Janice S. Hope v. Mirek Klabal

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 05-1972
___________
Janice S. Hope, *
*
Plaintiff - Appellant, *
*
v. * Appeal from the United States
* District Court for the
Mirek Klabal, also known as Miroslav * District of Minnesota.
Klabal; Lynn G. Epsteen, also known as *
Lynn Tescher, *
*
Defendants - Appellees. *
___________
Submitted: March 14, 2006
Filed: August 7, 2006
___________
Before WOLLMAN, JOHN R. GIBSON, and ARNOLD, Circuit Judges.
___________
JOHN R. GIBSON, Circuit Judge.
Janice Hope appeals from two orders of the district court1 granting summary
judgment to Mirek Klabal and Lynn Epsteen on her claims arising out of a series of
art transactions. She alleges that she purchased artwork from Klabal and Epsteen at
fraudulently inflated prices and seeks some $10 million in damages. The district court
ruled that all of Hope's claims were barred by their respective statutes of limitations,
1
The Honorable Michael J. Davis, United States District Judge for the District
of Minnesota.
except with respect to a single art transaction between Hope and Klabal. Hope argues
on appeal that the district court misapplied the discovery rule and the law of
fraudulent concealment, erred in finding that the continuing tort doctrine did not
apply, and erred in applying the law of the case when issuing its summary judgment
order as to Epsteen. We affirm.
I.
We state the facts in the light most favorable to Hope. In 1984, Klabal
approached Hope, a close friend of his wife, about purchasing investment art from
him. Klabal held himself out as an art expert and told Hope that he would be able to
acquire art for her at prices substantially below fair market value. From 1984 through
1998, Hope purchased approximately 100 pieces of artwork from Klabal for a total of
more than $8 million. These pieces included works of art by major figures in the
modern and pop art fields, including Pablo Picasso, Alexander Calder, Marc Chagall,
Willem de Kooning, Roy Lichtenstein, Henri Matisse, and Andy Warhol. While a few
of the individual purchases were priced below $10,000, Hope purchased many of the
pieces for more than $100,000. For each piece, Klabal provided Hope with an
invoice, a certificate of authenticity, and an insurance evaluation stating the "current
international value" of the piece. These values exceeded the prices that Hope paid for
the pieces. In many instances, Hope purchased the artwork "sight unseen," based
solely on Klabal's representations, and in certain instances Klabal never delivered
works that Hope had purchased, claiming that he had found them to be forgeries, that
he would trade them for more valuable pieces, or that it was in Hope's best interests
for him to retain them.
Klabal also introduced Hope to Epsteen, who similarly represented that her
expertise would enable her to obtain art for Hope at significant discounts. From 1987
through 1994, Hope purchased seven pieces of art from Epsteen for a total of over
$2.1 million. Six of the pieces were works by Andy Warhol, and one was a piece by
-2-
Pablo Picasso. Epsteen issued written invoices and certificates of authenticity for
these pieces, along with a letter containing an appraisal "made solely for insurance
purposes" and a statement describing how to obtain full appraisals from the Art
Dealers Association of America. Again, as with the insurance evaluations obtained
from Klabal, the amounts listed were much higher than what Hope actually paid for
the pieces.
In 1997, Hope advised Klabal that she wanted to sell some of the art in order
to diversify her investment portfolio. Although Klabal told Hope that he would make
every effort to sell the art, no sales occurred until a year or two later, when Hope was
able to sell sixteen pieces at Sotheby's through Klabal and Epsteen. All but one piece
of art was sold at a substantial loss. Hope later hired an independent art expert, Dr.
Elin Lake Ewald, to evaluate 23 pieces that she had purchased from Klabal. Dr.
Ewald completed a report in October 2000, concluding that Hope had purchased the
artwork at prices significantly above fair market value at the times of purchase. Dr.
Ewald also evaluated the works Hope had purchased from Epsteen and advised her
that six of the seven pieces were purchased at inflated prices.
On June 19, 2002, Hope filed a 45-page complaint against Klabal and Epsteen
alleging fraud, conspiracy to defraud, breach of fiduciary duty, conversion, breach of
contract, negligent misrepresentation, consumer fraud, deceptive trade practices, and
violations of 18 U.S.C. § 1964 (RICO). The complaint listed more than one hundred
pieces of art Hope had bought from Klabal, as well as the seven pieces of art she
purchased from Epsteen. In lieu of an answer, Epsteen filed a motion to dismiss,
while Klabal answered and later filed a motion for summary judgment. Following a
hearing, the magistrate judge issued a report and recommendation, later adopted by
the district court, finding that Hope's claims against Epsteen should be dismissed
without prejudice and that Klabal's motion for summary judgment should be granted
except with respect to a single transaction that was not barred by the statute of
limitations. In that transaction, which occurred in 1998, Hope traded a work by Jean-
-3-
Michel Basquiat that she already owned for a painting by Marc Chagall entitled "Le
Couple Allonge." Hope then served an amended verified complaint, totaling some 147
pages, including 73 pages of exhibits and affidavits, on Epsteen, and Epsteen moved
for summary judgment.2 The magistrate judge issued a second report and
recommendation finding that Epsteen's motion should be granted as to all of Hope's
claims. The district judge adopted this report and recommendation, and it denied
Hope's request to certify the judgment for immediate appeal under Fed. R. Civ. P.
54(b).
As a result of the two summary judgment orders, the only claims remaining in
the case related to the single transaction between Hope and Klabal in 1998 which had
survived the first summary judgment order. Klabal agreed to enter into a stipulation
dismissing these remaining claims, and the parties filed the stipulation with the court
under Fed. R. Civ. P. 41. Pursuant to this stipulation, the district court entered an
order dismissing the remaining claims without prejudice. Hope now appeals from the
two summary judgment orders.
II.
In light of the peculiar procedural posture of this case, we must first determine
whether we have jurisdiction over the appeal. Thomas v. Basham, 931 F.2d 521, 523
(8th Cir. 1991). The jurisdiction of the federal appellate courts is limited to appeals
from final decisions of the district courts, 28 U.S.C. § 1291, subject to the well-
established exceptions set forth in 28 U.S.C. § 1292, Fed. R. Civ. P. 54(b), and the
collateral order doctrine. Reinholdson v. Minnesota, 346 F.3d 847, 849 (8th Cir.
2003). Because none of these exceptions apply to the facts of this case, we must
2
This procedure of submitting such a lengthy, detailed verified complaint is not
one that we recommend, but it certainly enlarges the factual basis underlying the
district court's entry of summary judgment against Hope.
-4-
address whether the district court's summary judgment orders as to Klabal and
Epsteen, coupled with the dismissal of the remaining claims in the case, which
happened to involve only Klabal, together constitute a "final decision" for purposes
of § 1291. In other words, the question is whether the voluntary dismissal of the only
claims that survived the earlier partial summary judgment orders was sufficient to
make those orders final for purposes of this appeal.
A final decision requires "some clear and unequivocal manifestation by the trial
court of its belief that the decision made, so far as [the court] is concerned, is the end
of the case." Goodwin v. United States, 67 F.3d 149, 151 (8th Cir. 1995). We are
guided by the rule that the requirement of finality under § 1291 is given a "practical
rather than a technical construction." Cohen v. Beneficial Indus. Loan Corp., 337 U.S.
541, 546 (1949). In addition, the Supreme Court long ago established that a dismissal
without prejudice can create an appealable final order if it ends the suit so far as the
district court is concerned. See United States v. Wallace & Tiernan Co., 336 U.S. 793,
794 n.1 (1949).
Admittedly, this circuit has been less than clear in establishing the rules for
finality when parties dismiss some of their claims without prejudice in order to appeal
a partial summary judgment order or an interlocutory order of dismissal. See
generally Terry W. Schackmann & Barry L. Pickens, The Finality Trap: Accidentally
Losing Your Right to Appeal (Part II), 58 J. Mo. B. 138, 142-45 (2002) (collecting
cases). However, in Chrysler Motors Corp. v. Thomas Auto Corp., 939 F.2d 538, 540
(8th Cir. 1991), we assumed jurisdiction over an appeal in a similar situation. In that
case, the district court granted a motion for partial summary judgment but did not
issue a Rule 54(b) certification. The parties later filed a stipulation of dismissal of all
remaining claims without prejudice under Fed. R. Civ. P. 41, and the court entered an
order of dismissal, as it did here. We held that the effect of the dismissal was to make
the earlier partial summary judgment "a final judgment for purposes of appeal, even
-5-
though the district court had not so certified under Fed. R. Civ. P. 54(b)." 939 F.2d
at 540.
We have since expressed concern that parties will use the voluntary dismissals
of their claims without prejudice as an "end-run" around Rule 54(b), and in one
instance we assumed jurisdiction over the appeal but deemed the dismissal of
remaining claims to be with prejudice. Minnesota Pet Breeders, Inc. v. Schell &
Kampeter, Inc., 41 F.3d 1242, 1245 (8th Cir. 1994) (commenting that the parties
"badly miscalculated" if they assumed they could later revive the dismissed claims);
see also Orion Fin. Corp. v. Am. Foods Group, Inc., 201 F.3d 1047, 1048-49 (8th Cir.
2000) (dismissing appeal for lack of finality where parties entered a stipulation
following partial summary judgment order because the parties intended to revive those
issues later and were "play[ing] fast and loose with the limited appellate resources that
we have.").
Nonetheless, many of our cases continue to follow the rule established in
Chrysler and state that jurisdiction exists under the circumstances that we face here,
without opining on whether the dismissed claims should be deemed dismissed with
prejudice. See, e.g., Great Rivers Coop. of Southeastern Iowa v. Farmland Indus.,
Inc., 198 F.3d 685, 690 (8th Cir. 1999) ("Though we strongly disapprove of this use
of a dismissal without prejudice to create what is in substance an impermissible
interlocutory appeal, our prior case law did not foreclose that effort here."); Morris
v. Crawford County, Ark., 299 F.3d 919, 921 (8th Cir. 2002) (partial summary
judgment followed by voluntary dismissal of remaining claims without prejudice "had
the dual effect of resolving all claims against the defendants and bestowing us with
appellate jurisdiction"); Porter v. Williams, 436 F.3d 917, 920 (8th Cir. 2006) ("[A]
partial summary judgment becomes a final judgment once the remaining parts of the
case are dismissed or otherwise resolved."); Acton v. City of Columbia, Mo., 436 F.3d
969, 974 (8th Cir. 2006) ("[I]f the firefighters had voluntarily dismissed their meal
-6-
allowance and willfulness claims, this dismissal would have rendered the district
court's [partial summary judgment] order unquestionably final.").
The procedural posture of this appeal is most closely analogized to that in
Chrysler, and so we conclude that the voluntary dismissal of the remaining claims
made the two earlier summary judgment orders final for purposes of this appeal. After
the voluntary dismissal, there was nothing left for the district court to resolve, and the
suit had ended as far as that court was concerned, thereby creating a final judgment.
We now turn to the merits of Hope's arguments.
III.
We review a grant of summary judgment de novo. Klehr v. A.O. Smith Corp.,
87 F.3d 231, 234 (8th Cir. 1996). Summary judgment is appropriate if the record,
when viewed in the light most favorable to the nonmoving party, reveals that there is
no genuine issue of material fact and that the moving party is entitled to judgment as
a matter of law. Fed. R. Civ. P. 56(c). Minnesota law applies in this diversity case,
and we review the district court's interpretation of that law de novo. Bockelman v.
MCI Worldcom, Inc., 403 F.3d 528, 531 (8th Cir. 2005). We are bound by decisions
of the Minnesota Supreme Court, and if that court has not considered an issue, we
must follow decisions of the Minnesota Court of Appeals if they are the best evidence
of Minnesota law. Id.A.
Hope first argues that the district court misapplied the discovery rule and the
law of fraudulent concealment as they relate to whether the statute of limitations had
expired for her fraud, breach of fiduciary duty, and RICO claims. Under Minnesota
law, common law fraud and breach of fiduciary duty claims are governed by a six-
year statute of limitations, while RICO claims have a four-year statute of limitations.
-7-
Minn. Stat. Ann. § 541.05, subd. 1(6); Anderson v. Anderson, 197 N.W.2d 720, 726
(Minn. 1972); Rotella v. Wood, 528 U.S. 549, 552 (2000). Accordingly, absent a
delay in the beginning of the limitations period, Hope's claims are time-barred.
Epsteen's most recent sale to Hope was on December 5, 1994; thus, all of Hope's
claims against Epsteen became time-barred on December 5, 2000. Other than the
1998 transaction involving "Le Couple Allonge", which is no longer at issue in the
case because of the parties' stipulation, the last sale by Klabal occurred on January 22,
1996, so Hope's claims against him became time-barred, at the latest, on January 22,
2002. Hope did not bring her original complaint until June 19, 2002.
Nonetheless, fraud, breach of fiduciary, and RICO claims are all subject to the
"discovery rule," which dictates that the limitations period begins to run "when the
facts constituting fraud were discovered or, by reasonable diligence, should have been
discovered." Toombs v. Daniels, 361 N.W.2d 801, 809 (Minn. 1985); see also
Anderson, 197 N.W.2d at 726 (breach of fiduciary duty); Rotella , 528 U.S. at 553-54(RICO). If the parties were in a fiduciary relationship, delay in discovering the fraud
may be excusable. Toombs, 361 N.W.2d at 809. Ordinarily, a plaintiff's due
diligence and the existence of a fiduciary relationship will be questions of fact for a
jury, but "[w]here the evidence leaves no room for a reasonable difference of opinion
... the court may properly resolve fact issues as a matter of law." Veldhuizen v. A.O.
Smith Harvestore Prods., Inc., 839 F. Supp. 669, 674-75 (D. Minn. 1993) (citing Miles
v. A.O. Smith Harvestore Prods., Inc., 992 F.2d 813, 817 (8th Cir. 1993)). The district
court, adopting the report and recommendations of the magistrate judge, concluded
as a matter of law that Hope was not diligent in discovering her cause of action and
that Klabal and Epsteen had not acted as Hope's fiduciaries.
Hope argues that she created a genuine issue of material fact as to whether
Klabal and Epsteen were her fiduciaries and that therefore her delay in discovering her
claims was excusable. She alleges that she had never purchased any art as an
investment before buying art from Klabal and Epsteen and that she relied entirely on
-8-
their advice to inform her of the value, nature, significance and quality of each piece
of artwork. She claims that both defendants solicited and accepted her trust in their
art expertise. Hope also contends that because she developed personal friendships
with both Klabal and Epsteen, she was entitled to place her trust and confidence in
them.
State law determines whether a fiduciary relationship exists, Davis v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 906 F.2d 1206, 1215 (8th Cir. 1990), and under
Minnesota law a "fiduciary relationship exists 'when confidence is reposed on one side
and there is resulting superiority and influence on the other; and the relation and duties
involved in it need not be legal, but may be moral, social, domestic, or merely
personal.'" Toombs, 361 N.W. at 809 (quoting Stark v. Equitable Life Assurance
Soc'y, 285 N.W. 466, 470 (Minn. 1939). However, a fiduciary relationship is not
established under Minnesota law in the context of commercial transactions simply by
a long acquaintance between the parties or by the plaintiff having faith and confidence
in the defendant where the plaintiff should have known the defendant was
representing an adverse interest. See, e.g., Wells-Dickey Trust Co. v. Lien, 204 N.W.
950, 952-53 (Minn. 1925) (seller of property did not have a fiduciary duty to a buyer,
even where the parties were intimate and longtime friends and the seller served as the
executor of the buyer's husband's estate); Stark, 285 N.W. at 470 (absent a policy
provision explicitly assuming a duty to the plaintiff, an insurance agent would not
have had a fiduciary duty to a plaintiff who was illiterate, had limited business
experience, and had been close friends and business acquaintances with the agent for
years).
We are persuaded that no fiduciary relationship was present here. Hope did not
produce any evidence indicating that Klabal or Epsteen explicitly assumed a duty to
protect Hope's rights or that they had access to her finances or control over her
decisions, thereby distinguishing their relationship from those where Minnesota courts
have tolled the statute of limitations for fraud based on a fiduciary relationship. See,
-9-
e.g., Toombs, 361 N.W.2d at 809 (between a trustee and a beneficiary); Cohen v.
Appert, 463 N.W.2d 787, 790 (Minn. Ct. App. 1990) (between an attorney and a
client); Appletree Square I Ltd. P'ship v. Investmark, Inc., 494 N.W.2d 889, 892
(Minn. 1993) (between partners in a partnership); Murphy v. Country House Inc., 240
N.W.2d 507, 512 (Minn. 1976) (between directors of a corporation). The Minnesota
Supreme Court has stated on numerous occasions that a friendship between the parties
does not elevate an arms-length, commercial transaction to a fiduciary relationship.
See, e.g., Kennedy v. Flo-Tronics, Inc., 143 N.W.2d 827, 830 (Minn. 1966); Shema
v. Thorpe Bros., 62 N.W.2d 86, 91 (Minn. 1954); Stark, 285 N.W. at 470; Wells-
Dickey Trust, 204 N.W. at 952. While Hope was not particularly knowledgeable
about the art market, she admits to being a sophisticated business person and she
should have known that Klabal and Epsteen represented an adverse interest. See
Amended Complaint ¶ 77. Therefore, under Minnesota law, Hope has not raised a
genuine issue of material fact as to whether Klabal and Epsteen were her fiduciaries,
and the statute of limitations for her claims cannot be tolled on this ground.
Hope's alternative argument is that she created a genuine issue of material fact
as to whether she could have discovered the fraud through the exercise of reasonable
diligence within six years of bringing her claims. Bustad v. Bustad, 116 N.W.2d 552,
555 (Minn. 1962). "The mere fact that the aggrieved party did not actually discover
the fraud will not extend the statutory limitation, if it appears that the failure sooner
to discover it was the result of negligence, and inconsistent with reasonable diligence."
Id. (citing First Nat. Bank of Shakopee v. Strait, 73 N.W. 645, 646 (Minn. 1898)).
Even if Hope presents evidence that the defendants affirmatively concealed the initial
fraud, she bears the burden of proving that she could not, through reasonable
diligence, have discovered the facts constituting the fraud until within six years of the
commencement of the action. See Blegen v. Monarch Life Ins. Co., 365 N.W.2d 356,
357 (Minn. Ct. App. 1985); see also Klehr v. A.O. Smith Corp., 521 U.S. 179, 194
(1997) (in RICO context, a plaintiff who is not reasonably diligent may not raise
fraudulent concealment to toll the statute of limitations).
-10-
Hope argues that she exercised reasonable diligence in discovering the fraud.
She contends that she had no reason to investigate whether she had a claim prior to
2000 because Klabal and Epsteen's fraud was "by its nature and design self-
concealing," in that the pair misrepresented the nature and qualities of the art they
sold, continually assured her that she was purchasing the artwork at prices below fair
market value, praised each other's professed expertise and trustworthiness, and issued
fraudulent insurance evaluations for her purchases. In addition, she alleges that
Klabal discouraged her from selling her art through others and, in order to conceal the
fraud, told her that Sotheby's was wrong when it appraised the art at lower prices.
Hope states that these actions "removed any incentive [she] may have had to suspect
misconduct or to investigate the possibility that she had any claim against either
Defendant."
We conclude that Hope has failed to create a genuine issue of material fact as
to her diligence in discovering the alleged fraud. Hope, a sophisticated business
person, spent a total of $10 million on artwork, much of which was purchased "sight
unseen" or never delivered, without independently confirming the value of the works
she was purchasing either before or after the transactions. She was on notice that the
insurance valuations provided to her by Klabal and Epsteen were not statements of the
pieces' fair market value and that full appraisals could be obtained through the Art
Dealers Association of America. Hope admits in her complaint as to Klabal that
contemporary art pricing was available, and concedes as to both defendants that she
was able to hire an independent expert to appraise the value of her purchases. In
addition, Dr. Ewald's affidavit states that auction houses, if provided with a work of
art or a clear photograph, will "identify three comparable works from the house's or
a comparable house's sales records which were sold in that year, if available." Once
Hope decided to hire an independent art appraiser, Dr. Ewald was able to ascertain the
appropriate values of the works, so had Hope engaged the services of an art appraiser
earlier she could have discovered that she had been overcharged. Cf. Barry v. Barry
78 F.3d 375, 380 (8th Cir. 1996) (plaintiff created genuine issue of fact as to her
-11-
diligence under Minnesota law where she hired attorneys and a financial advisor to
advise her about a company's financial position, but the advisors were unable to
discover the company's true financial condition because of affirmative fraudulent
concealment). Furthermore, the price of the artwork Hope purchased was not so low
that getting a second opinion would have been financially prohibitive. Cf. Balog v.
Center Art Gallery- Hawaii, Inc., 745 F. Supp. 1556 (D. Haw. 1990) (discovery rule
applied where the sellers' actions and the low price of the artwork effectively
precluded the buyers from hiring an independent evaluator). While Hope contends
that she could not have discovered that she paid inflated prices for the works because
Klabal and Epsteen fraudulently concealed their actions, nothing Klabal or Epsteen
did prevented her from having the art appraised and they were not in exclusive
possession of pricing information for the pieces. See Marvin Lumber & Cedar Co. v.
PPG Indus., Inc., 223 F.3d 873, 878 (8th Cir. 2000) (where a plaintiff has access to
the facts that would make out the cause of action, the plaintiff has not been reasonably
diligent). The Minnesota courts deem facts to have been discovered when "with
reasonable diligence, they could and ought to have been discovered." Blegen, 116
N.W.2d at 357. Through the exercise of reasonable diligence, Hope could have
discovered that she was paying inflated prices for the artwork more than six years
before she brought her claims, and the district court did not err in finding as a matter
of law that her claims were barred by the statute of limitations.
B.
Hope also contends that the district court erred in finding that the continuing
tort doctrine did not toll the statute of limitations. She argues that Klabal and
Epsteen's conduct constituted an ongoing fraud because they urged her to make many
investments in order to achieve a significant and balanced portfolio of art. Under the
continuing tort doctrine, the final act is used to determine when the statute of
limitations period begins for the entire course of conduct. See Mille Lacs Band of
Chippewa Indians v. Minnesota, 853 F. Supp. 1118, 1126 (D. Minn. 1994). However,
-12-
a plaintiff who is merely "feeling the present effects" of a past wrongful act may not
avoid the statute of limitations. Id. Minnesota courts have held that where each
transaction is separate, distinct, and could have been challenged by a plaintiff, the
continuing tort doctrine does not apply. See Davies v. West Pub. Co., 622 N.W.2d
836, 842 (Minn. 2001) (sixteen stock distributions made over a period of years were
discrete acts not tolling the statute of limitations). Each of the sales to Hope was
individually priced and insured, and the transactions occurred over a period of many
years. Consequently, the district court did not err in failing to toll the limitations
period under the continuing tort doctrine.
C.
Finally, Hope argues that the district court erred in applying the law of the case
doctrine when granting summary judgment to Epsteen. When the magistrate judge
issued his report and recommendation on Epsteen's motion for summary judgment, he
declined to reconsider his prior conclusions that (1) Klabal was not Hope's fiduciary;
(2) Klabal did not engage in fraudulent concealment because Hope was not diligent
in seeking to discover her cause of action; (3) Epsteen and Klabal’s actions did not
amount to a continuing tort because each purchase of art was a distinct transaction;
and (4) Klabal and Epsteen did not engage in conspiracy to defraud Hope. Hope's
argument that the magistrate judge used these earlier rulings to preclude her claims
against Epsteen is without merit. In deciding that Epsteen was entitled to summary
judgment, the magistrate judge thoroughly reviewed Hope's amended complaint and
conducted an independent analysis of whether Hope used due diligence in discovering
her claims against Epsteen, whether Epsteen engaged in fraudulent concealment, and
whether Epsteen acted as Hope's fiduciary. The magistrate judge declined to
reconsider the argument that Klabal and Epsteen's conduct amounted to a continuing
tort in light of the fact that Hope's amended complaint did not present any new
evidence that would change its earlier conclusion that each art sale was a separate and
discrete transaction. We conclude that there was no error on this ground.
-13-
IV.
For the foregoing reasons, we affirm the judgment of the district court.
______________________________
-14-