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Cange v. Stotler and Co.

decided: August 6, 1987.

JOSEPH P. CANGE, PLAINTIFF-APPELLANT,
v.
STOTLER AND COMPANY, INC., DEFENDANT-APPELLEE



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division, No. 85 C 7664, Harry D. Leinenweber, Judge.

Cummings and Easterbrook, Circuit Judges, and Swygert, Senior Circuit Judge. Easterbrook, Circuit Judge, concurring.

Author: Cummings

CUMMINGS, Circuit Judge

Plaintiff, a resident of Alaska, has sued defendant Stotler and Company, a futures commission merchant ("FCM")*fn1 with its principal place of business in Illinois, to recover for "fraudulent and unauthorized trades for gold and silver futures contracts" charged to plaintiff's account with defendant. The defendant firm is apparently a partnership, although we are told by plaintiff's counsel that it is registered as "Stotler and Company, Inc." with the Illinois Secretary of State Corporation Division. The complaint was based on federal question and diversity jurisdiction, 28 U.S.C. §§ 1331, 1332, and 1337, and consists of seven counts including five pendent state law claims. The complaint alleges misconduct of Dwight Wilson and Wilpadco, Inc., purportedly agents of defendant. Wilpadco was said to be wholly controlled by Wilson.

According to the complaint and plaintiff's affidavit filed in opposition to the motion to dismiss, plaintiff opened an account with defendant Stotler and Company through its agent Wilson and his company Wilpadco in early 1981 when a Stotler and Company Customer's Agreement was signed by one of defendant's partners and plaintiff. During four weeks in September 1982, nine unauthorized trades for the sale and purchase of gold and silver futures were charged to plaintiff's account with defendant, causing him losses of $59,150. These transactions were conducted by Wilson and Wilpadco, with commissions going to defendant. Plaintiff contends that he never traded in gold and silver futures. Wilson on his own initiative allegedly called plaintiff and told him of the first few trades and said they would be reversed since they were defendant Stotler and Company's mistakes. Plaintiff then discovered more unauthorized trades on his statement from defendant and in September and October 1982 notified Wilson who again told him that the trades were defendant's mistakes and would be reversed. The losses from the unauthorized trades remained on later statements but Wilson reassured him that defendant would refund the losses from those trades and later that the trades had in fact been reversed out but that plaintiff was misreading the statements.

When plaintiff's accountant discovered in August 1983 that the unauthorized trades still had not been reversed out, plaintiff wrote a letter to defendant requesting reimbursement and had that letter hand-delivered to Wilson. Allegedly, Wilson admitted that the trades were unauthorized and in late August 1983 he and Wilpadco apparently arranged for $15,483.21 to be transferred to plaintiff's account with defendant. Wilson also orally agreed to pay $5,000 a month into plaintiff's account with defendant to reimburse the remaining amount owed to plaintiff. When Wilson failed to make the September and October payments, plaintiff in November 1983 had Wilson sign an agreement to reimburse the rest of the charges plus interest in monthly payments of $1,000, with the first due on December 1, 1983. Wilson and Wilpadco are said to have acted with "express, implied or apparent authority" of defendant, and none of the three has made any subsequent payments to plaintiff.

The complaint charges violations of the Commodity Exchange Act (7 U.S.C. § 1 et seq.), common law fraud, breach of fiduciary duty, violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (Ill. Rev. Stat. ch. 121 1/2 paras. 261-272), and breach of the repayment agreement.

Prior to answering the complaint, defendant filed a motion to dismiss, relying on a one-year limitation clause in paragraph 14 of the Customer's Agreement with plaintiff, and in a reply memorandum filed in the district court also asserted that plaintiff's claim based on the repayment agreement (Count VII) was barred by paragraph 20 of the Customer's Agreement relieving Stotler and Company of any liability from activities of its independent agents. The district court agreed. Cange v. Stotler and Co., No. 85 C 7664, Comm. Fut. L. Rep. (CCH) para. 23,176 (N.D. Ill. May 2, 1986). The district judge treated the motion to dismiss as a motion for summary judgment because both parties referred to matters outside the pleadings. See Rule 12(b)(6) of Federal Rules of Civil Procedure. A judgment dismissing the case followed. We reverse.

I

Absent estoppel, one-year contractual limitations period applies to this case.

Paragraph 14 of the Customer's Agreement provides as follows:

14. Customer agrees that any controversy between us arising out of this Agreement, regardless of the manner of resolution, shall be arbitrated, litigated (tried in a Court of Law), or resolved by a tribunal located in Illinois. Stotler agrees to reimburse me, should Stotler be unsuccessful in any such proceedings, for reasonable expenses incurred for such dispute or resolution over that which would have resulted in a locale in which Customer would have been entitled by law to dispute our differences. Customer agrees to pay all expenses, including attorney's fees, incurred by Stotler to defend any unsuccessful claim Customer brings against Stotler. No legal or administrative action may be commenced by anyone arising out of this contract after one year after any claim arises. Customer hereby expressly acknowledges that the Agreement contemplated hereby is an Agreement made in the State of Illinois (upon acceptance by Stotler in Illinois), and further, that by virtue of trading commodity futures in the account established hereby, by and through Stotler, Customer is transacting business in the State of Illinois; accordingly, Customer hereby expressly acknowledges and agrees that Customer has submitted and consents to jurisdiction of his person in the Courts of the State of Illinois and, thus, that Customer shall be amendable to service of summons and other legal process of, and emanating from, the State of Illinois, regarding this Agreement. (Emphasis supplied.)

Plaintiff contends that such a limitations period violates public policy. However, it is well settled that courts will ordinarily uphold contractual limitations periods of one year or more. Florsheim v. Travelers Indemnity Co., 75 Ill. App. 3d 298, 303, 393 N.E.2d 1223, 1228, 30 Ill. Dec. 876 (1st Dist. 1979); 1A A. Corbin, Corbin on Contracts § 218, at 311-312 (1963); see Amoco Canada Petroleum Co. v. Lakehead Pipe Line Co., 618 F.2d 504, 505-506 (8th Cir. 1980) (upholding 6-month limitation in contract between two corporations of equal bargaining strength). This cause of action accrued in September 1982 and the two-year statute of limitations period now contained in the Commodity Exchange Act does not apply because it was only made applicable to causes accruing after January 11, 1983. 7 U.S.C. § 25(c)-(d).

Plaintiff's public policy argument is premised on the critical importance of a private right of action to enforce commodity laws. That principle has been recognized by the Supreme Court, Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 72 L. Ed. 2d 182, 102 S. Ct. 1825 (finding implied private right of action under the Commodity Exchange Act), and explicitly endorsed by Congress when it created an express private right of action in 1982, codified at 7 U.S.C. § 25. See H.R. Rep. No. 565, 97th Cong., 2d Sess., pt. 1, at 56-57, reprinted in 1982 U.S. Code Cong. & Admin. News 3871, 3905-3906 ("The Committee is of the view that the right of an aggrieved person to sue a violator of the Act is critical to protecting the public and fundamental to maintaining the credibility of the futures market."). Plaintiff urges on the basis of this strong public policy in favor of a private right of action and § 178 of the Restatement (Second) of Contracts (1981) that the limitations term in paragraph 14 is unenforceable as contrary to public policy. However, Congress' silence on a limitations period for pre-January 11, 1983, causes of action shows its willingness to accept reasonable limitations periods rather than a strong policy in favor of some particular limitations period. Because Congress did not provide an express statute of limitations applicable to this cause of action, allowing the parties to contract for a shorter limitations period than that which would be borrowed from state law is not contrary to public policy, assuming the contracted-for limitations period is reasonable, as is the case here.

As to the three-year limitations period provided in the Illinois Consumer Fraud and Deceptive Business Practices Act (Ill. Rev. Stat. ch. 121 1/2 para. 270a(e)), plaintiff has been unable to cite any pertinent authority condemning a shorter limitations provision such as the one-year period provided in paragraph 14 of the Customer's Agreement. Florsheim upheld a contracted-for limitations period of one year for a claim of breach of an insurance contract. 75 Ill. App. 3d at 303, 393 N.E.2d at 1228. Plaintiff has failed to demonstrate how enforcing a reasonable, contracted-for limitations period is contrary to the public policy of Illinois against fraudulent business practices, and thus the one-year limitations period also applies to the state law claims.

II

Estoppel may bar defendant from raising limitations defense.

The conduct complained of occurred from September 2 to 29, 1982, but plaintiff did not file his action until November 21, 1984, in Alaska state court and that suit was dismissed with the reservation of plaintiff's right to bring an action in Illinois. Defendant admitted in its motion to dismiss that for purposes of the limitations period plaintiff's suit was filed on November 21, 1984, the date the Alaska suit was filed. Defendant's Motion to Dismiss para. 5 (Sept. 27, 1985). The 2-year and 2-month delay in filing this lawsuit would bar plaintiff's first six counts based on the Customer's Agreement if it were not for the material issues of fact that exist concerning whether the conduct of defendant's agent Wilson equitably estopped defendant from asserting the defense of the limitations period.*fn2

A

The federal doctrine of equitable estoppel applies to actions brought in federal courts at law and equity. Glus v. Brooklyn Eastern Dist. Terminal, 359 U.S. 231, 232-233, 3 L. Ed. 2d 770, 79 S. Ct. 760 (1959); see, e.g., Heckler v. Community Health Servs., 467 U.S. 51, 81 L. Ed. 2d 42, 104 S. Ct. 2218 (1984). This Court has interpreted Glus as recognizing that "the principle that no man may take advantage of his own wrongdoing was so deeply rooted in and integral to our jurisprudence that it should be implied in the interstices of every federal cause of action absent some affirmative indication that Congress expressly intended to exclude the application of equitable estoppel." Bomba v. W.L. Belvidere, Inc., 579 F.2d 1067, 1070 (7th Cir. 1978). Based on these precedents, it is clear that the federal doctrine of equitable estoppel applies to actions brought under the Commodity Exchange Act and we so hold.

Plaintiff's federal claims are based on an implied right of action -- the causes of action having accrued prior to the enactment of the express right of action in 7 U.S.C. § 25 -- and we have held that the three-year limitations period in the Illinois securities laws applies to implied rights of action under the Commodity Exchange Act. Andrews v. Heinold Commodities, Inc., 771 F.2d 184, 186 (7th Cir. 1985). But the fact that a state limitations period is borrowed in this sort of action does not make inapplicable the federal doctrine of equitable estoppel. The Supreme Court has held in Board of Regents v. Tomanio, 446 U.S. 478, 483-486, 64 L. Ed. 2d 440, 100 S. Ct. 1790 (1980) and Johnson v. Railway Express Agency, 421 U.S. 454, 463-464, 44 L. Ed. 2d 295, 95 S. Ct. 1716 (1975), that in actions subject to 42 U.S.C. § 1988 when a federal court borrows a state statute of limitations it also borrows the state rules of tolling. We have interpreted these decisions as not preventing reliance on the federal equitable tolling doctrine, as well as state tolling doctrines, in implied rights of action under federal securities laws, Suslick v. Rothschild Securities Corp., 741 F.2d 1000, 1004-1006 (7th Cir. 1984); see Teamsters Local 282 Pension Trust Fund v. Angelos, 815 F.2d 452, 456-457 (7th Cir. 1987) (following Suslick); see also Tomera v. Galt, 511 F.2d 504, 509 (7th Cir. 1975),*fn3 but that result does not end our inquiry because here we are dealing with "the separate and distinct doctrine of equitable estoppel," Bomba, 579 F.2d at 1070.

The existence of the federal doctrine of equitable estoppel is independent of the particular statute of limitations, whether it is federal or borrowed from state law, and thus we have to apply the federal doctrine to the two federal claims. As Judge Bauer explained for this Court in Bomba :

Tolling, strictly speaking, is concerned with the point at which the limitations period begins to run and with the circumstances in which the running of the limitations period may be suspended. These are matters in large measure governed by the language of the statute of limitations itself. . . . Equitable estoppel, however, is a different matter. It is not concerned with the running and suspension of the limitations period, but rather comes into play only after the limitations period has run and addresses itself to the circumstances in which a party will be estopped from asserting the statute of limitations as a defense to an admittedly untimely action because his conduct has induced another into forbearing suit within the applicable limitations period. Its application is wholly independent of the limitations period itself and takes its life, not from the language of the statute, but from the equitable principle that no man will be permitted to profit from his own wrongdoing in a court ...


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