RICO:When is it Too Late to Sue for a Civil RICO Injury?

YouKnowItAll.com

© A. Hawkins 2004

Suitability

YouKnowItAll.com’s civil RICO courses are suitable for all lawyers engaged in civil RICO litigation, and lawyers for whom an understanding of limitations concepts is useful, even if the knowledge is applied to other causes of action. Because the court creates law, these course may be of interest to new lawyers and students of the law who are not interested in RICO but are interested in watching the court at work..

Cases in which lawyers are racketeers or “evildoers” are reserved for a separate companion course. That course is part 2 of this topic.

The Issue

The question: When is it too late to file a civil RICO suit?

The answer: No one knows.

No one knows the answer because:

1. The civil RICO statute has no limitation on the time for bringing suit.

2. The United States Supreme Court imposed its own time limitation for civil RICO suits, but has repeatedly refused to decide when the time period begins.

Is the issue too difficult for the Supreme Court?

Justice Scalia explains that the reason that the Supreme Court failed to resolve the issues is “timidity” and that the court may some day “summon up the courage to ‘unravel’ . . . ‘the mess that characterizes civil RICO accrual decisions. . . .’ ” The Supreme Court explained that it did not decide the issues because the issues were “too subtle and difficult” to decide when the cases came before it.

The issue is not too difficult for you.

You are not too timid to confront these issues, even if the United States Supreme Court considers the issues “too subtle and difficult.”

The Mess.

We know that there is a time limitation period on civil RICO suits, because the Supreme Court told us. We know how long the time period is, because the court told us. We don’t know when it begins and ends, because the court has not told us. Yet, we are not clueless. The Supreme Court has given us some clues. We will examine those clues in this course.

If this sounds like a mess, it is. Yet, the mess is not quite as bad as it first looks. We do know that a plaintiff’s suit is timely if it is filed within four years of the plaintiff’s injury. That is clear.

But wait. Don’t think you know it all yet. What we don’t know is whether a suit is timely if it is brought more than four years after the actual injury, but with a claimed justification that has not been rejected by the Supreme Court. Some potential justifications related to the date of the racketeering acts, or the date of discovery of the racketeering acts, have been rejected by the Supreme Court. Some justifications have been spoken of approvingly by the Supreme Court in dicta, but have not been approved in a holding. We will go through the possibilities to learn which justifications for filing suit more than four years after the injury are sure to fail, and which might work. When you know that, you will know it all, at least, until the Supreme Court makes up it’s mind.

Preliminary Matters

When a limitation period begins, it is said to “accrue.” If the words accrues or accrual are used by the courts and legal writers, they are just trying to impress you. Go ahead, be impressed. We will settle for less impressive words like begin or start, so you won’t have to pause in your reading just to be impressed.

The Process

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This course is primarily a case study which relies on the words of the courts which are quoted so that you may read them yourself. The teacher has selected quotations, deleted original emphasis, added the authors emphasis, and moved citations to footnotes. Commentary by the teacher is included in the text and in footnotes. Five asterisks ( * * * * * ) identify each new case, If a case doesn’t interest you, just search for * * * * * to find the next one. This also helps if you wish to go back to reread a case.

There are three kinds of footnotes.

1. Footnotes by the court retain the court’s original number. Our footnote is a footnote to that number.

2. Footnotes that move citations to the footnotes are intended to make the material more readable. Our footnote has the court’s citations.

3. Footnotes that contain some of the author’s commentary.

If you read this course online, your browser will probably let you click on a footnote number to go to the footnote and click on the number in the footnote to return to the text. Some browsers will show the footnote if you hold your curser over the footnote number without clicking If you print the text, you may wish to staple the footnotes separately so you may easily refer to them. They are at the end because of technicalities of the internet. This is a Microsoft Word document displayed as a web page. You may copy it into a word processor to print it if you like. If you have any problems, let us know.

Optional Telephone Conference

The teacher is available for an optional personal telephone conference on the substance of this course. If you have a question about the application of the material in this course to a particular case, or would just like to visit about this topic, you may do so. A brief basic phone conference is $20 per course. If you would like to schedule a phone conference, email or call YouKnowItAll.com.

Case List

Supreme Court

Klehr v. A. O. Smith Corp, 521 U.S. 179 (1997)

Rotella v. Wood, 528 U.S. 549 (2000) February 23 , 2000

Circuit Courts

Pincay v. Andrews 238 F.3d 1106 (9th Cir. 2001) February 6, 2001

Perry v. Globe Auto Recycling 227 F.3d 950 (7th Cir. 2000) September 19, 2000

Lares v. Tobin 221 F.3d 41 (1st Cir. 2000) August 9, 2000 As amended September 28, 2000.

Love v. National Medical 230 F.3d 765 (5th Cir. 2000) October 16, 2000

Tran v. Alphonse Hotel ___ F.3d ____ (2nd Cir. 2002) February 5, 2002

Maiz v. Virani 253 F.3d 641 (11th Cir. 2001) June 8, 2001.

Mathews v. Kidder Peabody ____ F. 3d. ____ (3rd Cir. 2001) July 31, 2001

Anulli v. Pannikkar 200 F.3d 189 (3rd Cir. 1999) December 30, 1999

In re New Eng. Life October 5, 2003 (1st Cir. 2003)

Gunter v. Ridgewood Energy 223 F.3d 190 (3rd Cir. 2000)

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Cases In the companion course.

Lawyers Liability - Is It Too Late To Sue a Lawyer under Civil RICO?

Forbes v. Eagleson 228 F.3d 471 (3rd Cir. 2000) October 17, 2000

Pacific Harbor Capital v. Barnett Bank 252 F.3d 1246 (11th Cir. 2001) May 30, 2001

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What is Civil RICO?

“The Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, among other things makes it a crime "to conduct" an "enterprise's affairs through a pattern of racketeering activity."[1] The phrase "racketeering activity" is a term of art defined in terms of activity that violates other laws, including more than 50 specifically mentioned federal statutes, which forbid, for example, murder for hire, extortion, and various kinds of fraud.[2] The word "pattern" is also a term of art defined to require "at least two acts of racketeering activity . . . the last of which occurred within ten years . . . after the commission of a prior act of racketeering activity."[3]

“A special RICO provision -- commonly known as civil RICO -- permits "[a]ny person injured in his business or property by reason of a violation" of RICO's criminal provisions to recover treble damages and attorney's fees.[4]” Klehr[5]

Examples of civil RICO show that it applies to a wide range of disputes.

•The Klehrs were farmers who sued the maker of their grain silo for false representations that the silo limited oxygen in the silo and preserved the quality of the feed grain[6] stored in the silo.[7]

•Rotella was a former patient in a mental health institution who sued his former mental health care providers, alleging a RICO injury, “in that respondents had conspired to admit, treat, and retain him at Brookhaven not for any medical reason but simply to maximize their profits.” Rotella[8]

Circuit court case that follow Rotella involve doctors, lawyers, brokers, investment advisers, real estate entrepreneurs, sports agents, a classic car hauler, and banks.

The Supreme Court Created a Four Year Limitation Period.

“RICO does not say what limitations period governs the filing of civil RICO claims. But in Agency Holding Corp. v. Malley Duff & Associates, Inc.,[9] this Court held that civil RICO actions are subject to the 4 year limitations period contained in §4B of the Clayton Act (Antitrust)[10] -- the statute of limitations that governs private civil antitrust actions seeking treble damages.” Klehr[11]

“Given civil RICO's want of any express limitations provision for civil enforcement actions, in Malley-Duff we undertook to derive one and determined that the limitations period should take no account of differences among the multifarious predicate acts of racketeering activity covered by the statute. [W]e chose a uniform 4-year period . . .” Rotella[12]

“Agency Holding Corp. v. Malley-Duff & Associates, Inc.,[13] established a 4-year limitations period for civil RICO claims.” Rotella[14]

“The commencement of a civil treble-damages action under the Racketeer Influenced and Corrupt Organizations Act (RICO) is timely only if it begins within the four year limitations period.” Rotella[15]

The Supreme Court refused to decide when the time period starts.

“Although [in Malley-Duff] we chose a uniform 4-year period, . . . we did not decide when the period began to run, and the question has divided the Courts of Appeals.” Rotella[16]

When might the time limit begin?

“Three distinct approaches emerged in the wake of Malley-Duff.”[17] Rotella[18]

Is it Injury Discovery?

“Some Circuits, like the Fifth in this case, applied an injury discovery accrual rule starting the clock when a plaintiff knew or should have known of his injury.[19] ” Rotella[20]

Is it Injury and Pattern Discovery?

“Some applied the injury and pattern discovery rule that Rotella seeks, under which a civil RICO claim accrues only when the claimant discovers, or should discover, both an injury and a pattern of RICO activity.[21]” Rotella[22]

Is it Last Predicate Act?

“The Third Circuit applied a ‘last predicate act’ rule.[23] Under this rule, the period began to run as soon as the plaintiff knew or should have known of the injury and the pattern of racketeering activity, but began to run anew upon each predicate act forming part of the same pattern.” Rotella[24]

Is it Injury Occurrence?

“In addition to the possibilities entertained in the Courts of Appeals, Justice Scalia has espoused an ‘injury occurrence’ rule, under which discovery would be irrelevant, Klehr v. A. O. Smith Corp.[25]” Rotella[26]

Is it another approach?

There are other possibilities. The four possibilities do not exclude the possibility of the Supreme Court eventually adopting a novel approach. The court is not precluded from doing so. It decided that it can choose the limitation period and that it can decide when the period starts. It will do whatever it chooses. Whatever it decides will be the law.

The Supreme Court rejects two of the possibilities.

The Supreme Court has considered two possible general rules to determine when the limitation period starts. It rejected both rules. In rejecting those possibilities, the court explicitly refused to decide when the limitation period begins. We know that the rejected rules are not viable. Beyond that, we have only clues about the rule, and exceptions to the rule, which the court may adopt. The analysis of the court in rejecting the two rules gives us those clues. We will look to the words of the court for those clues.

In Klehr, The Supreme Court rejects the “last predicate act.”

“Predicate acts” are the racketeering acts which constitute the pattern which is an element of a civil RICO claim. In 1997, the Supreme Court considered and rejected the “last predicate act” starting date in Klehr v. A. O. Smith Corp.[27] Under RICO, predicate racketeering acts can be up to 10 years apart. The last predicate act rule would allow a suit within 4 years of the last predicate act. That act can be 10 years after the previous predicate act; which in turn can be 10 years after the last prior predicate act; which in turn can be 10 years after the prior act; and on and on without limit. Under this rejected rule, the date of the injury was irrelevant. The rule allowed the limitations period to extend “to many decades” after the injury to the plaintiff. The Supreme Court rejected a limitation starting date unrelated to the date of the injury. We turn to the words of the court.

“Like the Eighth Circuit, the Third Circuit believes that the limitations period starts to run when a plaintiff knew or should have known that the RICO claim (including a "pattern of racketeering activity") existed, but the Third Circuit has added an important exception, which it states as follows:

"[If], as a part of the same pattern of racketeering activity, there is further injury to the plaintiff or further predicate acts occur, . . . the accrual period shall run from the time when the plaintiff knew or should have known of the last injury or the last predicate act which is part of the same pattern of racketeering activity. The last predicate act need not have resulted in injury to the plaintiff but must be part of the same pattern."[28]

“For purposes of assessing the rule's lawfulness, we assume, as do the Klehrs, that this rule means that as long as Harvestore committed one predicate act within the limitations period (i.e., the four years preceding suit), the Klehrs can recover, not just for any added harm caused them by that late committed act, but for all the harm caused them by all the acts that make up the total "pattern." We also assume that they can show at least one such late committed act. Finally, we note that the point of difference between the Third Circuit, and the other Circuits, has nothing to do with the plaintiff's state of mind or knowledge. It concerns only the accrual consequences of a late committed act. Consequently, we can consider the merits of the rule on the simplifying assumption that the plaintiff is perfectly knowledgeable. We conclude that the Third Circuit's rule is not a proper interpretation of the law. We have two basic reasons. First, as several other Circuits have pointed out, the last predicate act rule creates a limitations period that is longer than Congress could have contemplated. Because a series of predicate acts (including acts occurring at up to 10 year intervals) can continue indefinitely, such an interpretation, in principle, lengthens the limitations period dramatically. It thereby conflicts with a basic objective--repose--that underlies limitations periods.[29] Indeed, the rule would permit plaintiffs who know of the defendant's pattern of activity simply to wait, "sleeping on their rights," ibid., as the pattern continues and treble damages accumulate, perhaps bringing suit only long after the "memories of witnesses have faded or evidence is lost."[30] We cannot find in civil RICO a compensatory objective that would warrant so significant an extension of the limitations period, and civil RICO's further purpose -- encouraging potential private plaintiffs diligently to investigate,[31] -- suggests the contrary.

“We recognize that RICO's criminal statute of limitations runs from the last, i.e., the most recent, predicate act. But there are significant differences between civil and criminal RICO actions, and this Court has held that criminal RICO does not provide an apt analogy. Id., at 155-156 (declining to apply criminal RICO's 5 year statute of limitations to civil RICO actions and noting "competing equities unique to civil RICO actions or, indeed, any other federal civil remedy").

“Second, the Third Circuit rule is inconsistent with the ordinary Clayton Act rule, applicable in private antitrust treble damage actions, under which "a cause of action accrues and the statute begins to run when a defendant commits an act that injures a plaintiff's business."[32] We do not say that a pure injury accrual rule always applies without modification in the civil RICO setting in the same way that it applies in traditional antitrust cases. For example, civil RICO requires not just a single act, but rather a "pattern" of acts. Furthermore, there is some debate as to whether the running of the limitations period depends on the plaintiff's awareness of certain elements of the cause of action. As we said earlier, however, for purposes of evaluating the Third Circuit's rule we can assume knowledgeable parties. Hence the special problems associated with a discovery rule . . . are not at issue. And we believe, in these circumstances, the Clayton Act analogy is helpful.

“In Malley Duff, this Court indicated why the analogy is useful. It concluded

"that there is a need for a uniform statute of limitations for civil RICO, that the Clayton Act clearly provides a far closer analogy than any available state statute, and that the federal policies that lie behind RICO and the practicalities of RICO litigation make the selection of the 4 year statute of limitations for Clayton Act actions . . . the most appropriate limitations period for RICO actions."[33]

“The Court left open the accrual question. But it did not rule out the use of a Clayton Act analogy.[34] As the Court has explained, Congress consciously patterned civil RICO after the Clayton Act.[35] And by the time civil RICO was enacted, the Clayton Act's accrual rule was well established.[36]

“The Clayton Act helps here because it makes clear precisely where, and how, the Third Circuit's rule goes too far. Antitrust law provides that, in the case of a "continuing violation," say a price fixing conspiracy that brings about a series of unlawfully high priced sales over a period of years, "each overt act that is part of the violation and that injures the plaintiff," e.g., each sale to the plaintiff, "starts the statutory period running again, regardless of the plaintiff's knowledge of the alleged illegality at much earlier times."[37] But the commission of a separate new overt act generally does not permit the plaintiff to recover for the injury caused by old overt acts outside the limitations period.[38]

“Similarly, some Circuits have adopted a "separate accrual" rule in civil RICO cases, under which the commission of a separable, new predicate act within a 4 year limitations period permits a plaintiff to recover for the additional damages caused by that act. But, as in the antitrust cases, the plaintiff cannot use an independent, new predicate act as a bootstrap to recover for injuries caused by other earlier predicate acts that took place outside the limitations period.[39] Thus the Klehrs may point to new predicate acts that took place after August 1989, such as sales to other farmers or the printing of new Harvestore advertisements. But that fact does not help them, for, as the Court of Appeals pointed out, they have not shown how any new act could have caused them harm over and above the harm that the earlier acts caused.[40] Nor can the presence of the new act help them recover for the injuries caused by pre-1989 acts, for it is in this respect that we find the Third Circuit's rule incorrect.

“Plaintiffs also point to Zenith, a case in which this Court considered antitrust damages that were so "speculative" or "unprovable,"[41] at the time of a defendant's unlawful act (and plaintiff's initial injury) that to follow the normal accrual rule (starting the limitations period at the point the act first causes injury) would have left the plaintiff without relief. This Court held that, in such a case, a claim for the injuries that had been speculative would accrue when those injuries occurred, even though the act that caused them had taken place more than four years earlier.[42] This case does not help the plaintiffs here, however, for their injuries -- the harm to their farm -- have always been specific and calculable.

“We recognize that our holding . . . does not resolve other conflicts among the Circuits. For example, the Circuits have applied "discovery" accrual rules, which extend accrual periods for plaintiffs who could not reasonably obtain certain key items of information. The use of a discovery rule may reflect the fact that a high percentage of civil RICO cases, unlike typical antitrust cases, involve fraud claims.[43] Moreover, different Circuits have applied discovery accrual rules that differ, one from the other, in important ways. [44]

“We further realize that . . . the Klehrs did claim that they lacked knowledge of the faulty silo -- the "source" of their injury. But that particular "lack of knowledge" claim does not require us to consider the various "discovery rule" differences among the Circuits, because the Klehrs failed the "knowledge" test that favors them the most -- the Eighth Circuit's "injury plus source plus pattern" rule. That rule would have found the Klehrs' action timely had it not been the case that the Klehrs reasonably "should have discovered" all of those elements prior to 1989.[45] If the Klehrs cannot fit their case through the Eighth Circuit's larger hole, they cannot squeeze it through a smaller one.

“In addition, the major difference among the Circuits -- whether a discovery rule includes knowledge about a "pattern" -- is clearly not at issue here. Harvestore marketed and sold its "oxygen limiting" silos for many years before the Klehrs purchased theirs, and the Klehrs have not claimed lack of knowledge of a "pattern." Nor has anyone argued any other legal differences among the Circuits' various tests that would affect the outcome in this case.

“In these circumstances, we believe we should not consider differences among the various discovery accrual rules used by the Circuits. The legal questions involved may be subtle and difficult. Compare id., at 238 (claim accrues with discovery of existence and source of injury, plus pattern) with Bivens Gardens, 906 F. 2d, at 1554 (claim accrues with discovery of injury and pattern); see also Cada, 920 F. 2d, at 451 (describing differences among various discovery rules and doctrines of "equitable tolling" and "equitable estoppel"). And the facts of this case do not force focused argument as to how the traditional Clayton Act "injury" accrual rule, principles of equitable tolling, and doctrines of equitable estoppel should interact in circumstances where the application of one, or another, of these different limitations doctrines would make a significant legal difference. To say this is not, as the concurrence claims, to advocate a "mix and match" statute of limitations theory. Rather, it is to recognize that the Clayton Act's express statute of limitations does not necessarily provide all the answers. We shall, at the very least, wait for a case that clearly presents these, or related issues, providing an opportunity for full argument, before we attempt to resolve them.” Klehr[46]

In Rotella, the Supreme Court rejects “injury and pattern discovery.”

In 2000, in Rotella v. Wood,[47] the Supreme Court rejected the “injury and pattern discovery” starting date. The “injury and pattern discovery” rule would allow proof of predicate acts which occurred more than 14 years prior to commencement of the suit. The Supreme Court might consider starting the limitation period when the injury is discovered, but not when the pattern of racketeering acts is discovered. Once again, the Supreme Court merely rejected one rule for the starting date without adopting any rule. We turn to the words of the court.

“We think the minority injury and pattern discovery rule unsound for a number of reasons. We start with the realization that under the provision recognizing the possibility of finding a pattern of racketeering in predicate acts 10 years apart, even an injury occurrence rule unsoftened by a discovery feature could in theory open the door to proof of predicate acts occurring 10 years before injury and 14 before commencement of litigation. A pattern discovery rule would allow proof of a defendant's acts even more remote from time of trial and, hence, litigation even more at odds with the basic policies of all limitations provisions: repose, elimination of stale claims, and certainty about a plaintiff's opportunity for recovery and a defendant's potential liabilities.[48]

“How long is too long is, of course, a matter of judgment based on experience, and it gives us great pause that the injury and pattern discovery rule is an extension of the traditional federal accrual rule of injury discovery, and unwarranted by the injury discovery rule's rationale. Federal courts, to be sure, generally apply a discovery accrual rule when a statute is silent on the issue, as civil RICO is here.[49] But in applying a discovery accrual rule, we have been at pains to explain that discovery of the injury, not discovery of the other elements of a claim, is what starts the clock. In the circumstance of medical malpractice, where the cry for a discovery rule is loudest, we have been emphatic that the justification for a discovery rule does not extend beyond the injury:

"We are unconvinced that for statute of limitations purposes a plaintiff's ignorance of his legal rights and his ignorance of the fact of his injury or its cause should receive identical treatment. That he has been injured in fact may be unknown or unknowable until the injury manifests itself; and the facts about causation may be in the control of the putative defendant, unavailable to the plaintiff or at least very difficult to obtain. The prospect is not so bleak for a plaintiff in possession of the critical facts that he has been hurt and who has inflicted the injury. He is no longer at the mercy of the latter. There are others who can tell him if he has been wronged, and he need only ask."[50]

“A person suffering from inadequate treatment is thus responsible for determining within the limitations period then running whether the inadequacy was malpractice.

“We see no good reason for accepting a lesser degree of responsibility on the part of a RICO plaintiff. It is true, of course, as Rotella points out, that RICO has a unique pattern requirement.[51] And it is true as well that a pattern of predicate acts may well be complex, concealed, or fraudulent. But identifying professional negligence may also be a matter of real complexity, and its discovery is not required before the statute starts running.[52] Although we said that the potential malpractice plaintiff "need only ask" if he has been wronged by a doctor, considerable enquiry and investigation may be necessary before he can make a responsible judgment about the actionability of the unsuccessful treatment he received. The fact, then, that a considerable effort may be required before a RICO plaintiff can tell whether a pattern of racketeering is demonstrable does not place him in a significantly different position from the malpractice victim. A RICO plaintiff's ability to investigate the cause of his injuries is no more impaired by his ignorance of the underlying RICO pattern than a malpractice plaintiff is thwarted by ignorance of the details of treatment decisions or of prevailing standards of medical practice.

“Nor does Rotella's argument gain strength from the fact that some patterns of racketeering will include fraud, which is generally associated with a different accrual rule; we have alrea