Robert Seiden v. Frazer Frost, LLP ( 2020 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JAN 3 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
ROBERT W. SEIDEN, RECEIVER FOR No. 18-56176
CHINA VALVES TECHNOLOGY, INC.,
D.C. No.
Plaintiff-Appellant, 8:18-cv-0588-CJC (KESx)
v.
MEMORANDUM*
FRAZER FROST, LLP; MOORE
STEPHENS WURTH AND TORBERT,
LLP; FRAZER, LLP; and FROST, PLLC,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
Cormac J. Carney, District Judge, Presiding
Argued and Submitted December 9, 2019
Pasadena, California
Before: N.R. SMITH and WATFORD, Circuit Judges, and KORMAN,** District
Judge.
Robert Seiden, Receiver for China Valves Technology, Inc. (“CVVT”),
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Edward R. Korman, United States District Judge for the
Eastern District of New York, sitting by designation.
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appeals the dismissal of his claims against Frazer Frost, LLP; Moore Stephens
Wurth and Torbert, LLP; Frazer, LLP; and Frost, PLLC (collectively, “Frazer
Frost”). The district court held that Seiden’s claims were time-barred by the
applicable statutes of limitations. On appeal, Seiden renews his argument that,
because CVVT was controlled by wrongdoers until the statutes of limitations ran,
his claims against Frazer Frost—CVVT’s accounting firm—were equitably tolled
until Seiden’s appointment as Receiver for CVVT in September 2016. We have
jurisdiction under 28 U.S.C. § 1291, and we affirm.
1. This case turns on the proper interpretation of the adverse domination
doctrine. As the district court recognized, a corporate plaintiff or its representative
(arguing that the statute of limitations should be tolled under the doctrine of adverse
domination) must show complete control by its corrupt insiders, such that discovery
of their wrongdoing is impossible. Smith v. Superior Court, 266 Cal. Rptr. 253, 255
(Ct. App. 1990); Admiralty Fund v. Peerless Ins. Co., 191 Cal. Rptr. 753, 758–59
(Ct. App. 1983); Burt v. Irvine Co., 47 Cal. Rptr. 392, 417 (Dist. Ct. App. 1965). We
have held that tolling pursuant to adverse domination is unavailable where discovery
of the alleged bad acts is possible, notwithstanding complete control by wrongdoers.
See Cal. Union Ins. Co. v. Am. Diversified Sav. Bank, 948 F.2d 556, 565–66 (9th
Cir. 1991).
Seiden argues that California Union was wrongly decided because it failed to
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follow Whitten v. Dabney, 154 P. 312 (Cal. 1915), which he claims stands for the
proposition that equitable tolling under the doctrine of adverse domination applies
whenever a corporation is controlled by corrupt insiders. This argument fails for two
reasons. First, even if we agreed with Seiden, a three-judge panel of this court is not
at liberty to overrule California Union’s construction of California law. Second, we
disagree that there is any tension between Whitten and California Union’s
interpretation of the adverse domination doctrine. In Whitten, certain shareholders
and directors conspired to defraud the corporation they controlled, and “sedulously
concealed” their self-dealing from innocent shareholders. 154 P. at 315. On these
facts, the California Supreme Court held that director malfeasance tolled the statute
of limitations for an innocent shareholder’s claim, filed promptly after that
shareholder’s discovery of the wrongdoing. Id. at 314–16. That is perfectly
consistent with California Union.
Turning to this case, uncontroverted evidence demonstrates that, well within
the statute of limitations, CVVT’s shareholders discovered or should have
discovered the wrongdoing Seiden alleges. Specifically, in 2011, the same year a
Citron Research report publicized CVVT’s alleged wrongdoing, shareholders sought
redress in a class-action lawsuit against both CVVT and Frazer Frost, as well as a
derivative lawsuit against CVVT. In 2014, the SEC filed a fraud action against
CVVT. As the district court observed, “[t]he SEC had the ability to uncover the facts
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relevant to Plaintiff’s causes of actions and make them public.” Seiden v. Frazer
Frost, LLP, No. 8:18-00588-CJC (KESx), 2018 WL 6137618, at *6 (C.D. Cal. July
31, 2018). Indeed, all of these actions implicated Frazer Frost in the wrongdoing
Seiden now alleges. Accordingly, the district court properly held that adverse
domination did not toll Seiden’s claims. Cf. Mosesian v. Peat, Marwick, Mitchell &
Co., 727 F.2d 873, 876–79 (9th Cir. 1984).
2. The district court also properly held that CVVT shareholders were able to
seek redress for the wrongdoing Seiden alleges here. Seiden argues that
notwithstanding Frazer Frost’s wrongdoing, shareholders had no ability to sue
Frazer Frost prior to his appointment as Receiver because Frazer Frost would have
had an ironclad in pari delicto defense. Seiden is incorrect. Even if Frazer Frost had
a plausible in pari delicto defense against derivative claims brought by CVVT
shareholders, defenses—hypothetical or otherwise—do not toll otherwise applicable
statutes of limitations.
3. The district court correctly determined that Seiden’s failure to plead adverse
domination could not be cured by any amendment.
AFFIRMED.