Unpublished Disposition, 927 F.2d 610 (9th Cir. 1989)Annotate this Case
Albert RUSSO and Anne Russo, Plaintiffs-Appellants,v.MASON-McDUFFIE INVESTMENT CO. INC., a dissolved CaliforniaCorporation, Defendant-Appellee.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted Jan. 16, 1991.Decided Feb. 26, 1991.
Appeal from the United States District Court for the Northern District of California, No. CV-89-2235-WWS; William W. Schwarzer, District Judge, Presiding.
Before TANG, BOOCHEVER and NOONAN, Circuit Judges.
In early July, 1981, appellants Albert and Anne Russo invested in Saratoga Square, a real estate project in San Jose, California, by allowing Equity Development Company (Equity), the developer of Saratoga Square, to use appellants's real estate as collateral to obtain an $844,000.00 loan from State Savings and Loan Association (State Savings). Equity used the loan proceeds to finance the down-payment on the project; in return, Equity promised appellants four condominiums in the project plus $15,000.
Equity subsequently obtained a construction loan from State Savings. In September, 1982, after Equity had defaulted on the construction loan, State Savings initiated foreclosure proceedings on Saratoga Square; the proceedings were completed on May 23, 1983. Because the sale of the project satisfied the debt, appellants's property was released.
On October 24, 1986, appellants filed their first complaint in federal court. The complaint named, among others, Mason-McDuffie and State Savings as defendants. Appellants alleged the defendants participated in a real estate bust-out scheme which prevented them from making their profit in Saratoga Square. Mason-McDuffie allegedly "participated in the buy-sell program with knowledge of its fraudulent nature as a 'flogger' by soliciting victims for the program as an agent for State and functioning as the first step in the loan approval process." Mason-McDuffie also allegedly pretended "to be the agent for the victims" and provided "phony takeout commitments on projects, including Saratoga Square."
Appellants admit they became aware of the fraud no later than October 30, 1983. Appellants claimed the bust-out scheme violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1962(a)-(d), and the Securities Exchange Act of 1934, 15 U.S.C. §§ 78(g) (b) & 78(j) (b). The complaint also contained state law claims for fraud, fraudulent inducement, negligent misrepresentation, and breach of fiduciary duty.
On July 7, 1987, the defendants moved to dismiss the case for untimely service. On August 13, 1987, the court denied the motion. But, based on the defendants's motion for reconsideration, the court subsequently dismissed the first action on May 24, 1988.
Two weeks after the defendants filed the motion to reconsider in the first action, appellants filed a second complaint. Appellants again failed to timely serve Mason-McDuffie in the second suit. Hence, on October 26, 1988, the court dismissed Mason-McDuffie from the second suit.
More than four months later, on March 1, 1989, appellants filed a third suit, the case at bar, naming only Mason-McDuffie as a defendant. On August 23, 1989, the district court dismissed appellants's third action on the grounds that all of the claims fell outside the applicable statutes of limitations. The Russos appeal from that judgment. We affirm.
This court reviews a district court's grant of a motion to dismiss de novo. Kruso v. International Tel & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir. 1989), cert. denied, --- U.S. ----, 110 S. Ct. 3217 (1990). Determining whether the district court "applied the correct statute of limitations also is a question of law, reviewed de novo." Sisseton-Wahpeton Sioux Tribe v. United States, 895 F.2d 588, 591 (9th Cir.), cert. denied, --- U.S. ----, 111 S. Ct. 75 (1990) (citation omitted). But "where the issue of limitations requires determination of when a claim begins to accrue, the complaint should be dismissed only if the evidence is so clear that there is no genuine factual issue and the determination can be made as a matter of law." Id. (citation omitted).
The rule in the Ninth Circuit is that a civil RICO claim accrues when a party knows or has reason to know of his injury. This rule is based on RICO's civil remedy section, which permits suit by a person "injured in his business or property." 18 U.S.C. § 1964(c) (1988). "The civil remedy provision's focus upon injury as opposed to existence of a conspiracy suggests that the normal federal rule on accrual [a claim accrues when the plaintiff knows or has reason to know of the injury] should apply to civil RICO actions alleging conspiracy." Compton v. Ide, 732 F.2d 1429, 1433 (9th Cir. 1984); see also Stitt v. Williams, 919 F.2d 516, 525 (9th Cir. 1990); Volk v. D.A. Davidson & Co., 816 F.2d 1406, 1415 (9th Cir. 1987).
As all the claims in Compton accrued outside the limitations period, the court "did not have occasion to decide the extent to which separate injuries sustained within the limitations period might be actionable despite the existence of some time-barred causes of action." State Farm Mut. Auto. Ins. Co. v. Ammann, 828 F.2d 4, 5 (9th Cir. 1987) (Kennedy, J., concurring). Subsequent Ninth Circuit decisions held that a new claim could accrue during the limitations period only if new overt acts occurred. Beneficial Standard Life Ins. Co. v. Madariaga, 851 F.2d 271, 275 (9th Cir. 1988); Ammann, 828 F.2d at 5. A majority of circuits agree with this court's reasoning and have adopted similar rules for the accrual of civil RICO claims. Rodriguez v. Banco Central, 917 F.2d 664, 665-66 (1st Cir. 1990); Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1102-05 (2d Cir. 1988), cert. denied, --- U.S. ----, 109 S. Ct. 1642 (1989); Pocahontas Supreme Coal Co., Inc. v. Bethlehem Steel Corp., 828 F.2d 211, 220 (4th Cir. 1987); La Porte Constr. Co., Inc. v. Bayshore Nat'l Bank, 805 F.2d 1254, 1256 (5th Cir. 1986); Alexander v. Perkin Elmer Corp., 729 F.2d 576, 578 (8th Cir. 1984) (per curiam).
Relying on recent Supreme Court and Third Circuit decisions appellants contend our rule "misses the boat." We disagree. First, it is clear that no Supreme Court decision requires this court to change its civil RICO accrual rule. In Agency Holding Corp. v. Malley-Duff & Assoc., Inc., 483 U.S. 143, 156 (1987), the Supreme Court held that the four-year statute of limitations for Clayton Act actions applies to RICO civil enforcement actions. The Malley-Duff Court expressly stated, however, that it had "no occasion to decide the appropriate time of accrual for a RICO claim." Id. at 157. Appellants refer us to H.J. Inc. v. Northwestern Bell Tel. Co., --- U.S. ----, 109 S. Ct. 2893 (1989), and Sedima v. Imrex, 473 U.S. 479 (1985), but neither H.J. Inc. nor Sedima resolves the issue of when a civil RICO claim accrues.
Appellants also refer us to a Third Circuit case, Keystone Ins. Co. v. Houghton, 863 F.2d 1125, 1133-34 (3d Cir. 1988). Keystone held in part that a civil RICO claim accrues "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." Id. at 1130. We are not persuaded by Keystone. As the Second Circuit has noted, a civil RICO claim should accrue when a plaintiff knew or should have known of the injury, because Congress tied the right to recover damages under RICO "not to the time of the defendant's RICO violation, but to the time when [a] plaintiff suffers injury to 'his business or property.' " Bankers Trust, 859 F.2d at 1103.
The Ninth Circuit's approach also is consistent with the accrual rules which govern the Clayton Act, and "the civil action provision of RICO was patterned after the Clayton Act." Malley-Duff, 483 U.S. at 150; see also Bankers Trust, 859 F.2d at 1104. Keystone on the other hand "does not seem to reflect Clayton Act principles." Rodriguez, 917 F.2d at 666. Moreover, Keystone's approach creates an undesirably long period of limitations and, unlike the majority rule, is in no way similar to the accrual principles for fraud, "which is often the crime that underpins private RICO actions." Id. (citations omitted).
Appellant's remaining arguments which reflect or are closely related to the reasoning in Keystone also lack merit. First, we reject appellants's contention that 18 U.S.C. § 1961(5), RICO's definition of a "pattern of racketeering activity," determines when a civil RICO claim accrues. The definition of pattern in no way establishes an accrual rule.
We also reject appellants's argument that this court has added "an injury element to the RICO statute not found elsewhere in its text." The injury element for this circuit's civil RICO accrual rule comes directly from the text of RICO's civil remedy section, 18 U.S.C. § 1964(c), which permits suit only by a "person injured in his business or property." Finally, we reject appellants's argument that this court has failed to recognize that RICO is a continuing offense; to the contrary, we have previously held that even though some civil RICO claims may be time-barred, new claims "could accrue during the limitations period if new overt acts occur." Madariaga, 851 F.2d at 275 (citing Ammann, 828 F.2d at 5 (Kennedy, J., concurring)).
In sum, we find no reason to question this court's rule for the accrual of civil RICO claims. Under this rule, appellants's RICO claim clearly falls outside the applicable four-year statute of limitations: appellants were injured on May 23, 1983, when the foreclosure proceedings on Saratoga Square were completed; they admit they became aware of the alleged fraudulent scheme no later than October 30, 1983; and appellants filed the case at bar more than five years after both of these dates. Appellants do not argue that their securities claim was timely or was tolled.
Appellants also alleged state-law claims for fraud, fraudulent inducement, negligent misrepresentation, and breach of fiduciary duty. At most, a three-year limitations period applies to each of these claims, Cal.Civ.Proc.Code Sec. 338(d) (West 1990); San Filippo v. Griffiths, 51 Cal. App. 3d 640, 645, 124 Cal. Rptr. 399, 402 (1975), and the claims accrued upon "the discovery, by the aggrieved party ..., of the facts constituting ... the [fraud]." Cal.Civ.Proc.Code Sec. 338(d) (1990). Appellants admittedly discovered the alleged fraud no later than October 30, 1983. Consequently, the state law claims which were filed on March 1, 1989, fall outside the three-year limitations period.
Appellants therefore argue that their previously filed complaints tolled the limitations period. This court looks to state law, to the extent it is consistent with federal law, to determine whether state law claims are tolled. Emrich v. Touche Ross & Co., 846 F.2d 1190, 1199 (9th Cir. 1988). "California equitably tolls a statute of limitations during the pendency of an earlier action if there is 'timely notice, and lack of prejudice to the defendant, and reasonable and good faith conduct on the part of the plaintiff.' " Id. at n. 4 (quoting Addison v. State, 21 Cal. 3d 313, 319, 578 P.2d 941, 943-44, 146 Cal. Rptr. 224, 227 (1978)). All three elements of Addison's test should be considered. Id.
Appellants's tolling arguments lack merit. Appellants filed their first claim on October 24, 1986, four days before the limitations period was to expire; appellants then failed to timely serve any of the defendants. Failing to timely serve a party evinces a lack of reasonable conduct which defeats a claim for equitable tolling. In Wood v. Elling Corp., 20 Cal. 3d 572 P.2d 755, 757-58, 353, 358-60, 142 Cal. Rptr. 696, 698-99 (1977), the California Supreme Court held that a previously filed but not served complaint does not toll the limitations period. Elling explained that in failing to timely serve a defendant, the plaintiff fails "to diligently pursue the sole avenue of legal recourse available to him." Id. 20 Cal. 3d 572 P.2d at 758 n. 4, at 359 n. 4, 142 Cal. Rptr. at 699 n. 4.
Appellants next argue their claims were tolled because the district court and the defendants caused the delay. But, assuming arguendo there was some delay caused by the district court or the defendants, appellants's third suit was necessary because appellants failed to serve appellee Mason-McDuffie timely in their second suit, as well their first; appellants then waited four more months to file their third suit. Appellants's unreasonable and careless conduct in their first two suits precludes this court from applying equitable tolling principles to their third suit.
Appellants's final conspiracy argument, which is based on Wyatt v. Union Mortgage Co., 24 Cal. 3d 773, 598 P.2d 45, 157 Cal. Rptr. 392 (1979), similarly lacks merit. In Wyatt the court noted the defendants's fraudulent loan scheme caused the plaintiffs to refinance and continue paying off a loan right up until trial. The court held that the economic duress which the fraudulent scheme continued to impose on the plaintiffs tolled the statute of limitations. Id. 24 Cal. 3d at 788, 598 P.2d at 54, 157 Cal. Rptr. at 401. In the case at bar, there is no claim that "economic duress or undue influence" continue to "hold [appellants] ... in place." Id (emphasis omitted).
Federal law governs the tolling of federal claims. Emrich, 846 F.2d at 1199. The Supreme Court has stated: "One who fails to act diligently cannot invoke equitable principles to excuse that lack of diligence." Baldwin County Welcome Center v. Brown, 466 U.S. 147, 151 (1984). Because appellants were not diligent in pursuing their first two suits, equitable tolling does not save the RICO claim in their third suit.
Appellee's request for attorneys's fees and double costs is denied. Although appellants's tolling arguments lack merit, their argument as to the accrual of civil RICO claims is based on a Third Circuit opinion which ultimately proved worth arguing although the argument was unavailing for appellants.