Klehr v. A. O. Smith Corp.

521 U.S. 179, 117 S. Ct. 1984, 138 L. Ed. 2d 373, 1997 U.S. LEXIS 3861
Supreme Court of the United States·Decided June 19, 1997·No. 96-663·Published·Cited by 446 cases

Opinions

Justice Breyer

delivered the opinion of the Court.

The petition in this case asked us to consider two aspects of “statute of limitations” law. One concerns the date upon which a civil action accrues under the Racketeer Influenced and Corrupt Organizations Act and the limitations period starts to run. The other concerns “fraudulent concealment,” a doctrine that extends the time for a plaintiff to file suit. In respect to the first, we focus upon, and disapprove, an accrual rule followed in the Third Circuit called the “last predicate act” rule. In respect to the second, we hold that a plaintiff may not rely upon “fraudulent concealment” unless he has been reasonably diligent in trying to discover his cause of action.

[183]*183I

The Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U. S. C. §§ 1961-1968, among other things, makes it a crime “to conduct” an “enterprise’s affairs through a pattern of racketeering activity.” § 1962(c). The phrase “racketeering activity” is a term of art defined in terms of activity that violates other laws, including more than 50 specifically mentioned federal statutes, which forbid, for example, murder-for-hire, extortion, and various kinds of fraud. § 1961(1). The word “pattern” is also a term of art defined to require “at least two acts of racketeering activity,. .. the last of which occurred within ten years ... after the commission of a prior act of racketeering activity.” § 1961(5).

A special RICO provision — commonly known as civil RICO — permits “[a]ny person injured in his business or property by reason of a violation” of RICO’s criminal provisions to recover treble damages and attorney’s fees. § 1964(c). RICO does not say what limitations period governs the filing of civil RICO claims. But in Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U. S. 143, 156 (1987), this Court held that civil RICO actions are subject to the 4-year limitations period contained in § 4B of the Clayton Act (Antitrust), as added by 69 Stat. 283, and as amended, 15 U. S. C. § 15b — the statute of limitations that governs private civil antitrust actions seeking treble damages;

Marvin and Mary Klehr, the petitioners here, are dairy farmers. They filed this civil RICO action on August 27, 1993, claiming that A. O. Smith Corporation and A. O. Smith Harvestore Products, Inc. (whom we shall simply call “Harvestore”), had committed several acts of mail and wire fraud, 18 U. S. C. §§ 1341, 1343, thereby violating RICO and causing them injury. Their injury, they said, began in 1974, when Harvestore sold them a special “Harvestore” brand silo, which they used for storing cattle feed. The Klehrs alleged that they bought the silo in reliance on Harvestore’s representations, made through advertisements and a local [184]*184dealer, that the silo would limit the amount of oxygen in contact with the silage, thus preventing moldy and fermented feed, and thereby producing healthier cows, more milk, and higher profits. The representations, they claim, were false; the silo did not keep oxygen away from the feed, the feed became moldy and fermented, the cows ate the bad feed, and milk production and profits went down. They add that Harvestore committed other acts — consisting primarily of additional representations made to them and to others and sales made to others — over a period of many years after 1974.

Harvestore, pointing out that the Klehrs had filed suit almost 20 years after they had bought the silo, moved to dismiss the lawsuit on the ground that the limitations period had long since run. The Klehrs could not file suit, Harvestore said, unless their claim had accrued within the four years prior to filing, i. e., after August 25, 1989, or unless some special legal doctrine nonetheless tolled the running of the limitations period or estopped Harvestore from asserting a statute of limitations defense. See Holmberg v. Armbrecht, 327 U. S. 392, 396-397 (1946); Bailey v. Glover, 21 Wall. 342, 349-350 (1875); Cada v. Baxter Healthcare Corp., 920 F. 2d 446, 450-451 (CA7 1990), cert. denied, 501 U. S. 1261 (1991).

The Klehrs responded by producing evidentiary material designed to support a legal justification for the late filing. Essentially they claimed that Harvestore had covered up its fraud — preventing them from noticing the silo’s malfunction — for example, by means of an unloading device that hid the mold by chopping up the feed instantly as it emerged; through continued dealer misrepresentations; with advertisements that tried to convince farmers that warm, brown, molasses-smelling feed was not fermented feed, but good feed; and even by hanging on the silo itself a plaque that said:

“DANGER DO NOT ENTER NOT ENOUGH OXYGEN TO SUPPORT LIFE”

[185]*185Not until 1991, say the Klehrs, did they become sufficiently suspicious to investigate the silo, at which time, by opening the silo wall and chopping through the feed with an ice chisel, they discovered “ ‘mold hanging all over the silage.’ ” Brief for Petitioners 16.

The District Court, after examining the Klehrs’ evidence, found their lawsuit untimely. The Eighth Circuit affirmed the dismissal, and said that a civil RICO action accrues

“ ‘as soon as the plaintiff discovers, or reasonably should have discovered, both the existence and source of his injury and that the injury is part of a pattern.’ ” 87 F. 3d 231, 238 (1996) (quoting Association of Commonwealth Claimants v. Moylan, 71 F. 3d 1398, 1402 (CA8 1995)).

After examining the Klehrs’ evidence de novo, the Circuit held that they failed to satisfy the standard. It said they had suffered “one single, continuous injury . . . sometime in the 1970s”; and that they should have discovered “the existence and source of [their] injury,” as well as any related “pattern,” well before August 1989. 87 F. 3d, at 239. The Circuit refused to find “fraudulent concealment” because, among other things, the Klehrs had not been sufficiently “diligen[t].” Id., at 238, 239, n. 11.

We granted certiorari in this case to consider the Klehrs’ claim in light of a split of authority among the Courts of Appeals. Two other Circuits, like the Eighth Circuit here, have applied forms of an “injury and pattern discovery” civil RICO accrual rule. Bivens Gardens Office Building, Inc. v. Barnett Bank, 906 F. 2d 1546, 1554-1555 (CA11 1990), cert. denied, 500 U. S. 910 (1991); Bath v. Bushkin, Gaims, Gaines & Jonas, 913 F. 2d 817, 820 (CA10 1990). Other Circuits have applied forms of an “injury discovery” rule, i. e., without the “pattern.” See Grimmett v. Brown, 75 F. 3d 506, 511 (CA9 1996), cert. dism’d as improvidently granted, 519 U. S. 233 (1997); McCool v. Strata Oil Co., 972 F. 2d 1452, 1464-1465 (CA7 1992); Rodriguez v. Banco Central Corp., 917

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Klehr v. A. O. Smith Corp., 521 U.S. 179, 117 S. Ct. 1984, 138 L. Ed. 2d 373, 1997 U.S. LEXIS 3861 (1997).

521 U.S. 179 (Klehr v. A. O. Smith Corp.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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