June 18, 2019

Tenth Circuit: Plaintiff Failed to Exercise Due Diligence to Discover Theft; RICO Limitations Period Expired

The Tenth Circuit Court of Appeals issued its opinion in Robert L. Kroenlein Trust v. Kirchhefer on Monday, August 25, 2014.

Robert L. Kroenlein owned and operated J&B Liquors, a liquor store in Wyoming, through the Robert L. Kroenlein Trust. When Kroenlein died, his daughter became trustee, and his son-in-law, Eric Alden, took over management of the store. Alden lived in another town and left the operations of the store to another manager. During this time, the store purchased Anheuser Busch products from a distributor named Orrison through a salesman named Kirchhefer. Unbeknownst to Alden, Kirchhefer was operating a scheme in which he would order more beer than J&B needed and then steal the extra beer and sell it to other bars. As early as 2005, J&B’s accountants discovered that beer purchases exceeded sales. Eventually, Alden discovered that Kirchhefer was the thief, set up security cameras to capture the theft, and called law enforcement.

On August 15, 2011, Alden filed a complaint through the Kroenlein Trust against Kirchhefer, the bars to which he was selling the stolen beer, and the owners of the bars, alleging two state law claims and six RICO claims. According to the complaint, the defendants engaged in a pattern of racketeering by committing wire fraud. The district court granted summary judgment to defendants on the grounds that all of Kroenlein’s RICO claims were time-barred. The district court also determined that no “enterprise” existed between Kirchhefer and the other defendants, and therefore the RICO claims were barred on this alternative ground as well.

Kroenlein appealed, alleging the district court erred in determining its claims were time-barred. Kroenlein argued there was no way for it to have discovered its injury prior to August 31, 2007, and alternatively the limitations period was equitably tolled by defendants’ fraudulent concealment. The Tenth Circuit disagreed, concluding that had Kroenlein exercised due diligence it would have discovered the fraud as early as September 2005 under the injury-discovery rule. RICO’s four-year statute of limitations expired in 2009. RICO requires only discovery of harm, not discovery of the source of harm. Kroenlein’s equitable tolling for fraudulent concealment claims also failed because the undisputed evidence failed to support that by the exercise of due diligence plaintiff could not have known a cause of action may have existed.

The district court’s summary judgment was affirmed.

Colorado Court of Appeals: Actual Knowledge Cannot Be Imputed in Fraudulent Concealment Claim

The Colorado Court of Appeals issued its opinion in Jehly v. Brown on Thursday, March 27, 2014.

Fraudulent Concealment—Imputed Knowledge.

Defendant owned real property and hired a general contractor to build a house on it. Before commencing, the contractor discovered that part of the property was located in a floodplain, but did not inform defendant of that fact.

Plaintiffs David and Peggy Jehly entered into a contact to purchase the house. Defendant filled out a Seller’s Property Disclosure form by writing “New Construction” diagonally across every page and not checking any of the boxes. Before buying the house, plaintiffs were never informed that part of the property was located in a floodplain.

Approximately five years after the home purchase, heavy rains caused severe flooding and damage to the basement of the house. Plaintiffs sued defendant, alleging he fraudulently concealed knowledge of the floodplain to induce plaintiffs to buy the house. During a bench trial, defendant denied having any personal knowledge of the floodplain at the time of the sale and denied that his general contractor or any subcontractors had so informed him. The trial court found in favor of defendant.

On appeal, plaintiffs asserted that it was error not to impute to defendant the general contractor’s knowledge that part of the property was in a floodplain. The Court of Appeals disagreed. To prevail on a claim of fraudulent concealment, a plaintiff must show that a defendant actually knew of a material fact that was not disclosed. It is not enough that defendant should have or might have known the fact.

Plaintiffs did not contest on appeal the trial court’s factual finding that defendant had no active or conscious belief or awareness of the existence of the floodplain. The trial court, therefore, did not apply the wrong legal standard, because defendant did not have the requisite actual knowledge of the information allegedly concealed.

The Court further concluded that the knowledge of the general contractor could not be imputed to defendant. Knowledge of an agent is generally imputed to the principal. However, “actual knowledge” in the context of a fraudulent concealment claim cannot be imputed to a principal through knowledge of its agent. The judgment was affirmed.

Summary and full case available here.