Álvarez-MauráS v. Banco Popular of Puerto Rico , 919 F.3d 617 ( 2019 )


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  •           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.
    - 2 -
    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.
    - 3 -
    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.
    - 4 -
    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:
    - 5 -
    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
    - 6 -
    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.
    - 7 -
    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
    - 8 -
    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
    - 9 -
    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).
    - 10 -
    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
    - 11 -
    "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.
    - 12 -
    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
    - 13 -
    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).
    - 14 -
    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).
    - 15 -
    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.
    - 16 -
    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
    - 17 -
    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.
    - 18 -
    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
    - 19 -
    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
    - 20 -
    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
    - 21 -
    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.
    - 22 -
    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.
    - 23 -
    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
    - 24 -
    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.
    - 25 -
    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.
    - 26 -
    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.
    - 27 -
    

Document Info

Docket Number: 18-1051P

Citation Numbers: 919 F.3d 617

Judges: Howard, Thompson, Kayatta

Filed Date: 3/25/2019

Precedential Status: Precedential

Modified Date: 10/19/2024

Authorities (29)

Klehr v. A. O. Smith Corp. , 117 S. Ct. 1984 ( 1997 )

Rotella v. Wood , 120 S. Ct. 1075 ( 2000 )

Gonzalez-Alvarez v. Rivero Cubano , 426 F.3d 422 ( 2005 )

Raul F. Rodriguez v. Banco Central, Raul Rodriguez ... , 917 F.2d 664 ( 1990 )

Intergen N v. v. Grina , 344 F.3d 134 ( 2003 )

Skirchak v. Dynamics Research Corp. , 508 F.3d 49 ( 2007 )

Gabelli v. Securities & Exchange Commission , 133 S. Ct. 1216 ( 2013 )

Luis Aldahonda-Rivera v. Parke Davis & Company , 882 F.2d 590 ( 1989 )

In Re Atlantic Financial Management, Inc. Securities ... , 718 F. Supp. 1003 ( 1988 )

Herbert D. Berkson v. Del Monte Corporation , 743 F.2d 53 ( 1984 )

Hodas v. Sherburne, Powers & Needham, P.C. , 938 F. Supp. 60 ( 1996 )

Vartanian v. Monsanto Company , 14 F.3d 697 ( 1994 )

LaChapelle v. Berkshire Life Insurance , 142 F.3d 507 ( 1998 )

Cape Ann Investors v. Lepone , 305 F.3d 1 ( 2002 )

Mercedes Santiago Hodge v. Parke Davis & Company , 909 F.2d 628 ( 1990 )

Next Step Medical Co. v. Johnson & Johnson International , 619 F.3d 67 ( 2010 )

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. , 105 S. Ct. 3346 ( 1985 )

Bell Atlantic Corp. v. Twombly , 127 S. Ct. 1955 ( 2007 )

Fed. Sec. L. Rep. P 93,310 Joseph L. Maggio v. Gerard ... , 824 F.2d 123 ( 1987 )

Boateng v. InterAmerican University, Inc. , 210 F.3d 56 ( 2000 )

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