Glessner v. Kenny

Citation952 F.2d 702
Decision Date23 December 1991
Docket NumberNo. 90-5885,90-5885
PartiesRICO Bus.Disp.Guide 7892 John H. GLESSNER; Tito Delgozzo; Claudia Capritti; Robert Slimm; Charles Heck; and Wendy Heck, Appellants, v. William KENNY, Jr.; Stanley R. Orczyk; Paul A. Vermylen, Jr.; Meenan Oil Co., Inc.; Blueray Systems, Inc.; and KOV Corporation.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Neils Korup (argued), Paul R. Rosen, Spector Gadon & Rosen, P.C.; Sherrie R. Savett, Robert P. Frutkin, and Karen S. Orman, Berger & Montague, P.C., Philadelphia, Pa., for appellants.

Bruce W. Ficken (argued) and David Castro, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for appellees.

Before: SLOVITER, Chief Judge, COWEN, and WISDOM *, Circuit Judges.

OPINION OF THE COURT

SLOVITER, Chief Judge.

We are once again required to analyze the applicability of RICO to a claim that ordinarily would have been framed in terms of a common law action for misrepresentation or fraud. The district court dismissed the complaint as to some plaintiffs as barred by the statute of limitations and as to the remaining plaintiffs for failure to state valid RICO claims, and plaintiffs appeal.

I. Facts and Procedural History

Plaintiffs John Glessner, Tito Delgozzo, Claudia Capritti, Robert Slimm, Charles Heck and Wendy Heck purchased allegedly defective residential oil furnaces manufactured and sold by defendant Blueray Systems, Inc., a wholly owned subsidiary of defendant Meenan Oil Co., Inc. In 1983, Meenan was purchased by defendant KOV Corporation. Defendants William Kenny, Stanley Orczyk and Paul Vermylen were officers of Meenan and are now principals of KOV.

Blueray sold a line of "blue flame" oil furnaces and boilers throughout the United States and Canada for use primarily as residential home heating systems. Plaintiffs made their purchases between 1975 and 1984. According to plaintiffs' complaint, the "blue flame" units were advertised as "state of the art residential heating system[s]" that were highly efficient and would result in considerable savings in home oil heating costs. Plaintiffs allege that because of an inherent defect, the "blue flame" units were inefficient and unsafe, and required unprecedented service to prevent carbon monoxide poisoning.

Plaintiffs filed suit on June 2, 1988 in the District Court for the District of New Jersey on behalf of themselves and others who had purchased the "blue flame" units alleging various state law claims and the violation of the Racketeer Influenced and Corrupt Organizations Act (RICO) 18 U.S.C. §§ 1961-68 (1988). They claim that they were injured by defendants' misrepresentations regarding the efficiency and safety of the furnaces.

Any person injured in his or her business or property by a RICO violation may bring a civil suit to recover treble damages. 18 U.S.C. § 1964(c) (1988). Plaintiffs' complaint alleges three RICO violations: 1) that defendants used or invested money derived from racketeering activity to acquire an interest in an enterprise engaged in interstate commerce in violation of 18 U.S.C. § 1962(a) 1; 2) that defendants conducted the affairs of an enterprise through a pattern of racketeering activity in violation of section 1962(c) 2; and 3) that defendants conspired to violate sections 1962(a) and 1962(c), in violation of section 1962(d). The complaint alleges that defendants used the mails to transmit advertisements, warranties and other written materials containing misrepresentations and omissions about the "blue flame" units in violation of the Mail Fraud Act, 18 U.S.C. § 1341 (1988).

Defendants moved for dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure, arguing that plaintiffs' complaint failed to state valid RICO claims and was barred by the statute of limitations. Relying on deposition testimony, the district court dismissed the RICO claims of plaintiff Glessner and plaintiffs Wendy and Charles Heck as time barred. The RICO claims of the other plaintiffs were dismissed on the grounds that: 1) plaintiffs had not alleged an injury arising from the investment of racketeering proceeds as required by 18 U.S.C. § 1962(a); 2) plaintiffs had not alleged an "enterprise" separate from the "persons" involved as required by 18 U.S.C. § 1962(c); and 3) the allegations of conspiracy were insufficient because there can be no conspiracy between a corporate entity and its employees, and, in the alternative, the complaint failed to plead the conspiracy claim adequately. The district court then dismissed the state law claims without prejudice.

Plaintiffs filed a timely appeal. We have jurisdiction under 28 U.S.C. § 1291.

II. Statute of Limitations

We consider first the contention of plaintiffs Glessner and Charles and Wendy Heck that the district court erred as a matter of law in determining that their RICO claims were time barred.

The appropriate statute of limitations for civil RICO actions is four years. See Agency Holding Corp. v. Malley-Duff & Assocs., 483 U.S. 143, 156, 107 S.Ct. 2759, 2767, 97 L.Ed.2d 121 (1987). Because the complaint was filed on June 2, 1988, the district court determined that any claims accruing prior to June 2, 1984 would be barred. The court found that these plaintiffs were aware of all of the elements of their RICO claims prior to that date, and therefore dismissed the complaint of these plaintiffs as time barred.

This court enunciated the standard for assessing accrual of a civil RICO cause of action in Keystone Insurance Co. v. Houghton, 863 F.2d 1125 (3d Cir.1988). We noted the difficulty in applying the usual rules for accrual of actions to private civil RICO claims because of RICO's requirement that plaintiff show injury to its business or property as a result of a pattern of racketeering activity. We stated that the "last injury discovery rule," under which a claim arises when a plaintiff knows or should have known of his or her injury, cannot be applied to a RICO plaintiff whose knowledge of injury arises solely from a single predicate act because the plaintiff may have discovered the injury but not the pattern. Id. at 1129. Instead, a plaintiff's limitations period must be measured from the time it knew or should have known of the pattern of racketeering activity. 3

We articulated the rule for accrual of a civil RICO action as follows:

[T]he limitations period for a civil RICO claim runs from 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.

Id. at 1130.

Applying the Keystone rule to this case, the district court found that plaintiffs Glessner and Charles and Wendy Heck knew or should have known of the RICO elements of their claim prior to June 2, 1984. In reaching this conclusion, the court relied on plaintiffs' admissions on deposition that they began experiencing problems with their "blue flame" units which required servicing prior to 1984. 4 Thus Glessner, who purchased his Blueray unit in 1977, knew in the early 1970's of both the carbon monoxide emissions and the need for "extraordinary amounts of servicing" because he worked for the defendant Meenan, and further knew his own unit began pulsating within three years of its 1977 installation. The Hecks purchased their unit in 1982 and had problems with the unit immediately after installation through the winter of 1983. Although the plaintiffs continued to experience difficulties with their furnaces after 1984, and in that period the Consumer Products Safety Council warned that carbon monoxide poisoning could result from improper servicing of Blueray units, the district court held that this did not constitute the type of "further injury to the plaintiff" that Keystone stated would serve to reset the limitations clock.

In Keystone, the plaintiff alleged an ongoing pattern of racketeering activity which continued at least until September, 1983 when an act of mail fraud was committed for which the defendants were convicted. Therefore we held that the complaint filed in July, 1986 was timely under the last predicate act accrual rule. Plaintiffs do not claim that there was any predicate act of the defendants after June 2, 1984 from which the statute of limitations could be counted. The complaint itself alleges that defendants ceased manufacturing the Blueray "blue flame" furnaces and boilers sometime in 1983.

Plaintiffs instead focus on the "further injury" language of Keystone. Plaintiffs argue that although they realized that their "blue flame" units needed extensive servicing prior to June, 1984, their RICO actions are timely because they replaced their units after June, 1984, within the limitations period. According to plaintiffs, replacing the unit was a "further injury" for purposes of Keystone, thus resetting the limitations clock.

We did not have occasion in Keystone to explain what kind of "further injury" was contemplated when we stated that the limitations period would accrue from "further injury" as well as "further predicate acts." In making its determination, the district court first looked to the injury alleged, which it characterized as the need for extensive maintenance because plaintiffs purchased an allegedly fraudulently advertised defective product. The court held that because this injury was admittedly known to these plaintiffs before June 2, 1984, the fact that they replaced the units thereafter was not a new injury, but a recharacterization of the same injury.

Support for the district court's approach to injury can be found in both Bivens Gardens Office Building v. Barnett Bank, 906 F.2d 1546, 1555 (11th Cir.1990), cert. denied, ---...

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