Association of Commonwealth v. Moylan , 71 F.3d 1398 ( 1995 )

___________
No. 95-1373
___________
Association of Commonwealth *
Claimants, an unincorporated *
association, *
*
Appellant, *
*
v. *
*
James Moylan; Alfred H. Adams; *
Douglas G. Alford; Darrell D. *
Anderson; Denis K. Appelbee; *
Roy L. Ashcraft; William C. *
Beckman; Kenlon L. Hake; * Appeal from the United States
Allan C. Roemmich; Timothy R. * District Court for the
Spoeneman; Kenneth A. Wellman; * District of Nebraska.
Dennis O'Neal; Commerce Savings,*
Columbus, Inc.; Commerce *
Savings, Lincoln, Inc.; *
Commerce Savings, Scottsbluff, *
Inc.; Commerce Group, Inc.; *
First National Bank, of Grand *
Island, Inc.; Provident *
Federal Savings Bank, Inc.; *
Union National Bank & Trust *
Company, Inc.; First National *
Bank, of Omaha, Inc., *
*
Appellees. *
___________
Submitted: October 16, 1995
Filed: December 6, 1995
___________
Before FAGG, BOWMAN, HANSEN, Circuit Judges.
___________
BOWMAN, Circuit Judge.
This is one of several cases spawned by the failure of Commonwealth
Savings Company (Commonwealth), a state-chartered industrial loan and
investment company located in Lincoln, Nebraska. The issue presented in
1
this appeal is whether the District Court erred when it held that
appellant's Racketeer Influence and Corrupt Organization (RICO) claim, 18
U.S.C. §§ 1961-1968 (1988), is barred by the statute of limitations. We
affirm the judgment of the District Court.
The appellant, Association of Commonwealth Claimants (ACC), is an
unincorporated association representing creditors and depositors of the
failed industrial thrift. ACC is the assignee of the receiver of
Commonwealth. Appellees are the executive director and former members of
the board of directors of the Nebraska Depository Institution Guaranty
Corporation (NDIGC), the financial institutions that employed those
directors, and the corporate owners of those employers. Two other
corporate appellees were not employers of NDIGC directors but are alleged
to be co-conspirators of the other appellees.
ACC filed this RICO action against the appellees on December 8, 1988.
The gravamen of the complaint is that the appellees used the NDIGC as a
RICO "enterprise" to engage in fraudulent activity that ultimately led to
the collapse of Commonwealth and bilked depositors out of several million
dollars. In January 1989, the appellees moved to dismiss the complaint as
time-barred under Federal Rule of Civil Procedure 12(b)(6), but ACC filed
a motion to stay the action while related litigation between the parties
was pending before this Court. The District Court granted ACC's motion to
stay the proceedings on March 9, 1989. When the related litigation was
resolved, the appellees moved the court to lift the stay order and renewed
their motion to dismiss
1
The Honorable Lyle E. Strom, United States District Judge for
the District of Nebraska.
-2-
the complaint. The District Court lifted its stay order and dismissed the
complaint as time-barred. This appeal followed.
I.
This case has a long and complicated procedural history. It is
necessary to review the preceding twelve years of litigation in this case
because the accrual of the statute of limitations requires this Court to
determine what the parties knew and when they knew it.
A. Proceedings Initiated By The Receiver
Commonwealth was declared insolvent in 1983. On November 1, 1983,
the Nebraska Department of Banking and Finance (Department) took possession
of Commonwealth. On November 8, 1983, the district court for Lancaster
County, Nebraska, placed Commonwealth into receivership and appointed the
Department receiver for Commonwealth (Receiver). At the time of its
insolvency, Commonwealth was a member institution of the NDIGC--a state-
chartered private corporation modeled after the Federal Deposit Insurance
Corporation to guarantee deposits and shareholdings of member institutions.
See Nebraska Depository Institution and Guaranty Corporation Act, Neb. Rev.
Stat. §§ 21-17,127 to 21-17,145 (1991). The NDIGC originally guaranteed
deposits up to $10,000 and subsequently increased that amount to $30,000.
The $30,000 guarantee was in effect at the time Commonwealth was declared
insolvent.
On December 23, 1983, the Receiver filed an action with the State
Claims Board (Board) against the State of Nebraska under the State Tort
Claims Act, Neb. Rev. Stat. §§ 81-8,209 to 81-8,239.06 (1981 & Supp. 1983),
on behalf of all creditors to recover $56 million in losses sustained by
Commonwealth creditors, alleging negligence of the Department in the
regulation and supervision of Commonwealth. The Receiver alleged that the
Department's employees
-3-
caused the creditors' losses by conspiring with officers and directors of
the NDIGC to deceive the creditors of Commonwealth. The Receiver then
filed an amended tort claim with the Board on January 10, 1984, for $56.4
million.2 The amended claim was similar to the first tort claim, except
that it was brought on behalf of a special class of creditors--those
certificate of indebtedness holders whose accounts were guaranteed by the
NDIGC. The purpose of the amended claim was to recover the $30,000 NDIGC
guarantee on behalf of each certificate of indebtedness holder. In the
amended claim, the Receiver alleged once again that the Department's
employees caused losses by fraudulently conspiring with officers and
directors of the NDIGC. Consequently, even though the two tort claims were
directed primarily at the acts and omissions of the employees of the
Department, many of the Receiver's allegations focused on an alleged
conspiracy between employees of the Department and NDIGC officers and
directors--the same NDIGC individuals who are named as defendants in this
RICO action. While these state tort actions were proceeding, the NDIGC
itself collapsed due to severe under-capitalization of the NDIGC fund. The
NDIGC met its untimely demise on January 4, 1985, without having satisfied
its guarantee obligations to Commonwealth depositors.
The Board heard the Receiver's claims on February 13, 1984. In the
proposed work-out plan submitted by the Receiver to the Board, the Receiver
estimated a shortfall in NDIGC funds of approximately $57 million. At that
time, the Receiver estimated NDIGC funds were a mere $1.2 million. On
February 29, 1984, the Board found that there was a strong possibility that
the State of Nebraska may be liable for the Department's actions with
respect to the Nebraska Depository Institution Guaranty Corporation Act.
Based on its findings, the Board decided that the state should
2
The Receiver subsequently increased the amount sought to
$65.7 million.
-4-
compromise and settle the claims. In accordance with state law, the
Receiver submitted the Board's decision to the Lancaster County district
court for approval. After a hearing, the district court rejected the
Board's settlement decision for numerous reasons. See In the Matter of the
State Tort Claim of the Department of Banking and Finance of the State of
Nebraska, Receiver of Commonwealth Savings Co., Docket 380, Page 10, Order
at 30 (Neb. Dist. Ct. March 16, 1984).3 In its thirty page opinion, the
district court pointed out that the Board had received into evidence two
reports prepared by John Miller, the interim director for the Department,
and David A. Domina. These reports, commonly known as the Miller-Domina
reports, were highly critical of Paul Amen, the former state banking
director. The reports concluded that Mr. Amen did not exclude weak
industrial thrifts like Commonwealth from the NDIGC fund because he feared
that such action would expose the fact that the NDIGC had inadequate funds
to cover guarantees of the members' accounts, which, in turn, would create
a domino-like series of failures throughout the state's other industrial
thrifts.
After rejecting the proposed settlement, the district court remanded
the matter to the Board, which issued a second decision recommending a
compromise settlement once again. After conducting a hearing, the district
court also rejected this second Board decision. See In the Matter of the
State Tort Claim of the Department of Banking and Finance of the State of
Nebraska, Receiver of Commonwealth Savings Co., Docket 380, Page 10, Order
at 46 (Neb. Dist. Ct. July 27, 1984). The district court then remanded the
matter to the Board yet again to allow the Receiver to withdraw the claim
and to file suit on the claim. The Receiver
3
At the request of both sides, Judge Strom took judicial
notice of this case and other closely related cases. Consequently,
we may properly consider them when reviewing this motion to
dismiss. See Henson v. CSC Credit Services, 29 F.3d 280, 284 (7th
Cir. 1994) (holding public documents filed in earlier state court
case were properly considered when deciding motion to dismiss for
failure to state claim).
-5-
filed suit against the State of Nebraska on March 20, 1985, in Lancaster
County district court, alleging numerous acts of wrongful and negligent
conduct by the Department in failing to supervise, regulate, and examine
Commonwealth, including wrongful and negligent conduct of the Department's
director in admitting Commonwealth as a member of the NDIGC. Nine days
later, the parties sought approval of an $8.5 million compromise
settlement. The state district court subsequently approved this settlement
agreement.
B. Proceedings Initiated By ACC
ACC was formed in 1985. In 1986, ACC filed its first RICO action in
federal court against the former director of the state banking department
and others as assignee of the causes of action of more than 2,600
Commonwealth creditors. See Complaint, Weimer v. Amen, No. 86-L-248 (D.
Neb. March 24, 1986). An amended complaint was filed in 1987. A short
time later, ACC also initiated a state law fraud action in Lancaster County
district court with similar factual allegations against the same
defendants, but without RICO allegations. The defendants in these cases
asserted that ACC lacked standing to bring suit, claiming that the causes
of action belonged to the Receiver. While these standing issues were
pending before the federal and state courts, ACC obtained an assignment
from the Receiver on December 2, 1988, which purported to assign all of the
Receiver's remaining causes of action to ACC. ACC then filed this present
RICO action on December 8, 1988, based upon the assignment from the
Receiver; this action incorporates the identical RICO claim as alleged in
the first RICO action, but cures the standing defect by alleging an
assignment of the Receiver's causes of action against the appellees. A new
state court fraud action also was filed on December 5, 1988, based upon the
assignment. Appellees filed joint motions to dismiss the new suits, but,
at the request of ACC, these
-6-
new actions were stayed pending final decisions in the original suits.
In 1990, the Nebraska Supreme Court held that ACC lacked standing in
the original state fraud case. Weimer v. Amen, 455 N.W.2d 145, 153 (Neb.
1990). Following the lead of the Nebraska Supreme Court, the District
Court also held that ACC lacked standing in the original RICO action.
Weimer v. Amen, No. 86-L-248, slip op. at 7 (D. Neb. Aug. 24, 1990). We
subsequently affirmed that ruling on appeal, Weimer v. Amen, No. 87-2331,
slip op. at 3 (8th Cir. Jan. 22, 1992), and certiorari was denied, Weimer
v. Amen, 113 S. Ct. 74 (1992). ACC then sought leave to file a second
amended complaint to incorporate an assignment from the Receiver to cure
the standing defect. The District Court denied this motion, and we
affirmed on appeal. Weimer v. Amen, No. 93-1410, slip op. at 3 (8th Cir.
Dec. 15, 1993).
After the courts entered final orders in the original suits, the
stays were lifted in the second set of suits. In 1994, the Nebraska
Supreme Court held that the second state fraud action was barred by
Nebraska's four-year statute of limitations. ACC v. Moylan, 517 N.W.2d 94,
101 (Neb. 1994). Similarly, the District Court dismissed the second RICO
suit (this action) on January 5, 1995, as time-barred under the four-year
limitations period applicable to civil RICO actions. ACC v. Moylan, No.
88-690, slip op. at 9 (D. Neb. Jan. 5, 1995). The District Court reasoned
that the Receiver, and ACC by assignment, had discovered more than four
years before the filing of this suit that the NDIGC was without sufficient
funds to make good on its account guarantees. Relying on the state tort
claims filed by the Receiver in December 1983 and later in January 1984,
the District Court determined that the Receiver, and ACC by assignment, had
discovered or reasonably could have discovered all of the elements of the
RICO cause of action no later than July 1984. ACC timely appeals.
-7-
II.
We review de novo the granting of a motion to dismiss under Rule
12(b)(6). Dover Elevator Co. v. Arkansas State University, 64 F.3d 442, 445
(8th Cir. 1995).
The issue before us is whether ACC's second RICO action was filed
within the time allotted by the statue of limitations. In making this
determination, we are mindful that ACC stands in the shoes of its assignor-
-the Receiver of Commonwealth. The rights ACC acquired by assignment are
no greater than those possessed by the Receiver. See State Securities Co.
v. Daringer, 293 N.W.2d 102, 105 (Neb. 1980) (holding assignee acquires
only rights of assignor). Accordingly, the facts known to the Receiver
that are relevant to accrual must be imputed to ACC. This means that ACC
cannot maintain this action if the statute of limitations defense would
have been good against the Receiver. The critical inquiry thus becomes
what did the Receiver know and when did the Receiver know it.
Civil RICO actions are governed by a four-year statute of
limitations. Agency Holding Corp. v. Malley-Duff & Assocs., 483 U.S. 143,
156 (1987). As noted above, this case was filed on December 8, 1988. To
fall within the four-year limitations period, the RICO claim must not have
accrued prior to December 8, 1984. With respect to each independent injury
to the plaintiff, a civil RICO cause of action accrues "as soon as the
plaintiff discovers, or reasonably should have discovered, both the
existence and source of his injury and that the injury is part of a
pattern." Granite Falls Bank v. Henrikson, 924 F.2d 150, 154 (8th Cir.
1991) (quoting Bivens Gardens Office Bldg., Inc. v. Barnett Bank of
Florida, Inc., 906 F.2d 1546, 1555 (11th Cir. 1990), cert. denied, 500 U.S.
910 (1991)).
-8-
We conclude that the facts of this case demonstrate that prior to
December 8, 1984, the Receiver had knowledge of both the existence and
source of its injury and that the injury was part of a pattern. In the
first state tort claim filed by the Receiver on December 23, 1983--nearly
five years before this suit was filed--the Receiver alleged that state
employees conspired with NDIGC officers and directors to defraud
Commonwealth creditors. Less than a month later, in the amended state tort
claim filed on January 10, 1984, the Receiver alleged once again that state
employees conspired with NDIGC officers and directors to defraud
Commonwealth depositors. Even though the Receiver failed to make NDIGC
directors defendants in those state tort actions, the Receiver believed
that the NDIGC directors--who are appellees in this case--were part of a
conspiracy.
The documentary evidence submitted as part of these state tort
proceedings also shows that the Receiver knew of the NDIGC's anemic
financial condition more than four years before this suit was filed. The
Receiver attached a work-out plan as part of these state tort proceedings
that showed a shortfall in the NDIGC fund of approximately $57 million.
After the state district court rejected this plan, a second petition showed
that the Board estimated a NDIGC shortfall in the range of $15 million to
$45 million. Finally, the Miller-Domina reports showed that the failure
of a major industrial thrift like Commonwealth would cause the collapse of
the NDIGC.
In light of the facts and circumstances known to the Receiver through
the state tort proceedings and the corresponding documentation, it is
apparent that the Receiver had knowledge of the existence and source of the
injury before December 8, 1984. The Receiver was also aware that the
injury was part of pattern prior to December 8, 1984, because the Receiver
refers throughout these documents to the "schemes," "conspiracies," and
"frauds" conducted by the appellees. We agree with the District Court that
-9-
these "statements demonstrate that the Receiver was, at a minimum, aware
of a vague pattern sufficient to satisfy the accrual requirements of
Granite Falls Bank." ACC v. Moylan, No. 88-690, slip op. at 9 (D. Neb.
Jan. 5, 1995). Accordingly, the Receiver, and ACC by assignment, knew of
the existence, source, and pattern of injury more than four years before
this suit was filed. The action is therefore time-barred.
ACC attempts to bring its stale claim within the statute of
limitations by arguing that Commonwealth depositors suffered a new and
independent injury when the NDIGC collapsed on January 4, 1985. In other
words, ACC argues that the collapse of NDIGC is a second injury for which
the statute of limitations begins to run anew because, under Granite Falls,
each independent RICO injury accrues separately. ACC complains that the
District Court failed to realize that there were two economic injuries.
This novel argument is fatally flawed for three reasons.
First, the second injury theory is not alleged anywhere in the
complaint; it is an entirely new contention. Second, even if this theory
were adequately pleaded and even if the NDIGC's inability to satisfy the
guarantees may be considered a distinct and separate injury with respect
to the depositors, the Nebraska Supreme Court has already determined that
any claim arising from such a second injury accrued on November 8, 1983,
when Commonwealth was declared insolvent. ACC v. Moylan, 517 N.W.2d at
101. Third, the allegations made in the complaint (and throughout the
course of the twelve years of litigation) run counter to this second injury
argument. ACC alleges that Commonwealth creditors and depositors were
damaged by predicate acts, all of which occurred prior to November 1, 1983.
These same actions are also alleged in the complaint to have had a
"pervasive, debilitating, and ultimately fatal impact" on the NDIGC.
Complaint at ¶ 20. Even though ACC now claims that it was not injured
until January 4, 1985, these same injuries formed the basis of the state
tort claims filed by
-10-
the Receiver in December 1983 and January 1984. Indeed, the Receiver's
January 10, 1984 tort claim specifically addressed the losses of the
depositors' $30,000 account guarantees--the same injury that ACC now claims
did not even occur until nearly a year later when the NDIGC closed. The
insolvency of Commonwealth, and the consequent insolvency of the NDIGC,
were at the very heart of the Receiver's allegations in the state tort
claims.
Undeterred, ACC asserts that even if the Receiver knew of the NDIGC's
insolvency in January 1984, the limitations period did not begin to run
until the account guarantees became "uncollectible" on January 4, 1985,
when the NDIGC finally shut its doors. ACC claims that until the NDIGC
actually closed, there was a possibility that some fractional portion of
the depositors' guarantees might be honored. This argument reflects a
misunderstanding of the governing law. The Granite Falls test, properly
applied, does not postpone accrual of a RICO claim until the injured
party's damages can be ascertained with mathematical precision. Instead,
the limitations period begins to run even though the injured party, knowing
he has suffered an injury, may not yet know the full extent of his
injuries. Cf. Pace Indus., Inc. v. Three Phoenix Co., 813 F.2d 234, 240
(9th Cir. 1987) ("[U]ncertain damages, which prevent recovery, are
distinguishable from uncertain extent of damage, which does not prevent
recovery. . . . The question of whether there is a right to recovery is
not to be confused with the difficulty in ascertaining the scope or extent
of the injury."). ACC has confused knowledge of the existence of its
injury with knowledge of the exact amount of its injury. In regard to
injury, all that is required to start the running of the clock on a RICO
claim is knowledge of the fact of injury, not knowledge of the precise
quantum of damages.
For the foregoing reasons, the judgment of the District Court is
affirmed.
-11-
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
-12-