JAY E. HAYDEN FOUNDATION v. FIRST NEIGHBOR BANK (June 22, 2010)
Jay Hayden died in 1985. His will established the Jay E. Hayden Foundation and named Robert Cochonour as executor. Between 1985 and 2001, Cochonour allegedly embezzled from both the Foundation and from accounts belonging to Hayden's mother and his mother’s friend. Cochonour apparently had the cooperation of First Neighbor Bank in carrying out his misdeeds. By 2002, Cochonour admitted that he had stolen some money and had resigned his state court judgeship. The trustees of the Foundation were aware that it no longer had any assets but there was no record of what happened. For several years, Cochonour and the bank took steps to prevent the plaintiffs from learning additional facts. Eventually, in May of 2008, plaintiffs brought a RICO action against the bank, two law firms, and several associated individuals. Judge Reagan (S.D. Ill.) granted defendants' motion to dismiss on statute of limitations grounds. Plaintiffs appeal.
In their opinion, Judges Posner, Rovner, and Tinder affirmed. The statute of limitations for a RICO claim, stated the Court, is four years and begins to run when the plaintiffs discover or should have discovered the injury and the injurer. Here, the Court concluded that the plaintiffs had significant suspicions by mid-2003 but may not have had sufficient information to bring suit until 2005. If the defendant engages in obstructive conduct, however, that prevents a plaintiff from obtaining sufficient information to file its complaint, the defendant is equitably stopped from pleading the statute of limitations defense for the period of obstructive behavior. Plaintiffs allege that that is what happened here. The Court recognized a split of authority regarding the impact of equitable estoppel on limitations period. Some courts have allowed an extension of a limitations period for the full amount of the delay while others have held that a plaintiff must commence the action as soon as possible after the obstruction ends. The Court decided to apply the latter rule -- particularly in a RICO case where the Supreme Court has emphasized the importance of prompt action. In applying the "as soon as possible" rule, the Court stated that plaintiffs had enough information in 2005 to complete their investigation and file suit long before the three years they actually used. Notwithstanding the Court's conclusion that the action was barred by the statute of limitations, it also addressed the defendants' alternative argument that the complaint failed to state a RICO cause of action. The Court concluded that it did not since it did not allege that the defendants used an enterprise (i.e., their conspiracy) to engage in a pattern of racketeering activity.