Statute of limitations defense against contractor's RICO, § 1983 claims barred where defendant concealed fraudulent act

Law Reporter, Nov 2004

Barry Aviation, Inc. v. Land O'Lakes Mun. Airport Comm'n, 377 F.3d 682 (7th Cir. 2004).

The Seventh Circuit Court of Appeals held that equitable estoppel suspends the statute of limitations in a fraud claim where the defendant concealed the fraud for several years.

Here, Barry Aviation contracted with a town and its airport commission to operate aircraft sales and charters, among other duties. When Barry Aviation experienced a decline in business, it asked for documentation of actual aircraft operations and received a federal funds form stating that business exceeded estimated levels. Several years later, Barry Aviation discovered hidden files, which revealed that the number of operations listed on the form was exaggerated by over 2,000 percent.

Barry Aviation sued the town and the airport commission, alleging fraud violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961, and § 1983 equal protection. The trial court granted defendants' motion to dismiss, holding, in part, that each cause of action's statute of limitations barred plaintiff's claims because plaintiff began questioning the airport's operations at least nine years before the suit was filed. Because it held the claims were barred, the court refused to allow plaintiff to amend its complaint to correct the court's other concerns.

Reversing, the Seventh Circuit noted both RICO and § 1983 claims accrue when the plaintiff knew or should have known it had sustained an injury. The statute of limitations in fraud cases has been suspended in the past where the defendant concealed the act of fraud, preventing the plaintiff from discovering the injury until much later. Here, the court reasoned, plaintiff did not know about the fraud until it discovered the hidden documents, and the statute of limitations started tolling on that date.

Moreover, defendants allegedly took affirmative steps to prevent plaintiff from learning of the misrepresentations, the court said. The doctrine of equitable estoppel, which suspends the statute of limitations, is invoked when a defendant makes affirmative efforts to prevent a plaintiff from suing. Thus, equitable estoppel is applicable here.

Accordingly, the court remanded for plaintiff to amend its complaint.

Plaintiff's Counsel

George V. Pilat, Cleveland, Ohio

* Robert W. Mcliityre, Cleveland, Ohio