Grimmett v. Brown, s. 94-16137

Decision Date26 January 1996
Docket Number94-16214,Nos. 94-16137,s. 94-16137
PartiesRICO Bus.Disp.Guide 8997, 96 Cal. Daily Op. Serv. 539, 96 Daily Journal D.A.R. 890 Tom GRIMMETT, As Trustee for the Bankruptcy Estate of Vincent Siragusa, Plaintiff, and Joanne Siragusa, Plaintiff-Appellant, v. Patricia L. BROWN; Patricia L. Brown, Ltd., a Nevada Corporation; Beckley, Singleton, Delanoy, Jemison & List, Chartered, a Nevada Corporation, Defendants-Appellees. Tom GRIMMETT, As Trustee for the Bankruptcy Estate of Vincent Siragusa, Plaintiff-Appellant, v. Patricia L. BROWN; Patricia L. Brown, Ltd., a Nevada Corporation; Beckley, Singleton, Delanoy, Jemison & List, Chartered, a Nevada Corporation, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

David B. Smith, English & Smith, Alexandria, Virginia, and Randall M. Rumph, Shinehouse & Duesing, Las Vegas, Nevada, for plaintiff-appellant Siragusa.

Erven T. Nelson, Alverson, Taylor, Mortensen & Nelson, Las Vegas, Nevada, for plaintiff-appellant Grimmett.

Don F. Shreve, Jr., and Peter Angulo, Rawlings, Olson & Cannon, Las Vegas, Nevada, for defendants-appellees Brown.

George W. Foley, Jr., Pearson and Patton, Las Vegas, Nevada, for defendant-appellee Beckley, Singleton, Delanoy, Jemison & List, Chartered.

Appeals from the United States District Court for the District of Nevada.

Before: BROWNING, CANBY, and HALL, Circuit Judges.

CYNTHIA HOLCOMB HALL, Circuit Judge:

Joanne Siragusa and Tom Grimmett, the bankruptcy trustee of Joanne's ex-husband Vincent's estate, appeal the district court's dismissal of their civil RICO suit. In their November 1994 suit, Joanne and Grimmett alleged that defendant Patricia Brown masterminded the reorganization of Vincent's medical practices so as to cheat Joanne out of her post-divorce community property interest in those practices. The district court found their suit barred by RICO's four-year statute of limitations. On appeal, Joanne and Grimmett argue: (1) that the district court applied the wrong accrual rule to their RICO cause of action; (2) that it wrongly concluded that their post-November 1990 injuries did not trigger the "separate accrual rule;" (3) that it failed to address whether their RICO cause of action was tolled by Brown's fraudulent concealment; and (4) that it wrongly held that the pendency of the bankruptcy proceeding did not toll the statute or prevent the RICO cause of action from accruing.

The district court had jurisdiction over the RICO claim under 18 U.S.C. § 1964(c). We have jurisdiction under 28 U.S.C. § 1291 and affirm.

I.

Vincent and Joanne Siragusa divorced in 1983. At that time, Vincent owned a one-third interest in a cardiology practice called the Heart Institute of Nevada ("HIN"); Drs. Paul Hareen and John Bowers held the remainder equally. 1 As part of the divorce, Joanne agreed to release her one-half community property interest in Vincent's ownership share in the medical practices in exchange for monthly payments. Joanne perfected a security interest in the practices to protect her in the event that Vincent defaulted. When Vincent defaulted in 1987, Joanne secured a state court judgment for the full amount of her interest. Before she could collect her judgment, however, Vincent filed for bankruptcy and claimed that he no longer owned his interest in the practices.

In May 1989, Joanne and Vincent's bankruptcy trustee, Tom Grimmett, filed an adversary complaint in bankruptcy court alleging that Vincent, Dr. Bowers, Dr. Hareen, and HIN's attorney, Patricia Brown, had conspired to cheat Joanne out of her share in Vincent's interest in the practices. Vincent had claimed that he was forced to sell his interest in the medical practices at a loss and become a mere employee when the practices were reorganized into the Cardiology Associates of Nevada ("CAN"). Joanne alleged that because of secret side agreements, Vincent continued to make as much money as he did before; to her, the reorganization amounted to a "common plan to defraud [her] out of her rights under the Divorce Instruments." The alleged scheme also involved the use of backdated documents and false representations to the bankruptcy court.

In December 1990, Dr. Hareen told Joanne that he, too, had been defrauded by the reorganization scheme. Although Dr. Hareen was supposed to have received a share of profits under the side agreements, he had not. It was also in 1990 that Dr. Hareen first told Joanne that Patricia Brown (and her law firm, Beckley, Singleton, Delanoy, Jemison & List) had masterminded the scheme.

From April 1991 to November 1991, Dr. Bowers sold 37.5% of CAN's stock ownership to CAN's doctor-employees. At that time, Dr. Bowers assured the junior stockholders that Joanne's 1989 bankruptcy complaint exposed CAN to at most $250,000 in liability. Dr. Bowers did not tell the junior stockholders that Joanne also sought to undo the reorganization.

In November 1994, Joanne and Grimmett filed a civil RICO action in federal court. 2 They alleged a pattern of racketeering activity having four goals: (1) to acquire and maintain Vincent's medical practice interest by fraud; (2) to acquire and maintain Dr. Hareen's medical practice interest by fraud; (3) to defraud the CAN junior stockholders; and (4) to obstruct justice. They claimed that Brown masterminded the entire scheme.

Brown and her law firm moved to dismiss Siragusa's RICO suit as barred by the four-year statute of limitations, claiming that Siragusa knew of the injury to her interest in Vincent's medical practice in May 1989 (when Siragusa filed the bankruptcy court complaint). Brown sought to invoke the "injury discovery" rule, under which a civil RICO cause of action accrues once the injury is reasonably apparent; under this theory, Siragusa's claim would be time-barred. In response, Siragusa claimed that the "injury and pattern discovery" rule applied, and that she did not discover the "pattern" of racketeering activity until December 1990 when Dr. Hareen disclosed the scope of Brown's activities. Siragusa argued in the alternative that she had suffered new injuries since November 1990 which, under the separate accrual rule, allowed her to press her claim. The district court dismissed the suit.

Siragusa moved for reconsideration on the ground that the bankruptcy proceeding had equitably tolled her RICO cause of action. She further contended that Brown's fraudulent concealment of the conspiracy tolled the limitations period. The district court addressed only the first argument and denied Siragusa's motion. Siragusa's timely appeal followed.

II.

Siragusa first argues that her civil RICO cause of action did not accrue until December 1990, when she first discovered the "pattern" of Brown's conspiracy; because the statute of limitations for a civil RICO claim is four years, Agency Holding Corp. v. Malley-Duff & Assocs., Inc., 483 U.S. 143, 156, 107 S.Ct. 2759, 2767, 97 L.Ed.2d 121 (1987), she claims that her November 1994 action was timely and that the district court erred in dismissing her suit.

We review de novo the district court's dismissal on statute of limitations grounds. Washington v. Garrett, 10 F.3d 1421, 1428 (9th Cir.1993). Because the district court has in this case considered evidence outside the pleadings, we treat Brown's motion as one for summary judgment. See Fed.R.Civ.P. 12(c). Thus, we must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir.1995).

The elements of a civil RICO claim are simple enough: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity (known as "predicate acts") (5) causing injury to the plaintiff's "business or property." 18 U.S.C. §§ 1964(c), 1962(c); Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 3284-85, 87 L.Ed.2d 346 (1985). In the absence of guidance from the Supreme Court, 3 however, the Courts of Appeals have fashioned no less than three distinct accrual rules for civil RICO claims. The issue of which one to apply is a question of law we review de novo. Mendez v. Ishikawajima-Harima Heavy Indus. Co., 52 F.3d 799, 800 (9th Cir.1995).

The first rule, followed by the First, Second, Fourth, Fifth, and Seventh Circuits, is the "injury discovery" rule. This rule was imported from the general federal rule of accrual and has two components. First, the civil RICO limitations period "begins to run when a plaintiff knows or should know of the injury that underlies his cause of action." Pocahontas Supreme Coal Co. v. Bethlehem Steel Corp., 828 F.2d 211, 220 (4th Cir.1987); see Rodriguez v. Banco Cent., 917 F.2d 664, 665-68 (1st Cir.1990); Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1102 (2d Cir.1988), cert. denied, 490 U.S. 1007, 109 S.Ct. 1642, 1643, 104 L.Ed.2d 158 (1989); La Porte Constr. Co. v. Bayshore Nat. Bank, 805 F.2d 1254, 1256 (5th Cir.1986); McCool v. Strata Oil Co., 972 F.2d 1452, 1464-65 (7th Cir.1992). The plaintiff need not discover that the injury is part of a "pattern of racketeering" for the period to begin to run. McCool, 972 F.2d at 1465. The second part of the "injury discovery" rule is the "separate accrual rule," which provides that a new cause of action accrues for each new and independent injury, even if the RICO violation causing the injury happened more than four years before. Bankers Trust, 859 F.2d at 1103.

The second accrual rule, followed by the Sixth, Eighth, Tenth, and Eleventh Circuits, is the "injury and pattern discovery" rule. Under this rule, the plaintiff must "discover, or be in a position to discover, the existence of a pattern of racketeering activity in addition to the existence ... of the injury." Caproni v. Prudential Securities, Inc., 15 F.3d 614, 619-20 (6th Cir.1994) (emphasis...

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