Usacm Liquidating Trust v. Deloitte & Touche, Llp

FILED
APR 22 2013
NOT FOR PUBLICATION
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
USACM LIQUIDATING TRUST, No. 11-15626
Plaintiff - Appellant, D.C. No. 2:08-cv-00461-PMP-
PAL
and
USA CAPITAL DIVERSIFIED DEED MEMORANDUM*
FUND, LLC,
Plaintiff,
v.
DELOITTE & TOUCHE,
Defendant - Appellee.
Appeal from the United States District Court
for the District of Nevada
Philip M. Pro, District Judge, Presiding
Argued and Submitted March 15, 2013
San Francisco, California
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Before: WALLACE and IKUTA, Circuit Judges, and GARBIS, Senior District
Judge.**
On April 13, 2006, USA Commercial Mortgage Company (“USACM”) filed
for bankruptcy in the United States Bankruptcy Court for the District of Nevada.
USACM’s confirmed Chapter 11 plan created a bankruptcy litigation trust,
USACM Liquidating Trust (the “Trust”), for purposes of pursuing USACM’s
claims for the benefit of holders of allowed unsecured claims in USACM’s
bankruptcy. On April 11, 2008, the Trust sued USACM’s former outside auditor,
Deloitte & Touche LLP, alleging that Deloitte wrongfully issued unqualified audit
opinions for fiscal years 2000 and 2001, concealing the misappropriations of
USACM’s funds through two allegedly fraudulent schemes perpetrated by Thomas
Hantges and Joseph Milanowski (the owners and controllers of USACM). The
charged misappropriations caused USACM to sustain millions of dollars in losses
and required its bankruptcy filing.
The Trust appeals from the district court’s summary judgment in favor of
Deloitte. We have jurisdiction under 28 U.S.C. § 1291, and we affirm.
The district court properly granted summary judgment to Deloitte on the
**
The Honorable Marvin J. Garbis, Senior District Judge for the U.S.
District Court for the District of Maryland, sitting by designation.
2
ground that the misconduct of Hantges and Milanowski must be imputed to
USACM under Nevada’s “sole actor” rule.1 Under Nevada law, the sole actor rule
imputes an agent’s actions to the principal corporation “even if the agent totally
abandons the corporation’s interest” when “the corporation and its agent are
indistinguishable from each other.”2 See Glenbrook Capital Ltd. P'ship v. Dodds
(In re Amerco Derivative Litig.), 252 P.3d 681, 695-96 (Nev. 2011). The record
before the district court demonstrated that, for all relevant purposes, Hantges and
Milanowski utterly controlled and dominated USACM: they were the majority
shareholders, owning collectively at least 83% of the stock at any given time prior
to bankruptcy; held top management positions including CEO and President,
respectively; were the only two directors until 2001 when they appointed a
nominal third director, who admittedly had no active involvement in the company;
and were perceived by other actors within USACM as the relevant decision-makers
1
At the time of the district court’s opinion, the Nevada Supreme Court had
not yet issued its opinion in Glenbrook Capital Ltd. P'ship v. Dodds (In re Amerco
Derivative Litig.), 252 P.3d 681, 695-96 (Nev. 2011), officially adopting the sole
actor rule. However, the district court accurately predicted that the Nevada
Supreme Court would do so.
2
The sole actor rule is a limited exception to the adverse interest exception,
which precludes the general imputation of an agent’s acts to the principal
corporation under agency law when the agent’s actions are “completely and totally
adverse to the corporation.” Glenbrook, 252 P.3d at 695.
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whose actions could not be overridden. As the district court correctly held after its
thorough analysis, the Trust failed to present evidence of any “innocent decision-
makers” within USACM sufficient to permit a reasonable fact finder to find that
Hantges and Milanowski were not USACM’s sole actors for purposes of
imputation. See id. at 696 (explaining “presence of innocent decision-makers” is
relevant to assessing whether agents are a corporation’s sole actors).
Because the district court properly imputed Hantges’ and Milanowski’s
misconduct to USACM, the district court also properly granted summary judgment
to Deloitte on its affirmative defense that USACM’s claims had expired under
Nevada law prior to April 13, 2006, the petition date, and were thus ineligible for
the two-year extension of applicable limitations periods under 11 U.S.C. § 108(a)
that would have rendered its claims (filed on April 11, 2008) timely.3 Since
knowledge of Hantges’ and Milanowski’s fraudulent schemes is imputed to
USACM, the company would have discovered that Deloitte failed to expose those
schemes in its 2000 and 2001 fiscal year audits — in alleged contravention of its
contractual and professional obligations — no later than the date Deloitte
completed those audits on June 28, 2001 and November 26, 2002. Hence, the two-
3
11 U.S.C. § 108(a) extends applicable limitations periods in the bankruptcy
context up to an additional “two years after the order for relief” provided that the
limitations period has “not expired before the date of the filing of the petition.”
4
year limitations period for the Trust’s accounting malpractice and breach of
contract claims expired on June 28, 2003 and November 26, 2004, respectively,
which both preceded the petition date and were therefore untimely. See 11 U.S.C.
§ 108(a); Nev. Rev. Stat. Ann. § 11.2075(1)(a).4
With regard to the aiding and abetting breaches of fiduciary duty claim,
USACM would have discovered Deloitte’s failure to report and/or affirmative
cover-up of Hantges’ and Milanowski’s fraudulent schemes no later than when
Deloitte terminated its services with USACM in January 2003. Thus, the three-
year limitations period provided by Nev. Rev. Stat. Ann. § 11.190(3)(d)5 expired in
January 2006, which again preceded the petition date and therefore could not be
extended under 11 U.S.C. § 108(a) to make USACM’s claim timely.
4
Nev. Rev. Stat. Ann. § 11.2075(1) requires that an action against an
accounting firm “to recover damages for malpractice must be commenced within”
the earlier of (a) two years after the date on which the actionable conduct is
discovered or should have been discovered, (b) four years after “completion of
performance of the service for which the action is brought”, or (c) four years after
the date of the “initial issuance of the report prepared by the accountant . . .
regarding the financial statements or other information.”
5
Nev. Rev. Stat. Ann. § 11.190(3)(d), applied by the district court to the
breaches of fiduciary duty claim, provides limitations for an action grounded on
fraud. Under Nevada law, the “true nature” of a breach of fiduciary claim
determines the applicable limitations period. Stalk v. Mushkin, 199 P.3d 838, 841-
42 (Nev. 2009). As observed by the district court, this claim is more akin to fraud
than an auditor malpractice claim. However, even if the accounting malpractice
limitation rules were applied the claim would be barred under the lesser two-year
period under § 11.2075(1)(a).
5
The district court correctly decided that there should be no concealment-
based tolling of limitations because Deloitte could not have concealed from
USACM that which USACM knew based upon the imputation of Hantges’ and
Milanowski’s knowledge to USACM.
The district court also properly declined to apply the adverse domination
doctrine, which tolls claims alleging wrongdoing by those who control the
corporation under certain circumstances, see Fed. Deposit Ins. Corp. v. Jackson,
133 F.3d 694, 698 (9th Cir. 1998), because Nevada has not adopted the doctrine.
The applicable limitations statutes are comprehensive and provide for tolling based
on specified circumstances not pertinent hereto.
Because the Trust’s claims are barred by the applicable statute of limitations
under Nevada law, we do not reach, and do not address other issues presented by
the parties, including those related to Deloitte’s alternative in pari delicto defense.
AFFIRMED.
6