Recent Case by Cecilia Theresa Absher
Plaintiffs, John P. Davis and Paul M. Davis, brought suit against their broker and his employer, A. G. Edwards & Sons, Inc., alleging that the defendants had engaged in a scheme or conspiracy to obtain increased commissions through excessive and manipulative trading (‘churning’) of plaintiffs' investment accounts. The Davises sought, among other things, treble damages pursuant to their contention that the defendants' churning activities violated the Racketeer Influenced and Corrupt Organizations Act (RICO). The Davises contended that A. G. Edwards and its employee participated in a ‘pattern of racketeering’ consisting of acts of mail and wire fraud. Defendants moved for dismissal of the Davises' RICO claims on the ground that they were time-barred. A. G. Edwards & Sons, Inc. asserted that, since civil RICO does not have a statute of limitations, the court should apply the state statutory period for the state cause of action most analogous to the RICO claim at issue. The defendants reasoned that, since the Davises' suit was basically an action for fraud, the one-year prescriptive period of Louisiana Civil Code article 3492 for delictual acts should be applied. Alternatively, A. G. Edwards & Sons, Inc. suggested using the two-year limitation period for securities fraud. Using either the one-or two-year period, the Davises' claims would have been time-barred. Conversely, the Davises asserted that, because RICO is a federal law, it is proper to apply the federal statutory period for the underlying predicate acts alleged—mail and wire fraud. This approach would have resulted in application of a five-year limitation period. The defendants contended in opposition that the most analogous federal statutes are the Clayton and Sherman Antitrust Acts. After looking first to the elements of a RICO action and then to the congressional purpose behind the statute, the court found that all civil RICO claims in Louisiana should be characterized as actions in fraud. This conclusion stemmed in part from the court's observation that fraud is the predominant predicate act alleged in civil RICO claims. The court opined that the fraud characterization encompassed the varied elements and broad purpose of RICO; thus it was unnecessary to borrow a federal limitation period. Having found fraud the state substantive action most analogous to civil RICO, the court held plaintiffs' claims were barred by the one-year prescriptive period in Civil Code article 3492. Davis v. A. G. Edwards & Sons, Inc., 635 F. Supp. 707 (W.D. La. 1986).
About the Author
Cecilia Theresa Absher.
Citation
61 Tul. L. Rev. 931 (1987)