Detrick v. Panalpina, Inc.

Citations: 108 F.3d 529; 1997 WL 118255Docket: Nos. 95-2937, 95-3074

Court: Court of Appeals for the Fourth Circuit; March 17, 1997; Federal Appellate Court

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In April 1990, Guy R. Detrick, Donna Detrick, and Fast Forward, Inc. terminated their contract with Panalpina, Inc. and Panalpina Air Freight, Inc., under which they provided warehouse services at Panalpina’s facility in Sterling, Virginia. The Detricks alleged that Panalpina, along with Multi-Modal and Friedman, conspired to coerce them into abandoning the contract. They filed an amended complaint claiming violations of the Racketeering Influenced and Corrupt Organizations Act (RICO) and the Virginia conspiracy statute. In response, Panalpina counterclaimed, accusing the Detricks of submitting false invoices and conspiring to harm Panalpina’s business.

After discovery, the district court granted summary judgment for Panalpina, Multi-Modal, and Friedman, ruling that the Detricks' RICO and state law claims were time-barred. Additionally, the court found in favor of the Detricks on Panalpina’s counterclaim, determining that Panalpina lacked sufficient evidence to support its breach of contract claim and that its conspiracy claim was barred by the intracorporate conspiracy doctrine. Both parties appealed, but the appellate court affirmed the district court's decision in all respects.

Guy and Donna Detrick, who are majority shareholders of Fast Forward and affiliated with Northeast Container Corporation, had a deteriorating relationship with Panalpina, leading to their abandonment of the warehouse contract due to increased costs and unprofitability. Following the Detricks' exit, Friedman and Multi-Modal took over the warehouse operations using former Detrick employees. Shortly thereafter, Guy Detrick was hired by Multi-Modal, and Donna Detrick worked there part-time.

Detrick discovered suspicious documents in the Panalpina warehouse, indicating a potential unlawful rebilling scheme involving Panalpina, Friedman, and others, aimed at defrauding the U.S. and foreign governments. In March 1991, the Detricks sought legal counsel to assess possible injuries for a lawsuit and met with IRS, OIG, FBI, and DIS agents. On March 9, 1995, they filed a lawsuit in district court under RICO and Virginia conspiracy statutes. Panalpina counterclaimed, alleging the Detricks provided false invoices and conspired to harm Panalpina's business. During discovery, Panalpina, Multi-Modal, and Friedman sought summary judgment on the grounds of statute of limitations and lack of standing. The district court denied the standing motion but granted summary judgment based on the statute of limitations. Subsequently, it ruled in favor of the Detricks on Panalpina's cross-claim, citing insufficient evidence and the intracorporate doctrine. The Detricks contended the dismissal of their claims was erroneous. The court also considered a motion to substitute the Detricks' bankruptcy trustees as appellants, with Panalpina opposing the substitution due to potential complications. The Bankruptcy Code asserts that the trustee represents the debtor's estate and holds exclusive standing to litigate appeals, as established in case law. The trustee has discretion over pursuing claims on behalf of the estate.

The trustee is the sole party authorized to pursue legal actions belonging to the debtors’ estate, with three options: intervene and prosecute as trustee, allow the debtor to prosecute for the estate's benefit, or decline prosecution. The Detricks, having filed for bankruptcy, cannot individually pursue their lawsuit as their claims now belong to the bankruptcy trustees. The district court denied Panalpina’s summary judgment motion based on standing, noting the bankruptcy court's order permitted the Detricks to continue with counsel. However, the court did not substitute the trustees as plaintiffs. Panalpina contends that the trustees cannot appeal as they were not plaintiffs in the district court, but the trustees succeeded to the Detricks’ claims due to bankruptcy, allowing them to pursue the appeal. The court agreed to substitute the trustees as appellants. The appeal will be reviewed de novo, considering all facts in the light most favorable to the nonmoving party, who must present a genuine issue of material fact to oppose summary judgment. Regarding RICO claims, the statute lacks a specific limitations period; however, the Supreme Court has established a four-year limitations period for civil RICO claims. The Court did not determine when such claims accrue, leading to confusion and differing interpretations among federal courts.

The Fourth Circuit in *Pocahontas Supreme Coal Co. v. Bethlehem Steel Corp.*, 828 F.2d 211 (4th Cir. 1987), established the 'injury discovery' rule, which stipulates that a RICO claim accrues when a plaintiff is aware or should be aware of the injury that forms the basis of their cause of action. In the current case, the Trustees argue that the district court misapplied this rule. They contend that at the time the Detricks abandoned their warehouse contract in 1990, they were unaware of any injury related to a RICO claim, despite suffering economic loss. The Trustees assert that mere economic loss does not trigger the statute of limitations; rather, the plaintiff must have actual or constructive knowledge linking the injury to a predicate act constituting a RICO violation. 

In *Pocahontas*, the plaintiff, a coal mining company, alleged antitrust violations and conspiracy claims, claiming that the termination of their contract was part of a scheme to monopolize the coal market. The plaintiff did not know about the interlocking directorates or the conspiracy at the time of contract termination; only later, after researching public records, did they uncover the relevant connections. The court ultimately affirmed the dismissal of the RICO claims, ruling they were barred by the four-year statute of limitations due to the lack of knowledge of the underlying injury. The Trustees argue that the 'injury discovery' rule is knowledge-based, emphasizing the need for awareness of facts that connect the loss to the RICO action, which they support with cases from other circuits.

The Trustees contend that the Ninth Circuit's application of the injury discovery rule in Beneficial Standard Life Ins. Co. v. Madariaga aligns with the 'knowledge-based rule' from Compton v. Ide, which stipulates that a plaintiff's claims are barred if they knew or should have known about them within the four-year RICO statute of limitations. The Ninth Circuit determined that the statute of limitations begins when a plaintiff has actual or constructive knowledge of both the injury and the fraud. This contrasts with the antitrust accrual rule, which only considers the date of injury. The Trustees reference an unpublished district court ruling in Dayton Monetary Assocs. v. Donaldson, Lufkin, Jenrette Securities Corp., where the court found that the plaintiffs' RICO claims accrued once they knew or should have known of the fraud, specifically citing a public indictment. The court noted that while plaintiffs were aware of investment losses, they did not have knowledge of the racketeering nature of these losses at that time. The Trustees assert that their claims should not have accrued until a specific date in 1991 when new evidence was presented, arguing that the district court's dismissal should be overturned. However, their reliance on non-binding precedent presents challenges to their argument.

The Trustees assert they are not disputing the injury discovery rule; however, their arguments indicate otherwise. The Ninth Circuit interprets "injury" to necessitate that a plaintiff must possess actual or constructive knowledge of the racketeering activity underlying a RICO claim. In the Dayton case, the court required that a plaintiff must know both the injury and the defendants’ racketeering acts for the RICO cause of action to accrue and the statute of limitations to commence, seemingly contradicting Bankers Trust. Both the Beneficial and Dayton courts refer to the plaintiff's claim rather than solely the injury, broadening the definition of "injury" to include both the actual harm and the cause of action.

In Pocahontas, the court determined that the statutory period starts when a plaintiff knows or should know of the injury relevant to the claim. The plaintiff in Pocahontas argued that they only discovered the defendants' interrelations underlying their claims in early 1984, yet the court ruled that their injury occurred in May 1979 when a contract was terminated, rendering their December 1984 suit time-barred. The Trustees' distinction based on the public availability of information in Pocahontas is unpersuasive; the court did not emphasize this aspect in determining the statute of limitations.

Applying the Pocahontas ruling, the Detricks’ injury arose in April 1990 when they abandoned a warehouse contract, and since they discovered the alleged fraud on March 11, 1991, their claims filed in March 1995 were time-barred. Additionally, the Trustees argue for tolling of the statute of limitations until the discovery date under the fraudulent concealment doctrine, which aims to prevent defendants from hiding fraud until they can invoke the statute of limitations. To succeed in this claim, the Trustees must demonstrate: 1) fraudulent concealment of the facts by the party invoking the statute, 2) failure to discover those facts within the statutory period despite due diligence, and 3) that the fraud was concealed or of a nature that it concealed itself.

Trustees must demonstrate the existence of the first prong of the fraudulent concealment doctrine, as established in the Marlinton case, which applied the intermediate affirmative acts standard. This standard was chosen over others because price-fixing is not inherently deceptive, allowing courts to distinguish between acts in furtherance of conspiracies and those that are separate. To satisfy this prong, plaintiffs must provide evidence of affirmative acts of concealment by the defendant, which may include acts related to the antitrust violation itself.

In the Pocahontas case, plaintiffs sought to toll the statute of limitations for antitrust and RICO claims by arguing that the defendants' interrelationships and conspiratorial actions were concealed. The district court ruled against them, and the Fourth Circuit affirmed, emphasizing that the structural relationships were publicly discoverable and that vague inquiries about low prices did not constitute sufficient evidence of fraudulent concealment. The court stated that permitting such claims based on insufficient inquiry would undermine the statute of limitations.

Although the Marlinton decision's standards were not previously applied in Pocahontas, the current case involving an alleged unlawful rebilling scheme will utilize the intermediate affirmative acts standard. The Trustees must present evidence that Panalpina, Multi-Modal, and Friedman engaged in affirmative acts to conceal their conduct from the Detricks as part of this scheme.

The Trustees contend that the defendants engaged in fraudulent activities, including creating dummy corporations, using false addresses to obtain carrier authorizations, submitting fraudulent freight bills, inflating invoices, bribing Panalpina employees, and depositing checks from these illicit activities into multiple bank accounts to evade detection. They argue that these acts demonstrate a fraudulent concealment of a rebilling scheme from the Detricks, emphasizing the lack of public information that could have alerted the Detricks to the wrongdoing until at least March 11, 1991. However, the district court found the Trustees' evidence insufficient, noting that Multi-Modal had hired the Trustees and granted them access to records that would have revealed the alleged fraud. Consequently, the court rejected the fraudulent concealment claim, asserting that the Trustees did not provide evidence of affirmative acts to conceal fraud between April 1990 and March 11, 1991.

Regarding the Virginia conspiracy claim under Va. Code Ann. 18.2-500, the Trustees argued that their claims were improperly barred by the statute of limitations. The applicable five-year statute begins when the Detricks first suffered damages from the conspiracy, not necessarily when all damages were incurred. The Trustees posited that their claim began in April 1990 when they abandoned their warehouse contract, whereas the defendants maintained that the Detricks were injured as early as 1989 due to Panalpina’s pressure to lower rates and increase staffing. The district court agreed with the defendants' interpretation of the timeline for the statute of limitations.

The Trustees argue that the statute of limitations for their claim did not begin until April 1990, when the Detricks abandoned their warehouse contract, as the alleged conspiracy aimed to force that abandonment. However, the district court found that the Detricks experienced an initial injury in early 1989 due to Panalpina's demands to lower rates and increase staffing, thus starting the statute of limitations at that time. Consequently, the Trustees’ lawsuit filed in March 1995 was barred by Virginia's five-year statute of limitations.

On cross-appeal, Panalpina contends the district court erred in dismissing its breach of contract and conspiracy counterclaims. To prove breach of contract, Panalpina must show that the Detricks had a legal obligation, breached that obligation, and caused injury. Panalpina claims invoices support its case, alleging the Detricks sought double or triple reimbursement for paid invoices. The Detricks counter that Panalpina's evidence is inadmissible due to a lack of supporting testimony, as Panalpina's employees invoked their Fifth Amendment rights. The Detricks also provided an affidavit denying any overbilling. The district court ruled that Panalpina failed to present adequate evidence of a breach, affirming its dismissal of the claim.

Regarding the conspiracy claim, the district court applied the intra-corporate immunity doctrine, which states that a corporation cannot conspire with its agents. Panalpina argued for an exception based on the Detricks' individual capacities in signing the contract and suing. However, the court concluded that Panalpina's allegation constituted a conspiracy between the corporation and its officers, which is not permissible, and affirmed the dismissal of the conspiracy claim.

The judgment of the district court is affirmed, involving Multi-Modal Freight Systems, Inc., Multi-Modal Freight Systems of Virginia, and Sylvan Friedman as Appellees. The Arms Export Control Act and the Foreign Military Sales Authorizations Act facilitate the sale of U.S. surplus military equipment to allied foreign governments, with the purchasing country typically responsible for transportation costs. Evidence from 1991 revealed that in 1988, Friedman and Multi-Modal, in collaboration with agents of Daniel F. Young, Inc., implemented a fraudulent "re-billing" scheme that inflated freight charges for foreign governments, splitting the profits with D.F. Young (60%) and Multi-Modal (40%). Friedman also created shell entities and expanded the scheme to contracts with Egypt and Turkey, involving Panalpina, which shared profits similarly. To enhance profits, Friedman aimed to eliminate the Detricks' warehouse operations through subsidized rates and kickbacks to Panalpina employees. All involved Panalpina employees invoked Fifth Amendment rights against self-incrimination. Friedman later pleaded guilty to related charges, while D.F. Young employees were convicted. Guy Detrick filed a qui tam action under the False Claims Act in 1995, seeking a monetary award for his whistleblower role. However, Judge Ellis determined that Detrick lacked sufficient evidence to qualify for relator status under the Act.

In the case of United States of America ex rel. Guy Detrick v. Daniel F. Young, the District Court for the Eastern District of Virginia addressed the appeal of Guy Detrick, which is currently pending in the Fourth Circuit. In August 1990, Guy and Donna Detrick, representing Fast Forward, entered into a contract with Panalpina for "classified" warehousing services related to freight shipments for the governments of Turkey and the United Kingdom. Under this contract, the Detricks arranged the air cargo shipments, at times listing themselves as consignees and invoicing Panalpina for reimbursements.

Panalpina reported that after the Detricks uncovered a rebilling conspiracy, it began receiving multiple invoices from Fast Forward for the same shipping charges, which were disguised to conceal double billing. The district court, on July 7, 1995, denied a motion to dismiss the complaint on statute of limitations grounds, allowing for discovery.

Both Detricks filed for Chapter 7 bankruptcy in 1992 and 1993, respectively, and were released from dischargeable debts, not listing the current cause of action as they were unaware of their RICO and conspiracy claims at that time. They subsequently petitioned to reopen their bankruptcy cases on September 15, 1995, to include the present cause of action, allowing creditors to benefit from any proceeds. The bankruptcy court reopened their cases in October 1995 and re-appointed trustees while approving the retention of their attorneys to pursue the action.

Furthermore, the excerpt notes that while RICO does not specify a statute of limitations for criminal violations, the general five-year federal statute applies, as established by the Supreme Court. The court also acknowledged a pending certiorari in a related case, Grimmett v. Brown, indicating ongoing legal scrutiny in related matters.

The excerpt addresses the differing interpretations of the accrual of RICO claims across various U.S. Courts of Appeals. The First, Second, Fifth, Seventh, and Ninth Circuits adhere to the injury discovery rule, where a claim accrues upon the discovery of injury. In contrast, the Eighth, Tenth, and Eleventh Circuits assert that a RICO claim accrues when a plaintiff discovers or should have discovered both their injury and the defendant’s racketeering activity. The Sixth Circuit recognizes both rules but ruled that, under either, the plaintiff's RICO claim was time-barred. The Third Circuit employs the last predicate act rule, resetting the statute of limitations when the last predicate act is discovered. Notably, the Beneficial case clarified that, in antitrust actions, a plaintiff's knowledge is generally irrelevant to accrual, which is determined by the injury's occurrence date. The district court dismissed the argument that public information and IRS notices constituted sufficient inquiry notice of injury. The Second Circuit's separate accrual rule states that a new cause of action arises each time a plaintiff discovers an injury linked to a RICO violation. In Bontkowski, the Seventh Circuit reiterated the injury discovery rule, ruling the plaintiff's claim time-barred due to the late discovery of wire fraud.

The court of appeals determined that the plaintiff should have been aware of his injury by 1982, at the latest by 1984 when he and others were indicted. Consequently, the court ruled that the plaintiff's RICO claims were time-barred. Other jurisdictions applying the injury discovery rule do not necessitate knowledge of the cause of action for the statute of limitations to begin. In McCool v. Strata Oil Company, the Seventh Circuit clarified that a RICO claim accrues upon discovery of the injury, irrespective of the plaintiff's awareness of the racketeering pattern. The distinction between discovering an injury and discovering a cause of action is significant. This principle is also reflected in the Federal Tort Claims Act, where a claim accrues upon injury discovery, not upon discovering negligence. The First Circuit, in Rodriguez v. Banco Central, upheld that a RICO cause of action accrues when a plaintiff knows or should have known of the injury. Similarly, in Bausch v. Philatelic Leasing, the Fourth Circuit affirmed that RICO claims accrued when plaintiffs were informed of an IRS lawsuit related to an abusive tax shelter scheme, leading to a time-bar for their 1988 lawsuit. The rationale for the injury discovery rule is to prevent the litigation of stale claims, as supported by the Supreme Court's stance on statutes of limitations. The fraudulent concealment doctrine is applicable in federal statutes when deception is an element of the violation.

Under the self-concealing standard of fraudulent concealment, a plaintiff proves the first element by demonstrating that a self-concealing antitrust violation has occurred. Conversely, under the separate and apart standard, the plaintiff must provide evidence of affirmative acts by the defendants that specifically conceal the plaintiff's claim. Other circuits have affirmed that affirmative acts supporting a conspiracy can establish fraudulent concealment. Although the court's analysis primarily focused on Sherman Act claims, it later concluded that the fraudulent concealment claim under RICO was similarly unsubstantiated for the same reasons.

The Trustees contend that there are genuine issues regarding which acts of the defendants harmed them, when these occurred, and the resultant injuries. However, the court found this argument unpersuasive, noting that the abandonment of the warehouse contract in April 1990 was a result of a conspiracy, meaning the relevant events happened prior to that date, thus the statute of limitations could not have started running in April 1990. 

The district court determined that for RICO purposes, the Detricks’ injury was in April 1990, while for the Virginia conspiracy claim, it occurred by 1989. The Trustees' argument regarding inconsistency overlooks the differing statutes of limitations, as RICO has a four-year limit and Virginia’s conspiracy claim has a five-year limit. Therefore, the April 1990 injury was timely under RICO, but the earlier 1989 injuries needed consideration under Virginia law to assess the Trustees' claim's timeliness. The court's order reflects an appropriate application of these different statutes of limitations. Additionally, the Detricks indicated they signed the warehouse contract in their corporate capacity, with the corporation designated as the contractor.