Background
Former students of ITT Technical Institute alleged that Vervent, Inc., its subsidiary Activate Financial, LLC, and company executive David Johnson participated in a RICO conspiracy involving the PEAKS private student-loan program. ITT created PEAKS after the 2008 financial crisis to generate nonfederal revenue needed for compliance with the federal “90/10 Rule.” Although PEAKS appeared to be supported by outside investors, ITT privately guaranteed substantial losses and allegedly concealed the program’s deteriorating condition.
Vervent serviced the PEAKS loans, maintained borrower accounts, collected payments, and reported information to credit bureaus. The borrowers filed suit on April 10, 2020. After a two-week trial, a jury found Vervent, Activate Financial, and Johnson liable on the RICO claims and awarded $4 million for payments made between April 10, 2016, and September 2020. RICO’s treble-damages provision increased the award to $12 million. The defendants appealed, arguing that the claims were untimely and that the borrowers had not established proximate causation.
The Court’s Holding
The Ninth Circuit affirmed. Applying civil RICO’s four-year statute of limitations and the injury-discovery rule, the panel held that sufficient evidence allowed the jury to find that the borrowers neither knew nor reasonably should have known of their fraud-based injuries before April 10, 2016. Their routine loan payments did not alone provide notice of an injury because the alleged injury consisted of payments fraudulently induced through the concealed PEAKS scheme.
Neither irregularities in the loan documents nor pre-2016 regulatory proceedings compelled a contrary result. Evidence showed that the program appeared legitimate even to servicing professionals, while the SEC and CFPB proceedings focused largely on ITT’s accounting and financial practices rather than misconduct by Vervent. The jury could reasonably find that ordinary borrowers would not have discovered the alleged fraud until ITT’s highly publicized collapse and bankruptcy in September 2016.
The panel declined to reach the merits of the defendants’ proximate-causation argument. The district court’s summary-judgment ruling rested on disputed facts, so it was not a purely legal ruling preserved for review after trial. Because the defendants did not renew their specific proximate-causation challenge through the required Rule 50 procedure, the issue was not preserved for appellate review.
Key Takeaways
- For a fraud-based civil RICO injury, the limitations period begins when the plaintiff knew or reasonably should have known that the injury was fraudulently induced, not merely when an otherwise ordinary payment occurred.
- Inquiry notice is context-specific; complex regulatory proceedings and irregular loan paperwork did not necessarily alert ordinary student borrowers to a concealed financial scheme.
- A fact-bound denial of summary judgment ordinarily cannot be reviewed after trial unless the issue is properly preserved through post-trial procedures.
Why It Matters
The decision emphasizes that courts assess discovery of a concealed RICO injury from the perspective of a similarly situated plaintiff. Consumers are not automatically charged with understanding implications that may be apparent only to sophisticated financial or industry actors.
It also underscores the importance of preserving trial-related sufficiency arguments. A party generally cannot rely on a pretrial summary-judgment motion to obtain appellate review of a fact-dependent issue after a jury verdict.