offering materials "triggered the Illinois limitations period at the time of purchase." Defendants' Reply Brief at 9. Though we rejected defendants' accrual analysis as it applied to RICO, it appears that Illinois courts apply the discovery rule to fraud-based claims in a manner consistent with defendants' theory of accrual.
Although Ravin was a products liability action governed by a two-year limitations period, the court in Melko v. Dionisio, 580 N.E.2d 586, 591 (Ill.App. 2 Dist. 1991), applied the same accrual rule to decide when the five-year limitations period began running on the plaintiff's common law fraud claim. The plaintiff in Melko alleged that the defendant told her she was investing in "safe" CDs when in reality she had purchased uninsured corporate notes of a closely held company. Melko, 580 N.E.2d at 587. The notes were labeled "SHORT-TERM CORPORATE NOTE" and did not use the term "Certificate of Deposit." Id. at 588. Moreover, the plaintiff signed documents stating the her investments were corporate notes, and that the investments were risky and speculative. Id. at 592. The Melko court stated that the limitations period
begins to run when the plaintiff knows or reasonably should know that an injury has occurred and that it was wrongfully caused. This is the point where the injured party possesses information sufficient to put a reasonable person on inquiry to determine whether actionable conduct is involved.
Id. at 591 (emphasis supplied). Applying this accrual standard to the facts outlined above, the court held that "there can be no doubt at all that plaintiff knew or should have known facts sufficient to put her on inquiry [of the alleged fraud] more than five years before she filed her complaint." Id. at 628; see also Brideau v. Plantation Colony Apartments, No. 91-CH-00261 (Cir. Ct. Cook County, Ill. Nov. 20, 1991) (claims time-barred under five-year limitations period because warnings and disclosures in private placement memoranda put plaintiffs on notice of their claims when they made their purchases).
Melko teaches that under Illinois law -- and in contrast to civil RICO accrual -- knowledge of injury is imputed to the plaintiff when he has notice of the possibly fraudulent conduct. Once the plaintiff knows or should know of the fraudulent activity, knowledge of a resulting injury is assumed. Thus, under Melko, the disparity between plaintiffs' understanding of the limited partnership offering and the warnings and disclosures in the offering materials, provided plaintiffs with sufficient facts to put them on notice that the subject securities were not "secure, conservative" investments, as they purportedly understood. The five-year limitations period began running, therefore, at the time they agreed to invest in the limited partnerships.
Because they filed their claims more than five years after they purchased their investments, plaintiffs' state law claims in Iantuono, Reading and Spitz are time-barred. See supra fn. 4. Plaintiffs in Williams filed their action more than four but less than five years after their purchases. Id. Except for those plaintiffs in Williams residing in Illinois or states having limitations period as long or longer than Illinois', the state law claims in Williams are also time-barred.
The same policy concerns that call for a resolution of the limitations issue also require that we reach the merits of the relatively few state law claims in Williams that are not time-barred. It would not be fair or convenient to the parties, or an efficient use of judicial resources, to require the litigants to file a state court action to obtain an adjudication of the few remaining state claims. Resolution of those claims is especially appropriate here due to the substantial similarity between the legal issues presented and the "factual findings necessary to the resolution of the state and federal claims." Harner, 785 F. Supp. at 642 (jurisdiction over pendent state claims retained because "it would ill serve judicial economy to remand the common law fraud claim to the state court system where the same factual and legal issues will have to be considered anew").
The remaining claims in Williams for fraud and negligent misrepresentation fail for the same reasons that plaintiffs' RICO claims fail: the disclosures and warnings in the offering materials undermine the basis of the claims. Finally, the claims asserted in Williams for breach of fiduciary duty that are not time-barred are dismissed for failure to plead sufficient facts to support a finding of a fiduciary duty between plaintiffs and CIGNA.
James B. Zagel
United States District Judge
Date: 23 Sep 1992