Federal Deposit Ins. Corp. v. Howse

Decision Date04 May 1990
Docket NumberCiv. A. No. H-89-1908.
Citation736 F. Supp. 1437
PartiesFEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, v. James HOWSE, et al., Defendants.
CourtU.S. District Court — Southern District of Texas

COPYRIGHT MATERIAL OMITTED

James C. Winton, Baker, Hostetler, McCutchen & Black, Houston, Tex., for plaintiff.

Abbe David Lowell, Brand & Lowell, Washington, D.C., Sidney Ravkind, Mandell & Wright, Houston, Tex., and Steve McConnico, Scott, Douglass & Luton, Austin, Tex., for defendants.

MEMORANDUM AND ORDER

LAKE, District Judge.

This is an action for damages brought by the Federal Deposit Insurance Corporation ("FDIC") in its corporate capacity, as successor-in-interest to Alliance Savings & Loan Association ("Alliance"), against Alliance's former officers and directors. FDIC's Second Amended Complaint asserts causes of action against these defendants for negligence in their capacities as officers and directors (paras. 47-50) and for breach of contract, breach of fiduciary duties, usurpation of corporate opportunities, and self-dealing (paras. 51-53). Defendants Howse, Cersonsky, Gaylor, Mattson, Rosen, Rudolph, Weiner and Yang have moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), or alternatively, for summary judgment, based on limitations. (Docket Entry No. 14)

Defendants argue that FDIC is barred by Texas statutes of limitations because it waited until June 1, 1989, to sue them for wrongful conduct that allegedly occurred, and which FDIC discovered, in 1983, 1984 and 1985. Anticipating FDIC's tolling argument, defendants argue alternatively that even though they were officers and directors of Alliance until July of 1986, they relinquished control over much of Alliance's business after October of 1985 when FSLIC (the predecessor-in-interest to FDIC), the Texas Savings and Loan Department ("TSLD"), and Alliance entered into a Voluntary Supervisory Control Agreement and a Consent Agreement. Defendants contend that once these agreements were ratified any possible tolling of the Texas limitations periods ended because (1) plaintiff's agents were in control of Alliance and plaintiff should have then discovered any wrongful conduct and (2) the Consent Agreement made plaintiff a conservator of Alliance. Because defendants' motion presents matters outside the pleadings, the Court will treat it as a motion for summary judgment.

A party seeking summary judgment must establish (1) that no genuine dispute exists about any material fact and (2) that the law entitles it to judgment. Fed.R. Civ.P. 56(c); Thomas v. Harris County, 784 F.2d 648, 651 (5th Cir.1986). Until the movant has properly supported the motion no response is required. Once this is done the nonmovant must present evidence demonstrating specific, contested facts that are material to the issues requiring adjudication in order to preclude the rendition of a summary judgment. Fed.R.Civ.P. 56(e). Mere allegations or denials are not sufficient. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Since this action is one brought by an agency of the United States,1 the Court must engage in a two-step analysis to resolve the statute of limitations defense. The Court must first determine whether the applicable Texas limitations periods had expired when FDIC (or its predecessor, FSLIC) acquired the state law causes of action it now alleges, and, if not, whether the applicable federal limitations periods expired between the date FDIC acquired the causes of action and the date it filed this suit. Resolution of these issues requires the Court to address a number of subsidiary issues. In analyzing the first issue the Court must decide:

(1) what Texas limitations periods apply;
(2) when the Texas limitations periods accrued;
(3) whether the Texas limitations periods were tolled while defendants controlled Alliance's board;
(4) whether the appointment of a supervisory agent by TSLD in October of 1985 ended defendants' control over Alliance's board, thereby ending any tolling of the Texas limitations periods;
(5) whether the Consent Agreement created a conservatorship; and
(6) when FDIC acquired its causes of action.

If the second issue is reached, the Court must decide:

(1) what federal limitations periods apply; and
(2) when the federal limitations periods accrued.

The Court will address each of these issues in order.

I. Did Texas Limitations Periods Expire Before FDIC Acquired its Causes of Action?

(1) What Texas Limitations Periods Apply

FDIC's causes of action sound in both tort and contract. The Texas statute of limitations for a tort action is two years from the date the cause of action accrues. Tex.Civ.Prac. & Rem.Code Ann. § 16.003 (Vernon 1986). The Texas statute of limitations for a contract action is four years from the date the cause of action accrues. Tex.Civ.Prac. & Rem.Code Ann. § 16.004 (Vernon 1986).

(2) When Did the Texas Limitations Periods Accrue

Generally, a tort action accrues when the tort is committed. Atkins v. Crosland, 417 S.W.2d 150, 153 (Tex.1967). Although this rule applies even though the amount of damages cannot be determined until a later date, id.; Citizens State Bank of Dickinson v. Shapiro, 575 S.W.2d 375, 386 (Tex.Civ.App.—Tyler 1978, writ ref'd n.r.e.), some legally recognized injury must be sustained before a cause of action in tort will accrue. Atkins v. Crosland, 417 S.W.2d at 153; Bayouth v. Lion Oil Co., 671 S.W.2d 867, 868 (Tex.1984). In certain instances, when the plaintiff may not even be aware that he has suffered an injury, Texas courts apply a discovery rule. In these cases the cause of action accrues when the injury is discovered, or should have been discovered, in the exercise of reasonable diligence. Otis v. Scientific Atlanta, Inc., 612 S.W.2d 665, 666 (Tex.Civ. App.—Dallas 1981, writ ref'd n.r.e.). The discovery rule also applies to an action for breach of fiduciary duty sounding in tort. Willis v. Maverick, 760 S.W.2d 642, 644-45 (Tex.1988). A cause of action for breach of fiduciary duty imposed by an agreement accrues when the duty is breached. Leigh v. Weiner, 679 S.W.2d 46, 49 (Tex.App.— Houston 14th Dist. 1984, no writ). An action for breach of contract also accrues at the time of breach. Hurbrough v. Cain, 571 S.W.2d 216, 221 (Tex.Civ.App.—Tyler 1978, no writ). Since FDIC admits that it had contemporaneous knowledge of defendants' injurious acts and omissions complained of in this suit,2 all of FDIC's causes of action accrued when the conduct occurred unless limitations were tolled.

(3) Were the Texas Limitations Periods Tolled While Defendants Controlled Alliance's Board

Under Texas law a cause of action by a corporation against its directors does not accrue until a majority of disinterested directors have discovered or are put on notice of the cause of action. Allen v. Wilkerson, 396 S.W.2d 493, 500 (Tex.Civ. App.—Austin 1965, writ ref'd n.r.e.). Most authorities hold that application of this "adverse domination" tolling rule is presumed if the allegedly culpable directors constitute a majority of the board of directors.

As long as a bank is dominated by the same wrongdoers against whom a cause of action exists, the statute of limitations is tolled. The rationale behind this theory is that the wrongdoers cannot be expected to bring an action against themselves. Only when a new entity takes control of the bank, be it a receiver or a new board of directors, can suit against the wrongdoers be brought as a practical matter.

FDIC v. Hudson, 673 F.Supp. 1039, 1042 (D.Kan.1987); accord, FDIC v. Carlson, 698 F.Supp. 178, 180 (D.Minn.1988); FSLIC v. Burdette, 696 F.Supp. 1196, 1200 (E.D. Tenn.1988); FSLIC v. Williams, 599 F.Supp. 1184, 1193-95 (D.Md.1984); FDIC v. Buttram, 590 F.Supp. 251, 254 (N.D.Ala. 1984); FDIC v. Bird, 516 F.Supp. 647, 651 (D.P.R.1981).

FDIC urges the Court to adopt the adverse domination rule and hold that the Texas statutes of limitations were tolled until July of 1986 when defendants no longer constituted a majority of the Alliance board. Relying on Mosesian v. Peat, Marwick, Mitchell & Co., 727 F.2d 873, 879 (9th Cir.), cert. denied, 469 U.S. 932, 105 S.Ct. 329, 83 L.Ed.2d 265 (1984) (quoting International Railways of Central America v. United Fruit Co., 373 F.2d 408, 414 (2d Cir.), cert. denied, 387 U.S. 921, 87 S.Ct. 2031, 18 L.Ed.2d 975 (1967)), defendants argue that the Court should reject the adverse domination rule and hold instead that in order to toll limitations FDIC has the burden of showing full, complete and exclusive control over Alliance by defendants. Under this test "once the facts giving rise to possible liability are known, the plaintiff must effectively negate the possibility that an informed stockholder or director could have induced the corporation to sue." Id.

The Court is unpersuaded by defendants' argument for several reasons. First, the adverse domination rule is in accord with Texas law, see Allen v. Wilkerson, 396 S.W.2d 493, 500 (Tex.Civ.App.—Austin 1965, writ ref'd n.r.e.), and has gained widespread support among other courts, while the rule urged by defendants has not found support outside the Second and Ninth Circuits. More importantly, the Court concludes that the adverse domination rule more accurately reflects the realities of suing wrongdoing directors who control a corporation.

As long as the majority of the board of directors are culpable they may continue to operate the association and control it in an effort to prevent action from being taken against them. While they retain control they can dominate the non-culpable directors and control the most likely sources of information and funding necessary to pursue the rights of the association. As a result, it may be extremely difficult, if not impossible, for the corporation to discover and pursue its rights while the wrongdoers retain control.

FSLIC v. Williams, 599 F.Supp. at 1193-94, n. 12.

The Court adopts the adverse domination rule and holds that...

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