Hemmings v. Barian

• Citation: 822 F.2d 688
• Decision Date: 12 June 1987
• Docket Number: No. 86-2372,86-2372
• Parties: RICO Bus.Disp.Guide 6669 A.W. HEMMINGS, Plaintiff-Appellant, v. Harold BARIAN, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 688

822 F.2d 688

RICO Bus.Disp.Guide 6669

A.W. HEMMINGS, Plaintiff-Appellant, v. Harold BARIAN, Defendant-Appellee.

No. 86-2372.

United States Court of Appeals Seventh Circuit.

Argued Feb. 9, 1987.

Decided June 12, 1987.

J. Timothy Gratz, Gratz Law Office, Madison, Wis., for plaintiff-appellant.

David P. Lowe, Friebert, Finerty & St. John, S.C., Milwaukee, Wis., for defendant-appellee.

Before BAUER, Chief Judge, and CUDAHY and POSNER, Circuit Judges.

POSNER, Circuit Judge.

The plaintiff, Hemmings, filed a complaint against the defendant, Barian, in a federal district court in Wisconsin. The complaint has two counts. The first alleges a violation of the RICO statute (Racketeer Influenced and Corrupt Organizations), 18 U.S.C. Secs. 1961 et seq. The second alleges common law fraud, and bases federal jurisdiction on both diversity of citizenship (28 U.S.C. Sec. 1332) and the judge-made doctrine of pendent jurisdiction. On Barian's motion, the district judge dismissed the complaint. He held that the first count was barred by the applicable statute of limitations, which the judge held to be Wisconsin's three-year statute of limitations for securities fraud. Having dismissed that count before trial, he declined to exercise pendent jurisdiction over the second count. United Mine Workers of America v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966). Holding that diversity of citizenship had not been properly alleged, and refusing to allow Hemmings to amend the complaint to allege it properly, the judge then dismissed the second count for want of any jurisdictional foundation. Hemmings appeals from the dismissal of both counts.

We held recently that in deciding what statute of limitations to borrow for RICO (which has no statute of limitations of its own), we would find the closest counterpart in state law to RICO viewed as a whole rather than the closest counterpart to whatever "predicate acts" (e.g., fraud) were charged in the particular case. Tellis v. United States Fidelity & Guaranty Co., 805 F.2d 741 (7th Cir.1986). Tellis arose in Illinois, and we held that Illinois' two-year statute of limitations for actions for a statutory penalty would govern all RICO cases arising in that state. Barian concedes in view of Tellis that the district judge in the present case erred in using the statute of limitations for securities fraud merely because Hemmings' allegations make this case factually a securities fraud case. Barian asks us instead to apply Wisconsin's statute of limitations for actions for a statutory penalty, which is only two years. See Wis.Stat. Sec. 893.93(2)(a). So the suit would still be barred. Hemmings, however, argues (as he also did in the district court) that the proper statute of limitations to apply is the six-year statute in Wisconsin's baby RICO statute, the Wisconsin Organized Crime Control Act, Wis.Stat. Secs. 946.80 et seq.; see Sec. 946.87. But, as Barian points out, that statute was passed after the last act alleged to violate (federal) RICO, and another Wisconsin statute provides that new statutes of limitations are to have prospective application only. See Wis.Stat. Sec. 991.07. He concludes that the six-year statute is not available for borrowing in a case such as this which arose before the statute was enacted.

Barian's reasoning persuaded the district court to reject the six-year statute of limitations but it does not persuade us. When a federal court borrows a state statute of limitations for use in connection with a federal statute that does not have its own statute of limitations, the court is not applying state law; it is applying federal law. It looks to state law for guidance, but it does so simply because the creation of a statute of limitations is not considered a suitable judicial task. The length of a limitations period is arbitrary--you can't reason your way to it--and courts are supposed not to be arbitrary; when they are, they get criticized for it. See, e.g., Friendly, A Postscript on Miranda, in Benchmarks 266, 267-69 (1967). The only court-made limitations period (apart from limitations set by courts in their administrative capacity, such as limitations for filing motions where no limitation period is set by statute) is the equitable doctrine of laches, a flexible concept that bars a suit when the plaintiff has unreasonably delayed in bringing it and the delay has harmed the defendant. See Piper Aircraft Corp. v. Wag-Aero, Inc., 741 F.2d 925, 935-41 (7th Cir.1984) (concurring opinion). There is no fixed period of limitation. Courts are comfortable making judgments of reasonableness, but they are not comfortable fixing arbitrary time periods, so when they need a fixed time period for an action at law they borrow a period fixed by a legislature, albeit fixed by it for a different purpose. Of course, in deciding which statute of limitations to borrow, the court is choosing among arbitrary periods set by a legislature; but the choice itself is not arbitrary. See, e.g., Smith v. City of Chicago, 769 F.2d 408 (7th Cir.1985).

Nothing in this analysis suggests that the federal court should feel bound by the details of the borrowed statute of limitations. "Inevitably our resolution of cases or controversies requires us to close interstices in federal law from time to time, but when it is necessary for us to borrow a statute of limitations for a federal cause of action, we borrow no more than necessary." West v. Conrail, --- U.S. ----, 107 S.Ct. 1538, 1542, 95 L.Ed.2d 32 (1987) (footnote omitted). The analysis would, however, be different if Count I were a diversity rather than federal-question count. For purposes of the Erie doctrine, the statute of limitations is substantive rather than procedural, and the federal court therefore applies state law--it doesn't just borrow it. Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945).

Two examples will illustrate the principle expressed in the West opinion:

(1) In Moviecolor Ltd. v. Eastman Kodak Co., 288 F.2d 80 (2d Cir.1961), the Second Circuit, in an opinion by Judge Friendly, held the federal common law rule that fraudulent concealment tolls the statute of limitations applicable to a borrowed state statute of limitations used in a federal antitrust suit. (This was before there was a federal antitrust statute of limitations.) We have generalized this principle (perhaps incorrectly, as will appear) as follows: into every borrowed state statute of limitations is read a federal common law rule of equitable tolling. See Suslick v. Rothschild Securities Corp., 741 F.2d 1000, 1004 (7th Cir.1984), and cases cited there.

(2) In Stevens v. Gateway Transport. Co., 696 F.2d 500 (7th Cir.1982), we borrowed, for use in suits under section 301 of the Taft-Hartley Act, Illinois' 90-day statute of limitations for suits to set aside awards by arbitrators, even though the Illinois statute expressly excepts labor arbitration. We did the same thing in Plumbers' Pension Fund, Local 130 v. Domas Mechanical Contractors, Inc., 778 F.2d 1266, 1269 n. 1 (7th Cir.1985), though without citing Stevens --maybe because Stevens had been overruled, in Storck v. International Brotherhood of Teamsters, Local Union No. 600, 712 F.2d 1194, 1196 (7th Cir.1983) (per curiam). The overruling of Stevens, however, was on a ground unrelated to the present case. Del Costello v. International Brotherhood of Teamsters, 462 U.S. 151, 103 S.Ct. 2281, 76 L.Ed.2d 476 (1983), had held that where the plaintiff in a section 301 case is an employee complaining that his union failed in its duty of fair representation toward him, the proper statute of limitations to borrow is not a state statute of limitations at all but the National Labor Relations Act's six-month statute of limitations for unfair labor practice complaints.

In Stevens and Domas we made an independent judgment that arbitrations subject to the Illinois statute are the closest counterpart to arbitrations subject to the federal statute, and no more was necessary to warrant borrowing the limitations period in the former for use with the latter. See also Dreis & Krump Mfg. Co. v. International Ass'n of Machinists & Aerospace Workers, Dist. No. 8, 802 F.2d 247, 251 (7th Cir.1986). This case is the same. The Wisconsin RICO statute is the closest counterpart in Wisconsin law to the federal RICO statute. The view of the Wisconsin legislature with regard to the retroactive application of the statute of limitations in its RICO statute is irrelevant to this comparison, and not only or mainly because that view is expressed in a separate statute, applicable to the retroactive application of statutes of limitations generally, rather than in the state RICO statute itself. The purpose of forbidding the retroactive application of a new statute of limitations is to protect expectations reasonably engendered by the statute of limitations in force when the events giving rise to the litigation occurred. No federal RICO litigant (plaintiff or defendant) could have had reasonable expectations about the applicable statute of limitations when this case arose, because the question of the applicable statute was (and is) intensely contested and highly uncertain. The Supreme Court has granted certiorari to resolve the conflict between circuits that follow our approach in Tellis and circuits that, like the district judge in this case, hold that the proper limitations period to borrow is the one from the state statute that involves conduct most like the conduct alleged by the RICO plaintiff. Compare Silverberg v. Thomson McKinnon Securities, Inc., 787 F.2d 1079, 1083 (6th Cir.1986), with Malley-Duff & Associates, Inc. v. Crown Life Ins. Co., 792 F.2d 341 (3d Cir.), cert. granted under the name of Agency Holding Corp. v. Malley-Duff & Associates, Inc., --- U.S. ----, 107 S.Ct. 569, 93 L.Ed.2d 573 (1986).

We are mindful that "in virtually all statutes of limitations the chronological...