Clark v. Milam
| Citation | 192 W.Va. 398,452 S.E.2d 714 |
| Decision Date | 08 December 1994 |
| Docket Number | No. 22369,22369 |
| Court | Supreme Court 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/Appellant, v. Arthur W. MILAM; John H. Wilbur; Dudley D. Allen; Frank E. Clark, Jr.; Michael J. Davoli; Mahoney, Adams & Criser, P.A., f/k/a Mahoney, Adams, Milam, Surface & Grimsley, P.A., also f/k/a Mahoney, Hadlow & Adams, P.A.; John J. McAvoy; Carolyn B. Lamm; Donald F. Withers and Byron N. Thompson, Jr., Defendants/Appellees. |
Syllabus by the Court
1. In West Virginia the doctrine of adverse domination tolls statutes of limitation for tort claims against officers and directors who acted adversely to the interests of the company and against lawyers and accountants, owing fiduciary duties to the company, who took action contributing to the adverse domination of the company.
2. The doctrine of adverse domination tolls statutes of limitation for the West Virginia Insurance Commissioner notwithstanding that claims similar to those of the Commissioner could have been raised by the shareholders of the insurance company's holding company when the shareholders of the parent company had little interest in redressing the wrongs to the subsidiary insurance company.
Ellen G. Robinson, C. Philip Curley, Robinson Curley & Clayton, P.C., Chicago, IL and Rudolph L. DiTrapano, Joshua I. Barrett, Debra L. Hamilton, DiTrapano & Jackson, Charleston, for plaintiff/appellant.
John H. Wilbur, Dudley D. Allen, George Washington Corp. Jacksonville, FL, for Wilbur.
John E. Jenkins, Jr., Suzanne Oxley, Anne M. McGee, Jenkins, Fenstermaker, Kreiger, Kayes & Farrell, Huntington, for Arthur W. Milam.
Robert B. King, Stephanie D. Thacker, King, Allen & Arnold, Charleston, for Carolyn Lamm.
Joseph R. Goodwin, Richard D. Owens, Goodwin & Goodwin, Charleston, Stephen M. Sacks, Michael S. Solender, Arnold & Porter, Washington, DC for Withers & Thompson.
An action was brought in the United States District Court for the Southern District of West Virginia by the statutory receiver of the George Washington Life Insurance Company ("GW Life"), an insolvent West Virginia insurance company, against certain of the company's former officers, directors, accountants and lawyers. The receiver alleges that: (1) the officers and directors looted over $15 million from GW Life; (2) auditors hired by the officers and directors assisted in the misconduct; and, (3) outside counsel also hired by the officers and directors helped the officers and directors control GW Life through acts of professional negligence. The receiver seeks the amount of money allegedly looted from the company in damages.
This case is before this Court on two certified questions from the Honorable Charles H. Haden II, Chief Judge of the United States District Court for the Southern District of West Virginia. Both questions concern the "adverse domination" doctrine that has been applied in other jurisdictions to toll statutes of limitations in actions brought by receivers of insolvent insurance companies and financial institutions. Judge Haden held that the doctrine of adverse domination, if recognized by this Court, would toll the limitations period on the receiver's claims.
The certified questions are:
(1) Does West Virginia recognize the doctrine of adverse domination to toll statute of limitations for tort claims asserted by the receiver of an insurance company, acting pursuant to W.Va.Code, § 33-10-1, et seq., against the officers and directors who acted adversely to the interests of the company and against lawyers and accountants, owing fiduciary duties to the company, who took some action contributing to the adverse domination of the company?
(2) If the answer to the first question is "yes," will the doctrine of adverse domination toll statute of limitations in favor of the West Virginia Insurance Commissioner as Receiver when similar claims could have been raised by the shareholders of the insurance company's holding company in a previously settled shareholder derivative action, but where the shareholders of the parent company had little interest in redressing the wrongs to the subsidiary insurance company?
Plaintiff Hanley C. Clark, Commissioner of Insurance for the State of West Virginia, is the statutory receiver of GW Life. (Commissioner Clark, in his capacity as receiver, is hereafter referred to as "the Receiver.") GW Life is an insolvent West Virginia life and health insurer. As a West Virginia domiciled insurance company, GW Life was regulated by the West Virginia Insurance Commissioner's office and was subject to the West Virginia Insurance Code, W.Va.Code 33-1-1 [1957], et seq. GW Life was a wholly-owned subsidiary of George Washington Corporation ("GW Corp"), a publicly-traded Delaware corporation that is now defunct. GW Corp had no operations of any kind of its own. It obtained virtually all of its operating revenues directly or indirectly from GW Life.
Defendants John H. Wilbur, Arthur W. Milam, Michael J. Davoli, Frank E. Clark, and Dudley D. Allen (collectively "the O & D Defendants") served as directors of GW Corp and GW Life (as well as certain other subsidiaries of GW Corp) during all or part of the time relevant to plaintiff's claims. Mr. Wilbur, Mr. Clark and Mr. Davoli also served as officers of the companies and paid themselves salaries or directors' fees. Mr. Wilbur, Mr. Milam and Mr. Allen also hired themselves as lawyers for GW Life, and GW Life paid them substantial lawyers' fees. Furthermore, while these defendants served as GW Life's officers and directors, they owned a significant percentage of GW Corp stock. By the end of 1983, at the latest, they had obtained a controlling interest in the stock of GW Corp. From 1978 until 1981, Mr. Wilbur, Mr. Milam and Walter Walden, another defendant in the case, comprised a majority of the board of directors of GW Life. From 1981 until at least September 5, 1990 (the period during which most of the transactions on which the receiver's complaint is based occurred), the defendants, who were officers and directors, and Mr. Walden (in various combinations) were the only directors of GW Life. At no time relevant to this case were there any "independent" directors of GW Life.
The O & D Defendants retained Coopers & Lybrand ("Coopers") to audit GW Corp and GW Life and to provide other accounting services throughout the time relevant to this case. Defendants Donald F. Withers and Byron N. Thompson, Jr. (collectively, "the Coopers Defendants") were the partners in charge of the engagement. The O & D Defendants also hired the law firm of White & Case to provide legal services to GW Corp and GW Life. Defendant Carolyn B. Lamm is a partner in that firm. She personally acted as counsel to GW Corp and GW Life and supervised others working on various matters for the companies. White & Case and Ms. Lamm also represented the O & D Defendants individually and at the same time they were representing GW Life.
In 1990, the Insurance Commissioner's office began an examination of GW Life for the two years ending December 31, 1989. During the examination, the officers and directors of GW Life allegedly refused to provide the examiners with certain financial information as required under the Insurance Code, including information about an affiliated company, the DWM Agency through which the O & D Defendants allegedly misappropriated funds from GW Life. In response to this and other allegedly illegal conduct by the officers and directors, the Commissioner sought an order from the Circuit Court of Kanawha County appointing him temporary Receiver of GW Life. On 5 September 1990, the circuit court in State v. George Washington Life Insurance Co., No. 90 C 3254, entered an order appointing the Commissioner as Receiver Pro Tem. Pursuant to that order, the Receiver Pro Tem took possession of the records and books of GW Life and completed his examination of the company.
The examiners concluded that GW Life was insolvent and that its liabilities exceeded its assets by at least $12,742,159 as of 31 December 1989. Thereafter, the Commissioner sought an order from the circuit court for the liquidation of GW Life. Ultimately, an agreed order of liquidation was entered on 3 June 1991, and the Commissioner was appointed permanent Receiver and Liquidator of GW Life. The Commissioner asserts that one of the responsibilities of the Receiver under the Insurance Code is to marshall all assets into the GW Life estate to be distributed to policyholders and other creditors. Included among those assets are rights of action belonging to GW Life, such as those the Receiver asserts here. The Receiver has the authority and the duty to pursue such rights of action under the Insurance Code, W.Va.Code 33-10-14 [1990]. All actions of the Receiver, including the initiation and pursuit of this case, are reviewed and must be approved by the circuit court that supervises the ongoing liquidation proceeding. W.Va.Code 33-10-14(e) [1990].
This action is brought by the Commissioner solely in his capacity as Receiver to recover the monies allegedly misappropriated from GW Life by the O & D Defendants, and to recover damages allegedly resulting from the misconduct of the lawyer and accountant defendants in connection with the services they performed for GW Life. The recovery in this lawsuit will be included in the general assets of the estate and distributed to GW Life's policyholders and creditors. W.Va.Code 33-10-19a [1990].
The allegations in this suit are that the O & D Defendants, aided by their handpicked lawyers and accountants, illegally extracted millions of policyholder premium dollars from GW Life and used those dollars for their own private purposes. The Receiver alleges that the O & D Defendants' conduct violated RICO, 18 U.S.C. § 1961, et seq....
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