Completing Klehr v. A.O. Smith Corp., and Resolving the Oddity and Lingering Questions of Civil RICO Statute of Limitations Accrual

I. INTRODUCTION Civil RICO1 was left "limitations-naked"2 when enacted by Congress in 1970, and remained that way until the Supreme Court clothed the statute with a four-year statute of limitations period in a 1987 case, Agency Holding Corp. v. Malley-Duff & Associates.3 But the Malley-Duff Court did not determine when that limitations period should begin to run.4 In the wake of the Malley-Duff decision, the federal courts delineated essentially three conflicting rules for civil RICO statute of limitations accrual.5 Thus, for over ten years, RICO litigants have been asking: When does the civil RICO statute of limitations accrue? Many anticipated the Supreme Court would answer this lingering question in Klehr v. A.O. Smith Corp.,s a decision handed down a little more than a week before the Court took its 1997 summer recess.7 But instead of answering the question and resolving the conflict, the Court in Klehr merely struck down the Third Circuit's "last predicate act" rule.8 And so "the question," Justice Scalia pointed out in his concurrence, "remain[ed] unanswered."9 The differing accrual rules that have developed since MalleyDuff reflect the tensions inherent in the civil RICO limitations period issue. Although the Klehr Court gave an indication of how it would resolve these tensions, it left more questions lingering about an acceptable rule than it answered. This Note answers those lingering questions and uses the reasoning of Klehr to establish an analytical framework for an acceptable civil RICO statute of limitations accrual rule. Part II of this Note gives a background to the civil RICO statute of limitations issue and lays out the competing circuit rules that developed after Malley-Duff Part III examines Klehr, specifically the nature of the petitioners' civil RICO claim and the Court's reasoning in its rejection of the Third Circuit's "last predicate act" rule. Part IV analyzes the Klehr decision according to the underlying principles of a statute of limitations, namely "recovery" and "repose,"lo and uses the Court's reasoning to resolve the questions that the Malley-Duff and Klehr Courts left lingering. Part V lays out a final accrual rule that completes what the Supreme Court started in Malley-Duff in accordance with limitations "first principles," Klehr, and civil RICO. II. BACKGROUND A. RICO's Development The substantive provisions of RICO, contained in 18 U.S.C. 1962(a)-(d), prohibit: (a) investing monies earned through a pattern of racketeering in an enterprise engaged in interstate commerce, (b) acquiring an interest, through a pattern of racketeering, in an enterprise engaged in interstate commerce, (c) conducting the affairs, through a pattern of racketeering, of an enterprise engaged in interstate commerce, or (d) conspiring to violate any of the above prohibitions.ll The RICO statute provides a private civil action by which plaintiffs may recover treble damages and attorney's fees for injury "by reason of a violation of" these substantive provisions.l2 The elements that a RICO plaintiff needs to allege in a claim are essentially the same under all the provisions, except for the conspiracy prohibition.l3 For an 18 U.S.C. 1962(c) cause of action, the most commonly used prohibition,l4 a civil RICO plaintiff must allege all of the following: "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity (known as `predicate acts') (5) causing injury to the plaintiff's `business or property.'15 The purposes of RICO are well-documented. RICO provides "enhanced sanctions and new remedies to deal with the unlawful activities of those engaged in organized crime."ls While RICO was primarily conceived as a criminal statute,l7 Congress included the civil remedy provision to hold violators financially responsible to the businesses they harm,ls to encourage private attorneys general enforcement actions and, ultimately, to curb organized crime's expansion into the sphere of legitimate commercial enterprise. …