GLESSNER; Tito Delgozzo; Claudia Ca- and Unsafe, and Required Unprecedented Service to Pritti; Robert Slimm; Charles Heck; and Wendy Prevent Carbon Monoxide Poisoning
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KEYSTONE ACCRUAL RULE OVERRULED BY KLEHR Page 1 952 F.2d 702, RICO Bus.Disp.Guide 7892 (Cite as: 952 F.2d 702) dential heating system[s]” that were highly efficient and would result in considerable savings in home oil heating costs. Plaintiffs allege that because of an in- United States Court of Appeals, herent defect, the “blue flame” units were inefficient Third Circuit. John H. GLESSNER; Tito Delgozzo; Claudia Ca- and unsafe, and required unprecedented service to pritti; Robert Slimm; Charles Heck; and Wendy prevent carbon monoxide poisoning. Heck, Appellants, v. Plaintiffs filed suit on June 2, 1988 in the District William KENNY, Jr.; Stanley R. Orczyk; Paul A. Court for the District of New Jersey on behalf of Vermylen, Jr.; Meenan Oil Co., Inc.; Blueray Sys- themselves and others who had purchased the “blue tems, Inc.; and KOV Corporation. flame” units alleging various state law claims and the violation of the Racketeer Influenced and Corrupt Organizations Act (RICO) 18 U.S.C. §§ 1961-68 No. 90-5885. (1988). They claim that they were injured by defen- Argued April 8, 1991. dants' misrepresentations regarding the efficiency and Decided Dec. 23, 1991. safety of the furnaces. Any person injured in his or her business or *705 OPINION OF THE COURT property by a RICO violation may bring a civil suit to SLOVITER, Chief Judge. recover treble damages. 18 U.S.C. § 1964(c) (1988). We are once again required to analyze the appli- Plaintiffs' complaint alleges three RICO violations: 1) cability of RICO to a claim that ordinarily would that defendants used or invested money derived from have been framed in terms of a common law action racketeering activity to acquire an interest in an en- for misrepresentation or fraud. The district court dis- terprise engaged in interstate commerce in violation missed the complaint as to some plaintiffs as barred of 18 U.S.C. § 1962(a) FN1; 2) that defendants con- by the statute of limitations and as to the remaining ducted the affairs of an enterprise through a pattern of plaintiffs for failure to state valid RICO claims, and racketeering activity in violation of section 1962(c) plaintiffs appeal. FN2 ; and 3) that defendants conspired to violate sections 1962(a) and 1962(c), in violation of section I. 1962(d). The complaint alleges that defendants used Facts and Procedural History the mails to transmit advertisements, warranties and Plaintiffs John Glessner, Tito Delgozzo, Claudia other written materials containing misrepresentations Capritti, Robert Slimm, Charles Heck and Wendy and omissions about the “blue flame” units in viola- Heck purchased allegedly defective residential oil tion of the Mail Fraud Act, 18 U.S.C. § 1341 (1988). furnaces manufactured and sold by defendant Blueray Systems, Inc., a wholly owned subsidiary of FN1. Section 1962(a) provides, in relevant defendant Meenan Oil Co., Inc. In 1983, Meenan was part, purchased by defendant KOV Corporation. Defen- dants William Kenny, Stanley Orczyk and Paul Vermylen were officers of Meenan and are now prin- It shall be unlawful for any person who has received any income derived, directly cipals of KOV. or indirectly, from a pattern of racketeer- ing activity ... to use or invest, directly or Blueray sold a line of “blue flame” oil furnaces indirectly, any part of such income, or the and boilers throughout the United States and Canada proceeds of such income, in acquisition of for use primarily as residential home heating systems. any interest in, or the establishment or op- Plaintiffs made their purchases between 1975 and eration of, any enterprise which is en- 1984. According to plaintiffs' complaint, the “blue gaged in ... interstate or foreign com- flame” units were advertised as “state of the art resi- merce. Page 2 952 F.2d 702, RICO Bus.Disp.Guide 7892 (Cite as: 952 F.2d 702) FN2. Section 1962(c) provides, “[i]t shall be This court enunciated the standard for assessing unlawful for any person employed by or as- accrual of a civil RICO cause of action in Keystone sociated with any enterprise engaged in ... Insurance Co. v. Houghton, 863 F.2d 1125 (3d interstate or foreign commerce, to conduct Cir.1988). We noted the difficulty in applying the or participate, directly or indirectly, in the usual rules for accrual of actions to private civil conduct of such enterprise's affairs through a RICO claims because of RICO's requirement that pattern of racketeering activity....” plaintiff show injury to its business or property as a result of a pattern of racketeering activity. We stated Defendants moved for dismissal under Rule that the “last injury discovery rule,” under which a 12(b)(6) of the Federal Rules of Civil Procedure, claim arises when a plaintiff knows or should have arguing that plaintiffs' complaint failed to state valid known of his or her injury, cannot be applied to a RICO claims and was barred by the statute of limita- RICO plaintiff whose knowledge of injury arises tions. Relying on deposition testimony, the district solely from a single predicate act because the plain- court dismissed the RICO claims of plaintiff Glessner tiff may have discovered the injury but not the pat- and plaintiffs Wendy and Charles Heck as time tern. Id. at 1129. Instead, a plaintiff's limitations pe- barred. The RICO claims of the other plaintiffs were riod must be measured from the time it knew or dismissed on the grounds that: 1) plaintiffs had not should have known of the pattern of racketeering FN3 alleged an injury arising from the *706 investment of activity. racketeering proceeds as required by 18 U.S.C. § 1962(a); 2) plaintiffs had not alleged an “enterprise” FN3. In Keystone we also acknowledged separate from the “persons” involved as required by that what we denominated as the “simple 18 U.S.C. § 1962(c); and 3) the allegations of con- discovery rule, which creates a separate ac- spiracy were insufficient because there can be no crual period for each injury,” had been conspiracy between a corporate entity and its em- adopted by five circuits, 863 F.2d at 1133, ployees, and, in the alternative, the complaint failed citing Bankers Trust Co. v. Rhoades, 859 to plead the conspiracy claim adequately. The district F.2d 1096 (2d Cir.1988), cert. denied, 490 court then dismissed the state law claims without U.S. 1007, 109 S.Ct. 1642, 104 L.Ed.2d 158 prejudice. (1989); Compton v. Ide, 732 F.2d 1429 (9th Cir.1984); Alexander v. Perkin Elmer Corp., Plaintiffs filed a timely appeal. We have jurisdic- 729 F.2d 576 (8th Cir.1984) (per curiam); tion under 28 U.S.C. § 1291. Bowling v. Founders Title Co., 773 F.2d 1175, 1178 (11th Cir.1985), cert. denied, 475 U.S. 1109, 106 S.Ct. 1516, 89 L.Ed.2d II. 915 (1986); Pocahontas Supreme Coal Co. Statute of Limitations We consider first the contention of plaintiffs v. Bethlehem Steel Corp., 828 F.2d 211 (4th Glessner and Charles and Wendy Heck that the dis- Cir.1987). We declined to follow that rule trict court erred as a matter of law in determining that where there is a gap between the predicate act that injured plaintiff and the predicate act their RICO claims were time barred. necessary to create the pattern. Keystone, 863 F.2d at 1133. We note that although The appropriate statute of limitations for civil there are instances in which both the “last RICO actions is four years. See Agency Holding injury discovery rule” and the “simple dis- Corp. v. Malley-Duff & Assocs., 483 U.S. 143, 156, covery rule” will converge, they differ in 107 S.Ct. 2759, 2767, 97 L.Ed.2d 121 (1987). Be- that the limitations period is more expansive cause the complaint was filed on June 2, 1988, the under the “last injury discovery rule,” as district court determined that any claims accruing represented by the opinion in Bankers Trust. prior to June 2, 1984 would be barred. The court found that these plaintiffs were aware of all of the elements of their RICO claims prior to that date, and We articulated the rule for accrual of a civil therefore dismissed the complaint of these plaintiffs RICO action as follows: as time barred. Page 3 952 F.2d 702, RICO Bus.Disp.Guide 7892 (Cite as: 952 F.2d 702) [T]he limitations period for a civil RICO claim See Rose v. Bartle, 871 F.2d 331, 342 (3d runs from the date the plaintiff knew or should Cir.1989); see also Castle v. Cohen, 840 have known that the elements of the civil RICO F.2d 173, 179-80 (3d Cir.1988). However, cause of action existed unless, as a part of the same plaintiffs have not complained in their ap- pattern of racketeering activity, there is further in- pellate briefs about the procedure used, and jury to the plaintiff or further predicate acts occur, thus that issue is waived. See Winston v. in which case the accrual period shall run from the Children & Youth Servs. of Delaware time when the plaintiff knew or should have known County, 948 F.2d 1380, 1385 (3d Cir.1991). of the last injury or the last predicate act which is part of the same pattern of racketeering activity. In Keystone, the plaintiff alleged an ongoing pat- tern of racketeering activity which continued at least Id. at 1130. until September, 1983 when an act of mail fraud was committed for which the defendants were convicted. Applying the Keystone rule to this case, the dis- Therefore we held that the complaint filed in July, trict court found that plaintiffs Glessner and Charles 1986 was timely under the last predicate act accrual and Wendy Heck knew or should have known of the rule.