Court Opinion

ID: 9480357
Source: CourtListenerOpinion
Date Created: 2023-08-05 07:45:32.652656+00
Date Added: 2024-06-11T17:39:44.277908
License: Public Domain

CUMMINGS, Circuit Judge,
dissenting:
The district court correctly determined that Illinois law provides the applicable statute of limitations in this case and that federal common law provides the conditions under which that statute will be tolled. Cange v. Stotler & Co., 826 F.2d 581, 586 (7th Cir.1987); Suslick v. Rothschild Securities Corp., 741 F.2d 1000, 1004-1006 (7th Cir.1984). Federal law permits tolling under either of two distinct sets of circumstances. Under the first, the statute is tolled until an objectively reasonable person would have appreciated the need to commence a suit. In order to qualify for tolling until that point, a fraud must remain undiscovered even though the defendant did nothing to conceal it, and the plaintiff must allege due diligence in attempting to discover the fraud. The district court and the majority both acknowl*1144edge the allegation of due diligence in Mrs. Davenport’s amended complaint, but dismiss it as “insufficient.” It is true that Mrs. Davenport’s personal circumstances are not relevant to this first method of qualifying for tolling since the standard is an objective one. It should be left to the trier of fact, however, to determine whether an objectively reasonable person would have realized prior to 1984 that a fraud may have been committed.
Under the second method of qualifying for tolling, the one principally relied upon by Mrs. Davenport here, the statute is tolled until the plaintiff actually discovered the fraud. In order to qualify for tolling until that point, the plaintiff must allege active concealment of the fraud. Active concealment can be proved in two different ways. One way is for the plaintiff to allege that a defendant who owed her a fiduciary duty failed to disclose facts that would have been material to her decision.* Another way is for the plaintiff to allege that a defendant who did not owe her a fiduciary duty actively concealed facts that would have been material to her decision.
Without separately considering these two methods of proving active concealment, the district court and the majority have concluded that Mrs. Davenport has not pleaded sufficient facts to entitle her to have the statute of limitations tolled until her actual discovery of the fraud in February 1984. Mrs. Davenport did specifically plead the existence and breach of fiduciary duties. The early dismissal of this case is particularly troubling inasmuch as the allegations set forth in the plaintiff’s complaint would appear to support the existence of many fiduciary relationships: Mr. Kravets and Mr. Miller may owe fiduciary duties to Mrs. Davenport both because they represented her in the past and because they were agents of a corporation in which she was a minority shareholder; Mr. Davenport may owe a fiduciary duty to Mrs. Davenport because he was her husband and because he was the President, Chief Operating Officer and majority shareholder of a corporation in which she was a minority shareholder. In Tomera v. Galt, 511 F.2d 504, 510-511 (7th Cir.1975), this Court stated:
The fundamental purpose of section 10(b) and rule 10(b)(5) is to achieve a high standard of business ethics. This purpose is taken seriously and is broadly construed [citations omitted]. Summarily extinguishing rule 10(b)(5) claims during pleadings on statute of limitations grounds does not work to this end. Limitations issues ordinarily require factual determinations and are best left to trial.
By dismissing her claim at the pleading stage, the district court has denied Mrs. Davenport the opportunity to demonstrate that she is entitled to have the statute of limitations tolled (via one or the other of the two methods discussed above) until February 1984.
Both the district court and the majority here rely on Norris v. Wirtz, 818 F.2d 1329, 1333 (7th Cir.1987), to support the proposition that the tolling rules should not be applied liberally. Norris, however, did not involve a dismissal at the pleading stage. Rather, in Norris the determination that the statute should not be tolled was not made until a jury verdict in favor of the plaintiff was appealed. Thus the plaintiff in Norris was given the opportunity to present her entire case. Mrs. Davenport should have been given that same opportunity.
I therefore respectfully dissent.

 The Supreme Court has determined in the context of securities fraud cases that an obligation to disclose coupled with the withholding of a material fact constitutes knowing deception. See Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 97 S.Ct. 1292, 51 L.Ed.2d 480; Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (Rule 10(b)(5) can be violated only if there is knowing deception); Affiliated Ute Citizens v. United States, 406 U.S. 128, 152-154, 92 S.Ct. 1456, 1471-1472, 31 L.Ed.2d 741 (obligation to disclose coupled with failure to disclose a material fact constitutes a violation of Rule 10(b)(5)).