Clark v. Milam

• Decision Date: 28 June 1994
• Docket Number: Civ. A. No. 2:92-0935.
• Court: U.S. District Court — Southern District of West Virginia
• Parties: Hanley C. CLARK, Commissioner of Insurance for the State of West Virginia, as Receiver of George Washington Life Insurance Company, Plaintiff, v. Arthur W. MILAM, et. al., Defendants.

872 F. Supp. 307

Hanley C. CLARK, Commissioner of Insurance for the State of West Virginia, as Receiver of George Washington Life Insurance Company, Plaintiff, v. Arthur W. MILAM, et. al., Defendants.

Civ. A. No. 2:92-0935.

United States District Court, S.D. West Virginia, Charleston Division.

June 28, 1994.

Joshua I. Barrett, Rudolph L. DiTrapano, Debra L. Hamilton, DiTrapano & Jackson, Charleston, WV, Ellen G. Robinson, C. Philip Curley, Mary Cannon Veed, Cynthia H. Hyndman, Robinson Curley & Clayton, P.C., Chicago, IL, for Hanley C. Clark, Com'r of Ins. for State of West Virginia, as Receiver of George Washington Life Ins. Co.

John E. Jenkins, Jr., John M. Poma, Suzanne McGinnis Oxley, Jenkins, Fenstermaker, Krieger, Kayes & Farrell, Huntington, WV, for Arthur W. Milam.

John H. Wilbur, pro se.

Walter C. Walden, pro se.

Dudley D. Allen, pro se.

Frank E. Clark, Jr., pro se.

Michael J. Davoli, pro se.

Rebecca A. Betts, Robert B. King, King, Betts & Allen, Charleston, WV, Paul J. Bschorr, Alice K. Jump, White & Case, New York City, for Carolyn B. Lamm.

Michael Bonasso, Jeffrey M. Wakefield, Flaherty, Sensabaugh & Bonasso, Charleston, WV, for Betty Cordial.

John H. Tinney, John J. Nesius, Miller A. Bushong, III, Spilman, Thomas, Battle & Klostermeyer, Charleston, WV, David Alden, Cleveland, OH, for Tom Fennell, Ernst & Young.

Michael Bonasso, Flaherty, Sensabaugh, & Bonasso, Charleston, WV, for John Pendlebury.

MEMORANDUM OPINION AND ORDER

HADEN, Chief Judge.

Pending are the motions for summary judgment filed by Defendants Lamm, Milam, Allen, Clark, Davoli, Wilbur, Withers and Thompson. Plaintiff has responded.¹ This litigation has spawned an enormous paper trial, including six published memorandum opinions.² The action initially was filed in the Circuit Court of Kanawha County, West Virginia, but was then removed to this Court. The Plaintiff, Hanley C. Clark, Commissioner of Insurance for the State of West Virginia, is the appointed Receiver of the George Washington Life Insurance Company ("GW LIFE"). He has alleged the Defendants were part of a wide-ranging conspiracy to loot the assets of GW LIFE. The Defendants include the former officers and directors, a former lawyer and two former accountants of GW LIFE.³ Several other Defendants were dismissed from this action previously.

Each Defendant asserts no questions of material fact exist and they are entitled to judgment as a matter of law. The standard used to determine whether a motion for summary judgment should be granted or denied was stated recently by our Court of Appeals:

"A moving party is entitled to summary judgment `if the pleading, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to material fact and that the moving party is entitled to judgment as a matter of law.' Fed.R.Civ.Pro. 56(c). See Charbonnages de France v. Smith, 597 F.2d 406 (4th Cir.1979).

"A genuine issue of material fact exists `if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.' Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). In considering a motion for summary judgement, the court is required to view the facts and draw reasonable inferences in a light most favorable to the nonmoving party. Id. at 255, 106 S.Ct. at 2513. The plaintiff is entitled to have the credibility of all his evidence presumed. Miller v. Leathers, 913 F.2d 1085, 1087 (4th Cir.1990), cert. denied, 498 U.S. 1109 111 S.Ct. 1018, 112 L.Ed.2d 1100 (1991). The party seeking summary judgment has the initial burden to show absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). The opposing party must demonstrate that a triable issue of fact exists; he may not rest upon mere allegations or denials. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510. A mere scintilla of evidence supporting the case is insufficient. Id." Shaw v. Stroud, 13 F.3d 791, 798 (4th Cir.), petition for cert. filed, 62 USLW 3827 (1994).

Accord Cornell v. General Electric Plastics, 853 F.Supp. 221, 225-26 (S.D.W.Va.1994) (Haden, C.J.); Thomas v. Shoney's Inc., 845

F.Supp. 388, 389-90 (S.D.W.Va.1994) (Haden C.J.).

Although they have filed several separate briefs, the Defendants rely on similar grounds to support their motions for summary judgment. These grounds include the following: (1) the applicable statute of limitations bar Plaintiff's claims; and (2) Plaintiff's claims are barred under the doctrine of res judicata.

I. STATUTE OF LIMITATIONS

A. ADVERSE DOMINATION

Defendants argue the statute of limitations has run on the claims against them, and therefore Plaintiff's action is barred. The applicable limitations period is two years. W.Va.Code § 55-2-12 (1959).⁴ Plaintiff does not dispute that over two years elapsed between Defendants' alleged wrongdoing toward GW LIFE and the filing of this lawsuit. Plaintiff instead argues the statute of limitations was tolled until his appointment as Receiver. If the limitations period was tolled, it is undisputed Plaintiff's action was filed timely.

Plaintiff argues the limitations period was tolled under the doctrine of adverse domination. Adverse domination occurs when the officers and directors who control the rights of the corporation act adversely to the corporation's interests, usually for personal gain, to the detriment of the corporation and/or its non-officer/director shareholders. As previously noted in Clark IV, 847 F.Supp. 409, 421 (S.D.W.Va.1994), our Court of Appeals has described the doctrine of adverse domination as follows:

"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 controlled by the alleged wrongdoers. The doctrine rests on the theory that if the wrongdoers `controlled the corporation through a majority of stock ownership and control of the directorate, there would consequently be no one to sue them.' White v. FDIC, 122 F.2d 770, 775 (4th Cir.1941), cert. denied, 316 U.S. 672, 62 S.Ct. 1043, 86 L.Ed. 1747 (1942)." F.D.I.C. v. Cocke, 7 F.3d 396, 402 (4th Cir.1993),⁵ petition for cert. filed, 62 USLW 3659 (1994).

See also, In re Lloyd Securities, Inc., 153 B.R. 677, 684 (E.D.Pa.1993), citing Resolution Trust Co. v. Gardner, 798 F.Supp. 790, 795 (D.D.C.1992) ("`Under the doctrine of adverse domination, a cause of action will be tolled during the period that a plaintiff corporation is controlled by wrongdoers. Tolling is considered appropriate because where the culpable directors and officers control a corporation, they are unlikely to initiate actions or investigations for fear that such actions will reveal their own wrongdoing.'").

Although West Virginia has not had occasion to address the viability of the doctrine of adverse domination, this Court concluded the State courts would adopt the doctrine:⁶ "It seems clear on the basis of West Virginia law and cases that West Virginia courts would toll the statutes of limitation until the Plaintiff's appointment as Receiver on a basis substantially similar to application of the doctrine of adverse domination."⁷Clark IV, supra, 847 F.Supp. at 423.⁸ In Clark IV this Court discussed the rationale behind the foregoing conclusion, stating:

"the adoption of the doctrine of adverse domination would comport with West Virginia's discovery rule applied in fraud cases and outlined in Syllabus Point 2 of Cecil v. Airco, Inc., 187 W.Va. 190, 416 S.E.2d 728 (1992):

2. `Where a cause of action is based on tort or on a claim of fraud, the statute of limitations does not begin to run until the injured person knows, or by the exercise of reasonable due diligence should know, of the nature of his injury, and determining that point in time is a question of fact to be answered by the jury.' Syl. pt. 3, Stemple v. Dobson, 184 W.Va. 317, 400 S.E.2d 561 (1990).

See also, Hundley v. Martinez, 151 W.Va. 977, 158 S.E.2d 159 (1967); Baker v. Hendrix, 126 W.Va. 37, 27 S.E.2d 275 (1943); Plant v. Humphries, 66 W.Va. 88, 66 S.E. 94 (1909). By extension, a Receiver of a corporation who is appointed after a period of adverse domination of that corporation should not be held to a strict application of the statute of limitations by a defendant whose fraud contributed to the period of adverse domination. Such a policy would allow the defendant to hide behind his fraud — precisely the state of affairs the discovery rule is designed to prevent."⁹ (emphasis added).

Defendant Lamm makes much of the fact that the particular Defendants in Clark IV were accused of fraud, and suggests the doctrine of adverse domination may be utilized only against a defendant who has concealed intentional tortious conduct fraudulently.

The basis for this Court's ruling in Clark IV was clearly the similarity between the doctrine of adverse domination and West Virginia's discovery rule.¹⁰ As stated in Syllabus Point 1 of Cart v. Marcum, 188 W.Va. 241, 423 S.E.2d 644 (1992): "Generally a cause of action accrues (i.e., the statute of limitations begins to run) when a tort occurs; under the `discovery rule,' the statute of limitations is tolled until a claimant knows or by reasonable diligence should know of his claim." (emphasis added). The discovery rule applies not only in cases of fraud, but in all tort actions. Syllabus Point 2, Cart v. Marcum, supra, ("The `discovery rule' is generally applicable to all torts, unless there is a clear prohibition of its application."); Syllabus Point 3, Stemple v. Dobson, 184 W.Va. 317, 400 S.E.2d 561 (1990). Although fraudulent concealment is not necessary to activate the discovery rule, "some action" by the defendant to prevent discovery of the tort is required. Syllabus Point 3, Cart v. Marcum, supra ("Mere ignorance of the existence of a cause of...