Kansas Public Employees Retirement System v. Russell

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 97-1879
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Kansas Public Employees Retirement *
System, *
*
Plaintiff-Appellant, * Appeal from the United States
* District Court for the
v. * Western District of Missouri.
*
Michael K. Russell, an individual, *
*
Defendant. *
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Submitted: January 13, 1998
Filed: March 30, 1998
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Before McMILLIAN, JOHN R. GIBSON, and BOWMAN, Circuit Judges.
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BOWMAN, Circuit Judge.

The Kansas Public Employees Retirement System (KPERS) appeals the order
of the District Court granting summary judgment to Michael Russell. The court granted
summary judgment on the basis of a prior order in which it found KPERS's claims
against Russell's co-defendants to be time barred. KPERS asserts that summary
judgment must be reversed in light of an intervening decision of the Kansas Supreme
Court. We agree and hold that KPERS's claims against Russell are timely. We
therefore reverse.
 I.

This litigation has been before our circuit a number of times.1 An exhaustive
recitation of the facts underlying KPERS's claims would be lengthy and, for purposes
of this appeal, unnecessary.2 We recount only the events pertinent to the disposition
of this appeal.

KPERS is a statewide retirement system for certain employees of the State of
Kansas. To invest KPERS's assets, Reimer & Koger Associates was appointed
KPERS's agent and attorney-in-fact to buy, sell, and trade in securities. In August
1985, Russell became chairman of KPERS's Board of Trustees. Russell was a friend
and business associate of Kansas City banker Frank Morgan. In 1985, Morgan and his
uncle, Sherman Dreiseszun, purchased Home Savings Association of Kansas City, a
troubled Missouri savings and loan. Morgan and Dreiseszun named Russell as a
director. Russell had in the past borrowed large amounts from Home Savings.

Morgan invited Reimer & Koger to invest $15 million of KPERS's funds in
Home Savings debentures. Russell, who was at the time a member of both KPERS's

1
Prior to this, six appeals have been brought before our court. We refer to these
appeals as KPERS I through KPERS VI, respectively. See KPERS v. Reimer & Koger
Assoc., Inc., 4 F.3d 614 (8th Cir. 1993), cert. denied, 511 U.S. 1126 (1994); KPERS
v. Reimer & Koger Assoc., Inc., 60 F.3d 1304 (8th Cir. 1995); KPERS v. Reimer &
Koger Assoc., Inc., 61 F.3d 608 (8th Cir. 1995), cert. denied, 516 U.S. 1114 (1996);
KPERS v. Reimer & Koger Assoc., Inc., 77 F.3d 1063 (8th Cir.), cert. denied, 117
S. Ct. 359 (1996); In re KPERS, 85 F.3d 1353 (8th Cir. 1996); KPERS v. Blackwell,
Sanders, Matheny, Weary & Lombardi, L.C., 114 F.3d 679 (8th Cir. 1997), cert.
denied, 118 S. Ct. 738 (1998).
2
For a detailed account of the events leading to the filing of the lawsuit, see
KPERS VI.

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board and Home Savings's board, resigned from Home Savings's board. Shortly
thereafter, KPERS invested $15 million in Home Savings. Russell then solicited each
member of KPERS's board to approve an additional $50 million investment in Home
Savings debentures. Russell represented to the board that the $50 million would be
used to acquire a large St. Louis-based savings and loan. KPERS's board approved the
investment.

In June 1986, Home Savings bid on the St. Louis savings and loan. By fall of
1986, Home Savings knew it had lost the bid and dropped the St. Louis acquisition
from consideration. In 1991, regulators closed Home Savings and appointed the
Resolution Trust Corporation (RTC) as receiver. KPERS lost its entire $65 million in
principal.

KPERS initially filed suit against the Reimer & Koger defendants on June 5,
1991, in Kansas state court. On December 23, 1991, KPERS amended its petition to
name as defendants Russell, various Home Savings defendants, and others. As to
Russell, KPERS alleges that Russell told the other KPERS board members that the
money would be used to buy the St. Louis savings and loan when, in fact, he knew the
money would not be so used. Furthermore, KPERS alleges that Russell made these
false statements so that Home Savings would, in turn, lend him $40 million. The Home
Savings defendants impleaded the RTC, and the RTC removed the case to federal court
in the Western District of Missouri.

In KPERS III, we held that Missouri limitation law governs the case. See
KPERS v. Reimer & Koger Assoc., Inc., 61 F.3d 608, 614 (8th Cir. 1995), cert.
denied, 516 U.S. 1114 (1996). We determined that KPERS's action was subject to
Missouri's five-year statute of limitation period for fraud, see Mo. Rev. Stat.
§ 516.120(5) (1994), unless, under Missouri's borrowing statute, the action would be
fully barred by a shorter statute in the state where the cause of action originated, see

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id. § 516.190 (1994). To determine whether the claims would be barred by a shorter
statute, we looked to the Kansas statutes of limitation.

When KPERS filed this lawsuit in 1991, the applicable Kansas statutes of
limitation were the two-year torts statute, see Kan. Stat. Ann. § 60-513(a) (Supp.
1997), and the three-year statutory claims statute, see id. § 60-512(2) (1994). In 1992,
the Kansas legislature enacted a new ten-year statute of limitation for any "action
brought by, or on behalf of, [KPERS]." Id. § 60-522(a) (1994). Notwithstanding the
inclusion in § 60-522 that the limitations set forth therein "are to be construed and
applied retroactively," id. § 60-522(c), in KPERS III we relied on the reasoning in
Harding v. Kansas City Wall Products, Inc., 831 P.2d 958 (Kan. 1992), that the
legislature had not specifically expressed an intent to revive actions barred by the
statute of limitations. We therefore decided in KPERS III that the statute was not
effective with respect to causes of action asserted in cases filed before its enactment.
See KPERS III, 61 F.3d at 614-15. Thus, we held that the ten-year statute was not
applicable to this litigation and concluded that, by way of Missouri's borrowing statute,
the Kansas two- and three-year statutes applied. We remanded to the District Court
to determine whether KPERS's claims were time-barred under the applicable two- and
three-year Kansas statutes. We denied a motion for rehearing and suggestion for
rehearing en banc in KPERS III, and the Supreme Court denied certiorari. See KPERS
III, 516 U.S. 1114 (1996).

On remand, all of the defendants except Russell moved for summary judgment.
By way of two separate orders, the District Court granted summary judgment to the
moving defendants on the grounds that KPERS's claims were barred by the Kansas
two- and three-year statutes. The first order was entered in June 1996 and the second
in July 1996. KPERS appealed those summary judgment orders, and argument was set
for March 13, 1997. In November 1996, Russell moved for summary judgment. On
March 4, 1997, the District Court entered its order granting summary judgment to

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Russell. KPERS filed an appeal and moved to stay the March 13, 1997 argument so
that the appeals could be consolidated. We denied the motion.

The appeal of the first two summary judgment orders became KPERS VI,
wherein we affirmed summary judgment as to those defendants. See KPERS v.
Blackwell, Sanders, Matheny, Weary & Lombardi, L.C., 114 F.3d 679, 692 (8th Cir.
1997), cert. denied, 118 S. Ct. 738 (1998).

Our decision, issued on May 13, 1997, rejected KPERS's claims that it was
exempt from statutes of limitation because it was engaged in governmental, rather than
proprietary functions. Our decision relied on precedents of the Kansas Supreme Court
stating that "[m]aintaining KPERS is a proprietary function of the state," KPERS VI,
114 F.3d at 687 (quoting In re Midland Indus., 703 P.2d 840, 843 (Kan. 1985), which
in turn discussed the holding of Shapiro v. KPERS, 532 P.2d 1081 (Kan. 1975)).

We denied rehearing and rehearing en banc in KPERS VI on June 12, 1997, and
mandate issued June 20, 1997. The Kansas Supreme Court issued a decision on
June 27, 1997, regarding the statutes of limitation applicable to KPERS. See KPERS
v. Reimer & Koger Assoc., Inc., 941 P.2d 1321 (Kan. 1997). The Kansas Supreme
Court held that KPERS's investment functions are governmental in nature, and,
therefore, general statutes of limitation do not apply. Instead, only the ten-year statute
enacted specifically for KPERS litigation is applicable. Furthermore, the court held
that the ten-year statute should apply retroactively, expressly disapproving of the result
we reached in KPERS III that the statute did not apply to cases filed before its
enactment. See id. at 1343, 1347. Thus, when Russell's case came before this court,
it was after the Kansas Supreme Court had rejected our reasoning in KPERS III and VI.

KPERS petitioned the Supreme Court for certiorari review of KPERS VI,
arguing that the Supreme Court should vacate the decision in light of the intervening

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Kansas case. However, the Supreme Court denied review on January 12, 1998, and
KPERS VI became final.

II.

Although KPERS VI is now final and would ordinarily be the law of the case,
KPERS claims that the intervening Kansas decision should lead to a different result in
its case against Russell.

The law of the case doctrine "does not apply when an intervening decision from
a superior tribunal clearly demonstrates the law of the case is wrong." Morris v.
American Nat'l Can Corp., 988 F.2d 50, 52 (8th Cir. 1993). The recent Kansas
Supreme Court opinion is clearly such an intervening decision. The Kansas Supreme
Court is a superior tribunal to decide whether a Kansas statute applies retroactively and
whether KPERS acts in a governmental or proprietary function. Further, the Kansas
Supreme Court unambiguously stated that the law of the case is wrong. We are
therefore obligated "to apply state law . . . in accordance with the then controlling
decision of the highest state court." Vandenbark v. Owens-Illinois Co., 311 U.S. 538,
543 (1941). We must reverse "on appellate review if in the meantime the state courts
have disapproved of [our] former rulings and adopted different ones." Huddleston v.
Dwyer, 322 U.S. 232, 236 (1944).

The Kansas Supreme Court concluded that "[t]he legislative intent is clear. The
legislature intended [the ten year statute of limitation applicable to actions brought by
or on behalf of KPERS] to be applied retroactively, and we hold it should be so applied.
. . . [W]e disapprove of the result reached in [KPERS III]." KPERS, 941 P.2d at 1347.
The ten-year statute thus applies to cases pending at the time of its enactment. In
Russell's case, KPERS's claims against him were pending in 1992 when the ten-year
statute of limitation was enacted. Therefore, in light of the Kansas Supreme Court
decision, we now hold that the ten-year Kansas statute of limitation is the proper statute

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to consider to determine whether the claims against Russell are barred under Missouri's
borrowing statute.

In KPERS III we determined that if KPERS's claims are not barred under the
borrowing statute by a shorter Kansas statute of limitation, the Missouri five-year statute
of limitation applies. The application of Missouri's statute of limitation assumed that
KPERS's functions were proprietary in nature and, thus, KPERS's claims were subject
to general statutes of limitation. See KPERS VI, 114 F.3d at 687-88. But the Kansas
Supreme Court held that the investment activities of KPERS are governmental in nature.
See KPERS, 941 P.2d at 1343. The supreme court stated that KPERS III was
"incorrectly decided and never reached a proper analysis of the underlying Kansas law
on the governmental-proprietary distinction." Id. The court compared KPERS's
investment activities with KPERS's obligation to each state employee with which it
contracts, determining that the former is governmental in nature while the latter is
proprietary in nature. See id. at 1341. "[T]he investment of KPERS funds is necessary
to promote the public welfare generally and to satisfy the contractual and taxation
obligations of the State of Kansas, the school districts, the municipalities, and the other
governmental entities to their employees." Id.

We decided in KPERS VI that the law of the case doctrine prevented KPERS
from relitigating the issue of whether KPERS is exempt from statutes of limitation. That
conclusion, however, was based on the assumption that KPERS was functioning in a
proprietary manner. See KPERS VI, 114 F.3d at 687-88. Under the intervening
decision of the Kansas Supreme Court, KPERS's investment activities are now to be
viewed as governmental in nature. In light of this change, we must revisit in this appeal
the issue of whether KPERS is subject to Missouri's statute of limitations.

We start with the fundamental proposition that "at common law statutes of
limitation did not apply to actions by the state." State v. Dalton, 182 S.W.2d 311, 312
(Mo. 1944). This common-law doctrine, nullum tempus occurrit regi, barred all

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statutes from running against claims by the state. Missouri enacted legislation that
abrogated that common law doctrine. See Mo. Rev. Stat. § 516.360 (1994). The
statute, however, expressly restricts abrogation of the common law rule to actions
brought by the State of Missouri:

The limitations prescribed in sections 516.101 to 516.370 [which includes
the five-year statute of limitation] shall apply to actions brought in the
name of this state, or for its benefit, in the same manner as to actions by
private parties.

Id. (emphasis added). Because the legislature chose the phrase "this state" and not "any
state," we read § 516.360 to subject only the State of Missouri to its general statutes
of limitation. Section 516.360 thus does not apply to KPERS's suit because the statute's
language does not apply its statutes of limitation to actions brought by other state
governments, and KPERS is acting in a governmental capacity for the State of Kansas.
We thus revert back to the common law doctrine that no statute runs against the state.
Missouri's borrowing statute, however, which specifically applies to actions originating
in other states, directs us to apply the statute of limitation from the state in which the
cause originated if the period under that statute is shorter than it would be under
Missouri law. See id. § 516.190. No period of limitation exists under Missouri
statutory or common law with respect to actions by other state governments. We
therefore must apply the shorter Kansas ten-year statute of limitation to determine
whether the claims against Russell are barred.

Having filed its complaint against Russell on December 23, 1991, alleging claims
based on conduct that occurred no earlier than 1985 or 1986, KPERS is well within the
ten-year statutory period to bring this action. We therefore reverse the summary
judgment granted to Russell and remand the case to the District Court for further
proceedings.

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A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

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