Plaintiffs appeal the district court's dismissal of their civil RICO and pendent state law claims against the defendants on the grounds that the statute of limitations had expired.
BACKGROUND
This case involves five plaintiffs and thirteen defendants. Although the parties tend to lump their opponents together into a single, amorphous group of “plaintiffs” or “defendants,” a proper resolution of this appeal requires that we recognize the relationships of the individual parties to each other and to the events that led to the filing of the complaint. Nevertheless, a complete description of each defendant’s actions is not necessary for the resolution of this appeal. The following provides a basic outline of the actions of the more important participants in the defendants’ alleged scheme to defraud the plaintiffs. Because the district court's order rests entirely on its holding that the claims are time-barred, we assume the facts alleged in the complaint to be true.
Sometime in 1969, plaintiff Fred Kon-stand (“Konstand”) formulated a plan for the development of 40 acres of land in Gainesville, Florida. Konstand contemplated a mixed-use development to include condominiums, an office building, a shopping center, and a hotel. To accomplish this purpose, Konstand formed a number of different entities. He incorporated defendant Bivens Center, Inc. (“BCI”), in which he originally owned the majority of the stock, and in which plaintiff James Karns (“Karns”) was the largest minority shareholder. BCI became the general partner of Bivens Gardens Hotel, Ltd. (“BGH, Ltd.”), a limited partnership formed for the purpose of developing the hotel. BCI owned a one-half interest in BGH, Ltd. and the other half was owned by approximately 20 limited partners, including plaintiff George Malick and plaintiff Malick Investment Company. The limited partnership, BGH, Ltd., held title to the hotel until it was sold in 1981. Konstand also formed plaintiff Bivens Gardens Office Building, Inc. (“Office”) to develop the office building. Although the office building was never built, Konstand formed other entities that successfully built condominiums on the property.
After obtaining capital contributions from the sale of shares in BCI and limited partnership interests in BGH, Ltd., Kon-stand arranged additional financing for these various enterprises from a number of sources. Defendant Guardian Mortgage Investors (“Guardian”),
On October 18, 1974, defendant UCB sent Konstand a notice that the $200,000 loan was in default. The complaint alleges that on February 20, 1975, UCB attorney Selig Golden, defendant Robert Koons (then president of UCB), and defendant Robert Lanzillotti (then chairman of defendant Bivens Gardens Bank
On May 8, 1975, Konstand filed a lawsuit in state court against six of the defendants in the present action. The other seven defendants in this action are interrelated with those six defendants, as they are all officers, directors, employees, or successors in interest to the six state court defendants. Among other things, Konstand alleged he had not been in default on the $200,000 UCB loan and that UCB and Koons had been part of a conspiracy that had successfully placed “the control, management and cash flow of the hotel in the hands of the defendants” and had “succeeded in removing Konstand from the control” of the hotel. R5-128. Several years later, Konstand amended his complaint in the state court action to add allegations concerning false representations made to him by Koons, UCB and defendant Charter Advisory Co. (advisor to Guardian) for the purpose of removing him as a shareholder, officer, and director of BCI and the hotel. None of the other plaintiffs in the present action were parties to this state court action, and the suit was eventually dismissed for failure to prosecute.
In April, 1981, the hotel was sold as part of the bankruptcy reorganization of BGH, Ltd. The plaintiffs in this case contend that several of the defendants misrepresented to the bankruptcy court that both BCI and BGH, Ltd. had given the approval necessary to the sale of the hotel in accordance with their respective shareholder and limited partnership agreements, and that these defendants misrepresented the value of the hotel, such that the hotel was sold pursuant to bankruptcy approval for $1.5 million less than fair market value.
The plaintiffs filed this civil RICO action on July 21, 1983. The complaint contains five counts. Count I alleges that all defendants violated the RICO Act, 18 U.S.C. §§ 1961, et seq., by conspiring to a) take over the ownership of BCI and control of the management and assets of BCI, b) mismanage and divert the assets of BCI and BGH, Ltd. to their own use, and c) wrongfully sell the hotel for less than its fair market value. Count II alleges RICO violations against UCB based on allegations of wire fraud, mail fraud and bankruptcy fraud, and Count III alleges the same violations against Guardian and Charter Advisory Co. Count IV is essentially a state law shareholder derivative action that seeks an accounting and damages against UCB for mismanagement of BCI. Count V alleges that all defendants violated state law by conspiring for the purposes of unlawfully
The district court order appealed from in this case addresses only the defense of the statute of limitations. The district court held that a civil RICO cause of action accrues when the plaintiff knew or should have known that he suffered an injury. Reasoning that the complaint itself showed that all plaintiffs had known about their injury from the takeover of BCI by May 8, 1975 (the day Konstand filed the state court action), the district court held that the four year statute of limitations for both the civil RICO and state law claims had expired on May 8,1979.
ANALYSIS
A. The Appropriate Accrual Rule for Civil RICO Claims
The district court correctly held that civil RICO actions are subject to a four year statute of limitations. Agency Holding Corp. v. Malley-Duff & Assoc., Inc.,
The defendants argue that we are bound to follow this Court’s ruling in Bowling,
Paragraphs 43 through 64 of the complaint in the present case allege that the defendants conspired together to cause the default of certain loans to BGH, Ltd., Office, and BCI so that defendant UCB could foreclose on the 58.07 shares pledged by Konstand and gain a controlling interest in BCI. These paragraphs allege that the defendants committed various acts of mail and wire fraud between August, 1974 and February, 1975 in furtherance of this scheme. Paragraph 65 of the complaint alleges that between February, 1975 and April, 1981 all of the defendants operated BCI and the hotel so as to divert money and property from BCI and BGH, Ltd. for their own pecuniary gain. Paragraph 73 alleges that in April, 1981 defendants Charter Advisory Co., Guardian, Lanzillotti, and UCB misrepresented to the bankruptcy court that the sale of the hotel had been properly authorized by BCI and BGH, Ltd. and misrepresented the fair market value of the hotel, thus causing the hotel to be sold at a substantial loss against the will of the shareholders of BCI and the limited partners of BGH, Ltd.
We agree with the plaintiffs that Paragraphs 65 and 73 allege injuries that are independent from the original injuries flowing from the wrongful takeover of BCI described in Paragraphs 43 through 64. The breach of duties owed to the corporation by various defendants as controlling shareholders, directors and officers of BCI and as limited partners of BGH, Ltd. through mismanagement, diversion of corporate assets, and the unauthorized sale of a partnership asset for substantially less than its fair market value are not included among the injuries that naturally flow from the wrongful takeover of control of a corporation. They involve independent breaches of duties owed by the defendants as corporate directors and officers of BCI, the general partner of BGH, Ltd., to the plaintiffs as shareholders of BCI and limited partners of BGH, Ltd.
Our conclusion that the complaint alleges three independent sets of injuries does not resolve the question of whether all of the plaintiffs’ claims for damages are time-barred. Although this Court’s decision in Bowling is instructive, we agree with the plaintiffs that it is not controlling in the present case. In Bowling, the plaintiffs, a landowner and two real estate brokers, were harmed when a buyer backed out on a deal and the “Earnest Money Time Deposits” the buyer had pledged as earnest money turned out to be worthless. The complaints alleged that the defendant title company had conspired with the buyer to mislead the plaintiffs into believing that the time deposits were valuable and that the buyer was reliable. The various plaintiffs became aware that the transaction had fallen apart at different times, and filed their causes of action at different times. The court announced that “the general federal rule, which provides that the statute of limitations begins to run when a plaintiff knows or should know of the injury, applies in civil RICO cases.”
The present case presents a different situation, which requires us to expand on
In Bankers Trust,
The Second Circuit reasoned that this rule of “separate accrual” is supported by the plain language of the RICO statute. Id. Section 1964(c) provides that a “person injured in his business or property by reason of a violation of section 1962” may bring a civil RICO action. 18 U.S.C. § 1964(c) (1988). Therefore, until á person suffers an injury due to a RICO violation, he has no right to sue for damages, and thus a civil RICO cause of action cannot accrue until the person suffers injury. If, “[a]t a later date, a new and independent injury is incurred from the same RICO violation, the plaintiff is again ‘injured in his business or property’ and his right to sue for damages accrues at the time that he discovered or should have discovered the new injury.” Bankers Trust,
The court also found that the similarities of the Clayton Act to the civil provision of RICO, explicitly recognized and relied on by the Supreme Court in Agency Holding, supported applying the “separate accrual” rule used for Clayton Act violations to civil RICO violations. Id. at 1103-04. The court noted that in the context of continuing antitrust violations with continuing injuries, each time a plaintiff suffers an injury caused by an illegal act of the defendants, a cause of action accrues to recover damages based on that injury. Id. at 1104 (citing Zenith Radio Corp. v. Hazeltine Research, Inc.,
In addition to arguing that the Bankers Trust rationale provides a more appropriate accrual rule for the present case than Bowling, the plaintiffs urge us to apply the accrual rule announced by the Third Circuit in Keystone Insurance Co. v. Houghton,
[T]he 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 ease, 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 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.
Id. at 1130 (emphasis added). Under this rule, the plaintiffs argue, because the last predicate act (bankruptcy fraud) occurred in 1981, they are entitled to recover for injuries resulting from all prior predicate acts which are part of the same pattern of racketeering activity. Thus, they would be entitled to full recovery for the wrongful takeover of the hotel in 1975, the mismanagement and wrongful diversion of corporate assets between 1975 and 1981, and the improper sale of the hotel in 1981.
The Keystone court held that because one of the elements of a RICO violation is the conducting of the affairs of an enterprise through a “pattern” of rackéteering, the discovery rule should be applied to the pattern element as well as the injury element of a civil RICO cause of action. The court reasoned that before a civil RICO cause of action can begin to accrue, “[pjlaintiffs must not only be in a position where they know or should know of their injury, they must also be in a position where they know or should know that the predicate act causing [their] injury is part of a pattern of racketeering.” Keystone,
We agree with the Keystone court that the “separate accrual” rule applied by the Bankers Trust court fails to recognize that an injury to a plaintiff from a single predicate act does not evolve into a civil RICO injury until a “pattern” of racketeering activity has developed. In Agency Holding, the Supreme Court emphasized that “the heart of any RICO complaint is the allegation of a pattern of racketeering.”
The plaintiffs argue that under the “last predicate act” rule applied in Keystone, they are entitled to recover civil RICO damages for all injuries from 1975 on, as long as the last predicate act committed by the defendants occurred within four years of the time they filed suit. We disagree. The Keystone case involved a pattern of insurance fraud perpetrated over several years by five defendants against several insurance companies, one of which was Keystone Insurance Company (“Keystone”). One of the defendants submitted a fraudulent claim to Keystone in 1977. At that time Keystone suspected fraud, but eventually settled the claim with the defendant. In 1980, another defendant submitted a fraudulent claim to Keystone. In late 1980 or early 1981, Keystone discovered that this second defendant had made fraudulent claims against other insurance companies. In 1981, Keystone discovered that this second claim was fraudulent, and referred it to the Insurance Crime Prevention Institute. As a result of the ensuing investigation, a group of five persons who assisted one another in filing fraudulent insurance claims was discovered. The persons who submitted the 1977 and 1980 claims to Keystone were a part of this group. Each of the five defendants was eventually indicted and convicted of mail fraud charges relating to the 1977 and 1980 fraudulent claims, and other claims submitted to other insurance companies. The last fraudulent act for which the group of five was convicted was the mailing of a claim to an insurance company other than Keystone in 1983. The five defendants were sentenced in June of 1986, and Keystone filed its civil RICO action against them one month later.
The court found that the fraudulent claim made against another insurance company by the defendants in 1983 was part of the same pattern of racketeering that caused injury to Keystone as a result of the 1977 and 1980 fraudulent claims. Thus, because the “last predicate act” that was part of the same pattern of racketeering activity occurred in 1983, Keystone’s complaint filed in 1986 to recover for its injuries relating to the 1977 and 1980 claims was not time-barred. Keystone,
To the extent that Keystone can be read to support such a proposition, it flows from a situation that is distinguishable from the facts of the present case. The plaintiff in Keystone was one of many victims of a widespread scheme to defraud numerous unrelated insurance companies. Thus, to establish that the defendants engaged in a pattern of racketeering activity, Keystone relied in part on predicate acts that caused harm only to other insurance companies. In contrast, the plaintiffs in the present case allege that each predicate act committed by the defendants caused them harm. Under these circumstances, we find it appropriate to analyze when each plaintiff knew or should have known that his injuries were the result of a pattern of racketeering activity when determining when each plaintiffs civil RICO cause of action began to accrue.
We hold, therefore, that with respect to each independent injury to the plaintiff, a civil RICO cause of action be
B. Application of the Accrual Rule to the Present Case
Having established the appropriate accrual rule for civil RICO claims, we turn now to consider when the plaintiffs’ claims in the present case began to accrue. A comparison of the state court complaint filed by plaintiff Konstand in May of 1975 and the complaint filed in the district court in 1983 leads to the inescapable conclusion that as early as May of 1975, plaintiff Konstand was aware that he had been injured by the defendants’ actions in taking over control of the hotel, and that the injury entitled him to civil RICO damages. Paragraphs 43 through 64 of the federal court complaint describe numerous acts of mail and wire fraud alleged to have been perpetrated by the defendants between August, 1974 and February, 1975. Although not described as “mail fraud” or “wire fraud”, these same acts of fraud form the basis of Konstand’s May, 1975 state court complaint. Furthermore, the same defendants are named in both the state and federal complaints.
The state court complaint also shows that plaintiff Konstand was aware in 1975 of a “pattern of racketeering activity” related to the takeover of control of the hotel. To establish a pattern of racketeering activity, plaintiffs must prove that the defendants) committed at least two related predicate acts that amount to, or threaten, continued criminal activity. H.J., Inc. v. Northwestern Bell Telephone Co., — U.S. -,
The district court assumed, without explanation, that the other plaintiffs in this action shared in Konstand’s knowledge of the fraudulent acts allegedly committed by the defendants in connection with the 1975
However, while plaintiff Konstand was clearly the originator and leader of the entire development project, his knowledge cannot be automatically imputed to minority shareholders of BCI such as plaintiff Karns, or limited partners in BGH, Ltd. such as plaintiffs Malick and Malick Investment Company. Our review of the record in its current state indicates that these plaintiffs’ involvement in the project was mostly through the contribution of capital, and that they had little, if any, involvement in the daily operations of BCI and BGH, Ltd. The record is unclear as to when they became aware, or reasonably should have become aware, of the alleged fraudulent acts perpetrated by the defendants. The defendants have offered no evidence other than the filing of the state court complaint by plaintiff Konstand to show that these plaintiffs were aware, or should have been aware, that they had been defrauded by the defendants, or that the fraud was the result of a pattern of racketeering activity. Therefore, the district court erred in dismissing the claims of plaintiffs Karns, Malick and Malick Investment Company for damages resulting from the allegedly wrongful takeover of the hotel in 1975.
With respect to injuries allegedly suffered by all five plaintiffs as the result of the various defendants’ mismanagement of and diversion of the assets of BCI between 1975 and 1981, our conclusion that these acts involve alleged injuries that are separate and independent from injuries flowing from the wrongful takeover of the hotel requires that the district court’s dismissal of the plaintiffs’ claims for civil RICO damages flowing from these acts be reversed. Under the accrual rule we announce today, dismissal of claims for civil RICO damages flowing from these acts on statute of limitations grounds would only be proper if, with respect to each plaintiff, it was shown that the plaintiff knew, or should have known, more than four years prior to filing the complaint that he had suffered an injury and that the injury was the result of a pattern of racketeering activity.
Finally, with respect to the plaintiffs’ claims for damages flowing from the wrongful sale of the hotel in 1981, we find that none of the five plaintiffs could have known about this injury, or that it was part of a pattern of racketeering activity, prior to 1981. Thus, because the complaint was filed in 1983, the plaintiffs’ causes of action for civil RICO damages flowing from this allegedly wrongful act are not time-barred.
The district court order appealed from dismissed all of the plaintiffs’ claims against all defendants solely on the grounds that the claims were barred by the statute of limitations. In support of their statute of limitations defense, the defendants contended that all the injuries claimed by the plaintiffs flowed from the original takeover in 1975, and that in 1975 all plaintiffs shared in the knowledge of plaintiff Konstand evidenced by his state court complaint. As explained above, we find both of these arguments insufficient to establish that all of the plaintiffs’ claims against the defendants are time-barred. Thus, with respect to the statute of limitations defense, the defendants have failed to carry their burden of showing that they are entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317,
Defendants Guardian and Charter Advisory Company argued in their motions for summary judgment that their respective
CONCLUSION
Having determined that plaintiff Kon-stand’s and plaintiff Office’s civil RICO causes of action against the defendants for the wrongful takeover of the hotel expired in 1979, we affirm the district court’s grant of summary judgment to the defendants only to the extent that it dismisses those claims. We find, however, that the plaintiffs have alleged independent subsequent injuries resulting from the mismanagement and diversion of corporate assets and the wrongful sale of the hotel.
AFFIRMED in part, REVERSED in part, and REMANDED.
Notes
. With respect to the pendent state law claims, the district court ruled that they were also barred by the state statute of limitations, or in the alternative, should be dismissed because the court lacked subject matter jurisdiction once the federal causes of action had been dismissed.
. Defendant Florida Companies, Inc. is the successor to Fairfield Communities, Inc., which was the successor to Guardian Mortgage Investors.
. Defendant Barnett Banks of Florida, Inc. owns defendant The Great American Bank of Gainesville, which is the successor to University City Bank.
. Defendant First City Bank of Gainesville is the successor to Bivens Gardens Bank.
. Defendant Charter Advisory Co. filed for bankruptcy in 1984, and an order confirming its bankruptcy plan was filed on January 15, 1987. Defendant Guardian filed for bankruptcy in March, 1978, and an order confirming its bankruptcy plan was filed on December 20, 1978.
. The district court found that the state law shareholders' derivative action and civil conspiracy action are also subject to four year statutes of limitations.
. The accrual rule applied to criminal RICO conspiracy cases is not applicable to civil RICO claims. To establish a criminal violation of the RICO conspiracy statute, the government need only prove the existence of a criminal conspiracy within the limitations period, regardless of whether any overt acts in furtherance of the conspiracy were committed within the limitations period. United States v. Cota,
. We note also that Bowling was decided without the benefit of the Supreme Court's analysis of the civil RICO statute in Agency Holding, while the Bankers Trust and Keystone cases discussed below were decided after Agency Holding.
. When a plaintiff suffers injuries over a period of time greater than four years, the Clayton Act accrual rule works as follows. "[Wjhere defendants are alleged to have committed acts injurious to a plaintiff pursuant to an unlawful conspiracy, and where the defendants committed some such acts more than four years before the plaintiff commenced suit, and other such acts less than four years before the plaintiff commenced suit, the plaintiff is allowed to recover damages resulting only from those acts committed less than four years before commencement of his suit.” Imperial Point Colonnades Condominium v. Mangurian,
. To establish a civil RICO cause of action under 18 U.S.C. § 1964(c), the plaintiff must prove that the defendant(s) (1) caused injury to the plaintiffs business or property as the result of (2) the conduct of (3) an enterprise (4) through a pattern (5) of racketeering activity. Sedima,
. The Supreme Court describes RICO as "an aggressive initiative to supplement old remedies and develop new methods for fighting crime.” Sedima,
. The state court complaint names six defendants, all of whom are also named as defendants in the federal complaint. The other seven defendants named in the federal complaint are interrelated with the six state court defendants, as they are all officers, directors, employees, or successors in interest to the six state court defendants.
. The district court dismissed the two state law causes of action on the grounds that the same reasoning applied to the state law claims as to the civil RICO claims, or, in the alternative, because the federal claims were due to be dismissed the court lacked jurisdiction to adjudicate the state claims. Because we hold that the complaint alleges three independent injuries, rather than one injury in 1975, we reverse the district court's dismissal of the state law claims, and remand with instructions to reconsider the time of accrual of the state law claims. Our holding is limited to the establishment of the appropriate accrual rule to be applied to the civil RICO causes of action, and we leave to the district court on remand the determination of the appropriate accrual principles to be applied to the pendent state law claims.
. The district court order rested entirely on its holding that the claims were time-barred. Therefore, we have assumed throughout our consideration of this case that the complaint sufficiently alleges the elements necessary to support the plaintiffs’ civil RICO and state law claims. This opinion holds only that some of the plaintiffs’ civil RICO claims are not time-barred, and that the record is not sufficiently developed for a determination of whether others may be time-barred. We express no opinion as to the sufficiency of the pleadings with respect to the timely civil RICO claims, the various plaintiffs’ standing to bring those claims, nor the substantive merit of the claims.