Beneficial Standard Life Insurance Company v. Robert Madariaga, Beneficial Standard Life Insurance Company v. William Graham, and Robert Madariaga Ronald Barker Barry L. TreashBeneficial Standard Life Insurance Company v. Robert Madariaga, Beneficial Standard Life Insurance Company v. William Graham, and Robert Madariaga Ronald Barker Barry L. Treash
Robert M. Aran, Sherman Oaks, Cal., for defendant-appellant William Graham.
Richard L. Fruin, Jr. and Mark S. Lee, Los Angeles, Cal., for plaintiff-apрellee.
Appeal from the United States District Court for the Central District of California.
Before FLETCHER, FARRIS and LEAVY, Circuit Judges.
FARRIS, Circuit Judge:
INTRODUCTION
This appeal from a summary judgment is brought by two of the four defendants in a civil RICO action. Beneficial Standard Life Insurance Company brought suit in 1985 against, inter alia, former vice-president Barry Treash and business associates Robert Madariaga and William Graham, with whom Treash had contracted on behalf of Beneficial. The civil suit followed the criminal trial and cоnviction of Treash for mail fraud and income tax evasion in connection with the schemes alleged in Beneficial‘s complaint. The district court entered summary judgment against only Madariaga and Graham, assessing joint and several liability of $2,400,000.
On appeal, they claim that: (1) there was a genuine issue of material fact as to whether the statute of limitations ran before Beneficial filed suit; (2) they were entitled to a jury trial on whether they had the requisite intent to defraud under the RICO statute and state laws; and (3) they were denied a meaningful opportunity to conduct discovery. Graham also raises several challenges to the damage award.
We have jurisdiction pursuant to
From August, 1979 to September, 1980, Barry Treash was a vice-president of Beneficial in charge of data processing and management information. Treash conducted the negotiation, analysis and approval of decisions and agreemеnts to acquire computer-related materials and services for Beneficial. Among the suppliers with whom Treash entered into contracts were Robert Madariaga and William Graham, the owners of two companies—California Computer Resources, and Management and Marketing Consultants—that provided computer-related services.
It is undisputed that in 1980, Beneficial became suspicious of Treash‘s activities. Madariaga сlaims that these suspicions were aroused as early as March of that year, while Beneficial contends that its suspicions began in June when it received a tip from a competitor about Treash‘s possible involvement in a kickback scheme with an outside vendor named Manthorne. According to Madariaga, Beneficial began its investigation of Treash and the two companies in March, 1980, and on June 11, 1980, Beneficial‘s internal auditor rеported that the contracts in question were made with inadequate or no competition. Beneficial claims that the internal audit did not find any evidence of conflict of interest, fraud or wrongdoing on Treash‘s part.
In the summer of 1980, Beneficial called upon its private investigator to conduct an outside probe of Treash which, Beneficial alleges, failed to uncover evidence of improprieties on Treash‘s part.1 Nonetheless, Beneficial asked for Treash‘s resignation on September 2, 1980. Beneficial maintains that it did so because Treash “was insufficiently attentive to costs and corporate procedures” and because of “his abrasive personality,” in addition to the “unproven rumors ... concerning the contracts.” Madariaga contends that Beneficial knew the details of Treash‘s questionable deals and threatened to expose them to law enforcement authorities unless he resigned. Madariaga points to a memorandum written by Beneficial‘s head auditor, David Einhorn, who attended the meeting at which Treash was terminated, as support for these assertions.
Following Treash‘s resignation, Beneficial renegotiated its unfavorable contracts with defendants. Madariaga and Graham continued to provide computer-related services to Beneficial through 1981.
In July оf 1982, a federal grand jury subpoenaed all of Beneficial‘s cancelled checks to Treash. Beneficial claims that it assumed at the time that Treash was being investigated for income tax evasion. Madariaga claims that because Beneficial received a Grand Jury subpoena and not an Internal Revenue subpoena, it must have known that Treash was under investigation for “the kickbacks which Beneficial suspected Treash hаd received from vendors.”
Treash was indicted and, on July 24, 1984, convicted of twelve counts of mail fraud and three counts of income tax evasion in connection with his activities at Beneficial. Madariaga and Graham testified without immunity at the criminal trial.
On July 23, 1985, Beneficial filed a civil action against, inter alia, Treash, Madariaga, and Graham. The complaint for damages against Madariaga and Graham was based on a federal theory, thе Racketeer Influenced and Corrupt Organizations Act,
Discovery continued throughout the summer of 1986.4 Beneficial moved for summary judgment against Madariaga and Graham on September 5. Beneficial stipulated with Madariaga and Graham to continue the hearing on the motion until a mandatory settlement conference on October 20. On that day, the court granted Beneficial‘s motion for summary judgment. Defendants’ motion for reconsideration was denied on December 8. The amended judgment was entered on December 29. The district court allowed defendants to file an amended notice of appeal on February 17, 1987.
I. STATUTES OF LIMITATIONS
A. The Applicable Statute
The parties argue at length over the proper statute of limitations5 to be applied to the RICO claim.6 Both sides acknowledge that Agency Holding Corp. v. Malley-Duff & Associates, --- U.S. ----, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987), may have resolved this dispute. That case held that all civil RICO actions will hereafter be governed by
The retroactive application of statutes of limitations is governed by Gibson v. United States, 781 F.2d 1334, 1338-40 (9th Cir.1986), cert. denied, --- U.S. ----, 107 S.Ct. 928, 93 L.Ed.2d 979 (1987), and Rivera v. Green, 775 F.2d 1381 (9th Cir.1985), cert. denied, 475 U.S. 1128, 106 S.Ct. 1656, 90 L.Ed.2d 198 (1986). The Gibson court summarized the rule of those two cases: retroactive application is permitted when it would have the effect of lengthening, but not when it would shorten, the limitations period. 781 F.2d at 1339.
The parties disagree on which of two statutes of limitations would apply if Agency Holding doеs not control. The district court assumed, and Madariaga argues, that the three-year period of
The district court was correct. We held, in a decision abrogated by Agency Holding, that
B. Accrual
Agency Holding, 107 S.Ct. at 2767, explicitly left open the question of when RICO claims accrue. Before Agency Holding, the general federal rule was “that the limitations period begins to run when the plaintiff knows or has reason to know of the injury which is the basis for his action.” Compton, 732 F.2d at 1433. This rule was in force when the district cоurt ruled on the summary judgment motion. There is a question, however, whether this rule or the accrual rule applicable to antitrust suits should now apply. In other actions governed by
1. Which Accrual Rule?
State Farm Mutual Automobile Ins. Co. v. Ammann, 828 F.2d 4 (9th Cir.1987), decided after Agency Holding, sheds light on which rule should apply. In State Farm, the district court had applied the three-year period prescribed in Compton; we remanded for reconsideration under the four-year statute of the Clayton Act. Id. at 4-5. In so doing, we held that the Compton rule still applies. Then-Judge Kennedy added in his concurrence that a new cause of action could accrue during the limitations period if new overt acts occur. Id. at 5 (Kennedy, J., concurring).
Applied to this case, these principles require the conclusion that the four-year statute of limitations period accrued when Beneficial had actual or constructive knowledge of the fraud, unless the statute was tolled. Beneficiаl may not recover for acts before July 23, 1981 if it had “knowledge” before that date. It may recover for new injuries inflicted within four years after accrual.
2. When Did the Action Accrue?
The district court held that Beneficial did not acquire knowledge of the fraud until Treash‘s conviction in July, 1984. Defendants claim that they raised a triable issue of fact as to whether Beneficial knew or should have known about the schemes when it investigated and terminated Treash in 1980.
We review the grant of summаry judgment de novo, viewing the evidence in the light most favorable to Madariaga and Graham. Ashton v. Cory, 780 F.2d 816, 818 (9th Cir.1986). If a jury could reasonably have found for the nonmoving party, summary judgment was inappropriate. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986). The nonmoving party “may not rest upon mere allegation or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial.” 106 S.Ct. at 2514. Such facts need not be admissible as evidence at trial and may be “any of the kinds of еvidentiary materials listed in Rule 56(c), except the mere pleadings themselves....” Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2553-54, 91 L.Ed.2d 265 (1986).
Ordinarily, we leave the question of whether a plaintiff knew or should have become aware of a fraud to the jury. Kramas v. Security Gas & Oil Inc., 672 F.2d 766, 770 (9th Cir.), cert. denied, 459 U.S. 1035, 103 S.Ct. 444, 74 L.Ed.2d 600 (1982); see also S.E.C. v. Seabord Corp., 677 F.2d 1297, 1298-99 (9th Cir.1982); Consolidated Elec. Co. v. United States, 355 F.2d 437, 438 (9th Cir.1966). The plaintiff is deemed to have had constructive knowledge if it had enough information to warrant an investigation which, if reasonably diligent, would have led to discovery of thе fraud. E.g., Hilton v. Mumaw, 522 F.2d 588, 595, 602 (9th Cir.1975).
Beneficial rаises the equitable doctrine of fraudulent concealment as a tolling rationale. Under this doctrine, Beneficial has the burden of proving that defendants actively concealed their wrongdoing. Hennegan v. Pacifico Creative Serv., Inc., 787 F.2d 1299, 1302 (9th Cir.), cert. denied, 107 S.Ct. 279 (1986). If Beneficial carries this burden, defendants’ actions provide a defense to a claim of constructive knowledge because these actions, by definition, prevented a reasonablе person from discovering the fraud through the exercise of due diligence. Rutledge v. Boston Woven Hose & Rubber Co., 576 F.2d 248, 250 (9th Cir.1978); Sperry v. Barggren, 523 F.2d 708, 710-11 (7th Cir.1975). However, if Beneficial actually knew of the schemes in 1980, defendants’ acts of concealment are no bar. Hennegan, 787 F.2d at 1302; Sperry, 523 F.2d at 710-11. Thus, if the district court finds on remand that Beneficial had actual knowledge, the action is barred regardless of any fraudulent concealment.
If the district court finds that Beneficial lacked actual knowledge during the limitations period but had constructive knowledge, then the court must address the fraudulent concealment claim. Among the evidence to be considered in this regard will be defendants’ alleged money laundering system and their silence in negotiations with Beneficial. This evidence will have to be weighed against Madariaga‘s seemingly inconsistent contentions that he was not involved in the schemes and that he would have told Beneficial about the schemes had he been asked.
II. INTENT TO DEFRAUD
Madariaga maintains that he had no intent to defraud Beneficial and was himself the victim of fraud by Treash. Graham maintains his innocence as well, charging that Madariaga and Treash conspired at his expense. The district court found, however, largely on the basis of testimony in Treash‘s criminal trial, that both were conscious participants.
We note preliminarily that the district court did not err in relying on defendants’ earlier testimony. Under
These rules are sufficient to sustain the district court‘s findings because each defendant made ample statements implicating himsеlf. Madariaga testified that he willingly participated in the kickback arrangement out of greed. Graham admitted to profiting from the scheme knowingly, and his testimony that he only agreed to participate “so long as it is an expense to the company” is not reasonably susceptible to the interpretation that he believed the kickbacks to be legitimate business expenses. At another point Graham testified that he “explained tо Mr. Madariaga that our exposure was extremely high ...” In view of these admissions, we hold that defendants’ declarations in this litigation do not raise a “genuine” issue of material fact. See Radobenko v. Automated Equipment Corp., 520 F.2d 540, 544 (9th Cir.1975).
Both defendants claim that summary judgment was entered precipitously, thereby prejudicing their discovery efforts. They argue that further discovery would have provided more concrete evidence regarding Beneficial‘s knowledge for purposes of the accrual of the statute of limitations. Additionally, Graham claims that he was prejudiced by not being able to discover facts regarding Madariaga‘s side deal with Treash. The district court‘s refusal to permit further discovery is reviewed for abuse of discretion. Landmark Dev. Corp. v. Chambers Corp., 752 F.2d 369, 373 (9th Cir.1985) (per curiam).
There are both procedural and substantive reasons why the district court‘s decision to enter summary judgment was not an abusе of discretion. Procedurally, neither Madariaga nor Graham took the necessary step of “formally moving” for a continuance of discovery pursuant to
In addition to the failure to comply with formal requirements, the court‘s decision did not amount to an abuse of discretion because defendants were not shortchanged on discovery. The length of time between defendants’ appearances and the grant of summary judgment—about a year for Madariaga and more than six months for Graham—was more than sufficient to provide them with reasonable opportunities for discovery. Compare, e.g., Hall v. Hawaii, 791 F.2d 759, 760-61 (9th Cir.1986) (affirming grant of summary judgment despite claim that four months between filing of suit and dismissal was inadequate time for discovery). Moreover, both Graham and Madariaga wasted portions of their allotted time for discovery. “[T]he movant cannot complain if it fails to pursue discovery diligently before summary judgment.” Brae, 790 F.2d at 1443; Frederick S. Wyle, P.C. v. Texaco, Inc., 764 F.2d 604, 612-13 (9th Cir.1985).
We hold, therefore, that the district court did not abuse its discretion in cutting off discovery. Nonetheless, we note thаt further discovery may be desirable or appropriate on remand in view of our reversal on statute of limitations grounds. We leave this to the discretion of the district court on remand.
IV. DAMAGES
Graham challenges several aspects of the damages award. Among his arguments, the contention that the district court erred in awarding both treble damages under RICO and punitive damages under California law presents the toughest legal question. If the RICO cause оf action is not barred by the statute of limitations and the district court is still inclined to award punitive damages in addition to the treble damages mandated by RICO, then that court should seriously address the question of whether such an award is permissible—specifically, whether RICO pre-empts punitive damage awards on pendent state claims based on the same underlying activity that gives rise to the RICO action.7 See Alcorn County, Mississippi v. U.S. Interstate Supplies, 731 F.2d 1160, 1170 n. 16 (5th Cir.1984). We do not now express an opinion on as weighty and potentially far-reaching an issue as this since it is not squarely before us. We will address the punitive damages question if it presents itself in a second appeal.
We also express no opinion regarding Graham‘s other damages claims. Our resolution of the statute of limitations issue moots those questions on this appeal.
We reverse the district court‘s grant of summary judgment on the statute of limitations question and rеmand for reconsideration of that issue. We affirm the summary judgment with respect to the intent to defraud issue. We affirm the district court‘s decision to cut off discovery, though we note that further discovery on the statute of limitations question may be desirable and is within the district court‘s discretion. We do not reach the damages questions.
REVERSED IN PART AND AFFIRMED IN PART.