Resolution Trust Corp. v. Grant, No. 84866

• Court: Supreme Court of Oklahoma
• Writing for the Court: KAUGER
• Citation: 1995 OK 68,901 P.2d 807
• Parties: , 1995 OK 68 RESOLUTION TRUST CORPORATION, Plaintiff, v. Louis W. GRANT, Jr., Charles B. Grant, J. Lawrence Mills, Jr., Keith Gollust, Paul E. Tierney, Jr., Edward L. Jacoby, Rod L. Reppe, Donald Bergman, William M. Brumbaugh, Edward H. Hawes, James R. Malone, Robert B. Riss, Robin K. Buerge, W.R. Hagstrom and David M. Moffett, Defendants.
• Decision Date: 27 June 1995
• Docket Number: No. 84866

Page 807

901 P.2d 807 64 USLW 2078, 1995 OK 68 RESOLUTION TRUST CORPORATION, Plaintiff,
v.
Louis W. GRANT, Jr., Charles B. Grant, J. Lawrence Mills,
Jr., Keith Gollust, Paul E. Tierney, Jr., Edward L. Jacoby,
Rod L. Reppe, Donald Bergman, William M. Brumbaugh, Edward
H. Hawes, James R. Malone, Robert B. Riss, Robin K. Buerge,
W.R. Hagstrom and David M. Moffett, Defendants. No. 84866. Supreme Court of Oklahoma. June 27, 1995.

Douglas N. Gould, Donna N. Blakley, Jon Epstein, Oklahoma City, Lyle S. Vaughn, David L. Thomas, Karen Eby, Oklahoma City, Alan R. Clever, Overland Park, KS, for plaintiff, Resolution Trust Corp.

Sam P. Daniel, Jon E. Brightmire, Tulsa, for defendants, Louis W. Grant, Jr. & Charles B. Grant.

Tony M. Graham, Tulsa, for defendants, Keith R. Gollust & Paul E. Tierney, Jr.

Dwayne C. Pollard, Tulsa, for defendants, J. Lawrence Mills, Jr. & W.R. Hagstrom.

Edward L. Jacoby, Tulsa, pro se.

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KAUGER, Vice Chief Justice:

Two issues are presented by the questions certified: ¹ 1) whether the theory of adverse domination operates to toll the statute of limitations in Oklahoma; and 2) whether application of the doctrine of adverse domination delays accrual or tolls the statute of limitations on claims of negligence, gross negligence, breach of fiduciary duty, or breach of contract against corporate officers and directors while the wronged corporation is controlled by a majority of culpable directors and officers. We find that the adverse domination doctrine may apply to situations involving fraudulent conduct exercised while a wronged corporation is controlled by a majority of culpable directors and officers. ²

FACTS

The plaintiff, Resolution Trust Corporation (Resolution Trust), was appointed receiver of Sooner Federal Savings and Loan Association (Sooner) on November 16, 1989, pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), 12 U.S.C. § 1811, et seq. On November 13, 1992, Resolution Trust filed suit against fifteen of Sooner's former directors ³ alleging that unsound banking practices resulted in a loss to Sooner of approximately $50 million. Resolution Trust asserted claims for negligence, gross negligence, breach of contract and breach of fiduciary duty against the directors for acts and omissions relating to more than thirty-five loan transactions funded between 1982 and 1988. The directors were not charged with fraud, fraudulent concealment, misappropriation, self-dealing or self-enrichment.

Asserting that Resolution Trust's claims were barred by the two-year limitation of 12 O.S.Supp.1994 § 95(3), ⁴ the directors moved to dismiss Resolution Trust's complaint with respect to loans made before November 15,

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1987. ⁵ In opposition to the motion to dismiss, Resolution Trust argued that the cause did not accrue or that the limitations period was tolled while Sooner was adversely dominated by its directors. Finding no Oklahoma precedent to resolve the questions of law, the trial court certified two questions to this Court pursuant to the Uniform Certification of Questions of Law Act, 20 O.S.1991 § 1601 et seq., on January 9, 1995; ⁶ and the simultaneous briefs of the parties were filed on March 1, 1995.

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I.

UNDER OKLAHOMA LAW, THE DOCTRINE OF ADVERSE DOMINATION MAY

OPERATE TO TOLL THE STATUTE OF LIMITATIONS WHILE

DIRECTORS WHO ARE GUILTY OF ALLEGED MISCONDUCT

EXERCISE CONTROL OVER A CORPORATION.

Adverse domination is an equitable doctrine which tolls statutes of limitations for claims by corporations against its officers, directors, lawyers and accountants while the corporation is controlled by those acting against its interests. ⁷ It applies only in the context of an attempt to avoid the bar of the statute of limitations on a cause of action by a corporation against its wrongdoing officers and directors. The rationale for the principle is that control of the board by wrongdoers precludes the possibility for filing suit, and that the controlling parties cannot be expected to sue themselves or to initiate an action contrary to their own interests. ⁸ The doctrine applies to delay the accrual of a cause of action or to toll limitations involving claims by a corporate body against its directors for injuries to the corporation. ⁹ As a practical matter, it is only when a new entity takes control of the bank--a receiver or a new board of directors--that suit can be filed against the wrongdoers. ¹⁰

Resolution Trust relies on Bilby v. Morton, 119 Okla. 15, 247 P. 384, 386-87 (1926) for application of the doctrine of adverse domination. ¹¹ In Bilby, a minority stockholder filed suit against the officers of the Indian Land & Trust Company fifteen years after the officers used corporate funds to purchase land in their own names. Within twenty-two months of learning of the fraud, the stockholder filed suit. Although the stockholder had examined the corporation's books earlier, he did not discover the fraud until litigation ensued between the corporation and a creditor. The officers in Bilby raised the statute of limitations and laches in defense of the action. Relying on 1921 Compiled Statutes § 185 ¹² providing for a two year statute of limitation on actions for fraud accruing on the discovery of the fraudulent act, this Court held that the action was not barred.

The directors insist that Bilby is not authority for the adoption of the adverse domination doctrine. Rather, they argue that the case was decided on the basis of fraud--an issue not raised here. Although we agree that the Court relied upon particular statutory language in reaching its decision in Bilby, we also recognize that much of the reasoning used mirrors that of the policies supporting adoption of the doctrine of adverse domination. The Bilby Court wrote:

"... [The officers] contend that the court erred in holding the action not barred by the statutes of limitation and by laches. In considering this question, it must be observed that the Indian Land & Trust

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Company has never been dissolved. It has been inactive for a long time. It is powerless to act for itself, because it is in the hands of its officers who claim it is insolvent, and yet who failed to wind up its business....

The Indian Land & Trust Company could not discover and reveal the fraud of its officers, because it could only speak through them, and it was at all times in the hands of its defrauding officers ..."

This Court recognized in Bilby that while a corporate body is controlled by wrongdoers, stockholders are at a disadvantage to protect their rights and the rights of the corporation. The stockholder could not reasonably expect that the overreaching officers would institute suit on behalf of the very corporation they were defrauding.

Although the doctrine of adverse domination has not been expressly considered by this Court, it has been widely applied by the federal courts. ¹³ Some of those courts have applied the doctrine as "federal common law" with a greater degree of freedom than that recently allowed them by the United States Supreme Court in O'Melveny & Myers v. Federal Deposit Ins. Corp., 512 U.S. 79, ----, 114 S.Ct. 2048, 2054, 129 L.Ed.2d 67 (1994) holding that federal receivers are placed in the shoes of the insolvent banking institution to work out their claims under state law except to the extend that a federal statute provides otherwise. O'Melveny requires that state law rather than a federal common law doctrine be applied. ¹⁴ However, many of the federal courts have applied the doctrine consistent with O'Melveny 's mandate. ¹⁵ The doctrine is also the law in the majority of the states which have considered the issue. ¹⁶ The directors rely on 12

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O.S.Supp.1994 § 95(3) ¹⁷ which provides that a cause of action for fraud will not accrue until the fraud is discovered for their argument that all other tort causes of action encompassed within the statute accrue when the injury occurs rather than when the injury is realized. The directors insist that the discovery rule is not applicable to the cause presented because there was notice sufficient here to cause the statute of limitations to run. Under the doctrine of adverse domination, the question of when or if a plaintiff discovered or should have discovered the alleged wrongdoing is one of fact. ¹⁸ This issue is not within the question certified, and we are not deciding this factual issue. ¹⁹

Exceptions to statutes of limitation are strictly construed and are not enlarged on consideration of apparent hardship or inconvenience. ²⁰ However, Oklahoma follows the discovery rule allowing limitations in tort cases to be tolled until the injured party knows or, in the exercise of reasonable diligence, should have known of the injury. ²¹ The rule is applied to delay the running of the statute of limitations. It, much like the doctrine of adverse domination, arises from the inability of the injured, despite the exercise of due diligence, to know of the injury or its cause. The purpose of the rule is to exclude the period of time during which the injured party is reasonably unaware than an injury has been sustained so that people in that class have the same rights as those who suffer an immediately ascertainable injury. ²² Relying on similar discovery principles, federal and state courts have recognized the adverse domination doctrine. ²³ The reasoning

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of those cases and the majority position is persuasive. We find that, under Oklahoma law, the doctrine of adverse domination may operate to toll the statute of limitations while directors who are guilty of alleged misconduct exercise control over a corporation. ²⁴

II.

APPLICATION OF THE DOCTRINE OF ADVERSE DOMINATION TO DELAY

ACCRUAL OR TOLL THE STATUTE OF LIMITATIONS IS LIMITED TO

SITUATIONS INVOLVING FRAUDULENT CONDUCT EXERCISED WHILE THE

WRONGED CORPORATION IS CONTROLLED BY A MAJORITY OF CULPABLE

DIRECTORS AND OFFICERS.

The second question certified...