"Once a court determines when the injury occurred, it must calculate the four-year RICO statute of limitations from the date when plaintiff discovered or should have discovered their injury." Ackerman, 887 F. Supp. at 503. Therefore, on a motion to dismiss, a RICO claim will be time-barred if the facts alleged in the complaint indicate that the plaintiff, with reasonable diligence, should have uncovered the alleged fraud prior to the limitations period. See Kinley Corp. v. Integrated Resources Equity Corp. (In re Integrated Resources, Inc. Real Estate Ltd. Partnerships Sec. Litig.), 851 F. Supp. 556, 567-68 (S.D.N.Y. 1994) ("The limitations period for a fraud-based RICO action commences when Plaintiffs are placed on notice of facts which should arouse suspicion."); Integrated Resources, 850 F. Supp. at 1118; Griffin v. McNiff, 744 F. Supp. 1237, 1255 (S.D.N.Y. 1990) aff'd, 996 F.2d 303 (2d Cir. 1993). "The time from which the statute of limitations begins to run is not the time at which a plaintiff becomes aware of all of the various aspects of the alleged fraud, but rather the statute runs from the time at which the plaintiff should have discovered the general fraudulent scheme." Dolan v. Rothschild Reserve Int'l, Inc., 1991 U.S. Dist. LEXIS 10831, *4, 1991 WL 155770, at *2 (S.D.N.Y. Aug. 6, 1991) ((quoting Klein v. Bower, 421 F.2d 338, 343 (2d Cir. 1970)).
To determine when the plaintiff should have discovered the scheme requires a two part inquiry: first, whether the plaintiffs received information sufficient to alert a reasonable person to the probability that they had been misled, that is, whether the plaintiffs were on inquiry notice; and second, whether the plaintiffs responded to such notice with reasonable diligence. See Lenz v. Associated Inns and Restaurants Co. of America, 833 F. Supp. 362, 370 (S.D.N.Y. 1993); In re Integrated Resources Real Estate Ltd. Partnerships Sec. Litig., 815 F. Supp. 620, 638-39 (S.D.N.Y. 1993). Where the undisputed facts set forth in the complaint establish inquiry notice and the lack of due diligence, "resolution of the issue on a motion to dismiss is appropriate." Dodds v. Cigna Secs. Inc., 12 F.3d 346, 352 n.3 (2d Cir. 1993), cert. denied, 128 L. Ed. 2d 74, 114 S. Ct. 1401 (1994); see Griffin, 744 F. Supp. at 1255 ("On a motion to dismiss, when the facts alleged in the complaint indicate that, with reasonable diligence, plaintiffs should have uncovered the alleged fraud prior to the limitations period, the claim will be time-barred.").
Here assuming the allegations in the Complaint are true, there is no doubt that the plaintiffs were on notice of the general fraudulent scheme no later than February 1990. By that time, the plaintiffs were aware of several key facts. They knew their monthly dividend checks had bounced in April 1989 and that payments had not resumed since that time. They also knew that the promised return of capital by February had not occurred and that the guaranteed investment performance of the limited partnership investments had failed to materialize. Indeed, they had been informed in a June 1989 letter from the defendants that there were "problems" with the investments. All of these events were in direct contradiction to the representations made to them by the defendants. A reasonable investor would have had ample reason to investigate the status of an investment for which so much of what had been promised had not come true. See, e.g., Integrated Resources, 850 F. Supp. at 1122 (plaintiffs on inquiry notice where they received letter reporting low occupancy rates, "the very facts they claim to be the fraud"); Lenz, 833 F. Supp. at 375 ("Clear evidence that an investment asset has declined in value or has been subject to an artificially inflated estimate of its value, in direct contradiction of representation made to the plaintiff at the time of sale, constitutes inquiry notice as to the probability of fraud."); Griffin, 744 F. Supp. at 1256 (plaintiffs on notice when made aware of unfavorable estimates regarding oil reserves, conflicting with projections and withdrawal of public accountants Henkind v. Brauser, No. 87 Civ. 4072, 1989 U.S. Dist. LEXIS 5344, *21, 1989 WL 54109, at *7-*8 (S.D.N.Y. May 17, 1989) (plaintiffs on notice where they had "gone through two reporting cycles without having received the promised information about the operation of the Partnership"); Anisfeld v. Cantor Fitzgerald & Co., Inc., 631 F. Supp. 1461, 1466 (S.D.N.Y. 1986) (inquiry notice triggered by financial reports showing partnership suffered losses since inception, rent revenues below projections, occupancy rates below projections, and condition of premises in disrepair); see also Farr v. Shearson Lehman Hutton, Inc., 755 F. Supp. 1219, 1225 (S.D.N.Y. 1991) (financial report showed risky, illiquid investment rather than promised conservative one, and put plaintiff on inquiry notice; § 10(b) claim); Miller v. Grigoli, 712 F. Supp. 1087, 1092 (S.D.N.Y. 1989) (letters from partnership indicating problems with investment put investor on inquiry notice; § 10(b) claim).
Therefore, the plaintiffs were on inquiry notice no later than February 1990 and the statute of limitations began to run at least by that time.
The plaintiffs next argue that, even if the statute limitations had begun, the statute was tolled by the defendants' fraudulent concealment, and that the plaintiffs exercised due diligence once they became aware of the problems with their investments. The plaintiffs argue both that the nature of the fraud was self-concealing and that the defendants took affirmative steps to cover their tracks.
Under the doctrine of fraudulent concealment, the statute of limitations will be tolled if the plaintiff pleads, with particularity, the following three elements: (1) wrongful concealment by the defendant, (2) which prevented the plaintiff's discovery of the nature of the claim within the limitations period and (3) due diligence in pursuing discovery of the claim. See Griffin, 744 F. Supp. at 1256 citing Donahue v. Pendleton Woolen Mills, Inc., 633 F. Supp. 1423, 1443 (S.D.N.Y. 1986)); see also Bankers Trust, 859 F.2d at 1105 (applying standard tolling exceptions for civil RICO statute of limitations, citing New York v. Hendrickson Bros., Inc., 840 F.2d 1065, 1083-84 (2d Cir.) cert. denied, 488 U.S. 848, 102 L. Ed. 2d 101, 109 S. Ct. 128 (1988)). For each of the three elements, the plaintiff must comply with the particularity requirements of Rule 9(b) of the Federal Rules of Civil Procedure in pleading fraudulent concealment. See Greenwald v. Manko, 840 F. Supp. 198, 202 (E.D.N.Y. 1993); Glick v. Berk & Michaels, P.C., No. 90 Civ. 4230, 1991 U.S. Dist. LEXIS 10347, 1991 WL 152614, at *9 (S.D.N.Y. July 26, 1991) (citing Moviecolor Ltd. v. Eastman Kodak Co., 288 F.2d 80, 88 (2d Cir.), cert. denied, 368 U.S. 821, 7 L. Ed. 2d 26, 82 S. Ct. 39 (1961)); Griffin, 744 F. Supp. at 1256; Moll v. U.S. Life Title Ins. Co. of New York, 700 F. Supp. 1284, 1289-90 (S.D.N.Y. 1989).
With respect to the first element, there are two general varieties of wrongful concealment. The defendant may have taken affirmative steps to prevent the discovery of the plaintiff's injury, or the nature of the wrong itself may nave been self-concealing, See Moll, 700 F. Supp. at 1289-90 (citing Hendrickson). Regardless of which kind is pleaded however, the doctrine of fraudulent concealment, does not toll the statute unless the plaintiff demonstrates both fraudulent concealment and due diligence.
The defense of fraudulent concealment, however, does not function as a trump card on issues of due diligence and constructive knowledge, as plaintiff appears to believe. While the doctrine takes into account the information that a plaintiff did not have as a result of defendants' misconduct, a court must still determine whether the information plaintiff did receive sufficed to trigger a duty to inquire. If plaintiff was indeed alerted as to the probability of fraud the court must examine plaintiff's response to ascertain whether he or she exercised due diligence in investigating the potential fraud.