855 F.Supp. 353 (S.D.Fla. 1994), 92-1600, In re Southeast Banking Corp.

Docket Nº:92-1600-CIV.
Citation:855 F.Supp. 353
Party Name:In re SOUTHEAST BANKING CORPORATION, Debtor. William A. BRANDT, Jr., as Trustee of Southeast Banking Corporation, Plaintiff, v. Florence S. BASSETT, as Personal Representative of The Estate of Harry Hood Bassett, David Blumberg, Donald N. Boyce, Joseph A. Boyd, M. Anthony Burns, Edward D. Duda, Alfonso Fanjul, Jr., James J. Forese, R. Ray Goode, H.
Case Date:May 03, 1994
Court:United States District Courts, 11th Circuit, Southern District of Florida
 
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855 F.Supp. 353 (S.D.Fla. 1994)

In re SOUTHEAST BANKING CORPORATION, Debtor.

William A. BRANDT, Jr., as Trustee of Southeast Banking Corporation, Plaintiff,

v.

Florence S. BASSETT, as Personal Representative of The Estate of Harry Hood Bassett, David Blumberg, Donald N. Boyce, Joseph A. Boyd, M. Anthony Burns, Edward D. Duda, Alfonso Fanjul, Jr., James J. Forese, R. Ray Goode, H.C. Henry, Jr., Melvin Jacobs, Kenneth O. Johnson, Nicholas deb. Katzenbach, James W. McLamore, G. Dodson Mathias, Willie C. Robinson, Charles D. Towers, Jr., Dorothy C. Weaver, J. Steven Wilson, and Charles J. Zwick, Defendants.

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Southeast Bank, N.A., Intervenor-Plaintiff,

v.

William A. BRANDT, Jr., as Trustee of Southeast Banking Corporation, Defendant.

No. 92-1600-CIV.

United States District Court, S.D. Florida.

May 3, 1994

Page 354

[Copyrighted Material Omitted]

Page 355

J. Joseph Bainton, Ross and Hardies, New York City, Mark D. Bloom, Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami, FL, for plaintiff.

Aaron Samuel Podhurst, Podhurst, Orseck, Josefsberg, Eaton, Meadow, Olin & Perwin, P.A., Miami, FL, Stuart J. Baskin, New York City, for defendants Donald N. Boyce, Joseph A. Boyd, M. Anthony Burns, Edward D. Duda, Alfonso Fanjul, Jr., James J. Forese, R. Ray Goode, H.C. Henry, Jr., Melven Jacobs, Kenneth O. Johnson, Nicholas deB. Katzenbach, James W. McLamore, Willie C. Robinson, Charles D. Towers, Jr., Dorothy C. Weaver and J. Steven Wilson.

Michael Nachwalter, Kenny, Nachwalter, Seymour, Arnold & Critchlow, Miami, FL, for defendant Charles J. Zwick.

Edward Soto, Baker & McKenzie, Miami, FL, for defendant G. Dodson Mathias.

Karen Wildau, Powell, Goldstein, Frazer & Murphy, Atlanta, GA, Neal Shniderman, Adorno & Zeder, Miami, FL, for F.D.I.C.

MEMORANDUM OPINION GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS THE SECOND AMENDED COMPLAINT

ARONOVITZ, District Judge.

THIS CAUSE came before the Court upon the Defendants' Motion to Dismiss the Second

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Amended Complaint, file dated February 22, 1994. The Court has considered the motion and the briefs filed in response thereto, the oral argument of counsel, the applicable law and the pertinent portions of the record, and is otherwise fully advised in the premises. Based thereon, and for the following reasons, this Court GRANTS IN PART and DENIES IN PART Defendants' Motion to Dismiss the Second Amended Complaint.

Factual and Procedural Background

This action was brought by plaintiff, William A. Brandt, as Bankruptcy Chapter 7 successor Trustee of Southeast Banking Corporation ("Southeast" or "the holding company"), against the former officers and directors of Southeast and Southeast Bank ("SEBNA" or "the Bank") on or about June 24, 1992. The Bank is the wholly owned subsidiary corporation of the holding company.

On July 21, 1993, the Court ruled that the Trustee may proceed in this action on non-derivative direct claims, and that under the language of the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA"), 12 U.S.C. § 1821(d)(2)(A)(i) (1988), all derivative claims belonged to the Federal Deposit Insurance Corporation ("FDIC"), as the successor in interest to the Bank. See In re Southeast Banking Corporation, 827 F.Supp. 742 (S.D.Fla.1993).1 Accordingly, the Court dismissed all derivative claims stated in the Trustee's original complaint, with leave to amend to assert any direct claims the Trustee may have against the defendants. The Court further found that the allegations relating to Southeast's acquisition of two thrift institutions, First Federal & Loan Association of Jacksonville ("First Federal") and South Florida Savings, as well as those relating to the payment of certain dividends authorized by the Defendants to Southeast's shareholders, may sustain direct claims against the officers and directors of the holding company. Id. at 746. The Court did not limit the direct claims to those allegations.

Thereafter, the Trustee filed a First Amended Complaint, which, upon the Defendants' motion to dismiss, was dismissed for failure to satisfy Rule 8(a) of the Federal Rules of Civil Procedure. The Court again granted leave to amend. In dismissing the First Amended Complaint, the Court stated that since defendants James J. Forese's and Charles D. Towers, Jr.'s respective tenure as directors of the holding company was much more limited than that of the other named defendants, the Trustee was to allege with greatest specificity those acts of conduct by these individuals for which they allegedly are liable.

On February 2, 1994, the Trustee filed a Second Amended Complaint and Demand for Jury Trial (the "Second Amended Complaint"), alleging breach of the duty to refrain from acting in conscious disregard of the best interests of Southeast pursuant to Fla.Stat. § 607.0831 (West 1993). See Second Amended Complaint at ¶ 27. On February 22, 1994, the Defendants moved to dismiss the Second Amended Complaint on the grounds that certain allegations therein impermissibly state derivative claims, that certain allegations are barred by the statute of limitations, that certain allegations fail to state a cause of action, and that the Second Amended Complaint fails to state with the greatest specificity those wrongful acts with respect to defendants Forese and Towers, as directed in the Court's January 14, 1994 Order. A hearing on the motion to dismiss was held on April 18, 1994.

Discussion

A. ALLEGATIONS ASSERTING DERIVATIVE CLAIMS AGAINST THE DEFENDANTS ARE DISMISSED

The Defendants argue that paragraphs 54 and 55(a) of the Second Amended Complaint (relating to the lending practices of Southeast's subsidiaries and the alleged understatement of Southeast's consolidated loan loss reserves, substandard loans and the like), paragraph 55(b) (relating to the effects

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of the 1986 Tax Reform Act on Southeast's and its subsidiaries' real estate loans), and paragraph 55(c) (pertaining to the alleged overstatement of Southeast's assets, equity and capital) are mere replicas of paragraphs 14(b), 24(a)(iii) and 24(b), respectively, of the original complaint. They point out that paragraphs 14(b), 24(a)(iii) and 24(b) were previously dismissed as pleading classic derivative claims belonging exclusively to the FDIC. See Southeast Banking Corp., 827 F.Supp. at 746. The Trustee, on the other hand, contends that the allegations at issue state a direct cause of action against the Defendants.

The Court has carefully reviewed, considered and compared paragraphs 54, 55(a), 55(b) and 55(c) of the Second Amended Complaint with paragraphs 14(b), 24(a)(iii) and 24(b) of the original complaint and based thereon, finds that there is no meaningful change in the new allegations contained in the Second Amended Complaint. As this matter has already been addressed by the Court in Southeast Banking Corp., supra, the averments in paragraphs 28(d), 54, 55(a)-(c) and 56 of the Second Amended Complaint are hereby DISMISSED as alleging derivative claims.

B. THE STATUTE OF LIMITATIONS PRECLUDES ALL CLAIMS IN THE SECOND AMENDED COMPLAINT THAT ACCRUED BEFORE SEPTEMBER 20, 1987

Earlier in this litigation, the parties had agreed that the applicable four-year statute of limitations, when read in conjunction with the Bankruptcy Code, forecloses all claims that arose before September 20, 1987. See Southeast Banking Corp., 827 F.Supp. at 748. The Defendants now move to dismiss the Second Amended Complaint to the extent it alleges events that occurred prior to September 20, 1987. Notwithstanding his prior agreement,2 the Trustee argues for the first time that he may maintain any claim for damages accruing before September 20, 1987 under the adverse domination doctrine. He now claims that the adverse domination doctrine tolled the statute of limitations until the appointment of a trustee for Southeast. This Court disagrees. Beside the fact that the Trustee has wholly failed to plead the adverse domination doctrine in the Second Amended Complaint, the Court finds that said doctrine is inapplicable on the merits to the facts of this case.

Under the doctrine of adverse domination, a statute of limitations is tolled on an action against director/officer misconduct so long as a majority of the board is dominated by the alleged wrongdoers. See F.D.I.C. v. Cocke, 7 F.3d 396, 402 (4th Cir. 1993); F.D.I.C. v. Gonzalez-Gorrondona, 833 F.Supp. 1545, 1556 (S.D.Fla.1993); F.D.I.C. v. Hudson, 673 F.Supp. 1039, 1042 (D.Kan.1987). The doctrine rests on the theory that if the wrongdoers controlled the board, there would be no one to sue them since the wrongdoers' control results in the concealment of any causes of action from those who otherwise might be able to protect the corporation. Gonzalez-Gorrondona, 833 F.Supp. at 1557; F.D.I.C. v. Williams, 599 F.Supp. 1184, 1193-94 (D.Md.1984); F.D.I.C. v. Bird, 516 F.Supp. 647, 650 (D.P.R.1981).

The Trustee's cause of action against the Defendants herein arises solely under Florida state law and therefore, this Court will look to Florida law for the applicable statute of limitations period and tolling provisions. See Walker v. Armco Steel Corp., 446 U.S. 740, 746, 100 S.Ct. 1978, 1982, 64 L.Ed.2d 659 (1980) (in federal court action based on state law, tolling of the statute of limitations is based on state law).

Florida's tolling statute, Fla.Stat. § 95.051 (West Supp.1994), enumerates the specific circumstances that toll the statute of limitations. Only those circumstances expressly provided by the statute will toll the statute of limitations. See Fla.Stat. § 95.051(2) ("No disability or other reason shall

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toll the running of any...

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