Opposition Brief — Gold v. Panalpina, Inc., 118 S. Ct. 52 (1997) (No. 96-1820)

ip ;

Le Supreme Court, U.S.

No. 96-1820 “— FILED

In The JUN 19 1997

Supreme Court of the Anited |S =

> an

October Term, 1996

H. JASON GOLD, in His Capacity as Chapter 7 Trustee for

Guy R. Detrick, GORDON P. PEYTON, in His Capacity as

Chapter 7 Trustee for Donna Detrick and FAST FORWARD,

INC.,

Petitioners,

vs.

PANALPINA, INC., PANALPINA AIRFREIGHT, INC.,

MULTI-MODAL FREIGHT SYSTEMS, INC., MULTI-

MODAL FREIGHT SYSTEMS OF VIRGINIA and SYLVAN

FRIEDMAN,

Respondents.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Fourth Circuit

BRIEF IN OPPOSITION FOR RESPONDENTS

PANALPINA, INC. AND PANALPINA AIRFREIGHT, INC.

EDWARD D. GREENBERG

Counsel of Record

DAVID K. MONROE

HELLE R. WEEKE-

GALLAND, KHARASCH

& GARFINKLE, P.C.

Attorneys for Respondents

Panalpina, Inc. and Panalpina

Airfreight, Inc.

Canai Square

1054 Thirty-First Street, N.W.

Washington, D.C. 20007

(202) 342-5200

71308 (800) 3 APPEAL + (600) 5 APPEAL + (800) SRIEF 21 Le

ervices, inc.

i

QUESTION PRESENTED

1. May a party maintain a RICO claim filed more than

four years after discovery of both the existence of his injury

and the identity of the putative defendant?

ii

RULE 29.6 LISTING

Panalpina, Inc.:

Panalpina, Inc.’s parent company is Panalpina World

Transport Ltd., a Swiss corporation.

Panalpina, Inc. has no non-wholly owned subsidiaries.

Panalpina Air Freight, Inc.:

Panalpina Air Freight, Inc. no longer is in existence.

iti

TABLE OF CONTENTS

Page

Question Presented ..........ccceceecescsccecees i

Rule 29.6 Listing .......cccccccccccsccccsccccecs ii

EL is «cern enane 6eneeeoneresreess iii

Te I Hid no ooh cc ctv ccrccecconssccccces iv

Statement Of the Case ......ccccccccccvcccccccces 1

A, Wee 6 onc cis ccwscccccsccscsccccess 1

B. Course of Proceedings and Disposition of the

CD sg cc cuswanevdknsecnstesses gas 2

C. Statement of Facts Pertaining to the Issues Raised

by the Petition ...........seeseeeeeeeeeees 3

D. Correction of Misstatements in the Petition 9

Reasons for Denying the Writ ............-seee00- ff

L This Case Is Not An Appropriate Vehicle For

Determining The Correct Rule Of Accrual For

Civil RECO Ca000, ic veces sce ccectevececes 11

A. Petitioners’ RICO Claims are of Extremely

Dubious Validity. ..........++++++++:- 11

Petitioners Never Sought Application of the

Kubrick Rule in the District Court or the

Court of Appeals. ..........-.seeeees 14

iv

Contents

Page

C. Application of the Kubrick Accrual Rule to

this Case Would Not Change the Outcome.

oo 0eseeeusekasens sh Shs GukE eae sees 16

1. The Kubrick Rule of Accrual Requires

Only That a Plaintiff Have Constructive

Knowledge That a Defendant Caused

His Loss, Not That Plaintiff Know the -

Exact Nature of His Claim. ......... 16

2. Applying the Kubrick Rule of Accrual

to the Facts of this Case Would Not Alter

the Outcome — Petitioners’ Claims

Would Still Be Barred. ............ 18

Il. Kubrick Is Not The Appropriate Standard For Civil

RICO Cases And Is Contrary To The Policies

Underlying Statutes Of Limitation. .......... 19

Comchasbee 25 oi 6c Cec eee Chee Tee eee bee bh Bete, 21

TABLE OF CITATIONS

Cases Cited:

Agency Holding Corp. v. Malley-Duff & Assoc., Inc., 483

WS. B43 COR) ic ctvncspacdevassatewebuscn 15, 18

Arvayo v. United States, 766 F.2d 1416 (10th Cir. 1985)

occ ccccsowesceercccusesstevedeeeiuEbesesins 17

Contents

19BB) ....cccccccccccccccccccscccovccesscess

Clark v. Iowa City, 87 U.S. (20 Wall.) 583 (1895) ...

Cragin v. United States, 684 F. Supp. 746 (D. Me. 1988)

Oct. 26, 1995) .....-eeeeecccccccccreecceseces

Cir, 1984) ....ccccccccccccccccecsccscceseses

(Tth Cir. 1990) ....-.seereececeeerceseeeceere

Grove Fresh Distrib. Inc. v. Flavor Fresh Foods, Inc.,

720 F. Supp. 714 (N.D. Ill. 19B9) .. cc cccccecess

Holly Farms Corp. v. N.LR.B., 116 S. Ct. 1396 (1996)

_ Page

17

17

19

17

17

12

15

vi

Contents

Page

In re Rexplore Inc. Sec. Lit., 685 F. Supp. 1132 (N.D. |

Cal. 1988) 2. ccccricsiccsccccccveccecsesccese

Klehr v. A.O. Smith Corp., 87 F.3d 231 (8th Cir. 1996),

cert. granted, 117 S. Ct. 725 (1997) ........eee0-

Lighting Lube, Inc. v. Witco Corp., 4 F.3d 1153 (3d Cir.

BDDS) wnccccceccovccescdcsasecscnceeccecesees

STS (1DSGS)... ocd esis cichencsncnd coswedscesiess

IDSG) wn ccccccsiessccncclcccdtbinccceseseovece

Moline Plow Co. v. Webb, 141 U.S. 616 (1891) .....

Moll v. Abbot Lab., 482 N.W. 2d 197 (Mich. App. 1992)

Nemmers v. United Staies, 795 F.2d 628 (7th Cir. 1986),

on remand, 681 F. Supp. 567 (C.D. Ill. 1988), aff'd,

870 F.2d 426 (7th Cir. 1989) ...... ccc e eee e eens

Oberlin v. United States, 727 F. Supp. 946 (E.D. Pa.

RODD) cnc divin veie Nec ewiegé ca debeegeeien ss

Pemberton Sales & Sery, v. Banco Popular de P.R., 877

F. Supp. 961 (D. V.1 1994) ........ccseceeeeees

Pocahontas Supreme Coal Co. v. Bethlehem Steel Corp.,

828 F.2d 211 (4th Cr, 1987) ...........ccceeees

12

19

12

15

17

20

20

17

17

12

14

vii

Contents

Page

Princeton Economics Group, Inc. v. Am. Tel. & Telegraph

Co., 768 F. Supp. 1101 (D. N.J. 1991) .......... 12

Railroad Telegraphers v. Ry. Express Agency, Inc., 321

U.S. 342 (1944) seen eeeeeeeeeeeeeeeeeeeseeees 20, 21

Rawlings v. Ray, 312 U.S. 96 (1941) .........-.0-- 20

Stoleson v. United States, 629 F.2d 1265 (7th Cir. 1980)

LE Fee See TET ESTYESEE ote he Le eee 20

Taylor v. Freeland & Kronz, 503 U.S. 638 (1992) .... 15

Teti v. U.S. Healthcare, Nos. 88-9808, 88-9822, 1989

WL 157090 (E.D. Pa. 1989), aff'd mem., 904 F.2d

Oe ee TE oe a vnc cond cancece cacaamal 12

United States v. Alvarez-Sanchez, 511 U.S. 350 (1994)

ee sot agent Puna ans ay a Aenaartins party Ge. a a 15

United States v. Kubrick, 444 U.S. 111 (1979) ......

ee es ro eee 3, 9, 14, 15, 16, 17, 18, 19, 20, 21

United States v. Williams, 504 U.S. 36 (1992) ....... 15

Wilkinson v. United States, 677 F.2d 998 (4th Cir.), cert.

denied, 459 U.S. 906 (1982) ..........eceeceees 19

Wollman v. Gross, 637 F.2d 544 (8th Cir. 1980) ..... 19

Youakim v. Miller, 425 U.S. 231 (1976) ............ 15

viii

Contents

Page

Yustick v. Eli Lilly & Co., 573 F. Supp. 1558 (E.D. Mich.

NOES) bin.0.0.00.0w tcldtible cpd% cs hGlis eal 1 aa 20

Statutes Cited:

18 U.S.C. § 1961, CF SEG. ee cee ceeecenceeeeneees 2

Sean PEE Swi vcbeekcc cous 6 waeeenekicke 12

United States Constitution Cited:

Fourth Amendment ..............cccccececes vii. 15

Pith Anemia gf. a ese owing’, 23 10

Rules Cited:

Fed. R: Che: BADGE 2 oie aiiis eZtisworducs RS 2

Supreme Court Rule 15.2 .......ccccccccscccceces 9

1

Respondents Panalpina, Inc. and Panalpina Airfreight, Inc.'

respectfully request that this Court deny the petition for writ of

certiorari seeking review of the opinion of the United States

Court of Appeals for the Fourth Circuit in this case.

STATEMENT OF THE CASE

A. Introduction

Petitioners? were contractors who operated Panalpina’s

warehouse pursuant to an at-will contract. Petitioners allege that

sometime in 1989, Panalpina decided to engage in certain illegal

billing practices, and as a result, determined it was necessary to

remove petitioners from its warehouse. Petitioners contend that

rather than simply exercising its right to terminate the warehouse

contract on sixty days notice, Panalpina instead imposed a series

of price cuts and other economic hardships over 15 months in

order to force petitioners to leave. Petitioners did, in fact,

abandon the warehouse contract in April 1990. Eleven months

later, petitioners learned of the so-called illegal rebilling scheme,

and immediately concluded that their economic troubles had

been caused in some way by the rebilling activity.

Petitioners sought legal counsel, and determined that they

had claims against Panalpina. Nonetheless, petitioners waited

an additional four years — almost five years after they have

been injured — to commence this action. Because petitioners

delayed bringing their RICO claims until after the limitations

period had passed, the District Court granted summary judgment

1. These respondents are hereinafter collectively referred to as

“Panalpina.”

2. The term “petitioners” means the named petitioners herein and the

named plaintiffs and appellants, Guy Detrick and Donna Detrick, in,

respectively, the District Court and the Court of Appeals.

2

in favor of Panalpina. Detrick v. Panalpina, Inc., No. 96-306-

A (E.D. Va. filed Oct. 26, 1995). The Fourth Circuit affirmed.

Detrick v. Panalpina, Inc., 108 F.3d 529 (4th Cir. 1997).

Petitioners now seek to avoid the consequences of their

own purposeful delay by urging upon this Court the application

of a new accrual rule they have never raised below.

B. Course of Proceedings and Disposition of the Case Below

On March 9, 1995, petitioners filed a complaint alleging

violations of the Racketeer Influenced and Corrupt Organizations

Act, 18 U.S.C. § 1961, et seqg., (“RICO”), as well as a state law

conspiracy claim under Virginia law. On May 19, 1995,

petitioners filed a verified First Amended complaint. Petitioners

alleged that respondents conspired to force petitioners to

abandon their at-will warehouse contract with Panalpina in order

to begin a fraudulent billing scheme directed at certain foreign

governments.

Respondents moved to dismiss the complaint pursuant to

Fed. R. Civ. P. 12(b)(6) on the grounds that the RICO and

associated state law claims were barred by the statute of

limitations. In opposition to the motion to dismiss, petitioners

raised for the first time the defense of fraudulent concealment.

The District Court denied the motion to dismiss in order to

afford petitioners the opportunity to conduct discovery regarding

fraudulent concealment.

At the close of discovery, respondents filed a motion for

summary judgment on the grounds that petitioners’ claims were

barred by the statute of limitations. In addition, respondents

argued that petitioners did not have standing to assert claims

under RICO because there was no evidence that petitioners had

been injured by any racketeering activity or by the investment

3

of the proceeds of a RICO scheme. The District Court determined

that the statute of limitations on petitioners’ RICO claims began

to run no later than April 1990, when petitioners were allegedly

forced to terminate their contract. Accordingly, the District Court

held that the four-year RICO statute of limitations expired no

later than April 1994, almost a year before petitioners

commenced this action. The District Court also found that

petitioners had come forward with no evidence to support their

allegations of fraudulent concealment, and dismissed the

amended complaint as time barred. Based upon its ruling on

the limitations issue, the District Court did not find it necessary

to address respondents’ standing argument.

Petitioners appealed to the Court of Appeals for the Fourth

Circuit. On appeal, petitioners argued that under the “injury

discovery” accrual rule, petitioners’ RICO claims did not accrue

until they had knowledge of both their injury and the fact that

their injury was related to racketeering activity. Petitioners did

not raise, argue, or even cite the accrual rule set forth in United

States v. Kubrick, 444 U.S. 111 (1979), upon which they now

seek to rely. The Court of Appeals found that petitioners’ claim

accrued at the latest in April 1990, when they were allegedly

forced to abandon their warehouse contract, and thus held

petitioners’ RICO claims were time barred. In addition, the Court

of Appeals affirmed the District Court’s finding that petitioners

had failed to present any evidence establishing fraudulent

concealment.

Petitioners did not seek rehearing before the Court of

Appeals, instead filing the instant Petition for a Writ of Certiorari

with this Court.

C. Statement of Facts Pertaining to the Issues Raised by

the Petition

Panalpina is an international freight forwarder in the

4

business of arranging for the worldwide transportation goods

on behalf of its customers. (App. 26, 157). Panalpina operated

a warehouse facility in Sterling, Virginia. (App. 26). During

the time period at issue, much of Panalpina’s business at the

Sterling warehouse related to the transportation of military

equipment purchased from the United States by various foreign

governments under what is known as the Foreign Military Sales

Program (“FMSP”). Panalpina provided such transportation

services to the government of Turkey pursuant to a contract

executed in November 1988. (App. 665).

On October 24, 1988, Panalpina executed a contract with

Northeast Container Corporation (“Northeast”), pursuant to

which Northeast agreed to provide warehouse services at the

Sterling warehouse. (App. 309).‘ The warehouse services

Northeast committed to provide included unloading freight from

trucks, logging the freight in, storing the freight in the

warehouse, and packing it for overseas shipment. (App. 362-

364). The warehouse contract was terminable at-will by either

party on 60 days notice. (App. 311, 360-61).

The contract specified that Northeast would be paid 3.5

cents per pound for handling large freight. (App. 312).

According to Guy Detrick, however, Northeast and Panalpina

had previously agreed to a rate of 4.5 cents per pound for large

freight, but Panalpina unilaterally lowered the rate during the

negotiations leading to the warehouse contract. (App. 377-78).

Mr. Detrick further testified that Panalpina justified that decrease

by claiming that Sylvan Friedman (“Friedman”), and his

companies, Multi-Modal Freight Systems, Inc. and Multi-Modal

3. References to the joint appendix lodged with the Court of Appeals

are designated “App. _.”.

4. Northeast Container was a company partially owned and operated

by the Detricks.

5

Freight Systems of Virginia (collectively “Multi-Modal”), would

do the work for only a penny a pound. (App. 378).

In early 1989, Northeast began to process the Turkish/

FMSP freight moving through the Sterling warehouse. Because

the volume of this freight was very large, Panalpina requested

that the rate for handling large Turkish freight be lowered from

3.5 cents per pound to 2.5 cents per pound. (App. 595-600).

Although Mr. Detrick was unsure whether Panalpina had a

contractual right to reduce the rate for Turkish freight, and

complained about the reduction, he ultimately agreed to it. (App.

595-600). On June 7, 1989, Panalpina again requested a

reduction in the rate for handling Turkish freight, this time from

2.5 cents per pound to two cents per pound. (App. 600, 795).

Panalpina indicated that the reduction was necessitated by a

budget forecast which indicated that Panalpina was experiencing

a drastic increase in its cost of warehouse handling. (App. 795).

Northeast agreed to this requested reduction as well. (App. 606).

Thereafter, the only change in the rate for Turkish freight was

an increase in the fall of 1989. (App. 1063-64).

During the same period in which the rate reductions took

place, Mr. Detrick observed that Sylvan Friedman was a regular

visitor to the Sterling warehouse. (App. 948). Mr. Detrick was

also aware that Mr. Friedman had a copy of Northeast’s contract

with Panalpina, and knew the rates that Northeast was being

paid thereunder. (App. 948).

Mr. Detrick also testified that, in early 1989, Panalpina

began to impose other economic hardships on Northeast. These

hardships included chargebacks unrelated to the warehouse

contract, unreasonable demands for more personnel, and refusals

to lease additional space. (App. 44). Mr. Detrick was able to

describe a few examples of chargebacks occurring in early 1989,

involving several hundred dollars. (App. 608-27).

6

Panalpina’s alleged demands for increased staffing began

in early 1989. (App. 627-29). The freight relating to the Turkey

FMSP contract had completely filled the Sterling warehouse,

and Panalpina determined that additional labor would be

necessary to clear it out. (App. 628). Mr. Detrick believed that

the solution to the warehouse problem was to increase the

amount of available warehouse space, and requested Panalpina

to do so. (App. 628-29, 633). Panalpina refused to lease more

space, however, and between February and May 1989, Northeast

gradually added five to seven employees to its staff. (App.

630-32).

In May 1989, the Detricks requested that Panalpina permit

Fast Forward, Inc. (“Fast Forward”) to take over the warehouse

services contract from Northeast. (App. 366-67).° Panalpina

agreed, and in September 1989, a new terminable at-will contract

was executed between Panalpina, Fast Forward, and the

Detricks. (App. 940). In connection with the new contract,

petitioners requested an increase in the rate for Turkish freight

to which Panalpina agreed. (App. 1063-64). These increased

rates remained in effect until petitioners terminated their contract

with Panalpina. (App. 1064). During this time period, Fast

Forward obtained a security clearance from the Department of

Defense and began handling classified freight at the Sterling

facility for Panalpina. (App. 43, 950).

In February of 1990, Mr. Detrick advised Panalpina that

he was having difficulty making payroll and paying his vendors.

(App. 636-39). The following March or April, petitioners

abandoned the warehouse contract because it had become

unprofitable. (App. 636).

On March 19, 1990, Panalpina engaged Multi-Modal to

5. Fast Forward was a company formed and wholly-owned by the

Detricks.

7

replace petitioners as the warehouse service provider at the

Sterling facility. (App. 798). Multi-Modal took over the Sterling

warehouse the day after petitioners abandoned the contract,

using former Fast Forward employees and equipment belonging

to Fast Forward. (App. 948). Mr. Detrick testified that he

observed that “within days, all of the obstacles which had

destroyed Northeast were removed. More space was leased, rates

were increased 50% or more, chargebacks were eliminated,

equipment was purchased from Multi-Modal by Panalpina,

expenses were paid.” (App. 948). These observations caused

Mr. Detrick to wonder “how Friedman could accomplish in

such a short time all that I had been asking for so long.” (App.

948).

Although petitioners had abandoned the warehouse services

contract, they nonetheless insisted that they continue to handle

classified freight at the Sterling facility. (App. 414). Panalpina

agreed, and petitioners began providing services and invoicing

for the handling of classified freight in April 1990. (App. 419).

A formal classified services contract between petitioners and

Panalpina was executed in August 1990. (App. 944). Petitioners

continued to provide classified services out of the Sterling

facility until January 1991, when, at the request of the Defense

Investigative Service, they moved to a nearby location. (App.

409-11).

In addition, during the spring of 1990, both Guy and Donna

Detrick were hired by respondent Multi-Modal. (App. 383-84,

422-23). The Detricks worked in Multi-Modal’s offices located

at the Panalpina warehouse, and had complete access to

documents generated by that office. (App. 429-31). Mr. Detrick

was hired as a salesman, and occasionally worked in Multi-

Modal’s office in Baltimore, where he had access to documents

generated in that office. (App. 429-31). Mrs. Detrick performed

clerical work at the Sterling warehouse. (App. 430).

In October or November 1990, Mr. Detrick discovered a

Multi-Modal note and invoice which had been sent to Panalpina

for classified packaging work. (App. 413). Mr. Detrick knew

that Multi-Modal was not providing classified services to

Panalpina, and concluded that the invoice was a phony. (App.

413). He later provided these documents to the government as

part of what he believed to be evidence of illegal conduct at the

Sterling warehouse. (App. 69-70).

Petitioners conducted no investigation or inquiry regarding

the injuries they had suffered until a former Fast Forward

employee approached Guy Detrick with allegedly suspicious

invoices on March 11, 1991. (App. 319). On that same day,

Mr. Detrick noticed a stack of documents sitting in plain view

in the copy room at the Panalpina warehouse, which led him to

conclude that Panalpina was involved in “something big”

relating to its billing for inland freight. (App. 388-89).

On the evening of March 11, 1991, Mr. Detrick returned

to the Panalpina warehouse and made copies of the documents

he had seen earlier in the copy room, which had remained there

undisturbed. (App. 391-93). Mr. Detrick took the documents

home, studied them, and concluded that Panalpina was

conducting an illegal “rebilling scheme” in the Sterling

warehouse, and that this was the reason that he and his company

were forced out of their contract with Panalpina. (App. 394,

948).

At a later date, Mr. Detrick returned to the Panalpina

warehouse after business hours and took more documents

relating to the alleged rebilling scheme. (App. 395). This time,

he not only removed documents from the copy room, he also

took documents that were in plain view on the desk of a

Panalpina employee. (App. 396-98). Thereafter, Mr. Detrick

continued to see documents relating to the alleged rebilling

9

scheme spread throughout the Sterling warehouse. (App. 434-

35).

Petitioners began consulting various attorneys almost

immediately concerning what causes of action they might have

relating to the rebilling scheme. (App. 451-454). Petitioners

also brought their findings to various government agencies,

including the Internal Revenue Service, the State Department,

the Department of Defense, and ultimately in the summer of

1991, to the United States Attorneys office for the Eastern

District of Virginia. (App. 320-351). By this time, petitioners

believed they had sufficient evidence to pursue claims against

Panalpina. (App. 399). Indeed, during their meeting at the U.S.

Attorney office, petitioners discussed the possibility of bringing

a civil suit against Panalpina, perhaps a RICO claim. (App.

348-351). Petitioners did not file their claims, however, until

March 1995, almost five years after they were allegedly forced

to abandon their warehouse contract.

D. Correction of Misstatements in the Petition

Pursuant to United States Supreme Court Rule 15.2,

respondents hereby bring to the Court’s attention the following

misstatements of fact and/or inaccurate citations to the record

contained in the petition:

1. Petitioners assert that they raised below the accrual rule

formulated by this Court in United States v. Kubrick, 444 U.S.

111 (1979). (Pet. 10). Petitioners neither cited the Kubrick case

nor argued the applicability of the Kubrick accrual rule to RICO

claims in the District Court or the Court of Appeals.

2. Petitioners allege for the first time in this Court a

conspiracy between Panalpina and Friedman to fraudulently

overbill for warehouse services. Petitioners contend that they

10

stcod in the way of this new objective of the rebilling scheme,

and therefore were direct victims of the RICO rebilling scheme.

As a preliminary matter, these assertions of fact are in no way

supported, much less established, by the citations to the record.

Indeed, the citations purporting to support this conspiracy to

overbill for warehouse services are citations to petitioners’

complaint and the invocation of the Fifth Amendment by several

Panalpina employees. Petitioners’ desire to rely upon “negative

inferences” arising from the invocation of the Fifth Amendment

by certain Panalpina employees does not substitute for evidence

necessary to meet the burden of production on a motion for

summary judgment. Moreover, none of the witnesses were even

asked about any scheme to overbill for warehouse services. In

fact, the whole idea of 2 conspiracy to overbill for warehouse

services is not only unsupported, it is fanciful. Panalpina did

not bill its FMSP customers for warehouse services, and thus

could not possibly have fraudulently overbilled for warehouse

services, even if it had wanted to do so. More to the point,

there is no evidence whatsoever on the record even suggesting

such a scheme.

3. Similarly, petitioners’ allegation that respondents used

the proceeds from the alleged racketeering activity to subsidize

below-market rates for warehous¢ services is completely

unsupported in the record. Indeed, such a suggestion is directly

contradicted by the evidence of record which demonstrates that

Panalpina paid Multi-Modal higher rates for warehouse services

than it had previously been paying petitioners. (App. 948).

4. Although petitioners repeatedly assert that Panalpina

engaged in rebilling activity designed to defraud the United

States, there is no evidence to support that allegation. Indeed,

Panalpina’s relationships with its FMSP customers were strictly

commercial, and the United States was not involved in any way

in paying for Panalpina’s transportation services.

11

REASONS FOR DENYING THE WRIT

L

THIS CASE IS NOT AN APPROPRIATE VEHICLE

FOR DETERMINING THE CORRECT RULE OF

ACCRUAL FOR CIVIL RICO CASES.

A. Petitioners’ RICO Claims are of Extremely Dubious

Validity.

Petitioners suggest that this case presents a paradigm of

civil racketeering activity making it a particularly suitable vehicle

for deciding a uniform rule of accrual for all civil RICO cases.

However, petitioners’ RICO claims are typical only in the sense

that they demonstrate how far creative lawyers will seek to

stretch routine commercial claims in order to obtain the enhanced

remedies of civil RICO. When one puts aside the rhetoric and

examines the facts, whatever injuries petitioners might have

suffered had no relationship to the alleged racketeering activity.

It is not surprising, therefore, that plaintiffs have struggled

throughout this case to even articulate, much less support with

evidence, a coherent theory of how they were harmed by the

alleged RICO “rebilling” scheme.

The alleged rebilling scheme upon which petitioners base

their RICO claims involved the submission of marked up

trucking bills to Panalpina’s FMSP customer. Petitioners, who

operated Panalpina’s warehouse, were obviously not direct

victims of this alleged scheme since they were not Panalpina’s

customer. Consequently, petitioners sought to argue below that

they were injured by the investment of proceeds of the rebilling

activity. However, petitioners have never been able to explain

exactly how the proceeds were invested, or how they were

injured by that investment.

12

Initially, petitioners claimed that they were forced to

abandon their at-will warehouse contract so that the rebilling

scheme could begin. When Panalpina pointed out that petitioners

could hardly be injured by the investment of the proceeds of

rebilling which did not commence until after petitioners had

already suffered all of their injuries, petitioners claimed that the

rebilling had begun prior to the time they were fore-d out of

the warehouse. This new theory still did not expleia how the

proceeds of the rebilling had been invested in a manner in which

to injure petitioners.

Accordingly, petitioners later asserted yet another theory

of causation, claiming that the retention of the proceeds of prior

rebilling undertaken by the “Friedman enterprise” with another

company was the investment of proceeds upon which they relied.

Petitioners argued that the investment of these proceeds in the

“Friedman enterprise” lured Panalpina into the rebilling scheme.

This third theory of causation is highly suspect because the

proceeds upon which petitioners rely arose from different and

separate rebilling activity unrelated to Panalpina. In addition,

established case law provides that the mere retention of the

proceeds of racketeering activity is not sufficient to establish

causation under § 1962(a). See, e.g., Lightning Lube, Inc. v.

Witco Corp., 4 F.3d 1153, 1188 (3d Cir. 1993); Pemberton

Sales & Serv. v. Banco Popular de P.R., 877 F. Supp. 961 (D.

V.I. 1994); Princeton Economics Group, Inc. v. Am. Tel. &

Telegraph Co., 768 F. Supp. 1101 (D. N.J. 1991); Grove Fresh

Distrib. Inc. v. Flavor Fresh Foods, Inc., 720 F. Supp. 714

(N.D. Ill. 1989); Teti v. U.S. Healthcare, Nos. 88-9808, 88-

9822, 1989 WL 157090 at *1 (E.D. Pa. 1989), aff’d mem.,

904 F.2d 696 (3d Cir. 1990); In re Rexplore Inc. Sec. Lit., 685

F. Supp. 1132 (N.D. Cal. 1988).

In the petition, petitioners have advanced a new theory of

causation. Petitioners now suggest that the proceeds of the

13

rebilling activity were used to subsidize below-market rates paid

to Friedman/Multi-Modal when they replaced petitioners as the

operators of Panalpina’s warehouse. Petitioners apparently

suggest that they were harmed because the proceeds of

racketeering activity were used to subsidize their competitor.

Once again, however, the evidence of record does not support

petitioners’ theory of causation. Nothing in the record suggests

that Multi-Modal was paid below-market rates for providing

warehouse services. Indeed the uncontested evidence of record

is that Panalpina paid Multi-Modal higher, rather than lower,

rates than petitioners were receiving under their warehouse

contract. (App. 948). Accordingly, the proceeds of rebilling

were not used to subsidize petitioners’ competitor, and

petitioners were not the direct or indirect victims of the rebilling

scheme.

Petitioners also argue that the circumstances of this case

demonstrate a clear distinction between the application of a pure

“injury discovery” rule and an accrual rule requiring discovery

of the source of the injury. However, this is not a case in which

a party failed to discover the existence of racketeering activity

until more than four years after the injury occurred. In this case,

petitioners discovered the alleged racketeering activity eleven

months after they abandoned the warehouse contract — well

within the four-year limitations period provided under the “injury

discovery” rule of accrual. Upon discovering the alleged rebilling

scheme and recognizing that they had a potential RICO action

against respondents, petitioners waited almost four more years

to commence this action.* Consequently, petitioners were not

6. Although petitioners have never explained why they waited so long

to bring this action, petitioners used the interim period to go through

bankruptcy proceedings to discharge their substantial debts before bringing

this action. The causes of action asserted in this action, were not listed among

petitioners’ assets during their respective bankruptcies, although PoCeata)

14

prejudiced by the application of the “injury discovery rule”,

but rather by their own decision to delay filing until the

limitations period had expired.’

This Court’s recent actions in twice granting certiorari on

the accrual issue suggest that the Court believes the time is right

to establish a uniform accrual rule. However, this Court should

not determine a rule of accrual for all civil RICO cases based

on the facts and circumstances in this case — which presents

none of the typical issues relating to the accrual of a true RICO

claim.*

B. Petitioners Never Sought Application of the Kubrick Rule

in the District Court or the Court of Appeals.

Petitioners did not argue below for the adoption of the

Kubrick accrual rule; it was not even mentioned in any of their

briefs filed in the District Court or the Court of Appeals.’ Thus,

t'd

a wel aware of their claims. Petitioners advised their respective trustees

of the existence of the claims asserted in this action only when respondents

sought to have petitioners dismissed as improper plaintiffs. This occurred

years after they had received discharges from bankruptcy.

7. Moreover, petitioners cannot credibly argue that the existence or

application of the “injury discovery” rule set forth in Pocahontas Supreme

Coal Co. v. Bethlehem Steel Corp., 828 F.2d 211 (4th Cir. 1987) was

somehow unclear.

8. Petitioners also suggest that criminal charges and convictions relating

to the government's investigation of rebilling demonstrate that real criminal

racketeering took place. However, the government has neither charged, nor

convicted, anyone of racketeering relating to rebilling.

9. In the Court of Appeals, petitioners primarily argued that the District

Court had failed to properly apply Pocahontas to the case before it. The

(Cont'd)

EE ae

15

the courts below were not presented with, nor did they decide,

the substantive issue pressed in the instant petition for certiorari.

This Court’s practice generally precludes the grant of

certiorari where the issue was not presented or passed upon

below. United States v. Williams, 504 U.S. 36, 40 (1992).'°

“Ordinarily, {the Supreme Court] does not decide questions not

raised or resolved in the lower courts.” Taylor v. Freeland &

Kronz, 503 U.S. 638, 646 (1992) (citing Youakim v. Miller,

425 U.S. 231 (1976)). See also Holly Farms Corp. v. N.L.R.B.,

116 S. Ct. 1396 (1996) (citing Matsushita Elec. Indus. Co.

Ltd. v. Epstein, 116 S. Ct. 873 (1996)). In Holly Farms, this

Court, declined to entertain an argument not advanced below.

116 S. Ct. 1402, n. 7. Only where a case presents exceptional

circumstances will the Court depart from its usual practice and

consider issues not raised below. See, e.g., United States v.

Alvarez-Sanchez, 511 U.S. 350, 360, n. 5 (1994) (“[flinding

no exceptional circumstances that would warrant reviewing a

claim that was waived,” this Court adhered to its general practice

and declined to address respondent’s Fourth Amendment

argument.)

(Cont'd)

District Court held that plaintiffs’ claims were time barred because plaintiffs

suffered the injury in April 1990, and they did not commence the lawsuit

until March 1995, outside the 4-year statute of limitations established by the

Supreme Court in Agency Holding Corp. v. Malley-Duff & Assoc., Inc., 483

U.S. 143 (1987).

10. The fact that Court’s practice does permit review of an issue not

pressed below as long as that issue was passed upon, United States v.

Williams, 504 U.S. 36, 40-41 (1992), does not alter the application of this

practice to the instant petition. Here, neither the District Court nor the Court

of Appeals passed upon the question of the applicability of the Kubrick rule

of accrual to the present action.

16

This particular case presents no compelling reasons or

exceptional circumstances why the Court should depart from

its traditional practice precluding the grant of certiorari when

the question presented was not pressed or passed upon below.

Furthermore, because the question raised in the petition for

certiorari was not presented to the courts below, this Court is

deprived of the benefit of reviewing the reasoning and practical

experience of each of the courts below in its consideration of

the issues before it. Additionally, different factual and policy

consideration would bear on the application of the Kubrick rule.

These considerations are more properly developed in the trial

court.

C. Application cf the Kubrick Accrual Rule to this Case

Would Not Change the Outcome.

The Court should refuse to grant certiorari as this case is

not the appropriate means of addressing the Kubrick accrual

rule for civil RICO cases. Petitioners’ claims would be time

barred even if the Kubrick rule were applied in this case.

1. The Kubrick Rule of Accrual Requires Only That a

Plaintiff Have Constructive Knowledge That a Defendant

Caused His Loss, Not That Plaintiff Know the Exact Nature of

His Claim.

In United States v. Kubrick, 444 U.S. 111 (1979), this Court

defined a rule of accrual for medical malpractice claims under

the Federal Tort Claims Act. This Court held that a medical

malpractice cause of action accrues when plaintiff knows of

both her injury and the putative cause of her injury. The Court

distinguished between knowledge of the probable causation and

knowledge of the nature of the claim. Jd. at 123-24. In other

words, Kubrick does not require a plaintiff to know the exact

nature of his claim in order for the cause of action to accrue.

17

Rather, Kubrick requires only that plaintiff have knowledge of

his injury and constructive knowledge that a defendant caused

his loss. Moreover, the injured plaintiff need not know which

cause, if many are possible, is the governing cause. The plaintiff

only needs to know or have reason to know of a potential cause.

The Kubrick rule of accrual, thus, imposes on an injured

plaintiff an affirmative duty to investigate the potential cause of

his injury after he has discovered his loss or injury. Fries v.

Chicago & N.W. Transp. Co., 909 F.2d 1092, 1096 (7th Cir.

1990) (quoting Kubrick, 444 U.S. at 123). In Kubrick, this

Court stated that when plaintiffs have knowledge of the critical

facts concerning their injuries, they are charged with a duty to

investigate promptly and present any claim for relief. 444 U.S.

at 123. Hence, a plaintiff has an affirmative duty to inquire as

to the legal cause of his injury (or the nature of his claim) after

becoming aware of the existence of the injury and its potential

cause. This affirmative duty to investigate has been widely

applied in medical malpractice cases arising under the Federal

Tort Claims Act. See, e.g., Chamness v. United States, 835 F.2d

1350 (11th Cir. 1988); Nemmers v. United States, 795 F.2d

628 (7th Cir. 1986), on remand, 681 F. Supp. 567 (C.D. Ill.

1988), aff'd, 870 F.2d 426 (7th Cir. 1989); Arvayo v. United

States, 766 F.2d 1416 (10th Cir. 1985); Gilbert v. United States,

720 F.2d 372 (4th Cir. 1983); Mendez v. United States, 732

F. Supp. 414 (S.D.N.Y. 1990); Oberlin v. United States, 727

F. Supp. 946 (E.D. Pa. 1989); Cragin v. United States, 684

F. Supp. 746 (D. Me. 1988); Dessi v. United States, 489

F, Supp. 722 (E.D. Va. 1980).

In sum, under Kubrick, once the duty to investigate arises

(i.e., when a plaintiff has knowledge of his injury and its potential

cause), the statute of limitations begins to run against the

potential claims.

18

2. Applying the Kubrick Rule of Accrual to the Facts of

this Case Would Not Alter the Outcome — Petitioners’ Claims

Would Still Be Barred.

Petitioners admit that under Kubrick, once a plaintiff is

aware that he has sustained a loss and that the loss could have

been caused by a putative defendant, it is reasonable to put the

plaintiff to the burden of exercising diligence to investigate, to

retain counsel, and to bring suit within the limitations period.

(Pet. 15). This means that under the Kubrick rule, a RICO

plaintiff has four years to bring his claims from the time he

discovers his loss and that the loss has been caused by a putative

defendant. See Agency Holding Corp. v. Malley-Duff & Assoc.,

Inc., 483 U.S. 143 (1987) (adopting a uniform four-year statute

of limitation in civil RICO actions).

In this case, petitioners waited more than four years to

commence this action from the time they had this essential

knowledge. In April 1990, petitioners admittedly knew that

they had sustained an economic loss — the relinquishment of

the warehouse contract. (Pet. 14). However, petitioners also

knew in April 1990 that Panalpina — which had imposed the

rate cuts and other economic hardships leading to the

abandonment of the warehouse contract — was the putative

cause of their injury. Thus, in April 1990, petitioners had

knowledge of the essential facts which, even under Kubrick,

started the limitations clock running and charged them with the

affirmative duty to investigate the nature of their claims.

Although petitioners admit that they had reason to know

that they had a potential contract action, (Pet. 18), they argue

that they had no knowledge that they had a potential RICO

action. Kubrick made clear, however, that knowledge of the

exact nature of the claim is not required for the claim to accrue.

Petitioners had four years from April 1990 to investigate and

19

discover their RICO claim. As events turned out, petitioners

did discover their alleged RICO claim within the allotted four

years. They had more than three years from that discovery to

bring suit; they simply neglected to file in time."

IL

KUBRICK IS NOT THE APPROPRIATE STANDARD

FOR CIVIL RICO CASES AND IS CONTRARY TO THE

POLICIES UNDERLYING STATUTES OF LIMITATION.

The Kubrick holding was narrowly tailored to decide the

specific question of when a claim accrues within the meaning

of the Federal Tort Claims Act. The ruling was fashioned as an

exception to the general rule that “limitations begin to run from

the time the plaintiff could sue,” i.e., when the right of action is

complete. Clark v. Iowa City, 87 U.S. (20 Wall.) 583, 598

(1895). The Kubrick standard was developed in the narrow

context of medical malpractice, where it is sometimes difficult

to determine that an injury was caused by a putative defendant.

This explains why most courts have restricted the application

of Kubrick to medical malpractice cases. See, e.g., Wilkinson v.

United States, 677 F.2d 998 (4th Cir.), cert. denied, 459 U.S.

906 (1982); Wollman v. Gross, 637 F.2d 544 (8th Cir. 1980).

Only in latent tort cases, such as occupational disease cases,

toxic substance litigation and product liability actions against

drug manufactures, has the Kubrick standard been extended

beyond the medical malpractice arena. Dubose v. Kansas City

Southern Ry., 729 F.2d 1026 (Sth Cir. 1984) (occupational

11. Petitioners also argue that the pendency of Klehr v. A.O. Smith

Corp., No. 96-663, before this Court somehow mandates grant of certiorari

in this case. However, whatever the result in Klehr, this case is especially

poorly suited to serve as the test case for determining the appropriate accrual

rule for civil RICO cases, as discussed more fully above.

20

disease); Stoleson v. United States, 629 F.2d 1265, 1269 (7th

Cir. 1980) (occupational disease); Yustick v. Eli Lilly & Co.,

573 F. Supp. 1558 (E.D. Mich. 1983) (drug manufacturer

liability); and Moll v. Abbot Lab., 482 N.W. 2d 197 (Mich.

App. 1992) (drug manufacturer liability). These types of cases

are similar enough to the medical malpractice context to warrant

a clear “source of the injury rule.” In contrast, the policies that

justified the application of the Kubrick accrual rule in those

cases, do not apply to RICO actions. There are no parallels

between the tort claim presented before the Court in Kubrick

and the typical RICO claim. The fact of injury, as well as the

identity of the putative defendant, is not generally difficult to

determine in a RICO case.

Furthermore, applying the Kubrick rule of accrual would

be contrary to the policies underlying statutes of limitations.

In general, causes of action accrue and statutes of limitations

begin to run when there is a “complete and present cause of

action.” Rawlings v. Ray, 312 U.S. 96, 98 (1941); see also

Moline Plow Co. v. Webb, 141 U.S. 616, 623 (1891). The

underlying policy and purpose of statutes of limitation is to

promote justice by preventing surprises

through the revival of claims that have been

allowed to slumber until evidence has been

lost, memories have faded, and witnesses

have disappeared. The theory is that even if

one has a just claim, it is unjust not to put

the adversary on notice to defend within the

period of limitation and that the right to be

free of stale claims in time comes to prevail

over the right to prosecute them.

Railroad Telegraphers v. Ry. Express Agency, Inc., 321 U.S.

21

342, 348-49 (1944).'"2 The accrual rule urged by petitioners is

contrary to this policy and purpose — it is an open-ended

standard setting no outer limits for when a plaintiff must bring

his or her claims.

CONCLUSION

For all the foregoing reasons, this case is not an appropriate

means of addressing the issue raised by the petition.

Accordingly, the petition for writ of certiorari should be denied.

Respectfully submitted,

EDWARD D. GREENBERG

Counsel of Record

DAVID K. MONROE

HELLE R. WEEKE

GALLAND, KHARASCH

& GARFINKLE, P.C.

Attorneys for Respondents

Panalpina, Inc. and Panalpina

Airfreight, Inc.

Canal Square

1054 Thirty-First Street, N.W.

Washington, D.C. 20007

(202) 342-5200

12. This Court in Kubrick, quoting with approval from Railroad

Telegraphers v. Ry. Express Agency, 321 U.S. 342 (1944), went on to state

that statutes of limitations “protect defendants and the court from having to

deal with cases in which the search for truth may be seriously impaired by

the loss of evidence, whether by death or disappearance of witnesses, fading

memories, disappearance of documents, or otherwise.” 444 U.S. at 117.