521 U.S. 179 (1997), 96-663, Klehr v. A. O. Smith Corp.

Docket Nº:Case No. 96-663
Citation:521 U.S. 179, 117 S.Ct. 1984, 138 L.Ed.2d 373, 65 U.S.L.W. 4514
Party Name:KLEHR et ux. v. A. O. SMITH CORP. et al.
Case Date:June 19, 1997
Court:United States Supreme Court

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521 U.S. 179 (1997)

117 S.Ct. 1984, 138 L.Ed.2d 373, 65 U.S.L.W. 4514

KLEHR et ux.


A. O. SMITH CORP. et al.

Case No. 96-663

United States Supreme Court

June 19, 1997

Argued April 21, 1997



The Racketeer Influenced and Corrupt Organizations Act (RICO) makes it a crime "to conduct" an "enterprise's affairs through a pattern of racketeering activity." 18 U.S.C. § 1962 (c). A "pattern" requires at least two acts of racketeering activity, the last of which occurred within 10 years after the commission of a prior act. § 1961 (5). A person injured by a violation of RICO's criminal provisions may recover treble damages and attorney's fees in a civil RICO action, § 1964 (c), but civil actions are subject to the 4-year limitations period in § 4B of the Clayton Act—the statute of limitations governing private civil antitrust actions seeking treble damages, Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U.S. 143, 156. The petitioners Klehr filed a civil RICO action against respondents (hereinafter Harvestore) in August 1993, claiming that their injury began in 1974, when they purchased a Harvestore-brand silo for their dairy farm based on Harvestore's false representations that it would prevent moldy and fermented cattle feed, thereby producing healthier cows, more milk, and higher profits. In fact, the feed became moldy and fermented and both milk production and profits declined. They added that Harvestore committed other predicate acts, consisting of repeated misrepresentations to the Klehrs and to others, and sales to others, over many years. Harvestore moved to dismiss on the ground that the limitations period had run because the Klehrs' claim had accrued before August 1989, and no special legal doctrine applied to toll the running of the limitations period or to estop Harvestore from asserting a statute of limitations defense. The Klehrs responded that because Harvestore had taken affirmative steps to conceal its fraud, they did not become sufficiently suspicious to investigate the silo and to discover the mold until 1991. The District Court found the Klehrs' lawsuit untimely. The Eighth Circuit affirmed, holding that a civil RICO action accrues as soon as the plaintiff discovers, or reasonably should discover, both the existence and source of his injury and that the injury is part of a pattern; and that the Klehrs had suffered one single, continuous injury sometime in the 1970's which they should have discovered well before August 1989. The Circuit refused to toll the running of the statute on a "fraudulent concealment" theory because, among other things, the Klehrs had not been sufficiently diligent

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in discovering their claim. Like the Eighth Circuit, some Circuits apply an "injury and pattern discovery" civil RICO accrual rule; others apply an "injury discovery" rule, under which the statute begins to run when the plaintiff knows or reasonably should know of his injury; and the Third Circuit applies a "last predicate act" rule, under which the statute begins to run when the plaintiff knows or reasonably should know of the last injury or last predicate act in the pattern, whether or not the plaintiff himself has suffered any injury from that last act.


1. The "last predicate act" rule is not an appropriate interpretation of RICO. Pp. 186-193.

(a) Only the Third Circuit's accrual rule can help the Klehrs. For purposes of assessing its lawfulness, this Court assumes that the rule means that as long as Harvestore committed one predicate act within the limitations period, the Klehrs can recover, not just for any harm caused by that late-committed act, but for all the harm caused by all the acts that make up the total "pattern"; that the Klehrs can show at least one such late-committed act; and that they are knowledgeable about the pattern. Pp. 186-187.

(b) The rule is unlawful for two reasons. First, because a series of predicate acts can continue indefinitely, it creates a longer limitations period than Congress could have contemplated, in conflict with a basic objective—repose—underlying limitations periods. See, e. g., Wilson v. Garcia, 471 U.S. 261, 271. Civil RICO has no compensatory objective warranting so significant an extension of the limitations period, and civil RICO's further purpose—encouraging potential private plaintiffs diligently to investigate, see Malley-Duff, 483 U.S., at 151—suggests the contrary. RICO's criminal limitations period, which runs from the most recent predicate act, does not provide an apt analogy for civil RICO actions. Id., at 155-156. Second, the rule is inconsistent with § 4B of the Clayton Act, under which "a cause of action accrues . . . when a defendant commits an act that injures a plaintiff's business." Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 338. The Clayton Act analogy is generally useful in civil RICO cases, since Congress consciously patterned civil RICO after that Act, and since, by the time civil RICO was enacted, the Clayton Act's accrual rule was well established. The Clayton Act accrual rule may not apply without modification in every civil RICO case. However, in this case the petitioners knew of the facts underlying their cause of action, and thus the Clayton Act rule makes clear precisely where, and how, the Third Circuit's rule goes too far. The Klehrs invoke the "separate accrual" civil RICO rule

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adopted by some Circuits, which is similar to the "continuing violation" doctrine in antitrust, in that the commission of a separate, new predicate act within the 4-year limitations period permits a plaintiff to recover for the additional damages that act caused. Under the separate accrual rule, however, the plaintiff cannot use an independent, new act as a bootstrap to recover for injuries caused by other predicate acts that took place outside the limitations period. See, e. g., Grimmett v. Brown, 75 F.3d 506, 513. Thus acts taking place after August 1989 do not help the Klehrs, for they have not shown any additional damages, and the Third Circuit rule is incorrect insofar as it would allow the presence of a new act to help them recover for injuries caused by pre-1989 acts. This case also does not present the kind of special circumstance in which courts might permit plaintiffs to recover for injuries that were so speculative or unprovable at the time of Harvestore's unlawful act that starting the limitations period when the act first caused injury would have left the Klehrs without relief. Zenith, supra, at 339- 340, distinguished. Pp. 187-191.

(c) Resolving the conflicts among the various discovery accrual rules used by other Circuits would not affect the outcome of this case, as the petitioners' civil RICO claim is barred under the most liberal accrual rule, as applied by the Eighth Circuit. There is no clear or obvious error in the Eighth Circuit's application of its "injury and pattern discovery" rule and it is beyond the scope of the writ to reconsider whether the Klehrs reasonably should have discovered the silo's flaws before 1989. Pp. 191-193.

2. A plaintiff who is not reasonably diligent in trying to discover his civil RICO cause of action may not rely upon "fraudulent concealment" to toll the limitations period or to estop a defendant from asserting a limitations defense. This requirement is uniformly supported by relevant authority in the related antitrust context, where the "fraudulent concealment" doctrine is invoked fairly often. And while those courts that do not require "reasonable diligence" in contexts other than antitrust cases have said that the doctrine is concerned only with defendants' behavior, that is not the case with respect to antitrust or civil RICO. In both of these contexts private civil actions seek not only to compensate victims but also to encourage those victims diligently to investigate and thereby to uncover unlawful activity. See Malley-Duff, supra, at 151. The Klehrs' fact-based question whether the Eighth Circuit properly applied the "due diligence" requirement to the evidentiary materials before it is beyond the scope of this Court's writ. Pp. 193-196.

87 F.3d 231, affirmed.

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Breyer, J., delivered the opinion of the Court, in which Rehnquist, C. J., and Stevens, O'Connor, Kennedy, Souter, and Ginsburg, JJ., joined, and in which Scalia and Thomas, JJ., joined as to Part III. Scalia, J., filed an opinion concurring in part and concurring in the judgment, in which Thomas, J., joined, post, p. 196.

Charles A. Bird argued the cause for petitioners. With him on the briefs were Mary R. Vasaly, Michael C. McCarthy, and Malcolm McCune.

Bruce J. Ennis, Jr., argued the cause for respondents. With him on the brief were Frederick W. Morris, Blake Shepard, Jr., Jeffrey E. Grell, Nory Miller, and Kathleen M. Massey. [*]

Justice Breyer delivered the opinion of the Court.

The petition in this case asked us to consider two aspects of "statute of limitations" law. One concerns the date upon which a civil action accrues under the Racketeer Influenced and Corrupt Organizations Act and the limitations period starts to run. The other concerns "fraudulent concealment," a doctrine that extends the time for a plaintiff to file suit. In respect to the first, we focus upon, and disapprove, an accrual rule followed in the Third Circuit called the "last predicate act" rule. In respect to the second, we hold that a plaintiff may not rely upon "fraudulent concealment" unless he has been reasonably diligent in trying to discover his cause of action.

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The Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, among other things, makes it a crime "to conduct" an "enterprise's affairs through a pattern of racketeering activity." § 1962 (c). The phrase "racketeering...

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