FDIC v. Nathan
| Decision Date | 01 October 1992 |
| Docket Number | C.A. H-91-2845. |
| Citation | 804 F. Supp. 888 |
| Parties | FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, v. Marvin D. NATHAN, et al., Defendants. |
| Court | U.S. District Court — Southern District of Texas |
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Steven L. Hoard, Stewart R. Werner, Mullin Hoard & Brown, Amarillo, Tex., Richard Gill, FDIC, Washington, D.C., for plaintiffs.
Robin C. Gibbs, Gibbs & Ratliff; Patricia L. Casey, Cordell & Casey; and Christian M. Sternat, Bakke Sternat & Gallman, Houston, Tex., for defendants.
Bernard Fischman, defendant pro se.
Lionel Schooler, defendant pro se.
Pending before the Court in the above referenced action brought pursuant to 12 U.S.C. § 1819 and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), Pub.L. No. 101-73, 103 Stat. 183, Aug. 9, 1989, are the following motions:
FDIC sues two groups of people for legal malpractice and mismanagement and looting of Continental Savings Association ("Continental"), which was declared insolvent and went into receivership on September 26, 1988. Under theories of breach of fiduciary duty, legal malpractice, knowing participation in the breach of fiduciary duty, failure to supervise the lawyers involved, failure to advise the board of directors properly about a fidelity bond claim, violation of regulations, breach of contract, and breach of implied warranties, FDIC sues the law firm of Lackshin & Nathan ("L & N")1, its partners, and its associates during the period of alleged misconduct, essentially early 1980's through the closing of the thrift: Marvin D. Nathan ("Nathan"), Herbert Lackshin, Bernard Fishchman, Ronald J. Sommers, Marc P. Gordon, Lionel Schooler, B.J. Walter, Jr. and Kenneth Lupo. L & N was Continental's general counsel and did most of its real estate and loan closing work. The second group, sued for breach of fiduciary duty, negligence, and waste of corporate assets, is comprised of owners and officers of Continental at the time: Carroll Kelly ("Kelly") and his nephew David Wylie ("Wylie") owned approximately 90% of Continental's common stock, while Kelly served as chairman of the board and chief executive officer and Wylie as president. In addition Nathan was not only general counsel to Continental but also vice chairman of the board of directors from 1972 until the thrift was closed.
FDIC alleges that while on paper Continental appeared to be generating remarkable profits through what were actually unsound and illegal loans during the early to mid 1980's, the money disappeared into large salaries, bonuses, and substantial dividends to the self-interested, director-shareholders. Thus, claims FDIC, the thrift was operated primarily to enrich the shareholders. The officers covered up Continental's actual financial status by lending practices such as making new loans to fund delinquent interest payments on previous ones or creating a new loan in exchange for the purchase of inadequate collateral securing a problem loan, often later allowing the buyer to turn the collateral back to Continental without liability. Following an inflated dividend payment in January 1986, federal regulators halted further payments because Continental's regulatory capital was in a deficit situation by April of that year.
FDIC claims that the lawyer Defendants, with full awareness of the underlying fraud, provided legal representation, documentation, etc. in completing and executing specified unsound and illegal loan transactions in 1985-86, and that their misconduct constituted malpractice. The amended complaint pinpoints two lawsuits for usury and fraud against Continental that arose out of these loans: one filed in August 1986, which resulted in a judgment against Continental in June 1987, and another resulting in a $20,000,000.00 judgment against Continental in September 21, 1988, now on appeal. The complaint alleges that L & N continued to accept payment from Continental until it went into receivership.
In reviewing a motion to dismiss, the Court must take a plaintiff's allegations as true, view them in a light most favorable to the plaintiff, and draw all inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). The motion must be denied unless the Court finds that beyond all doubt that the plaintiff cannot prove any facts to support its claims for relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957).
Because there are three2 issues common to the various motions to dismiss, the Court addresses these first, in the following order: (1) The action against L & N and its attorneys is barred by Texas' two-year statute of limitations; (2) malpractice claims are not assignable; and (3) there is no proof that Defendants' actions proximately caused injury to the failed Continental.
Lawyer Defendants argue that the tortious legal malpractice claims are time-barred by Texas' two-year statute of limitations. Willis v. Maverick, 760 S.W.2d 642, 645-46 (Tex.1988); Matter of Gleasman, 933 F.2d 1277 (5th Cir.1991). However, the statute of limitations for legal malpractice and for breach of fiduciary duty sounding in tort does not begin to run until the claimant discovers, or should have discovered through reasonable care and diligence, the facts giving rise to his cause of action. Id., 760 S.W.2d at 646; 933 F.2d at 1281-82. Defendants argue that the discovery rule does not apply here because the knowledge of the sham transactions and losses by their clients Wylie and Kelly, as president and chairman of the board, must be imputed to Continental. Moreover the majority of loans went directly into default and the impropriety of the transactions occurred immediately after they were completed, all prior to its declared insolvency. They contend that Continental had to have knowledge of the malpractice claims by August 26, 1986 at the latest, and therefore the claims were time-barred when the Federal Savings and Loan Insurance Corporation ("FSLIC") took over Continental on September 26, 1988. The Attorney Defendants further contend that knowledge of wrongdoing by one who substantially controls a corporation is imputed to the corporation regardless of his culpability as long as he is attempting to benefit the corporation. FDIC v. Ernst & Young, No. 3-90-0490-H, slip op., 1991 WL 197111 (N.D.Tex. Sept. 30, 1991), aff'd, 967 F.2d 166 (5th Cir.1992); Greenstein, Logan & Co. v. Burgess Marketing, Inc., 744 S.W.2d 170, 190-91 (Tex.App. — Waco 1987, writ den'd n.r.e.).
FDIC responds that because Continental did not discover the facts giving rise to its claims until after it went into receivership, or, alternatively, because it discovered them within the two-year period before the thrift was closed, the Texas statute of limitations had not run when FSLIC was appointed receiver of Continental. Moreover the agency alleges Defendants fraudulently concealed and prevented discovery of underlying facts. Should the Court determine that Kelly and Wylie's knowledge of wrongdoing is imputed to the corporation, FDIC contends that the statute of limitations was tolled by the adverse domination doctrine and the continuing representation rule, discussed later. FDIC urges that the claims were not stale when FSLIC took over and that therefore 12 U.S.C. § 1821(d)(14)(A) & (B), FIRREA § 212(d)(14), applies here:
Thus FDIC argues that the claims accrued when FSLIC as receiver took over the insolvent Continental on September 26, 1988 or later when it discovered the alleged wrongdoing.3 Thus it filed suit timely on September 25, 1991, at least one day before the federal statute of limitations ran.
If the claims would be time barred at the time a corporation is acquired by a United States agency, the claims cannot be revived by that acquisition. Guaranty Trust Co. v. United States, 304 U.S. 126, 58 S.Ct. 785, 82 L.Ed. 1224 (1938). However if, when federal agency acquires a claim from a private litigant, that claim is not already time-barred by the applicable state statute of limitations, the federal statute of...
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