RESOL. TP. v. O'Bear, Overholser, Smith & Huffer

• Decision Date: 17 April 1995
• Docket Number: No. 2:93 cv 164 JM.,2:93 cv 164 JM.
• Citation: 886 F. Supp. 658
• Parties: RESOLUTION TRUST CORPORATION, Plaintiff, v. O'BEAR, OVERHOLSER, SMITH & HUFFER, an Indiana partnership, d/b/a O'Bear, Overholser, Smith, Huffer & Rider, John J. Barber, Opal F. Bowman, William H. Bradshaw, John P. Erickson, Dean A. Hudson, Carl D. Overholser, Fred R. Rodkey, and Raymond J. Todd, Defendants.
• Court: U.S. District Court — Northern District of Indiana

886 F. Supp. 658

RESOLUTION TRUST CORPORATION, Plaintiff, v. O'BEAR, OVERHOLSER, SMITH & HUFFER, an Indiana partnership, d/b/a O'Bear, Overholser, Smith, Huffer & Rider, John J. Barber, Opal F. Bowman, William H. Bradshaw, John P. Erickson, Dean A. Hudson, Carl D. Overholser, Fred R. Rodkey, and Raymond J. Todd, Defendants.

No. 2:93 cv 164 JM.

United States District Court, N.D. Indiana, Hammond Division.

April 17, 1995.

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William A. Spence, Steven A. Ramirez, Chicago, IL, for plaintiff.

Robert D. Brown and Richard A. Mayer, Merrillville, IN, George L. Hanna, Lafayette, IN, James H. Falk, Jr., Washington, DC, David A. Rosenthal, Lafayette, IN, Christine

A. DeSanctis and Robert E. Poynter, Lafayette, IN, for defendants.

ORDER

MOODY, District Judge.

This represents the second, and penultimate, chapter written by the court in this litigation — the trial being all that remains.¹ The court now has before it numerous motions, including three motions for summary judgment. The summary judgment motions are as follows: Carl Overholser and O'Bear, Overholser, Smith & Huffer the "attorney defendants" move for summary judgment against the Resolution Trust Corporation the "RTC". Overholser, joined by John Barber, Opal Bowman, John Erickson, Fred Rodkey, Raymond Todd and Dean Hudson the "director defendants" move for summary judgment with regard to the RTC's claims against Todd, in his capacity as appraiser, and against all of the director defendants pursuant to 12 U.S.C. § 1821(k).² The RTC moves for partial summary judgment concerning the affirmative defenses asserted by the defendants. The pending non-dispositive motions all relate to the summary judgment motions; accordingly, the court takes up those motions in the context of the summary judgment motions, which are discussed below seriatim.

I.

"Summary judgment is appropriate — in fact, is mandated — where there are no disputed issues of material fact and the movant must prevail as a matter of law. In other words, the record must reveal that `no reasonable jury could find for the non-moving party.'" Dempsey v. Atchison, Topeka and Santa Fe Ry. Co., 16 F.3d 832, 836 (7th Cir.1994) (citations omitted). "The burden rests squarely with the party moving for summary judgment to demonstrate that there is an absence of evidence to support the nonmoving party's case." Doe v. R.R. Donnelley & Sons Co., 42 F.3d 439, 443 (7th Cir.1994). The court views the facts presented on a motion for summary judgment in a light most favorable to the non-moving party, resolving all doubts in favor of that party. See id. "On the other hand, summary judgment must be entered `against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.'" Id. (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986)). In all of this, "the judge's role is not to evaluate the weight of the evidence or to determine the truth of the matter, but instead to determine whether there is a genuine issue of triable fact." Id.

II.

This case involves the failure of Hometown Federal Savings Bank and the five high-risk loans that led to that failure. On June 8, 1990, the RTC was appointed receiver for Hometown. On June 4, 1993, RTC filed this lawsuit. As the court has previously explained, RTC alleges: (1) that the director defendants were grossly negligent in their management of Hometown, (2) that the attorney defendants committed legal malpractice in advising Hometown, and, (3) that defendant Todd committed professional malpractice in his capacity as chief appraiser for Hometown. See Resolution Trust Corp. v. O'Bear, Overholser, Smith & Huffer, 840 F.Supp. 1270, 1274 (N.D.Ind.1993). All of RTC's claims relate to Hometown's involvement in five specific loans in 1983-84.³ Additional facts are discussed as relevant below.

III.

The court first takes up whether RTC can maintain its state-law claims against the attorney defendants and defendant Todd. The attorney and director defendants each challenge the timeliness of RTC's state-law claims in their respective summary judgment motions. The court now concludes that these claims are, in fact, time-barred. Because the same analysis applies regarding the timeliness of RTC's state-law claims against both the attorney defendants and Todd, the court discusses these claims together.

A. Adverse domination does not apply to salvage RTC's state-law claims.

Ruling on defendant Todd's motion to dismiss, the court held that RTC's state-law claims did not accrue against Todd until Hometown's board was no longer dominated by the director defendants. See O'Bear, Overholser, Smith & Huffer, 840 F.Supp. at 1283-85. Limited to the allegations of the complaint, the court accepted that the defendants' domination continued until RTC was appointed receiver in June, 1990. See id. at 1284. The court stands by its conclusion that the Indiana courts would apply adverse domination to calculate the accrual of RTC's state-law claims; however, the record on summary judgment indicates that the defendants' domination of Hometown's board was over well before RTC's appointment as receiver. Although the legal context in which the court takes up the timeliness of RTC's state-law claims was thoroughly set out in the court's prior order, to make the court's current conclusion clear the court will briefly summarize that discussion.

The Financial Institutions Reform, Recovery, and Enforcement Act "FIRREA" sets the limitations period "with regard to any action brought by the RTC as conservator or receiver." See 12 U.S.C. § 1821(d)(14). Section 1821(d)(14)(A) provides that the limitations period is

* * * * * *

(ii) in the case of any tort claim, the longer of —

(I) the 3-year period beginning on the date the claim accrues; or

(II) the period applicable under State law.

The statute states that

the date on which the statute of limitation begins to run on any claim ... shall be the later of —

(i) the date of the appointment of the RTC as conservator or receiver; or

(ii) the date on which the cause of action accrues.

12 U.S.C. § 1821(d)(14)(B). FIRREA "does not revive stale state-law claims: that is, if the limitations period on a state claim has run before RTC is appointed conservator or receiver, RTC may not bring that claim under FIRREA." O'Bear, Overholser, Smith & Huffer, 840 F.Supp. at 1283.⁴

With regard to RTC's state-law claims against Todd, the court previously held that the relevant state-law limitations period is the two-year period imposed for professional and/or general negligence. See id. (citing IND.CODE §§ 34-4-19-1 and 34-1-2-2(1)). The court noted that these two-year periods would have run out before RTC was appointed receiver if they had begun running when Todd was allegedly advising Hometown about the problem loans. Id. As noted, however, the court concluded that the limitations period did not begin to run at that time. Id. at 1284. Relying on Indiana's discovery rule for accrual of actions, the court reasoned that

as a corporate entity, Hometown can only `discover' an injury to itself, and act to redress that injury, to the extent that those individuals who control it know of the injury and are willing to act on that knowledge. When, as here, the board of a corporate entity is dominated by those whose own malfeasance might be revealed in the course of litigating a complaint, it follows the entity has not `discovered' the injury to its interests in any meaningful way. Put another way, a corporate `plaintiff has not discovered alleged negligence until that negligence is discovered by those who can be expected to act to redress the entity's interest.

Id. Applying this reasoning, the court reached the conclusion mentioned above that Hometown's state-law claims did not accrue, i.e. that the limitations period for the state-law claims did not begin to run, until the adverse domination of Hometown's board was ended by the appointment of RTC as receiver. See id. at 1284-85. This analysis is equally applicable to RTC's professional and general negligence claims against the attorney defendants.⁵

In the prior order, the court distinguished INB National Bank v. Moran Electric Service, Inc., 608 N.E.2d 702 (Ind.Ct.App.1993). See O'Bear, Overholser, Smith & Huffer, 840 F.Supp. at 1285. In INB, the Indiana Court of Appeals refused to apply presidential domination — a doctrine analogous (though not identical) to adverse domination — to toll the accrual of claims by officers and shareholders of a corporation who knew of, and acquiesced in, embezzlement by the corporate president. 608 N.E.2d at 708. This court reasoned that

RTC, plaintiff in this case, did not acquiesce to Todd's alleged misconduct, and was not in any position to do so. Accepting the allegations of the complaint as true, those in position to know and acquiesce in Todd's negligence have been named as defendants in this action.

Id. at 1285. This reasoning would apply in equal force to the attorney defendants' alleged negligence. The reasoning is sound.

Based on the current record, however, it appears that the court's reasoning does not lead to the conclusion reached in the court's prior order. Specifically, it is now clear that the named defendants were not the only ones in a position to — on behalf of Hometown — know of, and acquiesce in, the alleged negligence of the state-law defendants.

As early as 1984 the RTC's predecessor regulatory body, the FHLBB, became concerned about Hometown's involvement in the five loans at issue. See Attorney Defendants' Ex. 9 at ¶ 3.⁶ As a result of an FHLBB investigation, in 1985 the FHLBB and Hometown's directors entered into a supervisory agreement. See id. at Ex. A. The agreement indicated that FHLBB was "of the opinion that Hometown had violated...