Jay E. Hayden Found. v. Bank

Decision Date22 June 2010
Docket NumberNo. 09-2781.,09-2781.
Citation610 F.3d 382
PartiesJAY E. HAYDEN FOUNDATION, et al., Plaintiffs-Appellants,v.FIRST NEIGHBOR BANK, N.A., et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

Douglas P. Roller, Attorney, Helfrey, Simon & Jones, Clayton, MO, for Plaintiffs-Appellants.

William S. Porterfield, Attorney, Barack, Ferrazzano, Kirschbaum & Nagelberg LLP, Chicago, IL, Richard B. Korn, Attorney, Fox Galvin, St. Louis, MO, William P. Hardy, Attorney, Hinshaw & Culbertson, Kirk W. Laudeman, Attorney, Drake, Narup & Mead, Springfield, IL, for Defendants-Appellees.

John Cutright, Toldeo, IL, pro se.

Before POSNER, ROVNER, and TINDER, Circuit Judges.

POSNER, Circuit judge.

A foundation created by Jay Hayden, and the estates of his mother and of another woman (R. Maurine Johnson), brought this RICO suit against a bank, two law firms, and seven persons connected with either the bank or the law firms. The suit charges that the defendants (along with others not named as defendants, in particular Robert Cochonour) had formed an informal RICO enterprise that had defrauded the foundation and the estates. Without waiting to file an answer to the complaint, the defendants moved to dismiss the suit pursuant to Rule 12(b)(6), on the ground that the complaint itself showed that the plaintiffs had missed the four-year deadline governing RICO suits. Rotella v. Wood, 528 U.S. 549, 552-53, 120 S.Ct. 1075, 145 L.Ed.2d 1047 (2000); Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U.S. 143, 156, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987); Cancer Foundation, Inc. v. Cerberus Capital Management, LP, 559 F.3d 671, 674 (7th Cir.2009). The district judge agreed and granted the motion. Although the statute of limitations is an affirmative defense to liability and so ordinarily must be pleaded and proved by the defendant, if it is plain from the complaint that the defense is indeed a bar to the suit dismissal is proper without further pleading. Jones v. Bock, 549 U.S. 199, 214-15, 127 S.Ct. 910, 166 L.Ed.2d 798 (2007); Cancer Foundation, Inc. v. Cerberus Capital Management, LP, supra, 559 F.3d at 674-75; Limestone Development Corp. v. Village of Lemont, 520 F.3d 797, 802 (7th Cir.2008).

The complaint alleges that the fraud began, and the RICO enterprise (if that is what it is) came into existence, in 1985, when the plaintiff foundation was created by Hayden's will. But the plaintiffs argue that although they were reasonably diligent they didn't discover the fraud before May 5, 2004, four years before they filed suit; and that even if that argument is rejected and a finding made that they did discover it before then, the defendants prevented them from obtaining information essential to their being able to file a complaint that would withstand dismissal.

Our only source of facts is the 252 paragraphs of the second amended complaint, which sprawl over 66 pages. For purposes of the appeal we assume the facts alleged in the complaint to be true, though without vouching for their truth.

Hayden's will had appointed the lawyer Robert Cochonour, afterward an Illinois state-court judge, to be the executor of his estate. Between becoming executor in 1985 upon the death of Hayden, and 2001, Cochonour looted the Hayden Foundation and the two women (who were still alive during that period, but very elderly) by forging endorsements and signatures on checks, on security agreements, and on other financial documents and by writing checks drawn on the foundation to himself or to entities that he controlled. He funneled the looted money through an account in the defendant bank, which was in cahoots with him, called the “M & M account,” which he had opened by forging the signatures of Mrs. Johnson and of another woman, who later became Mrs. Johnson's agent. The defendants assisted Cochonour's fraud by allowing him to forge signatures and convert funds that they knew didn't belong to him and by preparing false documents that facilitated the transfer of funds to him from the Hayden foundation and the two old women.

The fraud began to unravel in 2002. It was then that Cochonour acknowledged to Maurine Johnson's agent (who had a power of attorney because Mrs. Johnson had become incompetent) that he had stolen money from Mrs. Johnson, though he lied about the amount he had stolen; and it was also then that her agent learned from someone associated with the bank about the existence of the bank account through which stolen funds had been channeled. The trustees of the Hayden Foundation became suspicious around the same time when they learned that Cochonour had arranged for a court hearing to approve annual reports of the estate for the years 1986 to 2001; although he administered the foundation's affairs, he had never filed a financial report with the trustees. The trustees filed a complaint with the Illinois judicial inquiry board and notified the state's attorney general of their concerns, and the attorney general filed a petition in an Illinois state court to intervene in the Jay Hayden estate, which had never been closed. The petition was granted and Cochonour immediately resigned his judgeship. By this time the trustees knew that the foundation, though believed to have had more than $1 million in assets when it was created on Jay Hayden's death in 1985, now had no assets at all, and there was no record of what had happened to the money.

All this was in 2002. In January of the following year Cochonour pleaded guilty to having stolen more than $100,000 from the Jay Hayden estate between 1985 and 1990, and was sentenced to prison. Also well before May 5, 2004 (four years, remember, before this suit was filed), employees of the defendant bank tried to persuade one of the foundation's trustees to get the trustees to drop their inquiry into Cochonour. They told the trustee that all the irregularities could be explained, and that in any event, because a close confidant of Cochonour had become the subject of grand jury proceedings for stealing from an elderly person, Cumberland County (the site of the fraud) didn't need more bad publicity. A cousin of Jay Hayden hired a lawyer who told the cousin that he believed there was a conspiracy between Cochonour and the defendants.

Yet besides alleging all these things and more, the complaint also alleges that the defendants made assiduous efforts to prevent the plaintiffs from learning more about the conspiracy. They tried to convince Mrs. Johnson's agent not to investigate Cochonour and they filed complaints against the lawyer who had been retained by Jay Hayden's cousin to investigate the defendants. At the behest of the defendants the Illinois Attorney Registration & Disciplinary Commission told the lawyer to leave the state forthwith, as otherwise the commission would reopen investigations of him that had been opened but not pursued to completion. And Cochonour in the legal proceedings against him tried to hide behind the Fifth Amendment, refusing to come clean about his activities, and when his stonewalling failed he defied court orders and was held in contempt. See Estate of Hayden, 361 Ill.App.3d 1021, 297 Ill.Dec. 606, 838 N.E.2d 93 (2005).

A defendant who prevents a plaintiff from obtaining information that he needs in order to be able to file a complaint that will withstand dismissal is forbidden, under the rubric of equitable estoppel, to plead the statute of limitations for the period in which the inquiry was thwarted. Beckel v. Wal-Mart Associates, Inc., 301 F.3d 621, 622 (7th Cir.2002); Cada v. Baxter Healthcare Corp., 920 F.2d 446, 450-52 (7th Cir.1990); see also Rotella v. Wood, supra, 528 U.S. at 561, 120 S.Ct. 1075. But if the obstructive behavior occurs after the plaintiff's inquiry has reached the point at which he has discovered that he has a claim upon which to found a suit, the defendant's obstructionism has no causal significance, see Flight Attendants Against UAL Offset v. Commissioner, 165 F.3d 572, 576-77 (7th Cir.1999), and so is not a ground for an estoppel. Paige v. Police Department, 264 F.3d 197, 199-200 (2d Cir.2001) (per curiam). Likewise if the defendant's behavior, whenever begun and however ill intentioned, fails to prevent the plaintiff from learning that he has a claim in time to sue within the statutory period. See Flight Attendants Against UAL Offset v. Commissioner, supra, 165 F.3d at 577; Dummar v. Lummis, 543 F.3d 614, 621-23 (10th Cir.2008); cf. Shropshear v. Corporation Counsel of City of Chicago, 275 F.3d 593, 597-98 (7th Cir.2001). For again the behavior has no causal significance.

We have said (not inconsistently with the qualifications just indicated) that “the plaintiff's lack of due diligence is not a defense [to a claim of equitable estoppel], because the defendant's conduct is deliberate, just as a plaintiff's contributory negligence is not a defense to an intentional tort.” Id. at 597; see also Flight Attendants Against UAL Offset v. Commissioner, supra, 165 F.3d at 577. Not all courts agree, however, see, e.g. Egerer v. Woodland Realty, Inc., 556 F.3d 415, 425 (6th Cir.2009); Robinson v. Dalton, 107 F.3d 1018, 1023 (3d Cir.1997), and-more to the point-the Supreme Court has held that when an event occurs that tolls the statute of limitations in either a RICO or an antitrust case, even if the event is fraud by the defendant, the plaintiff cannot fold his hands, sit back, and do nothing until the defendant returns to good behavior. He has to continue investigating diligently, to the extent he can despite the defendants' obstructionism, because the RICO and antitrust statutes seek not merely to protect private rights but also to enlist private plaintiffs in enforcing these laws, which are believed to serve important public purposes. Klehr v. A.O. Smith Corp., 521 U.S. 179, 193-96, 117 S.Ct. 1984, 138 L.Ed.2d 373 (1997); see also In re Copper Antitrust Litigation, 436 F.3d 782, 790-91 (7th Cir.2006); Prudential Ins....

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