Time-bars: RICO-criminal and civil-federal and state.
A. History and Justifications
Civil statutes of limitations were not a part of English common law, but were creatures of the legislature. (137) The first English statutes of limitations did not specify a time beyond which they barred actions. Instead, the English Parliament chose "certain notable times;"-like the beginning of the reign of Henry I, the return of John from Ireland, or the coronation of Richard I-and barred civil actions involving realty that accrued before that date. (138) In 1540, during the reign of Henry VIII, the Parliament, recognizing the limitations of the old system, passed a permanent statute of limitations that created civil limitations periods. (139) In 1623, the Parliament finally enacted a comprehensive statute of limitations that became a model for American civil statutes of limitations. (140)
Many of the same justifications that animate criminal statutes of limitations also apply to civil statutes of limitations. Civil statutes of limitations save defendants from having to defend themselves against stale charges (141) and keep those stale cases out of court. (142) They provide repose for the parties (143) and certainty by notifying potential defendants of the length of their exposure to liability, (144) and they give plaintiffs an incentive to litigate claims without unreasonable delay. (145) Legislatures must balance these justifications for civil statutes of limitations with the interests of the injured party and give the party a fair chance to litigate a valid claim. (146) As with criminal statutes of limitations, legislatures must strike a balance. Plaintiffs should be able to sue for compensation when injured, but at some point the defendant's "right to be free of stale claims ... comes to prevail over the [victim's] right to prosecute them." (147)
B. Determining the Limitations Period for Civil RICO
Usually, determining whether a civil action is timely involves three questions (148): (1) what is the period of limitations, (2) when does the period accrue, and (3) when did the plaintiff commence the suit? The period of limitations is easy to determine where the legislature has specified it in the statute, but, with federal RICO and many state RICO statutes, the legislatures did not designate a limitations period.
1. Federal RICO
a. Before Agency Holding Corp. v. Malley-Duff & Associates, Inc.
Before 1987, when the Court decided Agency Holding Corp. v. Malley-Duff & Associates, Inc., (149) federal civil RICO cases did not have an applicable limitations period. Except in rare circumstances, when a federal claim for relief lacks an express limitations period, federal courts adopt the most closely analogous limitations period provided by state law. (150) In theory, at least, adopting state limitations periods (151) ensures that some limitations period will apply to bar stale federal claims, implementing by judicial judgment a policy that rightly belongs with the legislature. (152) In practice, however, the
adoption of state limitations periods tends to undermine the purposes of statutes of limitations (e.g., certainty) and leads to forum shopping and unfairness. (153) These frustrating and entangled problems were on stark display when, before Malley-Duff federal courts adopted for varying, and not always consistent, reasons a variety of state statutes of limitations to apply to civil RICO cases.
To determine which state claim for relief, if any, was most analogous to civil RICO, federal courts had to "characterize" civil RICO claims. (154) Courts could characterize civil RICO based on the alleged predicate offenses, the nature of the relief requested, or as a distinctive separate offense. Many courts looked to the predicate acts alleged by the plaintiff, analogizing these to state law claims for relief. (155) The decision to "categorize" civil RICO based on the character of the predicate offenses was problematic, however, because of the wide variety of possible predicate offenses that a civil RICO complaint could include, many of which, taken individually, have different periods of limitations under state law. (156) Thus, under this approach, civil RICO cases, brought in the same state, could have different limitations periods, and within a single case, more than one limitation period arguably might apply. (157)
To avoid this lack of uniformity and uncertainty, other federal courts sought consistently to categorize all civil RICO claims based on the character of the relief requested. (158) Accordingly, courts determined whether RICO's treble damages provision was "punitive" or "remedial." (159) They then used that characterization to arrive at a uniform limitations period to apply to all civil RICO claims in a given state. Courts that chose this avenue of analysis found themselves embroiled in a mass of inconsistent case law. A comparison of two cases decided within the same federal circuit, State Farm Fire & Casualty Co. v. Estate of Caton (160) and Tellis v. United States Fidelity & Guaranty Co. (161) show the difficulties and flaws inherent in this approach.
In State Farm, the Northern District of Indiana performed an exhaustive analysis of the text, legislative history, and case law involving the treble damage provision of RICO to hold that a civil RICO action is remedial. (162) In State Farm, the defendant argued that civil treble damages under RICO are "penal" and did not survive the death of the wrongdoer. (163) Appropriately, the defendant analogized RICO treble damages to the treble damages recoverable under [section] 4 of the Clayton Act, which served as RICO's model. (164) Noting that many circuit courts held that only "actual" damages under [section] 4 are "remedial," and the trebled portion of the damages were "penal," the defendant plausibly argued that the award of treble damages in a civil RICO claim for relief is "punitive." (165) After a thorough analysis, the court appropriately rejected the defendant's argument.
The court began by noting, "[m]ultiple damage provisions are difficult to categorize under the traditional headings of compensatory or punitive. There are essentially two varieties of multiple damage provisions: those designed as punishment for statutory violation; and those designed to compensate the harmed individual by providing liquidated compensation for accumulated harm." (166) Although RICO's treble damage provision is within a section of the Act entitled "Civil remedies," (167) the court found the text of the treble damage provision to be "silent" on the issue of the character of the civil treble damage award. (168) Consequently, the court turned to an analysis of the legislative history of the statute, which it found "specific" and of value. (169)
The court first examined the legislative history's treatment of the relationship between RICO and the Clayton Act. The court concluded from its survey of the legislative history:
Certainly [[section]] 1964(c) was modeled after [[section]] 4 of the Clayton Act. It was, however, cast as a separate statute intentionally to avoid the restrictive precedent of antitrust jurisprudence. The members of Congress piloting this proposed legislation changed it so that it complied with the ABA's antitrust section's report suggesting the expedience of separate legislation. Further, the equitable remedies applied in the antitrust area have always been available to the Court. Therefore, to burden RICO with restrictive antitrust precedent would be contrary to the express legislative history. (170)
In short, the court determined that the character of treble damages under [section] 4 of the Clayton Act was not persuasive in determining the character of treble damages under civil RICO.
The State Farm court next applied the Seventh Circuit's analysis from Smith v. No. 2 Galesburg Crown Finance Corp. (171) to determine whether RICO treble damages are "penal" for survival purposes. In Smith, the Seventh Circuit addressed the issue of whether a claim for relief under the Truth in Lending Act (TILA) (172) survived the death of the debtor-plaintiff. (173) Even though Congress and the Supreme Court had labeled TILA "penal," the Smith court noted that "the term 'penal' is used in different contexts to mean different things." (174) Thus, the Smith court had to determine independently whether TILA was "penal" for survival. (175) In holding that the action under the TILA was "remedial" rather than "penal," (176) the Smith court established a three factor test for determining whether an action is penal for the purposes of survival: "(1) whether the purpose of the action is to redress individual wrongs or wrongs to the public; (2) whether recovery runs to the individual or to the public; (3) whether the authorized recovery is wholly disproportionate to the harm suffered." (177)
The district court in State Farm applied this three-factor test to civil RICO and found (1) that the purpose of civil RICO's civil treble damages provision ([section] 1964(c)) was to redress individual wrongs; (2) that recovery runs to the individual; and (3) that the authorized recovery was not disproportionate to the harm suffered. (178) The State Farm court supported its conclusion that civil RICO is "remedial," not "penal," by citing the statutory construction provision from [section] 904(a) of Title IX. (179) The court also found it significant that the Seventh Circuit in United States v. Cappetto (180) already held that RICO [section][section] 1964(a) and (b) were "remedial" and not "punitive." (181)
Finally, the State Farm court suggested that the mandatory nature of treble damages under RICO (182) confirms that such damages are essentially remedial. Viewing mandatory trebling as remedial "reflects a policy of compensating injured persons which would be thwarted by abatement." (183) The court argued that:
[A] construction of RICO which would insulate the assets of organized crime from treble damage claims, for example, where a nominee was killed, would frustrate the purposes of the act. To allow organized crime to profit by the fortuitous death of a principal defendant or alleged wrongdoer at the expense of the injured civil litigant would subvert the objectives of RICO, making its remedial and deterrent purposes impotent. In short, it would encourage the murder of the nominee or principal wrongdoer if the criminal organization were allowed to preserve its ill-gotten gains and avert the disgorgement contemplated by RICO. (184)
Based on this exhaustive analysis, the court concluded that an action for treble damages brought under [section] 1964(c) is remedial for survival. (185)
In the same case, the State Farm court also had to determine the proper limitations period for the civil RICO claim. The defendant argued that the court should adopt the two-year state limitations period for statutory penalties. (186) Based largely on its prior finding that civil RICO's treble damages are "remedial," the court refused to apply the two-year statute of limitations for statutory penalties.
The Seventh Circuit in Tellis v. U.S. Fidelity & Guaranty Co. (187) sought to determine the appropriate statute of limitations to apply to treble damages claims for relief under civil RICO. As with the question of whether a civil RICO claim abates with the death of the wrongdoer, the primary issue in State Farm, the Tellis court saw that its choice of a proper limitations period turned on the court's "characterization" of RICO's treble damages provision as either "penal" or "remedial." The Tellis court also saw the issue as whether it should "characterize" civil RICO claims for relief uniformly as a whole in light of the statute itself or whether it should characterize civil RICO claims for relief on a case-by-case basis depending on the facts of each case. (188) The court held that "[t]he strong interests in uniformity and certainty and the desire to avoid time-consuming litigation ... warrant[ed] an adoption of the uniform-characterization approach." (189)
Having decided to characterize civil RICO claims for relief as a whole, the court thought it had to choose an appropriate statute of limitations from Illinois state law. The court narrowed it down to three options--the two-year statute of limitations for statutory penalties, the five-year statute of limitations that applied to common law fraud, and the catchall period for all other civil claims for relief. (190) The court began the process of choosing between these limitations periods by surveying the decisions of other federal courts:
Our sister circuits have differed in their characterization of civil RICO claims and thus in their selection of statute of limitations for civil RICO claims. The Second and Ninth Circuits have both selected a three-year period for actions based on a statute; neither court discussed other alternative characterizations. The Third Circuit has selected a six-year "catchall" limitations period, i.e., a statute of limitations for actions not governed by a more specific period of limitations. Several district courts have also selected catchall limitations periods. Other district courts have noted that a large number of civil RICO claims are based on fraud, and have selected the appropriate limitations period for actions based on fraud. (191)
The Tellis court, however, determined that these decisions were of limited value, because the limitations periods available for federal courts to choose from varied depending upon the courts' determination of the applicable state's law. (192) Thus, the Tellis court felt it had to characterize civil RICO claims for relief with little guidance from precedent.
Based on its finding that "[t]he treble damages provision is the most significant aspect of civil RICO," the Tellis court decided that it should characterize civil RICO claims as claims for relief for treble damages. (193) The court then concluded that claims for relief for treble damages under civil RICO were "penal." Thus, the two-year limitations period for statutory penalties applied. (194) The court relied upon the parallel between the provision for RICO treble damages under RICO and the provision for treble damages under the antitrust laws.
Because the circuit had held that the treble damages provision under an antitrust suit was "penal" for the statute of limitations, (195) the court held that a treble damage provision for a claim for relief under RICO was "penal" for the purpose of limitations. That said, the district court in State Farm considered and found unpersuasive parallels between RICO and the Clayton Act that the Tellis court found compelling. (196) Significantly, the Tellis majority opinion does not make a single reference to State Farm, even though a district court in its own circuit issued it less than five years earlier. (197) As Tellis illustrates, the decision to characterize RICO's treble damages provision as "penal" undermines the congressionally mandated remedial purposes of RICO because it leads to circumscribing civil RICO with the short limitations periods that states typically establish for penalties and forfeitures. (198) These periods are inappropriate in light of the necessary time it takes properly to investigate, analyze the evidence of, and prepare for complicated civil RICO litigation (199)--hasty RICO filings serve neither the plaintiff, the defendant, nor the court--and prevent the effective and fair "private attorneys general" from bringing valid RICO claims to enforce civilly the provisions of RICO. (200) Moreover, the analysis in Tellis is demonstratively mistaken. The language and legislative history of RICO show that the treble damages provision is "remedial," not "punitive." (201)
Characterizing RICO as a distinct offense (202) was the best option for courts trying to choose an appropriate state limitations period pre-Malley-Duff. It avoided the widespread and debilitating uncertainty of the predicate act approach and generally led to more generous limitations periods than the relief-requested approach. Still, this method was not ideal, because it was difficult for courts to find an analogous state claim for relief with an express limitations period, (203) and if no analogous claim for relief and no state catchall limitations period were present, then this approach would yield no analogous or applicable limitations period. Moreover, this approach shared with the other two approaches the flaws that necessarily follow from adopting state limitations periods for federal claims for relief. Specifically, the flaws follow from the lack of uniformity state-to-state, because different states have different limitations periods for comparable claims for relief and because an analogy to a certain claim for relief in one state may not apply in another state. For example, a federal court applying Georgia law could analogize federal RICO to Georgia RICO, but a federal court applying Alabama law would not have that option, because no state RICO statute is present in Alabama. Accordingly, this lack of uniformity leads to uncertainty, unfairness, and forum shopping. (204)
Forum shopping is of special concern in civil RICO cases. Because of the breath of "pattern" in RICO and joinder and venue rules in federal law, RICO plaintiffs are often appropriately able to sue in several jurisdictions. Under RICO's nationwide service of process (205) and venue provisions, (206) plaintiffs can sue wherever a defendant resides, is located, has an agent, or transacts business. Under the general venue statute, a RICO plaintiff can sue wherever "a substantial part of the events or omissions giving rise to the claim occurred." (207) Because RICO requires a pattern of racketeering activity and effect on interstate or foreign commerce, "predicate acts will often occur in several States." (208) Thus, a "substantial part of the events or omissions giving rise to the claim" (209) can occur in several jurisdictions, and a RICO plaintiff can select from among these. Moreover, once venue and jurisdiction are satisfied for one defendant, the court can bring other defendants into the litigation in the interests of justice. (210) More generally, adopting state limitations periods for civil RICO (and other federal causes of action) is problematic, because when state legislatures establish limitations periods for state claims for relief, they do not take into account national interests. (211) For example, when a state legislature decides on a limitations period for fraud, it does not consider the broad remedial purposes of RICO or the complicated nature of a RICO claim for relief based on fraud. Thus, the application of state statutes of limitations to civil RICO claims for relief undermines the purposes of the statute by not giving potential plaintiffs a uniform and fair amount of time to vindicate their rights under RICO. (212)
b. Agency Holding Corp. v. Malley-Duff & Associates, Inc.
In light of these problems associated with adopting state statutes of limitations for civil RICO claims for relief, the Court provided a uniform limitations period in Malley-Duff. (213) Two important decisions paved the way for Malley-Duff. Del Costello v. International Brotherhood of Teamsters (214) and Wilson v. Garcia. (215)
In DelCostello, the Court determined what limitations period governed a federally created claim for relief. The Court combined two suits by employees against their employers for breach of the collective bargaining agreement and against their unions for inadequate representation. (216) The Court observed that in the absence of an express federal period, courts generally adopt state limitations periods. (217) Significantly, the Court stressed that nothing in federal law requires the adoption of state limitations periods. (218) Thus, if applying state limitations periods would obstruct the "purpose or operation of federal substantive law," (219) a federal court is free to adopt "timeliness rules drawn from federal law" (220) that better meet the purposes behind the federal statute. (221) Accordingly, the DelCostello Court eschewed various unsatisfactory state law options and adopted the nearest analogous federal limitations period, the six-month limitations period provided by [section] 10(b) of the National Labor Relations Act. (222)
Two years after DelCostello, the Court faced an analogous situation in Wilson v. Garcia when it determined an appropriate limitations period for another federal claim for relief, civil rights claims under 42 U.S.C. [section] 1983. (223) Nevertheless, unlike the DelCostello Court, the Wilson Court chose to adopt state limitations periods. (224) The Court began by identifying the steps in the characterization process:
In order to determine the most "most appropriate" or "most analogous" [state] statute to apply to the [plaintiffs] claim, we must answer three questions. We must first consider whether state law or federal law governs the characterization of a [section] 1983 claim for statute of limitations purposes. If federal law applies, we must next decide whether all [section] 1983 claims should be characterized in the same way, or whether they should be evaluated differently depending upon the varying factual circumstances and legal theories presented in each individual case. Finally, we must characterize the essence of the claim in the pending case and decide which state statute provides the most appropriate limiting principle. (225)
Going through these steps, the Court held that, because 42 U.S.C. [section] 1988 directs courts to turn to federal law first, (226) federal law governs characterization of [section] 1983 claims for statute of limitations purposes. (227) Next, the Court focused on the federal interests in "uniformity, certainty, and the minimization of unnecessary litigation," (228) and held that a uniform characterization of [section] 1983 claims that led to a single limitations period within each state best promoted those interests instead of a fact intensive case-by-case approach. (229) Finally, the Court held that personal injury claims for relief are the closest state analogies to [section] 1983 claims for relief, and the state limitations periods for those actions applies, therefore, to all [section] 1983 claims. (230)
As with [section] 1983 claims, so, too, with RICO, a strong interest in "uniformity, certainty, and the minimization of unnecessary litigation" stands out. Without uniformity, "the legislative purpose to create an effective remedy for the enforcement of federal [law] is obstructed ... for scarce resources must be dissipated by useless litigation on collateral matters." (231) Thus, the cogent rationales that led the Court in Wilson to adopt a uniform limitations period for [section] 1983 claims applied to civil RICO. Nevertheless, the method the Court used in Wilson to achieve a uniform limitations period for [section] 1983 claims did not fit comfortably within civil RICO. (232) As with RICO, [section] 1983 provides a federal remedy for a broad spectrum of conduct, (233) but the conduct at issue in [section] 1983 claims is more easily analogized to a single common law claim for relief than the conduct prohibited by RICO. (234) Because no appropriate state law analogy stands out for civil RICO claims for relief, the best approach for achieving a uniform limitations period for civil RICO, the Malley-Duff Court thought, was borrowing the period from federal law, as the Court did in DelCostello.
Two obstacles stood in the way of selecting a uniform limitations period for federal RICO. First, courts usually looked to state law. Second, the legislative history of RICO appeared--on one reading--to reject a uniform federal rule. (235) The bills that preceded RICO included an express period of limitations. (236) In addition, when the House of Representatives considered RICO, Representative Steiger offered an amendment that would have provided for an express period of limitations. (237) Finally, in succeeding Congresses, members unsuccessfully offered amendments to RICO that included express periods of limitations. (238) Accordingly, Congress, at least arguably, opted against uniformity and certainty and wanted plaintiffs through their choice of forum to select the period of limitations.
The Court in Malley-Duff however, dismissed that legislative history argument. According to the Court, Congress did have several opportunities to enact a limitations period for civil RICO, but its failure to do so was by no means an unequivocal directive to courts to adopt state limitations periods. (239) Thus, the Court was judicially free to determine an appropriate limitations period for civil RICO apart from state law. (240) Echoing DelCostello, the Court reasoned that the antitrust statute was the most closely analogous federal statute, "a far closer analogy to RICO than any state law alternative." (241) Not only was the Clayton Act the best analogy for civil RICO, but also adopting the four-year limitations period for civil RICO claims would lead to uniformity, consistency, and less litigation, the goals the Court achieved in Wilson. (242) Finally, adopting the four-year limitations period from antitrust law "avoid[ed] the possibility of the application of unduly short state statutes of limitations that would thwart the legislative purpose of creating an effective remedy." (243) Accordingly, the Court applied the four-year limitations period of the Clayton Act to civil RICO.
2. State RICO
a. When an Express Limitations Period Exists
Unfortunately, states with some versions of their RICO statutes now face many of the same problems encountered under federal RICO, including determining the length of the limitations period and establishing the point at which the period will accrue. Thirty-five United States jurisdictions have RICO statutes; twenty-nine have provisions for bringing civil claims for relief. (244) Eleven with civil claims for relief do not include a special limitations period for civil RICO. (245) The other eighteen include special limitation periods in the text of RICO or elsewhere in their code. (246) Most provide for a five-year period. As with federal law, when. the state legislature expressly provides a special statute of limitations, it governs. Thus, determining the proper limitations period is only an issue when the RICO provisions do not contain special provisions.
b. When an Express Limitations Period Does Not Exist
In eleven of the jurisdictions that have a civil RICO, but which lack an express statute of limitations for P-RICO, the legislature provides a general catchall limitations period. (247) In these eleven jurisdictions, the federal experience teaches that the courts should use the catchall limitations period, make an analogy to the state antitrust provision, or adopt the provision for liability based on a statute. Persuasive arguments exist for each of them. The principal determining factor should be the length of the period of the limitation. As the Court in Malley-Duff observed, "[It is necessary to avoid] the possibility of the application of unduly short state statutes of limitations that would thwart the legislative purpose of creating an effective remedy." (248) No matter which one the court selects, it must afford the RICO claim for relief sufficient time for the required extended investigation, for a period of prudent decision-making, and for adequate time for careful research and drafting of what is often an extensive pleading. However apparently reasonable each one of the choices is, the choice of one or the other is not translucent. For example, often catchall limitations periods only apply when no other statute of limitations applies. (249) A party to a civil RICO suit who does not want the court to use the state catchall limitations period or another might plausibly argue that because another statute of limitations is a better fit for RICO, it applies.
i. Borrowing the Federal Period
Other than applying the catchall period, an outlier possibility exists for a party to argue and for state courts to borrow the four-year federal limitations period from Malley-Duff. This is the course chosen by a New Jersey court in In re Integrity Insurance Co. (250) In Integrity, the court had to determine the appropriate limitations period for New Jersey state civil RICO claims. (251) Because New Jersey RICO closely resembles federal RICO (actually, substantial differences exist, for example, definition of person, (252) use of "incident" rather than "act" in "pattern," (253) etc.), the court decided to borrow "the four year federal statute of limitations" that the Supreme Court borrowed from the federal antitrust statute in Malley-Duff. (254) In so doing, the Integrity court ignored the state catchall limitations period for the criminal code, not in favor of some other, more applicable, state law statute of limitations, but in favor of a federal limitations period--one that Congress did not enact, but the Supreme Court borrowed from another federal statute in default of congressional action.
The New Jersey state limitations period for claims for relief in the Criminal Code at issue reads, "[e]xcept as otherwise provided in this code, no civil action shall be brought pursuant to this code more than five years after such action accrues." (255) "[T]his code" in the catchall statute refers to the New Jersey Code of Criminal Justice where the statute appears and where the New Jersey RICO statute, including its civil remedies provisions, appears. (256) No other meaning easily comes to mind. Thus, this statutory period applies to New Jersey civil RICO, and it sets a five-year limitations period for its civil RICO claims for relief. Nevertheless, the court in Integrity, though aware of the provision, simply chose to ignore it. (257) The court also chose to ignore other state limitations periods and adopted the limitations period from federal RICO. (258) The decision is indefensible. The state legislature created a catchall limitations period to apply to certain civil actions, namely, New Jersey RICO, which the Code did not otherwise cover. Nevertheless, the court ignored the legislature's direction.
In construing another statute of limitation challenge, the New Jersey Supreme Court in Jen Electric, Inc. v. County of Essex (259) observed of the duty of every court in reading statutes:
[O]ur task is to determine the Legislature's intent.... In that task, we are guided by well-settled standards of statutory construction. As we recently noted, "[g]enerally, under those standards, the intent of the drafters is to be found in the plain language of the enactment[,]" and "[i]f the language is clear, then the interpretative process will end...." We are guided by first principles: our analysis begins with the plain language of the statute.... That said, we also have made clear that "[t]hroughout, our analysis is informed by the injunction that words and phrases shall be read and construed with their context, and shall, unless inconsistent with the manifest intent of the legislature or unless another or different meaning is expressly indicated, be given their generally accepted meaning, according to the approved usage of the language." (260)
In sum, Integrity's decision is not consistent with the general teachings of New Jersey's own Supreme Court in County of Essex.
The ten jurisdictions which have civil RICO claims for relief do not provide special limitations periods for RICO. Each has a general state catchall statute of limitations. A party can make a credible argument, for example, for borrowing the state antitrust statute, but the court's choice is between it, the catchall period, and the period for liability on a statute. Going to federal law is indefensible. No court should follow the lead of Integrity.
ii. Borrowing the State Antitrust Period
A second option for courts in states like New Jersey is to follow the Court's analysis in Malley-Duff on the state level, analogize the state RICO statute to the state antitrust statute, and adopt the limitations period from the antitrust statute. The idea is attractive, and a court should seriously consider this option. The policies behind the two statutes are similar. Thus, similar statutes of limitations are good policy. Nevertheless, whether this approach is appropriate, as always, depends on the phrasing of statutes. Take Illinois, for example. Illinois has a state antitrust statute with a treble damages provisions and a four-year statute of limitations. (261) So far, so good. The Illinois RICO statute contains a treble damages provision, (262) a liberal construction clause, and a requirement that courts read its provisions consistent with the federal statute. (263) So far, even better. Based on these provisions, the contention is open to a party credibly, if not powerfully, to argue, that, as the federal courts read the federal statute to adopt the antitrust statute of limitations, because of the similarity between antitrust and civil RICO, so, too, should the state court follow the Supreme Court's lead, and adopt the state antitrust limitations provision.
Nonetheless, powerful counter considerations argue against, at least in Illinois, adopting the state antitrust limitations period. First, the Illinois Appellate Court in People ex rel. Fahner v. Climatemp, Inc. held that treble damages under the state antitrust act are "penal." (264) Accordingly, the state could not bring both a treble damages claim for relief and a claim for civil penalties without subjecting the defendant to punishment twice for the same act. (265) While this decision did not involve the statute of limitations, its characterization of antitrust treble damages as a "penalty" might arguably extend to RICO along with adoption of its antitrust limitation period. (266) As these materials show--beyond any serious quibble--federal RICO is "remedial," not "penal." Thus, the extension of a "penal" characterization to state RICO is inconsistent with the legislature's intent to keep the construction of the two statutes parallel.
A second objection to adopting the antitrust limitations period for Illinois RICO is the Supreme Court's reliance in Malley-Duff on legislative history. (267) While the states may adopt the language and concepts from a federal act, they do not necessarily adopt legislative history. The Illinois statute is illustrative. Its scope is limited, focusing only on narcotics racketeering. (268) An argument that both acts run parallel strains each statute by suggesting that the antitrust laws, written for "legitimate" businesses that stray from the proper path but do not go entirely over the line, are the closest analogy to a RICO statute, limited to wholly illegitimate, narcotics-trafficking. Something is wrong with this picture.
Nevertheless, the most powerful objection to following the Malley-Duff approach in Illinois is that, when the Court decided Malley-Duff federal law did not have a general catchall statute of limitations for civil actions. (269) In Illinois, the legislature provides a five-year catchall limitations period. (270) The Court in Malley-Duff would not have disregarded a federal catchall statute of limitations. (271) Moreover, and it is crucial, the Illinois antitrust statute of limitations, by its terms, only refers to "action Is] for damages under this subsection," (272) where the catchall statute of limitations refers to "all civil actions not otherwise provided for." (273) Given restrictive antitrust precedent, the limited nature of Illinois RICO, and, most important, the language of the general statute of limitations, Illinois courts should not apply the reasoning of Malley-Duff and therefore should not adopt the state antitrust limitations period. Courts and attorneys in other states should carefully examine the language of each state statute before borrowing it.
iii. Borrowing the Limitations Period Based on the Alleged Predicate Offenses
States that choose not to rely on their catchall statute, antitrust, or liability on a statute will have little choice but to select a limitations period based on their evaluation of the character of RICO predicate offenses. The overwhelming problem with this approach, as federal courts found out pre-Malley-Duff, (274) is the lack of uniformity, certainty, and fairness. RICO claims would have different limitations periods based on which predicate acts plaintiffs alleged. Conceivably, the plaintiff might have two or more periods applicable to one RICO claim for relief where a plaintiff alleges different predicate violations. Litigation, however, should be simple and inexpensive. It ought not to involve "'uncertainty and time-consuming litigation;" (275) it ought to be a "straightforward matter." (276) RICO is complicated enough as it is. Whichever statute of limitations applies, it should quickly cut off stale claims. It should not be an occasion for more costly and complicated litigation. For example, courts might face two or more competing limitations periods depending on the character of the predicate acts. In Colorado, for example, a three-year limitation period governs contract claims and fraud claims. (277) Nevertheless, a two-year period governs tort actions, including "tortious breach of contract" and "interference with relationships." (278) The two-year period also governs "actions against any public or governmental entity or any employee of a public or governmental entity." (279) Tort actions involving "[a]ssault, battery, false imprisonment, [and] false arrest" and "[a]ll actions against sheriffs, coroners, police officers, firefighters, national guardsmen, or any other law enforcement authority" have a one-year limitations period. (280) Finally, a Colorado court would have to face the questionable application of the five-year limitations period found in [section] 13-80-103.8(1)(8). (281) Given the complexity, confusion, and uncertainty necessarily implicated by the interaction of so many potential limitations periods, state courts should learn from the experience of the federal courts and avoid borrowing a limitations period based on predicate acts. They should limit the range of choice to the catchall period, antitrust, or liability on a statute.
iv. Borrowing the Limitations Period for Penalties and Forfeitures
The Supreme Court teaches unquestionably that the treble damages provision in federal RICO is "remedial." It is beyond serious question. In Malley-Duff specifically in the statute of limitation context, the Court emphasized the "remedial" character of RICO's treble damages. For example, the Court said, "RICO is designed to remedy injury caused by a pattern of racketeering." (282) Moreover, in taking its cue from Congress's modeling RICO on the Clayton Act, the Court observed,
Both RICO and the Clayton Act are designed to remedy economic injury by providing for the recovery of treble damages, costs, and attorney's fees. Both statutes bring to bear the pressure of "private attorneys general" on a serious national problem for which public prosecutorial resources are deemed inadequate; the mechanism chosen to reach the objective in both the Clayton Act and RICO is the carrot of treble damages. Moreover, both statutes aim to compensate the same type of injury; each requires that a plaintiff show injury "in his business or property by reason of" a violation. (283)
In a paragraph on the legislative history of RICO's treble damage provision, the Court referred to the treble damages provision as a "remedy" no less than eight separate times. (284) Moreover, the Court observed, "[A]pplication of a uniform federal limitations period avoids the possibility of the application of unduly short state statutes of limitations that would thwart the legislative purpose of creating an effective remedy." (285)
In Shearson/American Express Inc. v. McMahon, (286) an opinion issued prior to Malley-Duff (287) the Court again taught that RICO's treble damages provision is "remedial." In determining whether the plaintiff's RICO treble damage claim is subject to arbitration under the Federal Arbitration Act, the Court examined RICO's legislative history, including its reliance on the Clayton Act as a model. (288) The Court found that "[t]he legislative history of [section] 1964(c) reveals the same emphasis [as the Clayton Act] on the remedial role of the treble-damages provision." (289) In 2003, the Court again examined the character of RICO's treble damages provision; once again, teaching it is "remedial." (290) The debate over whether RICO's treble damages provision is "remedial" or "penal" played out in State Farm and Tellis (291) is yesterday's news. The Court has resolved the debate in favor of State Farm.
That federal RICO's treble damages provision is "remedial" argues powerfully that state RICO statutes are also remedial. Consider, for example, the Idaho state RICO statute. That statute does not specify a limitations period. To get the court to apply the short, two-year limitations period for "penalties and forfeitures," (292) a defendant could argue that treble damages under Idaho RICO are "penal." (293) As with the federal statute, the more persuasive argument is that treble damages under Idaho RICO are "remedial." First, the section that provides for treble damages is entitled "Racketeering-Civil Remedies." (294) This contrasts to the previous section entitled, "Prohibited Activities-Penalties." (295) If treble damages were "penal," no serious reason suggests itself why a legislature would locate them in a section entitled "remedies" rather than the section entitled "penalties." Some say you cannot judge a book by its cover, but, in fact, rifles on medicine vials, bottles of alcohol, etc., usually convey the accurate information. Without hesitation, we drink based on them every day. The legislature went to the trouble to title the section. Not taking it at its word is senseless. (296) Moreover, the exact quantum of damages caused by RICO violations may be difficult to discern. Thus, treble damages under both federal and Idaho RICO are not "penal" but "accumulative"--designed to compensate plaintiffs for injuries that legal damages do not adequately cover (297) This analysis applies equally to other state RICO statutes modeled after federal RICO and having similar treble damage provisions. Accordingly, courts should not apply the state limitations period for "penalties" to state RICO claims. They should limit the range of choice to the catchall period, antitrust, or liability on a statute.
v. Borrowing the Limitations Period for Liability on a Statute
An additional option exists for courts seeking a limitations period other than the catchall period for state RICO claims. Some states specify a limitations period for actions or liabilities created by a statute. (298) Pre-Malley-Duff several federal courts borrowed state statutes of limitations for liabilities created by a statute and applied them to federal RICO claims. (299) This statute of limitations usually applies in situations where no liability would exist but for the statute. (300) Thus, it does not apply to claims for relief that existed at common law but that the legislature subsequently codified. (301) RICO statutes create civil liability for engaging in a pattern of predicate acts by, through, or against an enterprise. Though many of RICO's predicate acts have common law origins, how Congress integrated them in the configurations of RICO is far more than a mere codification of their common law origins. Plaintiffs have to prove crucial additional elements to prevail on a RICO claim beyond those required simply to allege a common law claim for relief, for example, fraud. In short, RICO is a statutory creation, and it has no precise common law analogue. Thus, in addition to the catchall, the statute of limitations for liability created by statute is an appropriate choice for civil RICO claims where the legislature did not create a special RICO period of limitations.
Before courts apply this catchall limitations period to civil RICO claims, they must consider what other limitations periods are available. Borrowing the federal limitations period is inappropriate when the state provides a catchall period. Similarly, borrowing the limitations period from state antitrust laws may be inappropriate due to the scope of the state RICO statute, the language of the statutes of limitations, and the possibility of the application of restrictive antitrust precedent to RICO. Borrowing limitations periods based on the predicate offenses that the plaintiff alleges leads to complexity, lack of uniformity, uncertainty, and unfairness. Borrowing the statute of limitations for penalties and forfeitures is simply a mischaracterization of RICO's treble damages provision. The only statute of limitations (other than the antitrust provisions or the general catchall provision) that courts should appropriately borrow is the statute of limitations for liability created by statute. No common law analogue to civil RICO exists. Thus, when a state RICO statute does not provide for a special limitations period, courts should consider the state antitrust period, the statute of limitations for liability created by statute, or the state general catchall statute. Each of these three provisions provides an attractive uniform limitations period consistent with the remedial purposes of RICO. The main issue in the choice is the length of the limitation period; it must not be too short that it gives a plaintiff inadequate time to discover his injury, determine its relation to a pattern of unlawful conduct, select counsel, consider the law and facts, and draft an appropriate complaint, which are no easy tasks. Preparing for RICO litigation is not something a rational actor should undertake lightly. One should anticipate expensive and time-consuming motion practice. One should not think that merely adding a RICO count would secure a quick or more favorable settlement. Better to frontload the process and guarantee it is a wise decision. Deciding not to bring a RICO claim is equally as important as deciding to bring a RICO claim. Wisely deciding not to bring a RICO case takes a large load off the work of a putative defendant and the considered court. In sum, the period of limitations ought to give thoughtful plaintiffs ample time to make a wise decision.
C. Determining the Point of Accrual
The most carefully chosen limitations period is meaningless without reference to when it begins to run. (302) Thus, rules of accrual that specify when the limitations period begins must also further the goals of statutes of limitations generally. (303) In particular, accrual rules must provide plaintiffs with adequate time to sue, while at the same time ensuring that they act diligently, not recklessly sitting on their rights. In light of these considerations, a statute of limitations should begin to run as soon as events occur that enable a plaintiff to maintain a suit under the particular claim for relief, but no sooner. (304) This gives plaintiffs the full limitations period, as noted, to file their claim after it arises. Unfortunately, this straightforward principle of accrual is too simple to apply in all situations. For instance, a plaintiff may be able in theory to sue, because the events comprising the claim for relief have occurred, but, realistically, the plaintiff may be unable to sue, because (through no fault of his own) he is unaware that he has suffered an injury, unware of its cause, or unaware of who did it. (305) In situations like this, fairness demands that the statute of limitations should not begin until the plaintiff discovers (or should have discovered through the exercise of reasonable diligence) his injury, its cause, and who did it.
Had Congress specified in the RICO statute when a civil claim for relief accrues, then courts would have followed Congress's direction. Congress, however, remained silent on the period of limitations as well as accrual. Thus, federal courts have had to decide not only the period of limitations, but also the appropriate point of accrual for civil RICO claims. Different federal courts developed several different accrual rules, including the last-predicate-act rule, the injury-discovery rule, the injury-and-pattern discovery rule, and the antitrust rule. This split among the lower federal courts undermines the certainty, uniformity, and fairness that the Court sought when it borrowed the four-year limitations period from the Clayton Act for civil RICO in Malley-Duff. Nevertheless, the Court in Malley-Duff avoided adopting a uniform accrual rule, even though it confronted the issue then and on two later occasions, first in Klehr v. A. O. Smith Corp. (306) and three years later in Rotella v. Wood. (307)
1. The Last Predicate Act Rule and Klehr v. A. O. Smith Corp.
An accrual rule initially used by a handful of district courts was the last-predicate-act rule. The courts fashioned it from criminal conspiracy jurisprudence; under it, a civil claim for relief under RICO accrues when the last predicate act of racketeering occurred. (308) The last predicate act rule is not a rule of separate accrual. (309) As long as the defendant commits a predicate act within the four-year limitations period, the plaintiff can recover for each of the injuries he sustained as a result of the defendant's pattern of racketeering--regardless of when the injuries occurred or when the plaintiff discovered the injuries. A district court in the Seventh Circuit first used this accrual rule in County of Cook v. Berger. (310) The Bergercourt emphasized the "continuing" character of RICO, relying on a criminal case from the Southern District of New York that properly characterized criminal RICO as a "continuing offense" under a criminal statute of limitations. (311) The Berger court reasoned that because Congress designed civil RICO to remedy harms caused by a "continual and related" pattern of racketeering "it would be incongruous to bar ... recovery for predicate acts taking place outside the limitations period and permitting recovery only for those within the limitations period." (312) Precisely as RICO defendants incur criminal liability for each predicate act in a continuing pattern of racketeering, so, too, should they be civilly liable for each predicate act in the pattern as long as the pattern continued into the applicable civil limitations period.
No circuit court adopted the Berger court's version of the last-predicate-act rule, but the Third Circuit in Keystone Ins. Co. v. Houghton (313) adopted a variation of the last-predicate-act rule, adding to it a discovery element. In Keystone, the court adopted an accrual rule that took into account the continuing nature of a RICO offense (i.e. its pattern element). (314) It held that accrual did not occur and the statute of limitations start running until each of the elements of the claim for relief existed. (315) Nevertheless, it recognized that the plaintiff could recover from each act in the pattern that injured him as long as he sued within the period of limitations. Under the rule the court developed, the limitations period would start to run:
[F]rom the date the plaintiff knew or should have known that the elements of the civil RICO cause of action existed unless, as a part of the same pattern of racketeering activity, there is further injury to the plaintiff or further predicate acts occur, in which case 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. (316)
The court carefully observed, "The last predicate act need not have resulted in injury to the plaintiff but must be part of the same pattern" to extend the limitations period. (317) Similar to the version of the last-predicate-act rule used in Berger, under the Keystone accrual rule, the plaintiff can recover for each injury caused by the pattern of racketeering. This is so even if the injuries occurred or plaintiff did not discover them for more than four-years before he filed the claim. It is only necessary that the last predicate act occurred within the limitations period. (318)
Both the Berger and Keystone versions of the last-predicate-act rule offer substantial advantages over a simple discovery accrual rule. They appropriately recognize the continuous character of a RICO offense--criminally or civilly--in light of its pattern requirement. As a result, they do not start the limitations period running until the pattern of racketeering ends (Berger) or until the plaintiff reasonably discovers the last predicate act that marks the end of the pattern (Keystone). Moreover, with either version of the last-predicate-act rule, no danger exists that the limitations period will start running before a RICO violation occurs; thus, plaintiffs can recover for each of his injuries caused by the pattern of racketeering. The Keystone court persuasively argued that this accrual rule was necessary to achieve the broad, remedial purposes of RICO, especially when the offense may harm many victims, and it is consistent with the text of RICO, in particular its liberal construction mandate. (319) In sum, the rule has much to recommend it. None of the alternative rules takes into consideration so many aspects of the statute so sensitively. Nevertheless, but for its ultimate rejection by the Court, it would stand high above its competitors in its persuasive character.
The last-predicate-act rule, however, has its critics who also make persuasive arguments, illustrating the need for a court carefully to balance the competing considerations. Those who oppose the rule argue that it focuses too much on the continuous nature of RICO and not enough on the injury component of a civil claim for relief. (320) They point out that civil RICO is essentially remedial. (321) The purpose of civil RICO is not to punish those who violate [section] 1962. (322) A person can engage in racketeering activity, but he does not incur civil liability unless the predicate acts injure a person "in his business or property." (323) Thus, while injury is irrelevant under criminal RICO, it is crucial under civil RICO, and the choice of a point for the running of the statute of limitation must consider the differences, that is, focus more on the injury factor. Because the last-predicate-act rule solely focuses on the continuous character of a RICO violation, it arguably violates the principle that a statute of limitations should begin to run as soon as the events occur that enable a plaintiff to sue. (324) For example, a defendant engages in a pattern of predicate acts in violation of 18 U.S.C. [section] 1962(c). His predicate acts injured people in their business or property. From their perspective, the RICO civil claim for relief is complete, and they can properly sue to recover for their injuries under civil RICO. Nevertheless, under the last-predicate-act rule, because the defendant continues to commit predicate acts against the same or, more strikingly, other people, the statute of limitations does not start to run as to the people already injured, even though the events for a valid civil RICO claim for relief exist. Even if the injured parties are fully aware of their injuries, and of the presence of each of the elements of their RICO claim for relief, the statute of limitations does not run against them. Metaphorically, they can sit on their hands and watch the parade of predicate acts pass by whether they injure them or others, as long as the defendant continues to engage in his pattern of predicate acts. Thus, the argument goes, the period of limitations for them potentially extends indefinitely without a rationale for an extended time for those plaintiffs to sue. The extension, arguably, is unjustified as a matter of sound social policy. Those values behind a statute of limitations that focus on repose for the defendant or staleness from the perspective of the court receive, arguably, insufficient weight--indeed, no weight whatsoever. The treble damage suit is supposed to stimulate litigation, but the last predicate act rule cuts the other way. Understandably, the possibility that the limitations period could be extended indefinitely without any major countervailing benefits was the principal reason why the Court in Klehr v. A. O. Smith Corp. (325) rejected Keystongs last-predicate-act rule. In Klehr, the Court granted certiorari to address the circuit split that developed on the appropriate accrual rule for civil RICO. (326) The only accrual rule that saved the plaintiff's claim in Klehr was Keystone's last-predicate-act rule. (327) The Court held that it was "not a proper interpretation of the law" for "two basic reasons." (328) First, the separate accrual rule "lengthens the limitations period dramatically," because a pattern of predicate acts "can continue indefinitely." (329) The Court concluded that Congress could not have contemplated so dramatic an extension of the limitations period. (330) Because the rule extended the period so long, it undermined the purpose of repose underlying statutes of limitations, heedlessly allowing plaintiffs to sit on their rights, while memories fade and evidence erodes. (331) The second reason was that the Keystone rule was "inconsistent with the ordinary Clayton Act rule, applicable in private antitrust treble damages actions," (332) under which the period runs from each injurious act. (333) Incongruently, the Court argued from the Clayton Act rule, but did not adopt it for civil RICO. (334) The Court merely used it to contrast with the last-predicate-act rule's perceived flaws. Specifically, the Court disapproved of how the last-predicate-act rule allowed a plaintiff to "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." (335) As a separate-accrual rule, the Clayton Act rule does not allow for recovery for injuries that occur outside the limitations period. (336) Thus, though the Klehr Court relied on a Clayton Act rule analogy to reject Keystone's rule, it did not select the Clayton Act's rule--or any other accrual rule--for civil RICO claims. (337) In sum, the Court eliminated one possible accrual rule, but the Court left the circuit courts split, basically, between a version of the discovery rule and the injury-and-pattern discovery rule.
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|Title Annotation:||III. Statutes of Limitations in Civil Rico Cases A. History and Justifications through C. Determining the Point of Accrual 1. The Last Predicate Act Rule and Klehr v. A. O. Smith Corp., p. 1663-1707|
|Author:||Blakey, G. Robert|
|Publication:||Notre Dame Law Review|
|Date:||Apr 1, 2013|
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