Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-11-15626/USCOURTS-ca9-11-15626-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

USACM LIQUIDATING TRUST,

Plaintiff-Appellant,

and

USA CAPITAL DIVERSIFIED DEED

FUND, LLC,

Plaintiff,

v.

DELOITTE & TOUCHE,

Defendant-Appellee.

No. 11-15626

D.C. No.

2:08-cv-00461-

PMP-PAL

ORDER AND

AMENDED

OPINION

Appeal from the United States District Court

for the District of Nevada

Philip M. Pro, Senior District Judge, Presiding

Argued and Submitted

March 15, 2013—San Francisco, California

Filed February 18, 2014

Amended June 6, 2014

Before: J. Clifford Wallace and Sandra S. Ikuta, Circuit

Judges, and Marvin J. Garbis, Senior District Judge.*

* The Honorable Marvin J. Garbis, Senior District Judge for the U.S.

District Court for the District of Maryland, sitting by designation.

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2 USACM LIQUIDATING TRUST V. DELOITTE & TOUCHE

Order;

Opinion by Judge Garbis

SUMMARY**

Bankruptcy

The panel filed (1) an order amending its opinion of

February 18, 2014, and denying a petition for rehearing; and

(2) an amended opinion affirming the district court’s

summary judgment on claims brought by a bankruptcy

litigation trust under Nevada law.

The trust, created by a confirmed chapter 11 plan, sued

the debtor’s former outside auditor, alleging that the auditor

wrongfully issued unqualified audit opinions, concealing the

misappropriations of the debtor’s funds through two allegedly

fraudulent schemes perpetrated by the debtor’s owners and

controllers. The panel held that under Nevada’s “sole actor”

rule, the misconduct of the owners and controllers must be

imputed to the debtor. Accordingly, the district court

properly granted summary judgment to the defendant auditor

on its affirmative defense that the debtor’s claims had expired

under Nevada law prior to the bankruptcy petition date and

thus were ineligible for the two-year extension of applicable

limitations periods under 11 U.S.C. § 108(a).

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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USACM LIQUIDATING TRUST V. DELOITTE & TOUCHE 3

COUNSEL

Allan B. Diamond (argued) and J. Maxwell Beatty (argued),

Diamond McCarthy LLP, Houston, Texas, for PlaintiffAppellant.

Steve Morris and Rosa Solis-Rainey, Morris Peterson, Las

Vegas, Nevada; Miles N. Ruthberg (argued), Robert W.

Perrin and Melanie M. Blunschi, Latham & Watkins LLP,

Los Angeles, California, for Defendant-Appellee.

ORDER

The opinion filed February 18, 2014, and appearing at

2014 WL 612503, is amended. The amended opinion will be

filed concurrently with this order.

The petition for rehearing is DENIED. No further

petitions for rehearing and/or rehearing en banc will be

entertained.

OPINION

GARBIS, Senior District Judge:

On April 13, 2006, USA Commercial MortgageCompany

(“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

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4 USACM LIQUIDATING TRUST V. DELOITTE & TOUCHE

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 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.”2See Glenbrook Capital Ltd. P’ship v. Dodds (In re

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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USACM LIQUIDATING TRUST V. DELOITTE & TOUCHE 5

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 includingCEOand 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 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 fraudulentschemes

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.”

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6 USACM LIQUIDATING TRUST V. DELOITTE & TOUCHE

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-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

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

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USACM LIQUIDATING TRUST V. DELOITTE & TOUCHE 7

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.

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). Nevada has not

adopted the doctrine, and we conclude that Nevada would not

do so. The doctrine tolls the accrual of a cause of action

based on the premise that a corporation does not have

knowledge of a claim until the wrongdoing directors are no

longer in control. Cf. Indep. Trust Corp. v. Stewart Info.

Servs. Corp., 665 F.3d 930, 935 (7th Cir. 2012) (“Because a

plaintiff-corporation can learn that it has been injured only

through the knowledge of its agents, if the agents’ interests

are adverse to the corporation, the agents’ knowledge is not

imputed to the corporation.”). This premise is inconsistent

with Nevada’s sole actor rule, under which the wrongdoing

agents’ knowledge is imputed to the corporation. Because

Hantges’ and Milanowski’s knowledge is imputed to

USACM here, the adverse domination doctrine cannot be

applied to toll the statute of limitations.

the claim would be barred under the lesser two-year period under

§ 11.2075(1)(a).

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8 USACM LIQUIDATING TRUST V. DELOITTE & TOUCHE

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.

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