Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-05-01972/USCOURTS-ca8-05-01972-0/pdf.json

Parties Involved:
Lynn G. Epsteen
Appellee
Janice S. Hope
Appellant
Mirek Klabal
Appellee

Document Text:

1

The Honorable Michael J. Davis, United States District Judge for the District

of Minnesota.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 05-1972

___________

Janice S. Hope, *

*

Plaintiff - Appellant, *

* 

v. * Appeal from the United States

* District Court for the 

Mirek Klabal, also known as Miroslav * District of Minnesota.

Klabal; Lynn G. Epsteen, also known as *

Lynn Tescher, *

*

Defendants - Appellees. *

___________

Submitted: March 14, 2006

Filed: August 7, 2006

___________

Before WOLLMAN, JOHN R. GIBSON, and ARNOLD, Circuit Judges.

___________

JOHN R. GIBSON, Circuit Judge.

Janice Hope appeals from two orders of the district court1

 granting summary

judgment to Mirek Klabal and Lynn Epsteen on her claims arising out of a series of

art transactions. She alleges that she purchased artwork from Klabal and Epsteen at

fraudulently inflated prices and seeks some $10 million in damages. The district court

ruled that all of Hope's claims were barred by their respective statutes of limitations,

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except with respect to a single art transaction between Hope and Klabal. Hope argues

on appeal that the district court misapplied the discovery rule and the law of

fraudulent concealment, erred in finding that the continuing tort doctrine did not

apply, and erred in applying the law of the case when issuing its summary judgment

order as to Epsteen. We affirm. 

I.

We state the facts in the light most favorable to Hope. In 1984, Klabal

approached Hope, a close friend of his wife, about purchasing investment art from

him. Klabal held himself out as an art expert and told Hope that he would be able to

acquire art for her at prices substantially below fair market value. From 1984 through

1998, Hope purchased approximately 100 pieces of artwork from Klabal for a total of

more than $8 million. These pieces included works of art by major figures in the

modern and pop art fields, including Pablo Picasso, Alexander Calder, Marc Chagall,

Willem de Kooning, Roy Lichtenstein, Henri Matisse, and Andy Warhol. While a few

of the individual purchases were priced below $10,000, Hope purchased many of the

pieces for more than $100,000. For each piece, Klabal provided Hope with an

invoice, a certificate of authenticity, and an insurance evaluation stating the "current

international value" of the piece. These values exceeded the prices that Hope paid for

the pieces. In many instances, Hope purchased the artwork "sight unseen," based

solely on Klabal's representations, and in certain instances Klabal never delivered

works that Hope had purchased, claiming that he had found them to be forgeries, that

he would trade them for more valuable pieces, or that it was in Hope's best interests

for him to retain them. 

Klabal also introduced Hope to Epsteen, who similarly represented that her

expertise would enable her to obtain art for Hope at significant discounts. From 1987

through 1994, Hope purchased seven pieces of art from Epsteen for a total of over

$2.1 million. Six of the pieces were works by Andy Warhol, and one was a piece by

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Pablo Picasso. Epsteen issued written invoices and certificates of authenticity for

these pieces, along with a letter containing an appraisal "made solely for insurance

purposes" and a statement describing how to obtain full appraisals from the Art

Dealers Association of America. Again, as with the insurance evaluations obtained

from Klabal, the amounts listed were much higher than what Hope actually paid for

the pieces. 

In 1997, Hope advised Klabal that she wanted to sell some of the art in order

to diversify her investment portfolio. Although Klabal told Hope that he would make

every effort to sell the art, no sales occurred until a year or two later, when Hope was

able to sell sixteen pieces at Sotheby's through Klabal and Epsteen. All but one piece

of art was sold at a substantial loss. Hope later hired an independent art expert, Dr.

Elin Lake Ewald, to evaluate 23 pieces that she had purchased from Klabal. Dr.

Ewald completed a report in October 2000, concluding that Hope had purchased the

artwork at prices significantly above fair market value at the times of purchase. Dr.

Ewald also evaluated the works Hope had purchased from Epsteen and advised her

that six of the seven pieces were purchased at inflated prices.

On June 19, 2002, Hope filed a 45-page complaint against Klabal and Epsteen

alleging fraud, conspiracy to defraud, breach of fiduciary duty, conversion, breach of

contract, negligent misrepresentation, consumer fraud, deceptive trade practices, and

violations of 18 U.S.C. § 1964 (RICO). The complaint listed more than one hundred

pieces of art Hope had bought from Klabal, as well as the seven pieces of art she

purchased from Epsteen. In lieu of an answer, Epsteen filed a motion to dismiss,

while Klabal answered and later filed a motion for summary judgment. Following a

hearing, the magistrate judge issued a report and recommendation, later adopted by

the district court, finding that Hope's claims against Epsteen should be dismissed

without prejudice and that Klabal's motion for summary judgment should be granted

except with respect to a single transaction that was not barred by the statute of

limitations. In that transaction, which occurred in 1998, Hope traded a work by JeanAppellate Case: 05-1972 Page: 3 Date Filed: 08/07/2006 Entry ID: 2075347
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This procedure ofsubmitting such a lengthy, detailed verified complaint is not

one that we recommend, but it certainly enlarges the factual basis underlying the

district court's entry of summary judgment against Hope.

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Michel Basquiat that she already owned for a painting by Marc Chagall entitled "Le

Couple Allonge." Hope then served an amended verified complaint, totaling some 147

pages, including 73 pages of exhibits and affidavits, on Epsteen, and Epsteen moved

for summary judgment.2

 The magistrate judge issued a second report and

recommendation finding that Epsteen's motion should be granted as to all of Hope's

claims. The district judge adopted this report and recommendation, and it denied

Hope's request to certify the judgment for immediate appeal under Fed. R. Civ. P.

54(b).

As a result of the two summary judgment orders, the only claims remaining in

the case related to the single transaction between Hope and Klabal in 1998 which had

survived the first summary judgment order. Klabal agreed to enter into a stipulation

dismissing these remaining claims, and the parties filed the stipulation with the court

under Fed. R. Civ. P. 41. Pursuant to this stipulation, the district court entered an

order dismissing the remaining claims without prejudice. Hope now appeals from the

two summary judgment orders.

II.

In light of the peculiar procedural posture of this case, we must first determine

whether we have jurisdiction over the appeal. Thomas v. Basham, 931 F.2d 521, 523

(8th Cir. 1991). The jurisdiction of the federal appellate courts is limited to appeals

from final decisions of the district courts, 28 U.S.C. § 1291, subject to the wellestablished exceptions set forth in 28 U.S.C. § 1292, Fed. R. Civ. P. 54(b), and the

collateral order doctrine. Reinholdson v. Minnesota, 346 F.3d 847, 849 (8th Cir.

2003). Because none of these exceptions apply to the facts of this case, we must

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address whether the district court's summary judgment orders as to Klabal and

Epsteen, coupled with the dismissal of the remaining claims in the case, which

happened to involve only Klabal, together constitute a "final decision" for purposes

of § 1291. In other words, the question is whether the voluntary dismissal of the only

claims that survived the earlier partial summary judgment orders was sufficient to

make those orders final for purposes of this appeal.

A final decision requires "some clear and unequivocal manifestation by the trial

court of its belief that the decision made, so far as [the court] is concerned, is the end

of the case." Goodwin v. United States, 67 F.3d 149, 151 (8th Cir. 1995). We are

guided by the rule that the requirement of finality under § 1291 is given a "practical

rather than a technical construction." Cohen v. Beneficial Indus. Loan Corp., 337 U.S.

541, 546 (1949). In addition, the Supreme Court long ago established that a dismissal

without prejudice can create an appealable final order if it ends the suit so far as the

district court is concerned. See United States v. Wallace & Tiernan Co., 336 U.S. 793,

794 n.1 (1949).

 Admittedly, this circuit has been less than clear in establishing the rules for

finality when parties dismiss some of their claims without prejudice in order to appeal

a partial summary judgment order or an interlocutory order of dismissal. See

generally Terry W. Schackmann & Barry L. Pickens, The Finality Trap: Accidentally

Losing Your Right to Appeal (Part II), 58 J. Mo. B. 138, 142-45 (2002) (collecting

cases). However, in Chrysler Motors Corp. v. Thomas Auto Corp., 939 F.2d 538, 540

(8th Cir. 1991), we assumed jurisdiction over an appeal in a similar situation. In that

case, the district court granted a motion for partial summary judgment but did not

issue a Rule 54(b) certification. The parties later filed a stipulation of dismissal of all

remaining claims without prejudice under Fed. R. Civ. P. 41, and the court entered an

order of dismissal, as it did here. We held that the effect of the dismissal was to make

the earlier partial summary judgment "a final judgment for purposes of appeal, even

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though the district court had not so certified under Fed. R. Civ. P. 54(b)." 939 F.2d

at 540.

We have since expressed concern that parties will use the voluntary dismissals

of their claims without prejudice as an "end-run" around Rule 54(b), and in one

instance we assumed jurisdiction over the appeal but deemed the dismissal of

remaining claims to be with prejudice. Minnesota Pet Breeders, Inc. v. Schell &

Kampeter, Inc., 41 F.3d 1242, 1245 (8th Cir. 1994) (commenting that the parties

"badly miscalculated" if they assumed they could later revive the dismissed claims);

see also Orion Fin. Corp. v. Am. Foods Group, Inc., 201 F.3d 1047, 1048-49 (8th Cir.

2000) (dismissing appeal for lack of finality where parties entered a stipulation

following partial summary judgment order because the parties intended to revive those

issues later and were "play[ing] fast and loose with the limited appellate resources that

we have.").

Nonetheless, many of our cases continue to follow the rule established in

Chrysler and state that jurisdiction exists under the circumstances that we face here,

without opining on whether the dismissed claims should be deemed dismissed with

prejudice. See, e.g., Great Rivers Coop. of Southeastern Iowa v. Farmland Indus.,

Inc., 198 F.3d 685, 690 (8th Cir. 1999) ("Though we strongly disapprove of this use

of a dismissal without prejudice to create what is in substance an impermissible

interlocutory appeal, our prior case law did not foreclose that effort here."); Morris

v. Crawford County, Ark., 299 F.3d 919, 921 (8th Cir. 2002) (partial summary

judgment followed by voluntary dismissal of remaining claims without prejudice "had

the dual effect of resolving all claims against the defendants and bestowing us with

appellate jurisdiction"); Porter v. Williams, 436 F.3d 917, 920 (8th Cir. 2006) ("[A]

partial summary judgment becomes a final judgment once the remaining parts of the

case are dismissed or otherwise resolved."); Acton v. City of Columbia, Mo., 436 F.3d

969, 974 (8th Cir. 2006) ("[I]f the firefighters had voluntarily dismissed their meal

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allowance and willfulness claims, this dismissal would have rendered the district

court's [partial summary judgment] order unquestionably final.").

The procedural posture of this appeal is most closely analogized to that in

Chrysler, and so we conclude that the voluntary dismissal of the remaining claims

made the two earlier summary judgment orders final for purposes of this appeal. After

the voluntary dismissal, there was nothing left for the district court to resolve, and the

suit had ended as far as that court was concerned, thereby creating a final judgment.

We now turn to the merits of Hope's arguments.

III.

We review a grant of summary judgment de novo. Klehr v. A.O. Smith Corp.,

87 F.3d 231, 234 (8th Cir. 1996). 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). Minnesota law applies in this diversity case,

and we review the district court's interpretation of that law de novo. Bockelman v.

MCI Worldcom, Inc., 403 F.3d 528, 531 (8th Cir. 2005). We are bound by decisions

of the Minnesota Supreme Court, and if that court has not considered an issue, we

must follow decisions of the Minnesota Court of Appeals if they are the best evidence

of Minnesota law. Id.

A.

Hope first argues that the district court misapplied the discovery rule and the

law of fraudulent concealment as they relate to whether the statute of limitations had

expired for her fraud, breach of fiduciary duty, and RICO claims. Under Minnesota

law, common law fraud and breach of fiduciary duty claims are governed by a sixyear statute of limitations, while RICO claims have a four-year statute of limitations.

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Minn. Stat. Ann. § 541.05, subd. 1(6); Anderson v. Anderson, 197 N.W.2d 720, 726

(Minn. 1972); Rotella v. Wood, 528 U.S. 549, 552 (2000). Accordingly, absent a

delay in the beginning of the limitations period, Hope's claims are time-barred.

Epsteen's most recent sale to Hope was on December 5, 1994; thus, all of Hope's

claims against Epsteen became time-barred on December 5, 2000. Other than the

1998 transaction involving "Le Couple Allonge", which is no longer at issue in the

case because of the parties' stipulation, the last sale by Klabal occurred on January 22,

1996, so Hope's claims against him became time-barred, at the latest, on January 22,

2002. Hope did not bring her original complaint until June 19, 2002.

Nonetheless, fraud, breach of fiduciary, and RICO claims are all subject to the

"discovery rule," which dictates that the limitations period begins to run "when the

facts constituting fraud were discovered or, by reasonable diligence, should have been

discovered." Toombs v. Daniels, 361 N.W.2d 801, 809 (Minn. 1985); see also

Anderson, 197 N.W.2d at 726 (breach of fiduciary duty); Rotella , 528 U.S. at 553-54

(RICO). If the parties were in a fiduciary relationship, delay in discovering the fraud

may be excusable. Toombs, 361 N.W.2d at 809. Ordinarily, a plaintiff's due

diligence and the existence of a fiduciary relationship will be questions of fact for a

jury, but "[w]here the evidence leaves no room for a reasonable difference of opinion

... the court may properly resolve fact issues as a matter of law." Veldhuizen v. A.O.

Smith Harvestore Prods., Inc., 839 F. Supp. 669, 674-75 (D. Minn. 1993) (citing Miles

v. A.O. Smith Harvestore Prods., Inc., 992 F.2d 813, 817 (8th Cir. 1993)). The district

court, adopting the report and recommendations of the magistrate judge, concluded

as a matter of law that Hope was not diligent in discovering her cause of action and

that Klabal and Epsteen had not acted as Hope's fiduciaries. 

Hope argues that she created a genuine issue of material fact as to whether

Klabal and Epsteen were her fiduciaries and that therefore her delay in discovering her

claims was excusable. She alleges that she had never purchased any art as an

investment before buying art from Klabal and Epsteen and that she relied entirely on

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their advice to inform her of the value, nature, significance and quality of each piece

of artwork. She claims that both defendants solicited and accepted her trust in their

art expertise. Hope also contends that because she developed personal friendships

with both Klabal and Epsteen, she was entitled to place her trust and confidence in

them.

State law determines whether a fiduciary relationship exists, Davis v. Merrill

Lynch, Pierce, Fenner & Smith, Inc., 906 F.2d 1206, 1215 (8th Cir. 1990), and under

Minnesota law a "fiduciary relationship exists 'when confidence is reposed on one side

and there is resulting superiority and influence on the other; and the relation and duties

involved in it need not be legal, but may be moral, social, domestic, or merely

personal.'" Toombs, 361 N.W. at 809 (quoting Stark v. Equitable Life Assurance

Soc'y, 285 N.W. 466, 470 (Minn. 1939). However, a fiduciary relationship is not

established under Minnesota law in the context of commercial transactions simply by

a long acquaintance between the parties or by the plaintiff having faith and confidence

in the defendant where the plaintiff should have known the defendant was

representing an adverse interest. See, e.g., Wells-Dickey Trust Co. v. Lien, 204 N.W.

950, 952-53 (Minn. 1925) (seller of property did not have a fiduciary duty to a buyer,

even where the parties were intimate and longtime friends and the seller served as the

executor of the buyer's husband's estate); Stark, 285 N.W. at 470 (absent a policy

provision explicitly assuming a duty to the plaintiff, an insurance agent would not

have had a fiduciary duty to a plaintiff who was illiterate, had limited business

experience, and had been close friends and business acquaintances with the agent for

years). 

We are persuaded that no fiduciary relationship was present here. Hope did not

produce any evidence indicating that Klabal or Epsteen explicitly assumed a duty to

protect Hope's rights or that they had access to her finances or control over her

decisions, thereby distinguishing their relationship from those where Minnesota courts

have tolled the statute of limitations for fraud based on a fiduciary relationship. See,

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e.g., Toombs, 361 N.W.2d at 809 (between a trustee and a beneficiary); Cohen v.

Appert, 463 N.W.2d 787, 790 (Minn. Ct. App. 1990) (between an attorney and a

client); Appletree Square I Ltd. P'ship v. Investmark, Inc., 494 N.W.2d 889, 892

(Minn. 1993) (between partners in a partnership); Murphy v. Country House Inc., 240

N.W.2d 507, 512 (Minn. 1976) (between directors of a corporation). The Minnesota

Supreme Court has stated on numerous occasions that a friendship between the parties

does not elevate an arms-length, commercial transaction to a fiduciary relationship.

See, e.g., Kennedy v. Flo-Tronics, Inc., 143 N.W.2d 827, 830 (Minn. 1966); Shema

v. Thorpe Bros., 62 N.W.2d 86, 91 (Minn. 1954); Stark, 285 N.W. at 470; WellsDickey Trust, 204 N.W. at 952. While Hope was not particularly knowledgeable

about the art market, she admits to being a sophisticated business person and she

should have known that Klabal and Epsteen represented an adverse interest. See

Amended Complaint ¶ 77. Therefore, under Minnesota law, Hope has not raised a

genuine issue of material fact as to whether Klabal and Epsteen were her fiduciaries,

and the statute of limitations for her claims cannot be tolled on this ground.

Hope's alternative argument is that she created a genuine issue of material fact

as to whether she could have discovered the fraud through the exercise of reasonable

diligence within six years of bringing her claims. Bustad v. Bustad, 116 N.W.2d 552,

555 (Minn. 1962). "The mere fact that the aggrieved party did not actually discover

the fraud will not extend the statutory limitation, if it appears that the failure sooner

to discover it was the result of negligence, and inconsistent with reasonable diligence."

Id. (citing First Nat. Bank of Shakopee v. Strait, 73 N.W. 645, 646 (Minn. 1898)).

Even if Hope presents evidence that the defendants affirmatively concealed the initial

fraud, she bears the burden of proving that she could not, through reasonable

diligence, have discovered the facts constituting the fraud until within six years of the

commencement of the action. See Blegen v. Monarch Life Ins. Co., 365 N.W.2d 356,

357 (Minn. Ct. App. 1985); see also Klehr v. A.O. Smith Corp., 521 U.S. 179, 194

(1997) (in RICO context, a plaintiff who is not reasonably diligent may not raise

fraudulent concealment to toll the statute of limitations). 

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Hope argues that she exercised reasonable diligence in discovering the fraud.

She contends that she had no reason to investigate whether she had a claim prior to

2000 because Klabal and Epsteen's fraud was "by its nature and design selfconcealing," in that the pair misrepresented the nature and qualities of the art they

sold, continually assured her that she was purchasing the artwork at prices below fair

market value, praised each other's professed expertise and trustworthiness, and issued

fraudulent insurance evaluations for her purchases. In addition, she alleges that

Klabal discouraged her from selling her art through others and, in order to conceal the

fraud, told her that Sotheby's was wrong when it appraised the art at lower prices.

Hope states that these actions "removed any incentive [she] may have had to suspect

misconduct or to investigate the possibility that she had any claim against either

Defendant."

We conclude that Hope has failed to create a genuine issue of material fact as

to her diligence in discovering the alleged fraud. Hope, a sophisticated business

person, spent a total of $10 million on artwork, much of which was purchased "sight

unseen" or never delivered, without independently confirming the value of the works

she was purchasing either before or after the transactions. She was on notice that the

insurance valuations provided to her by Klabal and Epsteen were not statements of the

pieces' fair market value and that full appraisals could be obtained through the Art

Dealers Association of America. Hope admits in her complaint as to Klabal that

contemporary art pricing was available, and concedes as to both defendants that she

was able to hire an independent expert to appraise the value of her purchases. In

addition, Dr. Ewald's affidavit states that auction houses, if provided with a work of

art or a clear photograph, will "identify three comparable works from the house's or

a comparable house's sales records which were sold in that year, if available." Once

Hope decided to hire an independent art appraiser, Dr. Ewald was able to ascertain the

appropriate values of the works, so had Hope engaged the services of an art appraiser

earlier she could have discovered that she had been overcharged. Cf. Barry v. Barry

78 F.3d 375, 380 (8th Cir. 1996) (plaintiff created genuine issue of fact as to her

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diligence under Minnesota law where she hired attorneys and a financial advisor to

advise her about a company's financial position, but the advisors were unable to

discover the company's true financial condition because of affirmative fraudulent

concealment). Furthermore, the price of the artwork Hope purchased was not so low

that getting a second opinion would have been financially prohibitive. Cf. Balog v.

Center Art Gallery- Hawaii, Inc., 745 F. Supp. 1556 (D. Haw. 1990) (discovery rule

applied where the sellers' actions and the low price of the artwork effectively

precluded the buyers from hiring an independent evaluator). While Hope contends

that she could not have discovered that she paid inflated prices for the works because

Klabal and Epsteen fraudulently concealed their actions, nothing Klabal or Epsteen

did prevented her from having the art appraised and they were not in exclusive

possession of pricing information for the pieces. See Marvin Lumber & Cedar Co. v.

PPG Indus., Inc., 223 F.3d 873, 878 (8th Cir. 2000) (where a plaintiff has access to

the facts that would make out the cause of action, the plaintiff has not been reasonably

diligent). The Minnesota courts deem facts to have been discovered when "with

reasonable diligence, they could and ought to have been discovered." Blegen, 116

N.W.2d at 357. Through the exercise of reasonable diligence, Hope could have

discovered that she was paying inflated prices for the artwork more than six years

before she brought her claims, and the district court did not err in finding as a matter

of law that her claims were barred by the statute of limitations.

B.

Hope also contends that the district court erred in finding that the continuing

tort doctrine did not toll the statute of limitations. She argues that Klabal and

Epsteen's conduct constituted an ongoing fraud because they urged her to make many

investments in order to achieve a significant and balanced portfolio of art. Under the

continuing tort doctrine, the final act is used to determine when the statute of

limitations period begins for the entire course of conduct. See Mille Lacs Band of

Chippewa Indians v. Minnesota, 853 F. Supp. 1118, 1126 (D. Minn. 1994). However,

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a plaintiff who is merely "feeling the present effects" of a past wrongful act may not

avoid the statute of limitations. Id. Minnesota courts have held that where each

transaction is separate, distinct, and could have been challenged by a plaintiff, the

continuing tort doctrine does not apply. See Davies v. West Pub. Co., 622 N.W.2d

836, 842 (Minn. 2001) (sixteen stock distributions made over a period of years were

discrete acts not tolling the statute of limitations). Each of the sales to Hope was

individually priced and insured, and the transactions occurred over a period of many

years. Consequently, the district court did not err in failing to toll the limitations

period under the continuing tort doctrine. 

C.

Finally, Hope argues that the district court erred in applying the law of the case

doctrine when granting summary judgment to Epsteen. When the magistrate judge

issued his report and recommendation on Epsteen's motion for summary judgment, he

declined to reconsider his prior conclusions that (1) Klabal was not Hope's fiduciary;

(2) Klabal did not engage in fraudulent concealment because Hope was not diligent

in seeking to discover her cause of action; (3) Epsteen and Klabal’s actions did not

amount to a continuing tort because each purchase of art was a distinct transaction;

and (4) Klabal and Epsteen did not engage in conspiracy to defraud Hope. Hope's

argument that the magistrate judge used these earlier rulings to preclude her claims

against Epsteen is without merit. In deciding that Epsteen was entitled to summary

judgment, the magistrate judge thoroughly reviewed Hope's amended complaint and

conducted an independent analysis of whether Hope used due diligence in discovering

her claims against Epsteen, whether Epsteen engaged in fraudulent concealment, and

whether Epsteen acted as Hope's fiduciary. The magistrate judge declined to

reconsider the argument that Klabal and Epsteen's conduct amounted to a continuing

tort in light of the fact that Hope's amended complaint did not present any new

evidence that would change its earlier conclusion that each art sale was a separate and

discrete transaction. We conclude that there was no error on this ground. 

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IV.

For the foregoing reasons, we affirm the judgment of the district court.

______________________________ 

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