Opinion ID: 541988
Heading Depth: 1
Heading Rank: 2

Heading: Ill Rev.Stat. ch. 121 1/2, p 137.13 D (Smith-Hurd 1960).5

Text: 6 The statute begins to run, on the date the sale of the instrument is completed. Suslick v. Rothschild Securities Corp., 741 F.2d 1000, 1005 (7th Cir.1984). For purposes of determining the date upon which the limitations period is triggered under p 137.13 D, Illinois courts have defined the date of sale as the date on which the defendant acquires a legal interest in the alleged securities and the date when the rights of the parties to the transaction are fixed. See Frantzve v. Joseph, 150 Ill.App.3d 850, 104 Ill.Dec. 133, 502 N.E.2d 396 (1986); James v. Erlinder Manufacturing Co., 80 Ill.App.3d 4, 35 Ill.Dec. 275, 398 N.E.2d 1225 (1979); Levine v. Unruh, 99 Ill.App.2d 94, 240 N.E.2d 521 (1968); Silverman v. Chicago Ramada Inn, Inc., 63 Ill.App.2d 96, 211 N.E.2d 596 (1965). 7 In this case the date of sale which triggered the running of the three year statute of limitations occurred on July 1, 1978; this was the day upon which the plaintiff exchanged her stock for a promissory note issued by the corporation. Since the plaintiff's original complaint was filed on July 13, 1984, over six years after the statute of limitations began running, her action is clearly time barred unless her complaint alleges facts sufficient to invoke rules of equitable tolling which would operate to delay the 1978 running of the limitations period.
8 Prior to a line of decisions in the Supreme Court holding that when a federal court borrows a state's statute of limitations it takes the tolling rules as well, 6 the law of this circuit was clear that federal common law determined the circumstances which would equitably toll a borrowed limitations period. Tomera v. Galt, 511 F.2d 504, 509 (7th Cir.1975); Sperry v. Barggren, 523 F.2d 708, 710 (7th Cir.1975); Parrent v. Midwest Rug Mills, Inc., 455 F.2d 123, 125-127 (7th Cir.1972). Since then, however, some doubt exists as to whether both state and federal tolling rules operate to toll the borrowed limitations period, or whether the Tomanio line of cases exclusively permit the operation of state tolling rules. See Cange v. Stotler & Co., 826 F.2d 581, 585-86 (7th Cir.1987); Hemmings v. Barian, 822 F.2d 688, 690-691 (7th Cir.1987); Norris v. Wirtz, 818 F.2d 1329, 1331 (1987); Suslick v. Rothschild, 741 F.2d 1000, 1004 (7th Cir.1984). Since any combination of tolling rules fails to rescue the plaintiff's complaint from dismissal for want of jurisdiction because untimely, we express no opinion as to whether state, federal, or a hodgepodge of state and federal tolling rules operates to toll the period provided by state statutes borrowed for application to federal actions.
9 Under the federal doctrine of equitable tolling two types of fraudulent behavior toll the running of the statute of limitations in securities actions. In the first type, the statute may be tolled where the fraud goes undiscovered even though the defendant does nothing to conceal it. Suslick v. Rothschild Securities Corp., 741 F.2d 1000, 1004 (7th Cir.1984). Here, however, the plaintiff's due diligence in attempting to discover the fraud is imperative. Id. In the second type, the statute of limitations is tolled if the fraud remained undisclosed because the defendant took additional affirmative steps after committing the fraud to keep it concealed. Here the plaintiff is relieved from his obligation to use due diligence to discover the fraud. Where active concealment exists, the statute is tolled until there is actual discovery of the fraud. Id. See also Tomera v. Galt, 511 F.2d 504, 510 (7th Cir.1975). 10 The allegations in plaintiff's amended complaint do not provide a basis for tolling the limitations statute under either type of federal equitable tolling. Plaintiffs fail the first test because their amended complaint contains no allegations that the plaintiff made inquiries or otherwise exercised due diligence to determine the true value of the A.C. Davenport stock or verify any other alleged fraudulent representations made in connection with the 1978 stock redemption. The amended complaint's allegation of due diligence based upon the self concealing nature of the fraud, her lack of sophistication, and the fact that the people upon whom she would reasonably depend to ferret out the fraud were themselves the perpetrators... is insufficient to satisfy the rule's due diligence requirement. The plaintiff's lack of sophistication is irrelevant to our inquiry. The statute begins to run when a reasonable person would have appreciated the need for further inquiry. Norris v. Wirtz, 818 F.2d 1329, 1134 (7th Cir.1988). An objectively reasonable person would have appreciated the need long before 1984. 11 Since the plaintiff fails to allege due diligence, the remaining tolling exception requires her to plead active concealment of the fraud. The plaintiff's amended complaint is equally wanting here. Plaintiff's allegation that Miller's and Kravets' ongoing subsequent failure to disclose facts material to the sale of plaintiff's stock while continuing to act in a fiduciary capacity ... [lulled the] plaintiff so as to prevent her from uncovering the defendant's fraudulent acts is insufficient to trigger the active concealment tolling rule. While the plaintiff's allegation appears to be based on Illinois decisions holding that the silence of a fiduciary constitutes concealment, the federal doctrine of equitable tolling does not ascribe to this rule and clearly requires the defendants to take additional affirmative steps after committing the fraud to keep it concealed. Teamsters Local 282 Pension Trust Fund v. Angelos, 815 F.2d 452, 456 n. 4 (7th Cir.1987). See also Hupp v. Gray, 500 F.2d 993, 997 (7th Cir.1974) (conclusory assertion that plaintiff had been lulled into a sense of security by his fiduciary is insufficient to invoke the doctrine of fraudulent concealment). Since the plaintiff fails to allege either due diligence or active concealment federal equitable tolling will not preserve her claim.
12 Illinois state tolling rules are equally inapplicable to this case. Even assuming that the amended complaint alleged fraudulent concealment, our reading of p 137.13 D precludes the expansive tolling sought in this case. 13 A reading of the 1985 amendments to p 137.13 D coupled with a reading of their interpretive comments suggests that the three-year period applicable before January 1, 1986 was itself a statute of repose. Norris v. Wirts, 818 F.2d 1329, note at 1333-34 (7th Cir.1987), Gutfreund v. Christoph, 658 F.Supp. 1378, n. 9 (N.D.Ill.1987). In addition, it is unclear whether Illinois' doctrine of fraudulent concealment tolls the statute of limitations in an Illinois-law securities claim. 7 14 As previously indicated, before the 1985 amendments, p 137.13 D provided simply that no action under the statute was to be brought after three years from the date of the security's sale. The 1985 amendments, intended to expand and clarify the statute's scope, retained the three year limitations period but specifically added tolling amendments including fraudulent concealment. However, these tolling amendments were coupled with a two year statute of repose. Thus, under the new statute, regardless of tolling, no action could be brought after five years from the date of sale. Since the interpretive comments to the amendment suggest that the 1985 amendments sought to expand the scope of p 137.13 D, it seems unlikely that Illinois courts would permit the old p 137.13 D to be tolled indefinitely by common law tolling rules. 8 Indeed, based upon a thorough reading of the statute, its amendments and accompanying interpretive comments this court recently concluded that the original p 137.13 D may have been a statute of repose: 15 [The interpretive comment] suggests that Illinois has had a statute of repose all along and that only the pre-Tomanio overlay of federal tolling doctrines has prevented its implementation. No matter what we make of this, the status of the law in Illinois hardly calls for expansive tolling in securities cases. 16 Norris v. Wirts, 818 F.2d 1329, note at 1333-34 (7th Cir.1987). 17 Accordingly, because we find that federal equitable rules do not apply to the facts alleged in the plaintiff's amended complaint and since we believe that fraudulent concealment cannot operate to toll the old p 137.13 for over six years from the date of sale, without deciding which tolling rules apply, we hold that the plaintiff's federal securities claims are time barred and that the district court's dismissal of this portion of the plaintiff's amended complaint was proper.