Court Opinion

ID: 858680
Source: CourtListenerOpinion
Date Created: 2013-04-22 20:18:02.804207+00
Date Added: 2024-06-11T12:41:54.178906
License: Public Domain

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                           NOT FOR PUBLICATION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.

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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.

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