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noting that the limitations period accrues when plaintiff "knew or should have known of his injury"
Summary of this case from World Wrestling Entertainment v. Jakks PacificOpinion
No. 00 Civ. 3560 (HB).
January 10, 2001.
OPINION ORDER
Plaintiff DLT Resources Inc. (hereinafter "DLT-USA"), by its complaint dated May 8, 2000, alleges claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"), and under New York state common law for CLR's "conspiracy to defraud, fraud, tortious interference with plaintiffs employees' fiduciary duties, accounting and the imposition of a constructive trust over the profits of the venture" against defendant Credit Lyonnais Rouse Limited (hereinafter "CLR"). (Compl. ¶ 5.) As such, DLT-USA claims that this Court has both federal question and diversity jurisdiction over this action. The Complaint alleges that CLR and its coconspirators infiltrated plaintiff, a metals trading company doing business on the COMEX and London Metals Exchange, and corrupted its employees and the employees of its affiliated overseas corporations for the purpose of obtaining control of the business of the Sumitomo Corporation ("Sumitomo"), which at the time perhaps was the largest copper merchant in the world. CLR has filed two motions: (1) pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(3), seeking an order dismissing the Complaint for lack of subject matter jurisdiction, or on forum non conveniens grounds; and (2) pursuant to Fed.R.Civ.P. 12(b)(6) and 9(b) dismissing the complaint on the grounds that plaintiffs RICO claims must fail as a matter of law and that plaintiffs common law claims are barred under New York law and English law. For the reasons set forth below, CLR's motion to dismiss the Complaint as a matter of law is hereby GRANTED.
Plaintiffs only federal claims herein are RICO claims.
I. BACKGROUND
I take the facts as pled to be true on this motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). CLR is an English corporation and its principal place of business is located in London, England. CLR also does business in the United States. (Compl. ¶ 4.) David L. Threlkeld Co., Inc. ("DLT Co.") was formed on December 30, 1995 in the state of Vermont by David L. Threlkeld ("Threlkeld"). (Compl. ¶ 14.) "DLT Co.'s principal business was proprietary trading and developing counter party commercial business." (Id.) Plaintiff DLT-USA was incorporated in the state of Vermont on or about March 20, 1990. (Compl. ¶ 15.) Plaintiff concedes that DLT-USA was "inactive" from 1997 until 2000, when DLT-USA was "revived for the purpose of bringing this action. . . ." (Plaintiffs Memorandum in Opposition to Defendant's Motion to Dismiss for Lack of Subject Matter Jurisdiction and on Forum Non Conveniens Grounds ("Pl. First Mem.") at 1, n. 1). The Complaint alleges that CLR interfered with DLT-USA's business relations with three overseas corporations: DLT Commodities Ltd. (created in 1988); DLT Trading Ltd. (created in 1990); and DLT Commodities (Tokyo) Ltd. (created in late 1988) (collectively, the "DLT Foreign Corporations"). David L. Threlkeld was 100% stockholder of DLT Trading and DLT Commodities and was also the president of DLT-USA as well as director of both DLT Trading and DLT Commodities. (Compl. ¶ 16.) "DLT Co. was listed as 90% stockholder of DLT Commodities Tokyo." (Compl. ¶ 19.) Threlkeld established a relationship with Yasuo Hamanaka, the chief copper trader of Sumitomo Corporation during a 1989 visit to DLT Commodities Tokyo. (Compl. ¶ 24.) According to the Complaint, "Threlkeld proposed various trading (option) strategies to Hamanaka which lead to an increasingly expansive business relationship." (Id.) The DLT entities in London serviced Hamanaka's business, and thus Charles Vincent, "DLT's London office director", developed a close relationship with Hamanaka. (Id. ¶ 24, 30.) "As the relationship progressed, Vincent was offering ideas directly to Hamanaka without obtaining prior approval from DLT-USA, in violation of Threlkeld's direct orders." (Id. ¶ 24.)
Plaintiff alleges that in May 1990, Roy Leighton, the deputy chairman of CLR in London, "contacted DLT's London office to solicit DLT's business. Subsequently Leighton visited Threlkeld at DLT's office in Vermont to discuss further CLR's business relationship with DLT." (Compl. ¶ 25.) As a result of the visit to Vermont, DLT Commodities Ltd. (London) and CLR entered into a business relationship that was embodied, in part, in an agreement dated June 22, 1990. (Compl., Exh. B.) By that agreement, CLR became DLT Commodities' exclusive clearing agent for trades conducted on the world commodities markets. (Id.) DLT Commodities and CLR agreed to divide commissions from clients for trades on the London Metal Exchange (the "LME") and the COMEX. (Compl. ¶ 26, Exh. B.) Paragraph 16 of the agreement between CLR and DLT Commodities provides that it "shall be governed by and construed in accordance with the Laws of England to the exclusive jurisdiction of whose Courts the parties hereby submit." (Compl., Exh. B. ¶ 16.) The agreement also provided that after the termination of the business relationship between CLR and DLT, neither party could employ the employees of the other for a period of six months. (Compl., Exh. B. ¶ 9(B).)
In December 1989, Ashley Levett, one of the original employees and the initial "director" of the DLT Foreign Corporations London office, resigned and joined another English metals-trading company called Hayden Trading Ltd. (Compl. ¶ 23.) In January 1990, Levett, with the assistance of Vincent, started to compete with the DLT Foreign Corporations for Sumitomo's business by "engaging in `mysterious' options trades involving Sumitomo." (Compl. ¶ 30.)
Charles Vincent apparently succeeded Levett as director of the London office. (See Compl. ¶ 30.)
According to the Complaint
In August 1990, Paul Scully, a trader in DLT's Vermont office, noticed trades going through the system which had not been cleared by Threlkeld. In fact, Scully's analysis revealed that these transaction not only had no economic justification but that they were actually guaranteed to cause Sumitomo losses.
(Compt. ¶ 31.)
At an annual gathering of all DLT-USA and DLT Foreign Corporations employees on Martha's Vineyard in September 1990, Threlkeld confronted Vincent with the information Scully had provided regarding the irrational options trades. (Compl. ¶ 33.) Vincent "denied any wrongdoing" and "assured Threlkeld that he was a loyal employee of DLT." (Id.) In September 1990, Threlkeld met with Leighton and William Bradwell, the managing director at CLR to discuss the uneconomic trades. (Compl. ¶ 35.) "Threlkeld explained that it looked like Hamanaka, Vincent and Levett were involved in what looked like fraudulent trades." (Id.)
Thereafter, in or about January 1991, Levett and Vincent (while still an employee of the DLT Foreign Corporations) formed an entity named Winchester Commodities Group, Ltd. ("Winchester") (Compl. ¶ 40.) One by one, the employees of the DLT Foreign Corporations resigned to join Winchester during the period of January 1991 to July 1991. (Compl. ¶¶ 41-61.) Threlkeld met with Leighton and Bradwell in or about May 1991 to discuss the fact that Vincent (still employed by the DLT Foreign Corporations) and Hamanaka "were doing business in violation of direct orders from Threlkeld." (Compl. ¶ 45.) Plaintiff alleges upon information and belief that on or before May 20, 1991, Levett, Vincent, still at DLT's London office, and CLR entered into a secret and very lucrative profit sharing agreement whereby CLR would extend additional credit to allow Sumitomo to trade LME futures. In return, CLR got 20% of the profits, as well as an option on 20% of Vincent and Levett's new company's stock." (Compl. ¶ 47.) Simultaneously, a letter from plaintiff, dated May 17, 1991 was "hand-delivered to Vincent's home [on] the evening of May 20, 1991" and "[u]pon receipt of the termination letter, Vincent immediately joined Winchester, taking Sumitomo's business with him." (Compl. ¶ 50.)
The Complaint alleges that Vincent, Levett, and Hamanaka, assisted by CLR's credit line, concealed from Sumitomo that Sumitomo was dealing with a new company, Winchester. (Compl. ¶ 55.) The Complaint also alleges that CLR interviewed and approved all of Winchester's staff and approved and/or reviewed every transaction entered into by Winchester. (Compl. ¶¶ 69, 71-72.)
According to the Complaint, Shinichi Nishi, who ran the DLT Commodities Tokyo office, directed Sumitomo's business to Winchester while still working for DLT Commodities Tokyo. Nishi resigned to work for Winchester in July 1991 "forcing DLT to sell the DLT Tokyo office to Winchester." (Compl. ¶ 61.) The plaintiff has alleged that
One of the written conditions for the sale, was an agreement that Nishi was to provide a full accounting so that DLT could close its books. Nishi, however, refused to comply with the agreement and advised DLT that Levett had instructed him to refer all requests for an accounting directly to Levett. Similar requests made to Levett were also ignored. When Threlkeld turned to CLR for assistance, CLR informed him that its relationship with Winchester was solely as a clearing house and that it had absolutely no influence over Winchester's operations.
On or about 1992, the United Kingdom tax authorities contacted DLT's London office accountants, and asked them to provide the back-up documentation for the expenses it had paid to operate the Tokyo office. However, due to Winchester's utter and abject failure to cooperate with DLT, DLT was unable to do so. Because DLT was not able to pay the back taxes and because of its inability to document and deduct the expenses incurred by DLT's Tokyo office, DLT Trading and DLT Commodities were forced to file for bankruptcy.
(Compl. ¶¶ 62-64.)
Finally, on or about October 1991, "Hamanaka sent a fax to Threlkeld at DLT in Vermont requesting that he create and backdate fictitious trades, which Threlkeld refused to do." (Compl. ¶ 65, Exh. C.) Threlkeld notified officials at the LME, but no action was taken.
Thereafter, according to the Complaint, CLR, Winchester and Hamanaka began in June 1993 to engage in a scheme to corner the world copper market. The world copper market collapsed when the LME began an investigation into the Sumitomo copper trades. Regulators in the United Kingdom and United States began to conduct investigations into price volatility in the copper markets in the fall of 1995 (Compl. ¶ 92, 93) and on May 11, 1998, the Commodity Futures Trading Commission ("CFTC") issued an opinion and order finding that Sumitomo had violated the Commodity Exchange Act by manipulating upward the price of copper and copper futures. Several days later, "[b]etween May 13 and May 22, 1998, Threlkeld learned that CLR had an interest in Winchester and that CLR negotiated its participation in Winchester while its principles [sic] and staff were still employed at DLT." (Compl. ¶ 99.) Then, "[o]n or about December 1998, Threlkeld called Leighton at CLR regarding CLR's interest in Winchester. Once again, Leighton denied CLR's interest in Winchester." (Compl. ¶ 100.)
The plaintiff states that it has not named Winchester and its affiliated companies as parties to this suit "due to pending bankruptcy proceedings in the United Kingdom." (Compl. ¶ 2, n. 2.)
II. DISCUSSION
Civil RICO claims are subject to a four-year statute of limitations, which begins to run when a plaintiff knew or should have known of his injury. Rotella v. Wood, 528 U.S. 549, ___, 120 S.Ct. 1075, 1080 (2000);Agency Holding Corp. v. Malley-Duff Assoc., Inc., 483 U.S. 143, 156 (1987). In Rotella, the Supreme Court eliminated the injury and pattern discovery rule, while recognizing that "where a pattern remains obscure in the face of a plaintiffs diligence in seeking to identify it, equitable tolling may be one answer to the plaintiffs difficulty." 528 U.S. at ___, 120 S.Ct. at 1084.
The first step in the statute of limitations analysis is to determine when DLT-USA sustained the alleged injury for which it seeks redress.Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1102 (2d Cir. 1988). The Complaint alleges that DLT-USA was defrauded by a conspiracy between CLR, disloyal employees of the DLT Foreign Corporations, and others during a period of time from 1990 until July 1991, when the alleged scheme succeeded in Winchester's creation and Sumitomo s cessation of business with the DLT Foreign Corporations.
This Court must next determine when DLT-USA discovered or should have discovered the injury, and begin the four-year statute of limitations period at that point. In re Sumitomo Cooper Litig., 120 F. Supp.2d 328, 345 (S.D.N.Y. 2000) (citation omitted). DLT-USA alleges that "it did not know, nor with reasonable diligence could have known that CLR was a participant in the fraudulent scheme at the time it suffered an injury." (Pl. Second Mem. at 12.) Plaintiff claims that it did not learn of CLR's pre-May 20, 1991 involvement with Winchester until May 1998.
Plaintiff also contends that the doctrine of fraudulent concealment is available to toll the statute of limitations in this case. The doctrine of fraudulent concealment was designed to prevent a party from "concealing a fraud, or . . . committing a fraud in a manner that it concealed itself until such time as the party committing the fraud could plead the statute of limitations to protect it." New York v. Hendrickson Brothers. Inc., 840 F.2d 1065, 1083 (2d Cir.) cert. denied, 488 U.S. 848 (1988) (quoting Bailey v. Glover, 88 U.S. (21 Wall.) 342, 349, 22 L.Ed. 636 (1874)). A "plaintiff may prove fraudulent concealment sufficient to toll the running of the statute of limitations if he establishes (1) that the defendant concealed from him the existence of his cause of action, (2) that he remained in ignorance of that cause of action until some point within four years of the commencement of his action, and (3) that his continuing ignorance was not attributable to lack of diligence on his part." Hendrickson Brothers. Inc., 840 F.2d at 1083.
Here, I need not determine whether plaintiff has demonstrated fraudulent concealment, as the defendants, by letter of January 3, 2001, have submitted for the Court's review a document which demonstrates that plaintiff was aware of the conduct alleged in the Complaint from as early as November 1992 — almost eight years before the Complaint was filed. The document, which was uncovered in plaintiffs document production, is a letter from plaintiff DLT Resources to the Securities and Futures Authority (one of the regulatory bodies in England responsible for oversight of the English markets) and is dated November 25, 1992 and is signed by David L. Threlkeld, the president of DLT Resources (the "November 1992 letter"). It is well established that this Court may consider such a document. See Rothman v. Gregor, 220 F.3d 81, 88 (2d Cir. 2000) ("For purposes of a motion to dismiss, we have deemed a complaint to include . ., documents that the plaintiffs either possessed or knew about and upon which they relied in bringing the suit.") (citing Cortec Industries. Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991)).
In the November 1992 letter, plaintiff sets forth charges that are the essence of the Complaint at bar:
It was after I confronted [Charles] Vincent that he made arrangements with Ashley Levett of Hayden and conspired with Rouse [Credit Lyonnais Rouse, the defendant] to elegantly create Winchester in such away [sic] as to take over the DLT business and personnel without the restriction of an honest owner.
As CLR points out, these allegations mirror the summary of plaintiffs claims set forth in paragraph 12 of its Complaint:
Upon information and belief, from between on or about December 1989 and September 1990, through at least June 1996, CLR conspired with DLT's disloyal employees [including Charles Vincent] and Hamanaka to divert Sumitomo's business from DLT. CLR accomplished this by secretly providing financing to DLT's disloyal employees to enable them to form a new company, Winchester. As part of the scheme, CLR obtained 20% interest in Winchester, which, upon information and belief, CLR concealed from not only DLT but also the LME and the Securities and Futures Authority ("SFA"). This scheme was only a small part of an overall conspiracy to manipulate the copper market which continued until at least 1996.
(Compl. ¶ 12.)
CLR acknowledges that plaintiff has steadfastly maintained, both in its Complaint and its opposition to CLR's motion, that it did not know until May 1998 that CLR had an interest in Winchester. However, CLR argues that whether or not that is true "is irrelevant for purposes of the instant analysis because it is clear that as early as November 1992, plaintiff knew that its employees allegedly had `conspired' with CLR `to take over the DLT business and personnel' — the gravamen of plaintiffs Complaint. This Court agrees. The essence of plaintiffs RICO claims is not CLR's "concealed" interest in Winchester, it is CLR's alleged conspiracy to scheme with disloyal employees of the DLT Foreign Companies to create Winchester and secure Sumitomo as a client.
As the Supreme Court explained in Rotella, just as the statute of limitations for a medical malpractice case begins to toll when the plaintiff becomes cognizant of his injury, rather than when plaintiff recognizes that his suit is cognizable at law, likewise courts have "no good reason for accepting a lesser degree of responsibility on the part of a RICO plaintiff" 528 U.S. 549, ___, 120 S.Ct. 1075, 1081 (2000).
We are unconvinced that for statute of limitations purposes a plaintiffs ignorance of his legal rights and his ignorance of the fact of his injury or its cause should receive identical treatment. That he has been injured in fact may be unknown or unknowable until the injury manifests itself; and the facts about causation may be in the control of the putative defendant, unavailable to the plaintiff or at least very difficult to obtain. The prospect is not so bleak for a plaintiff in possession of the critical facts that he has been hurt and who has inflicted the injury. He is no longer at the mercy of the latter. There are others who can tell him if he has been wronged, and he need only ask.Id. (citing United States v. Kubrick, 444 U.S. 111, 122 (1979)).
Likewise, it was incumbent upon plaintiff to consult a lawyer after he became aware of the alleged conspiracy between CLR and the employees of the DLT Foreign Corporations to determine whether he had been wronged, and whether he should commence litigation.
As a consequence of this determination, plaintiffs federal RICO claims must be dismissed. Moreover, the Court declines to exercise supplemental jurisdiction over plaintiffs remaining State and City claims, and accordingly, such claims are dismissed without prejudice See Lanza v. Merrill Lynch Co. (In re Merrill Lynch Ltd. Partnerships Litig., 154 F.3d 56, 61 (2d Cir. 1998) (per curiam) ("`in the usual case in which all federal-law claims are eliminated before trial, the balance of factors to be considered under the pendant jurisdiction doctrine — judicial economy, convenience, fairness and comity — will point toward declining jurisdiction over the remaining state-law claims.'") (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n. 7 (1988)).
Having found that plaintiffs RICO claims are time-barred, I need not reach defendant's additional arguments for dismissal of the RICO claims: specifically, defendant's argument that plaintiff has failed to allege a pattern of racketeering, failed to plead any predicate acts of mail or wire fraud, lacks statutory standing to bring the RICO claims, and failed to plead a violation of any subdivision of § 1962. Similarly, I need not reach defendant's motion seeking an order dismissing the Complaint for lack of subject matter jurisdiction on standing grounds, or on forum non conveniens grounds. If this action is filed in state court, such issues will be addressed in that forum.
III. CONCLUSION
For the reasons set forth above, the defendants' motions to dismiss is GRANTED without prejudice. The Clerk of the Court is instructed to close the case.
SO ORDERED.