Antitrust Law Daily Wrap Up, RICO—E.D. Cal.: RICO claims barred if not brought within four years of when fraud should have been discovered, (Sep 6, 2013)

By Edward L. Puzzo, J.D.

RICO claims brought by self-directed IRA investors were time-barred unless they acted within four years of when they should have known that their investment funds had been misappropriated, the federal district court in Sacramento, California has ruled (Moran v. Bromma, September 4, 2013, Mendez, J.).

Mark Moran and Patricia White were individuals alleged to have invested in Self-Directed Individual Retirement Accounts with The Entrust Group. In 2006 and 2007, White and Moran respectively were allegedly promised 12 percent interest on their investments by representatives of Entrust, but eventually payments were discontinued and their principal was not returned. Moran and White brought a number of claims against various individuals and related entities, collectively called the Entrust defendants, alleging among other actions, a civil Racketeer Influenced and Corrupt Organizations (“RICO”) claim and a California Unfair Competition claim.

RICO limitations period. Entrust moved to dismiss the RICO claims, filed in March 2013, as time-barred. The statute of limitations for a civil RICO action is four years, the court stated. The period begins to run when a plaintiff knows or should know of the injury. The plaintiff is deemed to have constructive knowledge if it had enough information to warrant an investigation which, if reasonably diligent, would have led to discovery of the fraud. Using that standard, the court ruled that Moran had enough information to warrant an investigation in 2008, when his promissory note came due but his money was not returned. Thus, his claim was time-barred. White, however, did not have enough information until July 2009, when she was told by Entrust that her investments had heavy losses and could not be repaid at that time. Thus, her claim was not time-barred.

Distinct entities under RICO. Entrust further argued that White had failed to identify an enterprise or two distinct entities necessary to plead a claim under RICO. White responded that the defendants worked together and in concert with each other. The court noted that White had alleged that the same group of defendants were persons, thereby alleging that defendants were both the enterprise and the person. Since two distinct entities were not alleged, the claim was not legally tenable and must be dismissed, ruled the court. However, White was given leave to amend because she may be able to allege facts sufficient to state a claim.

Unfair competition claim. Entrust also moved to dismiss the unfair competition claims as time-barred. Under state law, unfair competition claims must be commenced within four years after the cause of action accrued. However, unlike some other statutes of limitation, the discovery rule does not apply, stated the court. Since White initially invested in July 2006, and Moran invested in October 2007, and the discovery rule did not apply, both claims were time-barred and had to be dismissed, the court ruled.

The case is Civil Action No. 13-cv-00487 JAM-CKD.

Attorneys: Michael W. Brown (Snyder Dorenfeld) for Mark Moran. Joseph Charles Faucher (Drinker Biddle & Reath LLP) for Hugh Bromma.

Companies: Entrust Mid-South, LLC; The Entrust Group, Inc.; and Entrust Administration, Inc.

Cases: RICO StateUnfairTradePractices CaliforniaNews