Beck v. Deloitte & Touche, Deloitte, Haskins & Sells, Ernest & Young, L.L.P., 97-4068
| Decision Date | 23 June 1998 |
| Docket Number | No. 97-4068,97-4068 |
| Citation | 144 F.3d 732 |
| Parties | , 11 Fla. L. Weekly Fed. C 1613 Jeffrey H. BECK, as Trustee of Southeast Banking Corporation, Plaintiff-Appellant, v. DELOITTE & TOUCHE, DELOITTE, HASKINS & SELLS, ERNEST & YOUNG, L.L.P., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
John Lee, Ross & Hardies, New York City, Sean M. Sullivan, Ross & Hardies, Chicago, IL, Kendall B. Coffey, Miami, FL, for Plaintiff-Appellant.
Sidney Davis, Susan Cary Cockfield, Robert Thomas Farrar, Miami, FL, for Defendants-Appellees.
Appeal from the United States District Court for the Southern District of Florida.
Before EDMONDSON and BIRCH, Circuit Judges, and FAY, Senior Circuit Judge.
In this case, we determine when the Florida statute of limitations began to run on a malpractice action brought by the trustee of a bankrupt corporation. The district court ruled that the bankrupt corporation's directors had been aware of the defendant-appellee's alleged malpractice, and the court imputed this knowledge to the corporation. As a result, the district court held that the corporation's malpractice action had accrued and then expired long ago. The plaintiff-appellant, however, argues that the directors' knowledge regarding the alleged malpractice should not be imputed to the corporation because the interests of the directors and the corporation were "adverse" with respect to the transaction at issue. We reverse.
Plaintiff-appellant, Jeffrey H. Beck, ("the Trustee"), serves as the trustee for the Southeast Banking Corporation ("Southeast"), which the Federal Deposit Insurance Company ("FDIC") placed in receivership on September 19, 1991. 1 Defendant-appellant Deloitte & Touche ("Deloitte") is an accounting firm that has provided services to Southeast. For the purposes of this appeal, we accept the well-pleaded facts in the Trustee's complaint as true. See St. Joseph's Hosp., Inc. v. Hospital Corp. of Am., 795 F.2d 948, 954 (11th Cir.1986).
In 1988, Southeast purchased First Federal and South Florida Savings ("First Federal") ("the acquisition"). At that time, the FDIC had already placed First Federal into receivership, reflecting First Federal's poor financial performance. According to the Trustee, Southeast's directors purchased First Federal for the sole purpose of making Southeast an unattractive target for any future takeover attempt; Southeast's directors had no belief or intention that the acquisition of First Federal might benefit Southeast in any legitimate way.
As part of the process of purchasing First Federal, Southeast hired Deloitte as its accountant for the transaction. In performing its duties, Deloitte allegedly had a choice of two accounting methods. Under the "Purchase Method," Deloitte would have assessed First Federal's meager assets at fair market value. Because Southeast's purchase price for First Federal well exceeded the fair market value of First Federal's assets, the Trustee maintains that use of the Purchase Method would have discredited the proposed acquisition in the eyes of both Southeast's stockholders and federal regulators. 2 As a result, Deloitte's use of the Purchase Method would have prevented Southeast from acquiring First Federal.
Instead of the Purchase Method, though, Deloitte employed the "Pooling Method." Under this approach, Deloitte did not have to calculate the excess of Southeast's proposed purchase price over First Federal's fair market value. In fact, Deloitte was able to account for First Federal's assets and liabilities at historic recorded prices instead of fair market value at the time of the transaction. Further, Deloitte's use of the Pooling Method permitted it to treat Southeast's and First Federal's assets and liabilities as if they had always been combined. By basing its accounting on this blending of historical rather than present market data, Deloitte allegedly enabled Southeast to hide the true danger that the acquisition of First Federal posed to Southeast's financial health.
According to the Trustee's complaint, Deloitte's use of the Pooling Method constituted malpractice. After providing Southeast's directors with the results under both the Purchase and Pooling Methods, Deloitte allegedly allowed Southeast's directors to choose the method on which Deloitte ultimately based its official accounting opinion, even though Deloitte knew or should have known that use of the Pooling Method under such circumstances did not conform to Generally Accepted Accounting Principles ("GAAP"). Worse, Deloitte allegedly advised the directors to offer certain Southeast stock for sale to First Federal's depositors to create the false appearance that Southeast's planned acquisition qualified for the Pooling Method. Deloitte also allegedly allowed Southeast to use its accounting opinion to win required regulatory approvals from the Federal Home Loan Bank Board and the Federal Savings & Loan Insurance Corporation. Through all of these actions, Deloitte allegedly violated its duty to Southeast and committed actionable negligence.
On September 21, 1993, the Trustee sued Deloitte for professional malpractice under Florida law. Soon thereafter, Deloitte moved to dismiss, arguing inter alia that the Trustee's suit was untimely. Specifically, Deloitte argued that because the directors knew of Deloitte's use of the Pooling Method in 1988, the applicable two-year statute of limitations had expired in 1990. The Trustee responded that the directors' knowledge of Deloitte's alleged negligence should not be imputed to Southeast because the interests of the directors and Southeast with regard to the acquisition had been adverse. Thus, the Trustee contended that Southeast's malpractice action did not accrue, and therefore the statute of limitations did not begin to run, until the Trustee's appointment--which occurred within two years of the Trustee's filing suit against Deloitte. On September 28, 1994, the district court ruled that the Trustee had not satisfied the adverse interest exception because he had "failed to plead" that the directors of Southeast were acting adversely to Southeast's interest. R1-31-5. For this reason, the district court dismissed the original complaint with leave to amend.
On October 12, 1994, the Trustee filed an amended complaint alleging that the directors' interest was adverse to that of the corporation. The Trustee's amended complaint was essentially identical to his original complaint, except for two added paragraphs:
8. From at least in or about 1985 until Southeast's failure in September 1991, the Southeast Directors acted with the improper purpose of maintaining their control over Southeast and entrenching themselves in their positions of power and influence, without consideration of whether their actions were in the best interest of Southeast or its shareholders. The utter and continuing conscious disregard by the Southeast Directors of their duties to Southeast caused a once highly successful business to fail. Accordingly, the misconduct of the Southeast Directors did not benefit Southeast in any way, but instead destroyed the institution. But for the negligence of Deloitte & Touche described herein, the Southeast Directors' efforts to mask their incompetence and misdeeds would have been revealed to Southeast's regulators and shareholders, who would have taken timely action to prevent the failure of Southeast.
9. By reason of the aforesaid adverse interests of Southeast's Directors whose adverse acts were without benefit to Southeast, and, indeed were to its fatal detriment, the knowledge of Southeast's Directors regarding Deloitte & Touche's negligence is not imputed to Southeast.
R2-43 Exh. A at p 8, p 9. After reviewing the Trustee's amended complaint, the district court again dismissed his suit as barred by the statute of limitations, on August 15, 1995. Again, the district court ruled that "Plaintiff's allegations ... are insufficient to meet the pleading requirement to allege adverse actions taken by Southeast directors." R3-56-6. In addition, the district court ruled that the Trustee could not, in any event, satisfy the adverse interest exception because the directors' actions in adopting Deloitte's accounting practices did not have an "entirely" adverse effect on Southeast. Although the district court recognized that "it may seem clear that the directors' actions were not ultimately beneficial to Southeast," the court explained that the long-term effect of the directors' cooperation with Deloitte was "not the relevant inquiry." Id. at 7. "Because Southeast was allowed to...
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