Amory v. Giarla

Background

The plaintiffs—artists, agents or managers, and art buyers—alleged that Justin Giarla, a former art gallery owner, misappropriated artwork and sale proceeds entrusted to him. They alleged that he used a Ponzi scheme and related tactics to pay older debts with newer sales, closed his galleries, and left with plaintiffs’ money or artwork.

The complaint asserted two causes of action: breach of fiduciary duty under California law and a civil claim under the Racketeer Influenced and Corrupt Organizations Act, commonly called RICO. The RICO claim relied on alleged mail and wire fraud involving Alyssa Dennis, Hyland Mather, and Eugene Voskoboynikov. Giarla moved to dismiss, arguing that the RICO claim was time-barred and inadequately pleaded, leaving no federal-question jurisdiction. He also opposed the court’s exercising supplemental jurisdiction over the state-law claim and argued that claim was time-barred as well.

RICO limitations ruling

Civil RICO claims generally have a four-year limitations period. The court explained that the period begins when a plaintiff knew or should have known about the injury, rather than when the plaintiff discovered every part of the alleged racketeering scheme. The court also considered the plaintiffs’ argument that the period should be extended through equitable tolling because Giarla fraudulently concealed his conduct.

The court held that Dennis knew or should have known about her injury and alleged wire fraud by at least January 2016, when she did not receive a check Giarla said he had mailed and he later acknowledged that he had not mailed it. Because the complaint was filed on July 30, 2020, the court found Dennis’s RICO claim time-barred.

The court held that Mather had constructive knowledge of his injury by at least March 2015, when Giarla stopped making promised installment payments after Mather already knew that the paintings had been sold. The court also stated that Mather appeared to have learned about the alleged scheme around February 2015. His RICO claim was therefore time-barred.

The court held that Voskoboynikov should have known about his injury by at least November 2014. By then, according to the complaint, he knew that Giarla’s alleged statement that a check had been mailed was false. The court therefore found Voskoboynikov’s claim time-barred.

The court rejected equitable tolling because the complaint’s allegations described Giarla’s conduct generally and did not particularize how Dennis, Mather, or Voskoboynikov had been actively misled despite reasonable efforts to discover the relevant facts. The court emphasized that it was not deciding whether the remaining plaintiffs’ claims were timely. It stated that some might be untimely, but that they might also be able to plead facts supporting tolling.

Disposition

The court concluded that the three plaintiffs supplying the alleged RICO predicate acts had pleaded time-barred claims. Their claims were fatal to the RICO theory as currently pleaded, so the court found no federal-question jurisdiction. It declined to exercise supplemental jurisdiction over the California breach-of-fiduciary-duty claim and did not reach the defendant’s arguments concerning that claim.

The order granted the defendant’s motion to the stated extent. It invited the plaintiffs to move for leave to amend by February 11, 2021, at noon, directing them to explain how a proposed amended complaint would correct the identified deficiencies.