Álvarez-MauráS v. Banco Popular of Puerto Rico ( 2019 )

United States Court of Appeals
For the First Circuit
No. 18-1051
VICTOR ÁLVAREZ-MAURÁS,
Plaintiff, Appellant,
v.
BANCO POPULAR OF PUERTO RICO; ALEXANDER GARCIA;
WANDA O. MELENDÉZ-SANTOS; CONJUGAL PARTNERSHIP GARCIA-MELÉNDEZ,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Bruce J. McGiverin, Magistrate Judge]
Before
Howard, Chief Judge,
Thompson and Kayatta, Circuit Judges.
Paul Vilaŕo Nelms, with whom Vilaŕo Law Offices was on brief,
for appellant.
Sara Vélez-Santiago and Néstor M. Méndez-Gómez, with whom
José A. Alvarado-Vázquez and Pietrantoni Mendez & Alvarez LLC were
on brief, for appellees.
March 25, 2019
THOMPSON, Circuit Judge.
Appellant Víctor Álvarez-Maurás ("Álvarez"), a building
contractor from Carolina, Puerto Rico, claims that his securities
broker, in collusion with the investment firm and affiliated bank,
pilfered over $400,000 from his investment account, and then
covered up the theft. His claims are brought under the Racketeer
Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C.
§§ 1962, 1964. The case reaches us on appeal after the district
court dismissed all of Álvarez's claims against all defendants, on
their Fed. R. Civ. P. 12 motion.
Álvarez's story begins way back in 1989 when Hurricane
Hugo ravaged the island of Puerto Rico.1 Responding to the
destruction, the Federal Emergency Management Agency hired Álvarez
to help in the rebuilding effort. Within a year, he had earned
over $1 million, which he used to purchase a certificate of deposit
from appellee Banco Popular of Puerto Rico, Inc. ("Banco Popular").
Several years later, thinking ahead to his retirement,2 Álvarez
approached appellee Alexander Garcia, a securities broker at Banco
Popular's affiliate Popular Securities, Inc. ("Popular
1This background comes from Álvarez's 2012 arbitration claim.
In a different filing with the Commonwealth Court of First
Instance, Álvarez alternatively cites repair work following
Hurricane Georges in 1998 as the source of his fortune. Different
attorneys drafted these discrepant filings.
2 Álvarez was born in 1943.
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Securities"). Álvarez had two investment objectives: he wanted
to get a modest monthly income stream; and he wanted to retire in
ten years' time, when he turned 65, and begin to draw down on the
balance. Sadly things did not go as Álvarez planned -- a third of
his money disappeared without a trace, allegedly embezzled by his
broker, Garcia.
Background
When Álvarez3 discovered that a chunk of his money was
gone, he began a series of inquiries, of which more will be
detailed hereafter. Today, with the investigations complete and
the benefit of hindsight, a devious and deceitful scheme seems to
have emerged. Given that this is a motion to dismiss, unless
otherwise noted, we present the facts as set forth in Álvarez's
verified complaint.
Back in 1998, on December 17, Álvarez met with Garcia at
Popular Securities and opened two investment accounts, with an
initial investment of $875,000. Álvarez discussed his retirement
plans with Garcia, instructing Garcia to select conservative
securities which would safeguard his nest egg and allow for a
modest monthly income stream. On February 11, 1999, Álvarez met
According to Puerto Rican naming conventions, if a person
3
has two surnames, the first (the father's last name) is primary,
and the second (the mother's maiden name) is subordinate. In
keeping with this, we will use "Álvarez" to identify our appellant.
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with Garcia again and deposited an additional $125,000, bringing
his total investment to $1 million.4
At this second meeting, Garcia instructed Álvarez to
close his bank account at the Rio Piedras branch of Banco Popular,
and to open a new account at the Barbosa branch. Suspecting
nothing nefarious, Álvarez complied. Over the next several months,
between April 1999 and January 2000, Garcia made four fraudulent
transfers from Álvarez's investment accounts to the closed bank
account at the Rio Piedras branch, without Álvarez's knowledge or
consent. These four transfers totaled $419,632.43.5
With an eighth-grade education, no investment
background, and no English language skills, Álvarez had trouble
making heads or tails of his monthly brokerage account statements;
however, he was concerned in the first year after investing when
he noticed that the total value had gone down. When questioned
about the reason for the dip, Garcia reassured him, explaining
that market fluctuations would cause some ups and downs in the
total value, but that the full $1 million would be there when
Álvarez retired in 2009. Álvarez trusted Garcia and believed his
4 In some documents, the total amount is identified as
$1,075,000.
5 $220,000.00 was transferred on April 20, 1999. $30,000.00
was transferred on November 2, 1999. $120,000.00 was transferred
on December 28, 1999, and $49,632.43 was transferred on January
19, 2000.
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explanation. And, in spite of the account statement
irregularities, Álvarez was in fact receiving a monthly income, as
he had requested.
In early 2009, when Álvarez was ready to retire, he met
with Garcia and learned that there was only $600,000 in his
investment accounts. Confronted once again about the fund balance,
Garcia shifted his explanation for the shortfall, telling Álvarez
that his initial investment had always been only $600,000.
Concerned, Álvarez requested an internal investigation. On
January 28, 2009, Popular Securities backed up Garcia's story that
Álvarez's initial investment was only $600,000. Alarmed by this
explanation, Álvarez requested a second investigation. This one
took two years to wrap up; concluding, on February 11, 2011, as
before, that Álvarez had only invested $600,000. After that,
Álvarez wrote a letter of complaint to Banco Popular's CEO but
received no response.
Arbitration
Álvarez next sought arbitration, pursuant to the
agreement he'd signed when he opened his accounts with Popular
Securities. We don't have a copy of the arbitration agreement,
but the district court quoted an excerpt, which it, in turn, lifted
from the judgment of the Puerto Rico commonwealth court. No party
has objected to the content of the text or the district court's
reliance on it. It states:
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All controversies that may arise between the
undersigned [Álvarez] and you, as introducing
or clearing broker, your agents, or employees,
concerning any transaction or the
construction, performance, or breach of this
or any other agreement between us, whether
such transaction or agreement was entered in
prior, on, or subsequent to the date hereof,
shall be determined by arbitration . . . .
Accordingly, on January 19, 2012, Álvarez, through
counsel, filed a claim for arbitration with the Financial Industry
Regulatory Authority ("FINRA"). The claim covered the conduct of
Garcia and Popular Securities only, because claims against Banco
Popular "are not allowed to be filed at" FINRA, according to
Álvarez; and, at any rate, the parties appear to concur that the
arbitration agreement does not cover Banco Popular. Instead, the
nineteen-page claim focuses almost exclusively on Garcia's
unsuitable investment decisions in choosing vehicles that were too
risky for Álvarez, given his age and investment goals. For
example, the claim states [verbatim]:
Respondents made an express guaranteed to
Claimant of preservation of capital and
monthly income return through out the life of
the investment. Respondents knew or should
have known that by investing Claimant
retirement funds in the above mentioned were
unsuitable recommendations, this in light of
Claimant's age, life stage, risk tolerance and
investment objectives which were
conservative, preservation of capital and to
receive monthly income.
The claim also alleges that Popular Securities failed to
sufficiently supervise Garcia's work. In one paragraph, Álvarez
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references the prior internal investigation "that erroneously
concluded that the initial amount invested was $600,000, rather
than $1,075,000, as of today there are $475,000 that still
unaccounted for." [sic]
During the course of the arbitration proceeding, FINRA
requested that Álvarez produce bank statements to demonstrate the
amount of his initial investment. He was unable to locate these
records. The record is silent as to what documents, if any, FINRA
requested from Popular Securities. Popular Securities' initial
response to Álvarez's claim attributed his losses to "the impact
of the financial crises at the world level in the securities
markets." However, during the proceedings, Popular Securities
took the opportunity to switch its cover-story yet again. Moving
on from its and Garcia's fabrications concerning the fluctuating
vagaries of the stock market and its subsequent assertions that
Álvarez only deposited $600,000, at the arbitration hearing,
Popular Securities came up with a new version: producing three
transfer documents, ostensibly showing that Álvarez had actually
authorized three out of four of Garcia's transfers to the (closed)
Rio Piedras bank account. There was no paperwork for the final
transfer of $49,632.43, which took place on January 19, 2000; nor
were there any bank statements, cancelled checks, microfilm,
computer records, or other internal bank or brokerage firm
documents reflecting any of the transfers.
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After being shown these putative transfer notices,
Álvarez hired a qualified forensic document examiner to peruse the
authorizations. The examiner submitted his completed report to
FINRA on February 20, 2013, and testified before the panel on March
12, 2013. He concluded that the authorizations were prepared by
Garcia in his own handwriting, and that Álvarez's signatures at
the bottom were actually forgeries. These conclusions were not
contested or contradicted by Garcia or Popular Securities; in fact,
Garcia even admitted the handwriting was his.
Notwithstanding these revelations, FINRA issued its
award on April 1, 2013, dismissing Álvarez's claims with prejudice
for failing to make out a prima facie case. In its ruling, FINRA
provided no explanation for its decision. At the same time, the
panel ordered Popular Securities to pay all the arbitration fees
($16,750), and disallowed its request for $70,000 in attorneys'
fees. Álvarez's filing fee of $1,425.00 was refunded to him. In
addition, FINRA denied Popular Securities' request to expunge the
complaint from Garcia's record.
Commonwealth courts
As Álvarez explains in his complaint, "[d]ue to the
inconsistent and contradictory 'Award' issued by FINRA," he
determined to pursue his claims with the Court of First Instance
of the Commonwealth of Puerto Rico, filing a complaint on May 15,
2013, which sought to vacate the FINRA award. On May 8, 2014, on
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Popular Securities' motion to dismiss, the court, in deference to
FINRA, confirmed the award. In accordance with Puerto Rico law
concerning arbitration awards,6 the court performed an extremely
limited review. Álvarez then appealed the decision to the
Commonwealth's Appeals Court on August 11, 2014. Again, FINRA's
award was confirmed. The appeal was denied again, on Álvarez's
motion for reconsideration, on December 8, 2014. Certiorari was
denied by the Supreme Court of Puerto Rico, which also issued
denials of two further reconsideration motions. Álvarez received
his final rejection from the Commonwealth courts on October 23,
2015, concluding this fruitless avenue of litigation.
District court litigation
A year later, on October 20, 2016, Álvarez filed his
federal RICO claims against Garcia7 and Banco Popular. Álvarez
6 In its judgment, the Court of First Instance explained that
the Supreme Court of Puerto Rico has urged great deference to
arbitration awards:
[T]he arbitrator's appraisal of the facts is
not reviewable, nor are errors presented which
involve the consideration on the merits of
matters of fact regarding evidence received by
arbitrators. In addition, the mere erroneous
appraisal of the evidence is not grounds for
reviewing an arbitration award. Moreover, an
award cannot be annulled merely for errors in
judgment, whether in regards to the law or in
regards to the facts.
(internal citation omitted).
7 Álvarez also names as defendants Garcia's wife, Wanda O.
Meléndez-Santos, and their "conjugal partnership." The Supreme
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claims that Garcia made the fraudulent transfers out of his
investment accounts, wrongfully forging Álvarez's signature; and
that the compliance department of Popular Securities, which he
alleges was "under the control and authority" of Banco Popular,
conducted two fraudulent investigations with "the sole purpose of
misleading Plaintiff into believing that he had only initially
deposited about $600,000." As Álvarez alleges, it was not until
February 20, 2013, when he saw the report from the forensic
examiner that he "learned Garcia had forged Plaintiff's name on
the transfers." The civil RICO statute, pursuant to which Álvarez
presses his claims, has a four-year statute of limitations. Agency
Holding Corp. v. Malley-Duff & Assocs., Inc., 483 U.S. 143, 156
(1987).
Garcia and Banco Popular moved to dismiss the complaint
based on a variety of grounds. The district court focused on two
of those arguments which it found dispositive: 1) that the claims
against Garcia must be dismissed, pursuant to Fed. R. Civ. P.
12(b)(1) (lack of subject matter jurisdiction), because those
claims are subject to the arbitration agreement; and 2) that the
claims against Banco Popular must be dismissed, pursuant to Fed.
R. Civ. P. 12(b)(6) (failure to state a claim upon which relief
Court of Puerto Rico has interpreted certain sections of its civil
code to create liability against a conjugal partnership for debts
incurred by one spouse, in some situations. See Cruz Viera v.
Registrador, 18 P.R. Offic. Trans. 1046, 1051-53 (1987).
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can be granted), because those claims are barred by RICO's statute
of limitations. The court embraced defendants' reasoning on these
arguments and granted the motion, dismissing all claims against
all defendants.
This brings us up to the present.
Analysis
On appeal, Álvarez advances two principal arguments
relative to his RICO claims: first, he asserts that the
arbitration provision of his brokerage-account agreement should
not bar his RICO claims; and second, he challenges the district
court determination that the statute of limitation bars his RICO
claims. We take each argument in turn.
We review the court's decision de novo, focusing on the
complaint and treating all well-pled facts therein as true. Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007); Vartanian v.
Monsanto Co., 14 F.3d 697, 700 (1st Cir. 1994). However, beyond
the allegations in the complaint, the court may consider certain
additional documents "the authenticity of which are not disputed
by the parties," making narrow exceptions to the general rule "for
official public records; for documents central to plaintiffs'
claim; or for documents sufficiently referred to in the complaint."
Watterson v. Page, 987 F.2d 1, 3 (1st Cir. 1993); see also Boateng
v. InterAmerican Univ., Inc., 210 F.3d 56, 60 (1st Cir. 2000)
(stating that documents from prior state adjudications are
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"ordinarily" treated as public records). In this instance, in
order to fully understand the circumstances, we have reviewed (as
did the district court) undisputed and public documents from
Álvarez's arbitration proceeding, including his claim and the
award, as well as court memoranda and orders from earlier
proceedings. After hearing oral argument and undertaking a
thorough review of the record and the parties' submissions, we
affirm the district court's opinion and order.
Claims against Garcia -- the arbitration agreement8
Before us Álvarez reprises his district court argument
that his RICO claims are distinct from the claims litigated through
8As a threshold matter we note appellees have styled their
motion to dismiss Álvarez's claims against Garcia as a motion to
dismiss for lack of subject matter jurisdiction, under Fed. R.
Civ. P. 12(b)(1), which the district court granted. Yet this
circuit has consistently held that the existence of a valid
arbitration agreement does not strip the court of jurisdiction.
Skirchak v. Dynamics Research Corp., 508 F.3d 49, 56 (1st Cir.
2007) (citing DiMercurio v. Sphere Drake Ins., PLC, 202 F.3d 71,
77 (1st Cir. 2000)). Regardless, there is a split in authority as
to whether claims such as appellees' must be brought pursuant to
Rule 12's section (b)(1) or section (b)(6), that is, for failure
to state a claim on which relief may be granted; or perhaps
considered with an analysis "entirely separate from the Rule 12(b)
rubric." Cortés-Ramos v. Sony Corp. of Am., 836 F.3d 128, 130
(1st Cir. 2016) (quoting Cont'l Cas. Co. v. Am. Nat'l Ins. Co.,
417 F.3d 727, 732 (7th Cir. 2005)). In instances where the
district court's ruling rests on evidentiary findings, this
distinction may be important to our standard of review. See
Valentin v. Hosp. Bella Vista, 254 F.3d 358, 362-65 (1st Cir. 2001)
(holding that an appeal of a Rule 12(b)(1) ruling that resolves a
factual challenge must be reviewed with a deferential "clearly-
erroneous" standard). Here, where there is no factual dispute, it
is a distinction without a difference and our review is de novo.
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arbitration; specifically he says he is not trying to appeal the
arbitration award, but instead he wants to assert his rights under
the civil RICO statute on an entirely new batch of claims and to
vindicate those federal statutory rights in a federal forum. As
Álvarez argues, because RICO "confers jurisdiction on federal
district courts, 18 U.S.C. § 1964(c), this subject action is not
precluded by a previous arbitration award when no issue preclusion
or claim preclusion applies." Nor, as he adds, does this court
lack subject matter jurisdiction to hear his claims.
Countering, appellees maintain here, as they did below,
that Álvarez's claims against Garcia have already been adjudicated
through arbitration, and that, in any case, the present claims, if
not completely barred, are subject to the parties' arbitration
agreement.
The question of arbitrability -- that is, whether or not
the parties have agreed to submit a dispute to arbitration -- is
"an issue for judicial determination [u]nless the parties clearly
and unmistakably provide otherwise." Howsam v. Dean Witter
Reynolds, Inc., 537 U.S. 79, 83 (2002) (quoting AT&T Techs., Inc.
v. Communications Workers of Am., 475 U.S. 643, 649 (1986)). One
seeking to enforce an arbitration agreement "must show that a valid
agreement to arbitrate exists, that the movant is entitled to
invoke the arbitration clause, that the other party is bound by
that clause, and that the claim asserted comes within the clause's
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scope." InterGen N.V. v. Grina, 344 F.3d 134, 142 (1st Cir. 2003).
Here, there is no dispute that a valid arbitration agreement was
part of the brokerage contract Álvarez consummated with Popular
Securities back in 1999. And that provision is broad; it covers
all controversies between the parties, including Garcia's agents
or employees, "concerning any transaction or the construction,
performance, or breach of this or any other agreement between us
. . . ." Therefore, by its clear terms, Álvarez's RICO claims,
even though substantively different from the earlier claims
submitted to FINRA arbitration, fall within the expansive ambit of
this arbitration provision, meaning his assertions that his
statutory RICO claims may be pursued outside the arbitration
framework simply don't hold up. See Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985) ("By
agreeing to arbitrate a statutory claim, a party does not forgo
the substantive rights afforded by the statute; it only submits to
their resolution in an arbitral, rather than a judicial, forum.").9
So, we conclude, as did the district court, that the
federal claims against Garcia in this forum must be dismissed
Adding strength to appellees' side of the ledger is a strong
9
federal policy favoring arbitration; "any doubts concerning the
scope of arbitrable issues should be resolved in favor of
arbitration." Mitsubishi, 473 U.S. at 626 (quoting Moses H. Cone
Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983));
see also KKW Enterprises, Inc. v. Gloria Jean's Gourmet Coffees
Franchising Corp., 184 F.3d 43, 49 (1st Cir. 1999).
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without prejudice to Álvarez pursuing them in arbitration, if that
avenue remains available. See Cortés-Ramos, 836 F.3d at 130 ("[I]n
light of the District Court's order compelling arbitration,
Cortés's claims have not been extinguished but have been merely
left to the arbitrator" (internal alterations and quotations
omitted)). Further, as the district court correctly held, because
Álvarez's claims against Garcia's wife and the couple's conjugal
partnership are derivative of the claims against Garcia, those
claims are dismissed as well. See e.g., González-Álvarez v.
Rivero-Cubano, 426 F.3d 422, 429 n.7 (1st Cir. 2005).
Claims against Banco Popular -- RICO claims
Banco Popular was not a party to the arbitration
agreement binding Álvarez, Garcia and Popular Securities.10
Consequently, that agreement imposes no bar to Álvarez's claims
against Banco Popular.11 Nonetheless, we are confronted with the
timeliness of Álvarez's filing. On the issue of RICO's four-year
Álvarez makes a third argument on appeal. One of appellees'
10
grounds for their motion to dismiss was that Álvarez's failure to
join Popular Securities as a defendant mandated dismissal of his
complaint under Fed. R. Civ. P. 12(b)(7), for failure to join a
necessary party under Rule 19. Álvarez responded to this argument
in an addendum filed with the district court, and he rehashes the
same argument in his appellate brief. Because we affirm the
district court's ruling on other grounds, we do not address this
argument.
That is, at least, absent circumstances not present here.
11
See Next Step Med. Co., Inc. v. Johnson & Johnson Int'l, 619 F.3d
67, 71-72 (1st Cir. 2010).
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statute of limitations, Álvarez disputes the district court's
assessment that he knew or should have known about his injury no
later than January 19, 2012, when he filed his FINRA claim.
Instead, he argues that his claims are not time barred because he
did not know of his injury until February 20, 2013, when his
forensic examiner revealed Garcia's forgery.12 Additionally,
Álvarez also contends that up to that point, despite his diligent
efforts to get to the bottom of what happened to his money, he was
kept in the dark, thanks to Garcia's various lies and
misrepresentations. His final point on this particular issue is
that the determination of when he learned of his injury should not
be decided at the motion-to-dismiss juncture, but, rather, is a
matter to be decided by a jury. After considering afresh Álvarez's
arguments, we conclude, like the district court, that these claims
are precluded by RICO's four-year statute of limitations. We
explain.
The Racketeer Influenced and Corrupt Organizations Act
provides not only for criminal penalties, but also for civil
remedies for plaintiffs who can prove an injury caused by a pattern
of racketeering activity by an enterprise. 18 U.S.C. §§ 1962,
1964; Home Orthopedics Corp. v. Rodríguez, 781 F.3d 521, 528 (1st
Cir. 2015). RICO itself does not specify a statute of limitations.
This lawsuit was filed October 20, 2016 -- within four
12
years of Álvarez's proposed start-the-clock date.
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However, in 1987, the Supreme Court stepped in "to resolve the
important question of the appropriate statute of limitations for
civil enforcement actions brought under RICO," importing therein
the four-year deadline found in the civil enforcement provision of
the Clayton Act, which regulates anti-competitive business
practices in the marketplace. Malley-Duff, 483 U.S. at 146, 156;
15 U.S.C. § 15b.
Since the Malley-Duff ruling, much of the debate over
RICO time limits has centered on the identification of the event
that triggers the running of the statute. The Supreme Court has
again shed light on the dispute. First, in Klehr v. A. O. Smith
Corp., the Court rejected the "last predicate act rule," which
pegged the start of the four-year clock to the last act of
racketeering, restarting the clock whenever a new episode of
racketeering took place. 521 U.S. 179, 187 (1997). Then, in
Rotella v. Wood, the Court considered another theory that had
gained some traction around the country: the "injury and pattern
discovery rule," which started the running of the statute when
"the claimant discovers, or should discover, both an injury and a
pattern of RICO activity." 528 U.S. 549, 553-56 (2000). The
Rotella Court flat out rejected a limitation rule tied in any way
to the discovery of a pattern of racketeering:
By tying the start of the limitations period
to a plaintiff's reasonable discovery of a
pattern rather than to the point of injury or
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its reasonable discovery, the rule would
extend the potential limitations period for
most civil RICO cases well beyond the time
when a plaintiff's cause of action is complete
. . . .
Id. at 558. Instead the court once again trained its sights on
the Clayton Act and determined the "injury discovery accrual rule"
(the details of which we'll flesh out in a moment) to be the best
starting point. Id. at 553-54.13
Some seven years before the Supreme Court decided
Rotella, we had already noted our adoption of the injury discovery
accrual rule for civil RICO violations. In Rodriguez v. Banco
Central, we concluded that the RICO statute of limitations begins
to run "when a plaintiff knew or should have known of his injury."
917 F.2d 664, 666 (1st Cir. 1990). This means "discovery of the
injury, not discovery of the other elements of a claim, is what
starts the clock." Lares Group, II v. Tobin, 221 F.3d 41, 44 (1st
Cir. 2000) (quoting Rotella, 528 U.S. at 555). As the district
court astutely reasoned in its first-tier scrutiny of the Lares
Group's claims: "In this circuit, the meter begins to tick when
the plaintiff discovers the injury, even if the plaintiff is
unaware of the precise acts of racketeering that caused the
injury." Lares Group, II v. Tobin, 47 F. Supp. 2d 223, 230 (D.R.I.
13The Court left the door open to the adoption of "the 'injury
occurrence' rule, under which discovery [of the injury] would be
irrelevant." Rotella, 528 U.S. at 554 n.2.
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1999), aff'd, 221 F.3d 41 (2000). Post Lares Group, in the
analogous context of securities fraud, we elaborated about the
moment the claimant should know of his or her injury: in Young v.
Lepone, we talked about "storm warnings" that would put a
reasonable investor on "inquiry notice" that fraud may have
occurred. 305 F.3d 1, 8 (1st Cir. 2002). As we explained:
The first step in the pavane requires a
reviewing court to ascertain whether, when,
and to what extent, storm warnings actually
existed in a given situation. Because
sufficient storm warnings would lead a
reasonable investor to check carefully into
the possibility of fraud, this step
necessarily entails a determination as to
whether a harbinger, or series of harbingers,
should have alerted a similarly situated
investor that fraud was in the wind.
Id.The "known or should have known" analysis includes both
subjective and objective components. In the context of securities
fraud, we wrote: "We have recently emphasized, moreover, that
whether a plaintiff should have discovered the fraud is an
objective question requiring the court to determine if the
plaintiff possessed such knowledge as would alert a reasonable
investor to the possibility of fraud." Maggio v. Gerard Freezer
& Ice Co., 824 F.2d 123, 128 (1st Cir. 1987) (internal quotations
omitted).
That being said, there is an equitable principle, as
Álvarez points out, that sometimes works to extend the four-year
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clock. According to the doctrine of fraudulent concealment, the
statute of limitations may be temporarily tolled during such time
that the perpetrator purposefully and successfully conceals his or
her misconduct from its victim. Berkson v. Del Monte Corp., 743
F.2d 53, 55 (1st Cir. 1984). Again in the context of the Clayton
Act, we have held that the doctrine of fraudulent concealment may
be invoked when a claimant can establish three elements: 1)
wrongful concealment by defendants of their actions; and 2) failure
of the claimant to discover, within the limitations period, the
operative facts which form the basis of the cause of action; 3)
despite the claimant's diligent efforts to discover the facts.
Id. The doctrine has since been applied to RICO claims as well.
See, e.g., Harry v. Countrywide Home Loans, Inc., 902 F.3d 16, 18-
19 (1st Cir. 2018); Lares Group, 47 F. Supp. 2d at 231; Hodas v.
Sherburne, Powers & Needham, 938 F. Supp. 60, 63 (D. Mass. 1996),
aff'd, 114 F.3d 1169 (1st Cir. 1997); see also Banco Central, 917
F.2d at 668 (explaining that the court could "easily imagine" the
doctrine of fraudulent concealment being applied in RICO cases).
Keeping in mind these notions about a claimant's
discovery of his injury and a malfeasor's efforts to conceal his
misdeeds, we turn now to the specifics of the case before us.
Álvarez asserts that his injury did not accrue until he
learned of Garcia's forgeries from the forensic document examiner
in February 2013. Misinterpreting (our characterization) certain
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language in Rotella, he argues that the actual moment that triggers
the running of the statute is the point at which he knows "that he
has been hurt and who has inflicted the injury." Rotella, 528
U.S. at 556. And, Álvarez goes on, because he did not know of his
injury until February 2013, he need not rely on the doctrine of
fraudulent concealment to toll the statute of limitations because
his injury accrual date falls within the four-year statutory time
frame.
Alternatively, Álvarez argues that Garcia did engage in
fraudulent concealment, successfully preventing Álvarez from
suspecting that his money had been stolen until February 2013. To
demonstrate his state of mind during this time, Álvarez points to
his arbitration complaint, filed with FINRA in January 2012, in
which he claimed only that Garcia chose unsuitably risky
investments for him. While he had been told by Garcia and Popular
Securities that some of his original investment was "unaccounted
for," this was a far cry from knowing that he had been robbed of
$419,632.43. Until Álvarez got the report from the forensic
examiner, he thought that maybe there was some kind of accounting
error. And he adds, defendants continue to conceal their fraud to
this day.
According to Álvarez's characterization of the timeline,
first Garcia lied about the market fluctuations, then Popular
Securities ("with the knowledge of the CEO and Board Chairman of
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the Defendant Bank") undertook two "fraudulent investigations,"
which "misled and obfuscated the matter by only focusing on minor
losses associated with the investment activities of $600,000."
Álvarez reiterates that "as a completely unsophisticated
investor," he had no knowledge that he had been defrauded until
after he filed the FINRA claim and the facts came to light. In
support of his argument, Álvarez cites to a district court case
from this circuit that he says holds that a mere denial of
wrongdoing may be sufficient to establish fraudulent concealment,
if the plaintiff cannot, or does not, discover the fraud with
reasonable diligence, In re Atlantic. Fin. Mgmt., Inc. Securities
Litigation, 718 F. Supp. 1003, 1011 (D. Mass. 1988).
For their part, appellees maintain that Álvarez knew of
his "monetary losses" in January 2009, when he met with Garcia to
discuss his imminent retirement and learned that his account held
only $600K. At the very latest, after Popular Securities concluded
its second internal investigation in February 2011, Álvarez
demonstrated that he knew of his injury when he wrote a letter to
Banco Popular's CEO, which according to Álvarez's complaint was
admittedly "about the embezzlement activities." As for fraudulent
concealment, appellees concede that Garcia's misrepresentations
prior to 2009 may have operated to conceal Garcia's actions. But,
in 2009, when Garcia told him that his investment was only $600K,
Álvarez knew or should have known about his alleged injury.
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Our take
Regrettably for Álvarez we think Garcia and Banco
Popular have the better arguments. Our de novo review leads us to
conclude Álvarez knew of his injury, at the very latest, by the
time he filed his claim with FINRA in January 2012. Indeed, it is
because of his injury that he filed the FINRA claim.14 Although
he did not know the criminal methods Garcia had employed in order
to steal his money, Álvarez knew that his funds had disappeared.
Álvarez's reliance on certain language from Rotella --
that the injury accrues when the claimant knows "that he has been
hurt and who has inflicted the injury" -- is misplaced. 528 U.S.
at 556. The phrase cited from Rotella is itself lifted from United
States v. Kubrick, 444 U.S. 111, 122 (1979), a medical malpractice
case. And, the implication that the claimant must know specifics
about who inflicted the injury is a misreading of Rotella's core
holding (and is inconsistent with First Circuit RICO precedent).
For example, immediately before the Rotella Court quotes from
Kubrick, it writes, ". . . in applying a discovery accrual rule,
we have been at pains to explain that discovery of the injury, not
discovery of the other elements of a claim, is what starts the
Arguably Álvarez knew of his injury even earlier, but we
14
are willing to allow that Garcia, through his misrepresentations,
and Popular Securities, through its sorry and deficient internal
investigations, successfully concealed the injury from Álvarez
until the second investigation concluded in February 2011.
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clock." Rotella, 528 U.S. at 555. Citing this very sentence, we
wrote in Lares Group, "We . . . believe that this passage is
instructive and accurately reflects the law of this Circuit."
Lares Group, 221 F.3d at 44.
Similarly unpersuasive is Álvarez's reference to
Atlantic Fin. Mgmt. for the proposition that a perpetrator's denial
of wrongdoing, even without additional affirmative acts, may be
sufficient to establish fraudulent concealment. 718 F. Supp. at
1010-11. Be that as it may, what is determinative in Álvarez's
case is that, despite Garcia's stonewalling, there were enough
warning signs to put Álvarez, or a reasonable investor in his
situation, on notice that something was seriously amiss, that is,
"[w]hen telltale warning signs augur that fraud is afoot, . . .
such signs, if sufficiently portentous, may as a matter of law be
deemed to alert a reasonable investor to the possibility of
fraudulent conduct." Young, 305 F.3d at 8.
In light of the "telltale warning signs," we find that
Álvarez knew or should have known of his injury no later than
January 2012, making his October 2016 RICO complaint out of time.
Jury question
Lastly, Álvarez argues that the issue of when he knew or
should have known of his injury is a question that must be resolved
"at a later point by the trier of fact," and that his claims may
not be dismissed without providing an opportunity for a factfinder
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to weigh the evidence. Continuing on, he argues further that a
defendant may only raise the statute of limitations as a defense,
and the court may only grant a motion to dismiss, "when the facts
that give rise to the defense are clear from the face of the
complaint." Appellees point to LaChapelle v. Berkshire Life Ins.
Co., which stated that "[g]ranting a motion to dismiss based on a
limitations defense is entirely appropriate when the pleader's
allegations leave no doubt that an asserted claim is time-barred."
142 F.3d 507, 509 (1st Cir. 1998) (breach of contract).
Indeed, as Álvarez argues, often the issues of what a
claimant knew and when he knew it are determined by a jury or other
factfinder. See, e.g., Young, 305 F.3d at 9; Santiago Hodge v.
Parke Davis & Co., 909 F.2d 628, 633 (1st Cir. 1990). However, it
is well settled in this circuit that a motion to dismiss may be
granted on the basis of an affirmative defense, such as the statute
of limitations, as long as "the facts establishing the defense
[are] clear 'on the face of the plaintiff's pleadings.'"
Blackstone Realty LLC v. FDIC, 244 F.3d 193, 197 (1st Cir. 2001)
(quoting Aldahonda-Rivera v. Parke Davis_& Co., 882 F.2d 590, 592
(1st Cir. 1989)); see also LaChapelle, 142 F.3d at 509.
As the district court noted, "the facts are
unassailable." We agree. The facts, as presented in Álvarez's
complaint, clearly establish that he knew, or should have known,
of his injury more than four years before he filed his RICO claims.
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Consequently, the RICO claims against Banco Popular must be
dismissed.
The outcome of this case no doubt seems harsh. As
described in his complaint, Mr. Álvarez's situation is
unfortunate: he apparently was victimized by someone he trusted
to act in his best interests. Nevertheless, four years is a
relatively lengthy statute of limitations; and a claimant's
ability to reach back in time to address past grievances must have
some boundaries. The Supreme Court has often cited the "basic
policies of all limitations provisions: repose, elimination of
stale claims, and certainty about a plaintiff's opportunity for
recovery and a defendant's potential liabilities." Rotella, 528
U.S. at 555; see also Gabelli v. SEC, 568 U.S. 442, 448 (2013)
("Statutes of limitations are intended to promote justice by
preventing surprises through the revival of claims that have been
allowed to slumber until evidence has been lost, memories have
faded, and witnesses have disappeared. They provide security and
stability to human affairs." (internal quotations and citations
omitted)). The actions that form the basis of the present
complaint started in 1999; that is a long time ago indeed.
Conclusion
We hold that the claims brought by Victor Álvarez-Maurás
against appellee Alexander Garcia may only be resolved through
arbitration, subject to the binding agreement between the parties.
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Because the claims against Alexander Garcia's wife, Wanda O.
Meléndez-Santos, and the couple's conjugal partnership are
derivative of the claims against Garcia, those claims are also
subject to the arbitration agreement. Álvarez's claims against
appellee Banco Popular of Puerto Rico are out of time, pursuant to
18 U.S.C. § 1964. Consequently, we affirm the district court's
ruling, dismissing all claims against all defendants.
Costs to appellees.
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