Second Circuit Analyzes Civil RICO Claim Statute of Limitations Under Two-Step Process

Rosenshein v. Meschel, ___ Fed. Appx. ____, 2017 WL 1439957 (2d Cir. 2017)

The Court affirmed the dismissal of a civil RICO complaint filed by Arnold Rosenshein, a real estate investor, who sued defendants under RICO and New York state law, for fraudulently inducing his investment in high risk commercial loans by falsely representing them as low risk, finding the claims barred by the statute of limitations.

The court used a two step process, i.e., (1) analyzing when the plaintiff sustained the alleged injury for which he seeks redress, and (2) determining when the plaintiff discovered or should have discovered the injury, with the latter date triggering the four-year statute of limitations.

Step One

Here, the court stated that a RICO injury occurs when the “amount of damages becomes clear and definite.” A RICO claim predicated on an investment injury for which an investor has no contractual or legal remedies generally accrues at the time of investment, while the Plaintiff asserted that the injury from the defendants’ misrepresentations occurred at a later date.

Concluding that because the agreement guaranteed Rosenshein no legal or contractual remedies for his alleged injury, his RICO claim with respect to that investment accrued at the time of investment.  Thus, Rosenshein’s RICO claim accrued no later than 2008, when the most recent investment was made, because his legally cognizable injuries occurred at the time of each investment.  The Court stated that although “in some instances a continuing series of fraudulent transactions undertaken within a common scheme can produce multiple injuries which each have separate limitations periods,” such injuries have “to be new and independent to be actionable.”

Step Two

Here, the court set forth established law that once a RICO claim accrues, the statute of limitations begins to run when a plaintiff has actual or inquiry notice of the claim. “Storm warnings” provide inquiry notice when “the circumstances would suggest to an investor of ordinary intelligence the probability that [he or] she has been defrauded.” Id. (internal quotation marks omitted.  Storm warnings “need not detail every aspect of the alleged fraudulent scheme,” and can trigger the statute of limitations “even where the full extent of the RICO scheme is not discovered until a later date.

The court concluded that storm warnings provided inquiry notice more than four years before Rosenshein filed suit on September 18, 2015, and because the complaint here expressly pleaded storm warnings that would motivate “a reasonably diligent plaintiff” to investigate, fraudulent concealment doctrine did not stay the statute and Rosenshein was not entitled to equitable tolling.

Ed Note:   This case is important for the principle of determining when the injury is deemed to occur, i.e., when the investment is made, despite the fact there could have been subsequent misrepresentations or omissions which arguably could have extended the statute.   The court is imposing a strict review of the accrual rule in such instance arguing that continued misrepresentations would not necessarily extend the statute of limitations unless they were new and independent injuries.

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