Resolution Trust Corp. v. Fleischer

Citation826 F. Supp. 1273
Decision Date24 June 1993
Docket NumberNo. 93-2062-JWL.,93-2062-JWL.
PartiesRESOLUTION TRUST CORPORATION, Plaintiff, v. Ernest M. FLEISCHER et al., Defendants.
CourtU.S. District Court — District of Kansas

H. David Barr, Andrea J. Goetze, Gage & Tucker, Overland Park, KS, William L. Turner, R. Kent Sellers, Mike L. Racy, Gage & Tucker, Kansas City, MO, Mira N. Marshall, Resolution Trust Corp., Legal Div.-Prof. Liability Section, Washington, DC, for plaintiff.

James Borthwick, Michael Thompson, Brian C. Fries, Christopher A. Koster, Blackwell, Sanders, Matheny, Weary & Lombardi, Kansas City, MO, Delton M. Gilliland, Coffman, Jones & Gilliland, Lyndon, KS, Charles W. German, Brant M. Laue, Robert M. Thompson, Rouse, Hendricks, German, May & Shank, Kansas City, MO, Richmond M. Enochs, Francis R. Peterson, Wallace, Saunders, Austin, Brown & Enochs, Overland Park, KS, John R. Toland, Toland & Thompson, Iola, KS, Greer S. Lang, Leonard B. Rose, Rose, Brouillette & Shapiro, P.C., Kansas City, KS, Kathleen A. Hardee, Thomas H. Stahl, Kansas City, MO, for defendants.


LUNGSTRUM, District Judge.

I. Introduction

This case involves a suit brought by plaintiff Resolution Trust Corporation ("RTC") alleging multiple causes of action against former directors, officers and dividend recipients of Franklin Savings Association ("FSA"). The matter is currently before the court on the motion of defendants Ernest M. Fleischer, et al. to dismiss or, in the alternative, for summary judgment (Doc. # 51); defendant Ted Greene, Jr.'s motion to dismiss complaint (Doc. # 54); defendant Thomas Weigand's motion to dismiss or, in the alternative, for summary judgment (Doc. # 55); defendant Duane H. Hall's motion to dismiss or, in the alternative, for summary judgment (Doc. # 59); and defendant Ronald L. Pfost's motion to dismiss or, in the alternative, for summary judgment (Doc. # 61).1 For the reasons set forth below, defendants' motions are granted in part and denied in part. The counts against defendant Pfost are dismissed without prejudice. Counts X-XV are dismissed without prejudice as to all defendants. The motions to dismiss are denied as to Counts I-III for all defendants except Pfost, and to Counts IV-IX as to all defendants.

II. Legal Standards

The standards governing consideration of a motion to dismiss for failure to state a claim upon which relief can be granted are clearly established. Motions to dismiss are disfavored: a complaint should not be dismissed for failure to state a claim unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957). In considering a motion to dismiss, the factual allegations of a complaint must be taken as true and all reasonable inferences must be indulged in favor of the plaintiff. Mitchell v. King, 537 F.2d 385, 386 (10th Cir.1976). Pleadings are to be liberally construed. Gas-a-Car, Inc. v. American Petrofina, Inc., 484 F.2d 1102, 1107 (10th Cir.1973). The question is not whether a plaintiff will ultimately prevail, but whether he is entitled to offer evidence in support of his claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974).

As an alternative ground for relief on several of the RTC's claims, defendants seek an order granting summary judgment. A motion for summary judgment gives a judge an initial opportunity to assess the need for a trial without weighing the evidence or determining credibility. Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The requirement of a "genuine" issue of fact means that the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). Essentially, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251-52, 106 S.Ct. at 2512.

The party who files a motion for summary judgment has the initial burden of demonstrating the absence of a genuine issue of material facts concerning its claims. This burden may be met by showing that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2553-54, 91 L.Ed.2d 265 (1986). Once the moving party has properly supported its motion for summary judgment, the burden shifts to the nonmoving party to show that there is a genuine issue of material fact left for trial. Anderson, 477 U.S. at 256, 106 S.Ct. at 2514. The nonmoving party may not simply rest on its pleadings in the case but has the affirmative duty to come forward with facts to establish that a genuine issue exists necessitating a trial in the case. Id. Thus, the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. Id. The court must consider the record in the light most favorable to the party opposing the motion. Bee v. Greaves, 744 F.2d 1387, 1396 (10th Cir.1984), cert. denied, 469 U.S. 1214, 105 S.Ct. 1187, 84 L.Ed.2d 334 (1985). More than a "disfavored procedural shortcut," summary judgment is an important procedure "designed `to secure the just, speedy and inexpensive determination of every action.' Fed.R.Civ.P. 1." Celotex, 477 U.S. at 327, 106 S.Ct. at 2555.

III. Counts I-III, The Credit Enhancement Projects

Counts I-III of the complaint focus on a series of transactions involving tax-exempt revenue bonds known as credit enhancement projects (the "Projects"). The counts are asserted against eleven former directors and/or officers of FSA. The counts allege that the defendants improperly approved the issuance of letters of credit to guarantee governmental revenue bonds. Count I is a claim for breach of fiduciary duty and implied contract. Count II is a negligence claim and Count III is a claim for negligence per se.

Letters of credit for the Projects were issued between November 1984 and June 1986. Defendants assert that the claims in Counts I-III were time-barred by the two-year statute of limitations found in K.S.A. 60-513(a) prior to the time the RTC was appointed conservator on February 16, 1990. Defendants argue that because the claims were time-barred under applicable state law prior to the time the RTC was appointed conservator, the RTC is barred from bringing the claims.2

The RTC concedes that under normal circumstances the claims would be time-barred. However, the RTC argues that the doctrine of adverse domination applies on these facts. The adverse domination doctrine was adopted by this circuit in Farmers & Merchants Nat. Bank v. Bryan, 902 F.2d 1520, 1522-23 (10th Cir.1990). The doctrine operates to toll the running of the statute of limitations when the directors or officers charged with wrongful conduct dominate the board of the financial institution to the extent that there are no directors who have knowledge of the facts giving rise to possible liability who could have or would have induced the institution to sue. Id. at 1523. The doctrine arises due to the control of the institution by the board of directors and their resulting control of information about their own activities. In effect, the control of the institution by culpable officers and directors precludes the possibility of filing suit because these individuals cannot be expected to sue themselves or to initiate any action contrary to their own interests. See F.D.I.C. v. Appling, 992 F.2d 1109 (10th Cir.1993). In this case, the RTC contends that since all the FSA directors bore responsibility for the alleged wrongful actions involving the Projects, none of them would bring an action on behalf of the institution against the other directors involved in the Projects, since they would in effect be suing themselves for their own actions.

In response, defendants do not contend that there was an outside director that knew of the actions and could have induced the institution to bring suit. Rather, they contend that Marvin Steinert, the Kansas Savings and Loan Commissioner, could have appointed a special deputy pursuant to K.S.A. 17-5614 to take control of FSA and file suit on its behalf against the defendants.3

In their initial motion, defendants do not cite any authority that oversight by a regulatory body (even one with the power to bring an action against the directors) operates to abrogate the adverse domination doctrine. The RTC, however, in its response, cites several instances where courts have rejected such an argument. In Resolution Trust Corp. v. Scaletty, 810 F.Supp. 1505 (D.Kan. 1992), Judge Kelly of this court rejected an argument similar to the one defendants make in this case. In Scaletty, a defendant argued that his only fiduciary duty to disclose potential wrongdoing while he was a director "ran to the Kansas Savings and Loan Commissioner and not to other shareholders or depositors." Judge Kelly stated:

Defendant undertakes an extensive discussion of the powers of the state commissioner, through a special deputy, to regulate or enforce the interests of Peoples Savings. It is clear, however, that in determining whether to equitably toll the statute of limitations pursuant to the principle of adverse domination, the focus must be on the defendant's fulfillment of his fiduciary duties, i.e., whether the defendant undertook to protect the interests of the corporation and its shareholders. The failure to act of a regulatory agency, which may have received some limited and incomplete information as to the potential

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