Court Opinion

ID: 3018561
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:19:22.632974+00
Date Added: 2024-06-11T18:10:49.347045
License: Public Domain

United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT

     ___________

     No. 96-3262
     ___________

Kansas Public Employees             *
Retirement System,                  *
                                    *
     Plaintiff - Appellant,         *
                                    *
     v.                             *
                                    *
Blackwell, Sanders, Matheny,        *
Weary & Lombardi, L.C., a law       *
partnership; William H.             *
Sanders, Sr., individually and      *
as the representative of a          *
defendant class,                    *   Appeals from the United States
                                    *   District Court for the
     Defendants - Appellees.        *   Western District of Missouri.

     ___________

     No. 96-3317
     ___________

Kansas Public Employees             *
Retirement System,                  *
                                    *
     Plaintiff - Appellant,         *
                                    *
     v.                             *
                                    *
Reimer & Koger Associates,          *
Inc., a Kansas Corporation;         *
Ronald Reimer, an individual;       *
Kenneth H. Koger, an                *
individual; Clifford W.             *
Shinski, an individual; Brent       *
Messick, an individual; Robert     *
Crew, an individual; Sherman       *
Dreiseszun, an individual;         *
I. I. Ozar, an individual;         *
Frank Sebree, an individual;       *
Peat, Marwick, Mitchell & Co.,     *
an accountancy firm; KPMG Peat     *
Marwick, an accountancy firm;      *
Robert Spence, an individual;      *
Thomas S. Morgan, co-executor      *
of the estate of Frank S.          *
Morgan; Marilyn J., co-executor    *
of the estate of Frank Morgan,     *
                                   *
     Defendants - Appellees,       *
                                   *
Shook, Hardy & Bacon, through      *
C. Patrick McLarney, acting as     *
a representative of an agreed      *
upon class of partners in          *
Shook, Hardy & Bacon, and for      *
Shook, Hardy & Bacon P.C.,         *
                                   *
     Intervenor Defendant -        *
     Appellee.                     *
                                   *
-------------------------------    *
                                   *
Kansas Public Employees            *
Retirement System,                 *
                                   *
     Plaintiff - Appellant,        *
                                   *
     v.                            *
                                   *
Blackwell, Sanders, Matheny,       *
Weary & Lombardi, L.C., a law      *
partnership; William H.            *
Sanders, Sr., individually and     *
as the representative of a         *
defendant class,                   *
                                   *
     Defendants - Appellees.       *

                                  -2-
     ___________

     No. 96-3680
     ___________

Kansas Public Employees            *
Retirement System,                 *
                                   *
     Plaintiff - Appellant,        *
                                   *
     v.                            *
                                   *
Reimer & Koger Associates,         *
Inc., a Kansas Corporation;        *
Ronald Reimer, an individual;      *
Kenneth H. Koger, an               *
individual; Clifford W.            *
Shinski, an individual; Brent      *
Messick, an individual; Robert     *
Crew, an individual; Sherman       *
Dreiseszun, an individual;         *
I. I. Ozar, an individual;         *
Frank Sebree, an individual;       *
Peat, Marwick, Mitchell & Co.,     *
an accountancy firm,               *
                                   *
     Defendants,                   *
                                   *
KPMG Peat Marwick, an              *
accountancy firm; Robert           *
Spence, an individual,             *
                                   *
     Defendants - Appellees,       *
                                   *
Thomas S. Morgan, co-executor      *
of the estate of Frank S.          *
Morgan; Marilyn J., co-executor    *
of the estate of Frank Morgan,     *
                                   *
     Defendants,                   *
                                   *
Shook, Hardy & Bacon, through      *
C. Patrick McLarney, acting as     *
a representative of an agreed      *
upon class of partners in          *
Shook, Hardy & Bacon, and for      *
Shook, Hardy & Bacon P.C.,         *
                                   *
     Intervenor Defendant.         *

                                  -3-
                                  ___________

                     Submitted:   March 13, 1997

                         Filed:   May 13, 1997
                                  ___________

Before McMILLIAN, JOHN R. GIBSON, and BOWMAN, Circuit Judges.
                               ___________

JOHN R. GIBSON, Circuit Judge.

     Kansas Public Employees Retirement System, known as KPERS, appeals
from the district court’s1 entry of an adverse summary judgment in its case
against its investment advisers,2     accountants,3 lawyers,4 one of its own
trustees,5   and the former directors6 of Home Savings Association, arising
out of KPERS’s

     1
      The Honorable D. Brook Bartlett, Chief Judge, United States
District Court for the Western District of Missouri.
     2
      The investment advisor defendants are Reimer & Koger
Associates, Inc., and a number of individuals associated with
Reimer & Koger: Kenneth H. Koger, Ronald Reimer, Clifford W.
Shinski, Robert Crew and Brent Messick.
     3
      The accountant defendants are KPMG Peat Marwick and Robert
W.L. Spence, a partner in Peat Marwick.
     4
      The lawyer defendants are Blackwell, Sanders, Matheny, Weary
& Lombardi, L.C.; its partner William H. Sanders, Sr.; Shook, Hardy
& Bacon, P.C.; and Shook, Hardy & Bacon, a class of partners. A
Shook Hardy partner, Frank P. Sebree, is joined both in his
capacity as a lawyer and as a Home Savings director.
     5
      Michael Russell was a trustee of KPERS and a defendant in
this case. The court entered summary judgment for Russell on March
4, 1997, and KPERS appealed. KPERS moved to stay argument of this
case so that the appeal could be consolidated with this appeal. We
denied that motion. Order of March 11, 1997.
     6
      The Home Savings defendants are the Estate of Frank Morgan,
Sherman Dreiseszun, I. I. Ozar, and Frank P. Sebree.

                                     -4-
investment in Home Savings, a failed thrift institution.              In an earlier
appeal, we held that KPERS's claims were not governed by a ten-year Kansas
statute   of   limitation,   but    that    Missouri   choice   of   law   provisions
controlled.     KPERS v. Reimer & Koger Assocs., 61 F.3d 608 (8th Cir.
1995)(KPERS III), cert. denied, 116 S. Ct. 915 (1996).          Under the Missouri
borrowing statute, KPERS's claims are barred if they would be untimely
under the two- and three-year statutes provided by Kansas law.              Id.    We
remanded to the district court to determine whether KPERS's claims were
barred by the Kansas statutes.      The district court held that KPERS’s claims
are time-barred under Kansas law.7      KPERS argues that the court should not
have applied the Kansas statutes of limitation to KPERS’s claims, because
its claims are exempt from all statutes of limitation.               Further, KPERS
argues that, even if the claims are subject to the statutes of limitation,
the district court erred in applying the statutes of limitation to the
facts of this case, specifically that it misconstrued Kansas law concerning
when a cause of action accrues, overlooked disputed fact issues, and failed
to consider all of KPERS’s claims against its accountants.            We affirm the
judgments of the district court.

     KPERS is the pension fund for certain employees of the state of
Kansas.    In 1983 Governor John Carlin began to promote the use of KPERS
money to stimulate the Kansas economy.           KPERS's investment consultants,
Callan Associates, Inc., advised KPERS in 1983 that investing public
pension fund moneys as venture capital to promote regional business would
be a high-risk undertaking.        Callan advised

     7
      KPERS v. Reimer & Koger Assocs., Inc., No. 92-0922-CV-W-9
and No. 95-0819-CV-W-9 (W.D. Mo. June 3, 1996); KPERS v. Reimer &
Koger Assocs., Inc., No.92-0922-CV-W-9 (W.D. Mo. July 25, 1996).
The court also denied KPERS's motion to amend its Sixth Amended
Complaint. KPERS v. Reimer & Koger Assocs., Inc., No. 92-0922-
CV-W-9 (W. D. Mo. Aug. 5, 1996).

                                           -5-
KPERS not to embark on such a program, but to stick to "more traditional
investments."   Carlin appointed a Kansas City businessman, Michael Russell,
to KPERS’s board of trustees.    Russell became chairman of KPERS's board in
August 1985.    Russell was a friend and business associate of Kansas City
banker Frank Morgan.

     In 1985, KPERS established a special "Kansas Investment Fund" to make
direct investments in Kansas ventures.     About the same time, Morgan and his
uncle,   Sherman   Dreiseszun,   bought    Home   Savings,   an   ailing   thrift
institution based in Kansas City.    As part of the acquisition, Morgan and
Dreiseszun entered into an agreement with the Federal Home Loan Bank Board
in which they agreed that Home Savings would not engage in transactions
with other banks affiliated with Morgan and Dreiseszun.      Because Morgan and
Dreiseszun were the "standby purchasers" of Home Savings stock, this
agreement is known as the "standby purchaser agreement."          Russell became
a member of the Home Savings board of directors.     He and his businesses had
borrowed large amounts from Home Savings.
     KPERS conducted its investments through outside investment advisors,
one of which was Reimer & Koger.      Relations between KPERS and Reimer &
Koger were governed by a Special Investment Advisory Services Agreement,
which incorporated the "prudent man" standard for investing KPERS's money.
After Russell became chairman of KPERS's board, Frank Morgan invited Reimer
& Koger’s principal, Kenneth Koger, to invest $25 million of KPERS’s money
in Home Savings.   Koger only had authority to invest $15 million of KPERS’s
money without board approval, but on December 31, 1985, Koger committed to
invest that amount in Home Savings subordinated debentures.          Koger noted
in a memo sent to KPERS's executive secretary that Russell was on Home
Savings's board and that "something would have to be done about that."
Accordingly, Russell

                                     -6-
resigned from Home Savings's board on February 12, 1986.        Koger then
invested KPERS’s $15 million in Home Savings subordinated debentures on May
2, 1986.    Reimer & Koger retained Blackwell Sanders to do the legal work
for this investment.    As counsel for Home Savings, Frank Sebree of Shook
Hardy issued an opinion of counsel in connection with the investment,
stating that to the "best of our knowledge and belief, the Association is
not in violation of . . . any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to it."

        Morgan next approached Koger about investing $50 million in Home
Savings.    Because this investment exceeded Koger’s investment authority,
Koger had to go to the KPERS board for permission to make the investment.
On June 6, 1986, Koger wrote a letter to Russell proffering the $50 million
investment; Koger’s letter stated that the purpose of the investment would
be to finance Home Savings’s acquisition of a $1 billion St. Louis savings
and loan.     Russell telephoned the other members of the KPERS board to
obtain approval of the investment, and the trustees voted in favor of the
investment.    In June 1986 Home Savings bid on the St. Louis savings and
loan.    By the fall of 1986, Home Savings knew it had lost the bid.     On
September 30, 1986, because the parties were not prepared to close on the
debentures, KPERS invested in Home Savings short term promissory notes; the
notes were exchanged for subordinate debentures of Home Savings on October
24, 1986.   As part of the issuance of the debentures, Sebree again issued
an opinion of counsel to KPERS in which he stated that Home Savings was not
in violation of any agreement or regulation to his knowledge.   However, in
actuality, Home Savings had been cited by the bank examiners in its most
recent examination for excessive investment in a subsidiary corporation.

                                    -7-
     On November 13, 1986 the Kansas City Star reported that KPERS had
made the $50 million investment in Home Savings.       The article quoted Koger
as saying that Home Savings had considered buying an unnamed St. Louis
savings and loan, but that Home Savings had "pretty much dropped [that
acquisition] from consideration."

     On December 21, 1986 the Kansas City Star published a lengthy
investigative    article   entitled:    "Kansas   pension   fund   ventures   raise
questions of conflict."     The article revealed that Russell had not only
been on the Home Savings's board, but that shortly after the $50 million
subordinated debenture purchase, one of Russell's businesses had obtained
a $40 million loan from another Morgan bank.       The article quoted interviews
with Koger, Russell, and several other KPERS board members about whether
there was a conflict of interest because of Russell's directorship and
loans.
     As a result of the Kansas City Star article, the Kansas Attorney
General, Robert Stephan, undertook an investigation of the possible Russell
conflict.      Stephan issued a report on March 4, 1987, concluding that
Russell had not violated the Kansas ethics law, Kan. Stat. Ann. § 46-233,
by virtue of his Home Savings directorship because the amount of money
Russell made as a director was below the $2,000 amount specified in the
Kansas statute as a "substantial interest," Kan. Stat. Ann. § 46-229, and
because Russell had resigned from the directorship by the time of the KPERS
investments.    Therefore, the Attorney General's report concluded that the
Kansas ethics statute did not bar Russell from participating in the making
of the Home Savings investment.        The Attorney General further considered
whether Kansas ethics laws were "appropriate" to protect the fund.              The
Attorney General determined that KPERS was adequately protected by the
requirement that KPERS board members exercise "the judgment and care under
the circumstances then prevailing, which men of prudence, discretion

                                        -8-
and intelligence exercise in the management of their own affairs."         He
stated:      "An attempt to restrict the board any further than this in their
investment decisions may prove detrimental to the program."       Further, he
noted that "borderline conflict situations" were perhaps an inevitable
result of the "desirable" practice of having "successful businessmen" on
the board.      Stephan's report did not discuss Russell's loan from the other
Morgan bank.

        In December 1987 the KPERS $50 million was reinvested in more Home
Savings subordinated debentures.       In connection with the reissue, Sebree
again       issued an opinion stating that Home Savings was not, to his
knowledge, in violation of any law, agreement, or regulation.        However,
Home Savings's last examination report stated that Home Savings had
violated the standby purchasers agreement by buying loans from affiliated
banks and had violated federal regulations by excessive investment in a
subsidiary.
        By May 1988, the bank examiners' criticisms of Home Savings's
affiliate transactions, conflicts of interest, and problem loans had become
more urgent.     The Kansas City Business Journal reported in September 1988
that Home Savings had been criticized by the examiners in its last
examination for affiliate transactions and undercapitalization.       As part
of an effort to provide Home Savings with sufficient capital to meet the
regulatory requirements, KPERS converted its debentures into preferred
stock on March 29, 1990.8     In 1991, the regulators closed Home Savings and
appointed the RTC as receiver.         KPERS lost its entire $65 million in
principal, though it had earlier received some $29 million in interest
payments.

        8
      KPERS agrees that its ultimate recovery following the
regulatory takeover was not affected by the conversion of its
investment from debt to equity. Dist. Ct. Order of June 3, 1996 at
36.

                                       -9-
      Peat Marwick had audited KPERS annually from 1983 to 1988.            Because
the direct placement investments were difficult to value, KPERS adopted a
policy of carrying those investments on its books at cost, minus any
permanent impairment.      KPERS's investment managers, such as Reimer & Koger,
were responsible for reporting to KPERS when they determined an investment
was   permanently impaired.          The investment advisers were compensated
according to the amount of money they were handling for KPERS, which meant
that they reduced their compensation when they reported an impairment.
Peat Marwick warned KPERS in 1987 and 1988 that its direct placement
investments were partially impaired and that it needed to establish an
investment allowance account to protect it against impairments.                Peat
Marwick reported to KPERS's in-house accountants in 1987 and 1988 that
KPERS had impaired direct placement investments of $10 million and $19
million    respectively.      Peat    Marwick   nevertheless   issued   unqualified
opinions despite the impairments.       Peat Marwick's successor auditor, Baird,
Kurtz & Dobson, recognized in the 1989 audit that KPERS's direct placement
losses could be as high as $75 million; in response to this report, KPERS
set up an investment allowance account and also wrote down its direct
placement investments by $27 million.           Reimer & Koger did not write down
KPERS's $65 million investment until March 15, 1991, the day Home Savings
was placed in receivership.

      KPERS initially filed its case on June 5, 1991 in the state courts
of Kansas against the Reimer & Koger defendants.           On December 23, 1991,
KPERS added the Home Savings defendants, the Peat Marwick defendants, and
Russell.     The Home Savings defendants impleaded the Resolution Trust
Corporation, receiver for Home Savings.             The RTC had the power under
FIRREA, 12 U.S.C. § 1441a(l)(3) (1994), to remove the case to the Western
District of Missouri, which it did.       KPERS moved to remand the case to the

                                        -10-
Kansas court, but the district court denied its motion, and we affirmed in
KPERS v. Reimer & Koger Assocs., 4 F.3d 614 (8th Cir. 1993) (KPERS I),
cert. denied, 511 U.S. 1126 (1994).

        After KPERS advised the two law firms, Blackwell Sanders and Shook
Hardy, that it intended to sue them in Kansas, both firms moved to
intervene in this case.       The court granted Shook Hardy's motion to
intervene, but denied permission to Blackwell Sanders.          However, we
reversed, permitting Blackwell Sanders to intervene as well.       KPERS v.
Reimer & Koger Assocs., 60 F.3d 1304 (8th Cir. 1995) (KPERS II). KPERS sued
Blackwell Sanders in Kansas state court on January 6, 1995.       Blackwell
impleaded the RTC, which removed the case to the Western District of
Missouri.
        KPERS’s complaint (by now, its Sixth Amended Complaint) is pleaded
in fifteen counts and asserts a variety of theories, including common law
fraud, statutory securities fraud, various breaches of fiduciary and
professional duties, negligence, breach of contract, and civil conspiracy.
There are a few crucial factual allegations relevant to most of the
different legal theories.     First, KPERS alleges that the Home Savings
defendants and Reimer & Koger misrepresented that Home Savings would use
KPERS’s $50 million investment to buy a $1 billion St. Louis savings and
loan.    KPERS alleges that Home Savings actually knew when it received the
$50 million that it would not use the money to buy the St. Louis savings
and loan, because Home Savings needed the money to raise its capital level
to the regulatory minimum.     KPERS alleges Reimer & Koger knew the money
would not be so used, but failed to tell KPERS.   KPERS alleges that Russell
told the other KPERS trustees that the money would be used to buy the St.
Louis savings and loan.   Second, KPERS alleges that Sebree issued opinion
letters on behalf of Home Savings saying that Home Savings was not in
violation of any governmental regulation or agreement, when in fact Home
Savings

                                    -11-
was in violation of the standby purchaser agreement it had entered with the
Federal Home Loan Bank Board and had excessive investments in one of its
subsidiaries.   Third, KPERS alleges that the Home Savings defendants made
several statements about the quantum of risk in their lending portfolio,
and that these statements were false because the credit risk was much
higher due to high risk transactions done to benefit other Morgan banks.
Similarly, KPERS claims Reimer & Koger and Blackwell Sanders failed to
advise KPERS of the high-risk nature of the Home Savings investment.
Fourth, KPERS alleges that Russell made false statements to the other KPERS
trustees in order to procure KPERS's money for Home Savings so that Home
Savings's affiliates would, in turn, lend him $40 million.     KPERS claims
that the Home Savings defendants, Shook Hardy, Blackwell Sanders and Reimer
& Koger participated in Russell’s breach of duty by failing to reveal
Russell’s conflicts of interest to KPERS.   Finally, KPERS alleges the Peat
Marwick defendants' failure to identify and write off impaired investments
caused KPERS to overvalue its investment in Home Savings and prevented it
from discovering the wrongdoing of other defendants and from taking action
to stop its losses.
       The Home Savings defendants moved for summary judgment on the grounds
that KPERS's claims were time-barred.   The district court determined that
Kansas choice of law rules should govern the choice of limitations law and
that the applicable Kansas period was provided by a ten-year statute
enacted especially to govern civil actions brought by KPERS, Kan. Stat.
Ann. § 60-522 (1994).    In an interlocutory appeal, we reversed, holding
that Missouri choice-of- law rules governed, and that the ten-year Kansas
statute did not purport to revive barred claims.     KPERS III, 61 F.3d at
615.   In KPERS III we held that "the Missouri borrowing statute requires
the district court to apply the Kansas two- and three-year statutes [Kan.
Stat. Ann. §§ 60-513(a) and 60-512] to KPERS’ claims if the

                                    -12-
claims would be 'fully barred' by these statutes (a finding of fact which
has not been made)."9   Id.   We remanded for the district court to determine
whether KPERS's claims were barred by these statutes.      Id.

     On remand, all the defendants moved for summary judgment on the
grounds that KPERS’s claims were barred by the Kansas two-year tort
statute, Kan. Stat. Ann. § 60-513(a) (1996 Cum. Supp.), and the Kansas
three-year statute for statutory claims, Kan. Stat. Ann. § 60-512 (1994).
The district court held that the defendants were entitled to summary
judgment on the ground that KPERS’s claims were time-barred.       Orders of
June 3, 1996 (Home Savings defendants, law firm defendants, and Reimer &
Koger defendants), July 25, 1996 (Peat Marwick defendants); and March 4,
1997 (Russell).   The court also denied KPERS's motion to amend its Sixth
Amended Complaint to add a breach of contract claim against the Peat
Marwick defendants.     Order of August 5, 1996.

     The district court first considered the summary judgment motion of
the Reimer & Koger defendants.    The court concluded that, even though KPERS
pleaded one of its claims as a breach of the Special Investment Advisory
Services contract, the Kansas two-year tort statute would apply to all
KPERS’s claims against Reimer & Koger, because KPERS’s contract did not
call for a specific result, but simply required discharge of duties imposed
by law by virtue of

     9
      KPERS has also appeared before us in matters arising out of
the same underlying case, but not directly relevant to the issues
here. In KPERS v. Reimer & Koger Assocs., 77 F.3d 1063 (8th Cir.)
(KPERS IV), cert. denied, 117 S. Ct. 359 (1996), we affirmed a
district court order enjoining KPERS from prosecuting suits in
Kansas state court based on the same claims being litigated in this
case. In In re KPERS, 85 F.3d 1353 (8th Cir. 1996) (KPERS V), we
denied KPERS's petition for writ of mandamus directing the district
judge to recuse himself.

                                     -13-
the contract.    Order of June 3, 1996, slip op. at 43-45 (citing Hunt v. KMG
Main Hurdman, 839 P.2d 45, 47 (Kan. Ct. App. 1992)).

     Therefore, the court held that KPERS’s claims against the              Reimer &
Koger defendants would be barred if they had accrued before June 5, 1989,
two years before KPERS filed suit against the Reimer & Koger defendants.
Id. at 45.    Under Kansas law, the statute of limitation would begin to run
at the time it was reasonably ascertainable that the plaintiff had suffered
an injury caused by the defendant’s wrongdoing.              Id.    at 46 (citing
Dearborn Animal Clinic, P.A. v. Wilson, 806 P.2d 997 (Kan. 1991)).                The
court held that the evidence showed the KPERS board of trustees had actual
knowledge before June 5, 1989, of the facts KPERS now alleges Reimer &
Koger failed to tell KPERS about:       that Home Savings was no longer planning
to use KPERS's $50 million to buy the St. Louis savings and loan; that
Russell was a director of Home Savings and borrowed money from another
Morgan bank; and that Home Savings was engaged in risky real estate and
commercial lending.     Id. at 47-48, 52.

     Alternatively, the court held that even if the KPERS board did not
have actual knowledge about these things, Reimer & Koger’s knowledge could
be imputed to KPERS because Reimer & Koger was              KPERS’s agent and an
agent’s knowledge can be imputed to its principal.          Id.    at 49-50.

     The     court   also   rejected   KPERS’s   argument   that   Reimer   &   Koger
concealed the facts from KPERS and therefore the statute should be tolled.
The court held that no reasonable finder of fact could conclude that Reimer
& Koger intentionally concealed information from KPERS.            Id.   at 54.

                                        -14-
     The court held that the same knowledge that caused KPERS’s claims
against Reimer & Koger to accrue before June 5, 1989 would also bar its
common law tort claims against the Home Savings defendants, which were
filed several months later than the claims against the Reimer & Koger
defendants.   Id. at 60.   KPERS also sued the Home Savings defendants for
statutory securities fraud, which has a three-year statute of limitation,
Kan. Stat. Ann. § 60-512; see Kelly v. Primeline Advisory, Inc., 889 P.2d
130, 134 (Kan. 1995).   The court held that KPERS had knowledge of the key
facts by December 23, 1988, which meant that its statutory claims against
the Home Savings defendants were also barred.        Order of June 3, 1996, slip
op. at 61.

     The claims against Shook Hardy and Blackwell Sanders were even more
obviously barred, since Shook Hardy did not move to intervene until October
14, 1994, id. at 64, and KPERS did not sue Blackwell Sanders until January
6, 1995, id. at 67.     The same facts relevant to the claims against the
other defendants barred KPERS’s suits against these two law firms long
before the suits were brought.        Id.   at 64-65, 69.
     In a separate order, the court held that the claims against the Peat
Marwick defendants were barred by the two-year statute of limitation.
KPERS claims Peat Marwick misled it by signing off on audits of KPERS
without advising KPERS that its Home Savings investments were impaired or
that it should establish an investment allowance account.               The court
pointed to a number of facts that would cause the statute to begin running
before December 23, 1989, including the fact that Peat Marwick stated in
its 1987 and 1988 auditor’s reports that some of KPERS’s direct placement
investments   were   impaired   and    recommended    that   KPERS   establish   an
investment allowance account.     Order of July 25, 1996, slip op. at 21.
Moreover, by September 30, 1989, after an audit by a new auditor,

                                       -15-
Baird, Kurtz & Dobson, KPERS established an investment allowance account
and wrote off a portion of its direct placement investments.       Id. at 22.

                                      I.

        KPERS makes threshold legal arguments that its claims are not subject
to any statute of limitation.

        We review a grant of summary judgment de novo.   See Uhl v. Swanstrom,
79 F.3d 751, 754 (8th Cir. 1996).     Summary judgment is proper when there
is no genuine issue of material fact and the moving party is entitled to
judgment as a matter of law.    Fed. R. Civ. P. 56(c); see Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986).      We also review de novo the district
court's determination of questions of state law.    See Salve Regina College
v. Russell, 499 U.S. 225, 231 (1991).

        In KPERS III we held that Missouri limitations law governed this case
and that under Missouri's borrowing statute the Kansas two- and three-year
statutes of limitation applied to KPERS's claims if those statutes fully
barred the claims. 61 F.3d at 614-16.    The law of the case doctrine
prevents the relitigation of a settled issue in a case and requires courts
to adhere to decisions made in earlier proceedings.       See Little Earth of
the United Tribes, Inc. v. United States Dep't of Hous. & Urban Dev., 807
F.2d 1433, 1441 (8th Cir. 1986).    The law of the case doctrine applies to
issues decided implicitly as well as those decided explicitly.         Id. at
1438.    We are satisfied that the law of the case doctrine prevents KPERS
from relitigating the issue of whether these statutes apply to its claims.
See United States v. Duchi, 944 F.2d 391, 392-93 (8th Cir. 1991).          We
recognize that the law of the case

                                     -16-
doctrine does not apply when it results in a manifest injustice, and
therefore we briefly discuss the merits of KPERS's arguments for exemption
from the statutes of limitation.

                                      A.

     KPERS argues that its investment in Home Savings was a governmental
function, and therefore, its claims arising out of that investment are not
subject to any statute of limitation.

     The Kansas Supreme Court has stated that "[m]aintaining KPERS is a
proprietary function of the state."        In re Midland Indus., 703 P.2d 840,
843 (Kan. 1985) (discussing the holding of Shapiro v. KPERS, 532 P.2d 1081
(Kan. 1975)).   In Shapiro, the Kansas Supreme Court rejected the argument
that sovereign immunity barred payment of interest on a claim for benefits
made by an employee's widow.     Shapiro, 532 P.2d at 1085.    Shapiro looked
to the statutes creating KPERS as a body corporate with the power to sue
and be sued, and held that if a government enters into business ordinarily
reserved to the field of private enterprise, it should be held to the same
responsibilities and liabilities.     Id. at 1083-84.     A member of KPERS or
his beneficiary should be provided the same protection and the same redress
as if the breach of contract had been committed by a private insurance
company.   Id. at 1084-85.   While the issue in Shapiro involved a claim for
benefits only, Midland's explanation of the holding in Shapiro demonstrates
the broad scope of the ruling.     These clear holdings compel rejection of
                    10
KPERS's argument.

     10
      KPERS argues that the Missouri common law doctrine of
nullum tempus occurrit regi bars all statutes from running
against a claim by the state. The Kansas Supreme Court has held
in State Highway Commission v. Steele, 528 P.2d 1242, 1243-44
(Kan. 1974), that enactment of section 60-521, Kan. Stat. Ann. §
60-521 (1994), abolishes this doctrine where public bodies are
operating in a proprietary capacity. Further, the doctrine has
been applied by most states only to actions brought by a state in
its own courts. See, e.g., Pennhurst State Sch. v. Estate of
Goodhartz, 200 A.2d 112, 116 (N.J. 1964).

                                     -17-
     Indeed, the Kansas legislature in enacting section 60-522, Kan. Stat.
Ann. § 60-522 (1994), which we discussed at length in KPERS III, has
acknowledged that statutes of limitation run as to claims asserted by
KPERS.

     KPERS    has    made     extended     arguments    that     its   operations      are
governmental functions as opposed to proprietary.           The Kansas Supreme Court
has made clear that an activity is a proprietary function if it is
commercial   in   character,     usually    carried    on   by   private    parties,    or
conducted for profit.       See Carroll v. Kittle, 457 P.2d 21, 28 (Kan. 1969);
State ex rel. Schneider v. McAfee, 578 P.2d 281, 283 (Kan. Ct. App. 1978).
KPERS's    actions   arising     from    its   investment      activities    meet   this
description fully, and do not differ from the suit for contractual benefits
involved in Shapiro.

     Similarly, KPERS argues that the investments are governmental because
the profits reduce the burden on Kansas taxpayers to fund KPERS, the funds
were invested to stimulate the Kansas economy, and Kansas statutes require
the funds to be invested.       Insofar as these arguments are not answered by
those cases we have cited above, the Kansas Supreme Court's decisions in
Wendler v. City of Great Bend, 316 P.2d 265, 269, 274 (Kan. 1957), and
Grover v. City of Manhattan, 424 P.2d 256, 259 (Kan. 1967), compel
rejection of KPERS's arguments.11          This analysis also forecloses KPERS's
argument

     11
      KPERS argues that we should certify to the Kansas Supreme
Court several issues presented in its appeal, including the issue
of governmental immunity. In KPERS III we decided that the
Missouri borrowing statute required the application of the Kansas
two- and three-year statutes of limitation. 61 F.3d at 615.
KPERS's petitions for rehearing en banc and for certiorari were
denied. Our ruling in KPERS III is the law of the case, and we
reject the suggestion that these issues be certified to another
tribunal.

                                         -18-
that its claims against Peat Marwick arise out of governmental functions.

                                     B.

       KPERS argues that its claims are not subject to a statute of
limitation because they are actions to recover from a former officer or
employee for his breach of duty.     See Kan. Stat. Ann. § 60-521 (1994).
KPERS did not raise this argument in the district court.     KPERS contends
that this failure is excused because it raised this argument in the state
trial court before this case was removed to the district court.

       We have often stated that we will not consider arguments that were
not presented first to the district court.    See Roth v. G.D. Searle & Co.,
27 F.3d 1303, 1307 (8th Cir. 1994).        If KPERS intended to rely on its
breach-of-duty argument, it should have presented that argument to the
district court in opposition to the defendants' motions for summary
judgment.   We refuse to consider KPERS's breach-of-duty argument.

                                     C.

       KPERS also argues that the state trial court held that KPERS's claims
were   not subject to a statute of limitation because the defendants
participated in a former officer's breach of duty and that the district
court could not ignore the state court's holding.      Again, KPERS did not
present this argument to the district court,

                                    -19-
and we reject KPERS's attempt to raise this argument for the first time
before this court.   See id.

                                   II.

     KPERS argues that the district court erred in its conclusion that
KPERS had sufficient knowledge to start the statute of limitation running
on its claims before December 23, 1988.

     KPERS argues that the facts do not show it had knowledge by December
1986 that Home Savings was no longer seeking to acquire the St. Louis
savings and loan that Koger advised it about in his June 6, 1986 letter to
Russell proffering the opportunity to invest $50 million in Home Savings.
First, KPERS contends that the statements the district court cited were
only statements that Home Savings would probably not buy the St. Louis
savings and loan, and that statements of probability are not enough to
start the statute of limitation running.   (KPERS does not deny that it had
knowledge of the statements that the acquisition was unlikely).     To the
contrary, Kansas law does not require that the plaintiff have ironclad
actual knowledge about his injury, but rather that he have such notice as
would permit him to discover the injury with the use of due diligence.
"'Reasonably ascertainable' does not mean 'actual knowledge.'"    Davidson
v. Denning, 914 P.2d 936, 948 (Kan. 1996).      Accord Miller v. Foulston,
Siefkin, Powers & Eberhardt, 790 P.2d 404, 417 (Kan. 1990); Brueck v.
Krings, 638 P.2d 904, 908 (Kan. 1982); Kelley v. Barnett, 932 P.2d 471,
476-77 (Kan. Ct. App. 1997).    The public statements that the St. Louis
acquisition was unlikely were enough to put KPERS on notice that its money
might not be used to buy the St. Louis thrift.

                                   -20-
     KPERS contends that there is an issue of fact about whether it
learned before 1990 that the St. Louis acquisition did not go through.
KPERS points to a memo from outside counsel in Reimer & Koger’s files
asking:   "Was it ever explained to KPERS that [Home Savings] did not buy
a big St. Louis association?"     Next to this question is the handwritten
response, "No."   Even if we took this memo as evidence that Reimer & Koger
did not tell KPERS the St. Louis deal did not happen, there is still no
question but that KPERS was on inquiry notice from other sources cited by
the district court, including the November 13, 1986 article in the Kansas
City Star which stated that Home Savings had "pretty much dropped" the St.
Louis deal from consideration.   See Brueck, 638 P.2d at 908 (fact of injury
reasonably ascertainable from press reports); see also Davidson, 914 P.2d
at 947 (plaintiff charged with knowledge of coroner's report).      The fact
that KPERS enjoyed a fiduciary relation with Reimer & Koger does not
relieve KPERS of the obligation to exercise due diligence.   See Miller, 790
P.2d at 417.
     KPERS contends that the district court erred in imputing to KPERS
Reimer & Koger’s knowledge of the abandonment of the St. Louis deal.      It
is not necessary for us to decide whether Reimer & Koger could benefit from
the imputation of its knowledge to KPERS.   Cf. Wietharn v. Safeway Stores,
Inc., 820 P.2d 719, 722-23 (Kan. Ct.   App. 1991).   The district court only
mentioned imputing Reimer & Koger’s knowledge to KPERS as an alternative
ground, there being other evidence, both press reports and statements that
were actually communicated to KPERS, that established notice independently.
Order of June 3, 1996, slip op. at 48.      For instance, KPERS's executive
secretary received a copy of an internal Reimer & Koger memorandum from
October 1986 saying the St. Louis deal was "probably dead."        Moreover,
after Home Savings had failed in its bid for the St. Louis thrift, Reimer
& Koger issued

                                    -21-
letters of intent to KPERS stating that the money would be used by Home
Savings for "general corporate purposes."      But most telling, the Kansas
City Star article of November 13, 1986 highlighted the discrepancy between
the original plan to use the $50 million to buy a St. Louis thrift and the
current situation in which the St. Louis deal had likely been abandoned and
the parties had not announced specific plans for what to do with the money.
Thus, there is no need to impute Reimer & Koger's knowledge to KPERS to
conclude that the limitations periods necessarily expired before KPERS
filed its claims.

       KPERS also argues that even knowledge that Home Savings did not buy
the St. Louis savings and loan would not have started the statute running,
since this would not have shown wrongdoing by Home Savings.      This argument
is difficult to reconcile with KPERS's complaint, since KPERS pleaded as
one instance of fraud that the Home Savings defendants represented they
would use the $50 million to acquire the St. Louis savings and loan,
whereas the defendants knew when they received the money that they would
not so use it.    If KPERS now contends that the untruth it alleged is "no
wrongdoing," we can only conclude that KPERS has abandoned this theory of
fraud, making any discussion of the statutes of limitation moot.           This
argument certainly does not lead to reversal of the district court's entry
of summary judgment.

       KPERS also argues that the district court relied on knowledge imputed
from   Reimer & Koger to conclude that KPERS knew of Home Savings’s
involvement in risky lending for the benefit of its affiliate banks and its
violation   of   the   standby   purchasers   agreement   and   other   banking
regulations.     Again, any such imputation was superfluous, there being
sufficient proof that

                                     -22-
knowledge of these facts was public information well within the relevant
period.12

      The existence of regulatory problems and unusual credit risk was made
explicit and public by the Kansas City Business Journal article of
September 12, 1988, which reported severe criticisms of Home Savings by
federal savings and loan regulators.   The article stated:

      [A] letter sent 11 weeks ago to Home Savings by federal savings
      and loan regulators told the thrift to sever its relationships
      with other Morgan-group banks because they violated savings and
      loan regulations and contravened an agreement Morgan and
      Dreiseszun entered into when they acquired [Home Savings] in
      1985. . . . The letter, which was sent by the Federal Home
      Loan Bank of Des Moines, Iowa, on June 20, also criticized loan
      underwriting procedures at the thrift, expressed concern about
      its low level of capital under generally accepted accounting
      principles (GAAP) and strongly recommended that it employ a
      compliance officer.

Such public knowledge is sufficient under Kansas law to put KPERS on notice
that it had been injured.   See Brueck, 638 P.2d at 908.     If the two-year
tort statute began to run when this article was published on September 12,
1988,13 it expired before June 5, 1991,

      12
      KPERS also states that the district court relied on Koger’s
testimony about conversations with KPERS’s executive secretary that
the executive secretary denied.      The "denial" KPERS cites is
simply: "I have no recollection of being informed that [Home
Savings] was in violation of contract or federal regulations
concerning affiliated transactions, and I have no reason to believe
I ever received such information." But since other, undisputed
evidence exists which is sufficient to support the summary
judgment, we need not decide if the secretary’s lack of
recollection would be sufficient to create a material issue of fact
as to whether the conversations Koger testified about took place.
      13
      The district court pointed to many other instances of notice
before the Kansas City Business Journal article.       Because the
article is sufficient to establish notice, we have no need to
discuss the other evidence.

                                   -23-
when KPERS sued the Reimer & Koger defendants.            The three-year statute
applicable   to   the   securities   fraud    claims   against   the   Home   Savings
defendants would then have expired before December 23, 1991, when KPERS
sued those defendants.

     As for the alleged failure to reveal Russell’s relationship with Home
Savings, KPERS contends that the statute did not begin to run when it
discovered the facts that Russell had been a Home Savings director and that
he had obtained a $40 million loan from a Morgan bank shortly after the
KPERS investment in Home Savings.            KPERS says that it exercised due
diligence after learning of these facts, since the Kansas Attorney General
Robert Stephan investigated the issue and concluded that Russell had not
transgressed Kansas ethics laws.       Therefore, KPERS says, under Dearborn
Animal Clinic, P.A. v. Wilson, 806 P.2d 997, 1006 (Kan. 1991), and Gilger
v. Lee Construction, Inc., 820 P.2d 390 (Kan. 1991), its injury was not
"reasonably ascertainable" until a 1991 Kansas legislative investigation
indicated that the loans to Russell were not arms' length transactions, but
were made after Russell's previous loans were in trouble.

     In Dearborn Animal Clinic and Gilger, the plaintiffs relied on
representations by the defendant or by third parties that put them off the
trail of the alleged tort.    Dearborn Animal Clinic was a malpractice action
against a lawyer who was asked to draft a contract to sell stock, but
instead drafted an option contract that did not obligate the buyer to
purchase the stock.     When the buyer refused to go through with the sale,
the sellers retained a new lawyer, who filed suit to enforce the agreement
on the theory that it required the purchaser to buy the stock. 806 P.2d
at 1006.   The

                                       -24-
Kansas Supreme Court stated that the statute did not begin to run when the
purchaser refused to go through with the sale, since the sellers were
entitled to rely on the expertise of their new lawyer, who was still
attempting to enforce their original understanding of the agreement.
However, the record made clear that by the time the sellers answered
interrogatories in their case against the buyer, they knew their contract
did not actually require the purchaser to buy their stock.       Id. at 1007.
At that time, the statute began to run.      Id.   In Gilger, the plaintiffs
were poisoned by carbon monoxide from an improperly vented furnace.       One
of the plaintiffs consulted doctors who misdiagnosed her problems.     Gilger
v. Lee Constr., Inc., 798 P.2d 495, 497 (Kan. Ct. App. 1990).        She also
contacted two of the defendants, who told her the furnace was working
properly. 820 P.2d at 393.   Finally, the plaintiffs sought another opinion
and were informed that their furnace was improperly vented. 798 P.2d at
502.   The Kansas Court of Appeals held that there was a question of fact
as to whether the statute began to run before the plaintiffs received the
opinion that the furnace was improperly vented.      The Kansas Supreme Court
affirmed in relevant part. 820 P.2d at 400-01.
       In contrast to Dearborn and Gilger, the plaintiff in this case claims
that it was entitled to rely on its own investigation that failed to
uncover facts that were actually public knowledge.           Throughout this
litigation, KPERS has stressed its identity with the state of Kansas.
KPERS claims it relied on the report of the Attorney General of Kansas, who
is not a defendant or a third party, but who acts for the state of Kansas.
The Kansas Attorney General did not discuss Russell’s loans in his report.
KPERS does not dispute the fact that the existence of those loans was laid
bare for the readership of the Kansas City Star.     In fact, the Star article
quotes the Attorney General as saying he would undertake an investigation
as a result of the Star story.     The Attorney

                                     -25-
General's report concluded that Russell's former position as Home Savings
director did not violate existing Kansas statutes, and that the existing
laws were sufficient to address the "most egregious" conflicts.                 The
Attorney General stressed the importance of having "successful businessmen"
on the KPERS board and concluded that some "borderline" situations might
be an inevitable concomitant of having such board members.            Whatever the
reason   for   the   Attorney   General's   failure   to   discuss   the   loans,   a
plaintiff's choice not to follow up on information in his possession cannot
benefit the plaintiff and disadvantage the defendants.        Gilger and Dearborn
require a plaintiff to exercise due diligence.        KPERS cannot use the Kansas
Attorney General’s report to toll the statute against the defendants.

     KPERS also argues that the district court erred in saying that the
statute of limitation began to run before December 1 and December 8, 1987,
when the $15 million and $35 million components of the $50 million
investment finally closed.      The district court held that the statute began
to run in December 1986, see, e.g., Order of June 3, 1996, slip op. at 51;
whereas, the $50 million was actually invested and reinvested several
times, with the last issues of subordinated debentures occurring on
December 1 and 7, 1987.      However, the fact that KPERS may have chosen to
reinvest the money after becoming aware of the facts it says were initially
hidden from it does not change the result here.        If KPERS contends that it
invested its money after it knew or should have known of the relevant
facts, then it concedes away the reliance element of its fraud claims.
This argument may moot the statute of limitation question, but it does not
affect the propriety of the district court’s grant of summary judgment
against KPERS.   In any case, even if the statute began to run on the date
of the last investment, December 7, 1987, the relevant two- and three-year
periods still

                                       -26-
expired before KPERS filed suit.     Therefore, this argument does not help
KPERS.

      KPERS argues that the Reimer & Koger defendants’ breaches of duty
continued into 1990, when Reimer & Koger allegedly concealed facts about
Home Savings’s financial condition in order to induce KPERS to trade its
subordinated debentures for preferred stock.   If this argument is meant to
establish a tort based on KPERS's conversion from debt to equity, KPERS has
made concessions fatal to its claim.     The district court recited: "KPERS
agrees that its 'ultimate recovery following the OTS takeover was in no way
different due to the conversion from debt to equity which occurred in March
of 1990.'"   Order of June 3, 1996, slip op. at 36.
      KPERS contends that the district court improperly constricted KPERS’s
claims against the Peat Marwick defendants to:    failing to tell KPERS its
Home Savings investment was impaired; and failing to tell it to establish
an   investment allowance account.      KPERS says that this ignores its
allegations that Peat Marwick was the auditor for Home Savings.       KPERS
alleges Peat Marwick did not reveal a conflict of interest so profound that
it should have disqualified Peat Marwick from auditing Home Savings,
because, among other things, the managing partner of Peat Marwick’s local
office was deeply indebted to Home Savings and other Morgan banks and was
in financial distress.    These allegations do not constitute a separate
cause of action, but are only an elaboration on the basic contention that
Peat Marwick failed to alert KPERS to its losses on the Home Savings
investment, which kept KPERS from discovering the other defendants'
breaches of duty and from acting to stop its losses.     The district court
held that KPERS was put on notice that the 1987 and 1988 financials did not
reflect the true value of the direct placement investments and that this
notice occurred at least by the date of the successor auditor's report
(September 30, 1989)

                                   -27-
showing as much as $75 million in impaired investments.    Order of July 25,
1996, slip op. at 22.    Pointing to additional facts KPERS claims it did not
know cannot relieve KPERS of the consequences of what it clearly did know.
KPERS contends that the successor auditor's finding that the direct
placement investments were impaired did not include a specific finding that
the Home Savings investment was impaired.       Again, Kansas law does not
require that the plaintiff have particularized knowledge of the facts of
the negligence, but rather that the plaintiff respond to such notice as
would cause a reasonably diligent person to investigate.       See Kelley v.
Barnett, 932 P.2d at 477.      After learning there was a problem with the
valuation of its direct placement investments, KPERS was not entitled to
sit idly by waiting for Peat Marwick to cite chapter and verse.

                                    III.

     KPERS also argues that the district court erred in denying it
permission to amend its Sixth Amended Complaint to state a claim against
the Peat Marwick defendants for breach of contract.   The district court set
February 1, 1995, as a deadline to amend pleadings, and KPERS filed this
motion on November 15, 1995.    Denying an eleventh-hour request to amend a
Sixth Amended Complaint after the deadline for such amendments has passed
is a decision well within the district court's discretion.      See Williams
v. Little Rock Mun. Water Works, 21 F.3d 218, 224 (8th Cir. 1994).   We will
not reverse on this ground.    In any event, KPERS's argument that its claims
against Reimer & Koger and Peat Marwick could sound in contract is contrary
to Kansas law, since KPERS does not allege breach of a contract to achieve
a specific result.   See KPERS v. Reimer & Koger Assocs., No. 75,487, 1997
WL 186988, at *3 (Kan.

                                     -28-
April 18, 1997); Hunt v. KMG Main Hurdman, 839 P.2d 45, 48 (Kan. Ct. App.
1992).

                                     IV.

        To preserve its position for further proceedings, KPERS renews its
argument that we erred in affirming the injunction in KPERS IV, 77 F.3d at
1065.    KPERS acknowledges that the KPERS IV decision is law of the case;
therefore, we need not discuss this argument.

        We affirm the orders of the district court.

        A true copy.

             Attest:

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

                                    -29-