of equitable tolling, something he has failed to do.
The next issue, therefore, is whether plaintiff has demonstrated that he exercised reasonable care and diligence in seeking to learn of the alleged fraud. Put another way, the issue is whether plaintiff has demonstrated that it was reasonable for him to wait nine years before requesting any information about his $ 90,000 investment.
Plaintiff implicitly argues that certain defendants had a fiduciary relationship with plaintiff and plaintiff therefore exercised reasonable care in relying on those defendants to voluntarily disclose any fraud on their part without any request for information. However, existence of a fiduciary relationship is only one factor a court should consider in determining whether a plaintiff has exercised due diligence. Hupp v. Gray, 500 F.2d 993, 997 (7th Cir. 1974); Maggio v. Gerard Freezer & Ice Co., 824 F.2d 123, 131 (1st Cir. 1987) ("plaintiff must be able to show not only that crucial facts were withheld by defendants owing a duty of full disclosure, but also that he lacked the means to uncover these facts); General Builders Supply Co. v. River Hill Coal, 796 F.2d 8, 13 (1st Cir. 1986) (a reasonable plaintiff would recognize that a person who gave incorrect investment advice might try to "cover himself," even if that person had a fiduciary relationship with plaintiff). "A court should also consider other factors, including the nature of the fraud alleged, the opportunity to discover the fraud, and the subsequent actions of the defendant." Hupp, 500 F.2d at 997.
Considering all relevant factors, the court finds that plaintiff has failed to demonstrate reasonable diligence. Plaintiff apparently made no effort to uncover the facts of the alleged fraud, such as a request for information regarding his investment, for 9 years. Therefore plaintiff did nothing to unearth the fraud for an extended period of time. Once plaintiff requested information in 1987, he apparently received sufficient information to file this lawsuit. Thus, plaintiff had ample opportunity to discover the alleged fraud, and defendants did not prevent him from so doing. These facts indicate a lack of reasonable diligence by plaintiff. The court is unwilling to state that an investor may sidestep the statute of limitations by simply alleging that he left it all to his accountants and lawyers.
Furthermore, two additional factors counsel against tolling in this case. First, the Complaint alleges that defendants overstated the expected cash flow of plaintiff's investment. Yet, a deficiency in cash flow should be noticed within a few years. Plaintiff should have noticed this alleged deficiency and inquired as to the cause.
Second, the court again notes the policy disfavoring extended tolling of the securities statute of limitations. The longer the period of time for which a plaintiff requests tolling, the greater his burden to justify the tolling. As the court finds that plaintiff has failed to meet an "ordinary" burden, it also finds that plaintiff has failed to meet this greater burden. Thus, the court denies plaintiff's request to toll the securities statute of limitations, and finds that Count I of the Complaint is time-barred.
None of this is to say that tolling might not be appropriate regarding plaintiff's other claims. The court holds only that plaintiff's claims under § 10(b) and Rule 10b-5 are time-barred. Having so held, the court need not consider defendants' other arguments for dismissal of the federal securities claims. If the court were to reach those arguments, it would be inclined to find that plaintiff has failed to satisfy the pleading requirements of Fed. R. Civ. P. 9(b) and has failed to adequately plead loss causation.
Defendants argue that plaintiff has failed to adequately plead a "pattern" of racketeering activity, and the court agrees. A "pattern of racketeering activity" is requisite to a RICO violation. Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985). "Continuity plus relationship" is necessary to produce a pattern. Id.
Since Sedima, the Seventh Circuit has elaborated on what constitutes a "pattern of racketeering activity." In Lipin Enterprises, Inc. v. Lee, 803 F.2d 322 (7th Cir. 1986), the Seventh Circuit held that alleging twelve acts of fraudulent misrepresentation in order to accomplish a single sale, i.e., twelve acts of mail fraud to induce a purchase of a company, is insufficient to state a claim under RICO. Id. at 323. The Seventh Circuit later articulated a more generalizable standard in Morgan v. Bank of Waukegan, 804 F.2d 970 (7th Cir. 1986). There, the Seventh Circuit called for a case-by-case approach, and directed district courts to consider the following when determining whether a case involves a pattern of racketeering activity: "the number and variety of predicate acts and the length of time over which they are committed, the number of victims, the presence of separate schemes, and the occurrence of distinct injuries. Id. at 975.
Most recently, the Seventh Circuit has reaffirmed the standard articulated in Morgan, and provided additional guidance through further application of the Morgan standard to various factual situations. In Jones v. Lampe, 845 F.2d 755 (7th Cir. 1988), the court stated a general rule that predicate acts relating to one overall scheme do not meet the pattern requirement. Id. at 758. Therefore, one general scheme, which took several months to complete, concerning one major transaction, four potential victims, one distinct injury, and no threat of repeated harm did not constitute a pattern. Id. The court further explained that Liquid Air Corp. v. Rogers, 834 F.2d 1297 (7th Cir. 1987) (cited by plaintiff) is a narrow exception to this general rule; in Liquid Air, the court found a pattern "because of the repeated injury caused by defendants." Id. 845 F.2d at 759 (emphasis in original); see also Brandt v. Schal Associates, Inc., 854 F.2d 948, 952-54 (7th Cir. 1988) (allegation of multiple acts in furtherance of a single scheme of fraud against a single victim fails to meet the pattern requirement, as Liquid Air exception is inapplicable because no repeated or multiple injuries occurred, rather the predicate acts were committed only to lower a single contract price).
In this case, the general rule of Jones, rather than the exception stated in Liquid Air, is applicable. Plaintiff has alleged a number of predicate acts committed in furtherance of a single scheme to induce a single victim to make a single investment. No repeated injuries to plaintiff have been alleged.
Plaintiff argues that because defendants are alleged to have committed fraudulent acts in two other lawsuits, plaintiff has satisfied the "pattern" requirement. To plead a pattern of racketeering activity, a plaintiff must not only allege predicate acts sufficiently continuous to form a pattern, but also must allege those predicate acts with particularity. See Landon v. GTE Communications Services, Inc., 696 F. Supp. 1213, 1217 (N.D. Ill. 1988); Fed. R. Civ. P. 9(b). Here, plaintiff merely alleges that defendants "have previously been alleged to commit similar acts of fraud against a limited partner in connection with the operation of an investment [in one lawsuit and] with respect to accounting practices for investments [in the other lawsuit]." Complaint at para. 61. Thus, regarding defendants' activities as alleged in those two other lawsuits, plaintiff has alleged fraud only in the most general terms, failing to identify with particularity any specific predicate acts.
Consequently, Count VII is dismissed and the court need not reach the other grounds for dismissal of Count VII urged by defendants. If the court were to reach those arguments, it would be inclined to dismiss Count VII on the grounds that it fails to allege the existence of an enterprise distinct from the persons alleged to have participated in the affairs of the enterprise; it fails to adequately plead proximate cause; and it fails to satisfy the pleading requirements of Rule 9(b).
Counts I and VII are the only counts of plaintiff's eight count complaint which purport to state a federal claim; the court's jurisdiction over Counts II, III, IV, V, VI, and VIII is based purely on pendent jurisdiction. See United Mine Workers v. Gibbs, 383 U.S. 715, 726, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966). "When the federal claims are disposed of before trial, the state claims should be dismissed without prejudice." Baltimore Orioles, Inc. v. Major League Baseball Players Association, 805 F.2d 663, 682 (7th Cir. 1986).
In sum, defendants' motion to dismiss is granted. Plaintiff has failed to state a claim upon which relief can be granted as to Counts I an VII, and the court now lacks jurisdiction over Counts II, III, IV, V, VI, and VIII.
IT IS SO ORDERED.
DATED: May 5, 1989