Keystone Ins. Co. v. Houghton

• Decision Date: 15 December 1988
• Docket Number: No. 88-1405,88-1405
• Citation: 863 F.2d 1125
• Parties: , RICO Bus.Disp.Guide 7099 KEYSTONE INSURANCE COMPANY, Appellant, v. HOUGHTON, Joseph, Houghton, Donna Livoy, Cassidy, John, Cassidy, Kathleen, Livoy, Frank.
• Court: U.S. Court of Appeals — Third Circuit

Page 1125

863 F.2d 1125

57 USLW 2370, RICO Bus.Disp.Guide 7099

KEYSTONE INSURANCE COMPANY, Appellant, v. HOUGHTON, Joseph, Houghton, Donna Livoy, Cassidy, John,

Cassidy, Kathleen, Livoy, Frank.

No. 88-1405.

United States Court of Appeals, Third Circuit.

Argued Oct. 7, 1988.

Decided Dec. 15, 1988.

Thomas Colas Carroll, M. Patricia Carroll (argued), Carroll & Carroll, Philadelphia, Pa., for appellees, Joseph Houghton and Donna Houghton.

Elizabeth K. Ainslie (argued), Ainslie & Schenck, Philadelphia, Pa., for appellant.

Before HIGGINBOTHAM, MANSMANN and GREENBERG, Circuit Judges.

OPINION OF THE COURT

MANSMANN, Circuit Judge.

We are presented in this civil RICO action with the facial issue of whether Keystone Insurance Company's cause of action against their insureds who filed fraudulent claims is barred by the civil RICO four year statute of limitations. We must perforce address the complex threshold problem of when a civil RICO cause of action accrues, an issue which the Supreme Court reserved in Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U.S. 143, 107 S.Ct. 2759, 2767, 97 L.Ed.2d 121 (1987).

The rule which we announce provides that the limitations period for a civil RICO claim runs from the date the plaintiff knew or should have known that the elements of a 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 which are part of the same pattern. In that 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. The last predicate act need not have resulted in injury to the plaintiff but must be part of the same "pattern."

We conclude here that Keystone's civil RICO claim is not barred by the statute of limitations because it was filed within four years of the "Houghton enterprise's" last predicate act, which was a part of the same pattern of racketeering activity which injured Keystone. ¹ We will, therefore, reverse the district court on the statute of limitations issue, 692 F.Supp. 466, and remand for entry of judgment in favor of Keystone.

I.

On November 19, 1977, Joseph and Donna Houghton were involved in a minor automobile accident in Cherry Hill, New Jersey. This accident generated fraudulent claims against Keystone, which was Donna Houghton's insurer, and against other insurance companies. Keystone subsequently paid $25,330.75 to Donna Houghton and to her doctors and lawyers. The last check issued by Keystone with regard to this accident was issued on July 10, 1980. The last mailing of record related to the November, 1977 accident is a medical authorization dated December 28, 1982, signed by Donna Houghton and addressed to Keystone. Although Keystone later agreed to settle with Donna Houghton over the November, 1977 claim, Keystone initially disputed the claim and had substantial doubts as to its legitimacy.

On July 7, 1980, John Cassidy drove his car off a Florida road and into a pole. The only witness to this accident was a "Thomas Cassidy", allegedly John Cassidy's brother, who was, in fact, Joseph Houghton. Fraudulent claims based on this accident were made to Keystone, Cassidy's insurer, and Keystone paid $14,280.26 on these claims. The last payment made by Keystone with regard to this accident was issued on March 3, 1981. A July 6, 1981, mailing to Keystone concerning the July, 1980 accident resulted in a conviction of Houghton Group members on mail fraud charges. In 1981 Keystone referred the July, 1980 accident claim to the Insurance Crime Prevention Institute because Keystone suspected fraud. In late 1980 or 1981 Keystone discovered that John Cassidy had made similar claims against other insurance companies. When Keystone refused to make further payments, it was sued by John Cassidy. Cassidy's lawsuit was still pending at the time of the Houghton Group's federal criminal trial in April, 1986.

Each member of the Houghton Group named in this case was indicted, with others, on mail fraud charges relating to the November, 1977 and July, 1980 accidents, and other instances of fraud against other insurance companies. Each was convicted. It appears from the record that the most recent mailing for which the Houghtons were convicted was the mailing of a claim form to an insurance company other than Keystone. This mailing occurred on September 19, 1983. The Houghton Group members in the criminal trial were sentenced on June 20, 1986, and Keystone filed this civil RICO claim one month later.

The district court held a non-jury trial and concluded that Keystone had proved each element of a civil RICO claim. The district court made several significant findings. It found that the July 10, 1980, payment, and not the December 28, 1982, letter signed by Donna Houghton, was the last predicate racketeering act which proximately caused injury to Keystone in connection with the November, 1977 accident. The court also found that by mid-1981 at the latest, Keystone knew that the claim for the July, 1980 accident involved fraud, and at that point knew, or should have known, of the last injury to Keystone caused by the Houghton Group's predicate acts. ² Therefore, the district court entered judgment on the civil RICO claim for the Houghton Group, determining that Keystone knew or should have known of the last injury caused to Keystone by the Houghton Group's predicate acts by mid-1981 and that Keystone filed this action more than four years after that date.

On Keystone's appeal, we have appellate jurisdiction, pursuant to 28 U.S.C. Sec. 1291, of this final judgment of the district court.

Our review involves a question of law, requiring us to state and apply the rule which governs the point at which the statute of limitations begins to accrue in a civil RICO case. Review of the interpretation and application of legal precepts is plenary. United States v. Adams, 759 F.2d 1099, 1106 (3d Cir.), cert. denied, 474 U.S. 906, 106 S.Ct. 275, 88 L.Ed.2d 236 (1985); Gaines v. Amalgamated Ins. Fund, 753 F.2d 288, 290 (3d Cir.1985); United States v. Felton, 753 F.2d 276, 278 (3d Cir.1985).

II.

A. General Principles of the RICO Statute

The Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Sec. 1964(c), does not speak to the issue of when a claim under civil RICO accrues and we have not previously addressed this issue.

Determining when a federal cause of action accrues is a matter governed by federal common law. Deary v. Three Un-Named Police Officers, 746 F.2d 185, 197, n. 16 (3d Cir.1984). Federal courts, however, have not adopted a uniform rule for ascertaining when a civil RICO cause of action accrues. In Malley-Duff the Supreme Court, stressing the need for uniform application of federal law and the detrimental effects of forum shopping, adopted the four year statute of limitations applicable to civil enforcement actions under the Clayton Act (15 U.S.C. Sec. 15b) for civil actions under RICO. Malley-Duff did not, however, present the Supreme Court with the opportunity to decide when a civil RICO cause of action accrues. ("Because it is clear that Malley-Duff's RICO claims accrued within four years of the time the complaint was filed, we have no occasion to decide the appropriate time of accrual for a RICO claim." 107 S.Ct. at 2767.).

It is generally the case that a claim accrues in a federal cause of action as soon as a potential claimant either is aware, or should be aware, of the existence of and source of injury, not when the potential claimant knows or should know that the injury constitutes a legal wrong. A different rule would require insufficient diligence on the part of potential claimants. See United States v. Kurbrick, 444 U.S. 111, 122-23, 100 S.Ct. 352, 359-60, 62 L.Ed.2d 259 (1979); Sandutch v. Muroski, 684 F.2d 252, 254 (3d Cir.1982). Lee v. United States, 809 F.2d 1406, 1410 (9th Cir.1987), cert. denied, --- U.S. ----, 108 S.Ct. 772, 98 L.Ed.2d 859 (1988). Given the unique elements required for a RICO claim, awareness that each element comprising a RICO claim is present is crucial while cognizance of the legal implication of these facts, that is, that there is a civil RICO cause of action, is irrelevant.

We have previously noted that the allegations necessary to support a RICO claim under 18 U.S.C. Sec. 1962, as set forth in Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985), are: (1) the conducting of, (2) an enterprise, (3) through a pattern, (4) of racketeering activity. For a private plaintiff, an additional element, injury to the plaintiff's business or property, is necessary to confer standing. See Marshall-Silver Constr. Co., v. Mendel, 835 F.2d 63, 65 (3d Cir.1987) (citing Sedima, 473 U.S. at 496, 105 S.Ct. at 3285).

Congress mandated that RICO "shall be liberally construed to effectuate its remedial purpose." Organized Crime Control Act, Pub.L. No. 91-452 Sec. 904(a), 84 Stat. 942, 947 (1970) (codified at 18 U.S.C. Sec. 1961 note (1982)). We have utilized this expansive congressional language to construe liberally RICO provisions as well as RICO as a whole. See United States v. Sciarra, 851 F.2d 621, 633 (3d Cir.1988); United States v. Local 560 of Intern. Broth., 780 F.2d 267, 295 (3d Cir.1985), cert. denied, 476 U.S. 1140, 106 S.Ct. 2247, 90 L.Ed.2d 693 (1986); United States v. Kravitz, 738 F.2d 102, 105 (3d Cir.1984), cert. denied, 470 U.S. 1052, 105 S.Ct. 1752, 84 L.Ed.2d 816 (1985); United States v. Forsythe, 560 F.2d 1127, 1135-36 (3d Cir.1977). The Supreme Court and other courts of appeals and district courts have done likewise. ³

At a minimum the liberal construction language requires that we resist the temptation to restrict civil RICO. ⁴ See Note, Civil RICO: The Temptation and Impropriety of Judicial Restriction, 95 Harv.L.Rev. 1101 (1982); Blakey...