Klehr v. A. O. Smith Corporation

PETITIONER: Klehr
RESPONDENT: A. O. Smith Corp. et al.
LOCATION: Attorney General Office

DOCKET NO.: 96-663
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Eighth Circuit

CITATION: 521 US 179 (1997)
ARGUED: Apr 21, 1997
DECIDED: Jun 19, 1997

ADVOCATES:
Bruce J. Ennis, Jr. - on behalf of the Respondents
Charles A. Bird - on behalf of the Petitioners

Facts of the case

Marvin Klehr purchased inadequate cattle feed containers from A. O. Smith Harvestore Products, Inc. (Harvestore) in 1974. Over a long period of time, the containers damaged Klehr's cattle feed. In 1993, Klehr filed a civil claim against Harvestore under the Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO). The District Court dismissed Klehr's suit, ruling that the four-year time limit for bringing a civil RICO suit had expired. Klehr claimed that he was not at fault for failing to discover the injury within four years, because Harvestore purposely designed the containers to conceal their inadequacy.

The U.S. Court of Appeals for the Eighth Circuit upheld the lower court. The Eighth Circuit held that Klehr should have discovered the pattern of racketeering activity much earlier. Since the statute of limitations began from the time Klehr could reasonably be expected to have discovered the pattern, Klehr was out of time. The Eighth Circuit's "pattern of activity" rule contradicted the Third Circuit's "last predicate act" rule, which allows a plaintiff to recover damages accumulated since the first injury as long as the last RICO violation ("last predicate act") happened within four years of the lawsuit.

Question

1)Does the time limit for filing a civil claim under the Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO) begin after the plaintiff discovers the last illegal act ("last predicate act") at the end of a pattern of racketeering activity?

2)If the plaintiff demonstrates "fraudulent concealment" of the injury inflicted, can RICO's civil-claim limitations period be extended?

Media for Klehr v. A. O. Smith Corporation

Audio Transcription for Oral Argument - April 21, 1997 in Klehr v. A. O. Smith Corporation

Audio Transcription for Opinion Announcement - June 19, 1997 in Klehr v. A. O. Smith Corporation

A new record Number 96-663, Klehr versus A.O. Smith Corporation would be announced by Justice Breyer.

This case involves a suit under civil RICO, a -- a statute that provides treble damages and attorneys fees for those injured by a “pattern of racketeering activity.”

The words “pattern of racketeering activity” are terms of art.

Racketeering activity, it means this commission of certain defined predicate acts.

Each act is a violation of some other statute like the statute that forbids murder or fraud or robbery et cetera.

And a pattern means among other things the commission of at least two predicate acts separated in time one from the other by no more than ten years.

So if you had two acts of fraud separated in time by a few months or even a few years, they could count possibly as a RICO violation.

Now, the plaintiffs in this case were dairy farmers who bought a silo for storing feed for their cows.

They say that the seller of the silo told them falsely and fraudulently that the silo meant healthier cows because it would prevent oxygen from getting to the feed and preventing and -- which might cause mold or fermentation and all that they said was false.

That isn't what happened at all.

Now, their problem is that they have a serious statute of limitations problem because they bought the silo 19 years before they brought suit and the statute of limitations is supposed to be four years under the Clayton Act.

But the plaintiffs has pointed out it all depends on when that four-year period starts running.

That's called the Accrual Date.

And one of these Circuits have said that the action doesn't -- it doesn't start to run until the last predicate act and that really is the issue we primarily face and we said, “Well, we don't agree with that Circuit's rule because the statute then might run sometimes forever for a very long time anyway and it's not consistent with Clayton Act authority.”

Now, there are other differences in other Circuit rules but we haven't reached those because none of them would affect the plaintiffs before.

The plaintiffs raised one additional matter.

They said that the seller fraudulently concealed the fraud.

Use for example a device that shoot up the feed just when it came out of the silo so you wouldn't notice the mold and various other things.

They said this fraudulent concealment should stole -- toll the statute of limitations; it should stop the clock; but the lower court found that they weren't reasonably diligent in looking out for the fraud and the issue before us really was whether reasonable diligence is a requirement in order to get the tolling and we hold that it is.

So we affirm the lower court judgment.

Justice Scalia filed a concurring opinion in which Justice Thomas concurs.