Appeal from the United States District Court for the Eastern District of Wisconsin. Civ. A. No. 81-C-859 -- John W. Reynolds, Judge.
Pell, Wood, and Posner, Circuit Judges.
Arthur R. Gieringer and A. John Gieringer, father and son, appeal from the district court decision that granted summary judgment in favor of the defendants, various officers and directors of the Vilter Manufacturing Corporation (Vilter). The defendants cross-appeal from the district court's denial of their request for attorney's fees. The principal issue raised by the Gieringers is whether a motion for summary judgment is an appropriate vehicle for the resolution of a statute of limitations defense when the due diligence of the plaintiffs is in issue and the plaintiffs have filed a Rule 56(f) motion in response to the defendants' motions for summary judgment. Due to the procedural posture of this case, we must view the facts in the light most favorable to the plaintiffs. United States v. Diebold, Inc., 369 U.S. 654, 655, 8 L. Ed. 2d 176, 82 S. Ct. 993 (1962).
On September 28, 1979, Vilter made a redemption offer for its own shares of stock. The redemption offer arose because certain senior officers of the corporation sought to liquidate their securities holdings of 87,500 shares. Prior to the redemption offer, the total number of Vilter shares outstanding was 426,427. While the previous bid price for Vilter shares had never exceeded $34 per share, the corporation decided to repurchase the shares held by the executives at $40 per share. Vilter extended the $40 redemption price to all outstanding shareholders and stood ready to buy back all the outstanding shares. The other inside shareholders -- the president and vice president of Vilter -- indicated their intention to retain their shares. The corporation made no recommendation in its letter offer to the shareholders either to tender or to refrain from tendering their shares. If the minority shareholders tendered more than 41,000 shares of the 176,000 shares not owned by corporate insiders, the resultant reduction in the number of shares outstanding would leave the president and vice president and the profit sharing trust that they controlled with more than half of all remaining shares.
The offer letter contained a variety of legal and financial information. The letter indicated that Wisconsin law provides for no dissenting shareholder rights in transactions of this type. The letter also revealed that Vilter had hired Duff & Phelps, Inc. (D & P), an independent Chicago firm of investment and financial analysts, to consider whether the $40 per share price was adequate. The offer letter stated that D & P had concluded that the price was fair to minority shareholders. Although Vilter did not submit the D & P report to the shareholders with the offer letter, it made the report available for inspection and copying at its offices.
The offer letter went on to note that Vilter had incurred a substantial indebtedness to obtain the funds necessary for the redemption and that those loans would have a negative impact upon future dividends. The letter then related the conditions of the over-the-counter market for Vilter shares. It noted that the market had not been active and that there had been no recent asked prices, though the most recent bid price was $34 per share. The letter cautioned that the tender of a substantial number of shares could have significant market consequences. For instance, all other things being equal, with a substantial tender, there would be an increase in the per share income of the firm. At the same time, however, the letter warned that such a tender might make it difficult for a shareholder to sell his shares at a later date for a price that he deemed reasonable. In other words, the market for Vilter shares might evaporate. The letter also stated that, if shareholders tendered 108,200 of the shares not held by corporate insiders, then the remaining inside shareholders would be able to act without the concurrence of remaining minority shareholders. Finally, the offer letter noted that the expiration date for the redemption was October 23, 1979.
The plaintiffs received and reviewed the letter offer before the expiration date of the offer. Subsequently, they consulted with counsel from December 1979 through October 1980. On November 4, 1980, the plaintiffs sent demand letters to the defendants in an attempt to obtain compensation for the losses and damages that the plaintiffs sustained as a result of the redemption offering. Correspondence ensued. Finally, after the defendants refused to comply with the plaintiffs' demands, the plaintiffs filed this action on July 21, 1981. The complaint contained fourteen claims. Eight claims alleged violations of federal securities law. § 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. Claim nine alleged violations of Wisconsin securities laws. Wis. Stats. § 551.42(3),.59(3) (1975). The remaining five claims alleged breaches of fiduciary duties by the controlling shareholders.
One of the original defendants, M & I Marshall & Ilsley Bank, filed a motion to dismiss based upon statute of limitations grounds. The district court granted the motion in October 1981. The other defendants filed answers to the complaint and then deposed both plaintiffs in late August 1981. In response to the plaintiffs' requests for production of documents, the defendants for the most part responded with various objections. In November 1981, all remaining defendants filed motions for summary judgment, based principally upon statute of limitations grounds. Thereafter, their counsel refused to produce either the documents requested or the defendants for deposition. The plaintiffs filed several motions to compel discovery and, subsequently, filed motions to continue the defendants' motions for summary judgment to permit further discovery pursuant to Rule 56(f) of the Federal Rules of Civil Procedure. There was extensive briefing on the Rule 56(f) motions, but the court never explicitly set a briefing schedule on the defendants' motions for summary judgment. In a decision and order promulgated on May 20, 1982, the trial judge denied the plaintiffs' Rule 56(f) motion and, finding that no additional discovery was required, granted the defendants' motions for summary judgment with prejudice as to the federal claims and without prejudice as to the pendent state claims. 539 F. Supp. 498 (E.D. Wis. 1982). The plaintiffs appealed.
II. THE DISTRICT COURT OPINION
The district court applied the undisputedly applicable state statute of limitations to the plaintiffs' state and federal securities claims. That provision states: "No action shall be maintained under this section unless commenced before the expiration of 3 years after the act or transaction constituting the violation or the expiration of one year after the discovery of the facts constituting the violation, whichever first expires. . . ." Wis. Stats. § 551.59(5). Because the plaintiffs filed suit in July 1981, the suit is well within three years of the September 1979 offer letter. Consequently, the court had to determine when the plaintiffs discovered the facts constituting the violation. From the date of that discovery, the plaintiffs had one year in which to bring their suit.
The defendants submitted transcripts of the plaintiffs' depositions in support of their motions for summary judgment. The court relied upon those depositions as well as the exhibits attached to the plaintiffs' complaint, including the offer letter, to determine when the plaintiffs obtained sufficient information to begin the running of the statute of limitations. Both plaintiffs testified at their depositions that they received the offer letter within one week of its issuance and that they immediately knew that the price was too low. The court reiterated that the offer stated that future dividends would suffer because of the redemption, that the marketability of minority-held Vilter stock might decline, and that the majority might achieve absolute control of the corporation's future if a sufficient number of shares were tendered. The elder Gieringer testified that, upon receipt of the offer, he immediately called his accountant and several lawyers to determine how he should proceed. As a result of the record before him, the trial judge concluded:
There is no question but that the plaintiffs knew on receipt of the tender offer that the price offered was unjust and merited further investigation, even if they did not know all of the details of the supposed scheme of the controlling shareholders. The law does not require full knowledge of a scheme or its consequences. It requires only sufficient ...