingdom,

which do not require that the value be discounted to a present value.2

Dunning, learning of the low value paid to Aggregate by Superior’s redemption

of Aggregate’s stock and contesting that section 1.4 of the Stock Purchase Agreement

(“SPA”) applied to that transaction, filed this action claiming fraud and breach of

contract on the part of Defendants. Specifically, Dunning makes the following claims:

one claim of fraudulent misrepresentation and three claims of fraudulent concealment

(Count I); equitable rescission based on the fraudulent misrepresentation (Count II);

breach of fiduciary duty (Count III); and violation of Iowa Securities Statutes (Counts

IV and V). In the alternative, Dunning asserts claims for breach of contract, alleging

entitlement to additional money as part of the contract of sale of Dunning’s 50%

interest in Twin City (Counts VI and VII). 

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The text of section 1.2 as pertinent here reads:

1.2 Purchase Price. The total consideration for the Shares shall be

One Million One Hundred Ten Thousand Dollars ($1,110,000) (“Fixed

Payment”), plus: an amount calculated based on 10% of Superior’s

annual gross profits (calculated as set forth in Section 1.2(b) below) for

the 10-year period from Closing until December 31, 2012, subject to any

adjustment set forth in Sections 1.3 or 1.4 below (if applicable).

4

The text of section 1.4 as pertinent reads:

1.4 Purchase of Aggregate Industries Shares. In the event, prior

to December 31, 2012, Buyers or a related or affiliated entity, purchase

substantially all of the shares in Superior owned by Aggregate Industries

or an affiliate of Aggregate Industries, the purchase price per share

hereunder shall be recalculated in a manner similar to the method set

forth in Section 1.3 hereunder. Such share price shall supercede and be

in lieu of the Fixed Payment and Performance Payment (“New Share

Price”).

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As damages, Dunning claims that Defendants failed to make payments due to

him under section 1.2 of the SPA, which provides for a fixed payment of $1,110,000

and a performance payment equal to 10% of Superior’s annual gross profits for ten

years following the execution of the SPA.3

 Defendants claim that Dunning was no

longer entitled to payment under section 1.2 of the SPA because the Aggregate

redemption triggered section 1.4 of the SPA.4

 And therefore under section 1.4,

Dunning was only entitled to a lump sum equal to an amount as calculated under

section 1.3 of the SPA. As a result, Dunning received substantially less for his shares

in Twin City than he expected under the SPA. 

The district court granted summary judgment in favor of Defendants on all of

Dunning’s claims. In granting summary judgment on Dunning’s breach of contract

claim, the district court also struck the Supplemental Allen Report regarding the value

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of a Cement Supply Agreement Superior assigned to Aggregate. This appeal

followed. 

 On appeal, Dunning asserts the following issues:

1. Did the district court err by granting summary judgment:

A. On plaintiffs’ claims regarding fraudulent concealment?

B. On plaintiffs’ claim of affirmative misrepresentation?

C. On plaintiffs’ rescission claim?

D. On plaintiffs’ fiduciary duty claim because defendants breached 

no fiduciary duties?

E. On plaintiffs’ securities fraud claims?

F. On plaintiffs’ breach of contract claim?

G. On plaintiffs’ second breach of contract claim by failing to 

consider damage evidence?

2. Did the district court abuse its discretion by striking the second report of

plaintiffs’ expert witness?

We address each issue. 

II. Standard of Review

We review the district court’s grant of summary judgment de novo, viewing the

evidence in the light most favorable to the non-moving party. See R.D. Offutt Co. v.

Lexington Ins. Co., 494 F.3d 668, 672 (8th Cir. 2007). We review the district court’s

order to strike an expert witness’s supplemental report for abuse of discretion. See

Heartland Bank v. Heartland Home Finance, Inc., 335 F.3d 810, 815 (8th Cir. 2003).

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III. Common Law Fraud – Counts I and II

The district court summarized Dunning’s fraud claims as follows:

Plaintiffs [Dunning] make one claim of fraudulent

misrepresentation and three claims of fraudulent concealment. First,

plaintiffs allege that defendant Greg Bush fraudulently misrepresented

to the plaintiffs that Aggregate would not sell its interest in Superior to

Twin City for less than five million dollars. Second, plaintiffs assert that

the defendants concealed the fact that they had commenced negotiations

to purchase Aggregate’s interest in Superior prior to the time plaintiffs

sold their stock in Twin City. Third, plaintiffs assert that defendants

fraudulently concealed their knowledge of the essential terms of the

settlement between Superior and Lehigh. Fourth, plaintiffs assert that

defendants fraudulently concealed information that Aggregate had

withdrawn its financial support and that refinancing was necessary.

Although the district court discussed other aspects of the fraud claims, the key

to its rulings denying the several claims of fraud rests on a record, which is absent of

evidence that Gregory Bush, representing all Defendants, intended to deceive the

Plaintiff Peter B. Dunning, representing all Plaintiffs, in the making of the contract to

purchase the Dunning stock (50%) in Twin City.

Although in its brief Dunning refers to other false statements and failures to

disclose matters relating to Lehigh and discussions of the purchase of Aggregate’s

interest in Superior, none of that evidence shows the scienter, intent to deceive,

necessary to support the fraud claims against Defendants Bush-McCarthy. Thus, we

affirm on the rejection of all the fraud claims including rescission of the contract

based on fraud (Counts I and II) and the securities fraud claim (Count IV) based on

the Iowa Uniform Securities Act.

We turn to other issues where we reverse.

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These statements and failure to disclose could be of importance in Dunning’s

acceptance of the so-called “up and down” provision (section 1.4) proposed by

Defendants at a late date, to which Dunning agreed.

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IV. Fiduciary Duty – Count III

Dunning’s fiduciary duty claim rests upon essentially the same allegations

underlying his fraud claims. Dunning claims that a fiduciary relationship existed

between himself and Defendants requiring Defendants to disclose (1) their discussion

relating to a buyout from Aggregate; (2) the status of the Lehigh settlement; and (3)

developments regarding the state of Superior’s financing, including its favorable

financing arrangements with U.S. Bank.

Dunning also asserts that Defendant Gregory Bush made misleading statements

to him regarding Aggregate’s desire to sell its interest in Superior. According to

Dunning, Bush told him that Aggregate would not sell its interest cheaply, and not for

less than $5,000,000. Dunning also claims that Bush told him to “trust me” when

negotiating section 1.4.5

Pursuant to section 1.4, if Defendants acquired Aggregate’s interest in Superior

at a low figure, Dunning would get less than if no such acquisition had been made.

If the acquisition price was high, on the other hand, Dunning might receive more than

or equal to the total purchase price stated in section 1.2 of the SPA. Dunning claims

that full disclosure was required from Defendants, who occupied a fiduciary position

in the proposed purchase of Dunning’s stock in Twin City. According to Dunning,

Defendants breached their fiduciary duty by failing to disclose the status of the Lehigh

settlement, Superior’s bank financing prior to executing the SPA, and, more

importantly, Defendants withheld information about discussions with Aggregate

preliminary to the buyout of Aggregate’s interest in Superior. 

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The district court found that the Defendants owed Dunning a fiduciary duty but

did not breach it because Aggregate and the Defendants had not yet entered into actual

negotiations by the time that Dunning executed the SPA. This analysis misstates the

issue. The question is whether the Defendants breached their fiduciary duty to

Dunning by failing to disclose their initial discussions with Aggregate. The

Defendants do not answer this argument in their brief.

Fiduciary duties of directors and shareholders are governed by the state of

incorporation, in this case Minnesota (Twin City is a Minnesota corporation). Potter

v. Pohlad, 560 N.W.2d 389, 391 (Minn. Ct. App. 1997). Minnesota law recognizes

that shareholders of closely held corporations, such as one comparable to Twin City,

owe fiduciary duties to each other. Gunderson v. Alliance of Computer Prof’ls, Inc.,

628 N.W.2d 173, 185-86 (Minn. Ct. App. 2001); Berreman v. West Publ’g Co., 615

N.W. 2d 362, 367 (Minn. Ct. App. 2000). Minnesota courts have required that

shareholders of a closely held corporation have a duty to deal “‘openly, honestly, and

fairly with other shareholders.’” Berreman, 615 N.W.2d at 371 (quoting Pedro v.

Pedro, 489 N.W.2d 798, 801 (Minn. Ct. App. 1992)). The fiduciary duties of a

shareholder in a closely held corporation also include “the duty to disclose material

information about the corporation.” Id.; Gunderson, 628 N.W.2d at 186 (“Likewise,

close-corporation shareholders owe each other a duty of loyalty, which encompasses

an obligation to act with complete candor in their negotiations with each other.”).

This duty “does not extend to obvious matters.” Gunderson, 628 N.W.2d at 188.

Fiduciaries also may not usurp business opportunities for their own benefit. Triple

Five of Minn., Inc. v. Simon, 404 F.3d 1088, 1096-97 (8th Cir. 2005) (citing Miller

v. Miller, 222 N.W.2d 71, 78 (Minn. 1974)). In addition, directors of a closely held

corporation owe fiduciary duties to individual shareholders. See Regan v. Natural

Res. Group, Inc., 345 F. Supp. 2d 1000, 1011-12 (D. Minn. 2004). It is clear that

Defendants, as both directors and shareholders of Twin City, a close corporation,

owed a fiduciary duty to Dunning, who was also a shareholder and director of Twin

City. 

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This provision was amended in 2004 and now governs agent registration.

Neither party cites to the current provision governing insider trading.

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Initially, we note that the duty of a fiduciary does not require the intent to

deceive necessary to prevail under a fraud theory. In rejecting Dunning’s fiduciary

duty claim, the district court concluded that matters relating to Defendants’

discussions with Aggregate for the sale of Aggregate’s interest in Superior, never

disclosed to Dunning, were not material. In addition, the district court concluded that

Dunning received notice of other matters, which Dunning claims the Defendants also

failed to disclose. 

These conclusions, however, are not supported by the record. Indeed, the

record indicates that during much of 2003, Dunning was no longer actively engaged

in Twin City’s and Superior’s businesses. Therefore, the question of materiality and

obviousness of the information not disclosed to Dunning remains a disputed issue of

fact. Accordingly, we reverse the district court’s entry of summary judgment on

Dunning’s fiduciary duty claim. 

V. Securities Fraud and Insider Trading – Counts IV and V

Dunning bases his securities fraud claim, Count IV, on Iowa’s Uniform

Securities Act and relies on the same factual allegations underlying his common law

fraud claims set out in Counts I and II. The elements needed to prevail on an action

for securities fraud under Iowa Code § 502.401 (Iowa’s counterpart to Rule 10b-5) are

essentially the same as those required to prevail on a fraud claim. As discussed above,

Dunning’s fraud claims fail as a matter of law. Accordingly, the district court

properly granted summary judgment in favor of Defendants on Count IV. 

Dunning’s insider trading claim, however, is based on Iowa Code § 502.402.6

Dunning claims that summary judgment was not proper because Defendants never

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addressed the issue in their briefs below. Defendants respond that they specifically

moved for summary judgment on this count. 

Section 502.402 provides: 

It is unlawful for any person who is or was an officer, director or affiliate

of an issuer whose relationship to the issuer or to any of the foregoing

persons gives or gave such person access, directly or indirectly, to

material information which is of decisive importance about the issuer or

the security not generally available to the public, to purchase or sell any

security of the issuer in this state at a time when that person knows such

information about issuer or the security gained from such relationship,

which information: 

1. Would significantly affect the market price of that security; 

2. Is not generally available to the public; 

3. Such person knows is not intended to be so available, unless that

person has reason to believe that the other party to such transaction is

also in possession of such information.

Dunning contends, and Defendants do not disagree, that Defendants, as

directors of Twin City, are covered by this provision. Dunning asserts that

Defendants knew of the Lehigh settlement, knew of Aggregate’s decision to stop

capital contributions on behalf of Superior, and knew that Aggregate intended to exit

Superior. According to Dunning, Defendants should have communicated this

information to him because such information materially affected the value of

Dunning’s stock in Twin City. Furthermore, Dunning claims that Defendants

withheld this information from Dunning and the public when Dunning sold his shares

in Twin City to Defendants.

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We reiterate the pertinent provisions of section 1.4:

In the event, . . . Buyers [Defendants] or a related or affiliated entity,

purchase substantially all of the shares in Superior owned by Aggregate

Industries, . . . the purchase price per share hereunder shall be

recalculated . . . Such share price shall supercede and be in lieu of the

Fixed Payment and Performance Payment (“New Share Price”)

(emphasis added).

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The district court premised its grant of summary judgment on the basis that

Dunning was aware that (1) a resolution of the Lehigh dispute was being negotiated,

(2) Superior had a September 2003 refinancing deadline, and (3) Aggregate was

interested in selling its interest in Superior. While the record shows that Dunning was

aware that talks about the Lehigh dispute were in progress, the record provides no

support for the district court’s other factual findings. The record lacks evidence that

Dunning knew about Aggregate’s decision to stop capital contributions. Indeed, only

Defendants were aware that Aggregate had decided to stop making capital

contributions. Also, the record lacks evidence to support the finding that Dunning

knew Aggregate was interested in selling its stake in Superior; all the evidence is to

the contrary. 

In any event, the inferences of knowledge regarding these matters and their

materiality are in dispute. Accordingly, we reverse the district court’s grant of

summary judgment with respect to Dunning’s insider trading claim, Count V.

VI. Breach of Contract– Count VI

Dunning asserts that section 1.4 of the SPA does not apply to Superior’s

redemption of Aggregate’s stock (50%), in which Twin City became sole owner of

Superior. By Defendants owning all stock in Twin City, Defendants indirectly could

be considered owners of Superior.7

 

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In addressing Dunning’s breach of contract claim with respect to section 1.4 of

the SPA, the district court stated:

Twin City is undeniably a ‘related or affiliated entity’ of Superior. Twin

City purchased Aggregate’s interest in Superior in exchange for

$950,000 cash, plus the assignment of the Lehigh free cement contract,

and other consideration. Thus, the provision for recalculating ‘The New

Share Price’ was triggered and became effective. Unfortunately for

plaintiffs, it decreased the amount due them under the Stock Purchase

Agreement. 

This statement is incorrect. The buyout of Aggregate included a redemption of

Aggregate’s stock in Superior and additional consideration, but not a “purchase” by

Twin City.

The question then becomes whether the actual transaction, a redemption by

Superior of Aggregate’s stock in Superior, satisfied the contract language that

Superior had become a “related or affiliated entity” of the Buyers, within the meaning

of section 1.4. Here, Defendants did not directly own any part of Superior. They only

possessed an indirect interest in Superior by their ownership of Twin City. Until

Defendants bought out Dunning’s interest in Twin City, Defendants owned only 50%

of Twin City and thus only 25% of Superior.

Section 1.4, read in light of actual developments, is ambiguous. Therefore, we

reverse the district court’s entry of summary judgment on the breach of contract claim

set forth in Count VI. On remand, the parties should have the opportunity to present

extrinsic evidence to explain the intent and reach of this provision. 

VII. Breach of Contract–Count VII–Sanction, Expert Opinion Disallowed

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In connection with Dunning’s second contract claim asserting that Defendants

breached the SPA by undervaluing the Superior Redemption Agreement, Count VII,

the district court also struck the Supplemental Allen Report regarding the value of the

Cement Supply Agreement Superior assigned to Aggregate. Specifically, Dunning

takes issue with the $1,582,767 value placed on the free cement component of the

Superior Redemption Agreement. On May 18, 2007, for the first time, Dunning’s

expert valued the free cement at $2,300,000, which Dunning argues is consistent with

Aggregate’s valuation and materially exceeds Defendants’ valuation. 

The district court struck the report because: (1) it was not a supplemental report

within the meaning of Federal Rule of Civil Procedure 26(e); (2) Dunning’s claim that

Allen could not formulate an opinion on the value of the Cement Supply Agreement

without discovery from Aggregate was untenable because “[t]he [district] court . . .

believe[d] that there [we]re ample experts and independent sources of information that

would have told [Dunning] what 5,500 tons of cement was worth in 2003”; and (3)

Defendants would be prejudiced by Dunning’s attempt to “interject[] a brand new,

previously undisclosed opinion” less than three months before trial and one month

after Defendants moved for summary judgment. 

Dunning argues that the district court abused its discretion by striking the

Supplemental Allen Report because it was a timely filed supplement to Allen’s initial

report. And even if it was not a timely filed supplemental report, it should have been

accepted as an untimely disclosure because its introduction did not prejudice

Defendants and was essential to one of Dunning’s contract claims. Based on the

record, we reverse the sanction disallowing the Supplemental Allen Report.

Allen’s initial report only stated that the value of the Cement Supply Agreement

was undervalued due to an excessive discount rate and the failure to reflect cement

price increases. His report noted, however, that a precise value for the Cement Supply

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Agreement would be determined when more information was available (Defendants

had not included price information in their valuation schedule). 

The record shows that the necessary information came from an Aggregate

employee following his May 3, 2007 deposition. Allen thereafter valued the Cement

Supply Agreement at $2.3 million in a report dated May 18, 2007, which Dunning

produced to Defendants before the close of discovery and three months prior to

scheduled trial but a month after Defendants moved for summary judgment.

In rejecting the district court’s decision to strike the Supplemental Allen Report,

we note first that the district court’s observation that the report’s lateness was

“prejudicial to defendants” lacks factual support in the record. Second, the district

court’s action resulted in a dismissal of one of Dunning’s contract claims. Finally, a

dismissal sanction is not warranted, except in cases of egregious conduct. And such

conduct was absent here. 

The district court should have considered a lesser sanction, if any, before

imposing one that resulted in the dismissal of a claim. See Heartland Bank v.

Heartland Home Finance, Inc., 335 F.3d 810, 817 (8th Cir. 2003). Here, Defendants

do not and cannot claim any surprise or real prejudice from Allen’s later detailed

report regarding cement valuation. 

If the district court’s observation that there are “ample experts and independent

sources of information that would have told the plaintiffs [or anyone else] what 5,500

tons of cement was worth in 2003 without the need for discovery from Aggregate[,]”

then clearly Defendants suffered no prejudice. Those Defendants would be able to

verify or challenge Allen’s opinion with ease. 

In sum, the sanction of dismissal of Count VII is reversed. Obviously, in light

of this reversal, Defendants will in no way suffer prejudice from the disclosure of the

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Whether or not there may be a lesser sanction relating to the timing of the

Supplemental Allen Report is a matter for the district court on remand.

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May 18, 2007 Allen report. On remand, the Supplemental Allen Report may be

admitted into evidence with proper identification.8

VIII. Conclusion 

We affirm dismissal of all fraud claims (Counts I, II and IV), but reverse and

reinstate counts for breach of fiduciary duty (Count III), violation of Iowa’s insider

trading statute (Count V), and breach of contract claims (Counts VI and VII). 

Accordingly, we remand these claims for further proceedings consistent with

this opinion.

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