Klehr v. A. O. Smith Corp.
521 U.S. 179 (1997)

Annotate this Case

OCTOBER TERM, 1996

Syllabus

KLEHR ET UX. V. A. O. SMITH CORP. ET AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

No. 96-663. Argued April 21, 1997-Decided June 19, 1997

The Racketeer Influenced and Corrupt Organizations Act (RICO) makes it a crime "to conduct" an "enterprise's affairs through a pattern of racketeering activity." 18 U. S. C. § 1962(c). A "pattern" requires at least two acts of racketeering activity, the last of which occurred within 10 years after the commission of a prior act. § 1961(5). A person injured by a violation of RICO's criminal provisions may recover treble damages and attorney's fees in a civil RICO action, § 1964(c), but civil actions are subject to the 4-year limitations period in § 4B of the Clayton Act-the statute of limitations governing private civil antitrust actions seeking treble damages, Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U. S. 143, 156. The petitioners Klehr filed a civil RICO action against respondents (hereinafter Harvestore) in August 1993, claiming that their injury began in 1974, when they purchased a Harvestore-brand silo for their dairy farm based on Harvestore's false representations that it would prevent moldy and fermented cattle feed, thereby producing healthier cows, more milk, and higher profits. In fact, the feed became moldy and fermented and both milk production and profits declined. They added that Harvestore committed other predicate acts, consisting of repeated misrepresentations to the Klehrs and to others, and sales to others, over many years. Harvestore moved to dismiss on the ground that the limitations period had run because the Klehrs' claim had accrued before August 1989, and no special legal doctrine applied to toll the running of the limitations period or to estop Harvestore from asserting a statute of limitations defense. The Klehrs responded that because Harvestore had taken affirmative steps to conceal its fraud, they did not become sufficiently suspicious to investigate the silo and to discover the mold until 1991. The District Court found the Klehrs' lawsuit untimely. The Eighth Circuit affirmed, holding that a civil RICO action accrues as soon as the plaintiff discovers, or reasonably should discover, both the existence and source of his injury and that the injury is part of a pattern; and that the Klehrs had suffered one single, continuous injury sometime in the 1970's which they should have discovered well before August 1989. The Circuit refused to toll the running of the statute on a "fraudulent concealment" theory because, among other things, the Klehrs had not been sufficiently diligent


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Syllabus

in discovering their claim. Like the Eighth Circuit, some Circuits apply an "injury and pattern discovery" civil RICO accrual rule; others apply an "injury discovery" rule, under which the statute begins to run when the plaintiff knows or reasonably should know of his injury; and the Third Circuit applies a "last predicate act" rule, under which the statute begins to run when the plaintiff knows or reasonably should know of the last injury or last predicate act in the pattern, whether or not the plaintiff himself has suffered any injury from that last act.

Held:

1. The "last predicate act" rule is not an appropriate interpretation of RICO. Pp. 186-193.

(a) Only the Third Circuit's accrual rule can help the Klehrs. For purposes of assessing its lawfulness, this Court assumes that the rule means that as long as Harvestore committed one predicate act within the limitations period, the Klehrs can recover, not just for any harm caused by that late-committed act, but for all the harm caused by all the acts that make up the total "pattern"; that the Klehrs can show at least one such late-committed act; and that they are knowledgeable about the pattern. pp. 186-187.

(b) The rule is unlawful for two reasons. First, because a series of predicate acts can continue indefinitely, it creates a longer limitations period than Congress could have contemplated, in conflict with a basic objective-repose-underlying limitations periods. See, e. g., Wilson v. Garcia, 471 U. S. 261, 271. Civil RICO has no compensatory objective warranting so significant an extension of the limitations period, and civil RICO's further purpose-encouraging potential private plaintiffs diligently to investigate, see Malley-Duff, 483 U. S., at 151-suggests the contrary. RICO's criminal limitations period, which runs from the most recent predicate act, does not provide an apt analogy for civil RICO actions. Id., at 155-156. Second, the rule is inconsistent with §4B of the Clayton Act, under which "a cause of action accrues ... when a defendant commits an act that injures a plaintiff's business." Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U. S. 321, 338. The Clayton Act analogy is generally useful in civil RICO cases, since Congress consciously patterned civil RICO after that Act, and since, by the time civil RICO was enacted, the Clayton Act's accrual rule was well established. The Clayton Act accrual rule may not apply without modification in every civil RICO case. However, in this case the petitioners knew of the facts underlying their cause of action, and thus the Clayton Act rule makes clear precisely where, and how, the Third Circuit's rule goes too far. The Klehrs invoke the "separate accrual" civil RICO rule


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Full Text of Opinion

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