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

Citation: 793 F.2d 954Docket: 84-2419

Court: Court of Appeals for the Eighth Circuit; July 31, 1986; Federal Appellate Court

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Plaintiffs, St. Louis Home Insulators and partners operating as The Bear Company, appealed a district court judgment dismissing their claims against Burroughs Corporation. The plaintiffs had entered into agreements with Burroughs in 1977 for the purchase of B-80 computers and software for business operations. Following installation issues, including a malfunctioning inventory program, plaintiffs refused the remaining computers and eventually abandoned the problematic software.

On June 20, 1983, plaintiffs filed a three-count complaint alleging negligent misrepresentation, fraud, and breach of warranty. Burroughs moved for summary judgment, asserting that the negligent misrepresentation claim was time-barred, and that the fraud and breach of warranty claims were also barred by the statute of limitations. After a mistrial, the district court dismissed the negligent misrepresentation and breach of warranty claims with prejudice on August 16, 1984, due to expired statutes of limitations. The court found the fraud claim inadequately pleaded and required an amended complaint under Fed. R. Civ. P. 9(b). Following the plaintiffs' amendment, Burroughs again moved to dismiss, and on October 5, 1984, the court dismissed the fraud claim with prejudice for lack of specificity and because it was also barred by the statute of limitations. The Eighth Circuit affirmed the district court's decision.

Missouri law governs the action, specifically Mo. Rev. Stat. Sec. 516.120(5), which requires plaintiffs to file fraud claims within five years from when they knew or should have known the relevant facts. The district court determined that the plaintiffs had actual knowledge of deficiencies in the inventory program and Burroughs' failure to address them before the five-year period expired, thus ruling the fraud claim as time-barred. 

Depositions revealed early awareness of issues; Jan Holder reported abandoning the inventory program in March 1978, Gryzmala expressed disillusionment in spring 1978, and Hoffman noted significant problems as early as May 1978. The trial court inferred that the plaintiffs, being sophisticated businesspeople, recognized that attempts to rectify the software had failed long before the statute of limitations ran out. The case was likened to *Alexander v. Perkin Elmer Corp.*, where a computer purchaser acknowledged difficulties with the product well ahead of the five-year limit. 

Consequently, the court affirmed the district court's summary judgment due to the claim being time-barred. The dissenting opinion highlighted that the district court did not grant summary judgment based on the statute of limitations, as it had declared a mistrial and subsequently denied the summary judgment motion, questioning whether the plaintiffs knew of the inadequacies of the system. The dissent noted that the fraud claim had not been properly pleaded and required an amended complaint under Federal Rule of Civil Procedure 9(b).

Burroughs filed a motion to dismiss the plaintiffs' amended complaint, arguing it inadequately pleaded the specifics of the alleged fraud. The district court agreed, finding the complaint lacked the necessary particularity under Rule 9(b) and failed to specify circumstances that would toll the statute of limitations. Consequently, the court dismissed the complaint with prejudice. On appeal, it was clarified that the court only ruled on the motion to dismiss and did not address a summary judgment related to the statute of limitations, making any discussions on that topic irrelevant to the appeal. Furthermore, even if a summary judgment had been considered, the court erred in its conclusion regarding the statute of limitations, as it did not establish that the limitations period had expired as a matter of law. The district court's reliance on the plaintiffs' sophistication and past failures to modify inventory programs as supporting evidence was deemed insufficient to warrant such a determination. Therefore, the appellate opinion determined that the district court's dismissal was erroneous, recommending a reversal of the judgment and a remand for further proceedings.