PHILLIPS, Senior Circuit Judge.
This is an action brought under § 17 of the Securities Act of 1933, 15 U.S.C. § 77q, and § 10 of the Securities Exchange Act of 1934, 15 U.S.C. § 78j, and the Security and Exchange Commission's Rule 10b-5, 17 C.F.R. 6240 § 240.10b-5 (1981).
District Judge Benjamin F. Gibson granted the defendant's motion for summary judgment on the ground that the claim of appellant was barred by time by the applicable statute of limitations. The opinion of Judge Gibson is reported at Campbell v. The Upjohn Co., 498 F.Supp. 722 (W.D.Mich.1980).
Only a brief summary of the relevant facts will be presented in this opinion. On this appeal from a grant of summary judgment in favor of the appellee, we accept as true the factual allegations of appellant and draw inferences therefrom in favor of appellant. Reference is made to the comprehensive and well considered opinion of Judge Gibson for a more complete statement of the facts and issues.
Prior to 1969, appellant Campbell and two other men, Edward Wilsmann and Ernest Wunderlich, were the only shareholders of Homemakers, Inc., a small Illinois corporation which specialized in providing health care services. In 1969 Homemakers, in search of additional capital to meet the needs of an expanding business, entered into merger negotiations with defendant Upjohn.
After several meetings and discussions, the initial proposed agreement was reduced to a letter of intent on June 19, 1969. Upjohn would exchange 225 shares of Upjohn stock for each share of Homemakers; in addition six shares each of Wilsmann's and appellant Campbell's Homemakers stock were to be converted into a 5.4 per cent interest in the successor corporation, which Upjohn would have the option of buying out in 1975 at a price very favorable to Campbell and Wilsmann. This latter provision was termed the "back end payment." Appellant asserts that he relied on receiving this "back end payment" throughout the events and years that followed the signing of this first letter of intent.
A second letter of intent was drawn up and signed by the parties on August 11, 1969, after a loan from Upjohn to Homemakers had necessitated for tax purposes a restructuring of the terms of the merger. The parties eliminated the back end payment from the agreement, and decided that Campbell and Wilsmann would retain no interest in the successor corporation. Instead,
The parties thereafter drew up several drafts of a final merger agreement, none of which contained an employment agreement. Upjohn presented Wilsmann, but not Campbell, with a separate employment agreement. Campbell alleges he was assured orally that the back end agreement was still in effect, that he eventually would receive an employment agreement, and that the discrepancies between the written terms and the oral promises were due to Upjohn's desire to deceive Wunderlich, the third Homemaker's shareholder, whom the parties did not want to share equally in the profits of the merger.
On November 6, 1969, the parties were to sign the merger agreement and close the deal. Campbell alleges that when he arrived for the closing, two Upjohn executives took him into an adjacent room and confronted him about a misrepresentation on his resume. They shoved a resignation agreement in front of him and shouted that if he did not sign it he would be fired immediately after the merger. Campbell alleges that these actions so shocked, humiliated and intimidated him that he signed the resignation agreement, and that then the Upjohn officials ushered him back into the adjoining room, where he signed the merger agreement without reading it.
The merger agreement contained no provision for a back end payment, and no provision for employment of Campbell, although it did contain an employment agreement with Wilsmann. The merger agreement contained an integration clause superseding and nullifying all other agreements to the contrary.
The appellant says he did not read the merger agreement for nearly six years. He asserts that he relied on oral assurances from Upjohn officials and from Wilsmann (who had been made president of the successor corporation) that he would receive the back end payment agreed to in the first letter of intent in June 1969. However, he retained no ownership interest in the successor corporation and had no employment arrangement with it. Both mechanisms for delivering the back end payment had been foreclosed.
Campbell suffered from poor health immediately after the closing. By 1971, however, he had retained a lawyer who helped him extract from an escrow account the last of the Upjohn shares due him under the agreement.
He filed this suit in 1975 in a Connecticut state court, alleging that Upjohn had procured his signature on the merger agreement fraudulently by promising the back end payment, and that Upjohn had fraudulently concealed from him the terms of the merger agreement by making oral assertions after the signing that his payment would be forthcoming. The case was removed to the United States District Court for the District of Connecticut and then transferred by stipulation of the parties to the United States District Court for the Western District of Michigan. The parties agree that the applicable statute of limitations is Connecticut's Blue Sky statute, Conn.Gen.Stat. § 36-346(e).
The Connecticut limitations statute requires that all actions involving security sales contracts be brought within two years after the sale or exchange involved.
The appellant, citing Bauman v. Centex Corp., 611 F.2d 1115 (5th Cir. 1980), first argues that his cause of action did not accrue until 1975, when Upjohn failed to make the back end payment. Bauman involved a question of Texas law under a Texas statute of limitations. During merger negotiations, the defendant acquiring corporation had misrepresented its intentions to the plaintiff regarding certain business decisions affecting the acquiring corporation's net income, in order to induce the plaintiff to leave one half of his shares of the acquiring stock of the corporation in an escrow account under a reasonable expectation of a certain "earn-out." The Fifth Circuit ruled that although the misrepresented intentions became apparent at an earlier date, the cause of action did not accrue until the escrow agreement expired "since it was possible the earn-out would be made in spite of any misrepresentations by defendants." 611 F.2d at 1119.
This reasoning does not apply to the instant case. When the appellant signed the merger agreement, the agreement by its express terms positively foreclosed the possibility of any back end payment. The injury occurred at the moment the plaintiff signed a legally enforceable document which nullified the promises he allegedly had relied upon. His cause of action for fraudulent misrepresentation thus accrued at that moment — the time of "the commission of the last overt act causing injury or damage." Akron Presform Mold Company v. McNeil Corporation, 496 F.2d 230, 233 (6th Cir.), cert. denied, 419 U.S. 997, 95 S.Ct. 310, 42 L.Ed.2d 270 (1974). (Antitrust cause of action.)
The appellant next asserts that the statute of limitations was tolled by the defendant's fraud, under the federal equitable tolling doctrine of fraudulent concealment. Whether, in an action based on a federally created right, this doctrine will permit the tolling of the statute of limitations, is a question of federal law. Holmberg v. Armbrecht, 327 U.S. 392, 396-97, 66 S.Ct. 582, 584-585, 90 L.Ed. 743 (1946). In Dayco Corp. v. Goodyear Tire & Rubber Co., 523 F.2d 389 (6th Cir. 1975), this court articulated the standards governing a plea of fraudulent concealment in avoidance of a statute of limitations:
523 F.2d 389 at 394.
With regard to the element of the diligence of plaintiff, this court stated:
Dayco, supra, 523 F.2d 389 at 394.
The plaintiff's ignorance of his cause of action does not by itself satisfy the requirements of due diligence and will not toll the statute of limitations. Akron Presform Mold Company v. McNeil Corporation, supra, 496 F.2d 230, 234 (6th Cir.) cert. denied, 419 U.S. 997, 95 S.Ct. 310, 42 L.Ed.2d 270 (1974).
In the present case, District Judge Gibson correctly held that, as a matter of law, these actions by the plaintiff do not satisfy the requirement of due diligence in discovering his cause of action. Campbell v. Upjohn, supra, 498 F.Supp. 722 at 730-32. The district judge generously allowed a two year period for Campbell to recover from the shock of his forced resignation and the ensuing illness and personal difficulties, id. at 732, and found that by then Campbell should have read the merger agreement and learned that its terms were inconsistent with his expectations. Judge Gibson determined that the appellant should have learned of the allegedly fraudulent scheme by October 1973, in view of the following facts: (1) he had in his possession the merger agreement; (2) he had retained counsel in 1971; (3) he was aware of the second letter of intent and the subsequent negotiations; (4) according to his own averments, Upjohn officials already had mistreated him and dashed his expectations by forcing him to resign; (5) by 1971 he had extracted his last share of Upjohn stock from an escrow account and he no longer retained any shares of Homemakers or of the successor corporation; and (6) therefore, there could be no basis for the exchange upon which the back end payment was to be predicated. We agree with the district court and hold that, as a matter of law, these facts should have apprised a diligent plaintiff of his cause of action within the limitations period and that his inaction in the face of these facts does not warrant tolling the statute of limitations.
The appellant nonetheless contends that the due diligence standard does not apply to cases of "active" fraudulent concealment where the defendant has engaged in affirmative acts of concealment beyond the original fraud itself. The appellant cites in support Tomera v. Galt, 511 F.2d 504 (7th Cir. 1975). The Seventh Circuit in Tomera describes this type of concealment as that in which "the defendant has taken positive steps after commission of the fraud to keep it concealed." 511 F.2d at 510. According to the Seventh Circuit, the rule in such cases is that "[t]his type of fraudulent concealment tolls the limitations period until actual discovery by the plaintiff." 511 F.2d at 510 (emphasis added). Accord, Sperry v. Barggren, 523 F.2d 708 (7th Cir. 1975); Robertson v. Seidman & Seidman, 609 F.2d 583, 591-93 (2d Cir. 1979).
In the present case, the appellant alleges as the acts of "active concealment" the oral assurances of Wilsmann and the Upjohn officials that the back end payment was forthcoming. It is questionable whether these acts constitute concealment at all, since they did not conceal from the plaintiff the means of discovering his cause of action. Compare Tomera, supra, 511 F.2d 504 at 510 (officers and promoters withheld information about investments, disbursements, corporate charters, validity of mining leases, loan repayments and other business affairs, so that inquiry by investors into the legitimacy of the operation would have been futile); Sperry, supra, 523 F.2d 708 at 711 (defendants did not disclose price offered by third party for shares defendant purchased from plaintiff, until plaintiff
Even assuming that the oral assurances in the present case amount to "active concealment", this court joins those circuits which have declined to formulate a separate rule for cases involving active concealment by the defendant. See, e.g. State of Ohio v. Peterson, Lowry, Rall, Barber & Ross, 651 F.2d 687, 694-95 (10th Cir.), cert. denied, ___ U.S. ___, 102 S.Ct. 392, 70 L.Ed.2d 209 (1981); In Re Beef Industry Antitrust Litigation, 600 F.2d 1148, 1170 n. 27 (5th Cir. 1979), cert. denied, 449 U.S. 905, 101 S.Ct. 280, 66 L.Ed.2d 137 (1980). We hold that alleged additional acts of concealment by the defendant beyond the original fraud do not exempt the plaintiff from the requirement of diligence in pleading the federal equitable tolling doctrine of fraudulent concealment.
The facts of the present case demonstrate the wisdom of this holding. The plaintiff asks this court to override the important public policies behind statutes of limitations because he says he relied on the oral assertions of the defendant's officers, without any regard for whether it was reasonable for him to rely on these people who, in the own words of appellant, already had "shocked," "shamed," and "humiliated" him, had "coldly calculated to destroy [his] will," and had forced him to sign a resignation agreement contrary to what he previously had been promised, threatening to fire him if he refused to do so. He would have the statute tolled indefinitely, while evidence stales, memories fade and courts and adversaries wait, until the plaintiff at his leisure alleges actual discovery, despite the avalanche of evidence that would put all but the most indiligent plaintiffs on notice of a cause of action.
A plaintiff who requests the avoidance of these important objectives owes the courts, the public and his adversaries a duty of diligence in discovering and filing his lawsuit.
A rule of diligence will work no injustice in cases of active concealment. Active concealment by the defendant will be be considered in determining the reasonableness of the behavior of the plaintiff under the circumstances. Actions such as would deceive a reasonably diligent plaintiff will toll the statute; but those plaintiffs who delay unreasonably in investigating circumstances that should put them on notice will be foreclosed from filing, once the statute has run. Indeed, in those cases analyzed above which cite the Tomera rule, the actions of defendants were such that even reasonably diligent plaintiffs would not have been put on notice. The difference between the two rules may prove to be more illusory than real. See State of Ohio v. Peterson, Lowry, Rall, Barber & Ross, supra, 651 F.2d 687 at 695 n. 16:
We, therefore, hold that the uncontradicted evidence in the pleadings, affidavits, and depositions in the record fails to establish as a matter of law the requisite diligence required of a plaintiff before he may be entitled to the benefit of the federal equitable tolling doctrine of fraudulent concealment.
The judgment of the district court is affirmed. No costs are taxed. Each party will pay his or its own costs on this appeal.
This statute has been repealed, but applies to all actions filed in Connecticut before October 1, 1977. Dandorph v. Fahnestock & Co., 462 F.Supp. 961, 963 n. 4 (D.Conn.1979).