St. Louis Home Insulators, John Hoffman, Paul Hoffman, Gene Whitehead, Robert Gryzmala, David Maddox, D/B/A the Bear Company v. Burroughs Corporation ( 1986 )

WOLLMAN, Circuit Judge.

Plaintiffs appeal from a judgment of the district court¹ dismissing with prejudice their action against defendant, Burroughs Corporation (Burroughs). We affirm.

Plaintiff St. Louis Home Insulators is one of several commercial insulation businesses developed by plaintiffs John Hoffman, Paul Hoffman, Gene Whitehead, Robert Gryzmala, and David Maddox, doing business as The Bear Company, a partnership formed to coordinate their businesses’ computer systems. Burroughs is a manufacturer and distributor of computer products and services.

St. Louis Home Insulators entered into agreements with Burroughs in April and June of 1977 for the purchase of five B-80 computers and the accompanying software, which included accounts receivable, invoicing, inventory control, inventory management, payroll, general ledger, and accounts payable.

Burroughs installed the first B-80 computer in September of 1977. Two more B-80 computers were installed by the end of 1977. St. Louis Home Insulators refused delivery of the remaining two B-80 computers because of continued difficulties with the hardware and the software. Burroughs first encountered problems with the installation of the inventory program in November of 1977. Despite repeated attempts on the part of Burroughs and St. Louis Home Insulators to rectify the problems, St. Louis Home Insulators ultimately abandoned the inventory program in March of 1978. Furthermore, Burroughs delayed installing the invoicing and accounts receivable programs, which were supposed to be installed in March of 1978, until the latter half of 1978.

Plaintiffs filed a three-count complaint against Burroughs on June 20, 1983, alleging negligent misrepresentation, fraud, and breach of warranty in the sale of the computers. Burroughs moved for summary judgment on the negligent misrepresentation claim as barred by the statute of limitations, or, in the alternative, for failure to state a claim upon which relief could be granted, and for summary judgment on the fraud and breach of warranty claims as barred by the statute of limitations. The motion was taken with the case. There was a mistrial after all but one of plaintiffs’ witnesses had testified. The district court took the motion under submission and on August 16, 1984, granted Burroughs’ motion to dismiss with prejudice with respect to the claims for negligent misrepresentation and breach of warranty on the ground that the respective statutes of limitations had run on those claims. The district court held that the fraud claim had not been adequately pleaded and ordered plaintiffs to file an amended complaint in compliance with Fed.R.Civ.P. 9(b). On September 17, 1984, Burroughs filed a motion to dismiss the amended complaint for failing to state a claim for relief and for failing to plead in accordance with Fed.R.Civ. P. 9(b). On October 5, 1984, the district court dismissed with prejudice the fraud claim on the ground that it had not been pleaded with the specificity required by Fed.R.Civ.P. 9(b) and for the further reason that it was barred by the statute of limitations.

The parties agree that Missouri law governs this action. The pertinent statute is Mo.Rev.Stat. § 516.120(5), which has been construed to mean that plaintiffs must bring suit within five years “from the date they knew or should have known the controlling facts” constituting the fraud. Harding v. Modern Income Life Insurance Company, 593 S.W.2d 568, 571 (Mo.Ct.App.1979). See also Alexander v. Perkin Elmer Corp., 729 F.2d 576, 578 (8th Cir.1984) (per curiam). In its order of October 5, 1984, the district court found that plaintiffs had actual knowledge of the inadequacies in the inventory program and of Burroughs’ failure to remedy those inadequacies long before the five-year limitations period had elapsed. Accordingly, the district court held plaintiffs’ claim on the fraud count to be time barred.

The pretrial deposition testimony reveals plaintiffs’ early knowledge of the alleged misrepresentations. Jan Holder, who was the chief computer operator for St. Louis Home Insulators in 1977 and 1978, testified that she “gave up” on the inventory program in March of 1978 and that neither she nor anyone else ever contacted Burroughs again about the program. Plaintiff Gryz-mala testified that he had grown disillusioned with the system and “was ready to get rid of it in the spring of ’78.” Plaintiff John Hoffman, president of St. Louis Home Insulators, testified that he had experienced a pattern of serious problems with the hardware and software at least as early as May of 1978. From this testimony, as well as from the testimony presented at trial, the trial court concluded that:

Plaintiffs are sophisticated business men. Long before the crucial date, they knew that all attempts to modify the inventory programs and correct the problems had dismally failed. That futile attempts had been made to modify the inventory programs in order to comply with the original alleged representation would conceivably support a finding of breach of warranty, but not of fraud.

We conclude that the present case is closely similar on its facts to the situation presented in Alexander, supra. There, the purchaser of a computer and accompanying software acknowledged that it had experienced difficulties with the hardware and the software well before the five-year limitation period contained in § 516.120(5) had run. We concluded that the purchaser had thus been put on notice of the seller’s misrepresentations more than five years before the suit was filed.

The holding in Alexander applies with equal force to this case. The record establishes unequivocally that plaintiffs had knowledge as early as March of 1978 that the inventory software program was not operating satisfactorily and could not be made to operate satisfactorily. Accordingly, the district court correctly entered summary judgment on the ground that the fraud claim was time barred.

In view of our holding, we need not discuss the alternative basis upon which the district court dismissed the action.

The judgment dismissing the action is affirmed.

1 . The Honorable John K. Regan, United States District Judge for the Eastern District of Missouri.