Timothy Berenda, Roger Whitehouse, Anthony Thomas, and American Technology and Equipment Corporation International, Ltd. (“Amtec”), appeal from a grant of summary judgment in favor of defendants Gordon B. Langford and other named and unnamed parties. Amtec, a California corporation, and Berenda, Whitehouse, and Thomas, as individual shareholders and former officers and directors of Amtec (collectively, the “Amtec plaintiffs”), sued Lang-ford, also a shareholder and former officer and director of Amtec, and others, alleging that Langford breached his fiduciary duty to Amtec by misappropriating corporate assets and that he committed fraud by concealing the breach. Langford moved for summary judgment, contending that two letters written by Berenda evidenced sufficient suspicion of Langford’s activities to trigger the running of the statute of limitations contained in section 78-12-27 of the Utah Code, thus barring plaintiffs’ claims. The district court agreed and granted summary judgment in favor of Langford. We reverse and remand.
“ ‘Before we recite the facts, we note that in reviewing a grant of summary judgment, we view the facts and all reasonable inferences drawn therefrom in the light most favorable to the nonmoving party.’ ”
K & T, Inc. v. Koroulis,
Amtec’s business consisted in part of developing and manufacturing dozens of toys and other novelties. At all time periods relevant to this appeal, Berenda, Whitehouse, Thomas, and Langford each owned twenty-five percent of Amtec’s stock. Langford, as Amtec’s chairman and chief executive officer, was officially responsible for Amtec’s research and development, technical, and sales efforts. Langford knew the technical details of each new project intimately, which he discussed with others only briefly at various meetings. Whitehouse was Amtec’s presi
In March of 1989, Langford worked with a consultant to Amtec, Michael Gilano, to develop a prototype of a toy dubbed “the Ghostwriter.” The Ghostwriter is similar to the more familiar “Etch-A-Sketch,” except that the Ghostwriter uses a viscous liquid to hold magnetic particles in suspension. A magnetic pen draws the particles to the surface of the toy to create images, which are then erased when the liquid inside the toy moves. The record suggests that Langford worked on two prototypes of the toy. Amtec showed the first prototype to Abrams Gentile Entertainment, a New York toy company, in March of 1989, but that company did not accept the product. Sometime thereafter, Langford told Whitehouse that he was attempting to arrange a marketing agreement for the Ghostwriter with the Ohio Arts Company. However, in May of 1989, Langford signed a licensing agreement with Ohio Arts under which only he and Gilano were entitled to be paid the royalties from Ohio Arts for the second version of the Ghostwriter. The agreement required Ohio Arts to pursue a patent application, and Langford and Gilano were listed as co-inventors on patent documents filed with the federal government. Langford kept some or all of the information relating to the Ghostwriter in his personal files rather than in corporate files. Neither "Whitehouse, Berenda, nor Thomas was aware of the licensing agreement when Langford signed it.
Also during the spring of 1989, Berenda became dissatisfied with Langford’s management of Amtec and wanted out of the company. He attempted to get more information about Amtec to establish a price for his shares of stock. However, Langford gave standing orders to all Amtec employees not to provide certain corporate information to Berenda. In July of 1989, Amtec offered to buy Berenda’s stock. Berenda accepted the offer and resigned as an officer and employee of Amtec. In the fall of 1989, Amtec held a board of directors’ meeting at which Lang-ford requested more compensation for himself but also said that Amtec had insufficient funds to follow through on the purchase of Berenda’s stock. Curious about that inconsistency, Thomas asked about the Ghostwriter and, according to Thomas, Langford told him “that it had fizzled and that nothing would come of it.”
After Langford reneged on Amtec’s offer to purchase Berenda’s stock, Berenda wrote a letter dated October 26, 1989, to Langford, Whitehouse, and Thomas. The letter initially refers to a “ridiculous” and “offensive” offer, presumably a renewed offer to purchase Berenda’s stock, and then continues:
Considering our conversation about your personal interest, I am beginning to wonder if I have been told about all of the activities that you personally or Amtec may be involved in and why, if I was not told, then how were you able to get projects outside of the purview of Amtec operations without approval of the Board of Directors, of which I am a member. After talking to you, I now believe that there are many profitable activities and projects that have been transferred from Amtec to you personally, WHY?
As I have said to you before, it’s really none of my business in the event that your “private or personal dealings” were done outside Amtec without usage of company time, money, clients, or personnel; or in the event a buy out occurs. But in the event it does not occur and I uncover through an investigation, questionable acts by the Chairman of the Board and CEO of Amtec, it certainly becomes some of my business, and I will get to the bottom of it!
I am making one last attempt to finish the negotiations at hand before I take other actions to protect my share of the stocks. Please find enclosed my final offers. I wish for you to review the enclosed with more intensity than you have given so far. Please consider and weigh all the facts that are involved in this crucial situation now.
In a brief discussion of Berenda’s letter, Langford indicated to Whitehouse that Ber-enda was a “pain in the neck” and that they should buy out Berenda as cheaply as possible, giving him as little information as they could.
As Thomas and Berenda began receiving documents regarding the merger, they noticed corporate names and agreements between those corporations and Amtec that they had not heard of before. As a result, Berenda wrote a second letter, cosigned by Thomas and dated February 27, 1990, to Langford and Whitehouse, which substantially reiterated the complaints mentioned in Berenda’s earlier letter, but this time in reference to the proposed merger with Vintage. Berenda stated in a subsequent affidavit that his intent in sending the second letter was to obtain information about an apparent effort to transfer Amtec’s assets to Vintage and to give Langford an unjustifiably greater ownership interest in Vintage. Similarly, Thomas stated that the letter reflected his unease, after reviewing the merger documents, that Langford was doing a number of things without informing the other Amtec directors. After receiving the letter, Langford told Ber-enda to stop asking questions and causing problems or the merger would fail and the Amtec shareholders would get nothing. Langford again directed Whitehouse not to provide any information to Berenda or Thomas without Langford’s personal approval.
In early 1990, Berenda was asked to resign as an Amtec director to facilitate the merger, which he did. Langford and Whitehouse signed the Amtec-Vintage merger documents in March of 1990. Whitehouse was then replaced as president and was subsequently fired from Amtec. As of late 1990, neither Berenda, Thomas, nor Whitehouse had received any money as a result of the merger. In early 1991, Berenda learned that the merger had failed and that the Securities and Exchange Commission had levied civil sanctions against the brokers involved because the merger prospectus included false information. In April of 1991, while investigating the failed merger, Berenda learned that the Ohio Arts Company had begun manufacturing the Ghostwriter and that Lang-ford was receiving the royalties for the toy. Berenda then told Thomas and Whitehouse about the Ghostwriter. Meanwhile, in February of 1991, the state of California suspended Amtec’s corporate authority for failure to file an annual report, and it did so again in July of 1991 for Amtec’s failure to pay taxes.
The Amtec plaintiffs filed the instant suit against Langford and the other named and unnamed defendants on March 22, 1993. The complaint, as subsequently amended, alleged that Langford breached his fiduciary duty of loyalty by (i) misappropriating a corporate opportunity when he patented the Ghostwriter in concert with other named and unnamed defendants; (ii) misappropriating royalties for the Ghostwriter; (iii) negotiating other royalty agreements under which he received royalties belonging to Amtec; (iv) engaging in outside employment with Amtec competitors; (v) charging personal expenses to Amtec; (vi) appropriating Amtec funds for his personal use; (vii) failing to provide an accounting; and (viii) failing to pay corporate taxes and notices which resulted in Amtec’s suspension and dissolution.
The complaint alleged that Langford had fraudulently concealed his breaches by (i) instructing others not to discuss certain corporate activities with Berenda, Thomas, or Whitehouse; (ii) attempting to force Berenda out as an officer and a stockholder to prevent Berenda from discovering Langford’s activities; (iii) intentionally misrepresenting Am-tec’s value; (iv) arranging the failed merger; (v) failing to disclose his employment with Amtec’s competitors; and (vi) failing to disclose an advance payment from Ohio Arts for anticipated Ghostwriter royalties. The complaint also alleged that Langford’s activities resulted in defendants’ unjust enrichment
Langford counterclaimed for unjust enrichment, alleging that he had expended funds, loaned Amtec technology and product samples developed by him outside of his employment with Amtec, and paid creditors on behalf of Amtec without receiving reimbursement from Amtec.
Langford then moved for summary judgment, contending that the Amtec plaintiffs’ suit was time-barred by the three-year statute of limitations contained in section 78-12-27 of the Utah Code. Langford asserted that Berenda’s letters demonstrated “actual notice” of the facts on which the claims against Langford were based. The district court agreed and granted Langford summary judgment because Berenda had written the letters more than three years before filing the instant complaint. In particular, the court concluded as a matter of law that the two letters “reflect, in tone and content, clear suspicions of wrongdoing [which] gave rise to a legal duty to make further inquiry.... Suspicion, which plaintiffs acknowledge, and inquiry constitute sufficient ‘knowledge’ to commence the running of the statute of limitations ..., because the means of knowledge is equivalent to knowledge.”
The Amtec plaintiffs then moved to amend the judgment on the ground that Langford’s fraudulent concealment of their cause of action tolled the statute of limitations. After a hearing on the motion, the trial court entered additional findings of fact and conclusions of law, holding that plaintiffs could not invoke the tolling provisions of the fraudulent concealment version of Utah’s discovery rule. The court reasoned that because the statute of limitations began to run in October of 1989, .their suit had to be filed by October of 1992. Because Berenda, Thomas, and Whitehouse discovered Langford’s misappropriation of the Ghostwriter in April of 1991, they could have filed suit before October of 1992. Therefore, because they did not file suit until March of 1993, the court ruled that the discovery rule “ha[d] no application” and that their suit was time-barred.
The Amtec plaintiffs appeal the trial court’s ruling, contending that the court misinterpreted and incorrectly applied the statute of limitations found in section 78-12-27 of the Utah Code, ignored uncontroverted evidence of Langford’s fraudulent concealment, and incorrectly ruled that there were no issues of material fact precluding summary judgment.
We first state the applicable standard of review. Summary judgment is appropriate only when no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. Utah R.Civ.P. 56(c);
Higgins,
The primary issue in this case is when the statute of limitations began to run on the Amtec plaintiffs’ claims. They contend that the statute did not begin to run until Beren-da actually discovered Langford’s misappropriation in April of 1991. Langford contends, and the trial court agreed, that the statute began to run when the Amtec plaintiffs suspected they might have a potential claim and that such suspicion was indisputably manifested in Berenda’s first letter of October of 1989. We disagree with both parties’ contentions. We first examine the application of the discovery rule when a plaintiff alleges and makes out a prima facie case that a defendant has taken affirmative steps to conceal the plaintiffs cause of action. We then apply that rule to the instant case and conclude that disputed issues of material fact exist so as to preclude summary judgment.
Generally, a cause of action accrues “upon the happening of the last event necessary to complete the cause of action.”
Myers v. McDonald,
Langford moved for summary judgment on the basis of the statute of limitations found in section 78-12-27 of the Utah Code. That section provides:
Actions against directors or stockholders of a corporation to recover a penalty or forfeiture imposed, or to enforce a liability created, by law must be brought within three years after the discovery, by the aggrieved party, of the facts upon which the penalty or forfeiture attached, or the liability accrued....
Utah Code Ann. § 78-12-27. 1 By its express terms, the statute mandates that we apply the discovery rule. In addition, the Amtec plaintiffs presented a prima facie case that Langford fraudulently concealed their cause of action. It is the application of the discovery rule in the context of a defendant’s fraudulent concealment that is at issue in the instant ease. Specifically, we must address the legal standard for determining when a plaintiff discovers the facts constituting the plaintiffs cause of action in such situations.
As noted, Langford takes the position that Berenda’s letter of October 1989 demonstrates Berenda’s “discovery” of Langford’s misappropriation. Langford relies on two recent opinions in which we held that “[a]ll that is required [to trigger the statute of limitations] is ... sufficient information to apprise [the plaintiffs of the underlying cause of action] so as to put them on notice to make further inquiry if they harbor doubts or questions” about the defendant’s actions.
United Park City Mines Co. v. Greater Park City Co.,
However, under our case law the rule is otherwise when a plaintiff alleges that a defendant took affirmative steps to conceal the plaintiffs cause of action, as is the case here. In such a situation, the plaintiff can avoid the full operation of the discovery rule by making a prima facie showing of fraudulent concealment and then demonstrating that given the defendant’s actions, a reasonable plaintiff would not have discovered the claim earlier.
See Warren v. Provo City Corp.,
In light of the foregoing, we find Lang-ford’s reliance on
United Park City Mines
and
Baldwin
unhelpful because those cases did not involve a defendant’s affirmative fraudulent concealment of the plaintiffs cause of action. In
United Park City Mines,
we refused to toll the statute of limitations for shareholders who claimed that an earlier restructuring agreement was unfair to them. We held that a proxy statement describing the restructuring agreement provided sufficient information to put the shareholders on notice of the need to inquire further about the agreement, because the proxy statement disclosed the very facts upon which the shareholders’ allegations of unfairness arose.
United Park City Mines,
Likewise, in
Baldwin,
we refused to toll the statute of limitations for judgment creditors seeking to set aside a fraudulent conveyance. The creditors claimed that the statute did not begin to run until they had actual notice of the facts constituting the fraud.
Baldwin,
In both cases, then, the equitable maxim that “the means of knowledge is equivalent to knowledge” applied to trigger the running of the statute of limitations. See id. at 1196. Simply put, neither case required us to judge the reasonableness of the plaintiffs conduct in light of the defendant’s acts of concealment.
At its most basic level, the fraudulent concealment version of the discovery rule requires a determination of (i) when a plaintiff would reasonably be on notice to inquire into a defendant’s wrongdoing despite the defendant’s efforts to conceal it; and (ii) whether a plaintiff, once on notice, would reasonably have, with due diligence, discovered the facts forming the basis of the cause of action despite the defendant’s efforts to conceal those facts. Although deceptively simple in theory, the rule has led to disarray as courts have attempted to articulate and apply hard and fixed subrules to determine whether a statute of limitations should be tolled as a matter of law on the particular facts of specific cases.
See
Marcus,
supra,
at 855;
cf. State v. Pena,
For instance, some courts have relaxed the inquiry prong of the rule. These courts place the burden on the defendant to
Other courts have taken a different route, relaxing the due diligence prong of the discovery rule instead. For instance, even if the plaintiff is on inquiry notice of a claim, some courts have simply suspended the plaintiffs due diligence requirement when active fraudulent concealment is found.
See, e.g., Tomera v. Galt,
In essence, the Amtec plaintiffs ask us to adopt one of these subrules to find that the statute of limitations was tolled in their case as a matter of law until April of 1991. However, we decline to introduce such artificial legal subrules into this area of the law. When a defendant has concealed a plaintiffs cause of action, the questions of when a plaintiff should reasonably begin inquiring about the defendant’s wrongdoing and whether, once on notice, the plaintiff has acted with reasonable diligence to discover the facts forming the basis of the cause of action are all highly fact-dependent legal questions. If we were to attempt to determine as a matter of law the effect of any particular set of facts, as must be done to apply the various subrules other courts have developed, we would only invite appeals and the development of a body of fact-dependent ease law that would be beyond the appellate courts’ ability to keep consistent. Under similar circumstances, we have previously observed that “we cannot hope to work out a coherent statement of the law through a course of [de novo] decisions.”
Pena,
For the reasons described in
Pena,
we decline to adopt any of the subrules mentioned above, and we leave as the law the general rule that a plaintiff must make a prima facie showing of fraudulent concealment and then demonstrate that, given the defendant’s actions, a reasonable plaintiff would not have discovered his or her claim earlier. The application of this legal rule to any particular set of facts is necessarily a matter left to trial courts and finders of fact. In making this determination, the factors
In so holding, we explicitly acknowledge that weighing the reasonableness of the plaintiffs conduct in light of the defendant’s steps to conceal the cause of action necessitates the type of factual findings which preclude summary judgment in all but the clearest of cases. Thus, summary judgment is appropriate only when the facts fall on two opposite ends of a factual continuum: either (i) when the facts are so clear that reasonable persons could not disagree about the underlying facts or about the application of the governing legal standard to the facts or (ii) when the facts underlying the allegation of fraudulent concealment are so tenuous, vague, or insufficiently established that they fail to raise a genuine issue of material fact as to concealment, with the result that the claim fails as a matter of law.
See Harline v. Barker,
Returning to the instant case, we reject the trial court’s legal conclusion that the two letters from Berenda and Thomas demonstrated sufficient suspicion of Langford’s activities so as to place Berenda, Thomas, and Whitehouse under a legal duty to make inquiries, which in turn would have led to the discovery that Langford had misappropriated the Ghostwriter. We confronted a similar factual situation in
Chapman v. Primary Children’s Hospital,
It may be a close call whether, for example, the [parents] were sufficiently alerted to the possibility of medical malpractice [when it occurred] to start the statute of limitations running or whether, assuming the [parents’] allegations are true, they should reasonably have disregarded Tthe doctor’s] representations and made an independent inquiry. Such close calls are for juries, not judges, to make.
Id. at 1186.
In the present case, we agree that Beren-da’s first letter reflects suspicion of Langford and supports an inference that Berenda suspected misappropriation of assets such as the Ghostwriter. However, the letter equally supports Berenda’s contention that his threats and accusations were an attempt to “find out if Amtec was really broke” in the context of an ugly negotiation over the price of Berenda’s shares in Amtec. Similarly, Berenda’s second letter, cosigned by Thomas, even more clearly reflects them disappointment and recriminations over changes to Langford’s original proposal for the merger with Vintage. In light of Langford’s failure to disclose the Ghostwriter licensing agreement when he was allegedly under a duty to disclose it, his express statement to Thomas that the Ghostwriter had “fizzled,” his keeping Ghostwriter records in his personal files, and his telling Berenda that further questions would lead to a collapse of the merger agreement, we cannot agree that, as a matter of law, the two letters demonstrate sufficient suspicion of Langford’s misappropriation of the Ghostwriter to start the running of the statute of limitations on that cause of action, given Langford’s efforts to conceal it.
Further, the letters themselves demonstrate Berenda’s and Thomas’ efforts to begin an inquiry into Langford’s management practices, at a time when they were entitled to rely on Langford’s answers because of his fiduciary duty to disclose his conflicting interests to his co-directors. Even if we were,
We also reject Langford’s contention that Whitehouse had “the means of knowledge” because Whitehouse could have made a telephone call to Ohio Arts “in October 1989 [which] would have revealed the status of Ghostwriter.” Langford argues that White-house’s “knowledge” should be imputed to Amtec, Berenda, and Thomas. Even if we agreed with this argument,
see United Park City Mines,
Further, Langford failed to present undisputed facts demonstrating that Ohio Arts would have responded to such a phone call. Given that Ohio Arts had a licensing agreement that did not mention Amtec for a competitive product which it did not begin to manufacture for at least one more year, we cannot agree with the factual proposition that Ohio Arts would have disclosed Langford’s misappropriation to Whitehouse. Therefore, on the facts before us, Whitehouse did not have the means of knowledge which is equivalent to knowledge.
Finally, the trial court erred in its additional conclusion of law that the Amtec plaintiffs had only until October of 1992 to bring this lawsuit. That conclusion assumes that (i) the statute of limitations began to run in October of 1989; (ii) Berenda, Whitehouse, and Thomas discovered Langford’s misappropriation in April of 1991 and could have filed suit before October of 1992; and (iii) because they did not file suit until March of 1993, they filed after the statute expired. To support the trial court’s reasoning, Langford relies on our statement that “the discovery rule does not apply to a plaintiff who becomes aware of his injuries or damages and a possible cause of action before the statute of limitations expires.”
Atwood v. Sturm, Ruger & Co.,
Langford misses the point. In all of the above-cited cases, a plaintiff asked this court to toll a statute of limitations that contained no internal discovery rule. Thus, in each case, the question before this court was whether the discovery rule should apply to
In the instant case, Langford’s summary judgment motion was based on a statute of limitations that expressly contains an internal discovery rule. See Utah Code Ann. § 78-12-27. By its own terms, that statute does not begin to run until “the discovery, by the aggrieved party, of the facts upon which ... the liability accrued.” Id. Thus the question is not whether the discovery rule applies — it does by virtue of the statute — but when Berenda, Thomas, and Whitehouse discovered their cause of action and so triggered the running of the statute. Our holding today establishes that the statute could not have begun to run until the Amtec plaintiffs were reasonably on notice to conduct an inquiry that would have reasonably led to the discovery of the misappropriation, given Langford’s acts of concealment. Therefore, the date the statute began to run is yet to be determined should Langford continue to pursue his limitations defense. Accordingly, the trial court’s conclusion that the Amtec plaintiffs had to file this suit prior to October of 1992 is erroneous.
In sum, we reverse the trial court’s grant of summary judgment in favor of Langford and remand this case for further proceedings consistent with this opinion.
Notes
. The Amtec plaintiffs note that this section may not apply to their claims because Langford has not caused a penalty or forfeiture to be imposed on the corporation, nor are they seeking to enforce a liability created by law. Even if we were to agree with the Amtec plaintiffs, we refuse to address this issue because they have raised it for the first time on appeal. "As a general rule, we will review issues raised for the first time on appeal only if exceptional circumstances or 'plain error' exists.”
Salt Lake City v. Ohms,
. We acknowledge that in
Warren v. Provo City Corp.,