Petition for Writ of Certiorari — Klehr v. AO Smith Corp.
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Sterane Gort, US
4) FILED
96 6683 OCT 25 19%
No OFFICE OF THE CLERK
Gu the
Supreme Court of the Anited States
October Term, 1996
MARVIN KLEHR AND MARY KLEHR
Petitioners,
Vv.
A.O. SMITH CORPORATION AND
A.O. SMITH HARVESTORE PRODUCTS, INC.,
Respondents.
ON PETITION FOR WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE EIGHTH CIRCUIT
PETITION FOR WRIT OF CERTIORARI
Charles A. Bird Mary R. Vasaly
Counsel of Record Maslon Edelman Borman
Bird and Jacobsen & Brand
305 Ironwood Square 3300 Norwest Center
300 Third Avenue SE 90 South Seventh Street
Rochester, MN 55904 Minneapolis, MN 55402
(507) 282-1503 (612) 672-8200
Of Counsel
Malcolm McCune
Maddin, Miller, and McCune
300 James Robertson Parkway
Nashville, Tennessee 37201
(615) 254-8756
Counsel for Petitioner
1996 — Bachman Legal Printing & (612) 339-9618 @ FAX (612) 337-8053
yy)
\ \ VY
\ \
QUESTIONS PRESENTED
l. When does a civil RICO claim accrue for statute of
limitations purposes where the Respondent continues to commit
predicate acts which cause Petitioners additional, continuous, or
accumulating damages within four years of bringing suit?
2. Do affirmative continuing acts of fraud including
continuous false advertisements coupled with active cover up of
the fraud, act to equitably toll the statute of limitations in a civil
RICO case whether or not Petitioners have exercised reasonable
diligence to discover their claim?
TABLE OF CONTENTS
PAGE
QUESTIONS PREGENTED .. wo icc ceeivet vueem i
TABLE OF AUTHORITIES ................... . iv
OPINIONS BELOW ....... Weir se 2
STATUTORY PROVISIONS INVOLVED .......... 2
STATEMENT OF THE CASE ........cccccccsccss 3
A. Defendant's Affirmative Concealment of the
Fraud and Affirmative Continuing Fraudulent
Representations Caused Damage and Prevented
Petitioners from Discovering Fraud...... 3
B. a re 7
REASONS FOR GRANTING THE PETITION ...... 10
A. Accrual of the Statute of Limitations in RICO
Cases for Continuing Unlawful Conduct That is
a Cause CC DONG... 0 sub cus wenee 1]
l. The accrual rules adopted by the circuit courts
ase in CONTE ow icc cntivaseueneue 11
a The Court should delay action on this Petition
until Grimmett v. Brown is decided. .... 12
cc eecces 13
The decision of the Eighth Circuit is
EE ee 16
Continuous False Advertising and Active
Concealment of Fraud Should Equitably Toll the
Statute of Limitations in a Civil RICO
thet be cesescseccesccccees 22
Appendix A--Opinion of Court of Appeals
Appendix B--Opinion of District Court
Appendix C--Order on Rehearing (July 29, 1996)
Appendix D--Judgment of Circuit Court
Appendix E--January 3, 1968, AO. Smith Internal
Memo
Appendix F--Fall 1989 and October 25, 1989,
Harvestore Advertisements
Appendix G--Selected Portions of
Amended Complaint
TABLE OF AUTHORITIES
CASES PAGE(S)
Agency Holding Corp.. v. Malley-Duff & Assoc.. Inc.
SN IN fas cs cd en oeiuncsawkcceve 10
Agristor Leasing v. Saylor, 803 F.2d 1401
SE CG bow UEie ebb CbEEWedcccccccces 4
— \.0 Smith H Products. Inc.. 869
PO MUD i.e. 655004 Zidsceccccavce: 4
Bankers Trust Co. v. Rhoades, 859 F.2d 1096 (2d Cir. 1988),
—Y “rea ae 11, 12, 17
Bath v. Bushkin, Gaims, Gaines & Jonas, 913 F.2d 817
EE, SEs title suka ddaeceses 1 ebes oe: 12, 14
Bingham vy. Zolt, 66 F.3d 553 (2d Cir. 1995) ....... 9,14
Bivens Gardens Office Bidg v. Barnett Bank, 906 F.2d 1546
SE Sa ee ee esa 12, 17
Caproni v. Prudential Securities, Inc., 15 F.3d 614 (6th Cir.
BEEN. « cno.ceccedaadn Wehbe onsiitacesescans 11
Clute v. Davenport Co., 584 F. Supp 1562 (D. Conn
"pre ee eee ee 20
7 —W-—1 "5 ~— RE
-—~
wm ee ee ee
First National Bank of Louisville vy. Brooks F
UEP CUED cc cccccccccesccctens 4
Glessner vy. Kenny, 952 F.2d 702 (3d Cir. 1991) ... 14,17
Granite Falls Bank v. Henrikson, 924 F.2d 150
NS eh keds dec idé es dek 9,11, 12
Grimmett vy. Brown, 75 F.3d 506 (9th Cir. 1995)
(cost. granted) ................. 11, 12, 13, 14, 17, 20
HJ Inc. v. Northwestern Bell Tel. 492 U.S. 229(1989) 18
Hohri v. United States, 782 F.2d 227 (D. C. Cir. 1986) . 20
Holmberg v. Armbrecht, 327 U.S. 392 (1946) ........ 10
Keystone Ins Co. vy. Houghton, 863 F.2d 1125 (3d Cir.
EP A ee ee 9, 11, 12, 13, 16, 20
Klehr vy. A.O. Smith Corp. 875 F.Supp. 1342 (D. Minn.
SBR a ee passim
Sc ae eer
Lollar vy. A.O. Smith Harvestore Products, Inc., 795 S.W.2d
McCool y. Strata Oil Co. 972 F.2d 1452 (7th Cir.
PDs x ocd cénccctcseusalstiteedineans 11, 12, 14
Pocahantas Supreme Coal Co. v. Bethlehem Steel, 828 F.2d 211
GD Ecdccavesduterededh dkddcccdvcces ll
Religious Technology Center v. Wollersheim, 796 F.2d 1076
SE, bartin cea bceeseebeseeczectees 18
Riddell v. Riddell Washington Corp., 866 F.2d 1480 (D. C. Cir
BE Sib. dk codes suntecsvattSt Jabtectas 11, 20
Robertson v. Seidman & Seidman, 609 F.2d 583 (2d Cir
SOUUD so odds oda cdceoueivees Wes hees ick 19
Rodriguez v. Banco Cent., 917 F.2d 664 (1st Cir.
Sian dindcdtih Amdiss ccldticks ies) 11, 12
Sedima, SP. RL. v. Imrex Co., 473 U.S. 479 (1985)... 19
Sperry v. Barggren, 523 F.2d 708 (7th Cir. 1975) ..... 19
State Farm Mut. Auto Ins Co. v. Ammann, 828 F.2d 4
SE BGs ohn dbs 6-odsddhaidieal 4c selise 16
kT RRR ree ae ree 13
STATUTES
I ee, : ca. 5 ikea sect cebaveee eek. 2
nn eee ee ee 2
TPE | PETS 2,19
I, 5 ohh be dus Se eWoe déscces 2,3
a ee re Nk a 3
SEES ee ea 3
EE a ian a 3
Racketeer Influenced and Corrupt Organization Act, Ch. 96,
§904(a), 84 Stat. 947(1970) ..........000000.... 18
MISCELLANEOUS
Restatement (Second) of Torts §539, American Law Institute
oe a 7
Restatement (Second) of Torts §542, American Law Institute
EE nee a ee a 7
Restatement (Second) of Torts §546, American Law Insitute
ee ee le eG 15
Humes, Rico and a Uniform Rule of Accrual, 99 Yale L. J. 1399
RE, ORE ee ey nang ea ee 14
‘cae Co mee ee ke of / Holding C Mallev-Duff
SE ED os co wcccwtrececccece 14
Stern et al, Supreme Court Practice, (7th Ed. 1993).... 13
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1996
MARVIN KLEHR AND MARY KLEHR (Petitioners)
v.
A.O. SMITH CORPORATION AND
A.O. SMITH HARVESTORE PRODUCTS, INC.
(Respondents)
Petition for Writ of Certiorari to the United States Court of
Appeals for the Eighth Circuit
Marvin Klehr and Mary Klehr respectfully petition for writ of
certiorari to review the judgment of the United States Court of
Appeals for the Eighth Circuit in this case.
OPINIONS BELOW
The Opinion of the Court of Appeals (App. A) is
reported at 87 F.3d 231. The opinion of the district court
(App.B) is reported at 875 F. Supp. 1342.
JURISDICTION
The Court of Appeals entered its judgment by denying
the Petition for Rehearing on July 29, 1996 (App. C). The
jurisdiction of this Court is invoked under 28 U.S.C. §1254(1).
STATUTORY PROVISIONS INVOLVED
18 U.S.C. §1962(c) provides that "it shall be unlawful
for any person employed by or associated with any enterprise
engaged in, or the activities of which affect, interstate or foreign
commerce, to conduct or participate, directly or indirectly in the
conduct of such enterprise's affairs through a pattern of
racketeering activity or collection of unlawful debt."
“Racketeering activity" is defined in 18 U.S.C. §1961 to include
“any act which is indictable under any of the following
provisions of title 18, United States Code: ...section 1341
(relating to mail fraud), section 1343 (relating to wire fraud)..."
18 U.S.C. §1964(c) provides that “any person injured in his
business or property by reason of a violation of section 1962 of
this chapter may sue therefore in any appropriate United States
district court and shall recover threefold the damages be sustains
and the cost of the suit, including a reasonable attorney's fee."
STATEMENT OF THE CASE
Petitioners, husband and wife, are dairy farmers, who
sued the Respondents in August, 1993 in U.S. District Court in
Minnesota, alleging, among other things, a violation of the
RICO statutes. They alleged they had been defrauded in (a) the
purchase and (b) the subsequent continuing use and repair of an
animal feed storage silo. The predicate acts underlying the
RICO claim were mail and wire fraud. 18 U.S.C. §§1341, 1343.
Jurisdiction of the Federal District Court was invoked under 18
U.S.C. §1964 (c) and 28 U.S.C. §1331 (general federal question
jurisdiction). The district court dismissed the case on summary
judgment based upon violation the statute of limitations. The
Court of Appeals affirmed.
A. Defendants Affirmative Concealment of the Fraud
and Affirmative Continuing Fraudulent
Representations Caused Damage and Prevented
Petitioners from Discovering the Fraud.
This case presents two distinct issues: (a) whether the
appropriate rule of accrual of the statute of limitations for
continuing RICO predicate acts occurring within 4 (four) years
of the commencement of the lawsuit and (b) whether
Respondents affirmative acts of concealment and continued
fraudulent misrepresentations of the product to the Petitioners
after the sale, equitably tolls the statute of limitations
notwithstanding that Plaintiffs may have failed to exercise due
diligence in discovering the fraud.
The Petitioners purchased a Harvestore brand silo from
MVBA, a local dealer for AO. Smith Harvestore Products, Inc.
(hereafter "AOSHPI") in 1974. AOSHPI is a wholly owned
subsidiary of A.O. Smith Corporation (hereafter "AOS") which
holds many of the patents for the Harvestore silo and did the
vast majority of the secret internal research through which it
knew that the product was defective in design
These design defects caused rapid deterioration of stored
feeds. The design defects caused injury to the Petitioners’
livestock, loss of milk production, and continuing needless
“repairs” to the silo and associated equipment.
AOSHPI, through its local dealer and in other
advertising venues, made numerous fraudulent claims through
the use of the U.S. Mail and interstate wires concerning the
ability of the silo to properly store and preserve feed. The
fraudulent statements are set forth in the Amended Complaint
(App. G-1 to G-29) and include claims that the silo would
"prevent oxygen from contacting the feed", that the dealer (in
this case MVBA) had access to all the research regarding the
product, that good Harvestore feed smelled like "molasses", and
that AOS engineers had solved the problem of structure
breathing. These representations came to the Petitioners in the
form of oral representations and a broadly based marketing
campaign which included brochures, movies, the "Harvestore
Farmer" magazine (published by AOSHPI) and advertisements
in numerous national farm journals. [bid.
The Respondents knew that the representations
concerning the silo were false’ AOS had conducted
1 The product defects and fraudulent statements are documented in the
Amended Complaint. App. G-30 to G-35. Junes and courts have found
the representations regarding the Harvestore structures to be faise and
courts have roundly critcized AOSHP' for its fraudulent actions and
disregard for the truth. Included among those:
Harvestore System, 488 N.W.2d 490 (Minn. Ct App. 1992) (review
denied); Agnstor Leasing v. Savior, 803 F.2d 1401, 1403, 1408 (6th Cir.
1986) (retnal ordered to consider statute of limitations);
869 F.2d 264, 265-266 (6th Cir.
917 F.2d 480, 482 (10th Cir. 1990); Lollar y AO. Smith Harvestore
Products. Inc. 795 S.W.2d 441, 442 (Mo. App. 1990) (app. to transfer
4
ee eee
——— a
voluminous research on the Harvestore silo which contradicted
the advertising claims. This research, at the direction of AOS,
was all marked "secret and confidential." The general counsel
for AOS had directed in 1968 that known defects in Harvestore
silos should be protected from discovery in lawsuits by making
sure that scientific studies be addressed to the AOS legal
department, with copies to the true intended recipient, so that
the company could falsely claim attorney/client privilege. App.
E. This scheme was specifically intended to prevent discovery
in civil suits concerning the known design defects in the
Harvestore silo. None of this contradictory and extremely
damaging internal research was ever communicated to MVBA
(or any other dealers) nor to the farm customers. This was
contrary to what had been represented in the advertising. See,
e.g. G-29 and G-30 (Birth of a Harvestore film). Nor was this
research ever published to the academic community, who were
doing empirical research that ostensibly supported the false
advertising claims. The Respondents then used the academic
research in their advertising, but kept the contradictory and
accurate internal studies secret.
The Plaintiffs purchased the silo in 1974 based upon
numerous fraudulent representations regarding the ability of the
silo to properly preserve stored feed. App. G-1 to G-14.
In spite of Respondents knowledge of the design defects
in the silos, they not only sold the silos initially but also
“continued to sell" the product and repairs for the product after
it was purchased by the farm customer. This "continue to sell"
campaign was a broad based marketing approach which
included a continuous, free and unsolicited subscription to a
"Harvestore” magazine. Each issue of this magazine included
stories depicting extremely successful farmers from all over the
country who attributed their success to their Harvestore silos.
These magazines also included "Question and Answer" columns
denied).
in which proper management of the silo was represented to be
the key to successful use of the silo. AOSHPI also falsely
advertised in numerous other farm journals and publications, and
provided false information to its dealers and directly to farmers.
Through the dealers, AOSHPI orchestrated other “after sale"
techniques such as farmer meetings, dealers training sessions,
movies, and presentations at fairs and farm shows. This media
barrage was specifically intended to "keep them sold."
At the same time that this after sale campaign was
convincing the Petitioners to look elsewhere on their farm for
the source of their injury, the Respondents were continuing to
engage in product research which established the falsity of the
marketing campaign. This scientific research was actively
concealed, and marked secret and confidential. Instead of
publishing their own damning research as promised in the
advertising, the Respondents published favorable empirical
research from university professors who were also kept in the
dark about the infirmities of the silo.
The Petitioners in this case were continually duped by
AOSHPI's post-sale predicate acts into believing their
Harvestore was the "cadillac" of silos. The continuous barrage
of after sale merchandising had its intended effect. App. G-14
to G-30. Petitioners were lulled into continuing to use the silo
and spend more money on "repairs" to the Harvestore silo. In
the case of the Petitioners, the last two predicate acts which
caused damage took place in the fall of 1989, within 4 years of
initiating suit in August, 1993. App. G-22, G-25; App. F. The
Petitioners continued to use the silo until 1991. The post-sale
ads not only reiterated the pre-sale claims but made new and
different claims. They testified that the post-sale fraud caused
them to overlook their silo as a source of any injury on their
farm. Because the silos are supposedly “sealed” to prevent
losses to the feed, the Petitioners were told not to open any
doors or hatches. A sign on the side of the silo warned the
Ts “
_—— — s
Petitioners not to go inside because there is "not enough oxygen
to support life." It is practically impossible for the farmer to
visually inspect the bottom of the silo, where all the damage
occurs to the feed. The mold created in the bottom of the silo
is caused to "disappear" by the churning action of the unloader,
so the Petitioners didn't see mold in the feed that was fed to the
livestock.
By continuing to use the silo, the Petitioners continued
to incur injury for damaged livestock, and loss of milk
production. The repairs to the silo continued until 1990, less
than three years before suit was filed in August, 1993. The
Petitioners discovered the causal connection between the
Harvestore silo and their damages in March, 1991, when a
university professor they had consulted removed an access panel
on the silo and chopped through 2-3 feet of compacted feed in
the bottom of the silo. By using a video camera with spotlight
attached to a long pole, the professor discovered great
quantities of mold in a void space immediately above the
unloader. The professor demonstrated to Petitioner Marvin
Klehr how none of this mold could be seen by the naked eye
when it came out of the silo.
B. Proceedings Below.
The district court ruled that, because Petitioners were
aware of the falsity of certain "non-actionable" representations,’
they were put on notice of possible fraud and therefore
concluded that the Petitioners had not used reasonable diligence
2 “Non-actionable” because they constituted statements of opinion or
related to future performance of the silo, which courts have traditionally
held do not support claims of fraud. Restatement (Second) of Torts
§§539,542. These included representations that the Petitioners would
production and make more money. Petitioners Amended Compiaint was
not based upon the non-actionable representations. See App. G.
to investigate the fraud. Because more than six years (the state
statute of limitations) had elapsed from the time the Petitioners
should have discovered the actionable fraud, their state law
fraud claims were held to be barred by the statute of limitations.
The Court went on to hold that the RICO statute incorporated
a similar due diligence requirement and therefore dismissed
these claims as well.
The district court said that the Petitioners did not
exercise reasonable diligence to discover the fraud, and, even
though they did not know of the fraud, fraudulent concealment
would not work to toll the statute because they should have
known. App. B-13. The district court ignored and did not
discuss AOS attorney's scheme to address scientific studies
concerning the Harvestore silos to the legal department to
falsely obtain an attorney/client privilege in civil discovery
proceedings. Supra, at p. 5; and App. E. Nor did the district
court discuss the scheme of the Respondents to cover up its
internal research program which continued to demonstrate the
post-sale advertisements did not support equitable tolling (under
state law principles) as a matter of law.
The district court dismissed Petitioners’ RICO claims
holding that Petitioners’ failure of due diligence caused the
statute to run, stating that "the same facts which should have
alerted them to the fraud also should have alerted them that the
alleged misrepresentations and injuries were part of a pattern."
The district court rejected Petitioners’ claims based upon the
post-sale advertisements, concluding that the Petitioners
suffered no new "independent injury" but rather just a
“continuation of damages" that they had suffered since 1975.
The district court ignored and did not address Petitioners’ claims
that their injuries in later years were proximately caused by the
advertisements published and relied upon by the Petitioners
within the statute of limitations.
identical reasoning. The Petitioners were required by the circuit
court to affirmatively investigate facts that "might constitute &
possible cause of action for fraud." App. A-11. (Emphasis
added.) The circuit court did not address Petitioners’ argument
that there was continuing unlawful conduct by the Respondents
within 4 years of bringing suit, which conduct was a proximate
alleged in the Complaint that they reasonably relied upon
fraudulent post-sale advertising published less than 4 years
before filing the Amended Complaint which was a substantial
contributing cause of damages within the statute of limitations.
Petitioners’ argument was misconstrued by the court as being a
claim that any later injury automatically extended the statute of
limitations on the original claim’. Petitioners’ true argument was
that later predicate acts that caused damage would work to
create a new claim. This is the separate accrual rule accepted by
a majority of the circuit courts. Bingham vy. Zolt, 66 F.3d 553,
559 (2d Cir. 1995) (discussing conflict in the circuits and the
separate accrual rule as adopted in the second circuit). Having
recast Petitioners’ argument, the court of appeals rejected it on
the basis of its rejection of the “last predicate act” rule, citing
Granite Falls Bank v. Henrikson, 924 F.2d 150, 154 (8th Cir.
1991).
The circuit court gave no consideration to the AOS
scheme to cover up and prevent discovery of damaging internal
research which directly contradicted the advertising claims
App. E. The circuit court accepted the reasoning of the district
court that new predicate acts in the form of post-sale advertising
does not constitute concealment. The Petitioners’ failure of due
diligence was held to completely preclude application of the
federal equitable estoppel doctrine. App. A-17 at fn. 11.
3 This is the “last predicate act or injury” rule of the 3d circuit espoused in
Keystone ina. Co. vy. Houghton, 863 F.2d 1125, 1126 (3d Cir. 1988).
9
REASONS FOR GRANTING THE PETITION
This case involves two important issues: (1) accrual of
the statute of limitations where there is continuing criminal
conduct within the statute of limitations and (2) equitable tolling
of the statute of limitations in civil RICO cases, where the
Defendants have combined to actively conceal and cover up the
fraud and also continue to falsely promote and advertise the
product. In each of these areas, the decisions of the circuit
courts are in conflict. This case presents an opportunity for the
Court to clarify both of these muddied areas of the law.
Two seminal cases of this Court are the starting point of
discussion. In Agency Holding Corp. v. Malley-Duff & Assoc.
Inc., 483 U.S. 143, 107 S. Ct. 2759, 97 L. Ed.2d 121 (1987),
this Court held that the similarities in purpose and structure
between RICO and the Clayton Act counseled in favor of
RICO claims. The court stated, however, that it had “no
occasion to decide the appropriate time of accrual for a RICO
claim." Id., 486 U.S. at 156-157. This case directly addresses
the unresolved issue of the correct rule of accrual of the statute
of limitations in civil RICO cases where there is continuing
In Holmberg v. Armbrecht, 327 U.S. 392, 397, 66 S.Ct.
582, 90 L. Ed. 743 (1946), this court decided that the doctrine
of equitable tolling is read into every federal statute of
limitation. The unresolved question squarely presented here is
whether equitable tolling applies where Respondents have
combined to actively conceal and cover up the underlying fraud,
and have continued to affirmatively falsely promote and
advertise the product to the customer, even though Petitioners
10
may not have acted with due diligence.‘
A. Accrual of the Statute of Limitations in RICO Cases
for Continuing Unlawful Conduct That is a Cause of
Damage.
1. The accrual rules adopted by the circuit
courts are in conflict.
In the absence of guidance from the Supreme Court, the
lower courts have adopted a variety of RICO accrual doctrines.
An “injury discovery" accrual rule was adopted by the First,
Second, Fourth, Fifth, Seventh, Ninth and D.C. Circuits.
Rodriguez vy. Banco Cent., 917 F.2d 664, 665 (ist Cir. 1990);
Bankers Trust Co. vy. Rhoades, 859 F.2d 1096, 1102 (2d Cir.
1988) cert. den; Pocahantas Supreme Coal Co. v. Bethlehem
Steel, 828 F.2d 211, 220 (4th Cir. 1987); LaPorte Const. Co.
Inc. v. Bayshore Nat. Bank, 805 F.2d 1254, 1256 (Sth Cir.
1986); McCool v. Strata Oil Co., 972 F.2d 1452, 1464-65 (7th
Cir. 1992); Grimmett v. Brown, 75 F.3d 506, 510-11 (9th Cir.
1995); Riddell v. Riddell Washington Corp, 866 F.2d 1480,
1489-90 (D.C. Cir. 1989). The Third, Sixth, Eighth, Tenth and
Eleventh Circuits have adopted an “injury plus pattern
discovery” accrual rule, with the Third Circuit's approach being
broader and involving a “last predicate act or injury" approach.
Keystone Ins Co. vy. Houghton, 863 F.2d at 1130-31 (3d Cir.
1988); Caproni v. Prudential Securities, Inc., 15 F.3d 614, 619-
620 (6th Cir. 1994); Granite Falls Bank v. Henrikson, 924 F.2d
4 it's not disputed that the Petiboners did not know of the fraud Whether
Petiboners should have known of the fraud was hotly contested in the
lower courts. The Petboners presented evidence that they hwed
appropnate experts to heip them with thew investgaton of the cause of
problems on them farm, including vetennanans and nutribonists, and were
not able to discover the fraud over the 16 years the Harvestore silo was in
use This investgaton included contacts with the local dealer, who bed to
them about the reason for the occasional presence of moid in the feed.
1]
150, 154 (8th Cir. 1991); Bath vy Bushkin, Gaims, Gaines &
Jonas, 913 F.2d 817, 820-821(10th Cir. 1990); Bivens Gardens
Office Bidg vy. Bammett Bank, 906 F.2d 1546, 1553-54 (11th Cir.
1990). The latter rule has been criticized by other circuits.
Compare Keystone Ins. Co. v. Houghton, with Granite Falls
Bank vy Henrikson. In addition, some courts in both groups
utilize a “separate accrual” rule, under which new predicate acts
or injury can extend the statute of limitations. To date, some
form of “separate accrual” rule has been adopted in the First,
Second, Seventh, Eighth, Ninth, Tenth, and Eleventh circuits.
See ¢.g Rodriguez, 917 F.2d at 666; Bankers Trust Co., 859
F.2d at 1102; McCool, 972 F.2d at 1464-66; Granite Falls Bank
924 F.2d at 154; Bath 913 F.2d at 820; Grimmett 75 F.3d at
510-11; Bivens, 906 F.2d at 1554-55. Predictably, the courts
that have adopted the separate accrual rule do not agree in its
courts require "new and independent injury”, but only when
there are no new predicate acts. Some courts (such as the
circuit court here) require new and independent injury even
where there are new predicate acts. The courts also differ on
what constitutes "new and independent" injury.
Petitioners urge this court to adopt the “last predicate
act" rule of Keystone If this Court rejects Keystone and instead
adopts a "separate accrual” rule (where each new predicate act
Causing injury gives rise to a new claim, but doesn't revive old
claims), then Petitioners urge this Court to reject the corollary
enunciated by the Eighth Circuit in this case that each new
predicate act must also be accompanied by independent injury
to avoid the bar of the statute of limitations.
a. The Court should delay action on this
Petition until Grimmett y. Brown is decided.
Recently, this court accepted certiorari in a case from the
12
Ninth Circuit to address the obvious conflict in RICO accrual
law. See Grimmett vy. Brown, 75 F.3d 506 (9th Cir. 1995), cert.
granted, 64 U.S.L.W. 3830 (June 18, 1996). The ruling of this
Court in Grimmett vy. Brown will likely affect the outcome in
this case. The circuit court in Grimmett discussed the separate
accrual rule and equitable tolling. The amici in Grimmett have
urged adoption of the Keystone approach to accrual.
Petitioners here urge the Court to clarify accrual law in
Grimmett by adopting the Keystone rule, as it best represents
the remedial purpose of the statute. See separate briefs on
appeal of National Association of Securities and Commercial
Law Attorneys (NASCAT) in Support of Petitioners and
Plaintiffs Executive Committee, MDL No. 1069, and David L.
Forbes Supporting Reversal.
Because there is significant likelihood that this Court's
decision in Grimmett will impact this case, Petitioners request
that the court hold this case in abeyance until Grimmett is
decided. See, Stern, et al, Supreme Court Practice (7th Ed,
1993) p. 358, citing United States v. American Broadcasting-
Paramount Theaters, Inc. 383 U.S. 906 (1966) (ruling on
certiorari delayed, and later denied). If this Court adopts the
last predicate act rule of the Third Circuit, or clarifies the
necessity of a "new and independent injury” under the separate
accrual rule, the result in this case will be affected. The Court
can then either remand to the Eighth Circuit for further
proceedings consistent with this Court's decision in Grimmett or
rule on this Petition.
b. The Court should grant certiorari in this
case.
If this court does not provide a comprehensive rule
concerning accrual in Grimmett, then -ertiorari should be
accepted in this case to consider the best rule of accrual for new
13
predicate acts occurring within the statute of limitations. As
noted above, conflict remains between the circuits as to whether
a separate accrual rule should be based upon the "last predicate
act" and whether new overt acts revive claims for past predicate
acts.
Many of the federal circuits have adopted the separate
accrual rule for RICO claims under which a new claim accrues
for continuing violations of the law, triggering a new four year
limitations period, each time the Plaintiff discovers, or should
have discovered, the operative event triggering accrual (that is,
either injury or injury plus a pattern of racketeering activity).
Supra, discussion at p. 12. This rule has various mutations,
Co.. 972 F.2d 1452, 1464-66 (7th Cir. 1992) (discussing
differing accrual rules, and stating “each wrongful act that
causes injury is a new cause of action..."); Bath v. Bushkin,
Gaims, Gaines, & Jonas, 913 F.2d 811, 820 (10th Cir. 1990)
(discussing separate accrual rule where knowledge of pattern
required); Humes, RICO and a Uniform Rule of Accrual, 99
Yale LJ. 1399, 1412, n. 85 (1990) (criticizing the separate
accrual rule), Hackenberg, Accrual of Civil RICO Claims, 48
La.L. Rev. 1411, 1414 (1988).
The Second, Third, Ninth (in Grimmett) and now the
Eighth Circuit in this case have adopted a “new and
independent" injury precondition for separate accrual of RICO
claims. Bingham vy. Zolt, 66 F.3d 553, 559 (2d Cir. 1995);
Glessner vy. Kenny, 952 F.2d 702, 707-708 (3d Cir. 1991)
(requiring a new and independent injury only when there are no
new predicate acts within 4 years of bringing suit). The Eighth
Circuit rule as applied to a case involving continuing and
accumulating injury would permit a RICO defendant, such as
the Respondents here, to perpetrate a fraud and, once the
limitations period runs on the original fraud, to continue to
perpetrate fraudulent acts and cause further injury, which
14
conduct is then protected from suit by the statute of limitations
as long as the injuries flowing from the new acts of fraud are not
"independent," i.e. qualitatively different from the previous
injuries. In the present case, this means that the Petitioners,
who were originally defrauded in 1974 in the sale of the silo,
cannot sue the Respondents for the new fraudulent acts which
occurred in the fall of 1989 and which caused further injury at
that time, because the statute of limitations has run on the 1974
fraud. In other words, Petitioners’ statute of limitations for the
1989 predicate acts and any continuing injuries ran out before
those acts and injuries even took place. This is a radical
departure from the intent of the RICO statute, which is to
prevent continuing pattern criminal conduct. This rule
effectively insulates and encourages such unlawful conduct, an
anomalous and indefensible result.
The question is whether the 1989 predicate acts were a
substantial contributing cause of the injuries occurring
thereafter, but not necessarily the sole cause. Restatement
(Second) of Torts §546 (discussing causation in the context of
fraud) and comment b ("It is not, however, necessary that his
reliance upon the truth of the fraudulent representation be the
sole or even the predominant or decisive factor in influencing his
conduct. It is not even necessary that he would not have acted
or refrained from acting as he did unless he had relied on the
misrepresentation. It is enough that the representation has
played a substantial part, and so has been a substantial factor, in
influencing his decision.") Both the pre-sale and post-sale ads
were a cause of injury to the Petitioners in later periods.
Therefore, attempting to identify either a single source of injury
or requiring that the injuries be different in kind or quality only
clouds the question. The simple issue is whether the later
predicate acts were a contributing cause of some injury. If so,
a new claim is created which has its own statute of limitations.
15
2. The decision of the Eighth Circuit is erroneous.
The separate accrual rule, as first contemplated by then
Judge Kennedy in his concurrence in State Farm Mut. Auto. Ins.
Co. vy. Ammann, 828 F.2d 4 (9th Cir. 1987) provided as follows:
The rule is that a cause of action accrues when
period, even if a conspiracy was formed and
other acts were committed outside of the
limitations period. A corollary rule is that
damages may not be recovered for injuries
sustained as a result of acts committed outside
of the limitations period. (Italics added).
The “new and independent" injury requirement of
separate accrual for RICO claims began as a reaction to the
breadth of the Third Circuit's “last predicate act or injury" rule
in Keystone Ins. Co. vy. Houghton, supra. In Keystone, the
court held that either a new act or a new injury occurring within
RICO claim. In that case, as in this one, there was an additional
predicate act and injury within the four year period. The
Keystone rule states:
The limitations period for a civil RICO claim
runs from the date the Plaintiff knew or should
have known that the elements of the civil RICO
cause of action existed unless, as a part of the
same pattern of racketeering activity, there is
further injury to the Plaintiff or further predicate
acts occur, in which case the accrual period shall
run from the time the Plaintiff knew or should
have known of the last injury or the last
16
predicate act which is part of the same pattern of
racketeering activity. 863 F.2d at 1130.
In Glessner vy. Kenny, 952 F.2d 702 (3d Cir. 1991), there
predicate act. In that case, the court first established the "new
and independent” injury requirement, purportedly relying on
decisions from the Second and Eleventh Circuits. Bankers Trust
Co. vy. Rhoades, 859 F.2d 1096 (2d Cir. 1988), cert den. 490
U.S. 1007 (1989); Bivens Garden Office Bidg v. Barnett, 906
F.2d 1546, 1555 (11th Cir. 1990). While neither Bankers Trust
nor Bivens Gardens stand for a requirement of qualitatively
different damages, both the Eighth Circuit (in this case, where
years) and the Ninth Circuit (in Grimmett) now require such
evidence to avoid the bar of the statute of limitations. The
Eighth Circuit rule adopted in this case goes much further than
the rule in Glessner, because it requires the Petitioner to show
acts within the statute of limitations.
This new rule creates in the tortfeasor/criminal a license
to continually injure RICO victims once the original statute of
limitations is past. Since the whole purpose of RICO is to
eliminate pattern criminal conduct, the intent of the law will be
perverted and largely nullified by placing the Courts in the
dubious position of protecting RICO violators who are rendered
immune from suit after the passage of the four year limitations
period. Because the continuing pattern conduct is likely to be
5 in this case, there were new advertsements reed upon by the Plaintiffs
in the fal, 1989 Harvestore Farmer magazine and an October 25, 1969 ad
in @ natonal farm publication. App F Plaintiffs alleged
injury flowing from these fraudulent advertsements As noted above, this
does not mean that there were not other causes of the same injury.
including the fraud perpetrated before the sale See discussion, supra at
15
17
the same, the injuries resulting from the conduct are often the
same.
To use the example cited in the Supreme Court's opinion
in EL. Inc. v. Northwestern Bell Tel., 492 U.S. 229, 109 S. Ct.
2893, 106 L. Ed. 2d 195 (1989), if a RICO violator collected
protection payments from merchants for more than four years,
the RICO violator would have a complete limitations defense for
his acts, even though payments were extracted within the four
year period prior to suit. By requiring a RICO plaintiff to
establish an “independent injury" i.e., that the original fraud
played no part in the later injury or that the later injury was
qualitatively different from the first injury, courts effectively
authorize RICO violators to continue their past predicate acts
and resulting damages into the future without the risk of
incurring RICO liability. This makes no sense, especially when
one considers that the majority of courts have ruled that a civil
RICO plaintiff cannot seek injunctive relief under RICO. See,
¢.g., Religious Technology Center v. Wollersheim, 796 F.2d
1076 (9th Cir. 1986). Like any other civil plaintiff, a RICO
plaintiff may decline to bring suit against a defendant for a long
time for prudent reasons, including the risk and cost of
litigation, the attendant publicity or notoriety, and the likely
response of a defendant. There is little to recommend the
contention that a plaintiff who delays bringing a RICO claim
until after the expiration of the four year limitations period is
thereafter by criminal acts of the defendant simply because they
are the same type as previously suffered, or because the original
predicate act was a part of the cause of those injuries.
Petitioner's argument is in accord with the liberal
construction policy espoused by the drafters of RICO. RICO
states that “the provisions of this title shall be liberally construed
to effectuate its remedial purpose.” Racketeer Influenced and
Corrupt Organization Act, Ch 96, §904(a), 84 Stat. 947 (1970),
18
note following 18 U.S.C. §1961. "The statute's remedial
purposes are nowhere more evident than in the provision of a
private action for those injured by racketeering activity,”
Sedima, SPRL. v. Imrex Co, 473 U.S. 479 (1985). The
language of the statute, as well as “Congress’ self consciously
expansive language and overall approach," mandate that RICO
be read broadly. The Eighth Circuits’ requirement of an
ee ne ee
Statute
B. Continuous False Advertising and Active
Concealment of Fraud Should Equitably Toll the
Statute of Limitations in a Civil RICO Case.
1. The circuit court's application of the federal
equitable tolling doctrine conflicts with the
rule in the Second and Seventh Circuits.
Petitioners specifically plead fraudulent concealment
coupled with continuing active fraud in the Amended Complaint.
App. G-14 to G-35. The issue raised here is whether the
Petitioners need to prove due diligence in discovering the fraud
underlying the predicate acts where the Respondents have
engaged in active concealment of the fraud while, at the same
time, continuing to fraudulently promote the use and repair of
the product to the consumer. The circuit court in this case did
not address the claim of fraudulent concealment as a basis for
federal equitable tolling except to conclude that, “the Klehr's
doctrine.” App. A-17, fn. 11.
A conflict exists between the rule applied by the circuit
Pg emg epg
. man, 609 F.2d 583, 593
(2d Cir, 1979), Sperry y. Barggren, 523 F.2d 708, 711 (7th Cir
19
1975). In these circuits, the plaintiff must due diligence
only when the defeadent is involved ia “passive? concealment,
i.e. where the defendant takes no further steps to disguise the
fraud from the plaintiff. Clute v. Davenport, Co., 584 F. Supp
1562, 1578 n4 (D. Conn. 1984). The D.C. Circuit has
attempted to reconcile these differences. Hohbri y. United
States, 782 F.2d 227, 248, n. 54 (D. C. Cir. 1986); Riddell y.
, 866 F.2d 1480, 1491 (DC. Cir.
1989). According to these cases, if there is fraudulent
concealment, the defendant has the burden of proving something
closer to actual notice to set the statute running. The deceptive
conduct "may be as simple as a single lie." Riddell v. Riddell
Washington Corp., supra, 866 F.2d at 1491.
According to the Eighth Circuit, equitable tolling is
never even a consideration where it can otherwise be determined
there was a lack of due diligence. In other words, the
Respondent's continuing fraud can be ignored if the Petitioners
are negligent in discovering the original fraud. Moreover, the
Eighth Circuit refused to even consider fraudulent concealment
of the original fraud or continuous fraudulent advertisement of
the product as relevant factors in determining whether
Petitioners exercised due diligence. Under the Eighth Circuit's
reasoning, the merest inquiry notice (that there “might be a
possible fraud") triggers the statute, which cannot thereafter be
stopped by a party's fraudulent concealment or other overt acts
that effectively “lull” the plaintiff into taking no action. Not
even the burden of proof is shifted. The facts in the record
undeniably lead to a different result depending only on the
this difference in application of the equitable tolling doctrine.
If this Court rejects the Keystone rule in Grimmett, it
will be particularly important for the Court to address equitable
tolling in the RICO context. Plaintiffs in RICO cases will be
faced with the loss of meritorious claims, and defendants will be
20
encouraged to cover up their fraud until the 4 year limitations
period is past. The lower courts will be faced with numerous
claims of tolling, and need the guidance of this Court regarding
the correct rule to apply.
2. The decision of the Eighth Circuit is
erroneous.
The Petitioners in this case were continually duped, over
the many years they owned the silo, into believing it was the
“cadillac” of silos. There was a continuous barrage of “after
sale" merchandising which had its intended effect. At the same
to look elsewhere on their farm for the source of their injury, the
Respondents were continuing to engage in product research
which established the falsity of the marketing campaign. This
scientific research was actively concealed, and marked secret
and confidential. Instead of publishing their own damning
research as promised in the advertising, the Respondents
published favorable empirical research from university
professors who were also kept in the dark about the infirmities
of the silo.
There is a stark contrast between a tortfeasor who, on
the one hand violates the law and thereafter stands mute, and
another tortfeasor who, after committing the original fraud,
perpetrates additional fraud while, at the same time, actively
concealing the original fraud. Such persons should, in equity, be
treated differently. The former may justifiably take advantage
of the "due diligence” principle which requires the plaintiff to act
or lose his claim. The latter, because of his continuing violation,
should suffer a penalty regardless of whether his victim has
acted with due diligence. The continuing tortfeasor should have
the burden of proving that the plaintiff actually knew of the
fraud. This is a reasonable price to pay for the continued
21
is a better rule of law and should be adopted by the Supreme
Court in civil RICO cases.
CONCLUSION
The petition for a writ of certiorari should be granted.
Respectfully Submitted,
Charles A. Bird Mary R. Vasaly
Bird and Jacobsen Maslon Edelman Borman
305 Ironwood Square & Brand
300 Third Avenue SE 3300 Norwest Center
Rochester, MN 55904 90 South Seventh Street
(507) 282-1503 Minneapolis, MN 55402
Counsel of Record (612) 672-8200
Of Counsel
Malcolm McCune
300 James Robertson Parkway
Nashville, TN 37201
(615) 254-8756
Counsel for Petitioner
A. Opinion of Court of Appeals...00000000000.0.0.occccccceeeees A-l
B. Opinion of District Court...000000000000. 0c ccccccccceceeeeseeeeen B-!
C. Order on Rehearing (July 29, 1996) 0000000000... C-1
D. Judgment of Circuit Court 0000000. eccccccceeeeeeees D-1
E. January 3, 1968--A.O. Smith Internal Memo .............. E-1
F. Fall 1989 and October 25, 1989, Harvestore
EE F-]
ee G-1
United States Court of Appeals
FOR THE EIGHTH CIRCUIT
No. 95-1355
Marvin Klehr and Mary Klehr;
Plaintiffs- Appellants,
William G. Olson,
Appeal from the United
* States District Court for
Vv. * the District of
Intervenor,
A.O. Smith Corporation; °
A.O. Smith Harvestore Products, *
Inc., Jointly and Severally, °
>
*
Defendants-Appellees.
MVBA Harvestore Systems,
Movant.
Submitted: October 18, 1995
Filed: June 6, 1996
A-l
Before FAGG, HEANEY, and HANSEN, Circuit Judges.
HANSEN, Circuit Judge.
Marvin Klehr and Mary Klehr (Klehrs) appeal from the
district court's’ entry of summary judgment against them on
their various Minnesota state law and Racketeer Influenced
and Corrupt Organizations Act ("RICO") claims. These
claims are premised upon alleged misrepresentations made by
defendant A.O. Smith Harvestore Products, Inc., a subsidiary
of defendant A.O. Smith Corporation (collectively
"AOSHPI"), and AOSHPI's authorized local dealer, MVBA
Harvestore Systems, concerning a Harvestore silo that the
Klehrs purchased. The district court ruled that the Klehrs'
claims were barred by the statute of limitations. Klehr v_ A.O.
Smith Corp., 875 F. Supp. 1342 (D. Minn. 1995). We affirm.
L
The Klehrs operate a dairy farm in Minnesota. In
approximately 1974, they purchased a Harvestore silo
manufactured and marketed by AOSHPI and sold by MVBA.
Richard Deutsch, a salesman for MVBA, provided the Klehrs
with information about Harvestore silos before and after the
Klehrs purchased the Harvestore, and he also served as their
local contact when they had problems with the unit.
The fulcrum for the Klehrs’ claims relates to certain
representations made by AOSHPI concerning a Harvestore
silo's unique “oxygen limiting" feature. Marvin Klehr was an
experienced dairy farmer and knew that mold and spoilage in
' The Honorable Michael J. Davis, United States District Judge for
the District of Minnesota.
A-2
livestock feed are caused due to the feed's exposure to
oxygen, and that moldy and spoiled feed would be harmful to
his dairy herd if fed to it. According to the Klehrs, AOSHPI
represented that because the Harvestore silos were sealed,
feed stored in the unit would have almost no exposure to
oxygen, thereby virtually eliminating problems with moldy or
spoiled feed.? This would result in higher feed quality, which
in turn would eliminate the need to add protein supplements to
the herd's daily feed ration. It would also improve the health
of the herd and increase milk production at a rate of three to
five pounds of milk per cow per day. All of these purported
benefits would ultimately increase the profitability of the
Klehrs' dairy operation. Although a Harvestore silo was
considerably more expensive than a conventional stave silo,
which the Klehrs also considered purchasing, it was explained
to the Klehrs that Harvestore's unique “oxygen limiting"
feature justified the higher cost of the unit and that the unit
would pay for itself in four to five years. The Klehrs
recognized, however, that all of the promised virtues of a
Harvestore unit hinged upon the efficacy of the structure's
“oxygen-limiting" feature.
Despite AOSHPI's_ representations, the Klehrs
experienced a myriad of problems after the Harvestore unit
was installed. In July and August of 1976, Marvin Klehr
observed white chunks of mold in the haylage’ he removed
from the unit. He contacted Deutsch, who assured him that
the mold was normal and simply the product of a minute
quantity of oxygen that entered the top hatch of the unit when
? Some of AOSHPI's promotional materials apparently likened a
Harvestore silo to a giant sealed fruit jar.
> "Haylage” in the context of this case refers to chopped alfalfa
silage stored in a silo at a designated moisture content to promote
fermentation .
A-3
it was being filled‘ Deutsch explained that the Klehrs could
expect a thin layer of mold each time the Harvestore was filled
because of the small amount of oxygen that would flow into
the unit during the filling process. The Klehrs accepted this
explanation.
In the spring of 1977, Marvin Klehr again noticed chunks
of mold in the feed and also observed that the feed had
become unusually dark brown and smelled musty. Marvin
Klehr loaded the spoiled feed into a manure spreader and
dumped it on one of his fields. Marvin Klehr made the same
observations in the spring of 1978 and undertook the same
action. This process was repeated each spring, with the
amount of moldy or spoiled feed always ranging from one to
two manure spreader loads.
_ The Klehrs' dairy herd also began suffering from
various health problems after the Klehrs started feeding the
herd haylage stored in the structure. Some of the health
problems had not previously afflicted the herd, while other
maladies began occurring with much greater frequency. These
ailments included: displaced abomasums or “twisted
stomachs," "foot problems," swelling and bruises around the
* A Harvestore silo is filled through an open hatch at the top of the
structure and unloaded by way of a chain-type unloader at the bottom of
the unit. During the unloading process, so-called "breather bags” at the
top of the silo expand to prevent oxygen from entering.
* The only exception to this process was that in ximatel
spring of 1982, Marvin Kiehr noticed a much greater yr 1 pb
and spoiled feed than he had previously observed. The feed was much
darker brown and contained significantly more and larger chunks of
mold. He immediately ceased feeding his dairy herd feed from the
Harvestore unit and subsequently emptied approximately 12 manure
spreader loads of spoiled feed from the unit. Deutsch and AOSHPI
officials later made repairs to the unit. Thereafter, the process returned
to what it had previously been -- one to two manure spreader loads of
spoiled or moldy feed emptied from the unit each spring.
A-4
joints in the cows’ hind legs, cows "going off feed,” unusually
thin and unthrifty cows, cows having rough hair coats and dull
eyes, a higher rate of uterine infections, and more diarrhea and
digestive problems than normal. Further, the Klehrs' herd
began having certain breeding and reproductive problems,
such as poor conception rates, longer calving intervals, and
spontaneous abortions.
Additionally, the Klehrs never realized the numerous
benefits AOSHPI represented the Harvestore unit would
provide, namely, an increase in milk production, elimination of
protein supplements, and ultimately, an increase in profitability
of the dairy operation. In fact, although their dairy operation
had been profitable prior to their purchase of the Harvestore,
the Klehrs experienced financial hardship after they started
using the Harvestore. Despite all of this, the Klehrs never
questioned Deutsch about the inability to eliminate protein
supplements or the lack of increase in milk production or
profitability until 1990. The Klehrs did consult a number of
nutritionists and veterinarians during the years after they
purchased the Harvestore concerning several of the herd's
health and reproductive problems, but they never asked these
consultants whether the Harvestore could have been the
source of the problems. Finally, the Klehrs did not examine
records which they possessed which would have illustrated to
them that their herd's milk production was below that of other
local herds and that the herd's milk production and the
profitability of the dairy operation had not increased since the
Harvestore was installed.
In 1991, Marvin Klehr saw an article in a Minneapolis,
Minnesota, newspaper regarding a claim concerning a
Harvestore unit that had been made against AOSHPI in
Minnesota state court. Marvin Klehr subsequently contacted a
University of Minnesota veterinarian, Dr. William Olson,
about a health problem with his herd; in April of 1991, Dr.
Olson visited the Klehrs' farm. Dr. Olson and Marvin Klehr
A-5
subsequently looked inside the Harvestore and observed large
amounts of moldy and spoiled feed. This was the first time
feed was still being stored in the unit.
The Klehrs later commenced this action on August 27,
1993, alleging Minnesota common law fraud and negligent
representation claims, violations of certain Minnesota
consumer statutes, and violations of RICO. AOSHPI moved
the claims were barred by the statute of limitations. The
district court granted AOSHPI's motions. Klehr, 875 F. Supp.
at 1345. The Klehrs appeal.
II.
We review dence. the district court's grant of summary
judgment. Maitlan rs inn., 43 F.3d 357, 360
(8th Cir. 1994), Samay 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).
A
We turn our attention first to the Klehrs’ Minnesota
common law fraud claims, which are governed by a six-year
statute of limitations. See Minn. Stat. Ann. § 541.05(6) (West
1988).° Under this statute, the cause of action accrues,
thereby triggering the limitations period, upon “the discovery
by the aggrieved party of the facts constituting the fraud." Id.
_ tt sagan to hase dala, wo seston da.aaun Go Giewiet courts
interpretation of Minnesota law Michals Ame: Arizor
66 F.3d 993, 995 (8th Cir 1995).
A-6
The Minnesota Supreme Court has construed this statute
as imposing a standard of objective reasonableness upon a
plaintiff to discover the facts constituting the fraud. Bustad v.
Bustad, 116 N.W.2d 552, 555 (Minn. 1962). “[T)he facts
constituting the fraud are deemed to have been discovered
when, with reasonable diligence, they could and ought to have
been discovered." Blegen v. Monarch Life Ins. Co., 365
N.W.2d 356, 357 (Minn. Ct. App. 1985) (quotations omitted).
“A plaintiff must exercise reasonable diligence when he or she
has notice of a possible cause of action for fraud." Buller v.
A.O. Smith Harvestore Prods. Inc., 518 N.W.2d 537, 542
(Minn. 1994). A “party need not know the details of the
evidence establishing a cause of action, only that the cause of
action exists” in order for the limitations period to commence.
Id. (quoting Hydra-Mac, Inc. v. Onan Corp,, 450 N.W.2d
913, 919 (Minn. 1990)). A failure to actually discover the
fraud will not toll the limitations period if such a failure is
inconsistent with this reasonable diligence standard Blegen,
365 N.W.2d at 357.
The Klehrs bear the burden of showing that they did not,
and that with reasonable diligence they could not, discover the
facts constituting the fraud earlier than August 27, 1987, six
years prior to the time this action was filed. Id. A plaintiff's
due diligence in the statute of limitations context is is oreinariy a
question of fact. e | es ToC
880 F.2d 995, 999 (8th Cir. 1989). ‘Where Gb cuiienndlanves
no room for reasonable minds to differ on the issue, however,
ee eo a ee
| Te nc., 992 F.2d 813,
817 (8th Cir 1993)
The Klehrs argue that they did not become aware of the
facts constituting the fraud until April of 1991, when Marvin
Klehr, accompanied by Dr. Olson, looked inside the silo for
the first time during feed storage and observed large amounts
of mold in the feed. The Klehrs submit that they questioned
A-7
Deutsch about the presence of mold and spoilage in the feed
and that at various times they consulted numerous
veterinarians and nutritionists concerning the heuwili and
reproductive problems that their dairy herd was experiencing.
Based on these actions, the Klehrs assert that a fact question
to determine the facts constituting the fraud. We disagree.
Shortly after they began using the Harvestore unit to store
haylage, the Klehrs encountered problems that were directly
contrary to AOSHPI's representations concerning the benefits
a Harvestore unit would provide. AOSHPI represented to the
Klehrs that using a Harvestore to store feed for their dairy
spoiled feed. However, beginning in July of 1976 and
continuing each subsequent year, Marvin Klehr observed mold
in the feed which had been extracted from the unit; further,
beginning in the spring of 1978, Marvin Klehr annually
emptied one to two manure spreader loads of moldy or spoiled
feed from the unit. Further, contrary to AOSHPI's
representations of improved herd health, herd health actually
deteriorated. The herd also began experiencing heretofore
unencountered breeding and reproductive problems. The
Klehrs consulted with a number of nutritionists and
veterinarians over the years, but they never asked any of these
consultants whether the feed fed from the Harvestore silo
could have been the source of the herd’s health and
reproductive problems.
Similarly, it was represented to the Klehrs that one of the
chief virtues of a Harvestore was that it would dramatically
improve the quality of the feed such that protein supplements
would become unnecessary, the Klehrs, however, were never
able to reduce or eliminate protein supplements to the herd's
daily feed ration. In addition promises of increased milk
production and profitability of the dairy operation went
unfulfilled; in fact, while the Klehrs’ dairy operation had been
A-8
profitable prior to the purchase of the Harvestore, thereafter
profits were not large enough. The Kiehrs failed to examine
increases in milk production and profitability, and that the
herd's milk production was subpar compared to other local
dairy herds. The Klehrs did not question Deutsch or AOSHP!
officials until 1990, some 16 years after putting the Harvestore
to use, about the lack of an increase in milk production and
profitability of the dairy operation, and the inability to
eliminate protein supplements from the herd's daily feed ration.
The Klehrs assert that health or reproductive problems in
a dairy farming operation can be caused by a myriad of factors
inherent in dairy farming and therefore determining the precise
source of the problem is impossible. Setting aside the other
promised benefits concerning the Harvestore which never
came to pass (moldy and spoiled feed, inability to eliminate
protein supplements), in this case the Klehrs’ herd suffered
numerous health and reproductive problems shortly after the
Klehrs started to feed the herd haylage stored in the
Harvestore unit. After encountering these problems, the
Klehrs were on notice of a possible cause of action for fraud
and were required to conduct a reasonably diligent
investigation -- perhaps by inspecting the silo during feed
storage (which they did for the first time in 1991 and observed
the prevalence of mold), by questioning Deutsch or AOSHP!
representatives concerning why the dairy operation was not
the Harvestore could be the source of the problems. Their
failure to do so is simply inconsistent with Minnesota's inquiry
notice standard, under which plaintiffs are required to exercise
reasonable diligence to discover the facts which may constitute
the fraud. We hold that, as a matter of law, the Klehrs, by
A-9
exercising reasonable diligence, should have discovered the
facts constituting the alleged fraud prior to August 27, 1987.
This case is distinguishable from our holding in Hines,
where we were called upon to decide whether the Missouri
statute of limitations barred the plaintiffs’ common law fraud
claims in connection with several Harvestore silos. 880 F.2d
at 995. We held in Hines that a factual dispute existed
concerning when the plaintiffs’ cause of action accrued under
Missouri law because there was a conflict in the evidence
concerning when the plaintiffs should have known that the
Harvestore silos were not operating as AOSHPI represented.
Id. at 998. Notwithstanding Hines, our analysis in this case,
which concerns Minnesota state law claims, is governed by the
teachings of the Minnesota Supreme Court concerning the
interpretation and application of that state's discovery accrual
rule, of particular import is that court's recent decision in
Buller, which, like this case, involved the application of the
statute of limitations involving a claim of fraud in connection
with a Harvestore silo. Our analysis is also guided by the
Minnesota federal district court's holding in Veldhuizen,
wherein that court addressed the precise issues in front of us in
another case involving a Harvestore silo. The analysis
expounded in these cases makes clear that the Klehrs’ cause of
action accrued long before August 27, 1987. Thus, our Hines
decision, in which we were called upon to interpret Missouri's
discovery rule, is not controlling here.
In any event, to the extent that Hines applies, there we
relied upon evidence that water had leaked into the Harvestore
due to cracks in the structure and had possibly come into
contact with the feed stored within; thus, the plaintiffs would
have been unable to determine whether the silo, if it had been
properly sealed, nevertheless could not live up to AOSHPI's
representations that moldy and spoiled feed would be
eliminated. The Klehrs, however, have made no similar
showing that their silo had cracks that may have permitted
A-10
water to come into contact with the stored feed, and which
would create a question of fact as to the cause of the moldy or
spoiled feed.’
The Klehrs also contend that the statute of limitations did
not commence until they were aware that the Harvestore unit
had a design defect that prevented it from performing as
represented. Such a standard, however, is wholly inconsistent
with the Minnesota Supreme Court's teaching that the
requirement of reasonable diligence imposes an affirmative
duty to investigate upon a party who is aware of facts that
might constitute a possible cause of action for fraud. Buller,
518 N.W.2d at 542; Hydra-Mac, 450 N.W.2d at 919 ("A party
need not know the details of the evidence establishing the
cause of action, only that the cause of action exists."). We
find persuasive the following statement from Veldhuizen,
where the court addressed this precise issue “The limitations
period does not wait to run until the [plaintiffs] were able to
make a causal connection between the failure of the silo to
perform as promised and a particular design defect."
Veldhuizen v_ A.O. Smith Corp., 839 F. Supp. 669, 676 (D.
Minn. 1993). Thus, we reject the Klehrs’ argument that the
limitations period did not commence until they were able to
pinpoint the design flaw that prevented the Harvestore from
performing as represented *
” Both parties cite a number of cases from other jurisdictions dealing
with the Harvestore litigation. Sec, ¢g.. Horn vy. A.O. Smith Corp., 50
F.3d 1365 (™ os. wy yy 1994 WL 178111
or No. 86-4230-
R (D. Kan. 1990), lohnstor 5 sit ‘orp., Civ. No. 84-4421-S
(D. Kan. 1987). oyey pe oy eee
somewhat helpful, again our analysis is governed by the Minnesota
Supreme Court's interpretation of Minnesota's discovery accrual rule
applicable to fraud claims.
* Likewise, we reject as meritless the Kichrs’ assertion that their
“failure to realize non-actionable predictions of future performance” did
A-11
The Klehrs contend that AOSHPI fraudulently concealed
their fraud cause of action and therefore the statute of
limitations should be tolled. "Fraudulent concealment ‘tolls the
statute of limitations until the party discovers, or has a
reasonable opportunity to discover, the concealed defect.”
Buller, 518 N.W.2d at 542 (quoting Hydra-Mac, Inc., 450
N.W.2d at 918). The limitations period is tolled, however,
“only if it is the very existence of the facts which establish the
cause of action which are fraudulently concealed." Hydra-
Mac, Inc., 450 N.W.2d at 91819. “Merely establishing that a
defendant had intentionally concealed the alleged defects is
insufficient; the claimant must establish that it was actually
unaware that the defect existed before a finding of fraudulent
concealment can be sustained." Id Further, there must be
something of an affirmative nature designed to prevent, and
which does prevent, discovery of the cause of action” for
fraudulent concealment to apply. Wild v. Rarig, 234 N.W.2d
775, 795 (Minn. 1975) (quoting 54 C.J.S. Limitations of
Actions § 206f). The Klehrs bear the burden of showing that
AOSHPI concealed the fraud and that the concealment itself
could not have been discovered sooner by exercising
reasonable diligence. Buller, 518 N.W. 2d at 542-43.
The Klehrs contend that material fact issues remain
concerning whether AOSHPI knew that the Harvestore silos
not trigger the statute of limitations. (Kiehrs' brief at 21.) The problems
the Kiehrs actually experienced shortly after they started using the
Harvestore should have put them on notice that AOSHP!'s
representations concerning the unit were false, regardless of whether
While the Klehrs may not have been required to immediately file suit
to conduct a reasonable further investigation, which, as we have outlined
in detail, they failed to do.
A-12
were defective and deliberately concealed the defects from
them through oral representations, written materials sent to
Klehrs attended. The Klehrs also contend that suggestions
made by Deutsch and representatives of AOSHPI concerning
methods to improve the dairy operation served to conceal the
defects from them. According to the Klehrs, these
misrepresentations prevented them from discovering the fraud,
and accordingly the statute of limitations should be tolled
during the period these continuing misrepresentations were
made.
These arguments are unpersuasive quite simply because
the Klehrs have made no showing that AOSHPI affirmatively
concealed from them the existence of facts which would have
supported their cause of action for fraud. As chronicled in
detail above, the Klehrs were aware as early as 1976, when
Marvin Klehr saw mold in feed taken from the Harvestore,
that the silo was not performing as promised. The oral and
written representations the Klehrs rely on to support their
fraudulent concealment argument did not, and indeed could
not, prevent them from discovering that AOSHPI's promises
concerning the virtues of a Harvestore unit did not come to
pass. See Miles, 992 F.2d at 816 (rejecting claim of fraudulent
concealment in connection with Harvestore because of
impossibility for defendants to conceal facts giving rise to
cause of action when the evidence was in the plaintiff's own
yard); Veldhuizen, 839 F. Supp. at 675 ("providing the
[plaintiffs] with the post-sale materials does not rise to the
level of affirmative concealment necessary to toll the statute of
limitations."). Id. See also Buller, 518 N.W. 2d at 543
(rejecting fraudulent concealment claim based on post-sale
advertising materials because plaintiff knew that Harvestore
was not performing as represented). In short, the Klehrs’ lack
A-13
of diligence precludes us from tolling the statute of limitations
due to fraudulent concealment.”
Il.
The Klehrs argue that the district court erred by holding
that their civil RICO claims were barred by the statute of
limitations. Civil RICO claims are governed by a four-year
statute of limitations. Association of Commonwealth
Claimants v. Moylan, 71 F.3d 1398, 1402 (8th Cir. 1995).
This circuit employs a discovery accrual standard to civil
RICO claims; under this standard, such an action begins to
accrue “as soon as the plaintiff discovers, or reasonably should
have discovered, both the existence and source of his injury
and that the injury is part of a pattern." Id. (inner quotes
omitted)'” The date when the injury and the pattern should
have been discovered is subject to a standard of
reasonableness, id., not unlike the standard for fraud claims
outlined above. Thus, it is incumbent upon the Klehrs to show
that it would not have been reasonable to discover the
* We likewise reject the Klehrs’ claims that, in the alternative,
AOSHPI is equitably estopped from asserting the statute of limitations
because of the repairs that were made to the Harvestore silo in
approximately 1982. There is no evidence that AOSHPI represented that
these repairs would cure the myriad of problems outlined above that the
Klehrs had been experiencing. In any event, the Klehrs admit that after
the repairs were made the same problems which they previously
experienced continued. Thus, equitable estoppel is inapplicable in this
case.
'° The Kiehrs assert a claim under 18 U.S.C. § 1962(a) for injury
resulting from the reinvestment of income from the RICO enterprise in
addition to their claim under 18 U.S.C. § 1962(c) based on a pattern of
by the same discovery accrual rule, and we will assume, without deciding.
that the same accrual rule applies to both causes of action.
A-14
existence, source, and pattern of their injury by August 27,
1989.
The Klehrs’' RICO claims are premised on allegedly
received through the mail from AOSHPI on a continuous basis
before and after they purchased the Harvestore. The Klehrs
claim that AOSHPI distributed similar materials to individuals
throughout the United States during this period) They
contend that these materials made the same fraudulent
misrepresentations concerning the attributes and the benefits
of Harvestore silos that they relied on in deciding to purchase
However, we agree with the district court that the facts
which should have put the Klehrs on notice of a possible cause
of action for fraud should also have alerted them to the
existence, source, and pattern of the injury for their RICO
claim. As noted above, the Kiehrs knew or should have
known shortly after purchasing the Harvestore that AOSHPI's
representations concerning the silo's attributes were simply not
coming true and thus should have recognized the existence
and source of their injury. Likewise, given that the Klehrs
received numerous promotional materials and advertisements
in the mail before and after they purchased the silo, they
should have known that the misrepresentations were part of a
pattern of suspected racketeering activity. We believe that the
Klehrs should have determined that the representations were
part of a pattern of racketeering activity when they should
have identified the Harvestore as the cause and source of their
problems. See Agristor v. Financial Corp. v. Van Sickle, 967
F.2d. 233, 241-42 (6th Cir. 1992) (stating in analogous case
that “as a matter of law, [the plaintiff] should have determined
that the representations were part of a pattern at the same time
it should have discovered that the silos caused the alleged
problems on the dairy farm.").
A-15
The Klehrs urge us to adopt “a separate accrual rule,"
which would permit them to recover damages for predicate
for similar damages caused by similar predicate acts outside of
the four-year period are time-barred. In essence, then, the
Klehrs request that we adopt the “last predicate act" accrual
rule outlined by the Third Circuit in
863 F.2d 1125, 1126 (3d Cir. 1988), or a variation thereof.
However, in Granite Falls Bank v. Henrikson, 924 F.2d 150,
154 (8th Cir. 1991), we declined to adopt such an “open-
ended" standard, observing that it was inconsistent with "the
underlying policy of a statute of limitations requiring due
diligence on the part of the plaintiff" 924 F.2d at 154.
Instead, we adopted an approach under which a plaintiff has
four years to bring his claim from the point in time that he
knew, or in exercising reasonable diligence should have
known, of the existence and source of his injury and that the
injury was part of a pattern, or his RICO claims are forever
barred. Id. The principles expounded in Granite Falls
preclude us from adopting the standard that the Klehrs
propose.
We likewise reject the Klehrs’ related assertion that their
RICO claims are revived because of the "continuing damage”
they sustained into the limitations period through the
continued use, operation, and repair of the Harvestore silo.
Again, Granite Falls provides the governing principle: it makes
clear that a civil RICO action accrues with respect to “each
independent injury" to the plaintiff 924 F.2d at 154. The
Klehrs would have us hold that each advertisement or
promotional material that was sent to them or that they
observed constitutes a separate "injury." However, these
injuries are not “independent injuries” because they are all of
the same type, flow from the same source, and are part of one
cognizable pattern of conduct AOSHPI's alleged
misrepresentations regarding the Harvestore unit. We believe
A-16
that these separate, discrete "injuries" that the Klehrs identify
are more appropriately categorized as one single, continuous
injury that was sustained sometime in the 1970s and for which
1989. See Glessner v. Kenny, 952 F.2d 702, 708 (3d Cir.
1992) ("the mere continuation of damages into a later period
will not serve to extend the statute of limitations."). Thus, the
Klehrs’ civil RICO claims are time-barred."
IV.
We have examined the Klehrs' numerous other arguments
and determine that they lack merit for the reasons given by the
experienced district judge in his well-reasoned opinion.
Accordingly, for the reasons enumerated above, we affirm the
district court's grant of summary judgment to AOSHPI.
A true copy.
Attest.
CLERK, U. S. COURT OF APPEALS,
EIGHTH CIRCUIT.
'' We reject the Klehrs’ argument that federal equitable tolling principles
save their claim from being barred by the statute of limitations. The
Klehrs’ failure to act with due diligence precludes the application of this
doctrine. See Johnson v_ United States Postal Service, 861 F.2d 1475,
1481 (10th Cir. 1988), cern. denied 493 U.S. 811 (1989). See also
Wilson v. United States Government, 23 F.3d 559, 561 (ist Cir 1994)
("{flederal courts have allowed equitable tolling only sparingly ").
A-17
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
THIRD DIVISION
Marvin Kiehr and Mary Klehr,
Plaintiffs, Civil No. 3-94-424
v. MEMORANDUM OPINION
AND ORDER
A.O. Smith Corporation and
A.O. Smith Harvestore
Products, Inc., Jointly and
Severally,
Defendants.
INTRODUCTION
This action arises out of plaintiffs Marvin and Mary
Klehr's purchase of a Harvestore silo in July, 1974. Plaintiffs
claim that Defendants misrepresented material facts with
respect to the characteristics of the Harvestore silo, causing
the Klehrs damage. Before the Court is Defendant A.O. Smith
Harvestore Products, Inc.'s ("AOSHPI") motion for summary
judgment on all of Plaintiffs’ claims based upon the expiration
of the applicable statutes of limitations. Defendants argue that
the action is time-barred because Plaintiffs failed to commence
their lawsuit until August 23, 1993, nineteen years after
purchasing the silo. For the following reasons and based upon
all records, files and proceedings herein, Defendant's motion
for summary judgment will be granted.
B-]
FACTUAL BACKGROUND
lL. Plaintiffs' Purchase of the Harvestore Silo
The Klehrs purchased a 25 x 80 foot Harvestore silo on
July 15, 1974, and began to use it in the summer of 1975."
The Klehrs stored chopped alfalfa haylage and occasionally
silage in the silo. Richard Deutsch, a salesperson for MVBA
Harvestore Systems, sold the silo to the Klehrs. Deutsch
supplied the Klehrs with literature and films representing the
qualities and benefits of the Harvestore silos. The Klehrs
claim that they purchased the Harvestore based upon the
following representations:
1. That A.O. Smith Corporation was a one-hundred
year old company that "backed" the product and that
AOSHPI was twenty-five years old and had the backing
of A.O. Smith.
2. That MVBA Harvestore Systems representatives
were authorized Harvestore dealers and were the
repository of all research regarding the Harvestore silos.
3. Because of a unique “oxygen-limiting” breather bag,
no oxygen would contact the feed during storage,
resulting in better feed quality,
4. Because oxygen would not contact the feed, there
would be no spoiled and moldy feed from the Harvestore
silo;
5. Because of the higher quality feed, Plaintiffs would
have healthier cows, realize an increase in milk production
of three to five pounds per cow per day, and be able to
' In 1955, Marvin Klehr's father purchased a second Harvestore silo
which has been in use on the Kliehr farm from 1955 to the present. This
silo is not part of the lawsuit.
B-2
significantly reduce or eliminate the protein supplements
in their rations, and
6. Plaintiffs would realize more profits and as a result
the silo would pay for itself in four to five years.
Marvin Klehr ("M.K.") Dep. at 149-169, 183, 611-12. All of
feature, which constituted the most important factor in the
Klehrs’ decision to purchase the Harvestcre silo over a cheaper
stave silo. Id. at 761-62.
Prior to 1974, Marvin Klehr was an experienced farmer.
He concedes that he knew before 1974 that exposure of feed
to oxygen causes mold and spoilage and that feeding animals
spoiled and moldy feed could harm the animals. Id. at 114-19,
124.
Il. Plaintiffs’ Experience With the Harvestore Silo
A. Feed Quality and Appearance
Defendants represented that because of the oxygen-
limiting breather bag, no oxygen would contact the feed,
yielding higher quality feed than conventional silos. Based on
these representations, Plaintiffs did not expect to observe mold
in feed stored in the Harvestore silo. Id. at 150-67, 611-12.
Beginning in 1976, however, Klehr observed in the feed a few
white chunks of mold, about the size of a spoon. Concerned
about the mold, Klehr inquired of Deutsch as to the cause.
Deutsch explained that the mold came from the top layer on
the silo and was “normal.” According to Deutsch, at the time
of filling oxygen entered the silo long enough to cause "a little
damage." Deutsch dep. at 293-95. Deutsch told Klehr to
expect a light layer of mold between each filling Klehr
accepted Deutsch's explanation.
Klehr observed light layers of mold between layers and in
the spring each of the following years thereafter. Klehr also
noticed within weeks of each filling that the feed turned a
B-3
the change in color or odor significant, however, based upon
Harvestore's advertising brochures. Advertisements for the
silo described Harvestore haylage as “mildly-fermented,
molasses-like feed" Ex. 1 to M.K. Aff According to
Harvestore, the fermented smell enticed the cows to eat a lot
of the feed. Klehr, therefore, believed that the brown,
In the spring of 1977, at the end of the feed from the 1976
harvest, Klehr again saw mold, ranging from the size of a
quarter to the size of a half dollar, and noticed that the feed
had turned much darker brown in color and smelled musty.
M.K. Dep. at 297-99. Kiehr loaded the spoiled feed into his
manure spreader and dumped it in the field. Subsequently,
each time Klehr emptied the silo he hauled about two spreader
loads of spoiled feed out to the field. He considered one or
of dumping about two spreader loads of spoiled, moldy feed in
the field every spring thereafter. Id. at 349.
One spring, between 1979 and 1982, Kiehr observed that
the spoilage occurred earlier than usual, the feed became much
darker brown and contained significantly more and larger
chunks of mold. Id. at 311-12. Klehr immediately shut down
the silo and stopped feeding that feed to the cows. He hauled
approximately twelve spreader loads out to the field, as
opposed to the usual two loads. Id. at 313. That year, Klehr
spoke to Deutsch about the heavy spoilage. Deutsch and
other MVBA representatives checked Klehr's silo and fixed a
broken breather bag. They then pressure tested the silo and
reported to Kiehr that it was repaired Id at 319-20
Subsequently, the feed returned to “normal,” requiring Klehr
to dump one or two spreader loads when cleaning the silo in
the spring.
B-4
B. Herd Health
In the years following his purchase of the Harvestore,
Klehr experienced numerous ailments with his herd. Around
1980, Klehr noticed that his herd began to have diarrhea and
digestive problems, although it occasionally had suffered
diarrhea, or “winter dysentery,” in the past. M.K. dep. at 413.
Beginning after 1975 the herd had problems with displaced
abomasums, or “twisted stomachs." Klehr had not experi-
enced this problem prior to 1975. He consulted his
veterinarian, Dr. Klimmek, who advised Klehr that the feed
was too finely chopped. Id. at 420-22. Dr. Klimmek did not
indicate that the problem with the consistency of the feed was
caused by the feed storage unit. Id.
In approximately 1983, Kliehr noticed his cows “going off
feed." The feed representative adjusted the rations to resolve
this problem. The representative did not associate this
problem with the silo, rather, Kiehr believed he was feeding
his cows too much. Id. at 416-19.
Klehr observed an increase in uterine infections beginning
around 1980. Klehr recently had doubled the size of his herd
from forty-five to ninety, even with the larger herd, however,
the percentage of uterine infections significantly increased. Id.
at 427. Klehr spoke to his feed salesmen about the problem
several times. They concluded that the cows lacked “some
type of vitamin." Id. The feed salesmen added Selenium in
addition to vitamins A, D, and E to the diet. Id. at 429.
Also in 1980, the herd began to experience foot problems.
Klehr's feed salesman added minerals to the rations to treat the
problem. In about 1977 Kiehr observed swelling
around the joints on the cows’ hind legs. He hed never seen
this condition prior to 1977. Klehr's veterinarians operated on
some of the cows, but were unable to diagnose the cause. His
veterinarians did not connect the leg problems to the
Harvestore silos
B-5
After 1975 Klehr also noticed that his cows were thin and
at 440-41. Klehr's feed salesmen told him “they knew that
these cows were still lacking something.” Id. at 445-56. They
advised Klehr to alter his ration so that the cows would get “a
little bit more grain, or a little bit more feed." Id. at 444.
Again, no one related the unthriftiness or the dull appearance
to the Harvestore silo.
In the years after 1975, Kliehr experienced significant
the problems occurred over a period of time and did not “hit
him overnight,” they increased subsequent to the purchase of
the Harvestore. Kiehr observed, for example, a problem with
premature abortions. When asked when this problem began,
Klehr stated, “It's been a long time. I guess looking back,
maybe at the start of the Harvestore system, yes." M_.K. dep.
at 479. Klehr recalls his herd's conception rate during the
years he used the Harvestore as “very poor,” and he was “very
dissatisfied with it. Id at 535. The Dairy Herd Improvement
Association ("DHIA") records, which Klehr received monthly
during this time period, confirmed the poor conception rate.
Klehr believed this problem had existed for ten years prior to
filing his state court lawsuit in 1991 Id. at 535-36.
After purchasing the Harvestore, Kliehr also observed
long calving intervals compared to reported averages for
Minnesota farmers. Id at 464-65. Klehr investigated the
reproduction problems with his veterinarians and feed
salesmen, who increased vitamin E and Selenium in the
rations. The veterinarians pregnancy tested the cows and told
Klehr that some cows had cysts, none, however, indicated that
the problems related to the silo
B-6
D. Milk Production
Klehr testified that during the period he used the
Harvestore silo, he believed he received the expected increase
in milk production. M.K. Dep. at 384-89. Whenever Klehr
noticed a decrease in milk production, he attributed the
problem to factors other than the Harvestore silo. For
example, Klehr believed that his increase in his herd from
forty-five to ninety cows depressed the milk production. He
also voluntarily reduced his production for eighteen months in
accordance with a dairy diversion program. Finally, Klehr
attributed any depression of milk production to his herd's
health problems, such as the foot problems and uterine
infections.
In contrast to his belief that he received the expected
increase in milk production from Harvestore, Klehr
determined, after reviewing the DHIA records, that his
production “was not going anywhere over the years." Id. at
512. These DHIA records were available to Kiehr monthly
during the entire period he used the Harvestore silos. Id. at
513. Klehr did not complain about his milk production to
anyone until 1990, when he told Deutsch that he should be
producing more milk. Id. at 378-79.
F. Protein Savin
Contrary to Harvestore's representations that the silo
would eliminate the need for protein supplements, Klehr at all
times had to add protein to the rations. Id. at 699-701. Klehr
inquired of Deutsch regarding his failure to realize protein
savings. Deutsch explained that due to increased production
in recent years, the cows required more protein. Id. at 713.
Klehr testified that he believed the need to supplement the feed
with protein was due to various reasons, such as the way he
B-7
was “putting up” his haylage or that his fields were not clean
enough. Id. at 700-701.
G. Profitabili
During the period he used the Harvestore silo, Klehr
believed he was receiving the promised profits. M.K. dep. at
644. After filing the state court lawsuit, however, Klehr
reviewed his DHIA records and determined that the
representations of increased profitability were false. Id. at
511-12. Klehr received DHIA records outlining his profits the
entire time he used the silo. Mary Klehr testified that Plaintiffs
experienced extreme financial hardship from the early 1980's
to 1991 or 1992 due to low milk production. Mary Klehr
Dep. at 23, 104-106.
When asked about profits incurred or lost in specific
years, Klehr testified:
At the end of the year, I had an enterprise of hogs, milk,
crops, and who knows whatever else. It was all thrown
into one kitty, and I never once thought it was because of
my Harvestore not giving me the profit or not doing what
it was supposed to. Could have been the bad hogs, or bad
weather, bad crops... . . I farmed long enough that you
cannot project ahead a whole year what you think you are
going to get, because it never comes out that way. You
take what the good Lord gives you.
Id. at 688-89.
Ill. Discovery of the Alleged Defect
Plaintiffs allege that Defendants continued to misrepresent
to them the characteristics of the Harvestore silos after the
purchase. They claim to have received fraudulent
B-8
representations in the mail from 1969-91, specifically twenty
pieces of advertising before the purchase and thirty-eight
pieces of advertising after the purchase. Amended Complaint
TV 10, 15, 16.
Plaintiffs contend that A.O. Smith Corporation knew of
the alleged design flaws in the Harvestore silo since the 1960's,
but deliberately concealed the defects from consumers.
Plaintiffs claim that Defendants’ conduct in concealing the
deficiencies in the silos while continuing to misrepresent their
qualities, prevented them from discovering the defect in the
Harvestore silo as the source of the problems with their herd.
In 1991, however, Klehr saw an article in a Minneapolis
newspaper regarding a verdict against AOSHPI in Olmsted
County, Minnesota. Shortly thereafter, Klehr contacted the
University of Minnesota about a mastitis problem with his
herd. The University referred Kiehr to Dr. William Olson, a
veterinarian and Ph.D. In April 1991, Olson visited the Klehr
farm and looked inside the Harvestore silo. This was the first
time Kiehr had looked in the silo prior to unloading. They
observed large amounts of mold. Klehr claims that at that
point, in April 1991, he realized for the first time that he had
been feeding his herd moldy feed for fifteen years and that the
spoiled feed had caused his herd significant health problems
See M.K. Aff. ¥ 10; Olson Aff. 4 2A-B, 7.
Plaintiffs commenced this action on August 27, 1993,
alleging: common law fraud (Counts | and II); violations of
the Racketeer Influenced and Corrupt Organizations Act
("RICO") (Counts III and IV), common law negligent
misrepresentation (Count V); and violations of Minnesota
Statute sections 325F.67, 325F.68-70, 325D.13, 325D.44
(Counts VI-IX).’
Plaintiffs previously filed an action in state court alleging all but
the federal RICO claims. On August 18, 1993, Plaintiffs voluntarily
dismussed the state court action pursuant to Minnesota Rule of Civil
Procedure 41.01. Plaintiffs then filed suit in federal court against
DISCUSSION
I. STANDARD FOR SUMMARY JUDGMENT
Under Federal Rule of Civil Procedure 56, a moving party
is entitled to summary judgment if the evidence shows that
“there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law.”
477 U.S. 317, 322 (1986). The
moving party bears the initial burden of establishing the non-
existence of a genuine issue of material fact. Id. at 323, City
of Mt. Pleasant, Jowa v. Assoc. Elec. Co-op., 838 F.2d 268,
273 (8th Cir. 1988). Once it meets that burden, the non-
moving party may not then “rest upon the mere allegations or
denials of his pleading, but . . must set forth specific facts
showing that there is a genuine issue for trial." Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). If, based upon
the evidence, a reasonable jury could not return a verdict for
the non-moving party, summary judgment is appropriate. Id.
at 248.
ll. FRAUD CLAIM
A. Discovery of Fraud
Under Minnesota law, a party must commence a cause of
action for fraud within six years from the date of “discovery by
the aggrieved party of the facts constituting the fraud." Minn.
Stat. § 541.05 subd. 1(6). The date of discovery is subject to
a standard of reasonableness. Bustad v. Bustad, 116 N.W.2d
552, 555 (Minn. 1962); Blegen v. Monarch Life Ins. Co., 365
N.W. 2d 356, 357 (Minn. Ct. App. 1985). Thus, “the facts
AOSHPI, but dropped the claims against MVBA Harvestore, a
B-10
constituting the fraud are deemed to have been discovered
when, with reasonable diligence they-could and ought to have
been discovered." Bustad, 365 N.W. 2d at 357 (citations
omitted).
A party's failure actually to discover the fraud will not toll
the statute of limitations if such failure of discovery is
"inconsistent with reasonable diligence." Id. The plaintiff
carries the burden of proving that he did not, and could not
through the exercise of reasonable diligence, discover the
fraud within six years before commencement of the action.
Blegen, 365 N.W.2d at 357.
The Court recognizes that “normally in a statute of
limitations context fraudulent concealment and a plaintiff's due
diligence are questions of fact unsuited for summary
judgment." waame x. A.D) Sale Meneame Eeate..ia, 99°
F.2d 995, 999 (8th Cir. 1989). Where “the evidence leaves no
room for a reasonable difference of opinion,” however, the
district court properly may resolve fact issues as a matter of
law. Miles v_ A.O. Smith Harvestore Prods., Inc., 992 F.2d
813, 817 (8th Cir. 1993).
The Klehrs commenced this action on August 27, 1993.
If, therefore, the statute of limitations for fraud began to run
prior to August 27, 1987, Counts I and II will be time-barred.
Defendants contend that the Kliehrs knew or should have
known shortly after they began using the Harvestore that the
silo did not perform as represented and that they were not
receiving the promised benefits.
The Klehrs maintain that they did not discover the facts
constituting the fraud until April 1991, when Dr. Olson visited
the farm and Klehr for the first time saw the moldy feed inside
the silo. They assert that they exercised reasonable diligence
in attempting to determine the cause of the problems they
experienced with their herd over the years.
The evidence shows that the Klehrs should have known
shortly after using the Harvestore silo that they were not
B-11
receiving the represented benefits which induced them to
purchase the silo. Mr. Kiehr, an experienced farmer, knew
that exposure to oxygen causes mold and spoilage harmful to
animals. Despite Harvestore's representation that the breather
bag would prevent oxygen from contacting the feed and thus
of mold in his feed. The mold persisted each year Klehr
operated the Harvestore. Each year he dumped spoiled feed in
the field. The year Kiehr noticed a significant increase in
mold, along with a darker color and more pungent smell, he
recognized the potential harm to his herd and dumped twelve
spreader loads of spoiled feed in his field. M.K. dep. at 311-
12.
The entire time he observed chunks of mold in his feed,
Klehr's herd experienced numerous health problems. Contrary
to Defendant's representations that feed from the Harvestore
would result in healthier cows, Kiehr saw an increase in
digestive problems, uterus infections, foot and leg problems
and displaced abomasums. Klehr's cows had dull coats and
eyes and were thin and unthrifty. Additionally, the conception
rates during his use of the silo were very poor and he
experienced increased miscarriages and long calving intervals.
Although certain health problems had occurred prior to
1975, Klehr concedes that many problems increased after the
purchase of the silo and that others began for the first time
after 1975. While the deterioration in herd health and
decrease in reproduction rates did not “hit [Klehr] overnight,"
these problems, directly contrary to Harvestore's
representations, should have been apparent to Klehr at the
latest by the early 1980s
Additionally, Klehr concedes that he never realized any
protein savings by using the Harvestore. In stark contrast to
the advertisements, Klehr had to supplement the feed with
protein at all times. Despite added protein and other vitamins,
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his cows remained unthrifty and “were still lacking
something."
Klehr contends that he reasonably investigated with his
problem he experienced with his herd. He maintains that
because his experts failed to attribute the problems to the silo,
he should not be charged with knowledge that the Harvestore
was the source.
Although Klehr's experts failed explicitly to link the
Harvestore to the problems with his herd, nothing prevented
Klehr from discovering the connection. Klehr knew that
oxygen caused mold and that spoiled feed could harm cows.
In light of the numerous health and reproduction problems he
experienced over the years, Klehr should have included the
silo among the potential sources of his problems. Despite
contrary explanations, Klehr should have made the connection
and taken further steps to investigate the silo as the potential
cause. As stated in Veldhuizen v A.O. Smith Corp., 839 F.
Supp. 669, 676 (D Minn 1993), “[t]}he limitations period
does not wait to run until the plaintiffs were able to make a
causal connection between the failure of the silo to perform as
promised and a particular design defect." Rather, the Kiehrs
had an affirmative duty to investigate the silo as a cause; the
failure to do so is inconsistent with their duty of reasonable
diligence See Blegen. 365 N W 2d at 357. See also Johnston
vy. Agnstor Credit Corp , Civ. No. 84-4421-S (D. Kan. 1987)
(“It appears from the record that the Johnstons did everything
but check their new equipment, such action is not enough to
satisfy the requirement that the fraud not be discoverable until
December 1982")
Although the Klehrs did not actually discover the causal
connection between the silo and the problems with their herd
until April 1991, they should have realized well before 1987
that the representations regarding the characteristics of the
Harvestore silos were false
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fy
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Let
The Court holds that Plaintiffs should have discovered,
through the exercise of reasonable diligence, any fraud
committed by Defendants long before 1987.
B. Fraudulent Concealment
Plaintiffs also argue that the statute of limitations should
be toiled because Defendants fraudulently concealed the cause
of action. “Fraudulent concealment tolls the statute of
limitations until the party discovers, or has a reasonable
opportunity to discover, the concealed defect." Hydra-Mac,
Inc. v. Onan Corp., 450 N W.2d 913, 918 (Minn. 1990). The
limitations period is tolled, however, “only if it is the very
existence of the facts which establish the cause of action which
are fraudulently concealed." Id at 918-19. Further, “there
must be something of an affirmative nature designed to
prevent, and which does prevent, discovery of the cause of
action.” Wild v. Rarig, 234 N.W.2d 775, 795 (Minn. 1975).
Showing that a defendant fraudulently concealed an alleged
defect is insufficient, a plaintiff must show that he actually was
unaware of the existence of the defect before the statute of
limitations will be tolled. Hydra-Mac, 450 N.W.2d at 919.
B-14
The Klehrs contend that Defendants knew the Harvestore
silos were defective and deliberately concealed the defects
from them. They assert that Defendants, through fraudulent
advertising, misrepresented the characteristics of the
misrepresentations, the Klehrs claim, concealed the defect and
prevented discovery of the fraud; therefore, the statute of
limitations should be tolled under the doctrine of fraudulent
concealment.
The Court finds that the fraudulent concealment doctrine
does not apply to toll the statute of limitations. Defendants
here took no affirmative steps which prevented discovery of
the very facts establishing the cause of action. "“[P]roviding
the [Klehrs] with the post-sale materials does not rise to the
level of affirmative concealment necessary to toll the statute of
limitations." Veldhuizen, 839 F. Supp. at 675.
Moreover, the post-sale advertisements could not have
concealed from the Klehrs the facts constituting the alleged
fraud, namely that the Harvestore did not perform as
represented. The Klehrs had only to look at the feed coming
from the silo and observe the health of their herd to know that
they were not getting better quality feed, protein savings and
healthier cows. Further, they had only to look at the monthly
DHIA reports to recognize that the promised increase in milk
production and profits had not materialized. As the court
stated in Miles v. A.O. Smith Harvestore Products, Inc.,
In the present case, Harvestore took no steps to conceal
the facts giving rise to appellant's cause of action. It
would have been impossible. for Harvestore to have done
so--the evidence was in appellant's yard, in daily use for
the feeding of her animals. Appellant by the exercise of
reasonable diligence should have realized that Harvestore
had misrepresented the qualities of the silos.
B-15
Miles, 992 F.2d at 816.
Additionally, any management suggestions by Harvestore
representatives did not, as a matter of law, rise to the level of
Klehr's management of the silo nor attributed the mold, health
problems or low milk production to Klehr's mismanagement.
MLK. dep. at 325-28, 332-35, 710-12. Defendants did not
affirmatively act with a design to prevent, and did not prevent,
Plaintiffs’ discovery of the facts establishing their cause of
action. Accordingly, the statute of limitations will not be
tolled for fraudulent concealment.
Il. RICO CLAIMS
Plaintiffs also allege RICO violations under 18 U.S.C. §§
1962(a)’ and (c).* A four year statute of limitations applies to
civil RICO claims. Agency Holding Corp. v. Malley-Duff &
Associates, Inc., 483 U.S. 143, 156-57 (1987). Plaintiffs’
RICO claims are thus barred if the statute of limitations began
to run prior to August 27, 1989. A civil RICO claim accrues
from the time that the plaintiff “discovers, or reasonably
’ Section 1962(a) provides in relevant part,
It shall be unlawful for any person who has received any income
derived, directly or indirectly, from a pattern of racketeering activity
_. , © use or invest, directly or indirectly, any part of such income,
or the proceeds of such income, in acquisition of any interest in, or
the establishment or operation of, any enterprise which is engaged
in... interstate or foreign commerce.
* Section 1962(c) provides,
It shall be unlawful for any person employed by or associated with
any enterprise engaged in . . . interstate or foreign commerce, to
conduct or participate, directly or indirectly, in the conduct of such
enterprise's affairs through a pattern of racketeering activity... . “
B-16
should have discovered, both the existence and source of his
injury and that the injury is part of a pattern."’ Granite Falls
2 SS F.2d 150, a 2
906 F.2d 1546, 1384-55 (1th Cir. 1990), cart. denied $00
U.S. 910 (1991)). As with the statute of limitations for fraud,
the date when the injury and the pattern should have been
discovered is subject to a standard of reasonableness. Id:
Veldhuizen v_ A.O. Smith Corp, Civ. No. 4-92-1131 (D.
Minn. Dec. 30, 1993).
As evidence of a pattern of racketeering, Plaintiffs allege
receiving from Defendants twenty pieces of fraudulent
advertising through the mail prior to their purchase of the
Harvestore, and thirty-eight pieces of fraudulent advertising
subsequent to the purchase. Plaintiffs allege a pattern of
fraudulent representations by Defendants continuing for a
period of more than twenty years.
The Court finds that Plaintiffs should have discovered the
existence and source of the alleged injury and that the injury
was part of a pattern at the same time they should have
discovered the fraud) The same facts which should have
alerted them to the fraud also should have alerted them that
the alleged misrepresentations and injuries were part of a
pattern. See AgnStor Financial Corp v. Van Sickle, 967 F.2d
233, 242 (6th Cir. 1992) (“as a matter of law [the plaintiff]
should have determined that the representations were part of a
pattern at the sane time it should have discovered that the silos
caused the alleged problems on the dairy farm")
* Plaintiffs cite no authonty for their contenuon that the discovery
accrual rule applies to Section 1962(c) but not to 1962(a). Because under
both sections the injury results from the defendant's pattern of
racketeering activity. the discovery accrual rule will apply to both RICO
claims
B-17
rule set forth in Bivens Gardens and Granite Falls, a new cause
of action accrues each time a party suffers an injury caused by
a violation of 18 U.S.C. § 1962. Because they suffered
damages until 1991, Plaintiffs maintain, a new RICO claim
accrued with their last injury, rendering their 1993 lawsuit
timely.
injuries, the separate accrual is limited to distinct and
independent injuries. Glessner v. Kenny, 952 F.2d 702, 707
(3rd Cir. 1991), Bankers Trust Co. v. Rhoades, 859 F.2d
1096, 1103 (2nd Cir. 1988), cert. denied, 490 U.S. 1007
(1989). In Glessner, the plaintiffs brought their RICO actions
in 1988 after the defendants had ceased production of an
allegedly defective furnace in 1983, thus ending the pattern of
racketeering. The plaintiffs argued that although they first
suffered injury, in the form of excessive repairs, prior to the
expiration of the four year statute of limitations, they suffered
a new and independent injury in 1984 when they had to
replace the furnace. This new injury, they claimed, reset the
statute of limitations’ Glessner, 952 F.2d at 706-07. The
court found that the plaintiffs’ replacement of the furnace did
not constitute a new and distinct injury but rather a
continuation of their initial injury. As the court stated, “the
mere continuation of damages into a later period will not serve
to extend the statute of limitations.” Id. at 708.
Similarly, the injury allegedly suffered by the Klehrs
through 1991 does not qualify as an independent and distinct
injury, but rather a continuation of the damages they suffered
since using the Harvestore silo in 1975. Their injury arises out
of Defendants’ initial alleged wrongdoing, namely the
fraudulent misrepresentations
Because the Kiehrs should have discovered the existence
and source of this injury and that it was part of a pattern at the
sane time as they should have discovered the fraud, long
before August 1989, their RICO claims are time-barred °
IV. STATUTORY CLAIMS
Counts VI through IX of Plaintiffs’ Amended Complaint
assert claims for violations of the Minnesota False Statement
in Advertisement statute (Minn. Stat. § 325F.67), the
Minnesota Consumer Fraud Act (Minn. Stat. § 325F.68-70),
the Unlawful Trade Practices Act (Minn. Stat. § 325D.13),
and the Uniform Deceptive Trade Practices Act (Minn. Stat. §
325D.44). Minnesota Statute section 541.05 subd. 1(2)
imposes a six year statute of limitations for claims based on
liability created by statute This provision does not include a
discovery allowance as does the statute of limitations
applicable to fraud claims. Minn. Stat. §541.05 subd. 1(2):
Veldhuizen, 839 F. Supp. at 677. Thus, the six year
limitations period commenced on the date of sale, 1974, when
each of the alleged statutory violations occurred Id.
Accordingly, Plaintiffs’ statutory claims are time-barred.
Vv. NEGLIGENCE CLAIM
Plaintiffs allege in Count V a claim for negligent
musrepresentation Under Minnesota law, a six year
limitations period applies to negligence claims. Minn. Stat
§541.05 subd 1(5) The statute of limitations begins to run
* For the same reasons as set forth with respect tc the common law
fraud claims, the doctrine of fraudulent concealment does not apply to
toll the statute of limitations under RICO. Even under the federal
fraudulent concealment doctnne. the limitauons penod will not be tolled
unless the fraudulent concealment *musieads a plaintiff into thinking that
he does not have a cause of action * Davis v. Grusemeyer, 996 F.2d 617,
624 (3rd Cir. 1993). As discussed supra. Defendants did not conceal the
facts constututing the cause of action
B-19
on negligence claims “when the negligent act or omission
causes injury on which the injured party could maintain an
action.” Wittmer v. Ruegemer, 419 N.W.2d 493, 496 (Minn.
1988). Because Plaintiffs, alleged injuries began immediately
after using the silo in 1975, the six year statute of limitations
Even if not barred by the statute of limitations, Plaintiffs
N.W.2d 159, 162 (Minn. 1981) ("economic losses that arise
out of commercial transactions, except those involving
personal injury or damage to other property, are not
recoverable under the tort theories of negligence or strict
products liability") As a matter of law, the damages claimed
by the Klehrs are non-recoverable economic loss. Veldhuizen,
839 F. Supp. at 677. Under either theory, therefore, Plaintiffs’
claim for negligence alleged in Count V will be dismissed.
CONCLUSION
Based on the foregoing and all the files, records and
proceedings herein, the defendants’ Motion for Summary
Judgment (Doc. No. 120) is GRANTED and Plaintiffs’
Complaint is DISMISSED WITH PREJUDICE.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: January _6 .1995
v/s
MICHAEL J. DAVIS, Judge
United States District Court
B-20
on
UNITED STATES COURT OF APPEALS
FOR THE EIGHTH CIRCUIT
No. 95-135SMNST
Marvin Klehr; Mary Kiehr; ©
>
Appellants, °
* Appeal from the
William G. Olson, * United States
* District Court for the
Intervenor, * District of Minnesota
*
Vv. °
-
A.O. Smith Corporation, A.O. Smith *
Harverstore Products, Inc., °
Jointly and Severally, °
>
Appellees ‘
The petition for rehearing filed by the appellants’ has been
considered by the court and is denied.
July 29, 1996
Order Entered at the Direction of the Court:
s/Michael E. Gans
Clerk, U.S. Court of Appeals, Eighth Circuit.
C-]
Mr. Charles A. Bird
BIRD & JACOBSEN
305 Ironwood Square
300 Third Avenue, S.E.
Rochester, MN 55904
95-1355/mam
of Minnesota
August 12, 1996
RECORD OF DOCKET TEXT
3:94-cv-00424 Klehr v. A O Smith Corp
DOCKET ENTRY
CERTIFIED COPY OF OPINION & JUDGMENT FROM
USCA ( Fagg) ( Heaney) ( Hansen) - J; filed 6/6/96 that the
judgment of the District Court in this cause is affirmed in
accordance with the opinion of the Eighth Circuit. [223-1]
(17pgs) (cc. All Counsel) Mandate issued 8/9/96
Hon. Michael J Davis, Judge
THIS NOTICE SENT TO ALL COUNSEL
D-|
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LAW DEPARTMENT
Date: January 3, 1968
Attention:
Messrs. L. B. Sinith From: James N. Johnson
U. T. Kuechle Dept. 0116
A. D. Hyde Location: Milwaukee
M. E. Morgan
R. F. McGinn
R. C. Smith
Howard Johnson
Cloy Knodt
During the development by the plaintiffs of the evidentiary
facets of their cases in the California courts, the most prolific
source for such development, to which they turned again and
again, was the voluminous reports and memoranda issued by
one department or division head to another, or by division or
department heads to outsiders, such as dealers. In many
respects, these memos formed every bit as much damning
evidence as did any of the advertisements or promotional
pieces upon which the plaintiffs sought to rely
Admittedly, a large corporation such as ours moves
forward, even though slowly, it appears sometimes, on
exchange of pieces of paper No one knows more poignantly,
than do lawyers, how necessary writings sometimes may be in
order that points of view can be clearly expressed and
accurately memorialized We will be the first to insist that
writings, in many cases, are absolutely necessary.
E-1
However, in times such as those through which
Harvestore is passing, and when it appears that its mechanical
problems are yet far from solution, | suggest that the writings
Product failures and the claims made against the Company
in connection therewith, along with any responsibility of the
Company's undertaking to correct such failures, all are matters
of appropriate reference to the Law Department for analysis
and suggestion They are a joint problem between
administrative engineering, sales, and law, but, ultimately,
reflect the possible legal claims and attending litigation
Therefore, their joint assessment and correction under the
supervision of the Law Department is not only proper as a
matter of form, but also as a matter of substance, and any
writings in connection therewith, so long as they are addressed
to the Law Department with copies to the responsible
administrative engineering or sales executive involved, will be
secure from seizure
Therefore, | earnestly solicit your cooperation to frame
—_ memos in the manner | have suggested _~ ve, So —
ing th ddr h
the copies to the ee executives will Area the — >
move forward without fear of having, the substance of the
memos being used against us in litigation
S/S
James N. Johnson
JNJ: byh
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UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Marvin Klehr and Case No.: 4-93-822 (JMR)
Mary Klehr,
Plaintiffs, AMEND iD COMPLAINT
Jury trial demanded
Vv.
A.O. Smith Corporation and
A.O. Smith Harvestore Products,
Inc., Jointly and Severally,
Defendants
Plaintiffs, Marvin and Mary Klehr, by and through their
attorneys, as noted below, state the following as their claims in
this matter
[Paragraphs |-9 deleted]
10. From 1969 up to the date of sale on or about July 15,
1974, AOS, AOSHPI and/or MVBA, both directly and
indirectly furnished the Plaintiffs with various sales literature,
including, but not limited to
(a) Printed materials from AOSHPI and AOS regarding
the Harvestore structure, which included the following:
(1) On or about January 25, 1974, Plaintiffs received, in
the U.S. Mail, the “Hoards Dairyman"” magazine which, at
page 105, was an advertisement entitled, " Twenty-five Years
Ago it All Started With Just One" made and published by
Defendants. This advertisement falsely represents that
AOSHPI was a twenty-five-year-old company. This ad led
Plaintiffs to believe that they were dealing with a single
company they knew as "A.O. Smith" that had been around for
Plaintiffs to purchase the silo because they believed they were
dealing with a very reliable company that had been in business
for many years. In reliance upon this representa-tion, Plaintiffs
purchased the silo and suffered damages.
(2) In December, 1972, through the U.S. Mail, Plaintiffs
received the Harvestore, Farmer, 1973 Buyer's Guide issue,
made and published by Defendants (Vol. 11, No. 6), which
includes a postage-paid return card for additional Harvestore
product information, and states, at Page 6, that Harvestores
prevent oxygen from contacting the feed Plaintiffs believe
they may have also received this item at the State Fair in
August, 1973, and/or personally from Mr. Deutsch in the
summer of 1973. It also has a diagram of the top of a
Harvestore structure which shows air going in and out of the
breather bags but not in and out of the pressure relief valve or
unloader door, thereby falsely implying that no ambient air can
reach the stored feed through normal daily use. At page 10 of
the Buyer's Guide is a description of the Harvestore dealer It
states the dealer is a professional in farm management and also
says that if the dealer “doesn't have the answers himself. he
can call on the experts at AO. Smith Harvestore to help get
the answers." Plaintiffs believed and relied upon the design of
the silo as described Plaintiffs believe that, through the
dealer, they had access to all the research and knowledge of
the experts at ACO. Smith Harvestore. Such Buyer's Guide
G-2
issue, and the representations contained therein that were
made by A.O. Smith and AOSHPI, were relied upon by the
Plaintiffs in purchasing the silo and as a result suffered
damages.
(3) In January, 1974, through the U.S. Mail, and also
personally from Richard Deutsch, a salesman of MVBA,
Plaintiffs received the 1974 Harvestore Farmer Buyer's Guide,
(Volume 13, No. 1.), which was made and published by A.O.
Smith and AOSHPI in written form. Such Buyer's Guide issue
contains false representations, on Pages 4-5, that Harvestore
silos prevent oxygen from coming into contact with the feed,
and contains false depictions of Harvestore silos, which have
no reference to the pressure relief value and/or air coming in
through the unloader door. On page 2223 of the Buyer's
Guide it states that the network of dealers supports
Harvestore owners. It states the dealers are experts in
techniques of planting, cropping, harvesting, animal nutrition,
farm counseling, installing and service. It says salesman and
service workers are trained at "Harvestore's headquarters in
Arlington Heights, Illinois." This ad caused Plaintiffs to be
very confident in the design and follow-up service available.
Plaintiffs believed the dealers, who were trained by A.O.
Smith, knew everything A.O. Smith knew about the product
and could answer all questions about the silo. This
advertisement was relied upon by the Plaintiffs in purchasing
the silo and caused them to suffer damages as a result of the
use of the silo upon their farm
(4) Sometime in the early 1970's, before the purchase of
the silo, Plaintiffs received, in the U.S. Mail, a brochure
entitled "Smile When You Call it a Silo", made and published
by A.O. Smith and AOSHPI. Such brochure is in written form
and falsely states, at Page 2, that Harvestore silos virtually
eliminate storage losses. Said brochure also contains a
G-3
;
3
:
coupon, which solicits mail inquiries regarding the Harvestore
System. Plaintiffs relied on this ad in purchasing the silo, and
suffered damages as a result of using the silo on their farm.
(5) Sometime in the early 1970's, before the purchase of
the silo, Plaintiffs received, in the U.S. Mail, from AOSHPI, a
brochure entitled, "Revolution in Blue", made and published
by A.O. Smith and AOSHPI. Such brochure falsely states, at
Page 2, that oxygen-free storage can be maintained in a
Harvestore silo and refers to A.O. Smith as backing the
product. At Page 4, there is reference to marine hatches,
sealing of joints, and a breather system that prevents oxygen
from contacting the feed and spoiling it. At Page 5 are
photographs of the breather bag system which, it is falsely
claimed, prevents oxygen from contacting the feed, but no
reference to a relief valve or unloader door. At page 8 is a
description of the services available from the dealer. It states
that A.O. Smith has participated in dozens of research projects
"and the results are available to you from your Harvestore
representative". It says "Harvestore researchers" have data
from all over the country that is available from the Harvestore
representative. Plaintiffs believed that all research done by
Defendants was available to the dealers, including MVBA, and
was in support of Defendants design claim (air doesn't touch
the feed). Plaintiffs relied on these representations in
purchasing the silo, and suffered damages as a result of using
the silo their farm. Plaintiffs now know this is false because
the damaging research was kept secret and confidential by
Defendants and never disclosed to the dealer organization,
including MVBA.
(6) When Plaintiffs took over the farm, on January 1,
1969, there existed on the farm a "Here's How" operator's
manual for their smaller Harvestore silo, which was made and
published by A.O. Smith and AOSHPI, and contained
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numerous false representations relating to oxygen-free
storage, to the air-tight silo solving the problem of air coming
in during feeding, and falsely comparing a Harvestore to a fruit
jar, and also containing a warranty card for use through the
mails. (See Pages 2-3, 2-4, 3-9, 4-8, 5-6, 6-6.) At page 22 it
states the Harvestore dealer has all. the answers because the
dealer is backed by one of the most experienced and talented
staff in the agricultural industry. It states that AOSHPI has
experts in research and engineering, whose findings are passed
along to the dealer, who can make them available to the
farmer. These representations are false because Harvestore
silos are neither oxygen free nor oxygen limiting. In addition,
Defendants did not "pass along" to the dealers the internal
research showing the design flaws (see paragraph 26).
Plaintiffs reviewed this operator's manual over the years
preceding the 1974 purchase and relied upon the
representations referred to in purchasing the 25 x 80
Harvestore silo in 1974, which caused Plaintiffs damage as a
result of using the 25 x 80 silo on their farm.
(7) In the year preceding the sale of the Harvestore silo,
(before 7-15-74) Plaintiffs reviewed an ad supplied to them by
MVBA and its salesman, Richard Deutsch, at their home and
at a Minnesota State Fair before the purchase of the silo,
entitled, "How Does A.O. Smith Harvestore Prevent
Spoilage?", said ad being published and made by A.O. Smith
and AOSHPI. Said ad falsely states that Harvestore silos keep
out air and have depictions of the Harvestore silo, showing air
going into the bag, but not into the feed. Plaintiffs relied on
this information, concerning the design of the Harvestore silo,
purchased the silo in reliance upon such advertisement, and
suffered damage as a result of using the silo on their farm.
(8) Plaintiffs received in the U.S. Mail in May, 1972, the
Harvestore Farmer (Vol. 11, No. 3), which contained an
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ALON ah Si anal aelietlals
i cs oe es SP NTS oe Ta ET TD a”
article was made and/or published by A. O. Smith and
AOSHPI and falsely states that the breather system protects
feed from oxygen and spoilage, indicates that only in
conventional storage methods is there a continuous supply of
fresh oxygen, thus continued destruction of the feed, and that
the only bacteria that grow in Harvestore's oxygen-limited
environment are anaerobic bacteria. This advertisement also
stressed management skills and the making of haylage, and
that immediately after filling, the Harvestore contains an inert,
odorless gas-carbon dioxide. Plaintiffs relied upon this
brochure in purchasing the silo, and thereby suffered damage.
It reassured the Plaintiffs, when it was seen later, that they had
purchased the best silo, and that they were doing everything
right, and if anything did go wrong, it was due to their
management of the alfalfa or management of the silo, and not
due to any design problem, thus causing them to continue to
use the silo and suffered damages from the use of the silo.
(9) At the Minnesota State Fair, in the early 1970's,
Plaintiffs were shown an ad, "Do You Have a Nose For Good
Feed?", that was made and published by A.O. Smith and
AOSHPI. This advertisement stated that good feed was like
molasses. Plaintiffs believed that their cows would like
molasses-like feed. Plaintiffs bought the silo, in part, based
upon this advertisement, and thereby suffered damages as a
result of using the silo. Plaintiffs also had dark, molasses-like
feed during the time the silo was in operation, and believed
that this was normal for Harvestore feed, but later learned that
dark, molasses-like feed was evidence of heat damage. This
ad, therefore, also caused Plaintiffs to misjudge the quality of
the feed from the Harvestore silo, and they continued to use
the silo and suffered continued damages.
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(10) Plaintiffs received the May 25, 1974 issue of “Hoard's
Dairyman" through the U.S. Mail which, at Page 679
contained an advertisement entitled, “These Harvestore
Owners Started With Just One". Plaintiffs relied upon this ad
in purchasing the silo, and suffered damages as a result of
using the silo. Said advertisement has a mail-in coupon for a
brochure entitled, You Can't Beat the System", which
brochure falsely states that AO. Smith Corporation, a multi-
million dollar steel fabricating corporation, tackled the
problem of oxidation in feed and won (Page 6). Said brochure
also states that Harvestores have a set of lungs so it can
breathe, relieving pressure without allowing oxygen to spoil
the feed, stating that air never touches the feed because it's
trapped in the breather bags (Page 7). Plaintiffs also saw the
advertisement, "These Harvestore Owners Started With Just
One", in November of 1974, in another farm magazine, which
Plaintiffs cannot presently recall.
(b) Films produced by AOSHPI and AOS touting the
quality and character of the Harvestore structure, believed to
be the Magic of the Harvestore Storage, and the Harvestore
System, or films substantially similar thereto. These films
were seen in Plaintiffs kitchen on several occasions in the year
leading up to the sale (7-15-74). Richard Deutsch, salesman
for MVBA, showed these to Plaintiffs. The films contain the
following material misrepresentations:
(1) HARVESTORE SYSTEM
States that Harvestore solved the breathing problem in
silos by using a breather bag system for air that's contained in
the bags and doesn't contact the feed. It states ACO. Smith
engineers solved the problem of structure breathing by using a
balloon-like bag that keeps the air from contacting the stored
feed. There is a depiction of the Harvestore silo with no
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breather valve. It states the Harvestore silo takes the time
element out of storage. It states the time element is removed
from feed management. It states there is a difference between
a Harvestore silo and a conventional silo, which is the
difference between a Model-T and a jet plane. It states that
concern over spoilage is eliminated. It states that Harvestore
silo owners have the assurance of dependability of A.O. Smith
Corporation in Milwaukee, Wisconsin. It states that
Harvestore markets through a world wide dealer organization.
It states the dealer stands behind the farmer for as long as he
owns the equipment. It states the salesman is trained in crop
management, animal nutrition, farmstead planning, finance and
other key areas and will put that knowledge to work for the
farmer. It states that the Harvestore silo is backed by a
century-old company, the A.O. Smith Corporation. Plaintiffs
believed and relied upon such statements and purchased the
silo in reliance thereon and suffered damages as a result of
using the silo on their farm. Plaintiffs also saw this film, or a
film substantially similar thereto, after the sale of the silo on
several occasions at MVBA meetings. The film caused the
Plaintiffs to continue to believe in the design of the Harvestore
silo and to continue to use it to their detriment.
(2) MAGIC OF HARVESTORE STORAGE
States that the system lets air move in-and-out, yet not
contact stored feed. States that the Harvestore answer to the
problem of air contacting feed is the now famous breather bag
system. It states the bags keep the air from touching the feed.
A depiction of the Harvestore silo is given with no explanation
of the breather valve. It states "The bags keep the air from
touching the feed." It states the Harvestore “breather system
permits air to pass in and out of the structure without
contacting the feed." It states that primarily what Harvestores
do is make money. It states that the Harvestore breather
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system permits air to come in-and-out of the structure without
statements and purchased the silo in reliance thereon and
suffered damages as a result. Plaintiffs also saw this film, or a
film substantially similar thereto, after the sale of the silo on
several occasions at MVBA meetings. The film caused the
Plaintiffs to continue to believe in the design of the Harvestore
silo and to continue to use it to their detriment.
(c) The “Harvestore Farmer Magazine," which came by
U.S. mail, on the dates indicated below, from Defendants to
Plaintiffs residence included the following material
misrepresentations upon which Plaintiffs relied to their
detriment:
(1) Volume 11, number 2, (March-April 1972) at page
12. There is an article entitled "Harvestore The Inside Story".
At page 13 there is depiction of the Harvestore silo and a
discussion of the breather bag system in which it is stated that
the air remains trapped in the breather bags where it cannot
come into contact with the feed and that the system can
compensate for pressure changes within the structure without
allowing oxygen to enter the stored feed. The back page of
this magazine states that "AO. Smith" the name above the
Harvestore is a leader in five major industries and that for 25
years Harvestore has been a leading manufacturer of
automated feeding systems. Plaintiffs believed in the design of
the silo to “prevent oxygen from contacting the feed." The
longevity reliability, and backing of AO. Smith was a material
fact in deciding to purchase the silo and continuing to operate
the silo over the years.
(2) Volume 11, number 3 at page 11, (May, 1972) is an
article entitled "The Art of Haylage Making" which falsely
states that the breather system protects feed from oxygen and
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spoilage, and indicates that in conventional silos there is a
continuous supply of fresh oxygen, thus continued destruction
of the feed and that the only bacteria that grow in Harvestore's
of haylage and that immediately after filling the Harvestore
contains an inert, odorless gas-carbon dioxide. The design
was important, as noted above. “Keeping the air out" is very
important. However, if anything did go wrong, Plaintiffs
looked to their own management skills or a repairable defect
in the silo as a source of the problem and did not question the
design of the silo.
(3) Volume 11, number 6, (November-December, 1972).
Harvestore Farmer 1973 Buyers Guide states at page 6 that
Harvestore silos prevent oxygen from contacting the feed. It
has a depiction of the Harvestore silo, showing the sun and the
moon, and air going in and out of the breather bags but not
depicting the breather valve. It states that the fresh air is kept
inside the heavy vinyl bags, and it does not reach the stored
feed. Plaintiffs relied on this for reasons stated above.
(4) Volume 12, number 6 (November-December 1973).
On the back page is an advertisement which discusses the
corporate backing of A.O. Smith and the false statement that
for 25 years Harvestore has been a leading manufacturer of
automated feeding systems. This caused the Plaintiffs to
believe that the name above the Harvestore "AO. Smith" is
backing the product and had been involved in manufacturing
Harvestore silos for 25 years. The reliability and longevity of
the company was a material factor in Plaintiffs’ decision to
purchase the silo, and also continued belief in the design of the
silo
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(5) Volume 13, number | (January-February 1974). On
:
4
z
|
:
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breather bags without showing the pressure relief valve and it
goes on to state that the breather bags contain the destructive
oxygen, keeping it from contact with the feed. It states that
when the temperature drops the breather bags inflate and
contain air that would otherwise enter the Harvestore. On the
back page of this issue of the Harvestore farmer is an
advertisement entitled "The Sun never sets on the Harvestore
System." This ad states, falsely, that AO. Smith Harvestore
Products, Inc. is celebrating its 25th anniversary in 1974 when,
in fact, it was incorporated in 1961. This advertisement
intentionally confuses the relationship between A.O. Smith and
A.O. Smith Harvestore Products, Inc. Plaintiffs relied on this
for reasons set out above
The Harvestore Farmer Magazine (later named Harvestore
System Farming) was published by AOSHPI, and produced by
Dave Brown and Associates, Chicago, Illinois. Before
publication, each issue was submitted to AOS for approval.
After approval by AOS, each issue was transferred to Missouri
where it was printed and mailed to farmers and dealers.
(d) The “Hoard's Dairyman" magazine was received by
Plaintiffs, through the interstate U.S. Mail, from January 1969
to the present. Defendants used the U.S. Mails to deliver
advertising copy to Hoard's Dairyman magazine with the
expectation and knowledge that the magazine would be mailed
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(1) Page 67 of the January 10, 1972 issue has an
advertisement entitled "The Name Above Harvestore Is a
(2) Page 71 of the January 10, 1973 issue had an
advertisement entitled “This Is Not a Silo”. This
advertisement falsely states that the internal breather system
compensates for internal pressure chances. It also implies that
AOSHPI has been in business for over 25 years. This ad
contains a coupon encouraging the farmer to mail it in to
receive additional information by return mail from AOSHPI
Plaintiffs relied on the design of the breather system in
purchasing the silo.
(3) Page 152 of the March 25, 1973 issues has an
advertisement entitled "Push Button Feed Processing System".
This ad falsely states that the breather bag system keeps
pressure equalized within a structure, therefore, never
touching the feed. It also contains a coupon encouraging the
farmer to mail it in to receive additional information by return
mail from AOSHPI.
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(a) That Harvestore structures were “oxygen limiting”
and would prevent oxygen from coming into contact with the
feed, would preserve feed like a fruit jar and would properly
store and preserve the feed.
(b) That the breather bag in the Harvestore structure
compensated for all temperature and pressure changes and,
even during unloading of the silo, any air that would enter the
silo would be negligible because the Harvestore structure was
equipped with an unloader designed to exclude air.
(c) That the air coming in the unloader door during
unloading of the Harvestore structure was a very small amount
and, because it would be quickly converted to a harmless gas,
it would not harm the feed
(d) That any air coming into a Harvestore structure could
only enter because of a repairable problem in the Harvestore
structure or due to improper management of the silo by the
farmer.
(e) That AO Smith and AO. Smith Harvestore
Products, Inc. were really a single company and that Plaintiffs,
as part of the purchase of the Harvestore structure had the
backing and dependability of a century old corporation.
(f) That because of the unique features of the Harvestore
structure, it was worth the additional money Plaintiffs were
paying for the silo because it would produce better feed.
(g) That good Harvestore feed was a dark molasses
color and would be warm and would be more palatable for the
cows.
(h) That A.O. Smith had created a dealer organization
that was the partner of the farmer, who was trained by the
Defendants, had complete knowledge of the product, and had
access to all of the research and scientific studies known to
Defendants in-house experts in the fields of engineering and
animal nutrition. Plaintiffs were directed to go to the dealer
(MVBA) and the salesman (Richard Deutsch); the latter being
described as the "Agri-Answer Man" for any questions on the
product.
[Paragraphs 12-14 deleted]
15. Both before and after the installation of the
Harvestore structure and throughout the period the
Harvestore structure has been present on Plaintiffs property,
the Plaintiffs received through the U.S. Mail “Harvestore
Farmer" magazine until July, 1980, and "
Farming” magazine from December 1980 to Spring 1991 and
Hoard's Dairyman Magazine from January 1969 to the spring
of 1991 and other farm related magazines outlining the
benefits of the Harvestore structure as onginally represented
to the Plaintiffs, including the false statement that it would
prevent oxygen from contacting the feed. In particular, said
ads misrepresented the facts as outlined below upon which
Plaintiffs relied to their detriment in that they continued to use
the silo in reliance upon the design as stated in the ads and did
not question the Harvestore silo as a source of problems on
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their farm at any time before March, 1991. Rather, Plaintiffs
looked to their farm management or repairable defects in the
silo. Also, Plaintiffs continued to believe in the dealer
(MVBA) having complete knowledge of the silo design and
having the ability to answer any questions about the operation
and use of the silo. This was especially important to the
Plaintiffs because the “Dealer Organization," including
MVBA, created by the Defendants was backed by a century
old company that was a world leader in many manufacturing
areas, whose engineers had carefully researched and created
specifications for the Harvestore silo. Plaintiffs now know the
dealers were not informed of any of the secret and confidential
research outlined at paragraph 26; and now realize that "A.O.
Smith" is not backing the product, and that AOS now claims
that it didn't have anything to do with the product at the time it
was manufactured and sold to the Plaintiffs. The magazines
were mailed by Defendants and/or MVBA (Harvestore Farmer
and Harvestore System Farming) and by Hoards Dairyman,
and received by Plaintiffs on the dates indicated below.
HARVESTORE FARMER AND
HARVESTORE SYSTEM FARMING
(a) Volume 14, number 2 (1975 Buyer's Guide Special,
March, 1975) at page 6 falsely states that a Harvestore is
oxygen limiting, using a breather bag system to keep air from
reaching the feed to present spoilage and loss of nutritional
value. It also states that a Harvestore is no cure all for
problems that arise from poor management--in fact, a
Harvestore might only intensify the trouble where poor
management is at fault. It goes on to state that in oxygen
limited environment the process of fermentation is carried out
by anaerobic bacteria that survive without oxygen. This same
issue refers to the Harvestore representative as the "Agri-
answer Man". It states that he has all the answers and that
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processing and automation equipment with more than a
quarter of a century of helping farmers..." It tells the reader to
circle number 3 on the handy postage paid return card in that
issue.
(b) Volume 15, number 3 (Buyer's Guide Issue--June
1976). At page 6 of the Buyer's Guide are misrepresentations
concerning the oxygen limiting features of the Harvestore
system. There is a depiction of the top of a Harvestore silo
showing the breather bags and the sun and the moon, but no
depiction of the pressure relief valve. This depiction is a false
analogy between conventional silo systems and Harvestore
silos. It claims that in conventional silos air enters the feed
with every daily cycle, but that the flexible bags in a
Harvestore expand and contract to balance inside pressure
without allowing air to contact the feed.
(c) Volume 15, number 5 (November, 1976) at page 6 is
an article entitled "Bottom Unloading: Where Efficiency
Begins". This article falsely states that bottom unloading helps
prevent oxygen ftom coming into contact with the stored feed
It states that livestock receives warm feed in the coldest of
weather, without stating the true reason why the feed is warm,
(which, in fact, is caused by the continued respiration of the
feed caused by design flaws) and falsely touting this as an
advantage. At page 7 there are references to AO. Smith
engineers and A.O. Smith Harvestore Products, Inc. engineers,
which lead the farmer to believe that there is a single company.
It also states that one of the basic challenges confronting A.O.
Smith engineers when they first began designing the
Harvestore system, was to develop a method of unloading that
did not allow the structure to fill with oxygen. It goes on to
falsely state that bottom unloading was the best possible
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solution to the problem. In fact, bottom unloading is the
problem because of air entrance during unloading.
(d) Volume 18, number 1 (February 1979) page 20. It
states that "we" made equipment 30 years ago, and "we" made
it better every year since, which intentionally confuses the
distinction between AOSHPI and AOS since AOSHPI was not
in existence until 1961. There is a depiction of the top of a
Harvestore with the breather bags showing air going in and
out of the breather bags but no depiction of the breat’er valve.
The advertisement falsely states that in a Harvestore structure
air doesn't touch the feed and that the fermentation process
stops in an oxygen limiting silo after oxygen is used up after
filling. This advertisement also establishes a toll free number
for recipients to obtain information and solicits the use of the
mails.
(e) Volume 18, number 3 (June, 1979) at pages 4 and 5
is an article regarding the development of the Harvestore by
"A.O. Smith" engineering. This article discusses excessive
spoilage in conventional silos due to continued access of
oxygen and compares it to the solutions designed by the "A.O.
Smith" engineers. It states that the Harvestore structure
contains virtually no air but the engineers had to solve a
problem regarding external air pressure and internal air
pressure. The "solution" to the problem was a plastic bag
mounted in the structure that “equalized the pressure inside
and outside the units walls while preventing air from
contacting the feed and causing spoilage." In the same issue at
page 9 is an advertisement depicting the sun and the moon
showing the breather bag system but not depicting the
pressure relief valve. It also states that the air in the breather
bags doesn't touch the feed, but does not state that air comes
in through the unloader door and through the pressure relief
valve. This ad also has a coupon for the farmer to mail in for
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additional information and also has a toll free number to obtain
further information about Harvestore silos. It also states that
“we made good equipment 30 years ago. We made it better
every year since." The back cover discusses celebration of 30
years and states that “we didn't let success go to our head." It
also states “we've continually worked at improving it", and
“we've developed a dealer organization dedicated to providing
the best in sales, construction, and service too." Since
AOSHPI was not in existence until 1961, the ad intentionally
confuses the distinction between AOS and AOSHPI.
(f) Volume 18, number 4 (October, 1979). The back
cover has the same advertisement in the immediately preceding
subparagraph.
(g) Volume 18, number 5 (December 1979) at page 25 is
an advertisement which has a diagram of the top of a
Harvestore silo showing the sun and the moon and the air
going in and out of the breather bags but not depicting the
pressure relief valve and stating that air doesn't touch the feed
and that fermentation stops before excessive amounts of feed
are lost. This ad doesn't mention air coming in through the
pressure relief valve or through the unloader door. The ad has
a mail in coupon and advises the reader of a toll free number
to obtain further information about Harvestore storage
systems. The back cover has the same advertisement
regarding the 30 year as mentioned in the immediately
preceding subparagraph.
(h) Volume 19, number 2 (May 1980) has an
advertisement at page 16. This also has a depiction of the top
of the Harvestore silo but does not show the pressure relief
valve. The ad falsely states, “as outside temperatures fall the
head space gases inside cool and contract, causing air to enter
the bags but not allowing the feed deteriorating oxygen to
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come into contact with the feed." It has a coupon mailed to
AOSHPI to obtain a brochure entitled "High Moisture Grains"
which brochure, on the back cover has a misrepresentation
concerning the oxygen limiting nature of the Harvestore silo.
(i) Volume 20, number 5 (August 1981) states on page
13 that "when grain is stored at recommended moisture levels
in a properly maintained Harvestore structure, the
fermentation process will quickly eliminate oxygen and
prevent mold formation", without stating that once air comes
back into the silo through the unloader door and/or the
pressure relief valve through normal daily use, secondary
fermentation will begin and mold will be formed.
(j) Volume 20, number 4 (August, 1981). There is an
article on page 24 wherein it states “fermentation of the stored
forage or grain quickly uses up the air trapped inside during
filling allowing anaerobic fermentation to replace the aerobic
process that occurs when oxygen is present", without
informing the farmer that known design flaws will cause
aerobic degradation throughout the normal, expected use of
the silo on the farm. At page 13, it falsely states that "A.O.
Smith Harvestore wrote the book on oxygen limiting storage
systems, more than 30 years ago."
(k) Volume 21, number 2 (April, 1982) at page 2 has an
ad entitled "Here today, here tomorrow" that has a mail-in
coupon for the "Harvestore System” brochure. See Paragraph
16(g). It states the Harvestore silo has the “backing of a
company known for quality since 1874." This reinforced
Plaintiffs’ belief in the silo and confirmed their belief in AOS,
the company behind the product.
(1) Volume 21, number 3 (June, 1982) at page 19. It is
falsely stated that “in a Harvestore structure, the breather
G-19
system prevents the free access of air, protecting high
moisture grain and other feeds from mold and spoilage by
creating an oxygen limited environment that keeps mold
spores dormant". At page 10 of that same magazine is the
statement that "A.O. Smith Harvestore has a backing of a
company known for quality since 1874. " It also has a coupon
, 2 a aetmatiamadaienmmeedin ries
ystem."
(m) Volume 21, number 5 (October, 1982) page 4 has a
advertisement which states that Harvestore has the backing of
a company known for quality since 1874 and has a mail in
coupon for the "Harvestore System" brochure. A similar add
appears at pages 24, 10 and 2.
(n) Volume 22, number | (February, 1983) at pages 4
and 24 are ads similar to those referred to in the immediately
preceding subparagraph.
(0) Volume 22, number 3 (June, 1983) at page 22 is an
ad which states that “the Harvestore has the backing of a
company known for quality since 1874 and has a mail in
coupon for the "Harvestore System" brochure, which contains
false representations (See Paragraph 16(g)).
(p) Volume 22, number 5 (October, 1983) at page 4 is an
advertisement indicating that AO. Smith Harvestore wrote the
book on oxygen limiting storage systems more than 30 years
ago and stating that Harvestore structures are oxygen limiting.
This advertisement also has a mail in coupon for the
“Harvestore System" brochure, which contains false
representations (See Paragraph 16(g)).
(q) Plaintiffs received, in the mail as part of the
Harvestore System Farming magazine, in August 1982,
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October 1982, February 1983, April 1983, June 1983, August
1983, and October 1983, after the sale of the Harvestore silo,
an advertisement entitled, "Your Harvestore Dealer, Count on
Him", which was made and published by A.O. Smith and
AOSHPI and referred to the dealer as being a partner to
provide counseling, service, and had an inventory of any repair
parts that were necessary. This caused Plaintiffs to rely on the
dealer and if Plaintiffs did have any problems with the silo,
were assured that the dealer would be in telephone contact
with A.O. Smith, who would be able to answer any problems.
Plaintiffs now know that A.O. Smith and AOSHPI kept
important and material information from the dealers regarding
the alleged “oxygen-limiting" design and performance of
Harvestore silos. This conduct prevented Plaintiffs from
learning the truth about Harvestore silos, and caused them to
continue to use such silo, to their detriment.
(r) In June 1982, Plaintiffs received, in the mail, the
"Harvestore System Farming" (Vol 21, #3) magazine, which
on page 9, contains an advertisement entitled, "They're Built
Like They'd Last Forever". This advertisement falsely states
that Harvestore silos have the backing of a company that has
been in business since 1874, and claims that Harvestore silos
are oxygen-limiting. This advertisement caused the Plaintiffs
to be very confident in their Harvestore silo and never thought
to question the Harvestore silo as a source of any problems.
Said advertisement also contains mail-in coupons for farmers
to obtain and receive more information, relative to Harvestore
silos.
(s) Volume 24, number 4, (November 1985) has an ad
entitled “Here's How We're Working Today... ". This
advertisement states that the independent Harvestore system
dealers share the commitment to providing the best possible
products and services to animal agriculture. It further states,
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that “every dealer pledges to uphold our standards when your
Harvestore equipment is installed ... and to provide skilled
service and quality parts to keep it running for the years to
come."
. (t) Volume 25, number 1 (Spring 1986) has an article
entitled "Responding to Change". The above article was a
summary of a North American dealer personnel meeting held
in Chicago, Illinois. The speakers included Jack Estes,
President of AOSHPI, and James Schaap, Executive Vice-
President of AOSHPI. Mr. Schaap informed the dealer
personnel that Harvestore was making new marketing
decisions, which would support dealer business strategies and
significantly improve Harvestores financial performance. Mr.
Schaap assured the dealers that Harvestore would continue the
existence of the dealer organization.
_(y) Volume 25, number | (Spring 1986) has an ad
entitled "Here's How We're Working Today...". This ad is
identical to the ad identified in paragraph 1 1(s).
(v) Volume 27, number 2 (Fall 1988) has an ac entitled
“Branded Parts". This ad encourages the farmer to contact
their “independent Harvestore System dealer" to obtain
factory bulletins, that no one else has access to. It further
states that the Harvestore dealer is ready to serve the farmer
"in every way possible, with management and planning advice,
sales and service." Plaintiffs believed the dealer had access to
all the research in the hands of Defendants and no one else did.
Plaintiffs continued to believe in the design of the silo and also
believed in the dealer being able to answer any and all
questions concerning operation and management of the silo.
(w) Volume 28, number 2 (Fall 1989) this ad celebrates
the 40th anniversary of AOSHPI, which confuses any
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distinction between AOS and AOSHPI, since AOSHPI was
not incorporated until 1961. It states the dealer is ready to
serve the farmer in every way possible with management and
planning advice, sales, and service. Plaintiffs continued to
believe "A.O. Smith" was a single company and Harvestore
was a product line. Plaintiffs continued to believe the dealer
(MVBA) was a single source for all information on Harvestore
silos. Plaintiffs never doubted the design of the Harvestore
silo as a result.
HOARD'S DAIRYMAN
(x) Page 393 of the March 25, 1976 issue has an
advertisement entitled “Alfalfa and Harvestore... Great
Together". This ad falsely states the breather bag system
inside the structure allows for the expansion and contraction
of gases without admitting excess oxygen. It falsely states that
stored feed remains moist and palatable and that spoilage due
to oxidation is kept to a minimum. It also states that the feed
value of stored forage preserves its value for months. This ad
also contains a coupon encouraging the farmer to mail it in to
receive additional information from AOSHPI.
(y) The issue of July 10, 1978 on the back cover has an
advertisement entitled “If You're Not Looking Forward to
Another Winter of Chopping Frozen Silage... You're Ready”.
It fails to warn potential customers of inherent risks of using
Harvestore silos. This ad contains a coupon encouraging the
farmer to mail it in to receive additional information from
AOSHPI.
(z) In 1981-82, Plaintiffs received another advertisement
in the mail, in a farm magazine, entitled, How to Produce
More Milk From Your Acres", (In Hoards Dairyman
magazine, May 10, 1982, page 703; March 10, 1982, page
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391.) and/or “How to Produce more Milk at Less Cost" (the
latter being set out at Vol. 21, #5, page 2 of the "Harvestore
System Farming," and also in Hoards Dairyman, August 10,
1982, page 974; August 25, 1982, page 1079.) said ads being
made and published by A.O. Smith and AOSHPI. These state
of a company in business since 1874. Plaintiffs were caused
by these advertisements to be confident in their Harvestore
silo, and never thought to question such silo as a source for
any problems on their farm. Said advertisement also contains
a coupon to mail in to A.O. Smith Harvestore Products to
obtain information in the form of a further brochure entitled.
"The Harvestore System", referred to hereafter (See
paragraph 16(g).)
(aa) Plaintiffs received in the mail, Hoards Dairyman
magazine July 25, 1984, page 850 and March 25, 1984, page
407, a further advertisement entitled, "It Wasn't a Question of
Cost", made and published by A.O. Smith and AOSHPI.
which indicated that everyone was making money with
Harvestore silos. This caused Plaintiffs to believe that they
had made the right choice and that they were making money
with their Harvestore silo. Plaintiffs could not conceive that
the Harvestore silo could be the source of any problems or
damage on their farm.
(bb) On page 626 of the August 25, 1989 issue there is an
ad entitled "The Inside Story". This ad states that the breather
bag system reduces spoilage by limiting oxygen contact
thereby implying that feed stored in a Harvestore is superior to
feed stored in other types of storage systems. Fails to warn
potential customers of inherent risks of using Harvestore silos
(See paragraph 26.) There is a discussion of the "Dealer
Network" which states that the dealer is "ready in every way
possible with information and service." This is a lie because
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no dealers, including MVBA, have knowledge of the internal
research and memoranda of Defendants outlined in paragraph
26. This ad contains a coupon encouraging the farmer to mail
it in to receive additional information from AOSHPI.
(cc) On page 772 of the October 25, 1989 issue there is
an ad entitled "The Inside Story". This ad is identical to the ad
identified in paragraph 15(bb) above except it has a coupon
relating to additional information regarding a Seminar in the
Sun on February 25-28, 1990 in Las Vegas.
16. That after the purchase of the Harvestore silo,
Plaintiffs attended fairs, shows, and meetings at MVBA at
which literature and films, (including those set out at
Paragraph 10b) produced by Defendants were distributed and
were shown, and also received information through the U S.
Mail which included the following:
(a) At the time of construction of Plaintiffs’ silo in the
Spring of 1975, at Plaintiffs’ farm, Plaintiffs were presented
with a Harvestore structure operator's manual that was in
written form and published and/or prepared by AOSHPI and
A.O. Smith. Such manual states, on Page 7, that a Harvestore
prevents oxygen from coming into contact with the feed. On
Page 8 thereof, and also on Page 26, are false representations
which indicate that AOSHPI is a division of A.O. Smith. It
states that the dealers job “just begins" when the silo is
constructed, and that Plaintiffs have continued access to
expert counseling from the dealer. Plaintiffs relied on this
manual for continued use and operation of the Harvestore silo,
continued to believe that Harvestore silos prevented oxygen
from coming into contact with the feed, and continued to
believe that AO. Smith was a single company, and was
backing the product.
G-25
(b) Sometime after 1‘ », Plaintiffs received, through the
U.S. Mail from either MVBa or AOSHPI a brochure entitled,
“Here's Why the Harvestore System Provides the Best Feed
Management Technology". This brochure was written and
was made and published by AOSHPI and A.O. Smith. This
are oxygen limiting (Page 3), that the breather system keeps
air out (Page 6), that the Harvestore protects the feed from
oxygen throughout the normal temperature ranges in North
America (Page 7), creates confusion concerning A.O. Smith
and AOSHPI (Pages 8, 11, 16), that Harvestores have a
"bottom sealer system", with "doors designed to keep air out",
and that sealant is used to prevent leaks (Pages 13, 16, 20).
This brochure caused Plaintiffs to believe in the oxygen
limiting system of Harvestore so that they never questioned
the design of the silo, and continued to use the silo to their
detriment. They also believed that the Harvestore was backed
by a reliable, century-old company, and as a result of these
misrepresentations, neve Ddelieved that any problems on their
farm could be due to the Harvestore silo.
(c) After 1978, Plaintiffs received by U.S. Mail, and at
either the Minnesota State Fair or from MVBA, a brochure
entitled “"Harvestore System Haylage", made and published by
A.O. Smith and AOSHPI, which ad falsely states, at Page 2,
that the Harvestore silos are oxygen-limiting, and at Page 4,
that Harvestore feed is protected from storage losses.
Plaintiffs were damaged in that they relied upon said ad and
believed that Harvestore haylage could not cause a problem on
their farm, caused the Plaintiffs to look elsewhere for a source
of any problems on their farm, and caused them to continue to
use the Harvestore silo to their detriment.
(d) After 1976, Plaintiffs received in the U.S. Mail, at
their home, a brochure entitled, “Research Report on Grain, a
G-26
Complete Short Course in Print", which was made and
published by A.O. Smith and AOSHPI. Such brochure falsely
states, at Page 24, that any oxygen in the silo is quickly used
up by fermentation and that no oxygen thereafter will harm the
feed. It also falsely states that unloader doors are designed to
exclude air. As a result of reviewing this advertisement,
Plaintiffs believed the Harvestore was the best silo on the
market, and did not question the design of the Harvestore silo,
but r
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