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Nature of Suit Code: 430
Nature of Suit: Banks and Banking
Cause of Action: 

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PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

FARMERS & MERCHANTS NATIONAL BANK; 

and FEDERAL DEPOSIT INSURANCE 

CORPORATION, as Receiver of 

Farmers & Merchants National 

Bank, Hennessey, Oklahoma, 

) 

) 

) 

) 

) 

) 

Plaintiffs-Appellees, ) 

FILED 

United States Court of Appeals 

Tench Circuit 

MAY 10 1990 

&OBERT L. HOECKER 

Clerk 

v. 

) 

) No. 88-2845 

BRUCE A. BRYAN and ROBERT BRYAN, 

) 

) 

) 

Defendants-Appellants.) 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF OKLAHOMA 

(D.C. No. CIV-85-1627-R) 

David L. Bryant (Gene c. Buzzard and James w. Rusher, of Gable & 

Gotwals, Tulsa, Oklahoma, and A. T. Dill, III, Federal Deposit 

Insurance Corporation, Washington, D.C., of counsel, with him on 

the briefs), of Gable & Gotwals, Tulsa, Oklahoma, for PlaintiffsAppellees. 

William c. McAlister, of Pate & Payne, Oklahoma City, Oklahoma, for 

Defendants-Appellants. 

McKAY and BARRETT, Circuit Judges, and O'CONNOR,* District Judge 

O'CONNOR, District Judge 

*The Honorable Earl E. O'Connor, Chief Judge, United States 

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

Appellate Case: 88-2845 Document: 010110296385 Date Filed: 05/10/1990 Page: 1
Defendants, former officers and directors of the Farmers & 

Merchants National Bank of Hennessey, Oklahoma, ("F&M" or "the 

bank") appeal from a jury verdict finding them liable for violating 

federal lending limits and making imprudent loans. The district 

court denied defendants' motion for directed verdict at the close 

of plaintiffs' evidence, and defendants rested without putting on 

evidence of their own. 

On appeal, defendants contend that the applicable statute of 

limitations barred suit on six (6) of the eleven (11) loans that 

exceeded lending limits and fifty-one (51) of the eighty-eight (88) 

imprudent loans. Plaintiffs admit that defendants made certain 

loans outside the limitations period, but claim that the doctrine 

of "adverse domination" tolled the statute of limitations. In 

denying defendants• motion for directed verdict, the district court 

held that whether the statute of limitations was tolled in this 

case turned upon a disputed question of material fact for 

resolution by the jury. Defendants also complain about certain 

evidentiary rulings of the lower court. We affirm. 

Defendant Bruce Bryan was president of F&M from 1973 to 1984. 

In 1977, he purchased a controlling interest in F&M and became 

chairman of its board of directors. Bruce Bryan sold his interest 

in the bank in 1984. Defendant Robert Bryan is the son of Bruce 

Bryan and became an assistant vice president of F&M in 1978. From 

1979 to 1984 he was on F&M's board of directors, and, in 1983, he 

was promoted to Executive Vice President. The subsequent owners 

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Appellate Case: 88-2845 Document: 010110296385 Date Filed: 05/10/1990 Page: 2
of F&M initiated this suit against the Bryans, .alleging that, from 

1976 to 1984, defendants made certain loans in excess of lending 

limits and imprudently made other loans. After the United States 

Comptroller of the Currency closed the bank on December 5, 1985, 

the district court substituted the Federal Deposit Insurance 

Corporation, as receiver of F&M, as plaintiff. 

In the absence of a specific federal statute of limitations 

to apply to plaintiffs' claims, the trial court correctly borrowed 

the three-year Oklahoma statute, Okla. stat. tit. 12, § 95 (1981), 

to determine whether plaintiffs' claims were barred. See Hughes 

v. Reed, 46 F. 2d 435, 439 ( 10th Cir. 1931) • When plaintiffs' 

causes of action accrued and whether the statute of limitations was 

equitably tolled, however, remained questions of federal law. Cope 

v, Anderson, 331 U.S. 461, 464 (1947); Ohio v. Peterson. Lowry. 

Rall. Barber & Ross, 651 F.2d 687, 691 (10th Cir.), cert. denied, 

454 U.S. 895 (1981). 

In general, a cause of action on an improper loan accrues at 

the time the loan is made. Corsicana Nat'l Bank v. Johnson, 251 

U.S. 68, 86 (1919). However, this court in Hughes recognized that, 

"where the existence of the cause of action was concealed, by 

actual misrepresentation of the wrongdoer, time did not begin to 

run until actual discovery." Hughes, 46 F.2d at 441. Similarly, 

other courts have adopted the theory of "adverse domination" as 

another equitable vehicle under federal common law for tolling the 

statute of limitations. See Mosesian v. Peat. Marwick Mitchell & 

Co., 727 F.2d 873, 879 (9th cir.), cert. denied, 469 U.S. 932 

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Appellate Case: 88-2845 Document: 010110296385 Date Filed: 05/10/1990 Page: 3
(1984); IIT v. Cornfeld, 619 F.2d 909, 931 (2d Cir. 1980); 

International Rys. v. United Fruit Co., 373 F.2d 408, 414 (2d 

Cir.), cert. denied, 387 U.S. 921 (1967). The court in 

International Rys. explained the relevant inquiry under the adverse 

domination theory in this manner: 

[A] plaintiff who seeks to toll the statute on the basis 

of domination of a corporation has the burden of showing 

"a full, complete and exclusive control in the directors 

or officers charged." Payne v. estrus, 50 F.2d 1039, 

1042, 77 A.L.R. 531 (8 Cir. 1931). Such control was 

found, for example, in Adams v. Clarke, 22 F.2d 957 (9 

Cir. 1927) , where all the directors were accused of 

wrongdoing and held a majority of the capital stock, and 

also in our Mitchelsen, case, supra. This principle must 

mean at least that once the facts giving rise to possible 

liability are known, the plaintiff must effectively 

negate the possibility that an informed director could 

have induced the corporation to sue. 

International Rys., 373 F.2d at 414; accord, Mosesian, 727 F.2d at 

879; IIT, 619 F.2d at 931. The application of the adverse 

domination theory to facts such as those in the case at bar 

presents an issue of first impression in this circuit. However, 

we find the court's reasoning in International Rys. persuasive and 

sound, and therefore adopt the theory as part of the federal common 

law of this circuit. 

Defendants urge that they were entitled to a directed verdict 

on plaintiffs' claim that adverse domination tolled the statute of 

limitations. The standard for reviewing the trial court's denial 

of defendants• motion for directed verdict is clear: a directed 

verdict is proper only if the evidence, construed in the light most 

favorable to the nonmoving party, points but one way and is 

susceptible to no reasonable inferences supporting the nonmoving 

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Appellate Case: 88-2845 Document: 010110296385 Date Filed: 05/10/1990 Page: 4
party. Zimmerman v. First Fed. Sav. & Loan Ass'n, 848 F.2d 1047, 

1051 (10th Cir. 1988). The defendants• argument that the existence 

of two outside directors on F&M's board of directors negates, as 

a matter of law, application of the adverse domination theory is 

without merit. Under International Rys. the relevant inquiry is 

inherently fact-specific. The requirement that the directors or 

officers charged be in "full, complete and exclusive control" of 

the corporation must be understood in light of the particular 

situation: "once the facts giving rise to possible liability are 

known, the plaintiff must effectively negate the possibility that 

an informed director could have induced the corporation to sue." 

International Rys., 373 F.2d at 414. Of course, a plaintiff may 

also demonstrate adverse domination by proving that an informed 

director, though capable of suing,- would not do so. In reviewing 

the trial court's denial of defendants• motion for directed verdict 

in this case, the issue is whether there was evidence, when viewed 

in the light most favorable to plaintiffs, upon which a reasonable 

jury could find both (1) that the two outside directors knew or 

should have known the facts giving rise to possible liability and 

(2) that neither director could or would have induced the 

corporation to sue. 

properly overruled. 

If so, the motion for directed verdict was 

Plaintiffs produced ample evidence from which a reasonable 

jury could find that the outside directors knew, or should have 

known, of defendants' illegal and tortious actions. Examiners from 

the Office of the Comptroller of the currency rendered numerous 

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examination reports that were highly critical of the lending 

practices at F&M during the period in which the loans at issue were 

made. Robert Bryan testified that the board of directors, 

including the outside directors, reviewed these reports and 

approved written responses thereto. Because these reports gave the 

entire board of directors at least constructive notice of F&M's 

unsound lending practices, plaintiffs clearly raised a fact issue 

as to the outside directors' knowledge. 

Defendants claim that the trial court erred in admitting the 

above-mentioned examination reports. We do not agree. Our 

standard of review on this point is whether the trial court clearly 

abused its discretion. Hill v. Bache Halsey Stuart Shields. Inc., 

790 F.2d 817, 825 (10th Cir. 1986). Defendants objected to the 

examination reports on the grounds that they were hearsay and that 

their prejudicial effect outweighed any probative value. The 

reports, including the various conclusions critical of defendants' 

actions contained therein, were admissible under Rule 803(8) (C) of 

the Federal Rules of Evidence, the "public records" exception to 

the hearsay rule. See Beech Aircraft Corp. v. Rainey, 488 U.S. 153 

(1988) (holding that investigatory reports containing conclusions 

or opinions are admissible if they are based on a factual 

investigation and satisfy Rule 803 (8) (C) •s trustworthiness 

requirement). Defendants do not contend that the reports were 

otherwise inadmissible under Rule 803(8) (C) and do not contest the. 

trial court's finding that the reports were trustworthy; therefore, 

the hearsay objection must fail. Moreover, any prejudicial effect 

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of admitting these reports and the accompanying testimony of 

plaintiffs' expert was plainly outweighed by their probative value 

on, inter alia, the issue of the outside directors' knowledge. See 

Fed. R. Evid. 403. Accordingly, the trial court did not abuse its 

discretion by receiving the reports into evidence. 

Plaintiffs also produced sufficient evidence to withstand 

defendants' motion for directed verdict on the question of the 

outside directors' ability or willingness to bring suit on behalf 

of the corporation. Specifically, Marjorie Bryan, who was also a 

director of F&M, testified, in substance, that the board of 

directors generally trusted the loan officers to properly evaluate 

the wisdom of any given loan those officers recommended to the 

board for approval. Similarly, Robert Bryan testified that the 

outside directors exercised little, if any, independent supervision 

over the lending activities of the bank. Again, plaintiffs at 

least raised a jury question on the issue of the outside directors• 

ability or willingness to bring an independent action on behalf of 

F&M. 

Defendants also appeal the trial court's admission of evidence 

of their practice of capitalizing interest on loans and the court's 

exclusion of evidence concerning the actions taken by the 

subsequent owners of F&M. Defendants• assertion that these rulings 

were an abuse of discretion are without substance. Evidence of 

capitalization of interest was relevant to show defendant Bruce 

Bryan's possible motive for violating lending limits and making 

imprudent loans, inasmuch as his compensation was partly based on 

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the bank's revenues. By contrast, whatever actions subsequent 

owners of F&M may have taken could have no bearing upon the 

propriety of the loans at issue in this lawsuit. Furthermore, the 

trial court's repeated admonitions to the jury that they were 

concerned only with specific loans and not with why F&M ultimately 

failed were sufficient to avoid the allegedly prejudicial effects 

of which defendants complain. 

Having carefully reviewed the' record on appeal and the 

asserted errors, we conclude that the judgment of the court below 

is and should be AFFIRMED. 

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