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June 16, 1999


The opinion of the court was delivered by: Moran, Senior District Judge.


Plaintiff William R. Bachman (Bachman) brings this action against defendant Bear, Stearns & Co., Inc. (Bear Stearns) seeking compensation for defendant's alleged role in a scheme orchestrated by the directors of Bachman's former employer. Bachman's four-count complaint alleges conspiracy to defraud, fraud, negligent misrepresentation and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act), 815 ILCS 505/1 et seq. Bear Stearns has moved to dismiss on grounds that the action is barred by the applicable statutes of limitations and that the complaint fails to state a claim. For the reasons set forth below, defendant's motion is granted and plaintiff's complaint is dismissed in its entirety.


Because this is a motion to dismiss we must accept as true all well-pleaded allegations in the complaint. Land v. Chicago Truck Drivers Union, 25 F.3d 509, 511 (7th Cir. 1994). Bachman was employed by Calumet Coach Corporation (Coach) from 1967 through June 1990, and was a common and preferred stockholder of Coach's parent corporation, Calumet Acquisition Corporation (Calumet). The companies were involved in the manufacture of trailers and vehicles to house specialized medical imaging products for medical care providers (cplt. ¶ 66). In September 1988, Merrill Lynch Interfunding, Inc. (MLIF) purchased a majority interest in Calumet. John Ferrell (Ferrell) was employed as a vice-president of MLIF and was the senior employee responsible for the Calumet purchase transaction (cplt. ¶¶ 8,16).

As a component of the purchase transaction Bachman and other management shareholders sold half the equity they then owned in the predecessor company for cash and converted the other half into an increased percentage of common stock ownership in Calumet (cplt. ¶ 15). They also entered into new stockholder's and employment agreements (cplt. ¶ 17). The stockholder's agreement provided, inter alia, that Bachman would participate in an increased percentage of common stock if Calumet met certain profit targets, which it did (cplt. ¶ 19); that one of three-named independent organizations, including Bear Stearns, would be selected to ascertain the fair market value of the stock, should the need arise (cplt. ¶ 18); and that MLIF, Calumet, or other shareholders could acquire Bachman's common stock upon his employment termination at either fair market value or book value, depending on whether Bachman was terminated for cause (cplt. ¶ 17). At the time of these events Calumet common stock had a lower book value than market value (cplt. ¶ 23).

Bachman alleges that Joe Snyder (Snyder), Calumet's president and chief executive officer, and Ferrell tried to force Bachman to resign so that Calumet could reacquire his stock at book value (cplt. ¶ 41). Bachman refused to leave. In a meeting on May 7, 1990, Bachman was discharged without cause, effective June 30, 1990, and an offer was tendered to purchase his common stock for $188,802 (cplt. ¶¶ 43, 49). Bachman rejected the offer and, believing that other Calumet shareholders were withholding relevant financial documents in an effort to defraud him of his employment and the true value of his stock, Bachman sued Calumet, MLIF, Ferrell, and Snyder (the Calumet defendants) in the Circuit Court of Cook County on October 17, 1990. (Bachman v. Calumet Acquisition Corp., et. al (Bachman I), No. 90CH10162).

On November 8, 1990, Calumet exercised its option to acquire all of Bachman's common stock at fair market value and arranged for a stock valuation by Bear Stearns in accordance with the procedures set forth in the shareholder agreement (cplt. ¶ 51). Bachman did not object to Bear Stearns being selected to conduct the valuation (cplt. ¶ 53), and the firm issued its first report on January 28, 1991. Bear Stearns concluded that the fair market value of Calumet's common stock equity on January 17, 1991, was $51 million and that Bachman's percentage of the fully diluted common stock was 2.49 per cent. Bear Stearns submitted a revised report in December 1991, which valued Calumet at $53 million, and, accordingly, the value of Bachman's stock interest at $1,312,000.

After contentious discovery battles and a lengthy trial, the court entered its judgment on May 5, 1995 (Bachman I Order), awarding compensatory and punitive damages in favor of Bachman on claims of fraud, breach of contract and breach of fiduciary duty. Rejecting the Bear Stearns' calculations, the court found that Calumet's stock equity was actually worth $95 million, that Bachman's percentage of the fully diluted common stock was 3.18 per cent, and that the fair market value of Bachman's stock on January 17, 1991, was $3,021,000 (Order at 60).

Despite the fact that Bear Stearns was not a party to the litigation, the court also found that Bear Stearns acted in bad faith in valuing Calumet's stock, based on evidence that the firm had destroyed documents given to the valuation committee, had twice revised its valuation, had unreasonably skewed the pool of comparable companies, and had improperly used a harmonic mean, rather than an arithmetic mean, for the computation (Order at 61). Trial testimony revealed that contemporaneously with the Bachman valuation the Calumet defendants were developing a preliminary SEC registration statement for a possible IPO. The company's valuation for the IPO prospectus was based on a different set of comparable companies than the set used for the Bachman valuation (cplt. ¶ 76; Order at 29-30). Using the IPO set, which included health care companies that arguably bore a greater resemblance to Calumet, Kidder Peabody provided an estimated valuation of Calumet at $115 to $130 million (cplt. ¶ 78; Order at 43). Shortly thereafter, in June 1991, Merrill Lynch, Kidder Peabody and Smith Barney reached a consensus preliminary equity valuation in June 1991 of $100 million (Order at 44, cplt. ¶ 78). It is unclear from Bachman's complaint whether Bear Stearns was made aware of these estimates.*fn1

On May 1, 1996, Bachman filed a new three-count complaint against Bear Stearns in federal court Bachman v. Bear Stearns & Co., Inc. (Bachman II),, and the case was assigned to Judge Ann Williams. A second amended complaint filed February 12, 1997, alleged RICO violations, fraud, and negligent misrepresentation. On December 2, 1997, the court granted Bear Stearns' motion to dismiss for failure to state a RICO claim in violation of federal law, and then declined to exercise its supplemental jurisdiction over Bachman's state fraud and negligent misrepresentation claims. Bachman II, 1997 WL 769554 (N.D.Ill. 1997). On May 1, 1998, Judge Williams denied Bachman's motion for reconsideration and dismissed as moot his motions to amend the judgment and to file a third amended complaint. Bachman appealed the dismissal and the Seventh Circuit has just issued its affirmance. Bachman v. Bear, Stearns & Co., Inc., ___ F.3d ___, 1999 WL 335343 (7th Cir. 1999).

In the meantime, Bachman refiled the state law claims in state court on October 15, 1998. (Bachman v. Bear, Stearns & Co., Inc. (Bachman III)). Defendant removed the action to federal court (No. 98 C 7249) and filed this motion to dismiss the suit as time-barred and for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6). Defendant argues that Bachman is merely trying to relitigate the injuries caused by the Calumet defendants — for which he has already been compensated — and establish Bear Stearns' "guilt by association" ( 8). Bachman contends that this is his first chance to hold Bear Stearns accountable for its role in a scheme to defraud him of his property.


We begin by considering whether plaintiff's claims were filed too late. A federal district court sitting in diversity must apply the statute of limitations laws of the state in which it sits. Malone v. Bankhead Enterprises, Inc., 125 F.3d 535 (7th Cir. 1997). Bachman's claims for conspiracy to defraud, fraud and negligent misrepresentation are subject to a five-year statute of limitations. 735 ILCS 5/13-205; see Melko v. Dionisio, 219 Ill. App.3d 1048, 1058, 162 Ill.Dec. 623, 580 N.E.2d 586, 591 (1991). A claim under the Consumer Fraud Act must be filed within three years of the date the ...

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