## Facts

- Thomas M. Trecker and Dane T. Scag co-founded Wisconsin Marine, Inc. (WMI), a closely held corporation, and each received stock.
- A shareholder agreement provided that if WMI could not employ Trecker full-time, Trecker could compel WMI to redeem his shares at book value or original issuance price, whichever was higher.
- Trecker demanded redemption in 1973; WMI rejected the demand in 1976, prompting Trecker to sue in Wisconsin state court for specific performance.
- The state court ordered specific performance and fixed Trecker’s recovery at approximately $165,000 (including interest), valued as of December 31, 1976, payable in installments.
- While the state case was pending, Scag negotiated with Ransomes, Sims & Jefferies, Ltd. for purchase of Trecker’s redeemed shares for nearly $625,000.
- After the state judgment, Scag sought state-court approval to prepay the judgment to complete a transaction with an “investor”; the defendants did not produce the written contract and instead represented in substance that Trecker’s stock would be sold for $124,000.
- The state court granted the prepayment motion in June 1978.
- Trecker learned in 1979 that the shares had been sold for nearly $625,000 and filed a federal action alleging securities fraud under Exchange Act § 10(b) and SEC Rule 10b-5 based on concealment and misrepresentation of the resale terms.
- The federal district court ultimately granted summary judgment for defendants on statute-of-limitations and non-materiality/non-deliberateness grounds, and Trecker appealed.

## Issues

1. Whether the Rule 10b-5 claim was barred by the applicable borrowed state statute of limitations, including when the claim accrued and whether fraudulent concealment tolled the limitations period.
2. Whether alleged misstatements and nondisclosures about the resale contract (including the large disparity between represented and actual resale price) could be material and actionable under Rule 10b-5.
3. Whether prior state-court proceedings enforcing the redemption agreement foreclosed a federal securities-fraud claim arising from alleged deception connected to the redemption/resale transaction.

## Decision

- The Seventh Circuit reversed the district court’s dispositive ruling and permitted the Rule 10b-5 action to proceed.
- The court treated limitations and tolling as fact-dependent given allegations of active concealment and later discovery of the true resale price.
- The court declined to hold, as a matter of law on summary judgment, that the alleged nondisclosure/misrepresentation was immaterial or insufficiently deliberate.
- The court rejected the argument that the existence of state-court litigation and relief automatically barred pursuit of a federal securities-fraud remedy.

## Legal Principles

- In Rule 10b-5 actions, courts borrow an analogous state limitations period but apply federal accrual and tolling rules.
- Fraudulent concealment and active misrepresentation may toll the borrowed limitations period where the plaintiff could not reasonably discover the fraud earlier and exercised due diligence; tolling questions commonly present factual disputes unsuitable for summary judgment.
- Materiality under Rule 10b-5 turns on whether a reasonable investor would view the omitted or misstated information as significantly altering the total mix of information; large price discrepancies in a stock transaction may support materiality.
- A federal securities-fraud claim is not categorically barred by related state-court proceedings enforcing contractual rights; separate deceptive conduct “in connection with” the purchase or sale of a security can support federal liability.

## Conclusion

The Seventh Circuit held that Trecker’s allegations of concealment and misrepresentation concerning the resale of his redeemed shares stated a potentially actionable Rule 10b-5 claim and that summary judgment was improper because materiality and limitations-tolling issues required further factual development.


Trecker v. Scag, 679 F.2d 703 (7th Cir. 1982)