Time-bars: RICO-criminal and civil-federal and state.

• Author: Blakey, G. Robert
• Position: 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

3. STATUTES OF LIMITATIONS IN CIVIL RICO CASES

1. 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)

2. 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...