UNITED STATES DISTRICT COURT, DISTRICT OF NEW JERSEY
July 23, 1981
FOODTOWN, a New Jersey Corporation, Plaintiff,
SIGMA MARKETING SYSTEMS, INC. and ARA Services, Defendants
The opinion of the court was delivered by: FISHER
ON RENEWED MOTION TO DISMISS
This case is before me on defendants' renewed motion to dismiss plaintiff's amended complaint based upon the statute of limitations on the grounds that (1) plaintiff has failed to meet the particularity requirements of Fed.R.Civ.P. 9(b) and the fraudulent-concealment doctrine; or (2) in the alternative, plaintiff has failed to establish due diligence and reasonable care in ascertaining the alleged fraud so as to toll the applicable statute of limitations. Pursuant to Fed.R.Civ.P. 12(b), this motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, as matters outside the pleadings have been considered by the court, and the parties have been given reasonable opportunity to present all pertinent material to the court.
To earn summary decision, a party must merit judgment as a matter of law upon genuinely indisputable material facts. Fed.R.Civ.P. 56(c). Only a clear showing of authentic nondispute will satisfy the Rule 56(c) standard, which demands the absence of triable fact issues. Ely v. Hall's Motor Transit Co., 590 F.2d 62, 66 (3d Cir. 1978). The movant bears this burden. Manetas v. International Petroleum Carriers, Inc., 541 F.2d 408, 413 (3d Cir. 1976). The opposing party receives the benefits of all reasonable doubts and inferences drawn from underlying facts. Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir. 1976), cert. denied, 429 U.S. 1038, 97 S. Ct. 732, 50 L. Ed. 2d 748 (1977); Cinema Service Corp. v. Twentieth Century-Fox Film Corp., 477 F. Supp. 174, 175 (W.D.Pa.1979). A disfavored motion, summary judgment should only issue when the movant demonstrates a clear, uncontestable right to judgment, and the opponent is not entitled to judgment under any circumstances. Ledwith v. Douglas, 568 F.2d 117, 119 (8th Cir. 1978). The record must be adequate for determination of the legal questions raised; a deficient factual foundation cannot support summary resolution. 6 Moore's Federal Practice P 56.15 at 609 (2d ed. 1980). The slightest doubt as to the facts precludes granting the motion. Tomalewski v. State Farm Life Insurance Co., 494 F.2d 882, 884 (3d Cir. 1974).
On October 7, 1980, defendants filed a motion to dismiss the complaint based upon the statute of limitations. In my November 18, 1980, opinion, I held that the four-year statute of limitations period set forth in N.J.S.A. 12A:2-725 applied to the first four counts of plaintiff's complaint. However, I noted that the limitation provisions set forth in that section did not alter the common-law principles regarding the tolling of the statute of limitations, and that defendants' fraudulent concealment of a cause of action would suspend the running of the statute of limitations in this case pursuant to N.J.S.A. 12A:2-725(4). Accordingly, I denied defendants' motion to dismiss and granted plaintiff leave to amend its complaint to meet the particularity requirements of Fed.R.Civ.P. 9(b) and the fraudulent concealment doctrine. I also indicated that upon additional discovery as to the tolling and fraudulent-concealment issues, I would hear defendants' renewed motion to dismiss the complaint.
On December 2, 1980, plaintiff filed an amended complaint setting forth the particular circumstances of the defendants' alleged overcharges to Foodtown and defendants' course of concealment.
Plaintiff alleges that under the Agreement between the parties, Foodtown would be charged only Sigma's actual landed costs for the merchandise. Amended Complaint at P 15. While Sigma's landed costs in the Agreement were computed at a duty rate of 36% of the invoice FOB Japan and $ .10 per dozen, on or about April 8, 1975, Sigma allegedly learned from the United States customs duty service that the merchandise would be subject to the lower duty rate of 18% of the invoice FOB Japan and $ .05 per dozen. Amended Complaint at PP 14, 15, 16. The complaint further alleges that commencing in August 1975
Sigma, which alone had knowledge that it had paid a duty rate which was approximately 50% lower than the duty rate which was included in the unit prices stated in the Agreement, deliberately concealed this fact from Foodtown despite its obligation under the Agreement to charge Foodtown only its landed costs and to provide Foodtown with verification of its landed costs for the merchandise.
Sigma falsely and fraudulently represented to Foodtown Sigma's landed costs for the merchandise by charging Foodtown through the invoices accompanying each delivery at a customs duty rate which was substantially in excess of the rate paid by Sigma upon importation of the merchandise. Sigma falsely and fraudulently represented on the invoices that its landed costs included the higher duty rate of 36% FOB Japan and .10 per dozen, whereas the duty rate actually paid by Sigma was in fact the lower rate of 18% FOB Japan and $ .05 per dozen.
Amended Complaint at P 18. See also Amended Complaint at PP 17, 19, 20, 21. Foodtown states that in reliance "upon Sigma's reputation, status and position in the importing industry, and upon Sigma's obligations under the Agreement to charge Foodtown only Sigma's actual landed costs for the merchandise ...," Foodtown paid the amounts demanded by Sigma. Amended Complaint at P 23.
The amended complaint further alleges that in early February 1980, Foodtown first learned of these overcharges as a result of a meeting between its general manager and a former employee of Sigma; the precise amounts of the overcharges were not learned until March 5, 1980. Amended Complaint at PP 25, 26. Foodtown states that
Foodtown did not, and could not have, discovered the fact or the amount of the overcharges prior to the meeting of February, 1980 described at Paragraph 25. Sigma alone had knowledge of the overcharges, and Sigma had, since April 1975, deliberately concealed these overcharges from Foodtown and had misrepresented to Foodtown the amount of its landed costs by representing that its landed costs included the higher duty rate, in violation of its obligations under the Agreement.
Amended Complaint at P 27.
Plaintiff's amended complaint avers active concealment of the cause of action. Courts have distinguished between this type of fraudulent concealment and the situation where defendant does nothing to conceal his wrong:
At least two types of fraudulent behavior toll a statutory period. Bailey v. Glover, 88 U.S. 342, 21 Wall. 342, 22 L. Ed. 636 (1875). In the first type, the most common, the fraud goes undiscovered even though the defendant after commission of the wrong does nothing to conceal it and the plaintiff has diligently inquired into its circumstances. The plaintiffs' due diligence is essential here. Morgan v. Koch, 419 F.2d 993 (7th Cir. 1969); Developments in the Law Statutes of Limitations, 63 Harv.L.Rev. 1177 (1950). In the second type, the fraud goes undiscovered because the defendant has taken positive steps after commission of the fraud to keep it concealed.... Dawson, Fraudulent Concealment and Statutes of Limitations, 31 Mich.L.Rev. 875 (1933). This type of fraudulent concealment tolls the limitations period until actual discovery by the plaintiff. The court in Smith v. Blachley, 198 Pa. 173, 47 A. 985 (1901), aptly stated:
The cases which hold that, where fraud is concealed, or, as sometimes added, conceals itself, the statute runs only from discovery, practically repeals the statute pro tanto. Fraud is always concealed. If it was not no fraud would ever succeed. But, when it is accomplished and ended, the rights of the parties are fixed. The right of action is complete. If the plaintiff bestirs himself to inquire, he has ample time to investigate and bring his action. If both parties rest on their oars, the statute runs its regular course. But, if the wrongdoer adds to his original fraud affirmative efforts to divert or mislead or prevent discovery, then he gives to his original act a continuing character, by virtue of which he deprives it of the protection of the statute until discovery.
Id. at 987.
Tomera v. Galt, 511 F.2d 504, 510 (7th Cir. 1975). See also Robertson v. Seidman & Seidman, 609 F.2d 583, 593 (active concealment of fraudulent conduct tolls the statute of limitations in favor of the defrauded party until such time as he actually knew of the fraudulent conduct of the opposing party); Sperry v. Barggren, 523 F.2d 708, 711 (7th Cir. 1975) (should active concealment be found, then the statute is tolled until actual discovery; if no active concealment is present, then the issue becomes whether knowledge of the alleged fraud could reasonably have been acquired with the exercise of due care).
Other cases dealing with the fraudulent concealment doctrine have not expressly differentiated between the type of fraudulent conduct which may toll the applicable limitations period. Rather, these cases seem to require that plaintiff exercise "reasonable care and diligence in seeking the facts that demonstrate fraud." Roberts v. Magnetic Metals Co., 463 F. Supp. 934, 945 (D.N.J.1978).
In order to invoke the doctrine of fraudulent concealment,
the plaintiff must have remained ignorant of the fraud "without any fault or want of diligence or care on his part." Bailey v. Glover, 88 U.S. (21 Wall.) 342, 348, 22 L. Ed. 636 (1874). It is well established that a plaintiff may not merely rely on his own unawareness of the facts or law to toll the statute. Morgan v. Koch, 419 F.2d 993, 997 (7th Cir. 1969); Laundry Equip. Sales Corp. v. Borg-Warner Corp., 334 F.2d 788, 792 (7th Cir. 1964). The plaintiff, rather, has the burden of showing that he "exercised reasonable care and diligence in seeking to learn the facts which would disclose fraud." Morgan v. Koch, supra, 419 F.2d at 997. The statutory period "(does) not await appellant's leisurely discovery of the full details of the alleged scheme." Klein v. Bower, 421 F.2d 338, 343 (2d Cir. 1970).
Hupp v. Gray, 500 F.2d 993, 996 (7th Cir. 1974). See also Osadchy v. Gans, 436 F. Supp. 677, 681 (D.N.J.1977); Kohler v. Barnes, 123 N.J.Super. 69, 79, 301 A.2d 474 (Law Div. 1973). Thus, the limitations period begins to run when the plaintiff knew of facts which would have put a reasonable person on notice of a fraudulent scheme:
Courts have repeatedly held that where there is any fact or circumstance which would arouse the suspicions of a reasonable person, that person has sufficient notice so that he must make inquiry. Dayco Corp. v. Goodyear Tire & Rubber Co., supra (523 F.2d 389) at 394; Hupp v. Gray, supra at 966; Morgan v. Koch, supra at 998. Where a plaintiff should have been aware of "at least the possibility of fraud," the limitations period begins to run. Klein v. Shields & Co., 470 F.2d 1344, 1347 (2d Cir. 1972).
Roberts v. Magnetic Metals Co., 463 F. Supp. at 945.
Viewing the inferences to be drawn from the underlying facts in the light most favorable to plaintiff, Adickes v. S. H. Kress & Co., 398 U.S. 144, 158-59, 90 S. Ct. 1598, 1609, 26 L. Ed. 2d 142 (1970), I cannot find that defendant, as a matter of law, should prevail in this action.
Should this court adopt the reasoning of the first line of cases set forth above, plaintiff's allegations of affirmative fraudulent concealment, if proved at trial, would toll the statute of limitations until February 1980 when the plaintiff actually discovered the overcharges. The affidavit submitted by plaintiff on its behalf indicates that certain individuals at Sigma deliberately concealed, and took all possible steps to prevent Foodtown's discovery of, the fact that the dinnerware was coming in at the lower 18% rate. Brooks Affidavit at PP 14, 15. Further, Mr. Brooks states that immediately prior to the first deliveries, and in order to forestall inquiries by Foodtown as to the amount of landed costs actually paid by defendants, Sigma forwarded documents to Foodtown to make it appear that the merchandise was being imported at the 36% rate. Id. at P 16. In sharp contrast with the Brooks affidavit is the affidavit of Martin Sperling, in which he charges that "all of the statements of Mr. Brooks alleging (his) participation in a concealment of information from Foodtown are completely false." Sperling Affidavit at P 1. These genuine disputes as to material facts regarding the circumstances surrounding this transaction render this case inappropriate for an award of summary judgment in defendants' favor. Issues of fact must be resolved by trial and not by affidavits.
If no active concealment is present, or if this court requires the exercise of due diligence and reasonable care in all fraudulent-concealment cases, then the issue becomes whether knowledge of the alleged fraud could reasonably have been acquired prior to the expiration of the four-year limitations period with the exercise of due care. Foodtown argues that the contract provided for actual landed costs, and that it was defendant's duty to provide verification of these costs in accordance with the contractual terms. Whether or not plaintiff has exercised due diligence with regard to the transaction at issue, or whether or not there were any facts or circumstances "which would arouse the suspicions of a reasonable person" such that Foodtown should have made inquiry at an earlier date, Roberts v. Magnetic Metals Co., 463 F. Supp. at 945; Hupp v. Gray, 500 F.2d at 997, are factual determinations which must be left for trial.
Accordingly, defendants' renewed motion to dismiss plaintiff's complaint based upon the statute of limitations is denied. Plaintiff will submit an order within 10 days.