___________

No. 95-1494

___________

Sandra Barry, also known as *

Sandra Barry Lieberman, *

an individual, *

*

Appellant, * Appeal from the United States

* District Court for the

v. * District of Minnesota.

*

Charles L. Barry, Melanie G. *

Barry, Lawrence Swartz, Marcia *

Barry Swartz, Twin City Fan *

and Blower Company, a *

Minnesota corporation, *

*

Appellees. *

___________

 Submitted: October 17, 1995

 Filed: March 12, 1996

___________

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,
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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
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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
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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 (1991)).
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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 (1993).

Excluded from the appellate record is evidence that was submitted to the

trial court subsequent to the ruling. United States East Telecommun. v.

US 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.
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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 or

should have reasonably been made is one of fact. Id. The plaintiff 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. Blegen v. Monarch Life Ins. Co., 365

N.W.2d 356, 357 (Minn. Ct. App. 1985).

In finding that Lieberman did not exercise reasonable diligence, the

district court stated that Lieberman was "sufficiently skeptical of

defendants' motivations in pursuing the buyout to raise suspicions that

defendants might not be completely forthcoming in the information provided

to [her]." The court pointed out that Lieberman felt as though the Barrys

were telling her they wanted a "divorce"; she felt the Barrys would do

whatever it took to force her out of the company; she immediately retained

attorneys, who negotiated a detailed contract for her; she enlisted
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a friend to help her analyze the company's financial position; she obtained

a guaranty on the note from her mother; and she protected her right to

inherit one-third of her mother's estate.

Lieberman submitted the affidavit of Robert Bartkus, Twin City's

Controller from 1976-80 and 1982-86, who attested that he had prepared the

books for the South Dakota bond issue, that he did not prepare the

statements that Lieberman received, and that both sets of financial

statements could not be correct. He attested that the statements given to

Lieberman were truthful in the areas that could be easily verified, and

were believable based on the 1982 statement, but that one principal

difference between the two sets of statements related to "material from

inventory." According to Bartkus, finding the true data in that area would

have required an audit of physical inventory, which might have necessitated

a one-day plant shutdown. Such verification was not required even for Twin

City's bond offering.

We disagree with the district court's conclusion that the

circumstances triggered a duty by Lieberman to check into the truthfulness

of the data the Barrys provided to her. Although some of the factors

recited by the district court may have made it unreasonable for Lieberman

to rely on the Barrys' characterization of the financial condition of the

company, Lieberman did not rely on those characterizations. Instead, she

hired attorneys and consulted a financial advisor to advise her about the

company's financial position. Lieberman's advisors, however, were unable

to discover the company's true financial condition because of the Barrys'

fraudulent concealment of the profits for 1983. See Continental Assurance

Co. v. Cedar Rapids Pediatric Clinic, 957 F.2d 588, 593 (8th Cir. 1992)

(false financial statements on company's letterhead were sufficient for the

jury to find active concealment and toll federal statute of limitations);

Cohen v. Appert, 463 N.W.2d 787, 790 (Minn. Ct. App. 1990) (to toll

limitation period, fraudulent concealment must be intentional and
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must prevent discovery of cause of action).

The Barrys and Twin City argue that because the correct financial

information was a matter of public record during Twin City's bond offering,

Lieberman could have found the information at that time, and that Lieberman

foreclosed any opportunity to later discover the fraud by cutting herself

off from her family and refusing to communicate with them. We find no

obligation under Minnesota law, however, for a plaintiff to investigate

after the fact. Because the bond offering and lack of communication came

after Lieberman had already sold her stock, she was not guilty of lack due

diligence by failing to later discover the fraud.

The Barrys and Twin City also argue that Lieberman would have

discovered the false information if she had pursued her dissenter's rights

under the Minnesota statute. Lieberman argues, however, that according to

the financial information available to her at the time, she had every

reason to believe such action would leave her in a worse position than

accepting the Barrys' original offer.

We conclude that a jury could reasonably believe that Lieberman

exercised due diligence in accepting the financial statements as true

without putting the company through an extensive audit of its physical

inventory or without fruitlessly pursuing her dissenter's rights.

IV.

We next turn to the issue whether the release signed by Lieberman was

valid and whether it bars her fraud claim. We find, again, that factual

issues remain to be determined whether the Barrys fraudulently induced

Lieberman to sign the release.

A release may be invalidated if fraud "touches" it. Noble v.

C.E.D.O., Inc., 374 N.W.2d 734, 744 (Minn. Ct. App. 1985). 
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Lieberman argues that the Barrys' fraudulent financial figures induced her

to sign the release. The Barrys and Twin City argue that Lieberman could

not justifiably rely on the financial information, given the relationship

of the parties at the time of the release.

The Barrys and Twin City submitted to the district court a letter

from Twin City's attorney, Fitzgerald, to Lieberman's attorney, which in

part refused an apparent attempt by Lieberman's attorney to have the Barrys

warrant that the financial information they provided was true. The refusal

was based on a desire to "wipe[] the slate clean," and on the Barrys'

belief that if they made a lot of money by moving to South Dakota a future

claim by Lieberman would be unfair. The Barrys and Twin City argue that

the refusal to provide the requested warranty rendered Lieberman's reliance

on the financial information unjustified.

We believe that Fitzgerald's refusal leaves the impression that the

Barrys were unwilling to warrant the future projections they had provided,

rather than that the historical financial information was false. We cannot

say that Fitzgerald's refusal made Lieberman's reliance on the false

financial information unjustified as a matter of law. Cutting against the

refusal are the apparent truthfulness of the information and the family

relationship. Under Minnesota law, a party may rely on the truthfulness

of business records unless their falsity is obvious. Speiss v. Brandt, 41

N.W.2d 561, 566 (Minn. 1950).

The Barrys and Twin City also argue that fraud claims can be released

and that if the release in this action is not valid, no release could be

valid. The Barrys and Twin City fail to recognize, however, the difference

between releasing mature fraud claims that a plaintiff knows exist, and

releasing the very fraud that induced the plaintiff to sign the release.

Although the later discovery of additional fraud does not invalidate the

release of a
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mature fraud claim, see Bellefonte Re Ins. Co. v. Argonaut Ins. Co., 757

F.2d 523, 527 (2d Cir. 1985), the same principle does not apply when a

plaintiff who justifiably relies on fraudulent information is induced to

sign a release for fraud claims that she did not know existed.

V.

Finally, we address Lieberman's breach of contract claim. Among

other things, the contract provided that Lieberman would receive additional

consideration in the event "(4) the sale of shares of the Corporation . . .

to the Corporation which results in . . . the Corporation owning 80% or

more of the outstanding shares of the Corporation."

The specific corporate changes that took place in 1988 were as

follows: (1) Twin City was renamed TCF Blower Division; (2) the Barrys

formed two other separate corporations, TCF Axial Division, Inc. and TCF

Industries, Inc.; (3) the Barrys' shares in TCF Blower Division were

cancelled; (4) both the Blower Division and the Axial Division issued

10,000 shares of stock each to TCF Industries; and (5) TCF Industries

issued 2,500 shares of stock to each of the Barrys. Lieberman argues that

the transaction constituted a sale of shares to the corporation in exchange

for stock in TCF Industries and that she is thus owed additional

consideration under the fourth scenario in the contract.

In the first district court opinion, the court found that "the 1988

changes were arguably triggering events within the literal terms of the

contract," but found that there was evidence that the parties did not

intend Lieberman to receive additional consideration unless the corporation

came under the control of outsiders. Thus, the court found that a jury

issue remained. After the case was transferred, the successor court found

that there was "no sale in the traditional or common sense of the term,"
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as there was not a buyer and seller.

Under Minnesota law, the court must first determine as a matter of

law whether a contract is ambiguous. Lamb Plumbing & Heating Co. v. KrausAnderson of Minneapolis, Inc., 296 N.W.2d 859, 862 (Minn. 1980). A

contract is ambiguous if its language is reasonably susceptible to more

than one interpretation. Trondson v. Janikula, 458 N.W.2d 679, 681 (Minn.

1990). The court should consider the context in which a word is being used

to determine whether it is ambiguous, Board of Regents v. Royal Ins. Co.

of America, 517 N.W.2d 888, 892 (Minn. 1994), and must give all terms their

plain, ordinary meaning so as to effect the intent of the parties, Davis

v. Outboard Marine Corp., 415 N.W.2d 719, 723 (Minn. Ct. App. 1987). If

a contract's terms are ambiguous, the court will consider extrinsic

evidence, and construction of the contract becomes a question of fact. Id.

Even under the plain, ordinary meaning of the term "sale," we find

that the term is ambiguous in the context of selling shares back to the

corporation. A sale is defined as "[a] contract between two parties,

called, respectively, the "seller" (or vendor) and the "buyer" (or

purchaser), by which the former, in consideration of the payment . . . of

a certain price in money, transfers to the latter title and possession of

the property." Blacks Law Dictionary (6th ed. 1990) at 1337. In this

instance, the Barrys transferred their stock to Twin City and received as

consideration shares of stock in another corporation, TCF Industries. The

definition does not contemplate whether the actual control of the shares

must be transferred in a real sense, and we find both Lieberman's and the

Barrys' and Twin City's interpretations plausible. There appear to be no

Minnesota decisions determining as a matter of law whether a true change

of control is necessary for a party to sell shares back to the corporation.

We thus remand for a jury to consider extrinsic evidence to determine

whether the parties intended that the shares
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needed to change control in a real sense before Lieberman's rights under

the agreement would be triggered.

The judgment is reversed and the case is remanded for trial.

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.